FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
United States 6035 34-1981437
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(State or other jurisdiction (Primary SIC No.) (I.R.S. Employer
of incorporation or organization) Identification No.)
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Please send copies of all communications to:
Samuel J. Malizia, Esq.
Tiffany A. Hasselman, Esq.
MALIZIA SPIDI & FISCH, PC
901 New York Ave., N.W.
Suite 210 East
Washington, D.C. 20001
(202) 434-4660
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier registration statement for the same offering. [ ]
CALCULATION OF REGISTRATION FEE
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Title of Each Amount Proposed Maximum Proposed Maximum Amount of
Class of Securities to be Offering Price Aggregate Registration
To Be Registered Registered Per Unit Offering Price(1) Fee
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Common Stock,
$0.10 Par Value 2,529,281(2) $10.00 $25,292,810 $2,706.33
Interests of participants 265,811(3) $10.00 $ 2,658,110 $ - (4)
in the 401(k) Plan
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(1) Estimated solely for purposes of calculating the registration fee.
(2) Includes the maximum numbers of shares that may be sold or exchanged for
shares of common stock in connection with this offering.
(3) These shares are included in the 2,529,281 shares being registered.
(4) The $2,658,110 of participations to be registered are based upon the assets
of the 401(k) Plan. Pursuant to Rule 457(h)(2) under the Securities Act of
1933, no additional fee is required with respect to the interests of
participants of the 401(k) Plan.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the registration
statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
INTERESTS IN
MILLINGTON SAVINGS BANK SAVINGS PLAN
AND
OFFERING OF 265,811 SHARES OF
MSB FINANCIAL CORP.
COMMON STOCK ($.10 PAR VALUE)
This prospectus supplement relates to the offer and sale to participants in the Millington Savings Bank Savings Plan of participation interests and shares of common stock of MSB Financial Corp.
The Board of Directors of Millington Savings Bank, MSB Financial Corp. and MSB Financial, MHC have adopted a plan of stock issuance ("Stock Offering"). As part of the Stock Offering, MSB Financial, MHC, a federally-chartered mutual holding company, will own 55% of the outstanding common stock of MSB Financial Corp., and MSB Financial Corp. will offer 265,811 shares of its common stock to the public. Savings Plan participants may now direct the trustee of the Savings Plan to use their current account balances to subscribe for and purchase shares of MSB Financial Corp. common stock through a __________ self-directed account. Based upon the value of the Savings Plan assets as of June 30, 2006, the trustee of the Savings Plan may purchase up to 265,811 shares of MSB Financial Corp. common stock, assuming a purchase price of $10.00 per share. This prospectus supplement relates to the election of Savings Plan participants to direct the trustee of the Savings Plan to invest all or a portion of their Savings Plan accounts in MSB Financial Corp. common stock.
If you direct the trustee to invest all or a portion of your plan funds in MSB Financial Corp. common stock after the initial public offering, shares purchased for your account in open market transactions, and the price paid for such shares will be the market price at the time of the purchase, which may be more or less than the initial public offering price of $10.00 per share.
The prospectus dated ____________, 2006 of MSB Financial Corp., which we have attached to this prospectus supplement, includes detailed information regarding the Stock Offering, and the financial condition, results of operations and business of Millington. This prospectus supplement provides information regarding the Savings Plan. You should read this prospectus supplement together with the prospectus and keep both for future reference.
PLEASE REFER TO "RISK FACTORS" BEGINNING ON PAGE __ OF THE PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION, THE OFFICE OF THRIFT SUPERVISION, THE FEDERAL DEPOSIT INSURANCE CORPORATION, NOR ANY OTHER STATE OR FEDERAL AGENCY OR ANY
STATE SECURITIES COMMISSION, HAS APPROVED OR DISAPPROVED THESE SECURITIES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THESE SECURITIES ARE NOT DEPOSITS OR ACCOUNTS AND ARE NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
This prospectus supplement may be used only in connection with offers and sales by MSB Financial Corp. of interests or shares of common stock under the Savings Plan to employees of Millington Savings Bank. No one may use this prospectus supplement to reoffer or resell interests or shares of common stock acquired through the Savings Plan.
You should rely only on the information contained in this prospectus supplement and the attached prospectus. Neither MSB Financial Corp., MSB Financial, MHC, Millington Savings Bank nor the Savings Plan have authorized anyone to provide you with information that is different.
This prospectus supplement does not constitute an offer to sell or solicitation of an offer to buy any securities in any jurisdiction to any person to whom it is unlawful to make such an offer or solicitation in that jurisdiction. Neither the delivery of this prospectus supplement and the prospectus nor any sale of common stock shall under any circumstances imply that there has been no change in the affairs of Millington or the Savings Plan since the date of this prospectus supplement, or that the information contained in this prospectus supplement or incorporated by reference is correct as of any time after the date of this prospectus supplement.
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS ________, 2006.
TABLE OF CONTENTS
THE
OFFERING.......................................................................1
Securities Offered.........................................................1
Election to Purchase MSB Financial Corp. Common Stock in the
Stock Offering.........................................................2
Value of Participation Interests...........................................2
Method of Directing Transfer...............................................2
Time for Directing Transfer................................................2
Irrevocability of Transfer Direction.......................................2
Purchase Price of MSB Financial Corp.
Common Stock...........................................................3
Direction to Purchase the Stock After the Stock Offering...................3
Nature of a Participant's Interest in MSB Financial Corp.
Common Stock...........................................................3
Voting and Tender Rights of MSB Financial Corp.
Common Stock...........................................................4
DESCRIPTION OF THE SAVINGS
PLAN...........................................................................4
Introduction...................................................................4
Eligibility and Participation..............................................5
Contributions Under the Savings Plan.......................................5
Limitations on Contributions...............................................5
Investment of Contributions................................................7
Benefits Under the Savings Plan...........................................12
Withdrawals and Distributions From the
Savings Plan..........................................................12
ADMINISTRATION OF THE SAVINGS PLAN............................................14
Trustees......................................................................14
Reports to Savings Plan Participants......................................14
Plan Administrator........................................................14
Amendment and Termination.................................................14
Merger, Consolidation or Transfer.........................................15
Federal Income Tax Consequences...........................................15
Restrictions on Resale....................................................17
SEC Reporting and Short-Swing Profit Liability............................17
LEGAL OPINION.................................................................18
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THE OFFERING
SECURITIES OFFERED
The securities offered in connection with this prospectus supplement
are participation interests in the Savings Plan. Assuming a purchase price of
$10.00 per share, the trustee may acquire up to 265,811 shares of MSB Financial
Corp. common stock. The interests offered under this prospectus supplement are
conditioned on the completion of the Stock Offering of MSB Financial Corp.
Certain subscription rights and purchase limitations also govern your investment
in MSB Financial Corp. common stock in connection with the Stock Offering. SEE:
PERSONS WHO MAY ORDER STOCK IN THE OFFERING" and "PURCHASE LIMITATIONS" in the
prospectus attached to this prospectus supplement for further discussion of
these subscription rights and purchase limitations.
This prospectus supplement contains information regarding the Savings Plan. The attached prospectus contains information regarding the Stock Offering and the financial condition, results of operations and business of Millington. The address of the principal executive office of Millington Savings Bank is 1902 Long Hill Road, Millington, New Jersey 07946. The telephone number of Millington Savings Bank is (908) 647-3030.
ELECTION TO PURCHASE MSB FINANCIAL CORP. COMMON STOCK IN THE STOCK OFFERING
In connection with the Stock Offering of MSB Financial Corp., you may direct the trustee of the Savings Plan to transfer all or part of the funds that represent your current beneficial interest in the assets of the Savings Plan to purchase MSB Financial Corp. common stock through a __________ self-directed account. The Savings Plan trustee will subscribe for MSB Financial Corp. common stock offered for sale in connection with the Stock Offering in accordance with each participant's direction. If there is not enough common stock in the Stock Offering to fill all subscriptions, the common stock will be apportioned and the trustee for the Savings Plan may not be able to purchase all of the common stock you requested. In such a case, if you elect, the trustee will purchase shares in the open market on your behalf, after the Stock Offering, to fulfill your initial request. The trustee may make such purchases at prices higher than the initial public offering price.
All plan participants are eligible to direct a transfer of funds to MSB Financial Corp. common stock through a __________ self-directed account. However, transfer directions are subject to subscription rights and purchase priorities. Your order for shares in the Stock Offering will be filled based on your subscription rights. MSB Financial Corp. has granted rights to subscribe for shares of MSB Financial Corp. common stock to the following persons in the following order of priority: (1) persons with $50 or more on deposit at Millington Savings Bank as of June 30, 2005 and (2) persons with $50 or more on deposit at Millington Savings Bank as of September 30, 2006. If you fall into one of the above subscription offering categories, you have subscription rights to purchase shares of common stock in the offering and you may use funds in the Savings Plan
account to pay for your purchase of shares of MSB Financial Corp. common stock. You also will be permitted to direct ongoing purchases of the stock under the plan after the initial offering. See "Direction to Purchase Stock After the Initial Offering."
VALUE OF PARTICIPATION INTERESTS
As of September 5, 2006, the market value of the assets of the Savings Plan equaled approximately $2,658,110.73. The plan administrator has informed each participant of the value of his or her beneficial interest in the Savings Plan as of __________, 2006. The value of Savings Plan assets represents past contributions made to the Savings Plan on your behalf, plus or minus earnings or losses on the contributions, less previous withdrawals and loans.
METHOD OF DIRECTING TRANSFER
The last two pages of this prospectus supplement contain a form for you to direct a transfer of current Savings Plan assets to MSB Financial Corp. common stock through an __________ self-directed account (the "Investment Form"). If you wish to transfer all, or part, in multiples of not less than 1%, of your beneficial interest in the assets of the Savings Plan to MSB Financial Corp. common stock, you should complete the Investment Form. If you do not wish to make such an election at this time, you do not need to take any action. The minimum investment in MSB Financial Corp. common stock during the initial public offering is $250.00. There is no minimum level of investment after the initial offering for investment MSB Financial Corp. common stock through an __________ account.
TIME FOR DIRECTING TRANSFER
You must submit your direction to transfer amounts to MSB Financial Corp. common stock in connection with the Stock Offering by the deadline of noon on __________, 2006. You should return the Investment Form to Mary Jean Piorkowski. After the initial offering, you will still be able to direct the investment of your account under the plan for your __________ account of MSB Financial Corp. common stock and in other investment alternatives.
IRREVOCABILITY OF TRANSFER DIRECTION
You cannot change your direction to transfer amounts credited to your account in the Savings Plan to MSB Financial Corp. common stock prior to the completion of the Stock Offering. Following the closing of the Stock Offering and the initial purchase of shares in MSB Financial Corp. common stock, you may change your investment directions, in accordance with the terms of the Savings Plan.
PURCHASE PRICE OF MSB FINANCIAL CORP. COMMON STOCK
The trustee will use the funds transferred to the __________ account to purchase shares of MSB Financial Corp. common stock in the Stock Offering. The trustee will pay the same price for shares of MSB Financial Corp. common stock as all other persons who purchase shares of MSB Financial Corp. common stock in the offering. IF THERE IS NOT ENOUGH COMMON STOCK IN THE OFFERING TO FILL ALL SUBSCRIPTIONS, THE COMMON STOCK WILL BE APPORTIONED AND THE TRUSTEE FOR THE SAVINGS PLAN MAY NOT BE ABLE TO PURCHASE ALL OF THE COMMON STOCK YOU REQUESTED. IF YOU ELECT, THE TRUSTEE WILL PURCHASE SHARES ON YOUR BEHALF AFTER THE STOCK OFFERING IN THE OPEN MARKET, TO FULFILL YOUR INITIAL REQUEST. THE TRUSTEE MAY MAKE SUCH PURCHASES AT PRICES HIGHER OR LOWER THAN THE $10.00 OFFERING PRICE.
DIRECTION TO PURCHASE THE STOCK AFTER THE STOCK OFFERING
Following completion of the stock offering, you will be permitted to direct that a certain percentage of your interest in the trust fund (up to 100%) be transferred to the __________ self-directed account and invested in MSB Financial Corp. common stock, or to the other investment funds available under the plan. Alternatively, you may direct that a certain percentage of your interest in the __________ account be transferred to the trust fund to be invested in the other investment funds available in accordance with the terms of the plan. You can direct future contributions made to the plan by you or on your behalf to be invested in the __________ account. Following your initial election, the allocation of your interest in the Employer Stock Fund may be changed by calling 800-249-6269 or Internet at www.eretirement.aul.com.
NATURE OF A PARTICIPANT'S INTEREST IN MSB FINANCIAL CORP. COMMON STOCK
The __________ trustee will hold MSB Financial Corp. common stock in your name on behalf of the Savings Plan. The trustee will credit shares of common stock acquired at your direction to your account under the Savings Plan. Therefore, the investment designations of other Savings Plan participants should not affect earnings on your Savings Plan account.
Your account assets directed for investment in the __________ account
after the initial offering shall be invested by the trustee to purchase shares
of MSB Financial Corp. common stock in open market transactions. The price paid
by the trustee for shares of the MSB Financial Corp. common stock in the initial
offering, or otherwise, will not exceed "adequate consideration" as defined in
Section 3(18) of the Employee Retirement Income Security Act of 1974, as
amended, or "ERISA".
VOTING AND TENDER RIGHTS OF MSB FINANCIAL CORP. COMMON STOCK
You will exercise voting and tender rights attributable to MSB Financial Corp. common stock. With respect to each matter as to which holders of MSB Financial Corp. common stock have a right to vote, you will have voting instruction rights that reflect the number of shares of MSB Financial Corp. common stock you have.
DESCRIPTION OF THE SAVINGS PLAN
INTRODUCTION
Effective January 1, 1997, Millington Savings Bank adopted the Millington Savings Bank Savings Plan. Millington Savings Bank amended and restated the plan as the Millington Savings Bank Savings Plan effective as of January 1, 1997. Millington Savings Bank and amended and restated the plan in its entirety effective as of August 1, 2005.
Millington Savings Bank intends for the Savings Plan to comply, in form and in operation, with all applicable provisions of the Internal Revenue Code and ERISA. Millington Savings Bank may change the Savings Plan from time to time in the future to ensure continued compliance with these laws. Millington Savings Bank may also amend the Savings Plan from time to time in the future to add, modify, or eliminate certain features of the plan, as it sees fit. Federal law provides you with various rights and protections as a participant in the Savings Plan, which is governed by ERISA. However, the Pension Benefit Guaranty Corporation does not guarantee your benefits under the Savings Plan.
REFERENCE TO FULL TEXT OF THE PLAN. The following portions of this prospectus supplement summarize the material provisions of the Savings Plan. Millington Savings Bank qualifies this summary in its entirety by reference to the full text of the Savings Plan, as amended. You may obtain copies of the full Savings Plan document, and any amendments to the plan, by sending a request to Mary Jean Piorkowski at Millington Savings Bank. You should carefully read the entire Savings Plan document, as amended, to understand your rights and obligations under the plan.
ELIGIBILITY AND PARTICIPATION
Salaried employees who have attained age 21 and have completed one year of service may participate in the Savings Plan as of the first day of the calendar quarter after they have completed such requirement.
As of September 6, 2006, 36 of the 36 employees of Millington Savings Bank participated in the Savings Plan.
CONTRIBUTIONS UNDER THE SAVINGS PLAN
EMPLOYEE BEFORE-TAX CONTRIBUTIONS. Subject to certain IRS limitations, the Savings Plan permits each participant to make before-tax contributions to the Savings Plan each payroll period of between 1% and 80% of the participant's salary. Participants may change their rate of before-tax contributions by submitting a form prior to each calendar quarter.
MILLINGTON SAVINGS BANK MATCHING CONTRIBUTIONS. The Savings Plan provides that Millington Savings Bank will make matching contributions on behalf of each participant equal to 50% of the participant's compensation, up to a maximum of 6.0% of compensation. Millington Savings Bank makes matching contributions only for those participants who make before-tax contributions to the Savings Plan. If a participant stops making before-tax contributions to the Savings Plan, Millington Savings Bank will cease its matching contributions on the participant's behalf.
ROLLOVER CONTRIBUTIONS. Millington Savings Bank allows employees who receive a distribution from a previous employer's tax-qualified employee benefit plan to deposit that distribution into a Rollover Contribution account under the Savings Plan, provided the rollover contribution satisfies IRS requirements.
LIMITATIONS ON CONTRIBUTIONS
LIMITATION ON EMPLOYEE SALARY DEFERRALS. Although the Savings Plan permits you to defer up to 80% of your compensation, by law your total deferrals under the Savings Plan, together with similar plans, may not exceed $15,000 for 2006. Employees who are age 50 and over may also make additional, "catch-up" contributions to the plan, up to a maximum of $5,000 for 2006. The Internal Revenue Service periodically increases these limitations. A participant who exceeds these limitations must include any excess deferrals in gross income for federal income tax purposes in the year of deferral. In addition, the participant must pay federal income taxes on any excess deferrals when distributed by the Savings Plan to the participant, unless the plan distributes the excess deferrals and any related income no later than the first April 15th following the close of the taxable year in which the participant made the excess deferrals. Any income on excess deferrals distributed before such date is treated, for federal income tax purposes, as earned and received by the participant in the taxable year of the distribution.
LIMITATION ON ANNUAL ADDITIONS AND BENEFITS. As required by the Internal Revenue Code, the Savings Plan provides that the total amount of contributions and forfeitures (annual additions) credited to a participant during any year under all defined contribution plans of Millington Savings Bank (including the Savings Plan and the proposed Millington Employee Stock Ownership Plan) may not exceed the lesser of 100% of the participant's annual compensation or $44,000 for 2006.
LIMITATION ON PLAN CONTRIBUTIONS FOR HIGHLY COMPENSATED EMPLOYEES. Special provisions of the Internal Revenue Code limit the amount of before-tax and matching contributions that may be made to the Savings Plan in any year
on behalf of highly compensated employees, in relation to the amount of before-tax and matching contributions made by or on behalf of all other employees eligible to participate in the Savings Plan. If before-tax and matching contributions exceed these limitations, the plan must adjust the contribution levels for highly compensated employees.
In general, a highly compensated employee includes any employee who (1) was a five percent owner of the sponsoring employer at any time during the year or the preceding year, or (2) had compensation for the preceding year in excess of $100,000 and, if the sponsoring employer so elects, was in the top 20% of employees by compensation for such year. The preceding dollar amount applies for 2006, and may be adjusted periodically by the IRS.
TOP-HEAVY PLAN REQUIREMENTS. If the Savings Plan is a Top-Heavy Plan for any calendar year, Millington Savings Bank may be required to make certain minimum contributions to the Savings Plan on behalf of non-key employees. In general, the Savings Plan will be treated as a "Top-Heavy Plan" for any calendar year if, as of the last day of the preceding calendar year, the aggregate balance of the accounts of Key Employees exceeds 60% of the aggregate balance of the accounts of all employees under the plan. A Key Employee is generally any employee who, at any time during the calendar year or any of the four preceding years, is:
(1) an officer of Millington Savings Bank whose annual compensation exceeds $140,000;
(2) a 5% owner of the employer, meaning an employee who owns more than 5% of the outstanding stock of MSB Financial Corp., or who owns stock that possesses more than 5% of the total combined voting power of all stock of MSB Financial Corp.; or
(3) a 1% owner of the employer, meaning an employee who owns more than 1% of the outstanding stock of MSB Financial Corp., or who owns stock that possesses more than 1% of the total combined voting power of all stock of MSB Financial Corp., AND whose annual compensation exceeds $150,000.
The foregoing dollar amounts are for 2006.
INVESTMENT OF CONTRIBUTIONS
A trust holds all amounts credited to participants' accounts under the Savings Plan. Through a group annuity contract issued to the Trust by American United Life Insurance Company, the Plan offers the following investment options:
Russell Lifepoints Conservative Strategy Fund seeks high levels of current income and, secondarily, capital appreciation. The fund is a fund of funds that invests in other Russell funds. It pursues its investment objectives by investing in these underlying Russell funds. Diversified Equity Fund, Quantitative Equity Fund, International Securities Fund, Real Estate Securities Fund, Short-term Bond Fund and Emerging Markets Fund.
Russell Lifepoints Moderate Strategy Fund seeks long-term capital appreciation and high levels of current income. The fund is a fund of funds that invests in other Russell funds. It pursues its investment objectives by investing in these underlying Russell funds: Diversified Equity Fund, Quantitative Equity Fund, International Securities Fund, Short-term Bond Fund, Real Estate Securities Fund, and Emerging Markets Fund.
Russell Lifepoints Balanced Strategy Fund seeks moderate levels of current income and long-term capital appreciation. The fund is a fund of funds that invests in other Russell funds. It pursues its investment objectives by investing in these underlying Russell funds: Diversified Equity Fund, Special Growth Fund, Quantitative Equity Fund, International Securities Fund, Diversified Bond Fund, MultiStrategy Bond Fund, Real Estate Securities Fund, and the Emerging Markets Fund.
Russell LifePoints Growth Strategy Fund seeks long-term capital appreciation.
The fund is a fund of funds that invests in other Russell funds. It pursues its
investment objectives by investing in these underlying Russell funds:
Diversified Equity Fund, Special Growth Fund, Quantitative Equity Fund,
International Securities Fund, Real Estate Securities Fund, and the Emerging
Markets Funds.
Russell Lifepoints Equity Growth Strategy Fund seeks long-term capital
appreciation. The fund is a fund of funds that invests in other Russell funds.
It pursues its investment objectives by investing in these underlying funds:
Russell Diversified Equity fund, Special Growth Fund, Quantitative Equity Fund,
International Securities Fund, Real Estate Securities Fund, and the Emerging
Markets Fund.
AmCent Inflation Adjusted Bond Fund seeks total return. The fund normally invests 80% of assets in inflation-adjusted securities that are backed by the full faith and credit of the U.S. government. These issues are indexed or otherwise structured by the U.S. Treasury to provide protection against inflation. It may invest up to 20% of assets in securities that are not inflation-adjusted and are issued by U.S. government agencies and government-sponsored organizations. The fund maintains no maturity or duration restrictions.
PIMCO High Yield Fund seeks to achieve its investment objective by investing under normal circumstances, a majority of its assets in a diversified portfolio of high yield securities rated below investment grade but rated at least B by Moody's or S&P, or, if unrated, determined by PIMCO to be of comparable quality. The remainder of the Fund's assets may be invested in investment grade fixed income instruments. The average portfolio duration of this Fund normally varies within a two- to six-year time frame based on PIMCO's forecast for interest rates. The Fund may invest a portion of its assets in euro-denominated securities of foreign issuers.
Allianz OpCap Value Fund seeks to achieve its investment objective by normally investing a majority of its assets in common stocks of companies with market capitalizations of more than $5 million at the time of investment and below-average valuations whose business fundamentals are expected to improve. To achieve income, the Fund invests a portion of its assets in income-producing (e.g., dividend-paying) common stocks.
Neuberger Berman Partners Fund seeks growth of capital. To pursue this goal, the Fund invests mainly in common stocks of mid- to large capitalization companies. The fund seeks to reduce risk by diversifying among many companies and industries. The manager looks for well-managed companies whose stock prices are undervalued.
SSgA S&P 500 Flagship Fund purchases each security in the same capitalization weight as it appears in the S&P 500 Index. Replication results in low turnover, accurate tracking and low costs. SSgA's approach is to buy and hold securities, trading only when there is a change to the composition of the S&P 500 Index or when cash flow activity occurs. To provide 100% equity exposure, this Fund maintains a small (generally less than 5%) position in unleveraged S&P 500 stock index futures contracts. Futures enable better tracking of S&P 500 Index returns and allow for greater liquidity.
T. Rowe Price Growth Stock Fund invests primarily in common stocks of well-established growth companies. The fund manager focuses on companies having one or more of the following characteristics: 1) Superior growth in earnings and cash flow, 2) Ability to sustain earnings momentum even during economic slowdowns and/or 3) Occupy a lucrative niche in the economy and is able to expand even during times of slow economic growth.
Lord Abbett Mid-Cap Value Fund seeks capital appreciation through investments, primarily in equity securities, which the Advisor believes to be undervalued in the marketplace. To pursue this goal, the Fund normally invests at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in equity securities of mid-sized companies, those with a market capitalization of roughly $500 million to $10 billion, at the time of purchase. Equity securities in which the Fund may invest include common stocks, convertible bonds, convertible preferred stocks, warrants and similar instruments. In selecting investments, the Fund, using a value approach, tries to identify stocks of companies that have the potential for significant market appreciation, due to growing recognition of improvement in their financial results, or increasing anticipation of such improvement.
Dreyfus Premier Structured Midcap Fund seeks long-term capital growth. To pursue this goal, the fund normally invests at least 80% of its assets in the stocks of companies included in the S&P 400 Midcap Index or the Russell Midcap Index at the time of purchase. The Fund's stock investments may include common stocks, preferred stocks and convertible securities of U.S. and foreign issuers, including those purchased in initial public offerings.
SSgA S&P MidCap 400 Index Strategy Fund uses a replication process. Each security is purchased for the Strategy in the same capitalization weight as it appears in the S&P MidCap 400 Index. Replication results in low turnover, accurate tracking and low costs. The approach is to buy and hold securities, trading only when there is a change to the composition of the Index or when there is a change to the composition of the Index or when cash flow activity occurs in the Strategy. To provide 100% equity exposure, the Strategy maintains a small (generally less than 5%) position in unleveraged S&P MidCap 400 stock index futures contracts.
AmCent Vista Fund seeks long-term capital growth. The fund invests primarily in companies that management believes will increase in value over time. This strategy looks for companies with earnings and revenues that are growing at an accelerating pace. It normally invests in companies that are medium-sized and smaller at the time of purchase, although it may purchase companies of any size. The fund typically invests in common stocks. It may also purchase domestic and foreign preferred stocks, non-leveraged stock index futures contracts and options, notes, bonds and debt securities. It will generally limit the purchase of debt securities to investment-grade obligations, except for convertible debt securities, which may be rated below investment grade.
Dreyfus Premier Small Cap Value Fund seeks investment returns (consisting of capital appreciation and income) that are consistently superior to the Russell 2000 Value Index. To pursue its goal, the Fund normally invests at least 80% of its assets in stocks of small U.S. companies. The adviser uses a disciplined process that combines computer modeling techniques, fundamental analysis and risk management to select undervalued stocks for the Fund. The portfolio is constructed so that its sector weightings and risk characteristics and similar to those of the Russell 2000 Value.
Lord Abbett Small-Cap Blend Fund seeks long term growth of capital by investing primarily in stocks of small companies. The Fund normally invests at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in equity securities of small companies. A small company is defined as a company having a market capitalization at the time purchase that falls within the market capitalization range of companies in the Russell 2000 Index, a widely used benchmark for a small-cap stock performance.
SSgA Russell 2000 Index Strategy Fund employs a replication approach to construct a fund whose returns closely track those of the Russell 2000 Index. Replication results in low turnover, accurate tracking and low costs. The strategy employed is to buy and hold securities, trading only when there is a change to the composition of the Index or when cash flow activity occurs in the Strategy. To provide 100% exposure to the equity market and increase tracking accuracy, the Strategy may hold Russell 2000 Index futures contracts in lieu of cash (no more than 5% of the holdings are futures).
Fidelity Advisor Small Cap Fund normally invests primarily in common stocks. The Fund normally invests at least 80% of assets in securities of companies with small market capitalizations (those with market capitalizations similar to companies in the Russell 2000 Index or the Standard & Poor's SmallCap 600 Index). The Fund invests in either "growth stocks or "value" Stocks or both. The Fund invests in domestic and foreign issuers.
SSgA MSCI EAFE Index Strategy Fund consists of almost 1,000 stocks in 21 countries outside of North and South America, and represents approximately 85% of the total market capitalization in those countries. The SSgA Daily MSCI EAFE Index Strategy Fund invests in three country/regional funds, which together make up the MSCI EAE Index. Those funds include Europe, Japan, and Pacific Basin ex-Japan. This approach allows investors to gain daily exposure to EAFE as a whole or any combination of the three component parts.
Templeton Growth Fund, under normal market conditions, invests mainly in the equity securities of companies located anywhere in the world, including emerging markets. In addition to the fund's main investments, depending upon current market conditions, the Fund may invest up to 25% of its total assets in debt securities, and the fund may use various derivative strategies seeking to protect its assets.
