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COMMUNITY FIRST BANK
Madisonville, Kentucky
_________________________
PLAN OF CONVERSION
FROM MUTUAL TO STOCK ORGANIZATION
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TABLE OF CONTENTS
Page
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I. General.............................................................................................. 1
II. Definitions.......................................................................................... 2
III. Steps Prior to Submission of the Plan to the Members for Approval.................................... 6
IV. Meeting of Members................................................................................... 7
V. Offering Documents................................................................................... 7
VI. Consummation of Conversion........................................................................... 8
VII. Stock Offering....................................................................................... 8
A. General..................................................................................... 8
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B. Independent Evaluation and Purchase Price of Shares......................................... 8
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C. Subscription Offering....................................................................... 9
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D. Community Offering.......................................................................... 12
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E. Other Offering...............................................................................13
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F. Limitations Upon Purchases of Shares of Conversion Stock.................................... 13
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G. Restrictions on and Other Characteristics of Stock Being Sold............................... 14
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1. Transferability.................................................................... 14
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2. Repurchases and Dividend Rights.................................................... 15
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3. Voting Rights...................................................................... 16
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4. Purchases by Officers, Directors and Associates Following Conversion............... 16
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H. Mailing of Offering Materials and Collation of Subscriptions................................ 16
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I. Method of Payment........................................................................... 17
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J. Undelivered, Defective or Late Order Forms; Insufficient Payment.............................18
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K. Members in Non-Qualified States or in Foreign Countries..................................... 18
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L. Sales Commissions........................................................................... 18
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VIII. Charter and Bylaws................................................................................... 19
IX. Registration and Market Making....................................................................... 19
X. Status of Savings Accounts and Loans Subsequent to Conversion........................................ 19
XI. Liquidation Account.................................................................................. 19
XII. Restrictions on Acquisition of Holding Company....................................................... 20
XIII. Interpretation and Amendment or Termination of the Plan.............................................. 21
XIV. Expenses of the Conversion........................................................................... 22
XV. Contributions to Tax-Qualified Employee Stock Benefit Plans.......................................... 22
COMMUNITY FIRST BANK
Madisonville, Kentucky
PLAN OF CONVERSION
FROM MUTUAL TO STOCK ORGANIZATION
I. General.
On March 13, 2003, the Board of Directors of Community First Bank,
Madisonville, Kentucky (the "Bank"), after careful study and consideration,
adopted this Plan of Conversion from Mutual to Stock Organization (the
"Plan"),whereby the Bank will convert from a federal mutual savings bank to a
federal capital stock savings bank (the "Converted Bank") as a wholly owned
subsidiary of a Holding Company to be formed at the direction of the Bank
(the"Conversion").
The Conversion is subject to regulations of the Director of the Office
of Thrift Supervision of the United States Department of the Treasury ("OTS")
pursuant to Section 5(i) of the Home Owners' Loan Act and Part 563b of the Rules
and Regulations Applicable to All Savings Associations.
The Plan is subject to the prior written approval of the OTS and must
be adopted by the affirmative vote of at least a majority of the total
outstanding votes of the Members of the Bank. Pursuant to the Plan, shares of
Conversion Stock in the Holding Company will be offered in a Subscription
Offering pursuant to non-transferable Subscription Rights at a predetermined and
uniform price first to the Bank's Eligible Account Holders of record as of
December 31, 2001, second to the Bank's Tax-Qualified Employee Stock Benefit
Plans, third to Supplemental Eligible Account Holders of record as of the last
day of the calendar quarter preceding OTS approval of the Bank's application to
convert to stock form and fourth to Other Members of the Bank. Concurrently with
the Subscription Offering, shares not subscribed for in the Subscription
Offering may be offered by the Bank to the general public in a Community
Offering which may include a Syndicated Community Offering. Shares remaining, if
any, may then be offered to the general public in an underwritten public
offering or otherwise. The aggregate Purchase Price of the Conversion Stock will
be based upon an independent appraisal of the Bank and will reflect the
estimated pro forma market value of the Converted Bank, as a subsidiary of the
Holding Company.
It is the desire of the Board of Directors to attract new capital to
the Converted Bank to increase its net worth, to support future savings growth,
to increase the amount of funds available for other lending and investment, to
provide greater resources for the expansion of customer services and to
facilitate future expansion. In addition, the Board of Directors currently
intends to implement stock option plans and other stock benefit plans subsequent
to the Conversion to better attract and retain qualified directors and officers.
It is the further desire of the Board of Directors to reorganize the Converted
Bank as the wholly owned subsidiary of the Holding Company to enhance
flexibility of operations, diversification of business opportunities and
financial capability for business and regulatory purposes and to enable the
Converted Bank to compete more effectively with other financial service
organizations.
No change will be made in the Board of Directors or management of the
Bank as a result of the Conversion.
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II. Definitions.
Acting in Concert: The term "Acting in Concert" means: (i) knowing
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participation in a joint activity or interdependent conscious parallel action
towards a common goal whether or not pursuant to an express agreement; or (ii) a
combination or pooling of voting or other interests in the securities of an
issuer for a common purpose pursuant to any contract, understanding,
relationship, agreement or other arrangement, whether written or otherwise. A
person (as defined by 12 C.F.R. ss.563b.25) who acts in concert with another
person ("other party") shall also be deemed to be acting in concert with any
person who is also acting in concert with that other party, except that any
Tax-Qualified Employee Stock Benefit Plan will not be deemed to be acting in
concert with its trustee or a person who serves in a similar capacity solely for
the purpose of determining whether stock held by the trustee and stock held by
the Tax-Qualified Employee Benefit Plan will be aggregated. The rebuttable
presumptions of concerted action contained in 12 C.F.R. ss.574.4(d) (other than
ss.ss.574.4(d)(1) & (2)) shall apply to the purchase limitations contained
Section VII.F of this Plan.
Associate: The term "Associate," when used to indicate a relationship
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with any person, means: (i) any corporation or organization (other than the
Bank, the Holding Company or a majority-owned subsidiary of the Bank or the
Holding Company) if the person is a senior officer or partner or beneficially
owns, directly or indirectly, 10% or more of any class of equity securities of
the corporation or organization; (ii) any trust or other estate in which the
person has a substantial beneficial interest or for which the person serves as a
trustee or in a similar fiduciary capacity, except that such term shall not
include a "Tax-Qualified Employee Stock Benefit Plan," as defined herein or
a"Non-Tax Qualified Employee Stock Benefit Plan" (as defined herein) in which a
person has a substantial beneficial interest or serves as a trustee in a similar
fiduciary capacity; and (iii) any person related by blood or marriage to the
person, and who lives in the same home as such person or who is a director or
senior officer of the Holding Company, or any of its subsidiaries.
Bank: The term "Bank" means Community First Bank, either in its present
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form as a federal mutual savings bank or in its future form as a federal mutual
savings bank in the event of the amendment of its federal mutual charter and
bylaws to substantially conform with the current regulatory model federal mutual
savings bank charter and bylaws.
Capital Stock: The term "Capital Stock" means any and all authorized
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shares of stock of the Converted Bank.
Community Offering: The term "Community Offering" means the offering of
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shares of Conversion Stock to the general public by the Holding Company
concurrently with or after commencement of the Subscription Offering, giving
preference to natural persons and trusts of natural persons (including
individual retirement and Keogh retirement accounts and personal trusts in which
such natural persons have substantial interests) who are permanent Residents of
the Bank's Local Community. The Community Offering may include a Syndicated
Community Offering.
