EXHIBIT 2
PLAN OF CONVERSION
WYMAN PARK FEDERAL SAVINGS & LOAN ASSOCIATION
Lutherville, Maryland
PLAN OF CONVERSION
From Mutual to Stock Form of Organization
I. GENERAL
On June 18, 1997, the Board of Directors of Wyman Park Federal Savings
& Loan Association (the "Association") adopted a Plan of Conversion whereby the
Association would convert from a federal mutual savings institution to a federal
stock savings institution pursuant to the Rules and Regulations of the OTS. The
Plan includes, as part of the conversion, the concurrent formation of a holding
company. The new holding company is proposed to be chartered as a Delaware
corporation under the name to be selected. The Plan provides that
non-transferable subscription rights to purchase Holding Company Conversion
Stock will be offered first to Eligible Account Holders of record as of the
Eligibility Record Date, then to the Association's Tax-Qualified Employee Plans,
then to Supplemental Eligible Account Holders of record as of the Supplemental
Eligibility Record Date, then to Other Members, and then to directors, officers
and employees. Concurrently with, at any time during, or promptly after the
Subscription Offering, and on a lowest priority basis, an opportunity to
subscribe may also be offered to the general public in a Direct Community
Offering. The price of the Holding Company Conversion Stock will be based upon
an independent appraisal of the Association and will reflect its estimated pro
forma market value, as converted. It is the desire of the Board of Directors of
the Association to attract new capital to the Association in order to increase
its capital, support future savings growth and increase the amount of funds
available for residential and other mortgage lending. The Converted Association
is also expected to benefit from its management and other personnel having a
stock ownership in its business, since stock ownership is viewed as an effective
performance incentive and a means of attracting, retaining and compensating
management and other personnel. No change will be made in the Board of Directors
or management as a result of the Conversion.
II. DEFINITIONS
Acting in Concert: The term "acting in concert" shall have the same
meaning given it in ss.574.2(c) of the Rules and Regulations of the OTS.
Actual Subscription Price: The price per share, determined as provided
in Section V of the Plan, at which Holding Company Conversion Stock will be sold
in the Subscription Offering.
Affiliate: An "affiliate" of, or a Person "affiliated" with, a
specified Person, is a Person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by or is under common control with,
the Person specified.
Associate: The term "associate," when used to indicate a relationship
with any Person, means (i) any corporation or organization (other than the
Holding Company, the Association or
1
a majority-owned subsidiary of the Holding Company) of which such Person is an
officer or partner or is, directly or indirectly, the beneficial owner of ten
percent or more of any class of equity securities, (ii) any trust or other
estate in which such Person has a substantial beneficial interest or as to which
such Person serves as trustee or in a similar fiduciary capacity, and (iii) any
relative or spouse of such Person, or any relative of such spouse, who has the
same home as such Person or who is a director or officer of the Holding Company
or the Association or any subsidiary of the Holding Company; provided, however,
that any Tax-Qualified or Non-Tax- Qualified Employee Plan shall not be deemed
to be an associate of any director or officer of the Holding Company or the
Association, to the extent provided in Section V hereof.
Association: Wyman Park Federal Savings & Loan Association, or such
other name as the institution may adopt.
Conversion: Change of the Association's charter and bylaws to federal
stock charter and bylaws; sale by the Holding Company of Holding Company
Conversion Stock; and issuance and sale by the Converted Association of
Converted Association Common Stock to the Holding Company, all as provided for
in the Plan.
Converted Association: The federally chartered stock savings
institution resulting from the Conversion of the Association in accordance with
the Plan.
Deposit Account: Any withdrawable or repurchasable account or deposit
in the Association.
Direct Community Offering: The offering to the general public of any
unsubscribed shares which may be effected as provided in Section V hereof.
Eligibility Record Date: The close of business on March 31, 1996.
Eligible Account Holder: Any Person holding a Qualifying Deposit in
the Association on the Eligibility Record Date.
Exchange Act: The Securities Exchange Act of 1934, as amended.
Holding Company: A Delaware corporation, the name of which will be
determined, which upon completion of the Conversion will own all of the
outstanding common stock of the Converted Association.
Holding Company Conversion Stock: Shares of common stock, par value
$.01 per share, to be issued and sold by the Holding Company as a part of the
Conversion; provided, however, that for purposes of calculating Subscription
Rights and maximum purchase limitations under the Plan, references to the number
of shares of Holding Company Conversion Stock shall refer to the number of
shares offered in the Subscription Offering.
2
Market Maker: A dealer (i.e., any Person who engages directly or
indirectly as agent, broker or principal in the business of offering, buying,
selling, or otherwise dealing or trading in securities issued by another Person)
who, with respect to a particular security, (i) regularly publishes bona fide,
competitive bid and offer quotations in a recognized inter-dealer quotation
system; or (ii) furnishes bona fide competitive bid and offer quotations on
request; and (iii) is ready, willing, and able to effect transactions in
reasonable quantities at his quoted prices with other brokers or dealers.
Maximum Subscription Price: The price per share of Holding Company
Conversion Stock to be paid initially by subscribers in the Subscription
Offering.
Member: Any Person or entity that qualifies as a member of the
Association pursuant to its charter and bylaws.
Non-Tax-Qualified Employee Plan: Any defined benefit plan or defined
contribution plan of the Association or the Holding Company, such as an employee
stock ownership plan, stock bonus plan, profit-sharing plan or other plan, which
with its related trust does not meet the requirements to be "qualified" under
Section 401 of the Internal Revenue Code.