American Century Real Estate management team invests in common stocks of real estate investment trusts (REITs), which own income-producing properties such as offices, industrial properties, shopping centers regional malls, outlet centers, apartments, manufactured homes, lodging/resorts, self storage, and diversified properties.
AUL Fixed Interest Account is an interest-earning investment option, backed by AUL's general account assets. AUL guarantees that interest will be credited at the higher of the rate guaranteed in the group annuity contract and the current rate declared by it. AUL may change the initial interest rate for future contributions. New contributions are guaranteed to earn the applicable initial interest rate for at least a one-year time period from the date contributions are made. Changes in the initial interest rate or in the interest rate for prior contributions will also be effective for at least one year. In no event will the interest rate ever be below the rate guaranteed in the group annuity contract. AUL bears the investment risk for the AUL Fixed Interest Account values and for paying interest.
The annual percentage return (net of fees) for the prior three years on the funds offered as investment choices under the Savings Plan was:
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2005 2004 2003
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Russell Lifepoints Conservative 2.33 3.93 N/A
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Russell Lifepoints Moderate 4.03 7.12 N/A
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Russell Lifepoints Balanced 6.32 10.94 N/A
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Russell Lifepoints Growth Strategy 7.85 13.32 N/A
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Russell Lifepoints Equity Growth Strategy 9.53 15.70 N/A
------------------------------------------------------------------------ ------------- ---------------- -------------
AmCent Inflation Adjusted Bond 1.86 7.41 N/A
------------------------------------------------------------------------ ------------- ---------------- -------------
PIMCO High Yield 1.97 8.57 22.74
------------------------------------------------------------------------ ------------- ---------------- -------------
Allianz OpCap Value 2.27 16.69 43.36
------------------------------------------------------------------------ ------------- ---------------- -------------
Neuberger Berman Partners 17.33 18.39 N/A
------------------------------------------------------------------------ ------------- ---------------- -------------
SSgA S&P 500Flagship 4.07 9.99 27.65
------------------------------------------------------------------------ ------------- ---------------- -------------
T. Rowe Price Growth Stock 5.81 9.47 29.37
------------------------------------------------------------------------ ------------- ---------------- -------------
Lord Abbett Mid-Cap Value 7.82 23.69 N/A
------------------------------------------------------------------------ ------------- ---------------- -------------
Dreyfus Premier Structured Midcap 9.55 18.84 N/A
------------------------------------------------------------------------ ------------- ---------------- -------------
SSgA S&P MidCap 400 Index Strategy 11.70 15.36 33.54
------------------------------------------------------------------------ ------------- ---------------- -------------
AmCent Vista 8.36 15.25 N/A
------------------------------------------------------------------------ ------------- ---------------- -------------
Dreyfus Premier Small Cap Value 2.55 24.80 N/A
------------------------------------------------------------------------ ------------- ---------------- -------------
Lord Abbett Small-Cap Blend 12.61 20.36 N/A
------------------------------------------------------------------------ ------------- ---------------- -------------
SSgA Russell 2000 Index Strategy 3.99 17.28 44.07
------------------------------------------------------------------------ ------------- ---------------- -------------
Fidelity Advisor Small Cap 7.00 23.24 37.75
------------------------------------------------------------------------ ------------- ---------------- -------------
SSgA MSCI EAFE Index Strategy 12.64 19.18 34.25
------------------------------------------------------------------------ ------------- ---------------- -------------
Templeton Growth 7.69 16.47 32.30
------------------------------------------------------------------------ ------------- ---------------- -------------
AmCent Real Estate 15.47 34.93 38.40
------------------------------------------------------------------------ ------------- ---------------- -------------
AUL Fixed Interest Account 3.30 3.30 4.05
------------------------------------------------------------------------ ------------- ---------------- -------------
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The Savings Plan now offers MSB Financial Corp. common stock as an additional choice to the investment alternatives described above through an __________ self-directed account. Participants in the Savings Plan may direct the trustee to invest all or a portion of their Savings Plan account balances in MSB Financial Corp. common stock through the __________ self-directed account.
The MSB Financial Corp. common stock will receive dividends.
As of the date of this prospectus supplement, no shares of MSB Financial Corp. common stock have been issued or are outstanding, and there is no established market for MSB Financial Corp. common stock. Accordingly, there is no record of the historical performance of the MSB Financial Corp. common stock. Performance of the MSB Financial Corp. common stock depends on a number of factors, including the financial condition and profitability of Millington and general stock market conditions.
Once you have submitted your Investment Form, you may not make any transfers until after the completion of the Stock Offering. After the Stock Offering, you may change your investment directions in accordance with the terms of the Savings Plan by calling (800) 249-6269 or Internet at eretirement.aul.com.
BENEFITS UNDER THE SAVINGS PLAN
VESTING. All participants are 100% vested in their contribution accounts under the Savings Plan and in any income earned on their investments. This means that participants have a non-forfeitable right to their contributions and any earnings on those amounts at all times. You vest in our matching contributions according to the following schedule:
Vesting Schedule
----------------
Period of Service Percent
Recognized for vesting purposes: vested:
------------------------------- ------
Less than 2 years 0%
2 year but less than 3 20%
3 years but less than 4 40%
4 years but less than 5 60%
5 years but less than 6 80%
6 years or more 100%
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WITHDRAWALS AND DISTRIBUTIONS FROM THE SAVINGS PLAN
WITHDRAWALS BEFORE TERMINATION OF EMPLOYMENT. You may receive in-service distributions from the Savings Plan under limited circumstances in the form of non-hardship withdrawals after age 65 and hardship withdrawals and loans.
Participants age 65 or over may withdraw the net value of their accounts.
In order to qualify for a hardship withdrawal, you must have an immediate and substantial need to meet certain expenses and have no other reasonably available resources to meet the financial need. If you qualify for a hardship distribution, the trustee will make the distribution proportionately from the investment funds in which you have invested your account balances.
DISTRIBUTION UPON RETIREMENT OR DISABILITY. The standard form of benefit upon retirement or disability is a lump sum payment. However, if the value of a participant's accounts under the Savings Plan exceeds $5,000, the participant may elect to defer the lump sum payment until after retirement. However, the IRS requires that participants receive at least a portion of their plan accounts by the April 1st of the calendar year following the calendar year in which they retire (or terminate service due to a disability) or the calendar year in which they reach age 70 1/2. Participants may also choose to roll over all or a portion of their plan accounts to an Individual Retirement Account (IRA), or to another employer's qualified plan, if the other employer's plan permits rollover contributions. If your Savings Plan accounts total $1,000 or less, you will receive a lump sum payment as soon as administratively possible after your termination of employment. For amounts over $1,000 and up to $5,000, if you fail to either receive the distribution directly or have it rolled over to an IRA, then the distribution will be paid in a direct rollover to an IRA established by Millington Savings Bank.
DISTRIBUTION UPON DEATH. A participant's designated beneficiary will receive the full value of a participant's accounts under the Savings Plan upon the participant's death. If the participant did not make a valid election regarding the form of payment prior to death, the beneficiary will receive a lump sum payment as soon as administratively possible. If the participant made a valid payment election, or was otherwise scheduled to receive a deferred lump sum payment, the beneficiary will generally receive a lump sum payment on the date elected by the participant. Under certain circumstances, however, payment may be made on an earlier date.
DISTRIBUTION UPON TERMINATION FOR ANY OTHER REASON. If your Savings Plan accounts total $1,000 or less, you will receive a lump sum payment as soon as administratively possible after your termination of employment. If the value of your Savings Plan accounts exceeds $5,000, you will receive a lump sum payment on your normal retirement date. However, after completion of the proper paperwork, you may elect to receive the value of your vested Savings Plan accounts in a lump sum payment prior to your normal retirement date. You may also request that the trustee transfer the value of your accounts to an IRA or to another employer's qualified plan, if the other employer's plan permits rollover contributions. For amounts over $1,000 and up to $5,000, if you fail to either receive the distribution directly or have it rolled over to an IRA, then the distribution will be paid in a direct rollover to an IRA established by Millington Savings Bank.
NONALIENATION OF BENEFITS. Except with respect to federal income tax withholding, and as provided for under a qualified domestic relations order, benefits payable under the Savings Plan will not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution, or levy of any kind, either voluntary or involuntary, and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, charge or otherwise dispose of any rights to benefits payable under the Savings Plan will be void.
APPLICABLE FEDERAL TAX LAW REQUIRES THE SAVINGS PLAN TO IMPOSE SUBSTANTIAL RESTRICTIONS ON YOUR RIGHT TO WITHDRAW AMOUNTS HELD UNDER THE PLAN BEFORE YOUR TERMINATION OF EMPLOYMENT WITH MILLINGTON SAVINGS BANK. FEDERAL LAW MAY ALSO IMPOSE AN EXCISE TAX ON WITHDRAWALS FROM THE SAVINGS PLAN BEFORE YOU ATTAIN 59 1/2 YEARS OF AGE, REGARDLESS OF WHETHER THE WITHDRAWAL OCCURS DURING YOUR EMPLOYMENT WITH MILLINGTON SAVINGS BANK OR AFTER TERMINATION OF EMPLOYMENT.
ADMINISTRATION OF THE SAVINGS PLAN
TRUSTEE
The trustee of the Savings Plan is the named fiduciary of the Savings Plan for purposes of ERISA. The board of directors of Millington Savings Bank appoints the trustee to serve at its pleasure. The board of directors has appointed Gary T. Jolliffe, Albert N. Olsen and Fred Rossi as trustee of the Savings Plan.
The trustee receives, holds and invests the contributions to the Savings Plan in trust and distributes them to participants and beneficiaries in accordance with the terms of the Savings Plan and the directions of the plan administrator. The trustee is responsible for the investment of the trust assets.
REPORTS TO SAVINGS PLAN PARTICIPANTS
The plan administrator furnishes participants quarterly statements that show the balance in their accounts as of the statement date, contributions made to their accounts during that period and any additional adjustments required to reflect earnings or losses.
PLAN ADMINISTRATOR
Millington Savings Bank currently acts as plan administrator for the Savings Plan. The plan administrator handles the following administrative functions: interpreting the provisions of the plan, prescribing procedures for filing applications for benefits, preparing and distributing information explaining the plan, maintaining plan records, books of account and all other data necessary for the proper administration of the plan, preparing and filing all returns and reports required by the U.S. Department of Labor and the IRS and making all required disclosures to participants, beneficiaries and others under ERISA.
AMENDMENT AND TERMINATION
Millington Savings Bank expects to continue the Savings Plan indefinitely. Nevertheless, Millington Savings Bank may terminate the Savings Plan at any time. If Millington Savings Bank terminates the Savings Plan in whole or in part, all affected participants become fully vested in their accounts, regardless of other provisions of the Savings Plan. Millington Savings Bank reserves the right to make, from time to time, changes which do not cause any part of the trust to be used for, or diverted to, any purpose other than the exclusive benefit of participants or their beneficiaries. Millington Savings Bank may amend the plan, however, as necessary or desirable, in order to comply with ERISA or the Internal Revenue Code.
MERGER, CONSOLIDATION OR TRANSFER
If the Savings Plan merges or consolidates with another plan or transfers the trust assets to another plan, and either the Savings Plan or the other plan is subsequently terminated, the Savings Plan requires that you receive a benefit immediately after the merger, consolidation or transfer that would equal or exceed the benefit you would have been entitled to receive immediately before the merger, consolidation or transfer, if the Savings Plan had terminated at that time.
FEDERAL INCOME TAX CONSEQUENCES
The following summarizes only briefly the material federal income tax aspects of the Savings Plan. You should not rely on this summary as a complete or definitive description of the material federal income tax consequences of the Savings Plan. Statutory provisions change, as do their interpretations, and their application may vary in individual circumstances. Finally, applicable state and local income tax laws may have different tax consequences than the federal income tax laws. SAVINGS PLAN PARTICIPANTS SHOULD CONSULT A TAX ADVISOR WITH RESPECT TO ANY TRANSACTION INVOLVING THE SAVINGS PLAN, INCLUDING ANY DISTRIBUTION FROM THE SAVINGS PLAN.
As a "tax-qualified retirement plan," the Internal Revenue Code affords the Savings Plan certain tax advantages, including the following:
(1) The sponsoring employer may take an immediate tax deduction for the amount contributed to the plan each year;
(2) participants pay no current income tax on amounts contributed by the employer on their behalf; and
(3) earnings of the plan are tax-deferred, thereby permitting the tax-free accumulation of income and gains on investments.
Millington Savings Bank administers the Savings Plan to comply with the requirements of the Internal Revenue Code as of the applicable effective date of any change in the law. If Millington Savings Bank should receive an adverse determination letter from the IRS regarding the Savings Plan's tax exempt status, all participants would generally recognize income equal to their vested interests in the Savings Plan, the participants would not be permitted to transfer amounts distributed from the Savings Plan to an IRA or to another qualified retirement plan, and Millington Savings Bank would be denied certain tax deductions taken in connection with the Savings Plan.
LUMP SUM DISTRIBUTION. A distribution from the Savings Plan to a participant or the beneficiary of a participant qualifies as a lump sum distribution if it is made within one taxable year, on account of the participant's death, disability or separation from service, or after the participant attains age 59 1/2; and consists of the balance credited to the participant under this plan and all other profit sharing plans, if any, maintained by Millington Savings Bank. The portion of any lump sum distribution included in taxable income for federal income tax purposes consists of the entire amount of the lump sum distribution, less the amount of after-tax contributions, if any, made to any other profit-sharing plans maintained by Millington Savings Bank, if the distribution includes those amounts.
MSB FINANCIAL CORP. COMMON STOCK INCLUDED IN LUMP SUM DISTRIBUTION. If a lump sum distribution includes MSB Financial Corp. common stock, the distribution generally is taxed in the manner described above. The total taxable amount is reduced, however, by the amount of any net unrealized appreciation on MSB Financial Corp. common stock; that is, the excess of the value of MSB Financial Corp. common stock at the time of the distribution over the cost or other basis of the securities to the trust. The tax basis of MSB Financial Corp. common stock, for purposes of computing gain or loss on a subsequent sale, equals the value of MSB Financial Corp. common stock at the time of distribution, less the amount of net unrealized appreciation. Any gain on a subsequent sale or other taxable disposition of MSB Financial Corp. common stock, to the extent of the net unrealized appreciation at the time of distribution, is long-term capital gain, regardless of how long you hold the MSB Financial Corp. common stock, or the "holding period." Any gain on a subsequent sale or other taxable disposition of MSB Financial Corp. common stock that exceeds the amount of net unrealized appreciation upon distribution is considered long-term capital gain, regardless of the holding period. Any gain on a subsequent sale or other taxable disposition of MSB Financial Corp. common stock that exceeds the amount of net unrealized appreciation at the time of distribution is considered either short-term or long-term capital gain, depending upon the length of the holding period. The recipient of a distribution may elect to include the amount of any net unrealized appreciation in the total taxable amount of the distribution, to the extent allowed under IRS regulations.
WE HAVE PROVIDED YOU WITH A BRIEF DESCRIPTION OF THE MATERIAL FEDERAL INCOME TAX ASPECTS OF THE SAVINGS PLAN THAT ARE GENERALLY APPLICABLE UNDER THE INTERNAL REVENUE CODE. WE DO NOT INTEND THIS DESCRIPTION TO BE A COMPLETE OR DEFINITIVE DESCRIPTION OF THE FEDERAL INCOME TAX CONSEQUENCES OF
PARTICIPATING IN OR RECEIVING DISTRIBUTIONS FROM THE SAVINGS PLAN. ACCORDINGLY, YOU SHOULD CONSULT A TAX ADVISOR CONCERNING THE FEDERAL, STATE AND LOCAL TAX CONSEQUENCES OF PARTICIPATING IN AND RECEIVING DISTRIBUTIONS FROM THE SAVINGS PLAN.
RESTRICTIONS ON RESALE
Any "affiliate" of MSB Financial Corp. under Rules 144 and 405 of the Securities Act of 1933, as amended, who receives a distribution of common stock under the Savings Plan, may reoffer or resell such shares only under a registration statement filed under the Securities Act of 1933, as amended, assuming the availability of a registration statement, or under Rule 144 or some other exemption from these registration requirements. An "affiliate" of MSB Financial Corp. is someone who directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, MSB Financial Corp. Generally, a director, principal officer or major shareholder of a corporation is deemed to be an "affiliate" of that corporation.
Any person who may be an "affiliate" of MSB Financial Corp. may wish to
consult with counsel before transferring any common stock they own. In addition,
participants should consult with counsel regarding the applicability to them of
Section 16 of the Securities Exchange Act of 1934, as amended, which may
restrict the sale of MSB Financial Corp. common stock acquired under the Savings
Plan or other sales of MSB Financial Corp. common stock.
Persons who are NOT deemed to be "affiliates" of MSB Financial Corp. at the time of resale may resell freely any shares of MSB Financial Corp. common stock distributed to them under the Savings Plan, either publicly or privately, without regard to the registration and prospectus delivery requirements of the Securities Act of 1933, as amended, or compliance with the restrictions and conditions contained in the exemptions available under federal law. A person deemed an "affiliate" of MSB Financial Corp. at the time of a proposed resale may publicly resell common stock only under a "reoffer" prospectus or in accordance with the restrictions and conditions contained in Rule 144 of the Securities Act of 1933, as amended, or some other exemption from registration, and may not use this prospectus in connection with any such resale. In general, Rule 144 restricts the amount of common stock which an affiliate may publicly resell in any three-month period to the greater of one percent of MSB Financial Corp. common stock then outstanding or the average weekly trading volume reported on the Nasdaq Stock Market during the four calendar weeks before the sale. Affiliates may sell only through brokers without solicitation and only at a time when MSB Financial Corp. is current in filing all required reports under the Securities Exchange Act of 1934, as amended.
SEC REPORTING AND SHORT-SWING PROFIT LIABILITY
Section 16 of the Securities Exchange Act of 1934, as amended, imposes reporting and liability requirements on officers, directors and persons who beneficially own more than ten percent of public companies such as MSB Financial Corp. Section
16(a) of the Securities Exchange Act of 1934, as amended, requires the filing of reports of beneficial ownership. Within ten days of becoming a person required to file reports under Section 16(a), such person must file a Form 3 reporting initial beneficial ownership with the Securities and Exchange Commission. Such persons must also report periodically certain changes in beneficial ownership involving the allocation or reallocation of assets held in their Savings Plan accounts, either on a Form 4 within two days after a transaction, or annually on a Form 5 within 45 days after the close of a company's fiscal year.
In addition to the reporting requirements described above, Section 16(b) of the Securities Exchange Act of 1934, as amended, provides for the recovery by MSB Financial Corp. of profits realized from the purchase and sale or sale and purchase of its common stock within any six-month period by any officer, director or person who beneficially owns more than ten percent of the common stock.
The SEC has adopted rules that exempt many transactions involving the Savings Plan from the "short-swing" profit recovery provisions of Section 16(b). The exemptions generally involve restrictions upon the timing of elections to buy or sell employer securities for the accounts of any officer, director or person who beneficially owns more than ten percent of the common stock.
Except for distributions of the common stock due to death, disability, retirement, termination of employment or under a qualified domestic relations order, persons who are subject to Section 16(b) may be required, under limited circumstances involving the purchase of common stock within six months of the distribution, to hold the shares of common stock distributed from the Savings Plan for six months after the distribution date.
LEGAL OPINION
The validity of the issuance of the common stock of MSB Financial Corp. will be passed upon by Malizia Spidi & Fisch, PC, Washington, D.C. Malizia Spidi & Fisch, PC acted as special counsel for MSB Financial Corp. in connection with the Stock Offering of MSB Financial Corp.
MILLINGTON SAVINGS BANK SAVINGS PLAN
INVESTMENT FORM
Name of Plan: Millington Savings Bank Savings Plan Participant: _____________________________________________________ Social Security Number: __________________
1. INSTRUCTIONS. In connection with the offering to the public of the common stock of MSB Financial Corp. (the "Stock Offering"), the Millington Savings Bank Savings Plan (the "Plan") has been amended to permit participants to direct their current account balances for their elective deferrals, employer matching contributions, employer profit sharing, Qualified Non-Elective Contribution Account, and rollovers into an __________ self-directed account to purchase MSB Financial Corp. common stock ("Common Stock"). The percentage of a participant's account transferred at the direction of the participant into the __________ self-directed account will be used to purchase shares of Common Stock.
To direct a transfer of all or a part of the funds credited to your accounts to the __________ account to purchase Common Stock, you should complete and file this form with the Human Resources Department no later than 7 days prior to the expiration date of the stock offering. A representative for the Plan Administrator will retain a copy of this form and return a copy to you. If you need any assistance in completing this form, please contact Mary Jean Piorkowski at 908-647-4000. If you do not complete and return this form to the Human Resources Department by noon on ___________, 2006, the funds credited to your accounts under the Plan will continue to be invested in accordance with your prior investment directions, or in accordance with the terms of the Plan if no investment directions have been provided.
2. INVESTMENT DIRECTIONS. I hereby authorize the Plan Administrator to direct the Trustees to invest the following percentages (in multiples of not less than 1%) of their elective deferrals, employer matching contributions, employer profit sharing, Qualified Non-Elective Contribution Account, and rollovers in the __________ account to purchase Common Stock.
Russell Lifepoints Conservative _______%
Russell Lifepoints Moderate _______%
Russell Lifepoints Balanced _______%
Russell Lifepoints Growth Strategy _______%
Russell Lifepoints Equity Growth Strategy _______%
AmCent Inflation Adjusted Bond _______%
PIMCO High Yield _______%
Allianz OpCap Value _______%
Neuberger Berman Partners _______%
SSgA S&P 500Flagship _______%
T. Rowe Price Growth Stock _______%
Lord Abbett Mid-Cap Value _______%
Dreyfus Premier Structured Midcap _______%
SSgA S&P MidCap 400 Index Strategy _______%
AmCent Vista _______%
18
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Dreyfus Premier Small Cap Value _______% Lord Abbett Small-Cap Blend _______% SSgA Russell 2000 Index Strategy _______% Fidelity Advisor Small Cap _______% SSgA MSCI EAFE Index Strategy _______% Templeton Growth _______% AmCent Real Estate _______% AUL Fixed Interest Account _______% |
NOTE: The total percentage of directed investments, above for each fund, may not exceed 100%.
If there is not enough Common Stock in the stock offering to fill my subscription pursuant to the investment directions above, I hereby instruct the Plan Trustee to purchase shares of Common Stock in the open market after the Stock Offering to the extent necessary to fulfill my investment directions indicated on this form. I understand that if I do not direct the Trustee by checking the box below, the excess funds will be invested in the same manner as new deposits have been directed.
[ ] Yes, I direct the Trustee to purchase stock in the open market, if necessary.
3. PURCHASER INFORMATION. The ability of participants in the Plan to purchase Common Stock in the Stock Offering and to direct their current account balances into the __________ account to purchase Common Stock is based upon the participant's subscription rights. Please indicate your status.
[ ] Check here if you had $50.00 or more on deposit with Millington Savings Bank as of June 30, 2005.
[ ] Check here if you had $50.00 or more on deposit with Millington Savings Bank as of September 30, 2006 (but not as of June 30, 2005).
4. ACKNOWLEDGMENT OF PARTICIPANT. I understand that this Investment Form shall be subject to all of the terms and conditions of the Plan. I acknowledge that I have received a copy of the Prospectus and the Prospectus Supplement.
Signature of Participant Date
ACKNOWLEDGMENT OF RECEIPT BY ADMINISTRATOR. This Investment Form was received by the Plan Administrator and will become effective on the date noted below.
By: _____________________________________ ________________________ Date
THE PARTICIPATION INTERESTS REPRESENTED BY THE COMMON STOCK OFFERED HEREBY ARE NOT DEPOSIT ACCOUNTS AND ARE NOT INSURED BY THE BANK INSURANCE FUND OR THE SAVINGS ASSOCIATION INSURANCE FUND OF THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY AND ARE NOT GUARANTEED BY MSB FINANCIAL CORP., MSB FINANCIAL, MHC OR MILLINGTON SAVINGS BANK. THE COMMON STOCK IS SUBJECT TO AN INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF THE PRINCIPAL INVESTED.
MINIMUM STOCK PURCHASE IS $ 250.00
MAXIMUM STOCK PURCHASE IS $200,000.00
PLEASE COMPLETE AND RETURN TO MARY JEAN PIORKOWSKI AT MILLINGTON SAVINGS BANK BY NOON ON _____________, 2006.
PROSPECTUS
MSB FINANCIAL CORP.
(Holding Company for Millington Savings Bank)
Up to 2,199,375 Shares of Common Stock
(Subject to Increase to up to 2,529,281 Shares)
MSB Financial Corp. is offering for sale shares of its common stock that will represent 45% of its outstanding common stock upon completion of this offering. The remaining 55% of MSB Financial Corp.'s outstanding common stock upon completion of this offering will be held by MSB Financial, MHC, the mutual holding company parent of MSB Financial Corp. Upon completion of the offering, MSB Financial Corp. will have between 3,612,500 and 4,887,500 shares outstanding, including shares that will be held by MSB Financial, MHC. The total number of shares of MSB Financial Corp. common stock outstanding upon completion of the offering is subject to an independent appraisal that must be updated before the offering can be completed and may be increased to an adjusted maximum of 5,620,625 shares without resoliciting subscribers. The shares sold in the offering would, in that case, total 2,529,281 shares.
The offering is expected to expire at 12:00 noon, Eastern time, on December ___, 2006. We may extend this expiration date without notice to you until _________, 2007, unless the Office of Thrift Supervision approves a later date.
Keefe, Bruyette & Woods, Inc. will use its best efforts to assist us in our selling efforts, but is not required to purchase any of the common stock that is being offered for sale. Purchasers will not pay a commission to purchase shares of common stock in the offering. All shares being sold are being offered at a price of $10.00 per share. The offering will not be completed if we do not sell a minimum of 1,625,625 shares. We have applied to have our common stock listed for trading on the Nasdaq Global Market under the symbol "MSBF."
The minimum purchase is 25 shares. Once submitted, orders are irrevocable unless the offering is terminated or extended beyond __________, 2007. If the offering is extended beyond __________, 2007, subscribers will have the right to modify or rescind their purchase orders. Funds received before completion of the offering will be held in a segregated deposit account and will earn interest at our regular passbook savings rate. If we terminate the offering, we will promptly return your funds with interest. If we extend the offering beyond __________, 2007, you will be given an opportunity to confirm, modify or rescind your order, and if an affirmative response is not received, we will promptly return your funds with interest.
This investment involves a degree of risk, including the possible loss of principal.
Please read Risk Factors beginning on page __.
OFFERING SUMMARY
Price Per Share: $10.00
Maximum,
Minimum Midpoint Maximum as adjusted
----------- ----------- ----------- -----------
Number of shares......................... 1,625,625 1,912,500 2,199,375 2,529,281
Gross proceeds........................... $16,256,250 $19,125,000 $21,993,750 $25,292,810
Estimated offering expenses(1)........... $713,000 $740,000 $766,000 $796,000
Estimated net proceeds................... $15,543,250 $18,385,000 $21,227,750 $24,496,810
Estimated net proceeds per share......... $9.56 $9.61 $9.65 $9.69
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These securities are not deposits or savings accounts and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other governmental agency.
Neither the Securities and Exchange Commission, the Office of Thrift Supervision, nor any state securities regulator has approved or disapproved these securities or determined if this prospectus is accurate or complete. Any representation to the contrary is a criminal offense.
For assistance, please contact our Stock Information Center at (___) ___-____
Keefe, Bruyette & Woods
The date of this prospectus is November __, 2006.
TABLE OF CONTENTS
Summary........................................................................
Risk Factors...................................................................
A Warning About Forward-Looking Statements.....................................
Use of Proceeds................................................................
Our Policy Regarding Dividends.................................................
Market for the Stock...........................................................
Capitalization.................................................................
Pro Forma Data.................................................................
Historical and Pro Forma Capital Compliance....................................
Selected Financial and Other Data..............................................
Management's Discussion and Analysis
of Financial Condition and Results of Operations..........................
Business of MSB Financial, MHC.................................................
Business of MSB Financial Corp.................................................
Business of Millington Savings Bank............................................