Conversion: The term "Conversion" means: (i) the amendment of the
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Bank's federal mutual charter and bylaws to authorize issuance of shares of
Capital Stock by the Converted Bank and to conform to the requirements of a
federal capital stock savings bank under the laws of the United States and
applicable regulations; (ii) the issuance and sale of Conversion Stock by the
Holding Company in the
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Subscription and Community Offerings and/or in an underwritten public offering
or otherwise; and (iii) the purchase by the Holding Company of all the Capital
Stock of the Converted Bank to be issued in the Conversion immediately following
or concurrently with the close of the sale of the Conversion Stock.
Conversion Stock: The term "Conversion Stock" means the shares of
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common stock to be issued and sold by the Holding Company pursuant to the Plan.
Converted Bank: The term "Converted Bank" means Community First Bank in
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its form as a federal capital stock savings bank resulting from the conversion
of the Bank to the stock form of organization in accordance with the terms of
the Plan.
Eligibility Record Date: The term "Eligibility Record Date" means the
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close of business on December 31, 2001.
Eligible Account Holder: The term "Eligible Account Holder" means a
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holder of one or more Qualifying Deposits in the Bank on the Eligibility Record
Date but does not include any Person added to the account after the Eligibility
Record Date.
Holding Company: The term "Holding Company" means a corporation to be
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incorporated by the Bank under state law for the purpose of becoming a holding
company for the Converted Bank through the issuance and sale of Conversion Stock
under the Plan and the concurrent acquisition of 100% of the Capital Stock to be
issued and sold pursuant to the Plan.
Holding Company Stock: The term "Holding Company Stock" means any and
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all authorized shares of stock of the Holding Company.
Independent Appraiser: The term "Independent Appraiser" means a person
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independent of the Bank, experienced and expert in the area of corporate
appraisal, and acceptable to the OTS, retained by the Bank to prepare an
appraisal of the pro forma market value of the Converted Bank, as a subsidiary
of the Holding Company. An affiliate of the Independent Appraiser may serve as
an underwriter or selling agent, provided the Independent Appraiser is separate
from the underwriter or selling agent affiliate and the underwriter or selling
agent does not make recommendations or affect the appraisal. The Independent
Appraiser may not receive any fee in connection with the Conversion other than
for appraisal services.
IRS: The term "IRS" means the Internal Revenue Service of the United
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States Department of the Treasury.
Local Community: The term "Local Community" means the county or
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counties in which the Bank's office or offices are located.
Market Maker: The term "Market Maker" means a dealer (i.e., any person
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who engages, either for all or part of such person's time, directly or
indirectly, as agent, broker or principal in the business of offering, buying,
selling or otherwise dealing or trading in securities issued by another person)
who, with respect to a particular security, (i)(a) regularly publishes bona
fide, competitive bid and offer quotations in a recognized inter dealer
quotation system, or (b) furnishes bona fide competitive bid and
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offer quotations on request, and (ii) is ready, willing and able to effect
transactions in reasonable quantities at its quoted prices with other brokers or
dealers.
Member: The term "Member" means any person or entity who qualifies as
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a member of the Bank under its federal mutual charter and bylaws prior to the
Conversion.
Non-Tax Qualified Employee Stock Benefit Plan: The term "Non-Tax
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Qualified Employee Stock Benefit Plan" means any defined benefit plan or defined
contribution plan that does not qualify as a Tax-Qualified Employee Stock
Benefit Plan.
Officer: The term "Officer" means an executive officer of the Holding
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Company or the Bank (as applicable), including the Chairman of the Board,
President, Executive Vice Presidents and Senior Vice Presidents in charge of
principal business functions.
Order Form: The term "Order Form" means the order form or forms to be
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used by Eligible Account Holders, Supplemental Eligible Account Holders and
other persons eligible to purchase Conversion Stock pursuant to the Plan.
Other Member: The term "Other Member" means any person, other than an
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Eligible Account Holder or a Supplemental Eligible Account Holder, who is a
Member as of the Voting Record Date.
OTS: The term "OTS" means the Office of Thrift Supervision of the
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United States Department of the Treasury or any successor agency having
jurisdiction over the Conversion.
Person: The term "Person" means an individual, a corporation, a
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partnership, an association, a joint-stock company, a trust (including
Individual Retirement Accounts and KEOGH Accounts), any unincorporated
organization, a government or political subdivision thereof or any other entity.
Plan: The term "Plan" means this Plan of Conversion under which the
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Bank will convert from a federal mutual savings bank to a federal capital stock
savings bank as a wholly owned subsidiary of the Holding Company, as originally
adopted by the Board of Directors or amended in accordance with the terms
hereof.
Purchase Price: The term "Purchase Price" shall mean the uniform price
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per share for which the Conversion Stock is sold in the Subscription and
Community Offerings as determined in accordance with Paragraph VII.B.
Qualifying Deposit: The term "Qualifying Deposit" means the total
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balance in any account holder's Savings Accounts in the Bank as of the close of
business on the Eligibility Record Date or the Supplemental Eligibility Record
Date, as applicable, provided that such total balance is equal to or greater
than $50.00.
Registration Statement: The term "Registration Statement" means the
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Registration Statement on Form S-1, SB-2 or such other form as may be
appropriate, and any amendments thereto, filed by the Holding Company with the
SEC pursuant to the Securities Act of 1933, as amended, to register shares of
Conversion Stock.
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Resident: The term "Resident," as used in this Plan in relation to the
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preference afforded natural persons and trusts of natural persons in the Local
Community, includes any natural person who occupies a dwelling within the Local
Community, has an intention to remain within the Local Community for a period of
time (manifested by establishing a physical, ongoing, non-transitory presence
within the Local Community) and continues to reside therein at the time of the
Community Offering. The Bank may utilize deposit or loan records or such other
evidence provided to it to make the determination as to whether a person is
residing in the Local Community. To the extent the "person" is a corporation or
other business entity, the principal place of business or headquarters should be
within the Local Community. To the extent the "person" is a personal benefit
plan, the circumstances of the beneficiary shall apply with respect to this
definition. In the case of all other benefit plans, circumstances of the trustee
shall be examined for purposes of this definition. In all cases, such
determination shall be in the sole discretion of the Bank.
Sale: The terms "sale" and "sell" mean every contract to sell or
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otherwise dispose of a security or an interest in a security for value, but such
terms do not include an exchange of securities in connection with a merger or
acquisition approved by the OTS or any other federal agency having jurisdiction.
Savings Account: The term "Savings Account" means a withdrawable
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deposit in the Bank including a demand account.
SEC: The term "SEC" means the Securities and Exchange Commission or any
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successor agency.
Special Meeting: The term "Special Meeting" means the Special Meeting
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of Members to be called for the purpose of submitting the Plan to the Members
for their approval.
Subscription Offering: The term "Subscription Offering" means the
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offering of shares of Conversion Stock to Eligible Account Holders,
Tax-Qualified Employee Stock Benefit Plans, Supplemental Eligible Account
Holders and Other Members under the Plan.
Subscription and Community Prospectus: The term "Subscription and
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Community Prospectus" means the final prospectus to be used in connection with
the Subscription and Community Offerings.
Subscription Rights: The term "Subscription Rights" means
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non-transferable, non-negotiable, personal rights of Eligible Account Holders,
Tax-Qualified Employee Stock Benefit Plans, Supplemental Eligible Account
Holders and Other Members to purchase Conversion Stock offered under the Plan.