OTS: Office of Thrift Supervision, Department of the Treasury.
Officer: An executive officer of the Holding Company or the
Association, including the Chairman of the Board, President, Executive Vice
Presidents, Senior Vice Presidents in charge of principal business functions,
Secretary and Treasurer.
Order Forms: Forms to be used in the Subscription Offering to exercise
Subscription Rights.
Other Members: Members of the Association, other than Eligible Account
Holders, Tax-Qualified Employee Plans or Supplemental Eligible Account Holders,
as of the Voting Record Date.
Person: An individual, a corporation, a partnership, an association, a
joint-stock company, a trust, any unincorporated organization, or a government
or political subdivision thereof.
Plan: This Plan of Conversion of the Association, including any
amendment approved as provided in this Plan.
Qualifying Deposit: The aggregate balance of each Deposit Account of an
Eligible Account Holder as of the Eligibility Record Date or of a Supplemental
Eligible Account Holder as of the Supplemental Eligibility Record Date.
SAIF: Savings Association Insurance Fund.
SEC: Securities and Exchange Commission.
3
Special Meeting: The Special Meeting of Members called for the purpose
of considering and voting upon the Plan of Conversion.
Subscription Offering: The offering of shares of Holding Company
Conversion Stock for subscription and purchase pursuant to Section V of the
Plan.
Subscription Rights: Non-transferable, non-negotiable, personal rights
of the Association's Eligible Account Holders, Tax-Qualified Employee Plans,
Supplemental Eligible Account Holders, Other Members, and directors, Officers
and employees to subscribe for shares of Holding Company Conversion Stock in the
Subscription Offering.
Supplemental Eligibility Record Date: The last day of the calendar
quarter preceding approval of the Plan by the OTS.
Supplemental Eligible Account Holder: Any person holding a Qualifying
Deposit in the Association (other than an officer or director and their
associates) on the Supplemental Eligibility Record Date.
Tax-Qualified Employee Plans: Any defined benefit plan or defined
contribution plan of the Association or the Holding 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 to be "qualified" under Section
401 of the Internal Revenue Code.
Voting Record Date: The date set by the Board of Directors in
accordance with federal regulations for determining Members eligible to vote at
the Special Meeting.
III. STEPS PRIOR TO SUBMISSION OF PLAN OF CONVERSION TO THE MEMBERS FOR
APPROVAL
Prior to submission of the Plan of Conversion to its Members for
approval, the Association must receive from the OTS approval of the Application
for Approval of Conversion to convert to the federal stock form of organization.
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. The Association 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 Association maintains an
office.
C. Copies of the Plan adopted by the Board of Directors shall
be made available for inspection at each office of the Association.
4
D. The Association will promptly cause an Application for
Approval of Conversion on Form AC to be prepared and filed with the
OTS, an Application on Form H-(e)1 (or other applicable form) to be
prepared and filed with the OTS and a Registration Statement on Form
S-1 to be prepared and filed with the SEC.
E. Upon receipt of notice from the OTS to do so, the
Association shall notify its Members that it has filed the Application
for Approval of Conversion by posting notice in each of its offices and
by publishing notice in a newspaper having general circulation in each
community in which the Association maintains an office.
IV. CONVERSION PROCEDURE
Following approval of the application by the OTS, the Plan will be
submitted to a vote of the Members at the Special Meeting. If the Plan is
approved by Members holding a majority of the total number of votes entitled to
be cast at the Special Meeting, the Association will take all other necessary
steps pursuant to applicable laws and regulations to convert to a federal stock
savings institution as part of a concurrent holding company formation pursuant
to the terms of the Plan.
The Holding Company Conversion Stock will be offered for sale in the
Subscription Offering at the Maximum Subscription Price to Eligible Account
Holders, Tax-Qualified Employee Plans, Supplemental Eligible Account Holders,
Other Members and directors, Officers and employees of the Association, prior to
or within 45 days after the date of the Special Meeting. The Association may,
either concurrently with, at any time during, or promptly after the Subscription
Offering, also offer the Holding Company Conversion Stock to and accept
subscriptions from other Persons in a Direct Community Offering; provided that
the Association's Eligible Account Holders, Tax-Qualified Employee Plans,
Supplemental Eligible Account Holders, Other Members and directors, Officers and
employees shall have the priority rights to subscribe for Holding Company
Conversion Stock set forth in Section V of this Plan. However, the Holding
Company and the Association may delay commencing the Subscription Offering
beyond such 45 day period in the event there exist unforeseen material adverse
market or financial conditions. If the Subscription Offering commences prior to
the Special Meeting, subscriptions will be accepted subject to the approval of
the Plan at the Special Meeting.
The period for the Subscription Offering and Direct Community Offering
will be not less than 20 days nor more than 45 days unless extended by the
Association. In connection with such extensions, subscribers and other
purchasers will be permitted to increase, decrease or rescind their
subscriptions or purchase orders to the extent required by the OTS in approving
the extensions. Completion of the sale of all shares of Holding Company
Conversion Stock is required within 24 months after the date of the Special
Meeting.
5
V. STOCK OFFERING
A. Total Number of Shares and Purchase Price of Holding Company
Conversion Stock
The total number of shares of Holding Company Conversion Stock to be
issued and sold in the Conversion will be determined jointly by the Boards of
Directors of the Holding Company and the Association prior to the commencement
of the Subscription Offering, subject to adjustment if necessitated by market or
financial conditions prior to consummation of the Conversion. The total number
of shares of Holding Company Conversion Stock shall also be subject to increase
in connection with any oversubscriptions in the Subscription Offering or Direct
Community Offering.