Regulation.....................................................................
Taxation.......................................................................
Management.....................................................................
The Offering...................................................................
Restrictions on Acquisition of MSB Financial Corp..............................
Description of Capital Stock...................................................
Legal and Tax Opinions.........................................................
Experts........................................................................
Change in Independent Auditor..................................................
Registration Requirements......................................................
Where You Can Find Additional Information......................................
Index to Consolidated Financial Statements.....................................
SUMMARY
This summary highlights selected information from this document and may not contain all the information that is important to you. To understand this offering fully, you should read this entire document carefully, including the consolidated financial statements and the notes to the consolidated financial statements beginning on page F-1 of this document. Throughout this document, the terms "we", "us" or "our" refer to MSB Financial Corp. or Millington Savings Bank, or both, as the context indicates.
MSB Financial, MHC
MSB Financial Corp.
Millington Savings Bank
MSB Financial Corp. is a federally-chartered corporation that holds all of the capital stock of Millington Savings Bank, a state chartered savings bank founded in 1911. Currently, 100% of the outstanding stock of MSB Financial Corp. is held by MSB Financial, MHC, a federally-chartered mutual holding company. Upon completion of this offering, 55% of the outstanding stock of MSB Financial Corp. will be held by MSB Financial, MHC and 45% will be held by public stockholders.
This chart shows our current corporate structure (before this offering).
This chart shows our new corporate structure (after this offering).
----------------------------- -----------------------------
MSB Financial, MHC Minority Public
Stockholders
----------------------------- -----------------------------
| 55% | 45%
--------------------------------------------------------------------------------
MSB Financial Corp.
--------------------------------------------------------------------------------
| 100%
--------------------------------------
Millington Savings Bank
--------------------------------------
1
--------------------------------------------------------------------------------
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Purpose of the Offering
The primary reason for our decision to sell stock is to increase our capital to support future growth and enable us to continue to be a well-capitalized institution. We opened our first branch office in 1998. Total assets have grown by $101.3 million since June 30, 2002 to reach $270.2 million at June 30, 2006, a 60% increase. We currently operate from our main office and three branch offices. A new branch office is underway and expected to open in late 2007.
Selling stock will also mean that Millington Savings Bank's depositors, employees, management and directors will have an opportunity to acquire an equity ownership interest in us and thereby obtain an economic interest in our future operations. In addition, we intend to utilize stock benefit plans as a means of attracting and retaining qualified and experienced officers, directors and employees.
Use of Proceeds
Millington Savings Bank will receive 50% of the net proceeds from the offering as a capital contribution and will use those proceeds for general business purposes. In particular, the Bank intends to reduce its borrowings. The Bank has had strong loan originations in recent years and has used Federal Home Loan Bank borrowings to supplement deposits as a funding source for its lending activities. Between June 30, 2002 and June 30, 2006, total loans grew by $99.7 million to $224.4 million, an 80% increase, while deposits grew by $40.8 million to $194.8 million, a 26.5% increase. Borrowings at June 30, 2006 totaled $54.2 million and included $18.5 million and $23.0 million of overnight line of credit and 30 day borrowings, respectively, which may be reduced without incurring prepayment penalties. We had no borrowings at June 30, 2002 or 2003.
The offering proceeds may also be used to finance the possible acquisition of other financial institutions or branches, if appropriate opportunities arise. We do not, however, have any current understandings, agreements or arrangements in connection with branching or acquisitions, other than the already in progress new branch office in Bernardsville, New Jersey which is expected to open in late 2007.
We will lend a portion of the offering proceeds to Millington Savings Bank's employee stock ownership plan to enable the plan to buy up to 8% of the shares sold in the offering. The balance of the offering proceeds will be retained by MSB Financial Corp. and deposited with or loaned to Millington Savings Bank, providing the Bank with funds to support the Bank's lending activities. This will enable the Bank to reduce its outstanding Federal Home Loan Bank borrowings. MSB Financial Corp. may also use the offering proceeds it retains for general corporate purposes, including repurchasing shares of its common stock, paying cash dividends or supporting acquisitions of other financial institutions, branches or financial services companies.
Conduct of the Offering
We have granted rights to subscribe for shares of MSB Financial Corp. common stock in the following order of priority:
o Priority 1 - depositors of Millington Savings Bank at the close of business on June 30, 2005 with deposits of at least $50.00.
o Priority 2 - the employee stock ownership plan of Millington Savings Bank.
o Priority 3 - depositors of Millington Savings Bank at the close of business on September 30, 2006 with deposits of at least $50.00.
Please note: Subscription rights are not transferable, and persons with subscription rights may not subscribe for shares for the benefit of any other person. If you violate this prohibition, you may lose your rights to purchase shares and may face criminal prosecution and/or other sanctions.
If we receive subscriptions for a number of shares that exceeds the maximum of the offering range, we may be unable to fill, or may only partially fill, your order. Shares will be allocated in order of the priorities shown above pursuant to a formula outlined in the plan of stock issuance adopted by our board of directors.
We are offering for sale a minimum of 1,625,625 shares and a maximum of 2,199,375 shares. The independent appraisal that we used to set the number of shares being offered must be updated before we can complete the stock offering, and this could result the number of shares being increased to up to an adjusted maximum of 2,529,281 shares. We may sell that number of shares without any notice to you. If the updated independent appraisal is higher than the adjusted maximum, we will be required to return all subscribers' funds to them with interest.
If we sell between the maximum and the adjusted maximum number of
shares, Millington Savings Bank's employee stock ownership plan will have the
first priority right to purchase the additional shares to the extent that its
subscription has not previously been filled. Any shares remaining will be
allocated in the order of the priorities described above. See The Stock Offering
- Subscription Offering and Subscription Rights for a description of the
allocation procedure.
We may offer shares not sold in the subscription offering to the general public in a community offering. In the community offering, we will give a preference first to natural persons who reside in Morris and Somerset Counties, New Jersey (the counties in which Millington Savings Bank has offices), and second to other residents of New Jersey, and to the general public after that. This part of the offering may commence concurrently with the subscription offering or any time thereafter and may terminate at any time without notice but no later than ___________, 2007, unless extended.
Shares not sold in the subscription or community offering may be offered for sale in a syndicated community offering, which would be an offering to the general public on a best efforts basis managed by Keefe, Bruyette & Woods. This part of the offering may terminate at any time without notice but no later than ___________, 2007, unless extended.
We have the right to reject any orders for stock received in the community offering and syndicated community offering.
Deadline for Ordering Stock
The subscription offering will expire at 12:00 noon, Eastern time, on December __, 2006. We may extend this expiration date without notice to you for up to 45 days, until ____________, 2007. Once submitted, your order is irrevocable unless the offering is extended beyond __________, 2007. We may request permission from the Office of Thrift Supervision to extend the offering beyond __________, 2007, but in no event may the offering be extended beyond ____________, 2008. If the offering is extended beyond __________, 2007, we will notify each subscriber and subscribers will have the right to confirm, modify or rescind their subscriptions. If an affirmative response is not received, a subscriber's subscription will be canceled and funds will be returned with interest.
We may cancel the offering at any time prior to completion. If we do, orders for common stock already submitted will be canceled and subscribers' funds will be returned with interest.
Purchase Limitations
Limitations on the purchase of stock in the offering have been set by the plan of stock issuance adopted by our Board of Directors. These limitations include the following:
o The minimum purchase is 25 shares.
o The maximum number of shares of stock that any individual (or individuals through a single account) may purchase is 20,000 shares.
o The maximum number of shares of stock that any individual may purchase together with any associate or group of persons acting in concert is 25,000 shares.
If determined to be necessary or desirable by the Board of Directors, the plan may be amended by a two-thirds vote of the full Board, with the concurrence of the Office of Thrift Supervision. Thus, we may increase or decrease the purchase limitations. In the event the maximum purchase limitation is increased, persons who subscribed for the maximum will be notified and permitted to increase their subscription.
Procedure for Ordering Stock
If you want to place an order for shares in the offering, you must complete an original stock order form and send it to us together with full payment. You must sign the certification that is on the reverse side of the stock order form. We must receive your stock order form before the end of the subscription offering or the end of the community offering, as appropriate. Once we receive your order, you cannot cancel or change it without our consent. We may, in our sole discretion, reject orders received in the community offering or syndicated community offering either in whole or in part. If your order is rejected in part, you cannot cancel the remainder of your order.
To ensure that we properly identify your subscription rights, you must provide on your stock order form all of the information requested for each of your deposit accounts as of the eligibility dates (June 30, 2005 and September 30, 2006). If you fail to do so, your subscription may be reduced or rejected if the offering is oversubscribed.
You may pay for shares in the subscription offering or the community offering in any of the following ways:
o In cash, if delivered in person. If you choose to pay by cash, you must deliver the stock order and certification form and payment in person to any branch office of Millington Savings Bank and it will be exchanged for a bank check or money order. Please do not send cash in the mail.
o By check or money order made payable to MSB Financial Corp.,
o By authorizing withdrawal from an account at Millington Savings Bank. To use funds in a Millington Savings Bank IRA account, you must transfer your account to an unaffiliated institution or broker. Please contact the stock information center as soon as possible for assistance.
We will pay interest on your subscription funds at our regular passbook rate from the date we receive your funds until the offering is completed or terminated. Funds received in the subscription offering will be held in a segregated deposit account at Millington Savings Bank established to hold funds received as payment for shares. We may, at our discretion, determine during the offering period that it is in the best interest of Millington Savings Bank to hold subscription funds in an escrow account at another insured financial institution instead of at Millington Savings Bank.
All funds authorized for withdrawal from deposit accounts with us, including certificates of deposit, will continue to earn interest at the applicable account or certificate of deposit rate until the offering is completed or terminated. However, if, as a result of a withdrawal from a certificate of deposit, the balance falls below the minimum balance requirement, the remaining funds will be transferred to a savings account and will earn interest at our regular passbook savings rate. There will be no early withdrawal penalty for withdrawals from certificates of deposit used to pay for stock.
Proposed Stock Purchases by Management
Our directors and executive officers and their associates have indicated that they intend to purchase approximately 132,000 shares of common stock in the offering. If 1,912,500 shares are sold (the midpoint of the offering range), their anticipated purchases would represent 3.1% of the total shares outstanding after the offering, including shares issued to MSB Financial, MHC.
Our Estimated Pro Forma Value
The independent appraisal by RP Financial, LC, dated as of September 1, 2006 established the estimated pro forma market value of MSB Financial Corp. This appraisal was based on our financial condition and results of operations and considered the effect of the additional capital to be raised in the stock offering as well as the effect of the stock benefit plans we expect to implement.
RP Financial has estimated that as of September 1, 2006, the pro forma market value of MSB Financial Corp. ranged from a minimum of $38.3 million to a maximum of $51.8 million. This valuation is based on the full pro forma market value of MSB Financial Corp. as though 100% of the stock was being sold to the public. The Board of Directors considered our present level of capital and our business plans and determined that shares representing 45% of the full valuation should be offered for sale.
Peer Group Analysis. The appraisal incorporated an analysis of a peer group of 10 publicly traded mutual holding companies that RP Financial deemed comparable to us. The companies in the peer group range in asset size from $100 million to $500 million and have market capitalizations ranging from $12 million to $75 million. RP Financial examined how we compare to the peer group on various bases, including earnings prospects, market area, management, acquisition activity in the state of New Jersey, stock market conditions, subscription interest, liquidity and dividend policy. RP Financial also took into account that this type of offering is typically priced at a discount to publicly traded companies due to the "new issue discount," which makes an allowance for relatively high post offering equity ratios, expected low returns on equity, and uncertainty regarding the degree of success to be achieved in effectively deploying capital raised in the offering, particularly in the current interest rate environment characterized by a relatively flat yield curve.
Pricing Ratios on a Fully Converted Basis. Shown below are the average and median price to earnings multiple and price to book value ratio of the peer group companies and our price to earnings multiple and price to book value ratio at the minimum, midpoint, maximum and adjusted maximum of our pro forma market value as estimated by the appraisal. These pricing ratios are calculated on a fully- converted basis, as though we had sold the full amount (100%) of our estimated pro forma market value instead of only 45% of that value. The pricing ratios for the peer group have also been adjusted to assume that they were fully public, with all of their outstanding shares held by public stockholders.
Price-to-earnings Price-to-book
multiple value ratio
-------- -----------
Pricing ratios for peer group
on a fully-converted basis
--------------------------
Average......................................... 27.2x 92.2%
Median.......................................... 27.4x 92.2%
Pro forma pricing ratios for MSB Financial Corp.
on a fully-converted basis
--------------------------
Minimum......................................... 20.6 71.8
Midpoint........................................ 23.4 76.3
Maximum......................................... 26.0 80.0
Maximum, as adjusted............................ 28.8 83.4
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The independent appraisal is not necessarily indicative of the post-stock offering trading value. Do not assume or expect that the valuation of MSB Financial Corp. as indicated above means that the common stock will trade at or above the $10.00 purchase price after the stock offering is completed.
Aftermarket Performance of Other Mutual Holding Company Offerings. The following table presents information for all mutual holding companies that completed a minority stock offering during the period from January 1, 2005 through September 1,2006. The table presents the average percentage stock price appreciation from the initial trading date to the dates presented in the table.
This table is not intended to indicate how our stock may perform. Furthermore, this table presents only short-term price performance and may not be indicative of the longer-term stock price performance of these companies. The increase in any particular company's stock price is subject to various factors, including, but not limited to, the amount of proceeds a company raises, the company's historical and anticipated operating results, the nature and quality of the company's assets, the company's market area, and the quality of management and management's ability to deploy proceeds (such as through loans and investments, the acquisition of other financial institutions or other businesses, the payment of dividends and common stock repurchases). In addition, stock prices may be affected by general market and economic conditions, the interest rate environment, the market for financial institutions and merger or takeover transactions, the presence of professional and other investors who purchase stock on speculation, as well as other unforeseeable events not in the control of management. Before you make an investment decision, we urge you to carefully read this prospectus, including, but not limited to, the Risk Factors beginning on page ___.
MHC Offerings Between January 1, 2005 and September 1, 2006
-----------------------------------------------------------
Price Performance from Initial Trading Date
Closing Through
Transaction Date 1 Day 1 Week 1 Month September 1, 2006
----------- ---- ----- ------ ------- -----------------
Georgetown Bancorp, Inc. 01/06/05 2.0% -0.5% 0.5% -4.5%
BV Financial, Inc. 01/14/05 -6.5% -5.0% -0.7% -5.5%
Home Federal Bancorp, Inc. of LA 01/21/05 -1.0% 0.5% -0.8% 5.0%
Kearny Financial Corp. 02/24/05 13.9% 15.0% 11.3% 48.9%
Kentucky First Federal Bancorp 03/03/05 7.9% 12.0% 12.4% 2.2%
Prudential Bancorp, Inc. 03/30/05 -1.5% -6.5% -12.5% 33.5%
Brooklyn Federal Bancorp, Inc. 04/06/05 -0.5% -1.0% -5.0% 22.5%
FedFirst Financial Corp. 04/07/05 -6.6% -9.3% -14.5% 2.0%
Rockville Financial, Inc. 05/23/05 4.8% 10.5% 20.0% 47.0%
North Penn Bancorp, Inc. 06/02/05 10.0% 2.5% 1.5% 17.0%
Colonial Bankshares, Inc. 06/30/05 6.0% 9.9% 7.5% 26.7%
Heritage Financial Group 06/30/05 7.5% 7.5% 9.3% 41.0%
United Financial Bancorp, Inc. 07/13/05 17.5% 16.0% 17.0% 32.1%
Ottowa Savings Bancorp, Inc. 07/14/05 4.0% 5.0% 7.0% 15.4%
Wauwatosa Holdings, Inc. 10/05/05 12.5% 7.3% 9.5% 76.8%
Investors Bancorp, Inc. 10/12/05 0.2% 1.0% 5.2% 43.5%
Equitable Financial Corp. 11/09/05 0.0% -5.0% -5.5% -7.5%
Greenville Federal Fin. Corp. 01/05/06 3.8% 2.5% 0.0% -2.0%
Magyar Bancorp, Inc. 01/24/06 6.5% 5.5% 6.0% 19.2%
United Community Bancorp 03/31/06 8.0% 7.0% 5.5% 6.5%
Lake Shore Bancorp, Inc. 04/04/06 7.0% 4.8% 1.5% 8.5%
Mutual Federal Bancorp, Inc. 04/06/06 11.3% 10.0% 14.0% 10.0%
Northeast Community Bancorp Inc. 07/06/06 10.0% 12.8% 12.0% 13.0%
Seneca-Cayuga Bancorp Inc. 07/11/06 0.0% -4.0% -6.0% -4.8%
Roma Financial Corp. 07/12/06 41.0% 42.4% 46.6% 52.3%
Average 6.3% 5.6% 5.7% 20.0%
Median 6.0% 5.0% 5.5% 15.4%
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While stock prices of similar institutions have, on average, increased for the limited period presented, there can be no assurance that our stock price will appreciate the same amount, if at all. There also can be no assurance that our stock price will not trade below $10.00 per share.
Conditions to Completing the Offering
We cannot complete the offering unless:
o we sell at least 1,625,625 shares, the minimum of the offering range; and
o we receive the final approval of the Office of Thrift Supervision to complete the offering.
Market for MSB Financial Corp.'s Common Stock
We applied to have our common stock listed for trading on the Nasdaq Global Market under the symbol "MSBF." Keefe, Bruyette & Woods currently intends to become a market maker in the common stock, but it is under no obligation to do so. We cannot assure you that other market makers will be obtained or that an active and liquid trading market for the shares of common stock will develop or if developed, will be maintained. After our common stock begins trading, you may contact a stock broker to buy or sell shares.
Dividends
We have not yet established a dividend policy, and we have not yet made plans as to the amount or timing of cash dividends that MSB Financial Corp. may pay after the offering. The timing, amount and frequency of dividends will be determined by the Board of Directors. There are also restrictions on our ability to pay dividends. See Our Policy Regarding Dividends.
If we pay dividends to stockholders of MSB Financial Corp., it is anticipated that dividends payable to MSB Financial, MHC would be waived. We must receive the non-objection of the Office of Thrift Supervision of any dividend waiver by MSB Financial, MHC. See Regulation - Regulation of MSB Financial Corp.
Restrictions on the Acquisition of MSB Financial Corp. and Millington Savings Bank
Federal regulations, as well as provisions contained in the charter and bylaws of MSB Financial Corp. and Millington Savings Bank, restrict the ability of any person, firm or entity to acquire MSB Financial Corp., Millington Savings Bank, or their capital stock. These restrictions include the requirement that a potential acquirer of common stock obtain the prior approval of the Office of Thrift Supervision before acquiring in excess of 10% of the voting stock of MSB Financial Corp. or Millington Savings Bank. Because a majority of the shares of outstanding common stock of MSB Financial Corp. must be owned by MSB Financial, MHC, any acquisition of MSB Financial Corp. must be approved by MSB Financial, MHC, and MSB Financial, MHC would not be required to pursue or approve a sale of MSB Financial Corp. even if such sale were favored by a majority of MSB Financial Corp.'s public stockholders. Additionally, Office of Thrift Supervision regulations prohibit anyone from acquiring more than 10% of MSB Financial Corp.'s common stock for a period of three years following the offering, unless such prohibition is waived by the Office of Thrift Supervision. The current policy of the Office of Thrift Supervision is not to waive this prohibition.
Additionally, certain provisions within MSB Financial Corp.'s charter and bylaws limit the rights of stockholders and may deter potential takeovers or make it more difficult and expensive to pursue a change in control or takeover attempt that our Board of Directors opposes. As a result, you may not have an opportunity to participate in such a transaction, and the trading price of our stock may not rise to the level of other institutions that are more vulnerable to hostile takeovers. Such provisions include:
o the election of directors to staggered three-year terms;
o provisions restricting stockholders from calling special meetings of
stockholders;
o the absence of cumulative voting by stockholders in elections of
directors;
o advance notice requirements for stockholder nominations and new
business; and
o the limitation of the voting rights of a single stockholder to no more
than 10% of the then- outstanding shares, including shares held by MSB
Financial, MHC, for a period of five years from the date this stock
offering is completed.
Tax Effects of the Offering
The minority stock offering will not be a taxable transaction for purposes of federal or state income taxes for MSB Financial, MHC, MSB Financial Corp., Millington Savings Bank or persons eligible to subscribe for stock in the offering. See Material Federal and State Tax Consequences of the Offering.
Stock Benefit Plans
In order to align our employees' and directors' interests closer to our stockholders' interests, we will establish certain benefit plans that use our stock as compensation. Millington Savings Bank's employee stock ownership plan, for the benefit of employees eligible to participate in the plan, intends to purchase 8% of the shares sold in the offering. We also intend to adopt a stock option plan and a restricted stock plan for the benefit of directors and officers no sooner than six months after the offering. Officers, directors, and employees will not be required to pay cash for shares received under the employee stock ownership plan or shares received under the restricted stock plan, but will be required to pay the exercise price to exercise stock options. The exercise price for the options will be at least equal to the market price of our common stock on the date of grant. See Stock Benefit Plans for information about the material terms of these plans and the Office of Thrift Supervision regulations governing these plans.
The stock benefit plans will result in additional annual employee compensation and benefit expenses which will reduce our earnings. See Pro Forma Data. Additionally, the implementation of the stock option plan and restricted stock plan may dilute your ownership interest in MSB Financial Corp. if newly issued shares are used to fund stock options and awards made under the restricted stock plan instead of outstanding shares purchased in the open market by MSB Financial Corp.
The following table presents information, at the midpoint of the offering range, regarding the number of shares and options expected to be made available under the stock benefit plans. The value of the share awards is based on $10.00 per share; however, this does not mean you should assume the stock will trade at or above $10.00 per share. It could trade below $10.00 per share. The value of the option grants was determined using the Black-Scholes option-pricing formula. See Pro Forma Data. Ultimately, the value of awards under the stock benefit plans will depend on the actual trading price of our stock at a particular time, which depends on numerous factors, some of which are out of our control.
At the Midpoint of the Offering Range
-------------------------------------
Number Percentage of
Estimated of Shares/ Total Shares
Value Options Outstanding
----- ------- -----------
Employee stock ownership plan.......... $1,530,000 153,000 3.6%
Restricted stock plan awards........... $833,000 83,300 1.96%
Stock options.......................... $847,577 208,250 4.9%
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See Management - Stock Benefit Plans and Pro Forma Data for more information about the stock benefit plans.
Possible Conversion of MSB Financial, MHC to Stock Form
In the future, MSB Financial, MHC may convert from the mutual holding company form of organization, wherein a majority of the outstanding stock is held by the mutual holding company, to a corporation with 100% of its shares held by public stockholders. This type of conversion transaction is commonly known as a "second-step conversion." The Board of Directors has no current plans to undertake a second-step conversion transaction.
Risk Factors
This investment entails various risks including the possible loss of principal. You may not be able to sell the stock at or above the $10.00 offering price. You should carefully read the information under Risk Factors beginning on page ___.
Stock Information Center
For assistance, please contact the stock information center at (___)
___-____. The stock information center's hours of operation are generally __:__
a.m. to__:__ p.m., Eastern time, Monday through Friday. The stock information
center is closed on weekends and holidays.
RISK FACTORS
In addition to the other information in this document, you should consider carefully the following risk factors in evaluating an investment in our common stock.
We realize income primarily from the difference between interest earned on loans and investments and interest paid on deposits and borrowings, and changes in interest rates may adversely affect our net interest rate spread and net interest margin, which could hurt our earnings.
We derive our income mainly from the difference or "spread" between the interest earned on loans, securities and other interest-earning assets, and interest paid on deposits, borrowings and other interest-bearing liabilities. In general, the larger the spread, the more we earn. When market rates of interest change, the interest we receive on our assets and the interest we pay on our liabilities will fluctuate. This can cause decreases in our spread and can adversely affect our income.
Several years ago market interest rates were at historically low levels. However, between June 2004 and June 2006, the U.S. Federal Reserve steadily increased its target federal funds rate, raising it 17 times, from 1.00% to 5.25%. While the federal funds rate and other short-term market interest rates, which we use as a guide to our deposit pricing, have increased, intermediate- and long-term market interest rates, which we use as a guide to our loan pricing, have not increased proportionately. This has led to a "flattening" of the market yield curve, which has even "inverted" recently as short-term rates have exceeded long-term rates over an intermediate maturity horizon. The relatively flat yield curve has hurt our net interest rate spread and net interest margin because the interest rates we pay on our deposits have repriced upwards faster than the interest rates that we earn on our loans and investments. As of June 30, 2006, we had $76.5 million in certificates of deposit that will mature within one year. If the yield curve remains flat, these deposits are expected to reprice upwards faster than loans and investments.
Interest rates also affect how much money we lend. For example, when interest rates rise, the cost of borrowing increases and loan originations tend to decrease. In addition, changes in interest rates can affect the average life of loans and investment securities. A reduction in interest rates generally results in increased prepayments of loans and mortgage-backed securities, as borrowers refinance their debt in order to reduce their borrowing cost. This causes reinvestment risk, because we generally are not able to reinvest prepayments at rates that are comparable to the rates we earned on the prepaid loans or securities. Changes in market interest rates could also reduce the value of our financial assets. If we are unsuccessful in managing the effects of changes in interest rates, our financial condition and results of operations could suffer.
If we are not successful in our efforts to attract and retain deposits, our liquidity, growth and profitability could be hurt.
Deposits are our primary source of funds to support our lending activities. Our loan originations, however, have in recent years exceeded our deposits, which has resulted in a loans to deposits ratio of 115% and an increase in borrowings from $0 at June 30, 2003 to $54.2 million in Federal Home Loan Bank advances at June 30, 2006. Our collateralized borrowing limit with the Federal Home Loan Bank at June 30, 2006 was $56.2 million. In addition to a limit on their availability, borrowings are generally a more expensive funding source than deposits.
We have expanded our branch network in an effort to increase our deposits, emphasizing core deposits in particular, but there is no guarantee that this strategy will succeed. At June 30, 2006, $112.0
million or 57.5% of our total deposits were in certificates of deposit. As of June 30, 2006, $76.5 million of our certificates of deposit are scheduled to mature within one year. This represents 39.3% of our total deposits. Furthermore, "jumbo" certificates of $100,000 or more are considered to be more volatile than smaller certificate accounts, and as of June 30, 2006, $37.2 million or 19.1% of our total deposits were jumbo certificates.
The inflow of certificates of deposit and the retention of such deposits upon maturity are significantly influenced by general interest rates and money market conditions, making certificates of deposit traditionally a more volatile source of funding than core deposits. Our liquidity could be reduced if a significant amount of certificates of deposit maturing within a short period of time were not renewed. To the extent that such deposits do not remain with us, they may need to be replaced with borrowings which could increase our cost of funds and negatively impact our net interest rate spread and our financial condition.
A portion of our total loan portfolio consists of commercial real estate mortgage loans, commercial loans and construction loans. The repayment risk related to these types of loans is considered to be greater than the risk related to one- to four-family residential loans.
At June 30, 2006, our loan portfolio included $23.6 million of commercial real estate mortgage loans, $5.5 million of commercial loans and $23.3 million of construction loans, in aggregate representing 23.3% of our total loan portfolio. Unlike single family or one-to-four family residential mortgage loans, which generally are made on the basis of the borrower's ability to make repayment from his or her employment and other income, and which are secured by real property with values that tend to be more easily ascertainable, commercial loans typically are made on the basis of the borrower's ability to make repayment from the cash flow of the borrowers' business, which may include rental income. The repayment of construction loans for residential and commercial land acquisition and development, including loans to builders and developers, is dependent, in part, on the success of the ultimate construction project. In addition, commercial real estate mortgages and construction loans to builders and developers generally result in larger balances to single borrowers, or related groups of borrowers, than one- to four-family loans.
In addition, the growth in these loan categories in recent years means that a large portion of this portfolio is unseasoned. Relatively new loans that are "unseasoned," are considered to pose a potentially greater repayment risk than more mature loans because they generally do not have sufficient repayment history to indicate the likelihood of repayment in accordance with their terms.
Strong competition within our market area may limit our growth and profitability.
Competition in the banking and financial services industry in New Jersey is intense. Many of our competitors have substantially greater resources and lending limits than we do and offer services that we do not or cannot provide. Price competition for loans might result in us originating fewer loans, or earning less on our loans, and price competition for deposits might result in a decrease in our total deposits or higher rates on our deposits.