Supplemental Eligibility Record Date: The term "Supplemental
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Eligibility Record Date" means the last day of the calendar quarter preceding
the approval of the Plan by the OTS.
Supplemental Eligible Account Holder: The term "Supplemental Eligible
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Account Holder" means a holder of one or more Qualifying Deposits in the Bank
(other than Officers and directors of the Bank and their Associates) on the
Supplemental Eligibility Record Date but does not include any Person added to
the account after the Supplemental Eligibility Record Date.
Syndicated Community Offering: The term "Syndicated Community Offering"
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means the offering of Conversion Stock, following or concurrently with Community
Offering, through a syndicate of broker-dealers managed by one or more
investment banking firms.
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Tax-Qualified Employee Stock Benefit Plan: The term "Tax-Qualified
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Employee Stock Benefit Plan" means any defined benefit plan or defined
contribution plan of the Bank or the Holding Company, such as an employee stock
ownership plan, stock bonus plan, profit sharing plan or other plan, with its
related trust, that is "qualified" under section 401 of the Internal Revenue
Code of 1986, as amended.
Voting Record Date: The term "Voting Record Date" means the date fixed
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by the Board of Directors of the Bank to determine Members of the Bank entitled
to vote at the Special Meeting which shall be not more than 60 days nor less
than 20 days before the Special meeting.
III. Steps Prior to Submission of the Plan to the Members for Approval.
Prior to submission of the Plan to its Members for approval, the Bank
must receive approval from the OTS of an Application for Approval of Conversion
on Form AC, which includes the Plan to convert to the stock form of organization
(the "Application"). The following steps must be taken prior to such regulatory
approval:
A. The Board of Directors shall adopt the Plan by not less
than a two-thirds vote.
B. Promptly after adoption of the Plan by the Board of
Directors, the Bank shall notify its Members of the adoption of the
Plan by publishing a statement in a newspaper having a general
circulation in each community in which the Bank maintains an office
and/or by mailing a letter to each of its Members.
C. A press release relating to the proposed Conversion may be
submitted to the local media.
D. Copies of the Plan adopted by the Board of Directors shall
be made available for inspection by Members at each office of the Bank.
E. The Bank shall cause the Holding Company to be incorporated
under state law, and the Board of Directors of the Holding Company
shall concur in the Plan by at least a two-thirds vote.
F. The Board of Directors shall adopt by at least a two-thirds
vote a business plan reflecting the Bank's intended plans for
deployment of the proposed conversion proceeds. The Bank's Chief
Executive Officer and at least two-thirds of the Board of Directors
shall certify that the business plan accurately reflects the intended
plans for deployment of conversion proceeds, and that any new
initiatives reflected in the business plan are reasonably achievable.
G. The Bank shall submit or cause to be submitted the
Application to the OTS. The Holding Company shall submit or cause to be
submitted an Application H-(e)1 or Application H-(e)1-S to the OTS and
the Registration Statement to the SEC. Upon receipt of advice from the
regulatory authorities that the Application has been received and is in
the prescribed form, the Bank shall publish a "Notice of Filing of an
Application for Conversion to a Stock Savings Bank" in a newspaper of
general circulation, as referred to in Paragraph III.B. herein. The
Bank also shall prominently display a copy of such notice in each of
its offices. The Holding Company shall
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publish notice of the filing of the Application H-(e)1 or H-(e)1-S in
accordance with applicable regulations.
H. The Bank shall obtain an opinion of its tax advisors or a
favorable ruling from the IRS which shall state that the Conversion
will not result in a taxable reorganization for federal income tax
purposes to the Bank. Receipt of a favorable opinion or ruling is a
condition precedent to completion of the Conversion.
I. The Plan shall be submitted to a vote of the Members at the
Special Meeting after approval by the OTS.
IV. Meeting of Members.
Following receipt of approval of the Plan by the OTS, the Special
Meeting to vote on the Plan shall be scheduled in accordance with the Bank's
bylaws and applicable regulations. Notice of the Special Meeting will be given
by means of a proxy statement authorized for use by the OTS. Promptly after
receipt of approval and at least 20 days but not more than 45 days prior to the
Special Meeting, the Bank will distribute proxy solicitation materials to all
voting Members as of the Voting Record Date established for voting at the
Special Meeting. Proxy materials will also be sent to each beneficial holder of
an Individual Retirement Account where the name of the beneficial holder is
disclosed on the Bank's records. The proxy solicitation materials will include a
copy of the Proxy Statement and other documents authorized for use by the
regulatory authorities and may also include a Subscription and Community
Prospectus as provided in Paragraph V. below.
Pursuant to applicable regulations, an affirmative vote of at least a
majority of the total outstanding votes of the Members will be required for
approval of the Plan. Voting may be in person or by proxy. The OTS shall be
promptly notified of the actions of the Members at the Special Meeting.
V. Offering Documents.
The Holding Company may commence the Subscription Offering and,
provided that the Subscription Offering has commenced, may commence the
Community Offering concurrently with or during the proxy solicitation of Members
and may close the Subscription and Community Offerings before the Special
Meeting, provided that the offer and sale of the Conversion Stock shall be
conditioned upon approval of the Plan by the Members at the Special Meeting.
Prior to commencement of the Subscription and Community Offerings, the
Holding Company shall file the Registration Statement with the SEC pursuant to
the Securities Act of 1933, as amended. The Holding Company shall not distribute
the Subscription and Community Prospectus until the Registration Statement
containing the same has been declared effective by the SEC and the
aforementioned documents have been approved by the OTS. The Subscription and
Community Prospectus may be combined with the Proxy Statement for the Special
Meeting.
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VI. Consummation of Conversion.
The date of consummation of the Conversion will be the effective date
of the amendment of the Bank's federal mutual charter to read in the form of a
federal stock charter, which shall be the date of the issuance and sale of the
Conversion Stock. After receipt of all orders for Conversion Stock, and
concurrently with the execution thereof, the amendment of the Bank's federal
mutual charter to authorize the issuance of shares of Capital Stock and to
conform to the requirements of a federal capital stock savings bank will be
declared effective by the OTS, and the amended bylaws approved by the Members
will become effective. At such time, the Conversion Stock will be issued and
sold by the Holding Company, the Capital Stock to be issued in the Conversion
will be issued and sold to the Holding Company, and the Converted Bank will
become a wholly owned subsidiary of the Holding Company. The Converted Bank will
issue to the Holding Company 100,000 shares of its common stock, representing
all of the shares of Capital Stock to be issued by the Converted Bank in the
Conversion, and the Holding Company will make payment to the Converted Bank of
at least 50% of the aggregate net proceeds realized by the Holding Company from
the sale of the Conversion Stock under the Plan, or such other portion of the
aggregate net proceeds as may be authorized or required by the OTS.
VII. Stock Offering.
A. General.
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The aggregate purchase price of all shares of Conversion Stock
which will be offered and sold will be equal to the estimated pro forma
market value of the Converted Bank, as a subsidiary of the Holding
Company, as determined by an independent appraisal. The exact number of
shares of Conversion Stock to be offered will be determined by the
Board of Directors of the Bank and the Board of Directors of the
Holding Company, or their respective designees, in conjunction with the
determination of the Purchase Price (as that term is defined in
Paragraph VII.B. below). The number of shares to be offered may be
subsequently adjusted prior to completion of the Conversion as provided
below.