The aggregate price for which all shares of Holding Company Conversion
Stock will be sold will be based on an independent appraisal of the estimated
total pro forma market value of the Holding Company and the Converted
Association. Such appraisal shall be performed in accordance with OTS guidelines
and will be updated as appropriate under or required by applicable regulations.
The appraisal will be made by an independent investment banking or
financial consulting firm experienced in the area of thrift institution
appraisals. The appraisal will include, among other things, an analysis of the
historical and pro forma operating results and net worth of the Converted
Association and a comparison of the Holding Company, the Converted Association
and the Holding Company Conversion Stock with comparable thrift institutions and
holding companies and their respective outstanding capital stocks.
Based upon the independent appraisal, the Boards of Directors of the
Holding Company and the Association will jointly fix the Maximum Subscription
Price.
The Actual Subscription Price for each share of Holding Company
Conversion Stock will be determined by dividing the estimated appraised
aggregate pro forma market value of the Holding Company and the Converted
Association, based on the independent appraisal as updated upon completion of
the Subscription Offering or other sale of all of the Holding Company Conversion
Stock, by the total number of shares of Holding Company Conversion Stock to be
issued and sold by the Holding Company upon Conversion. Such appraisal will then
be expressed in terms of a specific aggregate dollar amount rather than as a
range.
B. Subscription Rights
Non-transferable Subscription Rights to purchase shares will be issued
without payment therefor to Eligible Account Holders, Tax-Qualified Employee
Plans, Supplemental Eligible Account Holders, Other Members and directors,
Officers and employees of the Association as set forth below.
6
1. Preference Category No. 1: Eligible Account Holders
Each Eligible Account Holder shall receive non-transferable
Subscription Rights to subscribe for shares of Holding Company
Conversion Stock in an amount equal to the greater of $100,000,
one-tenth of one percent (.10%) of the total offering of shares, or 15
times the product (rounded down to the next whole number) obtained by
multiplying the total number of shares of common stock to be issued by
a fraction of which the numerator is the amount of the qualifying
deposit of the Eligible Account Holder and the denominator is the total
amount of qualifying deposits of all Eligible Account Holders in the
converting Association in each case on the Eligibility Record Date. If
sufficient shares are not available, shares shall be allocated first to
permit each subscribing Eligible Account Holder to purchase to the
extent possible 100 shares, and thereafter among each subscribing
Eligible Account Holder pro rata in the same proportion that his
Qualifying Deposit bears to the total Qualifying Deposits of all
subscribing Eligible Account Holders whose subscriptions remain
unsatisfied.
Non-transferable Subscription Rights to purchase Holding
Company Conversion Stock received by directors and Officers of the
Association and their Associates, based on their increased deposits in
the Association 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 of Eligible Account
Holders.
2. Preference Category No. 2: Tax-Qualified Employee Plans
Each Tax-Qualified Employee Plan shall be entitled to receive
non-transferable Subscription Rights to purchase up to 10% of the
shares of Holding Company Conversion Stock, provided that singly or in
the aggregate such plans (other than that portion of such plans which
is self-directed) shall not purchase more than 10% of the shares of the
Holding Company Conversion Stock. Subscription Rights received pursuant
to this Category shall be subordinated to all rights received by
Eligible Account Holders to purchase shares pursuant to Category No. 1;
provided, however, that notwithstanding any other provision of this
Plan to the contrary, the Tax-Qualified Employee Plans shall have a
first priority Subscription Right to the extent that the total number
of shares of Holding Company Conversion Stock sold in the Conversion
exceeds the maximum of the appraisal range as set forth in the
subscription prospectus.
3. Preference Category No. 3: Supplemental Eligible Account
Holders
Each Supplemental Eligible Account Holder shall receive
non-transferable Subscription Rights to subscribe for shares of Holding
Company Conversion Stock in an amount equal to the greater of $100,000,
one-tenth of one percent (.10%) of the total offering of shares, or 15
times the product (rounded down to the next whole number) obtained by
multiplying the total number of shares of common stock to be issued by
a fraction of which the numerator is the amount of the qualifying
deposit of the Supplemental Eligible Account Holder and the denominator
is the total amount of qualifying deposits of
7
all Supplemental Eligible Account Holders in the converting Association
in each case on the Supplemental Eligibility Record Date.
Subscription Rights received pursuant to this category shall
be subordinated to all Subscription Rights received by Eligible Account
Holders and Tax-Qualified Employee Plans pursuant to Category Nos. 1
and 2 above.
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 person pursuant to this Category.
In the event of an oversubscription for shares under the
provisions of this subparagraph, the shares available shall be
allocated first to permit each subscribing Supplemental Eligible
Account Holder to the extent possible, to purchase a number of shares
sufficient to make his total allocation (including the number of
shares, if any, allocated in accordance with Category No. 1) equal to
100 shares, and thereafter among each subscribing Supplemental Eligible
Account Holder pro rata in the same proportion that his Qualifying
Deposit bears to the total Qualifying Deposits of all subscribing
Supplemental Eligible Account Holders whose subscriptions remain
unsatisfied.