Our business is geographically concentrated in central New Jersey, and a downturn in conditions in our market area could have an adverse impact on our profitability.
A substantial amount of our loans are to individuals and businesses in central New Jersey. Any decline in the economy of this market could have an adverse impact on our earnings. Adverse economic changes may also have a negative effect on the ability of our borrowers to make timely repayments of their loans. Additionally, because we have a significant amount of real estate loans, decreases in local real estate
values could adversely affect the value of property used as collateral. If we are required to liquidate a significant amount of collateral during a period of reduced real estate values to satisfy the debt, our earnings and capital could be adversely affected.
If we experience loan losses in excess of our allowance, our earnings will be adversely affected.
The risk of credit losses on loans varies with, among other things, general economic conditions, the type of loan being made, the creditworthiness of the borrower over the term of the loan and, in the case of a collateralized loan, the value and marketability of the collateral for the loan. Management maintains an allowance for loan losses based upon historical experience, an evaluation of economic conditions and regular reviews of delinquencies and loan portfolio quality. If management's assumptions and judgments about the ultimate collectibility of the loan portfolio prove to be incorrect and the allowance for loan losses is inadequate to absorb future losses or if we are required to make material additions to the allowance, our earnings and capital could be significantly and adversely affected. As of June 30, 2006, our allowance for loan losses was $921,000 which represented 0.41% of total loans and 127.39% of non-performing loans.
After this offering, our return on equity will be low. This could negatively impact the price of our stock.
The net proceeds from the offering will substantially increase our equity capital. It will take a significant period of time to prudently invest this capital. For the year ended June 30, 2006, our return on average equity, which is the ratio of our earnings divided by our average equity capital, was 7.31%. On a pro forma basis assuming that 2,199,375 (the maximum) shares had been sold at the beginning of the year, our return on pro forma equity for the year ended June 30, 2006 would have been approximately 4.18%. Because the stock market values a company based in part on its return on equity, our low return on equity relative to our peer group could negatively affect the trading price of our stock. See Pro Forma Data.
Additional public company and stock employee compensation and benefit expenses following the offering will negatively impact our profitability.
Following the offering, our non-interest expense is likely to increase as a result of the financial accounting, legal and various other additional non-interest expenses usually associated with operating as a public company, particularly as a result of the requirements of the Sarbanes-Oxley Act of 2002.
We also will recognize additional annual employee compensation and benefit expenses stemming from the shares granted to employees, officers and directors under new benefit plans, including the employee stock ownership plan. We cannot predict the actual amount of the new stock-related compensation and benefit expenses because applicable accounting standards require that they be based on the fair market value of the shares of common stock at specific points in the future; however, we expect them to be material. Based on numerous assumptions as set forth under Pro Forma Data beginning at page ___, if 1,912,500 shares are sold in the offering (the midpoint of the offering range), these stock benefit plan expenses for a one year period are estimated on a pro forma basis to be approximately $341,000, net of tax.
The implementation of stock-based benefit plans may dilute your ownership interest in MSB Financial Corp.
We intend to adopt a stock option plan and a restricted stock plan following the stock offering. These stock benefit plans will be funded through either open market purchases or from the issuance of authorized but unissued shares. Stockholders would experience a reduction in ownership interest in the event
newly issued shares are used to fund stock options and awards made under the restricted stock plan. The use of newly issued shares of stock to fund the restricted stock plan instead of open market purchases would dilute the voting interests of existing stockholders by approximately 1.9%. The use of newly issued shares of stock to fund exercises of options granted under the stock option plan instead of open market purchases would dilute the voting interests of existing stockholders by approximately 4.7%.
Provisions in our charter and bylaws limiting the rights of stockholders may deter potential takeovers and may reduce the trading price of our stock.
Provisions in our charter and bylaws may make it difficult and expensive to pursue a change in control or takeover attempt that our Board of Directors opposes. As a result, you may not have an opportunity to participate in such a transaction, and the trading price of our stock may not rise to the level of other institutions that are more vulnerable to hostile takeovers. Such provisions include:
o the election of directors to staggered three-year terms;
o provisions restricting stockholders from calling special meetings
of stockholders;
o the absence of cumulative voting by stockholders in elections of
directors;
o advance notice requirements for stockholder nominations and new
business; and
o a provision that limits the voting rights of a single stockholder
to no more than 10% of the then-outstanding shares, including
shares held by MSB Financial, MHC, for a period of five years
from the date this stock offering is completed.
Persons who purchase stock in the offering will own a minority of MSB Financial Corp.'s common stock and will not be able to exercise voting control over most matters put to a vote of stockholders, including any proposal regarding the acquisition of MSB Financial Corp.
MSB Financial, MHC (the MHC) will own 55% of MSB Financial Corp.'s common stock after the offering. The MHC's Board of Directors is comprised of the same persons as MSB Financial Corp.'s Board of Directors and will generally be able to exercise voting control over matters put to a vote of stockholders of MSB Financial Corp., such as a vote on a sale or merger of MSB Financial Corp. or other transaction in which stockholders could receive a premium for their shares and the election of directors of MSB Financial Corp.
Our stock price may decline when trading commences.
We cannot guarantee that if you purchase shares in the offering that you will be able to sell them at or above the $10.00 purchase price. After the shares of our common stock begin trading, the trading price of the common stock will be determined by the marketplace, and will be influenced not only by our operating results but by many factors outside of our control, including prevailing interest rates, investor perceptions and general industry, geopolitical and economic conditions. Publicly traded stocks, including stocks of financial institutions, have recently experienced substantial market price volatility. These market fluctuations might not be related to the operating performance of particular companies whose shares are traded.
We operate in a highly regulated environment and may be adversely affected by changes in laws and regulations.
We are subject to extensive regulation, supervision and examination by the New Jersey Department of Banking and Insurance, the Office of Thrift Supervision and the Federal Deposit Insurance Corporation. Such regulation and supervision govern the activities in which an institution and its holding companies may engage and are intended primarily for the protection of the insurance fund and depositors. Regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities, including the imposition of restrictions on the operation of an institution, the classification of assets by the institution and the adequacy of an institution's allowance for loan losses. Any change in such regulation and oversight, whether in the form of regulatory policy, regulations, or legislation, including changes in the regulations governing mutual holding companies, could have a material impact on us and our operations.
A WARNING ABOUT FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements, which can be identified by the use of words such as "believes," "expects," "anticipates," "estimates" or similar expressions. Forward-looking statements include:
o statements of our goals, intentions and expectations;
o statements regarding our business plans, prospects, growth and operating strategies;
o statements regarding the quality of our loan and investment portfolios; and
o estimates of our risks and future costs and benefits.
These forward-looking statements are subject to significant risks and uncertainties. Actual results may differ materially from those contemplated by the forward-looking statements due to, among others, the following factors:
o general economic conditions, either nationally or in our market area, that are worse than expected;
o changes in the interest rate environment that reduce our interest margins or reduce the fair value of financial instruments;
o our ability to enter into new markets and/or expand product offerings successfully and take advantage of growth opportunities;
o increased competitive pressures among financial services companies;
o changes in consumer spending, borrowing and savings habits;
o legislative or regulatory changes that adversely affect our business;
o adverse changes in the securities markets;
o our ability to successfully manage our growth; and
o changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board or the Public Company Accounting Oversight Board.
Any of the forward-looking statements that we make in this prospectus and in other public statements we make may turn out to be wrong because of inaccurate assumptions we might make, because of the factors illustrated above or because of other factors that we cannot foresee. Consequently, no forward-looking statement can be guaranteed.
USE OF PROCEEDS
We are conducting this stock offering principally to raise capital to support our anticipated future growth. The actual net proceeds will depend on the expenses incurred by us in connection with the offering and the total number of shares of stock issued in the offering, which depends on the independent valuation and market considerations. Although the actual net proceeds from the sale of the common stock cannot be determined until the offering is completed, we estimate that net proceeds from the sale of common stock will be between $15.5 million and $21.2 million, or $24.5 million at the adjusted maximum. The net proceeds may vary significantly because total expenses of the stock offering may be significantly more or less than those estimated. Payments for shares made through withdrawals from existing deposit accounts at Millington Savings Bank will not result in the receipt of new funds for investment but will result in a reduction of Millington Savings Bank's deposits and interest expense as funds are transferred from interest- bearing certificates or other deposit accounts.
MSB Financial Corp. intends to use proceeds from the offering as follows:
MAXIMUM,
MINIMUM MIDPOINT MAXIMUM As Adjusted
------- -------- ------- -----------
Percent Percent Percent Percent
of Net of Net of Net of Net
Amount Proceeds Amount Proceeds Amount Proceeds Amount Proceeds
------ -------- ------ -------- ------ -------- ------ --------
(Dollars in thousands)
Estimated net proceeds...... $15,543 $18,385 $21,228 $24,497
Less:
Investment in the Bank...... 7,772 50.0% 9,193 50.0% 10,614 50.0% 12,249 50.0%
Loan to employee
stock ownership plan... 1,301 8.4% 1,530 8.3% 1,760 8.3% 2,023 8.3%
-------- --------- -------- --------
Proceeds retained by
MSB Financial Corp....... $ 6,470 41.6% $ 7,662 41.7% $ 8,854 41.7% $10,225 41.8%
====== ====== ====== =======
|
Millington Savings Bank will receive 50% of the net proceeds from the offering as a capital contribution and will use those proceeds for general business purposes. In particular, the Bank intends to reduce its borrowings. The Bank has had strong loan originations in recent years and has used Federal Home Loan Bank borrowings to supplement deposits as a funding source for its lending activities. Between June 30, 2002 and June 30, 2006, total loans grew by $99.7 million to $224.4 million, an 80% increase, while deposits grew by $40.8 million, a 26.5% increase and borrowings grew from $0 to $54.2 million. The majority of borrowings at June 30, 2006 were short term borrowings, which may be reduced without incurring prepayment penalties.
The offering proceeds may also be used to finance the possible acquisition of other financial institutions or branches, if appropriate opportunities arise. We do not, however, have any current
understandings, agreements or arrangements in connection with branching or acquisitions, other than the already in progress new branch office in Bernardsville, New Jersey which is expected to open in late 2007.
We will lend a portion of the offering proceeds to Millington Savings Bank's employee stock ownership plan to enable the plan to buy up to 8% of the shares sold in the offering. If the employee stock ownership plan does not buy the full amount of its intended common stock purchase in the offering, it may purchase shares of common stock in the open market after the stock offering. If the purchase price of the common stock is higher than $10 per share, the amount of proceeds required for the purchase by the employee stock ownership plan will increase.
The balance of the offering proceeds will be retained by MSB Financial Corp. and deposited with or loaned to Millington Savings Bank, providing funds to support the Bank's lending activities. This will enable the Bank to reduce its outstanding Federal Home Loan Bank borrowings. MSB Financial Corp. may also use the offering proceeds it retains for general corporate purposes, including repurchasing shares of its common stock, paying cash dividends or supporting acquisitions of other financial institutions, branches or financial services companies.
OUR POLICY REGARDING DIVIDENDS
We have not yet determined what our dividend policy will be, and we have no plans or understandings as to the amount or timing of cash dividends that MSB Financial Corp. may pay after the offering. Future declarations of dividends by the Board of Directors will depend on a number of factors, including investment opportunities, growth objectives, financial condition, profitability, tax considerations, minimum capital requirements, regulatory limitations, stock market characteristics and general economic conditions. The timing, frequency and amount of dividends will be determined by the Board. There can be no assurance that dividends will in fact be paid on the stock or that, if paid, dividends will not be reduced or eliminated in future periods.
MSB Financial Corp.'s ability to pay dividends may also depend on the receipt of dividends from Millington Savings Bank, which is subject to a variety of regulatory limitations on the payment of dividends. See Regulation - Regulation of Millington Savings Bank - Dividend and Other Capital Distribution Limitations.
If MSB Financial Corp. pays dividends to its stockholders, it is anticipated that dividends payable to MSB Financial, MHC would be waived. We must notify the Office of Thrift Supervision of any proposed dividend waiver by MSB Financial, MHC. The Office of Thrift Supervision reviews dividend waiver notices on a case-by-case basis, and, in general, does not object to any such waiver if: (i) the waiver would not be detrimental to the safe and sound operations of the subsidiary savings association and (ii) the mutual holding company's board of directors determines that such waiver is consistent with such directors' fiduciary duties to the mutual holding company's member.
MARKET FOR THE STOCK
There is not, at this time, any market for MSB Financial Corp.'s stock. We have applied to have our common stock listed for trading on the Nasdaq Global Market under the symbol "MSBF." Keefe, Bruyette & Woods has advised us that it intends to make a market in our common stock following the offering, but it is under no obligation to do so.
The development of an active trading market depends on the existence of willing buyers and sellers, the presence of which is not within our control, or that of any market maker. The number of active buyers and sellers of our stock at any particular time may be limited. Under such circumstances, you could have difficulty selling your shares of common stock. We cannot assure you that an active and liquid trading market for the shares of common stock will develop or, if developed, will be maintained. Nor can we assure you that, if you purchase shares of common stock in the offering, you will be able to sell them at a price equal to or above $10.00 per share.
CAPITALIZATION
Set forth below is the historical capitalization as of June 30, 2006 of MSB Financial Corp. and the pro forma capitalization of MSB Financial Corp. as of June 30, 2006 after giving effect to the offering and to the assumptions set forth under Pro Forma Data.
Pro Forma Capitalization at June 30, 2006
----------------------------------------------------------------
MSB Maximum,
Financial Minimum Midpoint Maximum as adjusted
Corp. 1,625,625 1,912,500 2,199,375 2,529,281
Historical, at shares sold shares sold shares sold shares sold
June 30, at $10.00 at $10.00 at $10.00 at $10.00
2006 per share per share per share per share(1)
---- --------- --------- --------- ------------
(In thousands)
Deposits(2).................................. $194,755 $194,755 $194,755 $194,755 $194,755
Borrowed funds............................... 54,181 54,181 54,181 54,181 54,181
--------- --------- --------- --------- ---------
Total deposits and borrowed funds............ $248,936 $248,936 $248,936 $248,936 $248,936
======== ======== ======== ======== ========
Stockholders' equity:
Preferred stock, no par value, 5,000,000
shares authorized; none to be issued..... - - - - -
Common stock, $0.10 par value,
10,000,000 shares authorized, assuming
shares outstanding as shown(3)(4)(5)..... 1 361 425 489 562
Additional paid-in capital(3)(4)(5).......... 199 15,382 18,160 20,939 24,135
Retained earnings............................ 19,291 19,291 19,291 19,291 19,291
Less:
Common stock acquired by
employee stock ownership plan(6)......... - (1,301) (1,530) (1,760) (2,023)
Common stock acquired by restricted
stock plan(7)........................... - (708) (833) (958) (1,102)
---------- -------- -------- -------- ---------
Total stockholders' equity................... $19,491 $33,026 $35,513 $38,001 $40,863
======= ======= ======= ======= =======
|
(2) Does not reflect withdrawals from deposit accounts for the purchase of stock in the offering. Any withdrawals would reduce pro forma deposits by an amount equal to the withdrawals.
(3) Pro forma data includes shares to be held by MSB Financial, MHC after completion of the stock offering. MSB Financial, MHC is currently the sole stockholder of MSB Financial Corp. and holds 10,000 shares of common stock of MSB Financial Corp. Upon completion of the offering, MSB Financial, MHC will hold 55% of the total shares of MSB Financial Corp. to be outstanding.
(4) No effect has been given to the issuance of additional shares of stock pursuant to any stock option plan that may be adopted by MSB Financial Corp. and presented for approval by the stockholders after the offering. An amount equal to 4.9% of the total number of shares outstanding after the offering, including shares held by MSB Financial, MHC, would be reserved for issuance upon the exercise of options to be granted under the stock option plan following the stock offering. See Management - Stock Benefit Plans - Stock Option Plan.
(5) The historical additional paid-in capital amount represents the initial capitalization of the mid-tier holding company upon its formation in 2004 ($200,000 was received by MSB Financial Corp. for the 10,000 shares issued to MSB Financial, MHC). The pro forma additional paid-in capital amounts include this initial $200,000 capitalization. The pro forma additional paid-in capital amounts represent the net offering proceeds, less the par value of all shares outstanding upon completion of the offering including the shares that will be held by MSB Financial, MHC.
(6) Assumes that 8% of the shares sold in the offering will be purchased by the employee stock ownership plan, and that the funds used to acquire the employee stock ownership plan shares will be borrowed from MSB Financial Corp., concurrent with the offering. For an estimate of the impact of the loan on earnings, see Pro Forma Data. Millington Savings Bank intends to make scheduled discretionary contributions to the employee stock ownership plan sufficient to enable the plan to service and repay its debt over a ten year period. The amount of shares to be acquired by the employee stock ownership plan is reflected as a reduction of stockholders' equity. See Management - Stock Benefit Plans - Employee Stock Ownership Plan. If the employee stock ownership plan is unable to purchase stock in the stock offering due to an oversubscription in the offering by eligible account holders having first priority, and the purchase price in the open market is greater than the original $10.00 price per share, there will be a corresponding reduction in stockholders' equity. See The Offering - Subscription Offering - Subscription Rights.
(7) Assumes that an amount equal to 1.96% of the total number of shares outstanding after the offering, including shares held by MSB Financial, MHC, is purchased by the restricted stock plan following the stock offering. The stock purchased by the restricted stock plan is reflected as a reduction of stockholders' equity. See footnote (2) to the table under Pro Forma Data.
PRO FORMA DATA
The net proceeds to MSB Financial Corp. are currently estimated to be between $15.5 million and $21.2 million ($24.5 million at the adjusted maximum), based on the following assumptions:
o shares sold in the offering will be sold in either the subscription offering or the community offering, with no shares being sold in a syndicated community offering;
o an amount equal to the cost of purchasing 8% of the shares sold in the offering will be loaned to the employee stock ownership plan to fund its purchase at an assumed purchase price of $10.00 per share;
o expenses of the offering, including the fees and expenses of Keefe, Bruyette & Woods, are estimated to be between approximately $713,000 at the minimum and $766,000 at the maximum ($796,000 at the adjusted maximum); and
The actual net proceeds from the sale of the stock, however, cannot be determined until the offering is completed.
The following table sets forth MSB Financial Corp.'s historical net income and stockholders' equity prior to the offering and pro forma net income and stockholders' equity giving effect to the offering. In preparing this table, we have made the following assumptions:
o Pro forma earnings have been calculated assuming the stock had been sold at the beginning of the period and the net proceeds had been invested at an average yield of 5.21% for the year ended June 30, 2006, which approximates the yield on a one-year U.S. Treasury bill on June 30, 2006.
The yield on a one-year U.S. Treasury bill, rather than an arithmetic average of the average yield on interest-earning assets and the average rate paid on deposits, has been used to estimate income on net proceeds because we believe that the one-year U.S. Treasury bill rate is a more accurate estimate of the rate that would be obtained on an investment of net proceeds from the offering. The pro forma after-tax yield (based upon a 40.0% tax rate) on the net proceeds is assumed to be 3.13% for the year ended June 30, 2006.
o We assumed that 8.0% of the shares sold in the offering were purchased in the offering by Millington Savings Bank's employee stock ownership plan at a price of $10.00 per share using funds borrowed from MSB Financial Corp. We assumed that Millington Savings Bank would make annual contributions to the plan in an amount at least equal to the principal and interest requirement of the loan. We have assumed a 10-year amortization period for the loan. The stock acquired by the employee stock ownership plan is reflected as a reduction of stockholders' equity. See Management - Stock Benefit Plans - Employee Stock Ownership Plan.
o We assumed that the stock option plan had been approved by stockholders of MSB Financial Corp. and that MSB Financial Corp. had reserved for future issuance upon the exercise of options to be granted under the plan an amount of stock equal to 4.9% of the total number of shares outstanding after the offering, including shares held by MSB Financial, MHC. We assumed that options for all shares reserved under the plan were granted to plan participants at the beginning of the period and that 30% of the options granted were non-qualified options for income tax purposes. We assumed that the options would vest at a rate of 20% per year and that compensation expense would be recognized on a straight-line basis over the 5-year vesting period. See Management - Stock Benefit Plans - Stock Option Plan.
o We assumed that the restricted stock plan had been approved by stockholders of MSB Financial Corp. and that the restricted stock plan had acquired an amount of stock equal to 1.96% of the total number of shares outstanding after the offering, including shares held by MSB Financial, MHC, at the beginning of the periods presented through open market purchases at a price of $10.00 per share using funds contributed to the restricted stock plan by Millington Savings Bank. We assumed that all shares held by the plan were granted to plan participants at the beginning of the period, that the shares would vest at a rate of 20% per year and that compensation expense will be recognized on a straight-line basis over the 5-year vesting period. See Management - Stock Benefit Plans - Restricted Stock Plan.
o An effective tax rate of 40% is used in calculating the pro-forma net income.
o We did not include any withdrawals from deposit accounts to purchase shares in the offering.
o Historical and pro forma per share amounts have been calculated by dividing historical and pro forma amounts by the indicated number of shares of stock, as adjusted in the pro forma net earnings per share to give effect to the purchase of shares by the employee stock ownership plan.
o Pro forma stockholders' equity amounts have been calculated as if the stock had been sold on June 30, 2006 and no effect has been given to the assumed earnings effect of the transaction.
The following pro forma data relies on the assumptions we outlined above, and this data does not represent the fair market value of the common stock, the current value of assets or liabilities, or the amount of money that would be distributed to stockholders if MSB Financial Corp. were liquidated. The pro forma
data does not predict how much we will earn in the future. You should not use the following information to predict future results of operations.
The following table summarizes historical and pro forma data of MSB Financial Corp. at or for the year ended June 30, 2006 based on the assumptions set forth above and in the notes to the tables and should not be used as a basis for projections of market value of the stock following the stock offering. Pro forma stockholders' equity per share does not take into account the impact of the bad debt reserve if MSB Financial Corp. were liquidated.
Pro Forma
At or For the Year Ended June 30, 2006
---------------------------------------------------------------
Maximum,
Minimum Midpoint Maximum as adjusted
1,625,625 1,912,500 2,199,375 2,529,281
shares sold shares sold shares sold shares sold
at $10.00 at $10.00 at $10.00 at $10.00
per share per share per share per share
--------- --------- --------- ---------
(Dollars in thousands,
except share and per share amounts)
Gross proceeds................................................. $16,256 $19,125 $21,994 $25,293
Less expenses.................................................. (713) (740) (766) (796)
Less ESOP funded by MSB Financial Corp......................... (1,301) (1,530) (1,760) (2,023)
Less restricted stock plan adjustment.......................... (708) (833) (958) (1,102)
------- ------- ------- -------
Estimated investable net proceeds........................... $13,534 $16,022 $18,510 $21,372
======= ======= ======= =======
Net Income:
Historical ................................................. $ 1,402 $ 1,402 $ 1,402 $ 1,402
Pro forma income on net proceeds............................ 423 501 579 668
Pro forma ESOP adjustment(1)................................ (78) (92) (106) (121)
Pro forma restricted stock plan adjustment(2)............... (85) (100) (115) (132)
Pro forma option adjustment(3).............................. (127) (149) (172) (197)
------- ------- ------- -------
Pro forma net income(1)(2)(3)(4)............................ $ 1,535 $ 1,562 $ 1,588 $ 1,620
======= ======= ======= =======
Historical ................................................. $ 0.40 $ 0.34 $ 0.30 $ 0.26
Pro forma income on net proceeds ........................... 0.12 0.12 0.12 0.12
Pro forma ESOP on net proceeds ............................. (0.02) (0.02) (0.02) (0.02)
Pro forma restricted stock plan adjustment ................. (0.02) (0.02) (0.02) (0.02)
Pro forma stock option adjustment .......................... (0.04) (0.04) (0.04) (0.04)
------- ------- ------- -------
Pro forma earnings per share(5)............................. $ 0.44 $ 0.38 $ 0.34 $ 0.30
======= ======= ======= =======
Stockholders' equity:
Historical ................................................. $19,491 $19,491 $19,491 $19,491
Estimated net proceeds...................................... 15,543 18,385 21,228 24,497
Less: common stock acquired by ESOP(1)...................... (1,301) (1,530) (1,760) (2,023)
Less: common stock acquired by restricted stock plan(2)..... (708) (833) (958) (1,102)
------- ------- ------- -------
Pro forma stockholders' equity(4)........................... $33,026 $35,513 $38,001 $40,863
======= ======= ======= =======
Historical.................................................. $ 5.40 $ 4.59 $ 3.99 $ 3.47
Estimated net proceeds...................................... 4.30 4.33 4.34 4.36
Less: common stock acquired by ESOP......................... (0.36) (0.36) (0.36) (0.36)
Less: common stock acquired by restricted stock plan........ (0.20) (0.20) (0.20) (0.20)
------- ------- ------- -------
Pro forma book value per share(5)........................... $ 9.14 $ 8.36 $ 7.77 $ 7.27
======= ======= ======= =======
Offering price as a percentage of pro forma
book value per share........................................ 109.41% 119.62% 128.70% 137.55%
======= ======= ======= =======
Offering price to pro forma earnings per share................. 22.73x 26.32x 29.41x 33.33x
======= ======= ======= =======
|
(2) The issuance of authorized but unissued shares of stock to the restricted stock plan instead of open market purchases would dilute the voting interests of stockholders that purchased shares in the offering by approximately 1.9%. If the actual cost of the shares acquired by the restricted stock plan is different than $10.00 per share, the expense recognized will be different. There can be no assurance that stockholder approval of the restricted stock plan will be obtained or that the actual purchase price of the shares will be equal to $10.00 per share. See Management - Stock Benefit Plans - Restricted Stock Plan.
(3) The pro forma net income assumes that the options granted under the stock
option plan have a value of $4.07 per option, which was determined using
the Black-Scholes-Merton option pricing formula using the following
assumptions: (i) the trading price on date of grant was $10.00 per share;
(ii) exercise price is equal to the trading price on the date of grant;
(iii) dividend yield of 0%; (iv) vesting period of 5 years and expected
life of 10 years; (v) expected volatility of 9.69%; and risk-free interest
rate of 5.15%. Because there is currently no market for MSB Financial
Corp.'s common stock, the assumed expected volatility is based on the SNL
Financial MHC index. If the fair market value per share on the date of
grant is different than $10.00, or if the assumptions used in the option
pricing formula are different from those used in preparing this pro forma
data, the value of the options and the related expense recognized will be
different. There can be no assurance that the actual fair market value per
share on the date of grant, and correspondingly the exercise price of the
options, will be $10.00 per share. The issuance of authorized but unissued
shares of stock instead of open market purchases to fund exercises of
options granted under the stock option plan would dilute the voting
interests of stockholders that purchased shares in the offering by
approximately 4.7%. See Management - Stock Benefit Plans - Stock Option
Plan.
(4) The retained earnings of MSB Financial Corp. and Millington Savings Bank will continue to be substantially restricted after the stock offering. See Our Policy Regarding Dividends and Regulation - Regulation of Millington Savings Bank - Dividend and Other Capital Distribution Limitations.
(5) For purposes of calculating earnings per share, only the employee stock ownership plan shares committed to be released under the plan were considered outstanding. For purposes of calculating book value per share, all employee stock ownership shares were considered outstanding. We have also assumed that no options granted under the stock option plan were exercised during the period and that the trading price of MSB Financial Corp. common stock at the end of the period was $10.00 per share. Under this assumption, using the treasury stock method, no additional shares of stock were considered to be outstanding for purposes of calculating earnings per share or book value per share.
HISTORICAL AND PRO FORMA CAPITAL COMPLIANCE
The following table presents Millington Savings Bank's historical and pro forma capital position relative to its regulatory capital requirements as of June 30, 2006. Pro forma capital levels assume receipt by the Bank of 50% of the net proceeds at all points of the offering range. However, such additional amount as may be necessary will be contributed to the Bank so that the ratio of its tangible capital to its total assets upon completion of the offering is at least 10%. For a discussion of the assumptions underlying the pro forma capital calculations presented below, see Use of Proceeds, Capitalization and Pro Forma Data. For a discussion of the capital standards applicable to Millington Savings Bank, see Regulation - Regulation of Millington Savings Bank - Regulatory Capital Requirements.