B. Independent Evaluation and Purchase Price of Shares.
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All shares of Conversion Stock sold in the Conversion will be
sold at a uniform price per share referred to in this Plan as the
"Purchase Price." The Purchase Price and the total number of shares of
Conversion Stock to be offered in the Conversion will be determined by
the Board of Directors of the Bank and the Board of Directors of the
Holding Company, or their respective designees, immediately prior to
the simultaneous completion of all such sales contemplated by this Plan
on the basis of the estimated pro forma market value of the Converted
Bank, as a subsidiary of the Holding Company, at such time. The
estimated pro forma market value of the Converted Bank, as a subsidiary
of the Holding Company, will be determined for such purpose by an
Independent Appraiser on the basis of such appropriate factors as are
not inconsistent with applicable regulations. Immediately prior to the
Subscription and Community Offerings, a subscription price range of
shares for the offerings will be established (the "Valuation Range"),
which will vary from 15% above to 15% below the midpoint of such range.
The number of shares of Conversion Stock ultimately issued and sold
will be determined at the close of the Subscription and Community
Offerings and any other offering. The subscription price range and the
number
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of shares to be offered may be changed subsequent to the Subscription
and Community Offerings as the result of any appraisal updates prior to
the completion of the Conversion, without notifying eligible purchasers
in the Subscription and Community Offerings and without a
resolicitation of subscriptions, provided the aggregate Purchase Price
is not below the low end or more than 15% above the high end of the
Valuation Range previously approved by the OTS or if, in the opinion of
the Boards of Directors of the Bank and the Holding Company, the new
Valuation Range established by the appraisal update does not result in
a materially different capital position of the Converted Bank.
Notwithstanding the foregoing, no sale of Conversion Stock may
be consummated unless, prior to such consummation, the Independent
Appraiser confirms to the Bank and the Holding Company and to the OTS
that, to the best knowledge of the Independent Appraiser, nothing of a
material nature has occurred which, taking into account all relevant
factors, would cause the Independent Appraiser to conclude that the
aggregate value of the Conversion Stock at the Purchase Price is
incompatible with its estimate of the aggregate consolidated pro forma
market value of the Converted Bank, as a subsidiary of the Holding
Company. If such confirmation is not received, the Bank may cancel the
Subscription and Community Offerings and/or any other offering, extend
the Conversion, establish a new Valuation Range, extend, reopen or hold
new Subscription and Community Offerings and/or other offerings or take
such other action as the OTS may permit.
C. Subscription Offering.
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Non-transferable Subscription Rights to purchase shares of
Conversion Stock will be issued at no cost to Eligible Account Holders,
Tax-Qualified Employee Stock Benefits Plans, Supplemental Eligible
Account Holders and Other Members pursuant to priorities established by
applicable regulations. All shares must be sold, and, to the extent
that Conversion Stock is available, no subscriber will be allowed to
purchase fewer than 25 shares of Conversion Stock, provided that this
number shall be decreased if the aggregate purchase price exceeds $500.
The priorities established by applicable regulations for the purchase
of shares are as follows:
1. Category No. 1: Eligible Account Holders.
a. Each Eligible Account Holder shall receive,
without payment, non-transferable Subscription Rights to
purchase Conversion Stock in an amount equal to the greater of
the maximum purchase limitation established for the Community
Offering, one-tenth of 1% of the total offering of shares of
Conversion Stock or 15 times the product (rounded down to the
next whole number) obtained by multiplying the total number of
shares of Conversion Stock to be issued by a fraction of which
the numerator is the total amount of Qualifying Deposits of
the Eligible Account Holder and the denominator is the total
amount of Qualifying Deposits of all Eligible Account Holders
in each case on the Eligibility Record Date.
b. Non-transferable Subscription Rights to purchase
Conversion Stock received by persons who were Officers and
directors of the Bank at least one year prior to the
Eligibility Record Date and their Associates based on their
increased deposits in the
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Bank in the one year period preceding the Eligibility Record
Date shall be subordinated to all other subscriptions
involving the exercise of non-transferable Subscription Rights
to purchase shares pursuant to this Subscription Category
provided that the foregoing subordination shall not apply to
Subscription Rights attributable to deposit increases of Mr.
William Tandy.
c. In the event of an oversubscription for shares of
Conversion Stock pursuant to this Category, shares of
Conversion Stock shall be allocated among subscribing Eligible
Account Holders as follows:
(I) Shares of Conversion Stock shall be
allocated among subscribing Eligible Account Holders
so as to permit each such Eligible Account Holder, to
the extent possible, to purchase a number of shares
of Conversion Stock sufficient to make its total
allocation equal to 100 shares or the total amount of
their subscription, whichever is less.
(II) Any shares of Conversion Stock not so
allocated shall be allocated among the subscribing
Eligible Account Holders on an equitable basis,
related to the amounts of their respective aggregate
Qualifying Deposits on the Eligibility Record Date,
as compared to the total aggregate Qualifying
Deposits of all subscribing Eligible Account Holders
on the Eligibility Record Date.
2. Category No. 2: Tax-Qualified Employee Stock Benefit Plans.
a. Tax-Qualified Employee Stock Benefit Plans of the
Converted Bank shall receive, without payment,
non-transferable Subscription Rights to purchase up to 10% of
the shares of Conversion Stock issued in the Conversion.
b. Subscription rights received in this Category
shall be subordinated to the Subscription Rights received by
Eligible Account Holders pursuant to Category No. 1, provided
that any shares of Conversion Stock sold in excess of the high
end of the Valuation Range may be first sold to Tax-Qualified
Employee Stock Benefit Plans.
3. Category No. 3: Supplemental Eligible Account Holders.
a. In the event that the Eligibility Record Date is
more than 15 months prior to the date of the latest amendment
of the Application filed prior to OTS approval, then each
Supplemental Eligible Account Holder shall receive, without
payment, non-transferable Subscription Rights to purchase
Conversion Stock in an amount equal to the greater of the
maximum purchase limitation established for the Community
Offering, one-tenth of 1% of the total offering of shares of
Conversion Stock or 15 times the product (rounded down to the
next whole number) obtained by multiplying the total number of
the shares of Conversion Stock to be issued by a fraction of
which the numerator is the total amount of the Qualifying
Deposits of the Supplemental Eligible Account Holder and the
denominator is the total amount of the Qualifying Deposits of
all Supplemental Eligible Account Holders, in each case, on
the Supplemental Eligibility Record Date.
10
b. Subscription Rights received pursuant to this
Category shall be subordinated to the Subscription Rights
received by the Eligible Account Holders and by Tax-Qualified
Employee Stock Benefit Plans pursuant to Category Nos. 1 and
2.
c. Any non-transferable Subscription Rights to
purchase shares received by an Eligible Account Holder in
accordance with Category No. 1 shall reduce to the extent
thereof the Subscription Rights to be distributed to such
Eligible Account Holder pursuant to this Category.
d. In the event of an oversubscription for shares of
Conversion Stock pursuant to this Category, shares of
Conversion Stock shall be allocated among the subscribing
Supplemental Eligible Account Holders as follows:
(I) Shares of Conversion Stock shall be
allocated among subscribing Supplemental Eligible
Account Holders so as to permit each such
Supplemental Eligible Account Holder, to the extent
possible, to purchase a number of shares of
Conversion Stock sufficient to make its total
allocation (including the number of shares of
Conversion Stock, if any, allocated to the
Supplemental Eligible Account Holder in accordance
with Category No. 1) equal to 100 shares of
Conversion Stock or the total amount of their
subscription, whichever is less.