4. Preference Category No. 4: Other Members
Each Other Member shall receive non-transferable Subscription
Rights to subscribe for shares of Holding Company Conversion Stock
remaining after satisfying the subscriptions provided for under
Category Nos. 1 through 3 above, subject to the following conditions:
a. Each Other Member shall be entitled to subscribe
for an amount of shares equal to the greater of $100,000 or
one-tenth of one percent (.10%) of the total offering of
shares of common stock in the Conversion, to the extent that
Holding Company Conversion Stock is available.
b. In the event of an oversubscription for shares
under the provisions of this subparagraph, the shares
available shall be allocated among the subscribing Other
Members pro rata in the same proportion that his number of
votes on the Voting Record Date bears to the total number of
votes on the Voting Record Date of all subscribing Other
Members on such date. Such number of votes shall be determined
based on the Association's mutual charter and bylaws in effect
on the date of approval by members of this Plan of Conversion.
5. Preference Category No. 5: Directors, Officers and
Employees
Each director, Officer and employee of the Association as of
the date of the commencement of the Subscription Offering shall be
entitled to receive non-transferable Subscription Rights to purchase
shares of the Holding Company Conversion Stock to the
8
extent that shares are available after satisfying subscriptions under
Category Nos. 1 through 4 above. The shares which may be purchased
under this Category are subject to the following conditions:
a. The total number of shares which may be purchased
under this Category may not exceed 24% of the number of shares
of Holding Company Conversion Stock.
b. The maximum amount of shares which may be
purchased under this Category by any Person is $100,000 of
Holding Company Conversion Stock. In the event of an
oversubscription for shares under the provisions of this
subparagraph, the shares available shall be allocated pro rata
among all subscribers in this Category.
C. Direct Community Offering
Any shares of Holding Company Conversion Stock not subscribed
for in the Subscription Offering may be offered for sale in a Direct
Community Offering. This will involve an offering of all unsubscribed
shares directly to the general public with a preference to those
natural persons residing in any county in which the Association has an
office. The Direct Community Offering, if any, shall be for a period of
not less than 20 days nor more than 45 days unless extended by the
Holding Company and the Association, and shall commence concurrently
with, during or promptly after the Subscription Offering. The purchase
price per share to the general public in a Direct Community Offering
shall be the same as the Actual Subscription Price. The Holding Company
Conversion Stock will be offered and sold in the Direct Community
Offering, in accordance with OTS regulations, so as to achieve the
widest distribution of the Holding Company Conversion Stock. In the
event that the number of shares subscribed for under this Section V.C.
exceeds the number of available shares, will be allocated (to the
extent shares remain available) first to cover orders of natural
persons residing in any county in which the Association has an office,
then to cover the orders of any other person subscribing for shares in
the Community Offering so that each such person may receive 1,000
shares, and thereafter, on a pro rata basis to such persons based on
the amount of their respective subscriptions.
Securities dealers may also be used to sell unsubscribed
shares. Commissions, fees and expenses of securities dealers in selling
unsubscribed shares shall be paid by the Association. The Association
may pay a reasonable consulting fee to investment banking firms that
provided assistance and advice in connection with the Direct Community
Offering.
The Association and the Holding Company, in their sole
discretion, may reject subscriptions, in whole or in part, received
from any Person under this Section V.C.
9
If purchasers cannot be found for an insignificant residue of
unsubscribed shares from the general public, other purchase
arrangements will be made by the Board of Directors of the Association,
if possible. Such other purchase arrangements will be subject to the
approval of the OTS and may provide for purchases by directors,
officers, their Associates and other persons in excess of the
limitations provided in this Section V. If such other purchase
arrangements cannot be made, the Plan will terminate.
D. Additional Limitations Upon Purchases of Shares of Holding Company
Conversion Stock
The following additional limitations shall be imposed on all purchases
of Holding Company Conversion Stock in the Conversion:
1. No Person, by himself or herself, or with an Associate or
group of Persons acting in concert, may subscribe for or purchase in
the Conversion an amount of shares of Holding Company Conversion Stock
which exceeds $100,000 of Holding Company Conversion Stock offered in
the Conversion based on the appraisal range contained in the
Association's subscription prospectus (exclusive of any additional
shares that may be offered pursuant to an increase in such appraisal
range not requiring a resolicitation of subscribers). For purposes of
this paragraph, an Associate of a Person does not include a
Tax-Qualified or Non-Tax-Qualified Employee Plan in which the person
has a substantial beneficial interest or serves as a trustee or in a
similar fiduciary capacity. Moreover, for purposes of this paragraph,
shares held by one or more Tax-Qualified or Non-Tax- Qualified Employee
Plans attributed to a Person shall not be aggregated with shares
purchased directly by or otherwise attributable to that Person.
2. Directors and Officers and their Associates may not
purchase in all categories in the Conversion an aggregate of more than
34% of the Holding Company Conversion Stock. For purposes of this
paragraph, an Associate of a Person does not include any Tax- Qualified
Employee Plan. Moreover, any shares attributable to the Officers and
directors and their Associates, but held by one or more Tax-Qualified
Employee Plans shall not be included in calculating the number of
shares which may be purchased under the limitation in this paragraph.
3. The minimum number of shares of Holding Company Conversion
Stock that may be purchased by any Person in the Conversion is 25
shares, provided sufficient shares are available.
4. The Boards of Directors of the Holding Company and the
Association may, in their sole discretion, increase the maximum
purchase limitation referred to in subparagraph 1. herein up to 9.99%,
provided that orders for shares exceeding 5% of the shares being
offered in the Subscription Offering shall not exceed, in the
aggregate, 10% of the shares being offered in the Subscription
Offering. Requests to purchase additional shares of Holding Company
Conversion Stock under this provision will be allocated by the Boards
10
of Directors on a pro rata basis giving priority in accordance with the
priority rights set forth in this Section V.