Pro Forma at June 30, 2006
---------------------------------------------------------------------------------------
Minimum Midpoint Maximum Maximum, as adjusted
-------------------- -------------------- -------------------- ---------------------
Actual, at 1,625,625 shares sold 1,912,500 shares sold 2,199,375 shares sold 2,529,281 shares sold
June 30, 2006 at $10.00 per share at $10.00 per share at $10.00 per share at $10.00 per share(1)
-------------------- -------------------- -------------------- -------------------- ---------------------
Percentage Percentage Percentage Percentage Percentage
Amount of Assets(2) Amount of Assets(2) Amount of Assets(2) Amount of Assets(2) Amount of Assets(2)
------ ------------ ------ ------------ ------ ------------ ------ ------------ ------ ------------
(Dollars in thousands)
GAAP Capital......... $19,292 7.14% $25,055 9.03% $26,121 9.38% $27,188 9.71% $28,415 10.10%
======= ==== ======= ==== ======= ==== ======= ==== ======= =====
Tangible Capital(3).. $19,112 7.19% $24,875 9.12% $25,941 9.46% $27,008 9.81% $28,235 10.20%
Tangible Capital
Requirement........ 3,987 1.50 4,093 1.50 4,112 1.50 4,132 1.50 4,154 1.50
------- ---- ------- ---- ------- ---- ------- ---- ------- ----
Excess............... $15,125 5.69% $20,782 7.62% $21,829 7.96% $22,876 8.31% $24,081 8.70%
======= ==== ======= ==== ======= ==== ======= ==== ======= ====
Core Capital......... $19,112 7.19% $24,875 9.12% $25,941 9.46% $27,008 9.81% $28,235 10.20%
Core Capital
Requirement........ 10,632 4.00 10,915 4.00 10,966 4.00 11,081 4.00 11,078 4.00
------- ---- ------- ---- ------- ---- ------- ---- ------- ----
Excess............... $ 8,480 3.19% $13,960 5.12% $14,975 5.46% $15,990 5.81% $17,157 6.20%
======= ==== ======= ==== ======= ==== ======= ==== ======= ====
Total Risk-Based
Capital(4)(5).. .. $20,033 10.99% $25,796 13.89% $26,862 14.41% $27,929 14.93% $29,156 15.53%
Risk-Based Capital
Requirement....... 14,577 8.00 14,860 8.00 14,912 8.00 14,963 8.00 15,023 8.00
------- ---- ------- ---- ------- ---- ------- ---- ------- ----
Excess............... $ 5,456 2.99% $10,936 5.89% $11,950 6.41% $12,966 6.93% $14,133 7.53%
======= ==== ======= ==== ======= ==== ======= ==== ======= ====
|
SELECTED FINANCIAL AND OTHER DATA
The financial information and other data in this section is derived in part from MSB Financial Corp.'s audited consolidated financial statements and should be read together with the consolidated financial statements and the notes thereto beginning on page F-1 of this document.
Balance Sheet Data:
At June 30,
----------------------------------------------------------------
2006 2005 2004 2003 2002
-------- -------- -------- -------- --------
(In thousands)
Total assets................................. $270,184 $237,869 $215,881 $196,766 $168,914
Cash and cash equivalents.................... 5,881 5,666 3,800 13,338 14,909
Loans receivable, net........................ 218,321 187,192 168,614 138,496 122,969
Securities held to maturity.................. 27,707 28,292 31,515 37,606 24,167
Deposits..................................... 194,755 196,931 190,500 180,343 153,920
Federal Home Loan Bank advances.............. 54,181 21,195 7,500 - -
Total stockholder's equity................... 19,491 18,089 16,578 15,230 13,933
|
Summary of Operations:
For the Year Ended June 30,
----------------------------------------------------------------
2006 2005 2004 2003 2002
-------- -------- -------- -------- --------
(In thousands)
(In thousands)
Total interest income...................... $14,117 $11,754 $10,769 $10,524 $10,281
Total interest expense..................... 6,661 4,386 3,856 4,277 5,025
------- ------- ------- ------- -------
Net interest income..................... 7,456 7,368 6,913 6,247 5,256
Provision for loan losses.................. 60 135 134 136 137
------- ------- ------- ------- -------
Net interest income after provision
for loan losses.......................... 7,396 7,233 6,779 6,111 5,119
Noninterest income......................... 603 629 517 432 372
Noninterest expense........................ 5,763 5,432 4,900 4,448 3,489
------- ------ ------ ------- -------
Income before taxes........................ 2,236 2,430 2,396 2,095 2,002
Income tax provision....................... 834 919 948 798 703
------- ------ ------ ------- -------
Net income................................. $ 1,402 $ 1,511 $ 1,448 $ 1,297 $ 1,299
======= ======= ======= ======= =======
|
At or For the Year Ended June 30,
----------------------------------------------------------
2006 2005 2004 2003 2002
---- ---- ---- ---- ----
Performance Ratios:
Return on average assets (ratio of net income
to average total assets)......................... 0.55% 0.66% 0.70% 0.72% 0.83%
Return on average equity (ratio of net income
to average equity)............................... 7.31 8.64 9.07 8.83 9.77
Net interest rate spread........................... 2.97 3.33 3.34 3.40 3.18
Net interest margin on average interest-earning
assets........................................... 3.12 3.44 3.50 3.61 3.47
Average interest-earning assets to average
interest-bearing liabilities..................... 105.53 105.45 107.97 108.47 109.98
Operating expense ratio (noninterest expenses
to average total assets)......................... 2.25 2.37 2.38 2.47 2.22
Efficiency ratio (noninterest expense divided by
sum of net interest income and noninterest
income).......................................... 71.51 67.93 65.95 66.60 61.99
Asset Quality Ratios:
Non-performing loans to total loans................ 0.32 1.25 1.13 2.09 1.25
Non-performing assets to total assets.............. 0.27 1.01 0.92 1.51 0.92
Net charge-offs to average loans outstanding....... 0.01 - 0.03 0.20 0.01
Allowance for loan losses to non-performing
loans............................................ 127.39 36.31 37.44 21.94 50.16
Allowance for loan losses to total loans........... 0.41 0.45 0.42 0.46 0.63
Capital Ratios:
Equity to total assets at end of period............ 7.21 7.60 7.68 7.74 8.25
Average equity to average assets................... 7.50 7.63 7.75 8.16 8.44
Number of Offices(1): 3 3 3 3 2
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion and analysis reflects MSB Financial Corp.'s consolidated financial statements and other relevant statistical data and is intended to enhance your understanding of our financial condition and results of operations. You should read the information in this section in conjunction with MSB Financial Corp.'s consolidated financial statements and accompanying notes thereto beginning on page F-1 of this document, and the other statistical data provided in this prospectus. Unless otherwise indicated, the financial information presented in this section reflects the consolidated financial condition and results of operations of MSB Financial Corp. and its direct and indirect subsidiaries.
Overview
We were originally founded in 1911 as "Millington Building and Loan Association," and we commenced business in a small office located over a hardware store on Long Hill Road in Millington, New Jersey. Our operations remained at that site and expanded into larger areas of the building until we finally outgrew the space and in 1994 moved into a newly constructed building adjacent to the original office. This was our sole location until 1998, when we opened our first branch office.
Our primary business is attracting retail deposits from the general public and using those deposits, together with funds generated from operations, principal repayments on securities and loans and borrowed funds, for our lending and investing activities. Our loan portfolio consists of one- to four-family residential real estate mortgages, commercial real estate mortgages, construction loans, commercial loans, home equity loans and lines of credit, and other consumer loans. We also invest in U.S. government obligations and mortgage-backed securities. At June 30, 2006, our total assets were $270.2 million. Total assets grew by 13.6% during the year ended June 30, 2006 and grew by 10.2% the year before.
Net income for the year ended June 30, 2006 totaled $1.4 million, as compared to $1.5 million for the year ended June 30, 2005 and $1.4 million for the year ended June 30, 2004. Net interest income has been constrained, as our net interest margin was compressed due to the increasing interest rate environment. For the year ended June 30, 2006, interest income increased by 20.1% while interest expense increased by 51.9% as compared to 2005. This followed increases for the year ended June 30, 2005 of 9.1% and 13.7% in interest income and interest expenses, respectively, as compared to the year ended June 30, 2004.
We have experienced strong loan demand in recent years and the resulting growth in our loan portfolio has been significant. Between June 30, 2002 and June 30, 2006, total loans grew by $99.7 million to $224.4 million, an 80% increase. Our difficulty has been growing the deposit side of our operations to match the growth in the lending side of our operations. During this same period, our deposits grew by $40.8 million, a 26.5% increase.
While deposits continue to be our primary source of funds to support our lending activities, our loan originations in recent years have exceeded our deposits. At June 30, 2006, our total loans to deposits ratio was 115%. This has caused us to use Federal Home Loan Bank borrowings to fund loans, and borrowings are usually a higher cost source of funds than deposits, which means our net interest rate spread and profitability are lower than if we did not have to borrow funds. As of three years ago, we had zero borrowings while at June 30, 2006 our Federal Home Loan Bank advances had grown to $54.2 million. In the near term, we anticipate reducing a portion of these borrowings with the net proceeds from the stock offering. At June 30, 2006, the majority of our borrowings were short term borrowings, the repayment
of which would not force us to incur prepayment penalties. That planned reduction, however, does not remove the need, if we are able to continue growing our loan portfolio, to also grow deposits and lessen our dependancy on borrowings as a funding source.
We have expanded our branch network in an effort to increase our deposits. Since 2002 we have opened two new offices and relocated an existing office to a larger facility. We have another office scheduled to open in late 2007. Our challenge going forward is whether we can successfully grow deposits within this expanded branch network.
Critical Accounting Policies
Our accounting policies are integral to understanding the results reported and are described in Note 2 to our consolidated financial statements beginning on page F-1 of this document. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the dates of the consolidated statements of financial condition and revenues and expenses for the periods then ended. Actual results could differ significantly from those estimates. A material estimate that is particularly susceptible to significant change relates to the determination of the allowance for loan losses.
The allowance for loan losses represents our best estimate of losses known and inherent in our loan portfolio that are both probable and reasonable to estimate. In determining the amount of the allowance for loan losses, we consider the losses inherent in our loan portfolio and changes in the nature and volume of our loan activities, along with general economic and real estate market conditions. We utilize a two tier approach: (1) identification of impaired loans for which specific reserves are established; and (2) establishment of general valuation allowances on the remainder of the loan portfolio. We maintain a loan review system which provides for a systematic review of the loan portfolio and the early identification of potential impaired loans. Such system takes into consideration, among other things, delinquency status, size of loan, type of collateral and the financial condition of the borrower. Specific loan loss allowances are established for identified loans based on a review of such information and/or appraisals of the underlying collateral. General loan loss allowances are based upon a combination of factors including, but not limited to, actual loan loss experience, composition of the loan portfolio, current economic conditions and management's judgment.
Although specific and general loan loss allowances are established in accordance with management's best estimate, actual losses are dependent upon future events and, as such, further provisions for loan losses may be necessary in order to increase the level of the allowance for loan losses. For example, our evaluation of the allowance includes consideration of current economic conditions, and a change in economic conditions could reduce the ability of our borrowers to make timely repayments of their loans. This could result in increased delinquencies and increased non-performing loans, and thus a need to make increased provisions to the allowance for loan losses, which would be a charge to income during the period the provision is made, resulting in a reduction to our earnings. A change in economic conditions could also adversely affect the value of the properties collateralizing our real estate loans, resulting in increased charge-offs against the allowance and reduced recoveries, and thus a need to make increased provisions to the allowance for loan losses. Furthermore, a change in the composition of our loan portfolio or growth of our loan portfolio could result in the need for additional provisions.
Comparison of Financial Condition at June 30, 2006 and 2005
General. Total assets reached $270.2 million at June 30, 2006, compared to $237.9 million at June 30, 2005. The increase was fueled by loan originations, the funding for which was provided primarily by an increase in borrowed funds which grew to $54.2 million at June 30, 2006, compared to $21.2 million at June 30, 2005. The increase in borrowings was necessary to meet the strong loan demand as deposits fell slightly, to $194.8 million at June 30, 2006, compared to $196.9 million at June 30, 2005. The Bank's average cost of interest-bearing deposits for the year ended June 30, 2006 was 2.65%, 55 basis points higher than the prior year. The Bank's strategy was to remain competitive on rates but to limit the increase in its cost of deposits resulting from the increasing interest rate environment as much as possible by utilizing borrowings, which management determined to be more cost-effective than aggressively seeking additional deposits through competitive pricing.
Total assets grew $32.3 million or 13.6% between years while total liabilities grew by $30.9 million or 14.1%, and the ratio of average interest-earning assets to average-interest bearing liabilities was static, increasing only 8 basis points between years.
Loans. Loans receivable, net, rose to $218.3 million at June 30, 2006 from $187.2 million at June 30, 2005, an increase of $31.1 million, or 16.6%. As a percentage of assets, loans increased to 80.8% from 78.7%. One-to-four family real estate loans grew by $7.4 million or 6.5% between June 30, 2005 and June 30, 2006. Home equity lending continued to be strong, following a 28.9% increase during the year ended June 30, 2005, and this portfolio grew during the year ended June 30, 2006 by $11.0 million or 28.6%. The commercial real estate, construction, commercial and consumer loan portfolios grew also.
Securities. Our portfolio of securities held to maturity was nearly unchanged at $27.7 million at June 30, 2006 as compared to $28.3 million at June 30, 2005. Maturities, calls and principal repayments during the year totaled $584,000 as compared to $3.2 million during the prior year. We did not purchase any new securities during either of the last two years as we continued to use those cash flows to fund loan originations. We anticipate that cash flows from the securities portfolio may continue to be used to reduce Federal Home Loan Bank borrowings.
Deposits. Total deposits at June 30, 2006 were $194.8 million, compared to $196.9 million at June 30, 2005. Certificates of deposit increased by $8.2 million partially offsetting a decrease of $11.1 million in interest-bearing checking and savings accounts.
Borrowings. Total borrowings at June 30, 2006 amounted to $54.2 million, compared to $21.2 million at June 30, 2005. We anticipate using net proceeds from the stock offering to reduce our outstanding Federal Home Loan Bank borrowings.
Our investment in Federal Home Loan Bank of New York stock was $2.8 million at June 30, 2006 compared to $1.5 million at June 30, 2005, reflecting the required increase in ownership of Federal Home Loan Bank stock resulting from the increase in borrowings during the year ended June 30, 2006.
Equity. Stockholder's equity was $19.5 million at June 30, 2006 as compared to $18.1 million at June 30, 2005, reflecting net income of $1.4 million for the year ended June 30, 2006.
Comparison of Operating Results for the Three Years Ended June 30, 2006
General. Our results of operations depend primarily on our net interest income. Net interest income is the difference between the interest income we earn on our interest-earning assets and the interest we pay on our interest-bearing liabilities. It is a function of the average balances of loans and investments versus deposits and borrowed funds outstanding in any one period and the yields earned on those loans and investments and the cost of those deposits and borrowed funds. Our results of operations are also affected by our provision for loan losses, non-interest income and non-interest expense. Non-interest income includes service fees and charges, including income on bank owned life insurance. Non-interest expense includes salaries and employee benefits, occupancy and equipment expense and other general and administrative expenses such as service bureau fees and advertising costs.
Our net income for the year ended June 30, 2006 was $1.4 million, a 7.2% decrease compared to net income of $1.5 million for the year ended June 30, 2005. An $88,000 or 1.2% increase in net interest income and a $75,000 decrease in the provision for loan losses to $60,000 for the year ended June 30, 2006 from $135,000 for the year ended June 30, 2005 were not enough to negate a $331,000 or 6.1% increase in non-interest expense for the year ended June 30, 2006. A $297,000 increase in salaries and employee benefits expense accounted for most of the increase in non-interest expense.
Net income of $1.5 million for the year ended June 30, 2005 represented a 4.4%increase as compared to net income for the year ended June 30, 2004 of $1.4 million. Net interest income grew by $455,000 or 6.6% while non-interest income rose by $112,000. These increases, however, were mostly offset by non-interest expenses for the year ended June 30, 2005 which grew by $532,000 or 10.9% compared to the year ended June 30, 2004.
Net Interest Income. Net interest income for the year ended June 30, 2006 amounted to $7.5 million and was $88,000 or 1.2% higher than net interest income for the year ended June 30, 2005 of $7.4 million. A $2.4 million or 20.1% increase in interest income for the year ended June 30, 2006 was substantially offset by a $2.3 million or 51.9% increase in interest expense so that net interest income for the year ended June 30, 2006 was nearly flat as compared to the year ended June 30, 2005.
The increase in interest income for the year ended June 30, 2006 resulted from an 11.6% increase in the average balance of interest-earning assets and a 42 basis points increase in the average yield thereon. Our average yield on loans receivable, net for the year ended June 30, 2006 was 6.20%, 39 basis points greater than for the year ended June 30, 2005. The increase in yield on loans combined with a $26.1 million increase in the average balance of loans receivable, net for the year ended June 30, 2006 are primarily responsible for the 20.1% increase in interest income over the year ended June 30, 2005.
The 51.9% increase in interest expense for the year ended June 30, 2006 is largely attributable to higher borrowings during the year. The average cost of deposits rose by 55 basis points, but the average balance of deposits was level between years. The average balance of Federal Home Loan Bank advances for the year ended June 30, 2006 was $37.6 million and the average cost thereof was 4.43%. This represents a $23.3 million or 163.7% increase over the average balance of $14.3 million for the year ended June 30, 2005 and a 147 basis point increase over the average cost of advances for the year ended June 30, 2005.
Net interest income for the year ended June 30, 2005 was $7.4 million as compared to $6.9 million for the year ended June 30, 2004, representing a $455,000 or 6.6% increase. Interest income for the year ended June 30, 2005 was $11.8 million compared to $10.8 million for the year ended June 30, 2004. This
9.1% increase in interest income for the year ended June 30, 2005 was partially offset by a 13.7% or $530,000 increase in interest expense.
The $1.0 million increase in interest income for the year ended June 30, 2005 resulted primarily from an 8.4% increase in the average balance of interest-earning assets as the average yield of interest- earning assets increased slightly between years, from 5.45% to 5.49%. Our average balance of loans receivable, net for the year ended June 30, 2005 was $28.1 million or 18.5% higher than for the year ended June 30, 2004. Interest income on loans was $1.5 million or 16.6% higher primarily as a result of the 18.5% increase in average balance. A 10 basis point decrease in the average yield on loans from 5.91% for the year ended June 30, 2004 to 5.81% for the year ended June 30, 2005 was caused by a heavy amount of refinancing activity when borrowers perceived that the historically low rate environment was ending.
The 13.7% increase in interest expense for the year ended June 30, 2005 as compared to the year ended June 30, 2004 resulted from a 232.8% or $10.0 million increase in the average balance of Federal Home Loan Bank advances and a 184 basis point increase in the average cost thereof from 1.12% for the year ended June 30, 2004 to 2.96% for the year ended June 30, 2005. Interest expense also rose as a result of a $10.1 million or 5.6% increase in the average balance of interest-bearing deposits. The average cost of deposits, however, actually fell three basis points for the year ended June 30, 2005 since much of the growth in deposits occurred in the lower costing checking and money market account categories.
Our net interest rate spread was 3.34% for the year ended June 30, 2004, compared to 3.33% for the year ended June 30, 2005 and 2.97% for the year ended June 30, 2006. The spread decreased during the year ended June 30, 2006 as our average cost of interest-bearing liabilities increased by 78 basis points to 2.94%, a 36.1% increase over the year ended June 30, 2005. The Bank's increasing utilization of Federal Home Loan Bank advances to fund loan originations had the effect of increasing the average cost of interest-bearing liabilities. In comparison, the average yield on interest-earning assets increased 42 basis points from 5.49% for the year ended June 30, 2005 to 5.91% for the year ended June 30, 2006.
Provision for Loan Losses. The allowance for loan losses is a valuation account that reflects our estimation of the losses inherent in our loan portfolio to the extent they are both probable and reasonable to estimate. The allowance is established through provisions for loan losses that are charged to income in the period they are established. We charge losses on loans against the allowance for loan losses when we believe the collection of loan principal is unlikely. Recoveries on loans previously charged-off are added back to the allowance. Compared to the year ended June 30, 2004, the provision for the year ended June 30, 2005 was essentially the same. The provision for the year ended June 30, 2006 was substantially less and the decrease reflected the drop in total non-performing loans from $2.4 million at June 30, 2005 to $723,000 at June 30, 2006, which was attributable to non-performing loans being paid off. The ratio of total non-performing loans to total loans was 1.13% at June 30, 2004 and 1.24% at June 30, 2005 and then dropped to 0.32% at June 30, 2006.
Non-Interest Income. This category includes fees derived from checking accounts, ATM transactions and debit card use and mortgage related fees. It also includes increases in the cash-surrender value of our bank owned life insurance. Overall, non-interest income fell by $26,000 for the year ended June 30, 2006 as compared to the year ended June 30, 2005 and increased by $112,000 for the year ended June 30, 2005 as compared to the year ended June 30, 2004.
Income from fees and service charges is the largest component of non-interest income and totaled $338,000, $322,000 and $335,000 for the years ended June 30, 2006, 2005 and 2004.
Income on bank owned life insurance of $156,000 for the year ended June 30, 2005 and $162,000 for the year ended June 30, 2006 represented the next largest component of non-interest income for those years. The Bank purchased $3.5 million of bank owned life insurance during the year ended June 30, 2004. Income on bank owned life insurance totaled $56,000 for the year ended June 30, 2004.
Non-interest income included income from investment in real estate of $52,000 and $51,000 in the years ended June 30, 2005 and 2004. During the year ended June 30, 2006, a loss from investment in real estate of $120,000 was recorded, primarily representing a $110,000 loss related to the sale of a property.
Non-Interest Expenses. Total non-interest expenses grew by 6.1% during the year ended June 30, 2006 and by 10.9% during the year ended June 30, 2005. They amounted to $5.8 million, $5.4 million and $4.9 million for the years ended June 30, 2006, 2005 and 2004, respectively.
Salaries and employee benefits expense totaled $2.8 million for the year ended June 30, 2006, a $297,000 or 11.9% increase over the year ended June 30, 2005. Salaries and employee benefits expense for the year ended June 30, 2005 totaled $2.5 million, a $292,000 or 13.3% increase over $2.2 million for the year ended June 30, 2004. Salaries and employee benefits are our main non-interest expense and represented 48.4%, 46.4% and 45.0% of non-interest expenses for the years ended June 30, 2006, 2005 and 2004, respectively. Included in employee benefits is an Executive Incentive Retirement Plan which we implemented during the year ended June 30, 2004.
Non-interest expense will be impacted in future periods by the operation of the Martinsville branch office which opened in July 2006 and the Bernardsville branch office, which is projected to open in late 2007.
We also expect that non-interest expenses will be higher going forward as a result of the accounting, legal and various other additional non-interest expenses associated with operating as a public company, particularly as a result of the requirements of the Sarbanes-Oxley Act of 2002.
Additional annual employee compensation and benefit expenses stemming from the shares granted to employees, officers and directors under new benefit plans will also increase non-interest expenses. We will recognize expense for our employee stock ownership plan when shares are committed to be released to participants' accounts and will recognize expenses for restricted stock awards over the vesting period of awards made to recipients. In addition, we will be required to recognize compensation expense related to stock options outstanding based upon the fair value of such awards at the date of grant over the period that such awards are earned.
Income Taxes. Income tax expense for the year ended June 30, 2006 was $834,000 as compared to $919,000 for the year ended June 30, 2005 and $948,000 for the year ended June 30, 2004. The reduction for the year ended June 30, 2006 reflects lower pre-tax income for that year as well as a slight reduction in the effective tax rate. The reduction for the year ended June 30, 2005 as compared to the year ended June 30, 2004 reflects a decrease in the effective tax rate from 39.6% to 37.8%. The decrease in the effective tax rate was due to an increase in income from bank owned life insurance, which is tax exempt.
Average Balance Sheet. The following tables set forth certain information at June 30, 2006 and for the years ended June 30, 2006, 2005 and 2004. The average yields and costs are derived by dividing income or expense by the average balance of assets or liabilities, respectively, for the periods presented. Average balances are derived from daily balances.
Year Ended June 30,
----------------------------------------------------------------------------------
At June 30, 2006 2006 2005 2004
---------------- -------------------------- --------------------------- -------------------------
Interest Average Interest Average Interest Average
Yield/ Average Earned/ Yield/ Average Earned/ Yield/ Average Earned/ Yield/
Balance Cost Balance Paid Cost Balance Paid Cost Balance Paid Cost
------- ---- ------- ---- ---- ------- ---- ---- ------- ---- ----
(Dollars in thousands)
Interest-earning assets:
Loans(1).................... $219,242 6.28% $205,905 $12,773 6.20% $179,837 $10,457 5.81% $151,736 $ 8,967 5.91%
Securities.................. 27,707 3.93% 27,959 1,177 4.21% 29,505 1,215 4.12% 38,690 1,736 4.49%
Other interest-earning
assets(2)................. 6,923 5.34% 5,008 167 3.33% 4,636 82 1.77% 6,995 66 0.94%
-------- -------- ------- -------- ------- -------- -------
Total interest-earning
assets.................... 253,872 6.00% 238,872 14,117 5.91% 213,978 11,754 5.49% 197,421 10,769 5.45%
------- ------- -------
Non-interest-earning
assets.................... 16,312 16,719 15,292 8,534
-------- -------- -------- --------
Total assets................ $270,184 $255,591 $229,270 $205,955
======== ======== ======== ========
Interest-bearing liabilities:
NOW & money market.......... $ 30,896 0.97% $ 34,117 329 0.96% $ 36,251 334 0.92% $ 31,594 319 1.01%
Savings and club deposits... 42,696 1.49% 44,839 568 1.27% 49,757 604 1.21% 49,162 597 1.21%
Certificates of deposit..... 112,028 4.15% 109,755 4,098 3.73% 102,635 3,025 2.95% 97,803 2,892 2.96%
-------- -------- ------- -------- ------- -------- -------
Total interest-bearing
deposits.................. 185,620 3.01% 188,711 4,995 2.65% 188,643 3,963 2.10% 178,559 3,808 2.13%
Federal Home Loan Bank
advances.................. 54,181 5.11% 37,637 1,666 4.43% 14,272 423 2.96% 4,289 48 1.12%
-------- -------- ------- -------- ------- -------- -------
Total interest-bearing
liabilities............... 239,801 3.49% 226,348 6,661 2.94% 202,915 4,386 2.16% 182,848 3,856 2.11%
------- ------- -------
Non-interest-bearing
deposits.................. 9,135 8,294 7,297 5,683
Other non-interest-bearing
liabilities............... 1,757 1,782 1,572 1,461
-------- -------- -------- --------
Total liabilities........... 250,693 236,424 211,784 189,992
Stockholder's equity........ 19,491 19,167 17,486 15,963
-------- -------- -------- --------
Total liabilities and
stockholder's equity...... $270,184 $255,591 $229,270 $205,955
======== ======== ======== ========
Net interest rate
spread(3)................. 2.51% $ 7,456 2.97% $ 7,368 3.33% $ 6,913 3.34%
==== ======= ==== ======= ==== ======= ====
Net interest margin(4)...... 3.12% 3.44% 3.50%
==== ==== ====
Ratio of interest-
earning assets to
interest-bearing
liabilities............... 105.87% 105.53% 105.45% 107.97%
====== ====== ====== ======
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Rate/Volume Analysis. The following table reflects the sensitivity of our interest income and interest expense to changes in volume and in prevailing interest rates during the periods indicated. Each category reflects the: (1) changes in volume (changes in volume multiplied by old rate); (2) changes in rate (changes in rate multiplied by old volume); and (3) net change. The net change attributable to the combined impact of volume and rate has been allocated proportionally to the absolute dollar amounts of change in each.