(II) Any shares of Conversion Stock not
allocated in accordance with subparagraph (I) above
shall be allocated among the subscribing Supplemental
Eligible Account Holders on an equitable basis,
related to the amounts of their respective aggregate
Qualifying Deposits on the Supplemental Eligibility
Record Date as compared to the total aggregate
Qualifying Deposits of all subscribing Supplemental
Eligible Account Holders on the Supplemental
Eligibility Record Date.
4. Category No. 4: Other Members.
a. Each Other Member, other than those Members who
are Eligible Account Holders or Supplemental Eligible Account
Holders, shall receive, without payment, non-transferable
Subscription Rights to purchase Conversion Stock in an amount
equal to the greater of the maximum purchase limitation
established for the Community Offering, or one-tenth of 1% of
the total offering of shares of Conversion Stock.
b. Subscription Rights received pursuant to this
Category shall be subordinated to the Subscription Rights
received by Eligible Account Holders, Tax-Qualified Employee
Stock Benefit Plans and Supplemental Eligible Account Holders
pursuant to Category Nos. 1, 2 and 3.
c. In the event of an oversubscription for shares of
Conversion Stock pursuant to this Category, the shares of
Conversion Stock available shall be allocated among
subscribing Other Members so as to permit each subscribing
Other Member, to the extent possible, to purchase a number of
shares sufficient to make his or her total
11
allocation of Conversion Stock equal to the lesser of 100
shares or the number of shares subscribed for by the Other
Member. The shares remaining thereafter will be allocated
among subscribing Other Members whose subscriptions remain
unsatisfied on a reasonable basis as determined by the Board
of Directors.
Order Forms may provide that the maximum purchase limitation
shall be based on the midpoint of the Valuation Range. In the event the
aggregate Purchase Price of the Conversion Stock issued and sold is
below the midpoint of the Valuation Range, that portion of
subscriptions in excess of the maximum purchase limitation will be
refunded. In the event the aggregate Purchase Price of Conversion Stock
issued and sold is above the midpoint of the Valuation Range, persons
who have subscribed for the maximum purchase limitation may be given
the opportunity to increase their subscriptions so as to purchase the
maximum number of shares subject to the availability of shares. The
Bank will not otherwise notify subscribers of any change in the number
of shares of Conversion Stock offered.
D. Community Offering.
-------------------
1. Any shares of Conversion Stock not purchased through the
exercise of Subscription Rights in the Subscription Offering may be
sold in a Community Offering and/or Syndicated Community Offering,
which may commence concurrently with the Subscription Offering. Shares
of Conversion Stock will be offered in the Community Offering to the
general public, giving preference to natural persons and the trusts of
natural persons (including individual retirement and Keogh retirement
accounts and personal trusts in which such natural persons have
substantial interests) who are permanent Residents of the Local
Community. Shares of Conversion Stock offered in the Syndicated
Community Offering will be offered to a syndicate of one or more
broker-dealers managed by one or more investment banking firms. The
Community Offering and/or Syndicated Community Offering may commence
concurrently with or as soon as practicable after the completion of the
Subscription Offering and must be completed within 45 calendar days
after the last day of the Subscription Offering, unless extended by the
Holding Company with the approval of the OTS. The offering price of the
Conversion Stock to the general public in the Community Offering and/or
Syndicated Community Offering will be the same price paid for such
stock by Eligible Account Holders and other persons in the Subscription
Offering. If sufficient shares are not available to satisfy all orders
in the Community Offering and/or Syndicated Community Offering, the
shares available will be allocated by the Holding Company in its
discretion. The Holding Company shall have the right to accept or
reject orders in the Community Offering and/or Syndicated Community
Offering in whole or in part.
2. Orders accepted in the Community Offering shall be filled
up to a maximum of 2% of the Conversion Stock, and thereafter remaining
shares shall be allocated on an equal number of shares basis per order
until all orders have been filled.
3. The Conversion Stock to be offered in the Community
Offering and/or Syndicated Community Offering will be offered and sold
in a manner that will achieve the widest distribution of the Conversion
Stock.
12
E. Other Offering.
---------------
In the event a Community Offering or Syndicated Community
Offering does not appear feasible, the Bank will immediately consult
with the OTS to determine the most viable alternative available to
effect the completion of the Conversion. Should no viable alternative
exist, the Bank may terminate the Conversion with the concurrence of
the OTS.
F. Limitations Upon Purchases of Shares of Conversion Stock.
---------------------------------------------------------
The following additional limitations and exceptions shall
apply to all purchases of Conversion Stock:
1. The maximum number of shares of Conversion Stock
that may be purchased in the Community Offering by any Person,
when aggregated with purchases by an Associate of that Person,
or a group of Persons Acting in Concert, shall not exceed
$50,000 divided by the Purchase Price.
2. The maximum number of shares of Conversion Stock
that may be purchased by any Person, when aggregated with
purchases by an Associate of that Person, or a group of
Persons Acting in Concert, shall not exceed the lesser of
$100,000 divided by the Purchase Price or 5% of the total
number of shares of Conversion Stock to be issued in the
Conversion, except that Tax-Qualified Employee Stock Benefit
Plans may purchase up to 10% of the total shares of Conversion
Stock to be issued in the Conversion, and shares to be held by
the Tax-Qualified Employee Stock Benefit Plans and
attributable to a participant thereunder shall not be
aggregated with shares of Conversion Stock purchased by such
participant or any other purchaser of Conversion Stock in the
Conversion.
3. No Person may purchase fewer than 25 shares of
Conversion Stock in the Conversion, to the extent such shares
are available.
4. Officers and directors of the Bank and the Holding
Company, and Associates thereof, may not purchase in the
aggregate more than 35% of the shares of Conversion Stock
issued in the Conversion, or such greater amount as may be
permitted under applicable legal limits.
5. Directors of the Holding Company and the Bank
shall not be deemed to be Associates or a group Acting in
Concert with other directors solely as a result of membership
on the Board of Directors of the Holding Company or the Bank
or any of their subsidiaries.
If the number of shares of Conversion Stock otherwise allocable to any
Person or that Person's Associates in the Subscription and Community Offerings
would be in excess of the maximum number of shares permitted as set forth above,
the number of shares of Conversion Stock allocated to each such Person shall be
reduced to the lowest limitation applicable to that Person, and then the number
of shares allocated to each group consisting of a Person and that Person's
Associates shall be reduced so that the
13
aggregate allocation to that Person and his Associates complies with the above
maximums, and such maximum number of shares shall be reallocated among that
Person and his Associates as they may agree, or in the absence of an agreement,
in proportion to the shares subscribed by each (after first applying the
maximums applicable to each Person, separately).
Subject to any required regulatory approval and the requirements of
applicable laws and regulations, the Holding Company and the Bank may increase
or decrease any of the purchase limitations set forth herein at any time. Under
current regulatory authority, the Boards of Directors of the Holding Company and
the Bank may, in their discretion, increase the maximum purchase limitations in
the Subscription Offering and/or, if applicable, the Community Offering or other
offering up to 9.99%, provided that orders for shares exceeding 5% of the shares
to be issued in the Conversion shall not exceed, in the aggregate, 10% of the
shares to be issued in the Conversion. In the event that the individual purchase
limitation is increased after commencement of the Subscription and Community
Offerings, the Holding Company and the Bank shall permit any person who
subscribed for the maximum number of shares of Conversion Stock to purchase an
additional number of shares, such that such person shall be permitted to
subscribe for the then maximum number of shares permitted to be subscribed for
by such person, subject to the rights and preferences of any person who has
priority Subscription Rights. In the event that either the individual purchase
limitation or the number of shares of Conversion Stock to be sold in the
Conversion is decreased after commencement of the Subscription and Community
Offerings, the orders of any person who subscribed for the maximum number of
shares of Conversion Stock shall be decreased by the minimum amount necessary so
that such person shall be in compliance with the then maximum number of shares
permitted to be subscribed for by such person.