Depending upon market and financial conditions, the Boards of Directors
of the Holding Company and the Association, with the approval of the OTS and
without further approval of the Members, may increase or decrease any of the
above purchase limitations.
For purposes of this Section V, the directors of the Holding Company
and the Association shall not be deemed to be Associates or a group acting in
concert solely as a result of their serving in such capacities.
Each Person purchasing Holding Company Conversion Stock in the
Conversion shall be deemed to confirm that such purchase does not conflict with
the above purchase limitations.
E. Restrictions and Other Characteristics of Holding Company Conversion
Stock Being Sold
1. Transferability. Holding Company Conversion Stock purchased
by Persons other than directors and Officers of the Holding Company or
the Association will be transferable without restriction. Shares
purchased by directors or Officers shall not be sold or otherwise
disposed of for value for a period of one year from the date of
Conversion, except for any disposition 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. Any transfers that could result in a change of
control of the Association or the Holding Company or result in the
ownership by any Person or group acting in concert of more than 10% of
any class of the Association's or the Holding Company's equity
securities are subject to the prior approval of the OTS.
The certificates representing shares of Holding Company
Conversion Stock issued to directors and Officers shall bear a legend
giving appropriate notice of the one year holding period restriction.
Appropriate instructions shall be given to the transfer agent for such
stock with respect to the applicable restrictions relating to the
transfer of restricted stock. Any shares of common stock of the Holding
Company 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 Holding Company or
Association directors and Officers as may be then applicable to such
restricted stock.
No director or Officer of the Holding Company or of the
Association, or Associate of such a director or Officer, shall purchase
any outstanding shares of capital stock of the Holding Company for a
period of three years following the Conversion without the prior
written approval of the OTS, except through a broker or dealer
registered with the SEC or in a "negotiated transaction" involving more
than one percent of the then-outstanding shares of common stock of the
Holding Company. As used herein, the term "negotiated transaction"
means a transaction in which the securities are offered and the terms
and arrangements relating to any sale are arrived at through direct
communications between
11
the seller or any Person acting on its behalf and the purchaser or his
investment representative. The term "investment representative" shall
mean a professional investment advisor acting as agent for the
purchaser and independent of the seller and not acting on behalf of the
seller in connection with the transaction.
2. Repurchase and Dividend Rights. For a period of three years
following Conversion, the Converted Association shall not repurchase
any shares of its capital stock, except in the case of an offer to
repurchase on a pro rata basis made to all holders of capital stock of
the Converted Association. Any such offer shall be subject to the prior
approval of the OTS. A repurchase of qualifying shares of a director
shall not be deemed to be a repurchase for purposes of this Section
V.E.2.
Present regulations also provide that the Converted
Association may not declare or pay a cash dividend on or repurchase any
of its stock (i) if the result thereof would be to reduce the
regulatory capital of the Converted Association below the amount
required for the liquidation account to be established pursuant to
Section XIII hereof, and (ii) except in compliance with requirements of
Section 563.134 of the Rules and Regulations of the OTS.
The above limitations are subject to Section 563b.3(g)(3) of
the Rules and Regulations of the OTS, which generally provides that the
Converted Association may repurchase its capital stock provided (i) no
repurchases occur within one year following conversion, (ii)
repurchases during the second and third year after conversion are part
of an open market stock repurchase program that does not allow for a
repurchase of more than 5% of the Association's outstanding capital
stock during a twelve-month period without OTS approval, (iii) the
repurchases do not cause the Association to become undercapitalized,
and (iv) the Association provides notice to the OTS at least 10 days
prior to the commencement of a repurchase program and the OTS does not
object. In addition, the above limitations shall not preclude payments
of dividends or repurchases of capital stock by the Converted
Association in the event applicable federal regulatory limitations are
liberalized subsequent to OTS approval of the Plan.
3. Voting Rights. After Conversion, holders of deposit
accounts will not have voting rights in the Converted Association or
the Holding Company. Exclusive voting rights as to the Converted
Association will be vested in the Holding Company, as the sole
stockholder of the Converted Association. Voting rights as to the
Holding Company will be held exclusively by its stockholders.
F. Exercise of Subscription Rights; Order Forms
1. If the Subscription Offering occurs concurrently with the
solicitation of proxies for the Special Meeting, the subscription
prospectus and Order Form may be sent to each Eligible Account Holder,
Tax-Qualified Employee Plan, Supplemental Eligible Account Holder,
Other Member, and director, Officer and employee at their last known
address as shown on the records of the Association. However, the
Association may, and if the Subscription Offering commences after the
Special Meeting the Association shall, furnish
12
a subscription prospectus and Order Form only to Eligible Account
Holders, Tax-Qualified Employee Plans, Supplemental Eligible Account
Holders, Other Members, and directors, Officers and employees who have
returned to the Association by a specified date prior to the
commencement of the Subscription Offering a post card or other written
communication requesting a subscription prospectus and Order Form. In
such event, the Association shall provide a postage-paid post card for
this purpose and make appropriate disclosure in its proxy statement for
the solicitation of proxies to be voted at the Special Meeting and/or
letter sent in lieu of the proxy statement to those Eligible Account
Holders, Tax-Qualified Employee Plans or Supplemental Eligible Account
Holders who are not Members on the Voting Record Date.
2. Each Order Form will be preceded or accompanied by a
subscription prospectus describing the Holding Company and the
Converted Association and the shares of Holding Company Conversion
Stock being offered for subscription and containing all other
information required by the OTS or the SEC or necessary to enable
Persons to make informed investment decisions regarding the purchase of
Holding Company Conversion Stock.