Year Ended Year Ended
June 30, June 30,
----------------------------- -----------------------------
2006 vs. 2005 2005 vs. 2004
----------------------------- -----------------------------
Increase (Decrease) Increase (Decrease)
Due to Due to
----------------------------- -----------------------------
Volume Rate Net Volume Rate Net
------- ------- ------- ------- ------- -------
(In thousands)
Interest and dividend income:
Loans ............................ $ 1,583 $ 733 $ 2,316 $ 1,643 $ (153) $ 1,490
Securities ....................... (64) 26 (38) (387) (134) (521)
Other interest-earning assets .... 7 78 85 (28) 44 16
------- ------- ------- ------- ------- -------
Increase (decrease) in
total interest income .......... 1,526 837 2,363 1,228 (243) 985
Interest expense:
NOW and money market accounts ...... $ (20) $ 15 $ (5) $ 45 $ (30) $ 15
Savings and club ................... (64) 28 (36) 7 - 7
Certificates of deposit ............ 223 850 1,073 143 (10) 133
------- ------- ------- ------- ------- -------
Total interest-bearing deposits .. 139 893 1,032 195 (40) 155
Federal Home Loan Bank advances .... 954 289 1,243 220 155 375
------- ------- ------- ------- ------- -------
Increase in total interest expense 1,093 1,182 2,275 415 115 530
Change in net interest income ...... $ 433 $ (345) $ 88 $ 813 $ (358) $ 455
======= ======= ======= ======= ======= =======
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Management of Interest Rate Risk and Market Risk
Qualitative Analysis. Because the majority of our assets and liabilities are sensitive to changes in interest rates, a significant form of market risk for us is interest rate risk, or changes in interest rates.
We derive our income mainly from the difference or "spread" between the interest earned on loans, securities and other interest-earning assets, and interest paid on deposits, borrowings and other interest-bearing liabilities. In general, the larger the spread, the more we earn. When market rates of interest change, the interest we receive on our assets and the interest we pay on our liabilities will fluctuate. This can cause decreases in our spread and can adversely affect our income.
Several years ago market interest rates were at historically low levels. However, between June 2004 and June 2006, the U.S. Federal Reserve steadily increased its target federal funds rate, raising it 17 times, from 1.00% to 5.25%. While the federal funds rate and other short-term market interest rates, which we use as a guide to our deposit pricing, have increased, intermediate- and long-term market interest rates, which we use as a guide to our loan pricing, have not increased proportionately. This has led to a "flattening" of the market yield curve, which has even "inverted" recently as short-term rates have exceeded long-term rates over an intermediate maturity horizon. The relatively flat yield curve has hurt our net interest rate spread and net interest margin because the interest rates we pay on our deposits have repriced upwards faster than the interest rates that we earn on our loans and investments.
Quantitative Analysis. The following table presents Millington Savings Bank's net portfolio value as of June 30, 2006. The Bank outsources its interest rate risk modeling and the net portfolio values shown in this table were calculated by an outside consultant, based on information provided by Millington Savings Bank.
At June 30, 2006
-------------------------------------------------------------------------
Net Portfolio Value
Net Portfolio Value as % of Present Value of Assets
---------------------- --------------------------------------------
Changes in Net Portfolio Basis Point
Rates(1) $ Amount $ Change % Change Value Ratio Change
-------- -------- -------- -------- ----------- ------
(Dollars in thousands)
+300 bp 10,282 (12,755) -55.37% 4.22% (454) bp
+200 bp 14,293 (8,743) -37.95% 5.72% (303) bp
+100 bp 18,470 (4,567) -19.82% 7.21% (154) bp
0 bp 23,037 0 0.00% 8.75% 0 bp
-100 bp 26,879 3,843 16.68% 9.97% 122 bp
-200 bp 29,532 6,495 28.20% 10.77% 201 bp
|
Future interest rates or their effect on net portfolio value or net interest income are not predictable. Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions, including relative levels of market interest rates, prepayments, and deposit run-offs, and should not be relied upon as indicative of actual results. Certain shortcomings are inherent in this type of computation. Although certain assets and liabilities may have similar maturity or periods of repricing, they may react at different times and in different degrees to changes in the market interest rates. The interest rate on certain types of assets and liabilities, such as demand deposits and savings accounts, may fluctuate in advance of changes in market interest rates, while rates on other types of assets and liabilities may lag behind changes in market interest rates. Certain assets, such as adjustable rate mortgages, generally have features which restrict changes in interest rates on a short-term basis and over the life of the asset. In the event of a change in interest rates, prepayments and early withdrawal levels could deviate significantly from those assumed in making calculations set forth above. Additionally, an increased credit risk may result as the ability of many borrowers to service their debt may decrease in the event of an interest rate increase.
Notwithstanding the discussion above, the quantitative interest rate analysis presented above indicates that a rapid increase in interest rates would adversely affect our net interest margin and earnings.
Liquidity, Commitments and Capital Resources
The Bank must be capable of meeting its customer obligations at all times. Potential liquidity demands include funding loan commitments, cash withdrawals from deposit accounts and other funding needs as they present themselves. Accordingly, liquidity is measured by our ability to have sufficient cash reserves on hand, at a reasonable cost and/or with minimum losses.
Senior management is responsible for managing our overall liquidity position and risk and is responsible for ensuring that our liquidity needs are being met on both a daily and long term basis. The Financial Review Committee, comprised of senior management and chaired by President and Chief Executive Officer Gary Jolliffe, is responsible for establishing and reviewing our liquidity procedures, guidelines, and strategy on a periodic basis.
Our approach to managing day-to-day liquidity is measured through our daily calculation of investable funds and/or borrowing needs to ensure adequate liquidity. In addition, senior management constantly evaluates our short-term and long-term liquidity risk and strategy based on current market conditions, outside investment and/or borrowing opportunities, short and long-term economic trends, and anticipated short and long-term liquidity requirements. The Bank's loan and deposit rates may be adjusted as another means of managing short and long-term liquidity needs. We do not at present participate in derivatives or other types of hedging instruments to meet liquidity demands, as we take a conservative approach in managing liquidity.
At June 30, 2006, the Bank had outstanding commitments to originate loans of $3.0 million, construction loans in process of $5.0 million, unused lines of credit of $26.5 million and standby letters of credit of $108,000. Certificates of deposit scheduled to mature in one year or less at June 30, 2006, totaled $76.5 million.
The Bank generates cash through borrowings from the Federal Home Loan Bank to meet its day- to-day funding obligations. At June 30, 2006, its total loans to deposits ratio was 115%. At June 30, 2006, the Bank's collateralized borrowing limit with the Federal Home Loan Bank was $56.2 million, of which $54.2 million was outstanding. As of June 30, 2006, the Bank also had a $20.0 million line of credit with a financial institution for reverse repurchase agreements (which is a form of borrowing) that it could access if necessary.
The following tables disclose our contractual obligations and commitments as of June 30, 2006.
Less Than After
Total 1 Year 1-3 Years 4-5 Years 5 Years
------- --------- --------- --------- --------
(In thousands)
Federal Home Loan Bank borrowings............. $54,181 $41,500 $ - $12,681 $ -
Certificates of deposit....................... 79,772 44,207 23,166 2,395 10,004
Leases........................................ 1,751 237 474 474 566
-------- ------- ------- ------- -------
Total................................... $135,704 $85,944 $23,640 $15,550 $10,570
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Total
Amounts Less Than Over
Committed 1 Year 1-3 Years 4-5 Years 5 Years
--------- --------- --------- --------- --------
(In thousands)
Lines of credit(1)............................ $26,546 $ 726 $1,646 $599 $23,575
Construction loans in process................. 4,968 4,460 508 - -
Other commitments to extend credit(1)......... 2,979 2,979 - - -
------- ------ ------ ---- -------
Total..................................... $34,493 $8,165 $2,154 $599 $23,575
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Consistent with its goals to operate a sound and profitable financial organization, the Bank actively seeks to maintain its status as a well-capitalized institution in accordance with regulatory standards. As of June 30, 2006, the Bank exceeded all applicable regulatory capital requirements. See Note 13 to our consolidated financial statements beginning at page F-1 for more information about the Bank's regulatory capital compliance.
Off-Balance Sheet Arrangements
We are a party to financial instruments with off-balance-sheet risk in the normal course of our business of investing in loans and securities as well as in the normal course of maintaining and improving Millington Savings Bank's facilities. These financial instruments include significant purchase commitments, such as commitments related to capital expenditure plans and commitments to purchase investment securities or mortgage-backed securities, and commitments to extend credit to meet the financing needs of our customers. At June 30, 2006, our significant off-balance sheet commitments consisted of commitments to originate loans of $3.0 million, construction loans in process of $5.0 million, unused lines of credit of $26.5 million and standby letters of credit of $108,000.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Our exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual amount of those instruments. We use the same credit policies in making commitments and conditional obligations as we do for on-balance-sheet instruments. Since a number of commitments typically expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. For additional information regarding our outstanding lending commitments at June 30, 2006, see Note 14 to our consolidated financial statements beginning on page F- 1.
Impact of Inflation
The financial statements included in this document have been prepared in accordance with accounting principles generally accepted in the United States of America. These principles require the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative purchasing power of money over time due to inflation.
Our primary assets and liabilities are monetary in nature. As a result, interest rates have a more significant impact on our performance than the effects of general levels of inflation. Interest rates, however, do not necessarily move in the same direction or with the same magnitude as the price of goods and services, since such prices are affected by inflation. In a period of rapidly rising interest rates, the liquidity and maturities of our assets and liabilities are critical to the maintenance of acceptable performance levels.
The principal effect of inflation on earnings, as distinct from levels of interest rates, is in the area of non-interest expense. Expense items such as employee compensation, employee benefits and occupancy and equipment costs may be subject to increases as a result of inflation. An additional effect of inflation is the possible increase in the dollar value of the collateral securing loans that we have made. We are unable to determine the extent, if any, to which properties securing our loans have appreciated in dollar value due to inflation.
Recent Accounting Pronouncements
On December 16, 2004, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 123R, "Share-Based Payment," which replaces SFAS No. 123, "Accounting for Stock-Based Compensation" and supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees." This statement will require that all share-based payments to employees, including grants of employee stock options, be recognized as compensation costs in the financial statements
based on their fair values. The effective date of this statement was delayed until fiscal years beginning after June 15, 2005. The impact of the adoption of this standard will be dependent on the nature and extent of stock-based compensation granted in future periods. See Pro Forma Data for an illustration of the application of this standard.
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections," which establishes, unless impracticable, retrospective application as the required method for reporting a change in accounting principle in the absence of explicit transition requirements specific to the newly adopted accounting principle. The statement provides guidance for determining whether retrospective application of a change in accounting principle is impracticable. The statement also addresses the reporting of a correction of error by restating previously issued financial statements. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. We will adopt this statement as required, and do not believe the adoption will have a material effect on our results of operations or financial position.
In February 2006, the FASB issued SFAS No. 155, "Accounting for Certain Hybrid Financial Instruments." SFAS No. 155 amends SFAS No. 133 and 140, and improves the financial reporting of certain hybrid financial instruments by requiring more consistent accounting that eliminates exemptions and provides a means to simplify the accounting for these instruments. Specifically, SFAS No. 155 allows financial instruments that have embedded derivatives to be accounted for as a whole (eliminating the need to bifurcate the derivative from its host) if the holder elects to account for the whole instrument on a fair value basis. SFAS No. 155 is effective for all financial instruments acquired or issued after the beginning of an entity's first fiscal year that begins after September 15, 2006. We are required to adopt the provisions of SFAS No. 155, as applicable, beginning on July 1, 2007. We do not believe the adoption of SFAS No. 155 will have any impact on our financial position or results of operations.
In March 2006, the FASB issued SFAS No. 156, "Accounting for Servicing of Financial Assets - An Amendment of FASB Statement No. 140." SFAS No. 156 requires that all separately recognized servicing assets and servicing liabilities be initially measured at fair value, if practicable, and permits, but does not require, the subsequent measurement of servicing assets and servicing liabilities at fair value. SFAS No. 156 is effective as of the beginning of an entity's first fiscal year that begins after September 15, 2006, which for us will be July 1, 2007. We do not believe that the adoption of SFAS No. 156 will have any effect on our financial position or results of operations.
In July 2006, the FASB issued FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an Interpretation of FASB Statement No. 109" (FIN 48), which clarifies the accounting for uncertainty in tax positions. This Interpretation requires that companies recognize in their financial statements the impact of a tax position only, if the company has determined based on the technical merits of the tax position, that the tax position would more likely than not be sustained upon an examination by the appropriate taxing authority. The provisions of FIN 48 are effective for fiscal years beginning after December 15, 2006, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. We do not believe that the adoption of FIN 48 will have any effect on our financial position or results of operations.
BUSINESS OF MSB FINANCIAL, MHC
MSB Financial, MHC is a federal mutual holding company and is subject to regulation by the Office of Thrift Supervision. MSB Financial, MHC currently owns 100% of the outstanding common stock of MSB Financial Corp. Upon completion of the offering, it will own 55%. So long as MSB Financial, MHC is in existence, it will own a majority of the outstanding common stock of MSB Financial Corp. If MSB Financial, MHC converted to a full stock company in what is referred to as a "second-step conversion," it would cease to exist. The Board of Directors has no current plans to undertake a second- step transaction.
The primary business activity of MSB Financial, MHC going forward will continue to be owning a majority of MSB Financial Corp.'s common stock. MSB Financial, MHC, however, is authorized to engage in any other business activities that are permissible for mutual holding companies under federal law, including investing in loans and securities. MSB Financial, MHC does not maintain offices separate from those of Millington Savings Bank or employ any persons other than certain Millington Savings Bank officers. Officers of MSB Financial, MHC are not separately compensated for their service.
BUSINESS OF MSB FINANCIAL CORP.
MSB Financial Corp. is a federal mutual holding company subsidiary and is subject to regulation by the Office of Thrift Supervision. It was organized for the purpose of being a holding company for Millington Savings Bank.
MSB Financial Corp.'s primary activity is and will continue to be holding all of the stock of Millington Savings Bank. MSB Financial Corp. intends to use the proceeds of the offering as discussed under Use of Proceeds. MSB Financial Corp. does not maintain offices separate from those of Millington Savings Bank or employ any persons other than certain Millington Savings Bank officers. Officers of MSB Financial Corp. are not separately compensated for their service.
BUSINESS OF MILLINGTON SAVINGS BANK
General
Millington Savings Bank is a New Jersey-chartered stock savings bank. Its deposits are federally insured by the Deposit Insurance Fund as administered by the Federal Deposit Insurance Corporation and it is regulated by the New Jersey Department of Banking and Insurance and the Federal Deposit Insurance Corporation.
Our primary business is attracting retail deposits from the general public and using those deposits, together with funds generated from operations, principal repayments on securities and loans and borrowed funds, for our lending and investing activities. Our loan portfolio consists of one-to-four family residential real estate mortgages, home equity loans and lines of credit, commercial real estate mortgages, construction loans, commercial loans, and consumer loans. We also invest in U.S. government obligations and mortgage-backed securities. At June 30, 2006, our loan portfolio comprised approximately 81% of our total assets, and our securities portfolio represented 10% of our total assets.
Market Area. Our main office is located in Millington, in Morris County, New Jersey. We currently have three branch offices: one in the Dewy Meadow Village complex and one in the RiverWalk Village complex, both located in the Basking Ridge section of Bernards Township, and one in the
Martinsville section of Bridgewater, all three of which are within Somerset County, New Jersey. A new branch is scheduled to open in Bernardsville in Somerset County in late 2007. Morris County covers an area of 469 square miles and contains 39 municipalities with a 2000 Census population of approximately 470,000. Somerset County covers an area of 305 square miles and contains 21 municipalities with a population of approximately 315,000. Our lending is concentrated in central New Jersey and the source of our deposits is predominantly the communities surrounding our offices. These communities are demographically similar in their higher levels of education and white collar jobs as compared to the county average, and all but one is characterized by household income above the county average. The communities in which we are located are generally considered to be developing or maturing markets projected to experience increases in population and households through the next census date of 2010.
Our business of attracting deposits and making loans is primarily conducted within our market area. A downturn in the local economy could reduce the amount of funds available for deposit and the ability of borrowers to repay their loans. As a result, our profitability could decrease.
Competition. We operate in a market area with a high concentration of banking and financial institutions, and we face substantial competition in attracting deposits and in originating loans. A number of our competitors are significantly larger institutions with greater financial and managerial resources and lending limits. Our ability to compete successfully is a significant factor affecting our growth potential and profitability.
Our competition for deposits and loans historically has come from other insured financial institutions such as local and regional commercial banks, savings institutions, and credit unions located in our primary market area. We also compete with mortgage banking and finance companies for real estate loans and with commercial banks and savings institutions for consumer loans, and we face competition for funds from investment products such as mutual funds, short-term money funds and corporate and government securities. There are large competitors operating throughout our total market area, and we also face strong competition from other community-based financial institutions.
Lending Activities
We have traditionally focused on the origination of one-to-four family loans and home equity loans and lines of credit, which together comprise a substantial majority of the total loan portfolio. We also provide financing for commercial real estate, including multi-family dwellings/apartment buildings, service/retail and mixed-use properties, churches and non-profit properties, medical and dental facilities and other commercial real estate. In recent years, construction loans have grown as a component of our portfolio. We also originate commercial loans. Our consumer loans are comprised of auto loans, personal loans and account loans.
Loan Portfolio Composition. The following tables analyzes the composition of the Bank's portfolio by loan category at the dates indicated.
At June 30,
--------------------------------------------------------------------------------------------
2006 2005 2004 2003 2002
--------------- --------------- ---------------- ---------------- ---------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
Dollars in thousands)
Type of Loans:
One-to-four family real estate.... $120,921 53.89% $113,488 58.50% $109,781 62.73% $ 96,085 67.55% $ 88,423 70.90%
Commercial real estate............ 23,587 10.51 17,971 9.26 17,162 9.81 12,367 8.69 11,016 8.83
Construction...................... 23,276 10.37 18,398 9.48 13,668 7.81 7,686 5.40 3,486 2.80
Consumer.......................... 1,861 0.83 1,819 0.94 1,703 0.97 1,604 1.13 2,015 1.62
Home equity....................... 49,257 21.95 38,291 19.74 29,710 16.98 21,543 15.14 17,502 14.03
Commercial........................ 5,497 2.45 4,029 2.08 2,970 1.70 2,969 2.09 2,274 1.82
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total loans receivable....... 224,399 100.00% 193,996 100.00% 174,994 100.00% 142,254 100.00% 124,716 100.00%
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Less:
Construction loans in process... (4,968) (5,719) (5,371) (2,882) (842)
Allowance for loan losses....... (921) (874) (742) (651) (783)
Deferred loan fees.............. (189) (211) (267) (226) (123)
-------- -------- -------- -------- --------
Total loans receivable, net.. $218,321 $187,192 $168,614 $138,495 $122,968
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Loan Maturity Schedule. The following table sets forth the maturity of the Bank's loan portfolio at June 30, 2006. Demand loans, loans having no stated maturity, and overdrafts are shown as due in one year or less. Undisbursed amounts on construction loans totaling $5.0 million at June 30, 2006 are not shown in the table. The table shows contractual maturities and does not reflect repricing or the effect of prepayments. Actual maturities may differ.
At June 30, 2006
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One-to-Four
Family Commercial
Real Estate Real Estate Construction Consumer Home Equity Commercial Total
----------- ----------- ------------ -------- --------- ---------- ---------
(In thousands)
Amounts Due:
Within 1 Year................ $ 1,875 $ 7 $ 424 $1,309 $ - $ 739 $ 4,354
-------- ------- ------- ------ ------ ------ --------
After 1 year:
1 to 5 years............... 39,611 9,145 17,884 516 2,190 4,210 73,556
5 to 10 years.............. 12,163 4,606 - 36 13,329 485 30,619
10 to 15 years............. 29,552 8,088 - - 17,056 63 54,759
Over 15 years.............. 37,720 1,741 - - 16,682 - 56,143
-------- ------- ------- ------ ------ ------ --------
Total due after one year..... 119,046 23,580 17,884 552 49,257 4,758 215,077
-------- ------- ------- ------ ------ ------ --------
Total amount due............. $120,921 $23,587 $18,308 $1,861 $49,257 $5,497 $219,431
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The following table sets forth the dollar amount of all loans at June 30, 2006 due after June 30, 2007, which have fixed interest rates and which have floating or adjustable interest rates.
Floating or
Fixed Rates Adjustable Rates Total
----------- ---------------- -----
(In thousands)
One-to-four family real estate...... $116,405 $ 2,641 $119,046
Commercial real estate.............. 23,580 - 23,580
Construction........................ - 17,884 17,884
Consumer............................ 552 - 552
Home equity......................... 30,409 18,848 49,257
Commercial.......................... 2,419 2,339 4,758
-------- ------ --------
Total............................. $173,365 $41,712 $215,077
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One-to-Four Family Real Estate Mortgages. Our primary lending activity consists of the origination of one-to-four family first mortgage loans. Fixed rate, conventional mortgage loans are offered by the Bank with terms from 5 to 30 years. A bi-weekly payment option is available wherein a payment is made every fourteen days via automatic deduction from the borrower's Millington Savings Bank account.
We also originate fixed rate balloon mortgages with terms of 3 to 10 years and flexible amortizations. At the end of each term the mortgage may be paid off in full with no penalty or, provided that the loan is in good standing and there has been no negative change in value of the collateral, we may extend the existing mortgage on new terms, at a new interest rate. If the mortgage is extended, there may be additional charges at the time of each extension.
We originate adjustable rate mortgages, or ARM's, with up to 30 year terms at rates based upon the U.S. Treasury One Year Constant Maturity as an index. Our ARM's currently reset on an annual basis, beginning with the first year, and have a two percent annual increase cap and a six percent lifetime adjustment cap.
Substantially all residential mortgages include "due on sale" clauses, which are provisions giving the lender the right to declare a loan immediately payable if the borrower sells or otherwise transfers an interest in the property to a third party. Property appraisals on real estate securing one-to-four family residential loans are made by state certified or licensed independent appraisers and are performed in accordance with applicable regulations and policies. We require title insurance policies on all first lien one-to-four family residential loans. Homeowners, liability, fire and, if applicable, flood insurance policies are also required.
We provide financing on residential investment properties with either 3 to 10 year balloon mortgages or 5 to 30 year fixed duration mortgages. At the end of each term a balloon mortgage on an investment property may be paid off in full with no penalty or, provided that the loan is in good standing and there has been no negative change in value of the collateral, we may extend the existing mortgage on new terms, at a new interest rate. If the mortgage is extended, there may be additional charges at the time of each extension. Our investment property lending is available to individuals or proprietorships, partnerships, limited liability corporations, and corporations with personal guarantees. All investment property is underwritten on its ability substantially to carry itself, unless the property is a two-family residence with the mortgagor living in one of the units. Preference is given to those loans where rental income covers all operating expenses, including but not limited to principal and interest, real estate tax, hazard insurance, utilities, maintenance, and reserve. Operating expenses generally may not exceed rental
income by more than 10%. Any negative cash flow will be included in the limit on the borrower's total debt ratio.
We generally originate one-to-four family first mortgage loans, for primary residence or investment, for up to 80% loan-to-value. Although not our normal practice, our lending policy permits us to exceed this limit. Our president and executive vice president are both authorized to approve a loan- to-value ratio of up to 90%. Loans in excess of 90% loan-to-value must have private mortgage insurance and must be approved by the Board of Directors.
Commercial Real Estate Mortgages. Our commercial real estate lending includes multi-family dwellings/apartment buildings, service/retail and mixed-use properties, churches and non-profit properties, medical and dental facilities and other commercial real estate. Our commercial real estate mortgage loans are either 3 to 10 year balloon mortgages (with a maximum amortization period of 25 years) or 15 year fixed duration mortgages. This type of lending is made available to proprietorships, partnerships, and corporations with personal guarantees. All commercial property is underwritten on its ability substantially to carry itself. A cash flow and lease analysis is performed for each property. Preference is given to those loans where rental income covers all operating expenses, including but not limited to principal and interest, real estate tax, hazard insurance, utilities, maintenance, and reserve. Operating expenses may exceed rental income by not more than 10%. Any negative cash flow will be included in the limit on the borrower's total debt ratio. Cash from other assets of the borrower, who may own multiple properties and generate a surplus, can be made available to cover debt-service shortages of the financed property.
The maximum loan-to-value ratio on most commercial real estate loans we originate is 80%. Although not our normal practice, our lending policy permits us to originate these loans in excess of an 80% loan-to-value. Our President and Executive Vice President are authorized to approve a loan-to-value ratio of up to 90% on commercial real estate loans.
The management skills of the borrower are judged on the basis of his/her professional experience and must be documented to meet the Bank's satisfaction in relation to the desired project. The assets of the borrower must indicate his/her ability to support the proposed investment, both in terms of liquidity and net worth, and tangible history of the borrower's capability and experience must be evident.
Unlike single-family residential mortgage loans, which generally are made on the basis of the borrower's ability to make repayment from his or her employment and other income, and which are secured by real property whose value tends to be more easily ascertainable, multi-family and commercial real estate loans typically are made on the basis of the borrower's ability to make repayment from the cash flow of the borrower's business or rental income. As a result, the availability of funds for the repayment of commercial real estate and multi-family loans may be substantially dependent on the success of the business itself and the general economic environment. Commercial real estate and multi-family loans, therefore, have greater credit risk than one-to-four family residential mortgages or consumer loans. In addition, commercial real estate and multi-family loans generally result in larger balances to single borrowers, or related groups of borrowers and also generally require substantially greater evaluation and oversight efforts.
Construction Loans. We originate construction and land acquisition loans for an owner-occupied residence or to a builder with a valid contract of sale. With prior Board of Director approval, we also provide financing for speculative residential or commercial construction and development. Individual consideration is given to builders based on their past performance, workmanship, and financial worth. Our construction lending includes loans for construction or major renovations or improvements of owner- occupied residences, however, the majority of this portfolio consists of real estate developers.
Construction loans are mortgages with a one year duration. Funds are disbursed periodically upon inspections made by our inspectors on the completion of each phase, as per the approved draw schedule. Funds disbursed may not exceed 90% loan-to-value of land and improvements at any time during construction. Interest rates on disbursed funds are based on the rate and terms set at the time of closing. The majority of our construction lending is variable rate loans with rates tied to the prime rate published in The Wall Street Journal, plus a premium. Payments on disbursed funds must be made on a monthly basis. The loan-to-value limitation on land acquisition loans is 75%.
Construction lending is generally considered to involve a higher degree of credit risk than residential mortgage lending. If the estimate of construction cost proves to be inaccurate, we may be compelled to advance additional funds to complete the construction with repayment dependent, in part, on the success of the ultimate project rather than the ability of a borrower or guarantor to repay the loan. If we are forced to foreclose on a project prior to completion, there is no assurance that we will be able to recover all of the unpaid portion of the loan. In addition, we may be required to fund additional amounts to complete a project and may have to hold the property for an indeterminate period of time.
Consumer Loans. Our consumer lending products consist of new and used auto loans, secured and unsecured personal loans, account loans and overdraft lines of credit. The maximum term for a loan on a new or used automobile is six years or four years, respectively. We will lend up to 80% of retail value or dealer invoice on a car loan. We offer a deduction on the interest rate for car loans with payments automatically deducted from the borrower's checking or statement savings account with us.
Our personal loans have terms of up to four years with a minimum and maximum balance of $1,000 and $5,000, respectively. A deduction to the interest rate is offered for loans with automatic debit repayment from a checking or statement savings account with us. Our account loans permit a depositor to borrow up to 90% of his or her funds on deposit with us in certificate of deposit accounts. The interest rate is the current rate paid to the depositor, plus a premium. A minimum payment of interest only is required. We offer an overdraft line of credit with a minimum of $500 and up to a maximum of $5,000 and an interest rate tied to the prime rate published in The Wall Street Journal, plus a premium.
Consumer lending is generally considered to involve a higher degree of credit risk than residential mortgage lending. Consumer loan repayment is dependent on the borrower's continuing financial stability and can be adversely affected by job loss, divorce, illness or personal bankruptcy. The application of various federal laws, including federal and state bankruptcy and insolvency laws, may limit the amount which can be recovered on consumer loans in the event of a default. Account loans are fully secured.