Each person purchasing Conversion Stock in the Conversion shall be
deemed to confirm that such purchase does not conflict with the purchase
limitations under the Plan or otherwise imposed by law, rule or regulation. In
the event that such purchase limitations are violated by any person (including
any Associate or group of persons affiliated or otherwise Acting in Concert with
such person), the Holding Company shall have the right to purchase from such
person at the actual Purchase Price per share all shares acquired by such person
in excess of such purchase limitations or, if such excess shares have been sold
by such person, to receive the difference between the actual Purchase Price per
share paid for such excess shares and the price at which such excess shares were
sold by such person. This right of the Holding Company to purchase such excess
shares shall be assignable by the Holding Company.
G. Restrictions on and Other Characteristics of Stock Being Sold.
-------------------------------------------------------------
1. Transferability.
---------------
Except as provided in Paragraph XII. below,
Conversion Stock purchased by persons other than directors and
Officers of the Bank and directors and Officers of the Holding
Company will be transferable without restriction. Conversion
Stock purchased by such directors or Officers shall not be
sold for a period of one year from the date of Conversion
except for any sale of such shares (i) following the death of
the original purchaser or (ii) resulting from an exchange of
securities in a merger or acquisition approved by the
applicable regulatory authorities.
14
The Conversion Stock issued by the Holding Company to
such directors and Officers shall bear the following legend
giving appropriate notice of the one-year holding period
restriction:
"The shares of stock evidenced by this Certificate
are restricted as to transfer for a period of one
year from the date of this Certificate pursuant to
applicable regulations of the Office of Thrift
Supervision of the United States Department of the
Treasury. Except in the event of the death of the
registered holder, the shares represented by this
Certificate may not be sold prior thereto without a
legal opinion of counsel for the Holding Company that
said sale is permissible under the provisions of
applicable laws and regulations."
In addition, the Holding Company shall give
appropriate instructions to the transfer agent for the Holding
Company Stock with respect to the applicable restrictions
relating to the transfer of restricted stock. Any shares of
Holding Company Stock subsequently issued as a stock dividend,
stock split or otherwise, with respect to any such restricted
stock, shall be subject to the same holding period
restrictions for such directors and Officers as may be then
applicable to such restricted stock.
2. Repurchases and Dividend Rights.
-------------------------------
Pursuant to present regulations, except as otherwise
permitted by the OTS, the Holding Company may not, for a
period of one year from the date of Conversion, repurchase
Holding Company Stock from any person, with the exception of
(i) repurchases pursuant to an offer approved by the OTS and
made to all stockholders, (ii) repurchases of director
qualifying shares, or (iii) provided prior written notice has
been given to the OTS, repurchases of shares to fund
management recognition plans that have been ratified by
shareholders. In extraordinary circumstances, repurchases of
up to 5% of outstanding shares of Holding Company Stock may be
made during the first year following conversion if the Holding
Company files notice and the OTS does not disapprove. In the
event the Holding Company wishes to repurchase Holding Company
Stock during the first year following the Conversion other
than to fund Tax Qualified Stock Benefit Plans or management
recognition plans that have been ratified by stockholders, the
Holding Company shall file written notice with the OTS
Regional Director, with a copy to the OTS Applications Filing
Room, at least 10 days prior to the commencement of the
repurchase program. Such notice shall include the following
information: (1) a description of the proposed repurchase
program; (2) the effect of the repurchases on regulatory
capital; and (3) the purpose of the repurchases and, if
applicable, the extraordinary circumstances necessitating the
repurchases. The Holding Company may make open market
repurchases of outstanding Holding Company Stock, provided
that the OTS does not object based on a determination that (a)
the repurchases would adversely affect the financial condition
of the Converted Bank, (b) the information submitted by the
Converted Bank is insufficient to evaluate the proposed
repurchases, (c) the Converted Bank does not demonstrate
extraordinary circumstances and a compelling and valid
business purpose for the repurchases, or (d) the repurchase
program would be
15
contrary to other applicable regulations. After the first
year, the Holding Company may repurchase shares provided that
regulatory capital will not be reduced below the amount
required for the Liquidation Account and such repurchases
comply with OTS regulations on capital distributions.
Present regulations also provide that the Converted
Bank may not declare or pay a cash dividend on or repurchase
any of its Capital Stock if the result thereof would be to
reduce the regulatory capital of the Converted Bank below the
amount required for the Liquidation Account. Further, any
dividend declared or paid on, or repurchase of, the Capital
Stock shall be in compliance with the Rules and Regulations of
the OTS, or other applicable regulations on capital
distributions. The Converted Bank may not return any capital,
other than ordinary dividends during the term of the business
plan submitted with the application.
The above limitations shall not preclude payment of
dividends on, or repurchases of, Holding Company Stock in the
event applicable federal regulatory limitations are
liberalized subsequent to the Conversion.
3. Voting Rights.
-------------
After Conversion, holders of Savings Accounts and
obligors on loans will not have voting rights in the Converted
Bank. Exclusive voting rights with respect to the Holding
Company shall be vested in the holders of Holding Company
Stock, and the Holding Company will have exclusive voting
rights with respect to the Capital Stock. Each stockholder of
the Holding Company will be entitled to vote on any matters
coming before the stockholders of the Holding Company for
consideration and will be entitled to one vote for each share
of stock owned by said stockholder.
4. Purchases by Officers, Directors and Associates Following
-----------------------------------------------------------
Conversion.
-----------
Without the prior approval of the OTS, Officers and
directors of the Converted Bank and Officers and directors of
the Holding Company, and their Associates, shall be prohibited
for a period of three years following completion of the
Conversion from purchasing outstanding shares of Holding
Company Stock, except from a broker or dealer registered with
the SEC. Notwithstanding this restriction, negotiated
transactions involving more than 1% of the total outstanding
shares of Holding Company Stock and purchases made and shares
held by a Tax-Qualified Employee Stock Benefit Plan or
Non-Tax-Qualified Employee Stock Benefit Plan which may be
attributable to Officers or directors may be made without OTS
permission or the use of a broker or dealer.
H. Mailing of Offering Materials and Collation of Subscriptions.
------------------------------------------------------------
The sale of all shares of Conversion Stock offered pursuant to
the Plan must be completed within 24 months after approval of the Plan
at the Special Meeting. After approval of the Plan by the OTS and the
declaration of the effectiveness of the Subscription and Community
Prospectus
16
by the SEC, the Holding Company shall distribute such Subscription and
Community Prospectus and Order Forms for the purchase of shares in
accordance with the terms of the Plan.
The recipient of an Order Form will be provided neither fewer
than 20 days nor more than 45 days from the date of mailing, unless
extended, to complete, execute and return properly the Order Form to
the Holding Company or the Bank. Self-addressed, postage paid return
envelopes will accompany these forms when mailed. The Bank or Holding
Company will collate the returned executed Order Forms upon completion
of the Subscription Offering. Failure of any eligible subscriber to
return a properly completed and executed Order Form within the
prescribed time limits shall be deemed a waiver and a release by such
person of any rights to purchase shares of Conversion Stock hereunder.