3. The Order Forms (or accompanying instructions) used for the
Subscription Offering will contain, among other things, the following:
(i) A clear and intelligible explanation of the
Subscription Rights granted under the Plan to Eligible Account
Holders, Tax-Qualified Employee Plans, Supplemental Eligible
Account Holders, Other Members, and directors, Officers and
employees;
(ii) A specified expiration date by which Order
Forms must be returned to and actually received by the
Association or its representative for purposes of exercising
Subscription Rights, which date will be not less than 20 days
after the Order Forms are mailed by the Association;
(iii) The Maximum Subscription Price to be paid for
each share subscribed for when the Order Form is returned;
(iv) A statement that 25 shares is the minimum
number of shares of Holding Company Conversion Stock that may
be subscribed for under the Plan;
(v) A specifically designated blank space for
indicating the number of shares being subscribed for;
(vi) A set of detailed instructions as to how to
complete the Order Form including a statement as to the
available alternative methods of payment for the shares being
subscribed for;
13
(vii) Specifically designated blank spaces for dating
and signing the Order Form;
(viii) An acknowledgement that the subscriber has
received the subscription prospectus;
(ix) A statement of the consequences of failing to
properly complete and return the Order Form, including a
statement that the Subscription Rights will expire on the
expiration date specified on the Order Form unless such
expiration date is extended by the Holding Company and the
Association, and that the Subscription Rights may be exercised
only by delivering the Order Form, properly completed and
executed, to the Association or its representative by the
expiration date, together with required payment of the Maximum
Subscription Price for all shares of Holding Company
Conversion Stock subscribed for;
(x) A statement that the Subscription Rights are
non-transferable and that all shares of Holding Company
Conversion Stock subscribed for upon exercise of Subscription
Rights must be purchased on behalf of the Person exercising
the Subscription Rights for his own account; and
(xi) A statement that, after receipt by the
Association or its representative, a subscription may not be
modified, withdrawn or canceled without the consent of the
Association.
G. Method of Payment
Payment for all shares of Holding Company Conversion Stock subscribed
for, computed on the basis of the Maximum Subscription Price, must accompany all
completed Order Forms. Payment may be made in cash (if presented in Person), by
check or money order, or, if the subscriber has a Deposit Account in the
Association (including a certificate of deposit), the subscriber may authorize
the Association to charge the subscriber's account.
If a subscriber authorizes the Association to charge his or her
account, the funds will continue to earn interest, but may not be used by the
subscriber until all Holding Company Conversion Stock has been sold or the Plan
of Conversion is terminated, whichever is earlier. The Association will allow
subscribers to purchase shares by withdrawing funds from certificate accounts
without the assessment of early withdrawal penalties with the exception of
prepaid interest in the form of promotional gifts. In the case of early
withdrawal of only a portion of such account, the certificate evidencing such
account shall be canceled if the remaining balance of the account is less than
the applicable minimum balance requirement, in which event the remaining balance
will earn interest at the passbook rate. This waiver of the early withdrawal
penalty is applicable only to withdrawals made in connection with the purchase
of Holding Company Conversion Stock under the Plan of Conversion. Interest will
also be paid, at not less than the then-current passbook rate, on all orders
paid in cash, by check or money order, from the date payment is received until
consummation of the Conversion. Payments made in cash, by check or
14
money order will be placed by the Association in an escrow or other account
established specifically for this purpose.
In the event of an unfilled amount of any subscription order, the
Converted Association will make an appropriate refund or cancel an appropriate
portion of the related withdrawal authorization, after consummation of the
Conversion, including any difference between the Maximum Subscription Price and
the Actual Subscription Price (unless subscribers are afforded the right to
apply such difference to the purchase of additional whole shares). If for any
reason the Conversion is not consummated, purchasers will have refunded to them
all payments made and all withdrawal authorizations will be canceled in the case
of subscription payments authorized from accounts at the Association.
If any Tax-Qualified Employee Plans or Non-Tax-Qualified Employee Plans
subscribe for shares during the Subscription Offering, such plans will not be
required to pay for the shares subscribed for at the time they subscribe, but
may pay for such shares of Holding Company Conversion Stock subscribed for upon
consummation of the Conversion. In the event that, after the completion of the
Subscription Offering, the amount of shares to be issued is increased above the
maximum of the appraisal range included in the subscription prospectus, the
Tax-Qualified and Non-Tax-Qualified Employee Plans shall be entitled to increase
their subscriptions by a percentage equal to the percentage increase in the
amount of shares to be issued above the maximum of the appraisal range provided
that such subscriptions shall continue to be subject to applicable purchase
limits and stock allocation procedures.
H. Undelivered, Defective or Late Order Forms; Insufficient Payment
The Boards of Directors of the Holding Company and the Association
shall have the absolute right, in their sole discretion, to reject any Order
Form, including but not limited to, any Order Forms which (i) are not delivered
or are returned by the United States Postal Service (or the addressee cannot be
located); (ii) are not received back by the Association or its representative,
or are received after the termination date specified thereon; (iii) are
defectively completed or executed; (iv) are not accompanied by the total
required payment for the shares of Holding Company Conversion Stock subscribed
for (including cases in which the subscribers' Deposit Accounts or certificate
accounts are insufficient to cover the authorized withdrawal for the required
payment); or (v) are submitted by or on behalf of a Person whose representations
the Boards of Directors of the Holding Company and the Association believe to be
false or who they otherwise believe, either alone or acting in concert with
others, is violating, evading or circumventing, or intends to violate, evade or
circumvent, the terms and conditions of this Plan. In such event, 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. The Association
may, but will not be required to, waive any irregularity relating to any Order
Form or require submission of corrected Order Forms or the remittance of full
payment for subscribed shares by such date as the Association may specify. The
interpretation of the Holding Company and the Association of the terms and
conditions of this Plan and of the proper completion of the Order Form will be
final, subject to the authority of the OTS.