Home Equity Loans and Lines of Credit. We offer fixed rate home equity loans and variable rate home equity lines of credit with a minimum credit limit of $5,000. Collateral valuation is established through a variety of methods, including an on-line appraisal valuation estimator, drive by appraisals, recent assessed tax value, purchase price or consideration value as evidenced by a deed or property search report or a report of real estate comparables from a licensed realtor. Loan requests over $250,000, however, require full appraisals, and requests over $450,000 require Board approval. The loan-to-value limit on home equity lending is 80% on owner occupied property and 75% on investment property. The variable rate on home equity lines of credit is adjusted monthly and is currently set at prime for owner occupied properties and prime plus a premium for investment properties. The fixed rate loans on investment property are also higher than fixed rate owner occupied home equity loans. We generally provide home equity financing only for a first or second lien position.
Our fixed rate home equity loans have terms of 5 to 30 years. Our variable rate home equity lines of credit have terms of 15 years, and we also offer an interest only home equity line of credit based on a 10 year term. The loan-to-value limit on interest only home equity financing is 70% on owner occupied property and 60% on investment property. We also offer bridge loans with a variable rate and a 70% loan- to-value limit on owner occupied property and 60% on investment property.
Commercial Loans. We offer revolving lines of credit to businesses to finance short-term working capital needs like accounts receivable and inventory. These lines of credit may be unsecured or secured by accounts receivable and inventory or real estate. We generally provide such financing for no more than a 3 year term and with a variable rate.
We also originate commercial term loans to fund longer-term borrowing needs such as purchasing equipment, property improvements or other fixed asset needs. These loans are secured by new and used machinery, equipment, fixtures, furniture or other long-term fixed assets and have terms of 1 to 7 years. We originate commercial term loans for other general long-term business purposes, and these loans are secured by real estate. Interest on commercial term loans is payable monthly and principal may be payable monthly or quarterly.
The normal minimum amount for our commercial term loans and lines of credit is $5,000. We generally will not lend more than $100,000 on a commercial line of credit or $500,000 on a commercial term loan. We typically do not provide working capital loans to businesses outside our normal market area or to new businesses where repayment is dependent solely on future profitable operation of the business. We avoid originating loans for which the primary source of repayment could be liquidation of the collateral securing the loan in light of poor repayment prospects. We typically require personal guarantees on all commercial loans, regardless of other collateral securing the loan.
The loan-to-value limits related to commercial lending vary according to the collateral. Loans secured by real estate may be originated for up to 80% loan-to-value. Other limits are as follows. Savings accounts: 90% of the deposit amount; accounts receivable: 80% of eligible amounts receivable 60 days or less past due or 90 days from invoice, whichever is less; inventory: 50% of raw materials and 60% of finished goods; stocks: 50% to 75% depending on exchange or market listing; bonds: 'A' rated or better, 90% of market value, less than 'A' rated, 60% of market value; new equipment: 75% of purchase price; and used equipment: lesser of 75% of purchase price or 75% of current market value.
Loans to One Borrower. Under federal law, savings institutions have, subject to certain exemptions, lending limits to one borrower in an amount equal to the greater of $500,000 or 15% of the institution's unimpaired capital and surplus. Accordingly, as of June 30, 2006, our loans to one borrower legal limit was approximately $2.9 million. The Bank's loans to one borrower legal lending limit will be higher following the stock offering because the stock offering proceeds will increase the Bank's capital.
Loans that approach the loans to one borrower limit are fully reviewed by the Board of Directors before being approved. The Bank's lending policies require Board approval before any borrower's existing and/or committed borrowings from the Bank may exceed $1.0 million in aggregate. Any single loan in excess of $1.0 million also requires prior Board approval.
Loan Originations, Purchases, Sales, Solicitation and Processing. Our customary sources of loan applications include repeat customers, referrals from realtors and other professionals and "walk-in" customers. Our residential loan originations are driven by the Bank's reputation, as opposed to being advertising driven.
We normally do not sell loans into the secondary mortgage market and did not sell any loans in the five years ended June 30, 2006. Because it has been our policy to retain the loans we originate in our portfolio, we have not uniformly originated our real estate mortgage loans to meet the documentation standards to sell loans in the secondary mortgage market. We may do so, however, in the future if we find it desirable in connection with interest rate risk management to sell longer term fixed rate mortgages into the secondary mortgage market.
We did not purchase any loans in the five years ended June 30, 2006 and we have generally not purchased participation interests in loans originated by other banks.
Loan Approval Procedures and Authority. Lending policies and loan approval limits are approved and adopted by the Board of Directors. Lending authority is vested primarily in President and Chief Executive Officer Gary Jolliffe, Executive Vice President and Chief Operating Officer Michael Shriner and Vice President and Chief Lending Officer Nancy Schmitz. Each of these officers may approve loans within the following limits: first mortgage real estate and construction loans up to $500,000; home equity loans up to $150,000; consumer loans up to $150,000; and commercial loans up to $150,000. These officers may combine their authorities to make home equity, consumer and commercial loans up to $450,000 and first mortgage real estate and construction loans up to $1.0 million. Prior Board approval is required for home equity, consumer and commercial loans in excess of $450,000 and for first mortgage real estate and construction loans in excess of $1.0 million. The Board also must give prior approval for any aggregation of existing and/or committed loans to one borrower that exceed $1.0 million. Certain other Bank employees also have limited lending authority.
Asset Quality
Loan Delinquencies and Collection Procedures. The Bank's procedures for delinquent loans are as follows:
15 days delinquent: late charge added and first delinquent notice mailed.
30 days delinquent: second delinquent notice mailed.
45 days delinquent: additional late charge added, third delinquent notice mailed and telephone
contact made.
60 days delinquent: telephone contact made and separate letter mailed.
90 days delinquent: Board of Directors makes decision to foreclose or workout.
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When a loan is 90 days delinquent, the Board may determine to refer it to an attorney for repossession or foreclosure. All reasonable attempts are made to collect from borrowers prior to referral to an attorney for collection. In certain instances, we may modify the loan or grant a limited moratorium on loan payments to enable the borrower to reorganize his or her financial affairs, and we attempt to work with the borrower to establish a repayment schedule to cure the delinquency.
As to mortgage loans, if a foreclosure action is taken and the loan is not reinstated, paid in full or refinanced, the property is sold at judicial sale at which we may be the buyer if there are no adequate offers to satisfy the debt. Any property acquired as the result of foreclosure or by deed in lieu of foreclosure is classified as real estate owned until it is sold or otherwise disposed of. When real estate owned is acquired, it is recorded at the lower of the unpaid principal balance of the related loan or its fair market value less estimated selling costs. The initial writedown of the property is charged to the allowance for loan losses. Adjustments to the carrying value of the property that result from subsequent declines in value are charged to operations in the period in which the declines occur. At June 30, 2006, we held no real estate owned.
As to commercial loans, the Bank requires updated financial statements when the loan becomes 90 days delinquent. As to account loans, the outstanding balance is collected from the related account along with accrued interest when the loan is 180 days delinquent.
Loans are reviewed on a regular basis, and all delinquencies of 60 days or more are reported to the Board of Directors. Loans are placed on non-accrual status when they are more than 90 days delinquent, with the exception of loans that may be placed on a non-accrual status at any time if, in the opinion of management, the collection of additional interest is doubtful. Loans with a loan-to-value ratio of 60% or less, however, are not automatically placed on non-accrual status if more than 90 days delinquent. Interest accrued and unpaid at the time a loan is placed on non-accrual status is charged against interest income. Subsequent payments are either applied to the outstanding principal balance or recorded as interest income, depending on the assessment of the ultimate collectibility of the loan. At June 30, 2006, we had approximately $424,000 of loans that were held on a non-accrual basis.
Non-Performing Assets. The following table provides information regarding our non-performing loans and other non-performing assets as of the dates indicated.
At June 30,
---------------------------------------------------------
2006 2005 2004 2003 2002
---- ---- ---- ---- ----
(In thousands)
Loans accounted for on a non-accrual basis:
One-to-four family real estate..................... $ - $1,662 $ 951 $1,103 $ 520
Commercial real estate............................. - - 216 555 664
Construction....................................... - - 55 527 128
Consumer........................................... 1 13 - 10 49
Home equity........................................ 325 554 549 409 49
Commercial......................................... 98 99 124 - 125
---- ------ ------ ------ ------
Total........................................... 424 2,328 1,895 2,604 1,535
---- ------ ------ ------ ------
Accruing loans contractually past due
90 days or more:
One-to-four family real estate..................... 252 39 74 - 10
Commercial real estate............................. - - - 363 -
Construction....................................... 47 - - - -
Consumer........................................... - 2 13 - 11
Home equity........................................ - 38 - - -
Commercial......................................... - - - - 5
---- ------ ------ ------ ------
Total........................................... 299 79 87 363 26
---- ------ ------ ------ ------
Total non-performing loans........................... 723 2,407 1,982 2,967 1,561
---- ------ ------ ------ ------
Total non-performing assets.......................... $723 $2,407 $1,982 $2,967 $1,561
==== ====== ====== ====== ======
Total non-performing loans to total loans............ 0.32% 1.24% 1.13% 2.09% 1.25%
Total non-performing loans to total assets........... 0.27% 1.01% 0.92% 1.51% 0.92%
Total non-performing assets to total assets.......... 0.27% 1.01% 0.92% 1.51% 0.92%
During the year ended June 30, 2006, gross interest income of $34,000
would have been recorded on loans accounted for on a non-accrual basis if those
loans had been current, and $35,000 of interest on a cash basis as collected was
included in income.
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Classified Assets. Management, in compliance with the Uniform Credit Classification and Account Management Policy adopted by the Federal Deposit Insurance Corporation, has instituted an internal loan review program, whereby non-performing loans are classified as special mention, substandard, doubtful or loss. It is our policy to review the loan portfolio, in accordance with regulatory classification procedures, on at least a quarterly basis. When a loan is classified as substandard or doubtful, management is required to evaluate the loan for impairment. When management classifies a portion of a loan as loss, a reserve equal to 100% of the loss amount is required to be established or the loan is to be charged-off.
An asset that does not currently expose the Bank to a sufficient degree of risk to warrant an adverse classification, but which possesses credit deficiencies or potential weaknesses that deserve management's close attention is classified as "special mention."
An asset classified as "substandard" is inadequately protected by the current net worth and paying capacity of the obligor or the collateral pledged, if any. Assets so classified have well-defined weaknesses and are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.
An asset classified as "doubtful" has all the weaknesses inherent in a "substandard" asset with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The possibility of a loss on a doubtful asset is high.
That portion of an asset classified as "loss" is considered uncollectible and of such little value that its continuance as an asset, without establishment of a specific valuation or charge-off, is not warranted. This classification does not necessarily mean that an asset has absolutely no recovery or salvage value; but rather, it is not practical or desirable to defer writing off a basically worthless asset even though partial recovery may be effected in the future.
Management's classification of assets is reviewed by the Board on a regular basis and by the regulatory agencies as part of their examination process. An independent loan review firm performs periodic reviews of our loan portfolio.
The following table discloses the Bank's classification of assets as of June 30, 2006.
At June 30,
2006
-----------
(In thousands)
Special Mention........................ $1,372
Substandard............................ 185
Doubtful............................... -
Loss................................... 1
-------
Total................................ $1,558
======
At June 30, 2006, $722,000 of the loans classified as "special
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mention," none of the loans classified as "substandard" and all of the loans classified as "loss" are included under non-performing assets, as shown in the table above.
Allowance for Loan Losses. The allowance for loan losses is a valuation account that reflects our estimation of the losses in our loan portfolio to the extent they are both probable and reasonable to estimate.
The allowance is established through provisions for loan losses that are charged to income in the period they are established. We charge losses on loans against the allowance for loan losses when we believe the collection of loan principal is unlikely. Recoveries on loans previously charged-off are added back to the allowance.
Management, in determining the allowance for loan losses, considers the losses inherent in the loan portfolio and changes in the nature and volume of our loan activities, along with general economic and real estate market conditions. We establish a specific allowance for loans classified as "loss" or that are determined to be impaired. We make provisions for loan losses to a general allowance according to (i) the type of loan, one-to-four family real estate mortgages, commercial real estate mortgages, construction loans, commercial term loans and lines of credit, consumer loans and home equity loans and lines of credit, with commercial, construction and consumer loans receiving a higher allowance than other loan types, and (ii) whether the loan is current and performing or delinquent, with higher allowances made according to the number of days a loan is delinquent. However, for purposes of establishing the general valuation allowance loans that are delinquent 90 days or more are treated as current if they have a loan-to-value ratio of less than 60%.
We maintain a loan review system which provides for a systematic review of the loan portfolios and the early identification of potential impaired loans. We generally review a loan for impairment as soon as the loan is 60 or more days delinquent. A loan evaluated for impairment is deemed to be impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. All loans identified as impaired are evaluated independently. We do not aggregate such loans for evaluation purposes. Payments received on impaired loans are applied first to unpaid interest, escrow and late charges and then to principal.
Specific loan loss allowances are established for identified loans based on a review of such information and/or appraisals of the underlying collateral. General loan loss allowances are based upon a combination of factors including, but not limited to, actual loan loss experience, composition of the loan portfolio, current economic conditions and management's judgment. In recent years, our charge-offs have been low and therefore our provisions for loan losses have been reflective of other factors, including economic conditions, annual growth of the loan portfolio respectively, as well as the increasing percentage of commercial real estate and construction loans, home equity loans and commercial loans relative to total loans. The decreased provision for the year ended June 30, 2006 is attributable to the substantial drop in non-performing loans during the year.
The estimation of the allowance for loan losses is inherently subjective as it requires estimates and assumptions that are susceptible to significant revisions as more information becomes available or as future events change. Future additions to the allowance for loan losses may be necessary if economic and other conditions in the future differ substantially from the current operating environment. In addition, the New Jersey Department of Banking and Insurance and the Federal Deposit Insurance Corporation, as an integral part of their examination process, periodically review our loan and foreclosed real estate portfolios and the related allowance for loan losses and valuation allowance for foreclosed real estate. They may require the allowance for loan losses or the valuation allowance for foreclosed real estate to be increased based on their review of information available at the time of the examination, which would negatively affect our earnings.
The following table sets forth information with respect to the Bank's allowance for loan losses for the periods indicated:
Year Ended June 30,
-----------------------------------------------------------
2006 2005 2004 2003 2002
---- ---- ---- ---- ----
(Dollars in thousands)
Allowance balance at beginning of period........... $874 $742 $651 $783 $657
---- ---- ---- ---- ----
Provision for loan losses.......................... 60 135 134 136 137
---- ---- ---- ---- ----
Charge-offs:
Commercial real estate........................... - - - 264 -
Consumer......................................... 17 3 45 5 11
---- ---- ---- ---- ----
Total charge-offs............................. 17 3 45 269 11
---- ---- ---- ---- ----
Recoveries:
Consumer......................................... 4 - 2 1 -
---- ---- ---- ---- ----
Total recoveries.............................. 4 - 2 1 -
---- ---- ---- ---- ----
Net (charge-offs) recoveries....................... $(13) $ (3) $(43) $(268) $(11)
---- ---- ---- ---- ----
Allowance balance at end of period................. $921 $874 $742 $651 $783
==== ==== ==== ==== ====
Total loans outstanding at end of period........... $224,399 $193,996 $174,994 $142,254 $124,716
======== ======== ======== ======== ========
Average loans outstanding during period............ $205,905 $179,837 $151,736 $133,119 $116,761
======== ======== ======== ======== ========
Allowance for loan losses as a
percentage of non-performing loans.............. 127.39% 36.31% 37.44% 21.94% 50.16%
Allowance for loan losses as a
percentage of total loans....................... 0.41% 0.45% 0.42% 0.46% 0.63%
Net loans charge-offs as a
percentage of average loans..................... 0.01% 0.00% 0.03% 0.20% 0.01%
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Allocation of Allowance for Loan Losses. The following table sets forth the allocation of the Bank's allowance for loan losses by loan category and the percent of loans in each category to total loans receivable, net, at the dates indicated. The portion of the loan loss allowance allocated to each loan category does not represent the total available for future losses which may occur within the loan category since the total loan loss allowance is a valuation allocation applicable to the entire loan portfolio.
At June 30,
---------------------------------------------------------------------------------------
2006 2005 2004 2003 2002
--------------- --------------- --------------- --------------- ---------------
Percent Percent Percent Percent Percent
of Loans of Loans of Loans of Loans of Loans
to Total to Total to Total to Total to Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
(Dollars in thousands)
At end of period allocated to:
One-to-four family real estate... $436 55.29% $467 60.86% $418 65.48% $362 70.03% $287 72.88%
Commercial real estate........... 108 11.08 72 9.60 85 10.18 83 8.91 352 8.93
Construction..................... 125 8.39 72 6.78 47 4.92 52 3.79 23 2.25
Consumer......................... 9 0.32 19 0.35 8 0.40 19 0.78 29 1.23
Home equity...................... 178 22.57 202 20.46 157 17.62 108 14.79 66 13.37
Commercial....................... 65 2.35 42 1.95 27 1.40 27 1.70 26 1.34
---- ------ ---- ------ ---- ------ ---- ------ ---- ------
Total allowance.............. $921 100.00% $874 100.00% $742 100.00% $651 100.00% $783 100.00%
==== ====== ==== ====== ==== ====== ==== ====== ==== ======
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Securities Portfolio
General. Our investment policy is designed to manage cash flows and foster earnings within prudent interest rate risk and credit risk guidelines. The portfolio mix is governed by our short term and long term liquidity needs. Rate-of-return, cash flow, rating and guarantor-backing are also considered when making investment decisions. The purchase of principal only and stripped coupon interest only security instruments is specifically not authorized by our investment policy. Furthermore, other than government related securities which may not be rated, we only purchase securities with a rating of AAA or AA.
At June 30, 2006, our held to maturity securities portfolio totaled $27.7 million and represented 10% of our total assets. We invest primarily in mortgage-backed securities, U.S. government obligations and U.S. government agency issued securities.
Mortgage-backed securities represent a participation interest in a pool of mortgages issued by U.S. government agencies or government-sponsored entities, such as Federal Home Loan Mortgage Corporation ("Freddie Mac"), the Government National Mortgage Association ("Ginnie Mae"), and the Federal National Mortgage Association ("Fannie Mae"), as well as non-government, private corporate issuers. Mortgage-backed securities are pass-through securities and generally yield less than the mortgage loans underlying the securities. The characteristics of the underlying pool of mortgages, i.e., fixed-rate or adjustable-rate, as well as prepayment risk, are passed on to the certificate holder.
Mortgage-backed securities issued or sponsored by U.S. government agencies and government-sponsored entities are guaranteed as to the payment of principal and interest to investors. Private corporate issuers' mortgage-backed securities typically offer rates above those paid on government agency issued or sponsored securities, but lack the guaranty of those agencies.
Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities," requires that securities be categorized as "held to maturity," "trading securities" or "available for sale," based on management's intent as to the ultimate disposition of each security. Statement No. 115 allows debt securities to be classified as "held to maturity" and reported in financial statements at amortized cost if the reporting entity has the positive intent and ability to hold these securities to maturity. Securities that might be sold in response to changes in market interest rates, changes in the security's prepayment risk, increases in loan demand, or other similar factors cannot be classified as "held to maturity."
Nearly all of our securities portfolio is purchased with the intent to hold the security until maturity. At June 30, 2006, we maintained a small trading account totaling $109,000 and the rest of our securities portfolio was classified as held to maturity. Securities not classified as "held to maturity" or as "trading securities" are classified as "available for sale" and are reported at fair value with unrealized gains and losses on the securities impacting equity.
At June 30, 2006 our securities portfolio did not contain securities of any issuer, other than the U.S. government or its agencies, having an aggregate book value in excess of 10% of our equity. We do not currently participate in hedging programs, interest rate caps, floors or swaps, or other activities involving the use of off-balance sheet derivative financial instruments, however, we may in the future utilize such instruments if we believe it would be beneficial for managing our interest rate risk.
The following table sets forth the carrying value of our held to maturity securities portfolio at the dates indicated. Securities classified as held to maturity are shown at our amortized cost.
At June 30,
--------------------------------------
2006 2005 2004
---- ---- ----
(In thousands)
Securities Held to Maturity:
U.S. Government Agency Obligations.................... $24,127 $24,133 $26,588
Government National Mortgage Association.............. 69 87 109
Federal Home Loan Mortgage Corporation................ 923 1,206 1,630
Federal National Mortgage Association................. 2,588 2,866 3,188
------- ------- -------
Total securities held to maturity................... $27,707 $28,292 $31,515
======= ======= =======
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The following table sets forth certain information regarding the carrying values, weighted average yields and maturities of our securities portfolio at June 30, 2006. This table shows contractual maturities and does not reflect repricing or the effect of prepayments. Actual maturities of the securities held by us may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without prepayment penalties. Callable securities pose reinvestment risk because we may not be able to reinvest the proceeds from called securities at an equivalent or higher interest rate.
At June 30, 2006
------------------------------------------------------------------------------------------------
More than
One Year or Less One to Five Years Five to Ten Years Ten Years Total Securities
---------------- ----------------- ----------------- ----------------- -----------------------
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average Market
Value Yield Value Yield Value Yield Value Yield Value Yield Value
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
(Dollars in thousands)
U.S. Government agency
obligations.................... $ - -% $15,000 3.02% $4,000 4.25% $5,127 5.44% $24,127 3.74% 23,273
Mortgage-Backed Securities:
Government National Mortgage
Association.................... - - - - - - 69 5.47 69 5.49 70
Federal Home Loan Mortgage
Association.................. - - - - 172 6.52 751 4.84 923 5.15 938
Federal National Mortgage
Association.................. - - 894 6.13 1,035 4.39 659 5.21 2,588 5.20 2,540
------- ---- ------- ---- ------ ---- ------ ---- ------- ---- ------
Total.......................... $ - -% $15,894 3.20% $5,207 4.35% $6,606 5.35% $27,707 3.93% 26,821
======= ==== ======= ==== ====== ==== ====== ==== ======= ==== ======
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Sources of Funds
General. Deposits are our major source of funds for lending and other investment purposes. To the extent that our loan originations have exceeded the funding available from deposits, we have borrowed funds from the Federal Home Loan Bank to supplement the amount of funds for lending and funding daily operations. At June 30, 2006 our total loans to deposits ratio was 115%.
In addition, we derive funds from loan and mortgage-backed securities principal repayments, and proceeds from the maturity and call of investment securities. Loan and securities payments are a relatively stable source of funds, while deposit inflows and outflows are significantly influenced by pricing strategies and money market conditions.
Deposits. Our current deposit products include checking and savings accounts, certificates of deposit and fixed or variable rate individual retirement accounts (IRA's). Deposit account terms vary, primarily as to the required minimum balance amount, the amount of time, if any, that the funds must remain on deposit and the applicable interest rate. Our savings account menu includes regular passbook, statement, money market and club accounts. Our certificates of deposit currently range in terms from 6 months to 10 years. Our IRA's are available with the same maturities as certificates of deposit accounts, with the exception of the 30 month term. We offer a two year certificate of deposit that permits the depositor to increase the interest rate to the current two year rate once during the term.
In May 2006, we introduced an "Opportunity Savings Account," a six-level tiered savings account, and a "Value Checking Account," a non-interest bearing account with no minimum balance requirement or maintenance fees offering unlimited check writing, free first order of checks, debit card, on-line banking and bill paying, telephone banking and direct deposit, plus a one year safe deposit box based on availability as well as no fee for out-of-network ATM transactions (other than any fee charged by the financial institution operating that ATM).
Deposits are obtained primarily from within New Jersey. The Bank has not previously utilized the services of deposit brokers but management, at the board's direction, is evaluating brokered deposits as a funding source. Premiums or incentives for opening accounts are sometimes offered. We periodically select particular certificate of deposit maturities for promotion in connection with asset/liability management and interest rate risk concerns.
The determination of deposit and certificate interest rates is based upon a number of factors, including: (1) need for funds based on loan demand, current maturities of deposits and other cash flow needs; (2) a current survey of a selected group of competitors' rates for similar products; (3) economic conditions; and (4) business plan projections.
A large percentage of our deposits are in certificates of deposit, which totaled 57.5% of total deposits at June 30, 2006. The inflow of certificates of deposit and the retention of such deposits upon maturity are significantly influenced by general interest rates and money market conditions, making certificates of deposit traditionally a more volatile source of funding than core deposits. Our liquidity could be reduced if a significant amount of certificates of deposit maturing within a short period of time were not renewed. To the extent that such deposits do not remain with us, they may need to be replaced with borrowings which could increase our cost of funds and negatively impact our net interest rate spread and our financial condition.
The following table sets forth the distribution of deposits at the Bank at the dates indicated and the weighted average nominal interest rates for each period on each category of deposits presented.
At June 30,
-----------------------------------------------------------------------------------------------
2006 2005 2004
------------------------------ ------------------------------ ----------------------------
Weighted Weighted Weighted
Percent Average Percent Average Percent Average
of Total Nominal of Total Nominal of Total Nominal
Amount Deposits Rate Amount Deposits Rate Amount Deposits Rate
------ -------- ---- ------ -------- ---- ------ -------- ----
(Dollars in thousands)
Non-interest-bearing demand
deposits...................... $ 9,135 4.69% -% $ 8,421 4.27% -% $ 7,122 3.74% -%
Interest-bearing demand
deposits...................... 30,896 15.87 0.97 35,758 18.16 0.93 35,860 18.83 0.93
Savings and club deposits........ 42,696 21.92 1.49 48,916 24.84 1.22 52,927 27.78 1.21
Certificates of deposit.......... 112,028 57.52 4.15 103,836 52.73 3.30 94,591 49.65 2.80
-------- ------ ---- -------- ------ ---- -------- ------ ----
Total deposits.............. $194,755 100.00% 2.87% $196,931 100.00% 2.21% $190,500 100.00% 1.90%
======== ====== ==== ======== ====== ==== ======== ====== ====
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The following table sets forth the certificates of deposit at the Bank classified by interest rate as of the dates indicated.
At June 30,
-----------------------------------------------------------------------------------------
2006 2005 2004
------------------------ ------------------------ -----------------------
Percent Percent Percent
Amount of Total Amount of Total Amount of Total
------ -------- ------ -------- ------ --------
(Dollars in thousands)
Interest Rate
-------------
1.00% - 1.99%............. $ 8 0.01% $ 6,091 5.87% $33,956 35.90%
2.00% - 2.99%............. 2,375 2.12 36,083 34.75 23,291 24.62
3.00% - 3.99%............. 28,049 25.04 38,192 36.78 15,300 16.18
4.00% - 4.99%............. 68,182 60.86 14,762 14.22 13,162 13.91
5.00% - 5.99%............. 13,400 11.96 7,748 7.46 7,777 8.22
6.00% - 6.99%............. 14 0.01 960 0.92 1,105 1.17
-------- ------ -------- ------ ------- ------
Total................... $112,028 100.00% $103,836 100.00% $94,591 100.00%
======== ====== ======== ====== ======= ======
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The following table sets forth the amount and maturities of certificates of deposit at the Bank at June 30, 2006.
Amount Due
-----------------------------------------------------------------------------------------
After
June 30, June 30, June 30, June 30, June 30, June 30,
Interest Rate 2007 2008 2009 2010 2011 2012
---------------- -------- -------- -------- -------- -------- --------
(In thousands)
1.00% - 1.99%............. $ 8 $ - $ - $ - $ - $ -
2.00% - 2.99%............. 2,374 1 - - - -
3.00% - 3.99%............. 23,232 3,614 1,049 - - 154
4.00% - 4.99%............. 46,489 14,045 2,732 1,729 666 2,521
5.00% - 5.99%............. 4,352 1,716 3 - - 7,329
6.00% - 6.99%............. 8 6 - - - -
------- ------- ------ ------ ---- -------
Total................. $76,463 $19,382 $3,784 $1,729 $666 $10,004
======= ======= ====== ====== ==== =======
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The following table shows the amount of the Bank's certificates of deposit of $100,000 or more by time remaining until maturity as of June 30, 2006.
Certificates
Remaining Time Until Maturity of Deposits
----------------------------- -----------
(In thousands)
Within three months....................... $ 8,775
Three through six months.................. 7,396
Six through twelve months................. 10,165
Over twelve months........................ 10,872
------
Total................................. $37,208
=======
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Borrowings. To supplement our deposits as a source of funds for lending or investment, we have borrowed funds in the form of advances from the Federal Home Loan Bank. At June 30, 2006, our collateralized borrowing limit with the Federal Home Loan Bank was $56.2 million and our outstanding
borrowings with the Federal Home Loan Bank totaled $54.2 million. Information regarding our total borrowings as of June 30, 2006 are set forth in the following table.