The sale of all shares of Conversion Stock shall be completed
within 45 days after the last day of the Subscription Offering unless
extended by the Holding Company and the Bank with the approval of the
OTS.
I. Method of Payment.
------------------
Payment for all shares of Conversion Stock subscribed for in
the Subscription and Community Offerings must be received in full by
the Bank or the Holding Company, together with properly completed and
executed Order Forms, indicating thereon the number of shares being
subscribed for and such other information as may be required thereon,
on or prior to the expiration date specified on the Order Form, unless
such date is extended by the Holding Company and the Bank; provided,
however, that payments by Tax-Qualified Employee Stock Benefit Plans
for Conversion Stock may be made to the Bank concurrently with the
closing of the Conversion.
Payment for all shares of Conversion Stock may be made in cash
(if delivered in person) or by check or money order, or, if the
subscriber has a Savings Account in the Bank (including a certificate
of deposit), the subscriber may authorize the Bank to charge the
subscriber's Savings Account for the purchase amount. The Bank shall
pay interest at not less than the passbook rate on all amounts paid in
cash or by check or money order to purchase shares of Conversion Stock
in the Subscription and Community Offerings from the date payment is
received until the Conversion is completed or terminated. The Bank
shall not knowingly loan funds or otherwise extend credit to any person
for the purpose of purchasing Conversion Stock.
If a subscriber authorizes the Bank to charge its Savings
Account, the funds will remain in the subscriber's Savings Account and
will continue to earn interest, but may not be used by the subscriber
until all Conversion Stock has been sold or the Conversion is
terminated, whichever is earlier. The withdrawal will be given effect
only concurrently with the sale of all shares of Conversion Stock in
the Conversion and only to the extent necessary to satisfy the
subscription at a price equal to the Purchase Price. The Bank will
allow subscribers to purchase shares of Conversion Stock by withdrawing
funds from certificate accounts without the assessment of early
withdrawal penalties. In the case of early withdrawal of only a portion
of such account, the certificate evidencing such account shall be
cancelled if the remaining balance of the account is less than the
applicable minimum balance requirement. In that event, the remaining
balance will earn
17
interest at the passbook rate. This waiver of the early withdrawal
penalty is applicable only to withdrawals made in connection with the
purchase of Conversion Stock under the Plan.
Tax-Qualified Employee Stock Benefit Plans may subscribe for
shares by submitting an Order From, and in the case of an employee
stock ownership plan, together with evidence of a loan commitment from
the Holding Company or an unrelated financial institution for the
purchase of the shares of Conversion Stock, during the Subscription
Offering and by making payment for the shares of Conversion Stock on
the date of the closing of the Conversion.
J. Undelivered, Defective or Late Order Forms; Insufficient Payment.
----------------------------------------------------------------
In the event an Order Form: (i) is not delivered and is
returned to the Holding Company or the Bank by the United States Postal
Service (or the Holding Company or the Bank is unable to locate the
addressee); (ii) is not received by the Holding Company or the Bank, or
is received by the Holding Company or the Bank after termination of the
date specified thereon; (iii) is defectively completed or executed; or
(iv) is not accompanied by the total required payment for the shares of
Conversion Stock subscribed for (including cases in which the
subscribers' Savings Accounts are insufficient to cover the authorized
withdrawal for the required payment), the Subscription Rights of the
person to whom such rights have been granted will not be honored and
will be treated as though such person failed to return the completed
Order Form within the time period specified therein. Alternatively, the
Holding Company or the Bank may, but will not be required to, waive any
irregularity relating to any Order Form or require the submission of a
corrected Order Form or the remittance of full payment for subscribed
shares of Conversion Stock by such date as the Holding Company or the
Bank may specify. Subscription orders, once tendered, cannot be
revoked. The Holding Company's and the Bank's interpretation of the
terms and conditions of this Plan and acceptability of the Order Forms
will be final and conclusive.
K. Members in Non-Qualified States or in Foreign Countries.
-------------------------------------------------------
The Holding Company will make reasonable efforts to comply
with the securities laws of all states in the United States in which
persons entitled to subscribe for Conversion Stock pursuant to the Plan
reside. However, no such person will be offered or receive any
Conversion Stock under this Plan who resides in a foreign country or
who resides in a state of the United States with respect to which any
of the following apply: (i) a small number of persons otherwise
eligible to subscribe for shares of Conversion Stock under this Plan
reside in such state or foreign country; (ii) the granting of
Subscription Rights or the offer or sale of shares of Conversion Stock
to such person would require the Holding Company or the Bank or their
employees to register, under the securities laws of such state, as a
broker, dealer, salesman or agent or to register or otherwise qualify
its securities for sale in such state or foreign country; and (iii)
such registration qualification would be impracticable for reasons of
cost or otherwise. No payments will be made in lieu of the granting of
Subscription Rights to any such person.
L. Sales Commissions.
-----------------
Sales commissions may be paid as determined by the Boards of
Directors of the Bank and the Holding Company or their designees to
securities dealers assisting subscribers in making
18
purchases of Conversion Stock in the Subscription Offering or in the
Community Offering, if the securities dealer is named by the subscriber
on the Order Form. In addition, a sales commission may be paid to a
securities dealer for advising and consulting with respect to, or for
managing the sale of Conversion Stock in, the Subscription Offering,
the Community Offering or any other offering.
VIII. Charter and Bylaws.
As part of the Conversion, a federal stock charter and bylaws will be
adopted to authorize the Converted Bank to operate as a federal capital stock
savings Bank. By approving the Plan, the Members of the Bank will thereby
approve amending the Bank's existing federal mutual charter and bylaws to read
in the form of a federal stock charter and bylaws. Prior to completion of the
Conversion, the proposed federal stock charter and bylaws may be amended in
accordance with the provisions and limitations for amending the Plan under
Paragraph XIV. below. The effective date of the amendment of the Bank's federal
mutual charter and bylaws to read in the form of a federal stock charter and
bylaws shall be the date of the issuance of the Conversion Stock, which shall be
the date of consummation of the Conversion.
IX. Registration and Market Making.
In connection and concurrently with the Conversion, the Holding Company
shall register the Holding Company Stock with the SEC pursuant to the Securities
Exchange Act of 1934, as amended, and shall undertake not to deregister the
Holding Company Stock for a period of three years thereafter.
The Holding Company shall use its best efforts to encourage and assist
various Market Makers to establish and maintain a market for the Holding Company
Stock. The Holding Company shall also use its best efforts to have the Holding
Company Stock quoted on the National Association of Securities Dealers, Inc.
Automated Quotation System or listed on a national or regional securities
exchange.
X. Status of Savings Accounts and Loans Subsequent to Conversion.
All Savings Accounts in the Bank will retain the same status after
Conversion as these accounts had prior to Conversion. Subject to Paragraph
VII.I. hereof, each holder of a Savings Account in the Bank shall retain,
without payment, a withdrawable Savings Account or Savings Accounts in the
Converted Bank, equal in dollar amount and on the same terms and conditions as
in effect prior to Conversion. All Savings Accounts will continue to be insured
by the Savings Association Insurance Fund of the Federal Deposit Insurance
Corporation up to the applicable limits of insurance coverage. All loans shall
retain the same status after Conversion as these loans had prior to Conversion.
After Conversion, holders of Savings Accounts and obligors on loans of the Bank
will not have voting rights in the Converted Bank. Exclusive voting rights with
respect to the Holding Company shall be vested in the holders of the Conversion
Stock issued by the Holding Company, and the Holding Company will have exclusive
voting rights with respect to the Converted Bank's Capital Stock.