15
I. Member in Non-Qualified States or in Foreign Countries
The Holding Company and the Association will make reasonable efforts to
comply with the securities laws of all states in the United States in which
Persons entitled to subscribe for Holding Company Conversion Stock pursuant to
the Plan reside. However, no shares will be offered or sold under the Plan of
Conversion to any such Person who (1) resides in a foreign country or (2)
resides in a state of the United States in which a small number of Persons
otherwise eligible to subscribe for shares under the Plan of Conversion reside
or as to which the Holding Company and the Association determine that compliance
with the securities laws of such state would be impracticable for reasons of
cost or otherwise, including, but not limited to, a requirement that the Holding
Company or the Association or any of their officers, directors or employees
register, under the securities laws of such state, as a broker, dealer, salesman
or agent. No payments will be made in lieu of the granting of Subscription
Rights to any such Person.
VI. FEDERAL STOCK CHARTER AND BYLAWS
A. As part of the Conversion, the Association will take all appropriate
steps to amend its charter to read in the form of federal stock savings
institution charter as prescribed by the OTS. A copy of the proposed stock
charter is available upon request. By their approval of the Plan, the Members of
the Association will thereby approve and adopt such charter.
B. The Association will also take appropriate steps to amend its bylaws
to read in the form prescribed by the OTS for a federal stock savings
institution. A copy of the proposed federal stock bylaws is available upon
request.
C. The effective date of the adoption of the Association's federal
stock charter and bylaws shall be the date of the issuance and sale of the
Holding Company Conversion Stock as specified by the OTS.
VII. HOLDING COMPANY CERTIFICATE OF INCORPORATION
A copy of the proposed certificate of incorporation of the Holding
Company will be made available from the Association upon request.
VIII. DIRECTORS OF THE CONVERTED ASSOCIATION
Each Person serving as a member of the Board of Directors of the
Association at the time of the Conversion will thereupon become a director of
the Converted Association.
16
IX. STOCK OPTION AND INCENTIVE PLAN AND RECOGNITION AND RETENTION PLAN
In order to provide an incentive for directors, Officers and employees
of the Holding Company and its subsidiaries (including the Association), the
Board of Directors of the Holding Company intends to adopt, subject to
shareholder approval, a stock option and incentive plan and a recognition and
retention plan as permitted by applicable regulation.
X. CONTRIBUTIONS TO TAX-QUALIFIED EMPLOYEE PLANS
The Converted Association and the Holding Company may in their
discretion make scheduled contributions to any Tax-Qualified Employee Plans,
provided that any such contributions which are for the acquisition of Holding
Company Conversion Stock, or the repayment of debt incurred for such an
acquisition, do not cause the Converted Association to fail to meet its
regulatory capital requirements.
XI. SECURITIES REGISTRATION AND MARKET MAKING
Promptly following the Conversion, the Holding Company will register
its stock with the SEC pursuant to the Exchange Act. In connection with the
registration, the Holding Company will undertake not to deregister such stock,
without the approval of the OTS, for a period of three years thereafter.
The Holding Company shall use its best efforts to encourage and assist
two or more Market Makers to establish and maintain a market for its common
stock promptly following Conversion. The Holding Company will also use its best
efforts to cause its common stock to be quoted on the National Association of
Securities Dealers, Inc. Automated Quotations System or to be listed on a
national or regional securities exchange.
XII. STATUS OF SAVINGS ACCOUNTS AND LOANS SUBSEQUENT TO CONVERSION
Each Deposit Account holder shall retain, without payment, a
withdrawable Deposit Account or Accounts in the Converted Association, equal in
amount to the withdrawable value of such account holder's Deposit Account or
Accounts prior to Conversion. All Deposit Accounts will continue to be insured
by the Federal Deposit Insurance Corporation up to the applicable limits of
insurance coverage, and shall be subject to the same terms and conditions
(except as to voting and liquidation rights) as such Deposit Account in the
Association at the time of the Conversion. All loans shall retain the same
status after Conversion as these loans had prior to Conversion (except as to
voting rights, if any).
17
XIII. LIQUIDATION ACCOUNT
For purposes of granting to Eligible Account Holders and Supplemental
Eligible Account Holders who continue to maintain Deposit Accounts at the
Converted Association a priority in the event of a complete liquidation of the
Converted Association, the Converted Association will, at the time of
Conversion, establish a liquidation account in an amount equal to the net worth
of the Association as shown on its latest statement of financial condition
contained in the final offering circular used in connection with the Conversion.
The creation and maintenance of the liquidation account will not operate to
restrict the use or application of any of the regulatory capital accounts of the
Converted Association; provided, however, that such regulatory capital accounts
will not be voluntarily reduced below the required dollar amount of the
liquidation account. Each Eligible Account Holder and Supplemental Eligible
Account Holder shall, with respect to the Deposit Account held, have a related
inchoate interest in a portion of the liquidation account balance ("subaccount
balance").
The initial subaccount balance of a Deposit Account held by an Eligible
Account Holder or Supplemental Eligible Account Holder shall be determined by
multiplying the opening balance in the liquidation account by a fraction of
which the numerator is the amount of the Qualifying Deposit in the Deposit
Account on the Eligibility Record Date or the Supplemental Eligibility Record
Date and the denominator is the total amount of the Qualifying Deposits of all
Eligible Account Holders and Supplemental Eligible Account Holders on such
record dates in the Association. Such initial subaccount balance shall not be
increased, and it shall be subject to downward adjustment as provided below.
If the deposit balance in any Deposit Account of an Eligible Account
Holder or Supplemental Eligible Account Holder at the close of business on any
annual closing date subsequent to the record date is less than the lesser of (i)
the deposit balance in such Deposit Account at the close of business on any
other annual closing date subsequent to the Eligibility Record Date or the
Supplemental Eligibility Record Date or (ii) the amount of the Qualifying
Deposit in such Deposit Account on the Eligibility Record Date or Supplemental
Eligibility Record Date, the subaccount balance shall be reduced 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 Deposit
Account. If all funds in such Deposit Account are withdrawn, the related
subaccount balance shall be reduced to zero.
In the event of a complete liquidation of the Association (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 Deposit Accounts then held before any liquidation distribution may
be made to stockholders. No merger, consolidation, bulk purchase of assets with
assumptions of Deposit Accounts and other liabilities, or similar transactions
with another institution the accounts of which are insured by the Federal
Deposit Insurance Corporation, shall be considered to be a complete liquidation.
In such transactions, the liquidation account shall be assumed by the surviving
institution.
18
XIV. RESTRICTIONS ON ACQUISITION OF CONVERTED ASSOCIATION
Regulations of the OTS limit acquisitions, and offers to acquire,
direct or indirect beneficial ownership of more than 10% of any class of an
equity security of the Converted Association or the Holding Company. In
addition, consistent with the regulations of the OTS, the charter of the
Converted Association shall provide that for a period of five years following
completion of the Conversion: (i) no Person (i.e., no individual, group acting
in concert, corporation, partnership, association, joint stock company, trust,
or unincorporated organization or similar company, syndicate, or any other group
formed for the purpose of acquiring, holding or disposing of securities of an
insured institution) shall directly or indirectly offer to acquire or acquire
beneficial ownership of more than 10% of any class of the Association's equity
securities. Shares beneficially owned in violation of this charter provision
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 shareholders for a vote. This limitation shall not apply to any offer to
acquire or acquisition of beneficial ownership of more than 10% of the common
stock of the Association by a corporation whose ownership is or will be
substantially the same as the ownership of the Association, provided that the
offer or acquisition is made more than one year following the date of completion
of the Conversion; (ii) shareholders shall not be permitted to cumulate their
votes for elections of directors; and (iii) special meetings of the shareholders
relating to changes in control or amendment of the charter may only be called by
the Board of Directors.
XV. AMENDMENT OR TERMINATION OF PLAN
If necessary or desirable, the Plan may be amended at any time prior to
submission of the Plan and proxy materials to the Members by a two-thirds vote
of the respective Boards of Directors of the Holding Company and the
Association. After submission of the Plan and proxy materials to the Members,
the Plan may be amended by a two-thirds vote of the respective Boards of
Directors of the Holding Company and the Association only with the concurrence
of the OTS. In the event that the Association determines that for tax purposes
or otherwise it is in the best interest of the Association to convert from a
federal mutual to a federal stock institution without the concurrent formation
of a holding company, the Plan may be substantively amended, with OTS approval,
in such respects as the Board of Directors of the Association deems appropriate
to reflect such change from a holding company conversion to a direct conversion.
In the event the Plan is so amended, common stock of the Association will be
substituted for Holding Company Conversion Stock in the Subscription and Direct
Community Offerings, and subscribers will be resolicited as described in Section
V hereof. Any amendments to the Plan (including amendments to reflect the
elimination of the concurrent holding company formation) made after approval by
the Members with the concurrence of the OTS shall not necessitate further
approval by the Members unless otherwise required.
The Plan may be terminated by a two-thirds vote of the Association's
Board of Directors at any time prior to the Special Meeting of Members, and at
any time following such Special Meeting with the concurrence of the OTS. In its
discretion, the Board of Directors of the Association may modify or terminate
the Plan upon the order or with the approval of the OTS and without further
approval by Members. The Plan shall terminate if the sale of all shares of
Holding
19
Company Conversion Stock is not completed within 24 months of the date of the
Special Meeting. A specific resolution approved by a majority of the Board of
Directors of the Association is required in order for the Association to
terminate the Plan prior to the end of such 24 month period.
XVI. EXPENSES OF THE CONVERSION
The Holding Company and the Association shall use their best efforts to
assure that expenses incurred by them in connection with the Conversion shall be
reasonable.
XVII. TAX RULING
Consummation of the Conversion is expressly conditioned upon prior
receipt of either a ruling of the United States Internal Revenue Service or an
opinion of tax counsel with respect to federal taxation, and either a ruling of
the Maryland taxation authorities or an opinion of tax counsel or other tax
advisor with respect to Maryland taxation, to the effect that consummation of
the transactions contemplated herein will not be taxable to the Holding Company
or the Association.
XVIII. EXTENSION OF CREDIT FOR PURCHASE OF STOCK
The Association may not knowingly loan funds or otherwise extend credit
to any Person to purchase in the Conversion shares of Holding Company Conversion
Stock.
20