XI. Liquidation Account.
After the Conversion, holders of Savings Accounts will not be entitled
to share in the residual assets after liquidation of the Converted Bank.
However, pursuant to applicable regulations, the Bank
19
shall, at the time of the Conversion, establish a Liquidation Account in an
amount equal to its net worth as of the date of the latest statement of
financial condition contained in the final prospectus to be used in connection
with the Conversion. The function of the Liquidation Account is to establish a
priority on liquidation, and, except as provided in Paragraph VII.G.2. above,
the existence of the Liquidation Account shall not operate to restrict the use
or application of any of the net worth accounts of the Converted Bank.
The Liquidation Account shall be maintained by the Converted Bank
subsequent to Conversion for the benefit of Eligible Account Holders and
Supplemental Eligible Account Holders who retain their Savings Accounts in the
Converted Bank. Each Eligible Account Holder and Supplemental Eligible Account
Holder shall, with respect to each Savings Account held, have a related inchoate
interest in a portion of the Liquidation Account ("subaccount balance").
The initial subaccount balance for a Savings Account held by an
Eligible Account Holder and/or a Supplemental Eligible Account Holder shall be
determined by multiplying the opening balance in the Liquidation Account by a
fraction of which the numerator is the amount of the Qualifying Deposit in the
related Savings Account of the Eligible Account Holder or Supplemental Eligible
Account Holder and the denominator is the total amount of the Qualifying
Deposits of all Eligible Account Holders or Supplemental Eligible Account
Holders, as the case may be, in the Bank. Such initial subaccount balance shall
not be increased but shall be subject to downward adjustment as provided below.
If the deposit balance in any Savings Account of an Eligible Account
Holder or Supplemental Eligible Account Holder to which the subaccount relates
at the close of business on any annual closing date subsequent to the
Eligibility Record Date or Supplemental Eligibility Record Date is less than the
lesser of (i) the deposit balance in such Savings Account at the close of
business on any annual closing date subsequent to the Eligibility Record Date or
the Supplemental Eligibility Record Date, or (ii) the amount of the Qualifying
Deposit in such Savings Account on the Eligibility Record Date or the
Supplemental Eligibility Record Date, then the subaccount balance for such
Savings Account shall be adjusted by reducing such subaccount balance in an
amount proportionate to the reduction in such deposit balance. In the event of a
downward adjustment, the subaccount balance shall not be subsequently increased,
notwithstanding any increase in the deposit balance of the related Savings
Account. If any such Savings Account is closed, the related subaccount balance
shall be reduced to zero.
In the event of a complete liquidation of the Converted Bank (and only
in such event), each Eligible Account Holder and Supplemental Eligible Account
Holder shall be entitled to receive a liquidation distribution from the
Liquidation Account in the amount of the then-current adjusted subaccount
balances for Savings Accounts then held before any liquidation distribution may
be made to stockholders. A liquidation is a sale of the Converted Bank's assets
and settlement of its liabilities with the intent to cease operations and close.
No merger, consolidation, sale of bulk assets or similar combination or
transaction with another depository institution shall be considered to be a
complete liquidation for these purposes. In such transactions, the Liquidation
Account shall be assumed by the surviving institution.
XII. Restrictions on Acquisition of Holding Company.
A. Present regulations provide that for a period of three years
following completion of the Conversion, no person (i.e., an individual, a group
acting in concert, a corporation, a partnership, an Bank, a joint stock company,
a trust or any unincorporated organization or similar company, a syndicate
20
or any other group formed for the purpose of acquiring, holding or disposing of
securities of an insured institution or its holding company) shall directly, or
indirectly, offer to purchase or actually acquire the beneficial ownership of
more than 10% of any class of Holding Company Stock without the prior approval
of the OTS. However, approval is not required for purchases directly from the
Holding Company or underwriters or a selling group acting on its behalf with a
view towards public resale, or for purchases not exceeding 1% per annum of the
shares outstanding, or for the acquisition of securities by one or more
Tax-Qualified Employee Stock Benefit Plans of the Holding Company or the
Converted Bank, provided that the plan or plans do not have beneficial ownership
in the aggregate of more than 25% of any class of Holding Company Stock. Civil
penalties may be imposed by the OTS for willful violation or assistance of any
violation. Where any person, directly or indirectly, acquires beneficial
ownership of more than 10% of any class of Holding Company Stock within such
three-year period, without the prior approval of the OTS, Holding Company Stock
beneficially owned by such person in excess of 10% shall not be counted as
shares entitled to vote and shall not be voted by any person or counted as
voting shares in connection with any matter submitted to the stockholders for a
vote.
B. The Holding Company may provide in its Articles of Incorporation a
provision that, for a period of five years following the date of the completion
of the Conversion, no person shall directly or indirectly offer to acquire or
actually acquire the beneficial ownership of more than 10% of any class of
Holding Company Stock except with respect to purchases by one or more
Tax-Qualified Employee Stock Benefit Plans of the Holding Company or Converted
Bank. The Holding Company may provide in its Articles of Incorporation for such
other provisions affecting the acquisition of Holding Company Stock as shall be
determined by its Board of Directors.
XIII. Interpretation and Amendment or Termination of the Plan.
The Bank's Board of Directors shall have the sole discretion to
interpret and apply the provisions of the Plan to particular facts and
circumstances and to make all determinations necessary or desirable to implement
such provisions, including but not limited to matters with respect to giving
preference to natural persons and trusts of natural persons who are permanent
Residents of the Bank's Local Community, and any and all interpretations,
applications and determinations made by the Board of Directors in good faith and
on the basis of such information and assistance as was then reasonably available
for such purpose shall be conclusive and binding upon the Bank and its members
and subscribers in the Subscription and Community Offerings, subject to the
authority of the OTS.
If deemed necessary or desirable, the Plan may be substantively amended
at any time prior to submission of the Plan and proxy materials to the Members
by a two-thirds vote of the Bank's Board of Directors. After submission of the
Plan and proxy materials to the Members, the Plan may be amended by a two-thirds
vote of the Bank's Board of Directors at any time prior to the Special Meeting
and at any time following such Special Meeting with the concurrence of the OTS.
In its discretion, the Board of Directors may modify or terminate the Plan upon
the order of the regulatory authorities without a resolicitation of proxies or
another Special Meeting.
In the event that mandatory new regulations pertaining to conversions
are adopted by the OTS or any successor agency prior to the completion of the
Conversion, the Plan will be amended to conform to the new mandatory regulations
without a resolicitation of proxies or another Special Meeting. In the event
that new conversion regulations adopted by the OTS or any successor agency prior
to completion of the Conversion contain optional provisions, the Plan may be
amended to utilize such optional provisions at the discretion of the Board of
Directors without a resolicitation of proxies or another Special Meeting.
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By adoption of the Plan, the Bank's Members authorize the Board of
Directors to amend and/or terminate the Plan under the circumstances set forth
above.
XIV. Expenses of the Conversion.
The Holding Company and the Bank will use their best efforts to assure
that expenses incurred in connection with the Conversion shall be reasonable.
XV. Contributions to Tax-Qualified Employee Stock Benefit Plans.
The Holding Company and the Converted Bank may make scheduled
discretionary contributions to their Tax-Qualified Employee Stock Benefit Plans,
provided such contributions do not cause the Converted Bank to fail to meet its
then-applicable regulatory capital requirements.
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