At June 30, 2006
-------------------------------------------
Balance Rate Maturity
------- ---- --------
(Dollars in thousands)
Total Borrowings:
Overnight Line of Credit............................. $18,500 daily adjustable next day
rate (5.42% on
June 30, 2006)
30 Day Adjustable Rate Advance....................... $23,000 daily adjustable 30 days
rate (5.41% on
June 30, 2006)
Five Year Amortizing Fixed Rate Advance.............. $2,681 3.60% August 2009
Five Year Fixed Rate Advance......................... $5,000 4.25% December 2009
Five Year Fixed Rate Advance......................... $5,000 4.28% June 2010
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Short-term Federal Home Loan Bank advances generally have original maturities of less than one year. Information regarding our short-term advances for the dates and periods indicated are set forth in the following table.
At or For the
Year Ended June 30,
------------------------------------
2006 2005 2004
---- ---- ----
(Dollars in thousands)
Short-Term Borrowings:
Average balance outstanding............................... $24,602 $ 8,033 $ 4,289
Maximum amount outstanding
at any month-end during the period...................... 41,500 13,400 7,500
Balance outstanding at end of period...................... 41,500 7,750 7,500
Weighted average interest rate during the period.......... 4.59% 2.23% 1.12%
Weighted average interest rate at end of period........... 5.41% 3.49% 1.61%
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Advances from the Federal Home Loan Bank are typically secured by the Federal Home Loan Bank stock and a portion of our residential mortgage loans and by other assets, mainly securities which are obligations of or guaranteed by the U.S. government. Additional information regarding our borrowings is included under Note 8 to our consolidated financial statements beginning on page F-1.
Subsidiary Activity
MSB Financial Corp. has no direct subsidiaries other than Millington Savings Bank. Millington Savings Bank has one wholly-owned subsidiary, Millington Savings Services Corp., formed in 1984. The service corporation owns the Bank's former main office building, on which a sale is pending.
Personnel
As of June 30, 2006, Millington Savings Bank had 49 full time equivalent employees. The employees are not represented by a collective bargaining unit, and the Bank believes its relationship with the employees is good.
Properties and Equipment
At June 30, 2006, our investment in property and equipment, net of depreciation and amortization, totaled $8.9 million, including leasehold improvements and construction in progress.
Year Facility Leased or
Office Location Opened Owned
--------------- ------ -----
Millington Main Office
1902 Long Hill Road 1994 Owned
Millington, NJ
Dewy Meadow Branch Office
415 King George Road 2002 Leased
Basking Ridge, NJ
RiverWalk Branch Office
675 Martinsville Road 2005(1) Leased
Basking Ridge, NJ
Martinsville Branch Office
1924 Washington Valley Road 2006 Leased
Martinsville, NJ
------------------
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(1) The Bank's first branch office location opened in 1998 in Liberty Corner, New Jersey. This office was relocated to RiverWalk Plaza in Basking Ridge, New Jersey in 2005.
The above table does not include our Bernardsville branch office on Morristown Road in Bernardsville, New Jersey which is in construction. The projected opening date for this office is late 2007.
Legal Proceedings
Millington Savings Bank, from time to time, is a party to routine litigation which arises in the normal course of business, such as claims to enforce liens, condemnation proceedings on properties in which we hold security interests, claims involving the making and servicing of real property loans, and other issues incident to our business. There were no lawsuits pending or known to be contemplated against MSB Financial Corp. or Millington Savings Bank at June 30, 2006 that would have a material effect on our operations or income.
REGULATION
Millington Savings Bank and MSB Financial Corp. operate in a highly regulated industry. This regulation establishes a comprehensive framework of activities in which a savings and loan holding company and federal savings bank may engage and is intended primarily for the protection of the deposit insurance fund and depositors. Set forth below is a brief description of certain laws that relate to the
regulation of Millington Savings Bank and MSB Financial Corp. The description does not purport to be complete and is qualified in its entirety by reference to applicable laws and regulations.
Regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities, including the imposition of restrictions on the operation of an institution and its holding company, the classification of assets by the institution and the adequacy of an institution's allowance for loan losses. Any change in such regulation and oversight, whether in the form of regulatory policy, regulations, or legislation, including changes in the regulations governing mutual holding companies, could have a material adverse impact on MSB Financial Corp., Millington Savings Bank, and their operations. The adoption of regulations or the enactment of laws that restrict the operations of Millington Savings Bank and/or MSB Financial Corp. or impose burdensome requirements upon one or both of them could reduce their profitability and could impair the value of Millington Savings Bank's franchise, resulting in negative effects on the trading price of MSB Financial Corp. common stock.
Regulation of Millington Savings Bank
General. As a New Jersey chartered, Federal Deposit Insurance Corporation-insured savings bank, Millington Savings Bank is subject to extensive regulation by the New Jersey Department of Banking and Insurance and the Federal Deposit Insurance Corporation. This regulatory structure gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies regarding the classification of assets and the level of the allowance for loan losses. The activities of federal savings banks are subject to extensive regulation, including restrictions or requirements with respect to loans to one borrower, the percentage of non-mortgage loans or investments to total assets, capital distributions, permissible investments and lending activities, liquidity, transactions with affiliates and community reinvestment. Federal savings banks are also subject to reserve requirements imposed by the Federal Reserve System. A federal savings bank's relationship with its depositors and borrowers is regulated by both state and federal law, especially in such matters as the ownership of savings accounts and the form and content of the bank's mortgage documents.
Millington Savings Bank must file regulatory reports concerning its activities and financial condition, and must obtain regulatory approvals prior to entering into certain transactions, such as mergers with or acquisitions of other financial institutions. The New Jersey Department of Banking and Insurance and the Federal Deposit Insurance Corporation regularly examine Millington Savings Bank and prepares reports to Millington Savings Bank's Board of Directors on deficiencies, if any, found in its operations. The regulatory authorities have substantial discretion to impose enforcement action on an institution that fails to comply with applicable regulatory requirements, particularly with respect to its capital requirements.
Insurance of Deposit Accounts. Deposit accounts in Millington Savings Bank are insured by the Deposit Insurance Fund of the Federal Deposit Insurance Corporation, generally up to a maximum of $100,000 for standard accounts and $250,000 for individual retirement accounts. The Federal Deposit Insurance Corporation maintains a risk-based deposit insurance assessment system by which institutions are assigned to one of three categories based on their capitalization and one of three subcategories based on examination ratings and other supervisory information. An institution's assessment rate depends upon the categories to which it is assigned. Assessment rates for Savings Association Insurance Fund member institutions are determined semi-annually by the Federal Deposit Insurance Corporation and currently range from zero basis points of assessable deposits for the healthiest institutions to 27 basis points of assessable deposits for the riskiest. The assessment rate for Millington Savings Bank is currently 0%.
In addition to assessments for deposit insurance, all Federal Deposit Insurance Corporation-insured institutions are required to pay assessments to the Federal Deposit Insurance Corporation to fund payments on bonds issued in the late 1980s by a federal agency to recapitalize the predecessor to the Savings Association Insurance Fund. These assessments will continue until the Financing Corporation bonds mature in 2019.
The Federal Deposit Insurance Corporation may terminate an institution's deposit insurance upon a finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition.
Federal Deposit Insurance Reform. The Federal Deposit Insurance Reform Act of 2005 was enacted on February 8, 2006 as a part of the Deficit Reduction Act of 2005. Effective March 31, 2006, the Bank Insurance Fund and the Savings Association Insurance Fund were merged into a new combined fund, called the Deposit Insurance Fund. The Federal Deposit Insurance Reform Act will also (i) increase deposit insurance coverage for retirement accounts to $250,000, (ii) index the current $100,000 insurance coverage limit for standard accounts and the new $250,000 limit for retirement accounts to reflect inflation (with adjustments for inflation every five years, commencing January 1, 2011), (iii) require the Federal Deposit Insurance Corporation to assess annual deposit insurance premiums on all banks and savings institutions, (iv) give a one-time insurance assessment credit totaling $4.7 billion to banks and savings institutions in existence on December 31, 1996 that can be used to offset premiums otherwise due, (v) impose a cap on the level of the Deposit Insurance Fund and provide for dividends or rebates when the fund grows beyond a specified threshold, (vi) adopt a historical basis concept for distributing the aforementioned one-time credit and dividends (with each institution's historical basis to be determined by a formula that looks back to the institution's assessment base in 1996 and adds premiums paid since that time) and (vii) authorize revisions to the current risk-based system for assessing premiums, including replacing the current fixed reserve ratio requirement of 1.25% with a range of between 1.15% and 1.5% of insured deposits.
The merger of the two deposit insurance funds required by the Federal Deposit Insurance Reform Act was effective as of March 31, 2006. The Federal Deposit Insurance Corporation is required to adopt final rules for the rest of the provisions no later than 270 days after enactment. Such regulations will result in the imposition of deposit insurance assessments on all members of the Deposit Insurance Fund, including Millington Savings Bank, and such assessments could have an adverse effect on the operating expenses and results of operations of Millington Savings Bank. Millington Savings Bank's management cannot predict the rate of any such insurance assessments or the effect of the assessments on its operations.
Regulatory Capital Requirements. Federal Deposit Insurance Corporation capital regulations require savings institutions to meet three minimum capital standards: (1) tangible capital equal to 1.5% of total adjusted assets, (2) "Tier 1" or "core" capital equal to at least 4% (3% if the institution has received the highest possible rating on its most recent examination) of total adjusted assets, and (3) risk-based capital equal to 8% of total risk-weighted assets. At June 30, 2006, Millington Savings Bank was in compliance with the minimum capital standards and qualified as "well capitalized." For Millington Savings Bank's compliance with these regulatory capital standards, see Historical and Pro Forma Capital Compliance as well as Note 13 to the consolidated financial statements. In assessing an institution's capital adequacy, the Federal Deposit Insurance Corporation takes into consideration not only these numeric factors but also qualitative factors, and has the authority to establish higher capital requirements for individual institutions where necessary.
The Federal Deposit Insurance Corporation may require any savings institution that has a risk-based capital ratio of less than 8%, a ratio of Tier 1 capital to risk-weighted assets of less than 4% or a ratio of
Tier 1 capital to total adjusted assets of less than 4% (3% if the institution has received the highest rating on its most recent examination) to take certain action to increase its capital ratios. If the savings institution's capital is significantly below the minimum required levels of capital or if it is unsuccessful in increasing its capital ratios, the institution's activities may be restricted.
For purposes of the capital regulations, tangible capital is defined as core capital less all intangible assets except for certain mortgage servicing rights. Tier 1 or core capital is defined as common stockholders' equity, non-cumulative perpetual preferred stock and related surplus, minority interests in the equity accounts of consolidated subsidiaries, and certain non-withdrawable accounts and pledged deposits of mutual savings banks. Millington Savings Bank does not have any non-withdrawable accounts or pledged deposits. Tier 1 and core capital are reduced by an institution's intangible assets, with limited exceptions for certain mortgage and non-mortgage servicing rights and purchased credit card relationships. Both core and tangible capital are further reduced by an amount equal to the savings institution's debt and equity investments in "non-includable" subsidiaries engaged in activities not permissible for national banks other than subsidiaries engaged in activities undertaken as agent for customers or in mortgage banking activities and subsidiary depository institutions or their holding companies.
The risk-based capital standard for savings institutions requires the maintenance of total capital of 8% of risk-weighted assets. Total capital equals the sum of core and supplementary capital. The components of supplementary capital include, among other items, cumulative perpetual preferred stock, perpetual subordinated debt, mandatory convertible subordinated debt, intermediate-term preferred stock, the portion of the allowance for loan losses not designated for specific loan losses and up to 45% of unrealized gains on equity securities. The portion of the allowance for loan and lease losses includable in supplementary capital is limited to a maximum of 1.25% of risk-weighted assets. Overall, supplementary capital is limited to 100% of core capital. For purposes of determining total capital, a savings institution's assets are reduced by the amount of capital instruments held by other depository institutions pursuant to reciprocal arrangements and by the amount of the institution's equity investments (other than those deducted from core and tangible capital) and its high loan-to-value ratio land loans and non-residential construction loans.
A savings institution's risk-based capital requirement is measured against risk-weighted assets, which equal the sum of each on-balance-sheet asset and the credit-equivalent amount of each off-balance-sheet item after being multiplied by an assigned risk weight. These risk weights range from 0% for cash to 100% for delinquent loans, property acquired through foreclosure, commercial loans, and certain other assets.
Dividend and Other Capital Distribution Limitations. A savings institution, like Millington Savings Bank, that is a subsidiary of a savings and loan holding company must file an application or a notice with the Office of Thrift Supervision at least thirty days before making a capital distribution, such as paying a dividend to MSB Financial Corp. The Office of Thrift Supervision imposes various restrictions or requirements on the ability of savings institutions to make capital distributions, including cash dividends. A savings institution must file an application for prior approval of a capital distribution if: (i) it is not eligible for expedited treatment under the applications processing rules of the Office of Thrift Supervision; (ii) the total amount of all capital distributions, including the proposed capital distribution, for the applicable calendar year would exceed an amount equal to the savings institution's net income for that year to date plus the institution's retained net income for the preceding two years; (iii) it would not adequately be capitalized after the capital distribution; or (iv) the distribution would violate an agreement with the Office of Thrift Supervision or applicable regulations. The Office of Thrift Supervision may disapprove a notice or deny an application for a capital distribution if: (i) the savings institution would be
undercapitalized following the capital distribution; (ii) the proposed capital distribution raises safety and soundness concerns; or (iii) the capital distribution would violate a prohibition contained in any statute, regulation or agreement.
Capital distributions by MSB Financial Corp., as a savings and loan holding company, are not subject to the Office of Thrift Supervision capital distribution rules. Because MSB Financial Corp. will retain 50% of the net proceeds of the stock offering, the possibility that Millington Savings Bank would need to file an application rather than a notice for capital distributions is not expected to affect the payment of cash dividends by MSB Financial Corp. to its stockholders or the amount of such dividends.
Safety and Soundness Standards. As required by statute, the federal banking agencies have adopted guidelines establishing general standards relating to internal controls, information and internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, asset quality, earnings and compensation, fees and benefits. The guidelines require, among other things, the implementation of appropriate systems and practices to identify and manage the risks and exposures specified in the guidelines. If it is determined that a savings institution has failed to meet any standard prescribed by the guidelines, the institution may be required to submit an acceptable plan to achieve compliance with the standard.
Qualified Thrift Lender Test. Savings institutions must meet a qualified thrift lender test or they become subject to the business activity restrictions and branching rules applicable to national banks. To qualify as a qualified thrift lender, a savings institution must either (i) be deemed a "domestic building and loan association" under the Internal Revenue Code by maintaining at least 60% of its total assets in specified types of assets, including cash, certain government securities, loans secured by and other assets related to residential real property, educational loans and investments in premises of the institution or (ii) satisfy the statutory qualified thrift lender test set forth in the Home Owners' Loan Act by maintaining at least 65% of its portfolio assets in qualified thrift investments (defined to include residential mortgages and related equity investments, certain mortgage-related securities, small business loans, student loans and credit card loans). For purposes of the statutory qualified thrift lender test, portfolio assets are defined as total assets minus goodwill and other intangible assets, the value of property used by the institution in conducting its business, and specified liquid assets up to 20% of total assets. A savings institution must maintain its status as a qualified thrift lender on a monthly basis in at least nine out of every twelve months. Millington Savings Bank met the qualified thrift lender test as of June 30, 2006 and in each of the last twelve months and, therefore, qualifies as a qualified thrift lender.
A savings bank that fails the qualified thrift lender test and does not convert to a bank charter generally will be prohibited from: (1) engaging in any new activity not permissible for a national bank, (2) paying dividends not permissible under national bank regulations, and (3) establishing any new branch office in a location not permissible for a national bank in the institution's home state. In addition, if the institution does not requalify under the qualified thrift lender test within three years after failing the test, the institution would be prohibited from engaging in any activity not permissible for a national bank and would have to repay any outstanding advances from the Federal Home Loan Bank as promptly as possible.
Community Reinvestment Act. Under the Community Reinvestment Act, every insured depository institution, including Millington Savings Bank, has a continuing and affirmative obligation consistent with its safe and sound operation to help meet the credit needs of its entire community, including low and moderate income neighborhoods. The Community Reinvestment Act does not establish specific lending requirements or programs for financial institutions nor does it limit an institution's discretion to develop the types of products and services that it believes are best suited to its particular community. The
Community Reinvestment Act requires the depository institution's record of meeting the credit needs of its community to be assessed and taken into account in the evaluation of certain applications by such institution, such as a merger or the establishment of a branch office by Millington Savings Bank. An unsatisfactory Community Reinvestment Act examination rating may be used as the basis for the denial of an application. Millington Savings Bank received a "satisfactory" rating in its most recent Community Reinvestment Act examination.
Federal Home Loan Bank System. Millington Savings Bank is a member of the Federal Home Loan Bank of New York, which is one of twelve regional federal home loan banks. Each federal home loan bank serves as a reserve or central bank for its members within its assigned region. It is funded primarily from funds deposited by financial institutions and proceeds derived from the sale of consolidated obligations of the Federal Home Loan Bank System. It makes loans to members pursuant to policies and procedures established by its board of directors.
As a member, Millington Savings Bank is required to purchase and maintain stock in the Federal Home Loan Bank of New York in an amount equal to the greater of 1% of our aggregate unpaid residential mortgage loans, home purchase contracts or similar obligations at the beginning of each year or 5% of our outstanding Federal Home Loan Bank advances.
The Federal Home Loan Banks are required to provide funds for the resolution of troubled savings institutions and to contribute to affordable housing programs through direct loans or interest subsidies on advances targeted for community investment and low- and moderate-income housing projects. These contributions have adversely affected the level of Federal Home Loan Bank dividends paid and could continue to do so in the future. In addition, these requirements could result in the Federal Home Loan Banks imposing a higher rate of interest on advances to their members.
The USA Patriot Act. Millington Savings Bank is subject to regulations implementing the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, or the USA Patriot Act. The USA Patriot Act gives the federal government powers to address terrorist threats through enhanced domestic security measures, expanded surveillance powers, increased information sharing and broadened anti-money laundering requirements. By way of amendments to the Bank Secrecy Act, Title III of the USA Patriot Act takes measures intended to encourage information sharing among bank regulatory agencies and law enforcement bodies. Further, certain provisions of Title III impose affirmative obligations on a broad range of financial institutions, including banks, thrifts, brokers, dealers, credit unions, money transfer agents and parties registered under the Commodity Exchange Act.
Among other requirements, Title III of the USA Patriot Act and the related regulations impose the following requirements with respect to financial institutions:
o Establishment of anti-money laundering programs that include, at minimum:
(i) internal policies, procedures, and controls; (ii) specific designation
of an anti-money laundering compliance officer; (iii) ongoing employee
training programs; and (iv) an independent audit function to test the
anti-money laundering program.
o Establishment of a program specifying procedures for obtaining identifying information from customers seeking to open new accounts, including verifying the identity of customers within a reasonable period of time.
o Establishment of appropriate, specific, and, where necessary, enhanced due diligence policies, procedures, and controls designed to detect and report money laundering.
o Prohibitions on establishing, maintaining, administering or managing correspondent accounts for foreign shell banks (foreign banks that do not have a physical presence in any country), and compliance with certain record keeping obligations with respect to correspondent accounts of foreign banks.
Bank regulators are directed to consider a holding company's effectiveness in combating money laundering when ruling on applications under the Federal Reserve Act and the Bank Merger Act.
Regulation of MSB Financial Corp.
General. MSB Financial Corp. is a savings and loan holding company within the meaning of Section 10 of the Home Owners' Loan Act. It is required to file reports with the Office of Thrift Supervision and is subject to regulation and examination by the Office of Thrift Supervision. MSB Financial Corp. must also obtain regulatory approval from the Office of Thrift Supervision before engaging in certain transactions, such as mergers with or acquisitions of other financial institutions. In addition, the Office of Thrift Supervision has enforcement authority over MSB Financial Corp. and any non-savings institution subsidiaries. This permits the Office of Thrift Supervision to restrict or prohibit activities that it determines to be a serious risk to Millington Savings Bank. This regulation is intended primarily for the protection of the depositors and not for the benefit of stockholders of MSB Financial Corp.
Activities Restrictions. As a savings and loan holding company and as a subsidiary holding company of a mutual holding company, MSB Financial Corp. is subject to statutory and regulatory restrictions on its business activities. The non-banking activities of MSB Financial Corp. and its non-savings institution subsidiaries are restricted to certain activities specified by Office of Thrift Supervision regulation, which include performing services and holding properties used by a savings institution subsidiary, activities authorized for savings and loan holding companies as of March 5, 1987, and non-banking activities permissible for bank holding companies pursuant to the Bank Holding Company Act of 1956 or authorized for financial holding companies pursuant to the Gramm-Leach-Bliley Act. Before engaging in any non-banking activity or acquiring a company engaged in any such activities, MSB Financial Corp. must file with the Office of Thrift Supervision either a prior notice or (in the case of non-banking activities permissible for bank holding companies) an application regarding its planned activity or acquisition.
Mergers and Acquisitions. MSB Financial Corp. must obtain approval from the Office of Thrift Supervision before acquiring, directly or indirectly, more than 5% of the voting stock of another savings institution or savings and loan holding company or acquiring such an institution or holding company by merger, consolidation or purchase of its assets. Federal law also prohibits a savings and loan holding company from acquiring more than 5% of a company engaged in activities other than those authorized for savings and loan holding companies by federal law or acquiring or retaining control of a depository institution that is not insured by the Federal Deposit Insurance Corporation. In evaluating an application for MSB Financial Corp. to acquire control of a savings institution, the Office of Thrift Supervision would consider the financial and managerial resources and future prospects of MSB Financial Corp. and the target institution, the effect of the acquisition on the risk to the insurance funds, the convenience and the needs of the community and competitive factors.
Waivers of Dividends by MSB Financial, MHC. Office of Thrift
Supervision regulations require MSB Financial, MHC to notify the Office of
Thrift Supervision of any proposed waiver of its receipt of dividends from MSB
Financial Corp. The Office of Thrift Supervision reviews dividend waiver notices
on a case-by-case basis, and, in general, does not object to any such waiver if:
(i) the waiver would not be detrimental to the safe and sound operations of the
subsidiary savings association and (ii) the mutual holding company's board of
directors determines that such waiver is consistent with such directors'
fiduciary duties to the mutual holding company's members. Subject to the
non-objection of the Office of Thrift Supervision, we anticipate that MSB
Financial, MHC will waive dividends paid by MSB Financial Corp., if any.
Conversion of MSB Financial, MHC to Stock Form. Office of Thrift Supervision regulations permit MSB Financial, MHC to convert from the mutual form of organization to the capital stock form of organization, commonly referred to as a second step conversion. In a second step conversion a new holding company would be formed as the successor to MSB Financial Corp., MSB Financial, MHC's corporate existence would end, and certain depositors of Millington Savings Bank would receive the right to subscribe for shares of the new holding company. In a second step conversion, each share of common stock held by stockholders other than MSB Financial, MHC would be automatically converted into shares of common stock of the new holding company.
Acquisition of Control. Under the federal Change in Bank Control Act, a notice must be submitted to the Office of Thrift Supervision if any person (including a company), or group acting in concert, seeks to acquire "control" of a savings and loan holding company or savings association. An acquisition of "control" can occur upon the acquisition of 10% or more of the voting stock of a savings and loan holding company or savings institution or as otherwise defined by the Office of Thrift Supervision. Under the Change in Bank Control Act, the Office of Thrift Supervision has 60 days from the filing of a complete notice to act, taking into consideration certain factors, including the financial and managerial resources of the acquirer and the anti-trust effects of the acquisition. Any company that so acquires control would then be subject to regulation as a savings and loan holding company.
Federal Securities Laws
General. MSB Financial Corp. has filed with the Securities and Exchange Commission a registration statement under the Securities Act of 1933 for the registration of the common stock to be issued pursuant to the offering. Upon completion of the offering, MSB Financial Corp. common stock will continue to be registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934. MSB Financial Corp. will be subject to the information, proxy solicitation, insider trading restrictions and other requirements under the Securities Exchange Act of 1934.
Sarbanes-Oxley Act of 2002. The Sarbanes-Oxley Act of 2002 implemented various legislative reforms addressing, among other matters, corporate governance, auditing and accounting, executive compensation, and enhanced and timely disclosure of corporate information. As directed by Section 302(a) of Sarbanes-Oxley Act and the implementing rules of the Securities and Exchange Commission, MSB Financial Corp.'s Chief Executive Officer and Chief Financial Officer each will be required to certify that its quarterly and annual reports do not contain any untrue statement of a material fact. The rules have several requirements, including having these officers certify that: they are responsible for establishing, maintaining and regularly evaluating the effectiveness of our internal controls; they have made certain disclosures to our auditors and the audit committee of the Board of Directors about our internal controls; and they have included information in our quarterly and annual reports about their evaluation and whether
there have been significant changes in our internal controls or in other factors that could significantly affect internal controls.
TAXATION
Federal Taxation
Savings institutions are subject to the Internal Revenue Code of 1986, as amended, in the same general manner as other corporations.
All thrift institutions are now subject to the same provisions as banks with respect to deductions for bad debts. Thrift institutions that are treated as "small banks" (the average adjusted bases for all assets of such institution equals $500 million or less) under the Internal Revenue Code may account for bad debts by using the experience method for determining additions to their bad debt reserve. Thrift institutions that are not treated as small banks must now use the specific charge-off method.
MSB Financial Corp. may exclude from its income 100% of dividends received from Millington Savings Bank as a member of the same affiliated group of corporations. A 70% dividends received deduction generally applies with respect to dividends received from corporations that are not members of such affiliated group.
MSB Financial Corp. and Millington Savings Bank file a consolidated federal tax return with MSB Financial, MHC. Such income tax returns have not been audited by the IRS during the past five years.
State Taxation
MSB Financial Corp. and its subsidiaries file New Jersey income tax returns and are subject to a 9% state income tax that is calculated based on federal taxable income, subject to certain adjustments.
The state income tax returns of MSB Financial, MHC, MSB Financial Corp. and Millington Savings Bank have not been audited during the past five years. For additional information, see Note 10 to the consolidated financial statements beginning on page F-1.
MANAGEMENT
General
MSB Financial Corp.'s Board of Directors is composed of seven members, with each director serving for a term of three years in accordance with the requirement in MSB Financial Corp.'s bylaws that directors be divided into three classes, as nearly equal in number as possible, with one class elected annually. Each director of MSB Financial Corp. also serves as a director of MSB Financial, MHC, Millington Savings Bank and Millington Savings Service Corp. MSB Financial Corp.'s and Millington Savings Bank's officers are appointed annually by the Board of Directors and serve at the Board's discretion.
Current
Director Term
Age Position Since(1) Expires
--- -------- -------- -------
Directors:
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Albert N. Olsen 71 Chairman 1974 2009
Gary T. Jolliffe 62 Director, President and Chief Executive Officer 1992 2009
E. Haas Gallaway, Jr. 65 Director 1987 2007
W. Scott Gallaway 60 Director 2000 2007
Thomas G. McCain 68 Director 1992 2008
Ferdinand J. Rossi 64 Director 1975 2008
Michael A. Shriner 42 Director, Executive Vice President 1999 2007
and Chief Operating Officer
Senior Management:
------------------
Jeffrey E. Smith 57 Vice President and Chief Financial Officer
Nancy E. Schmitz 50 Vice President, Chief Lending Officer
and Corporate Secretary
Susan M. Schumann 56 Vice President
Betty Zangari 62 Vice President and Assistant Corporate Secretary
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Biographical Information
Albert N. Olsen has been a director of Millington Savings Bank since January 1974 and was elected chairman of the Board in December 1999. Mr. Olsen is a certified public accountant and is president of Olsen & Thompson, P.A., a CPA firm established in 1961. In addition, Mr. Olsen is a member of Olsen & Thompson Investment Advisory Services, LLC. Mr. Olsen is a member of the New Jersey Society of Certified Public Accountants and has served in various positions with the Society, including chairman of the Committee for Management of Accounting Practices, trustee, treasurer, vice president, president of the Morris-Sussex-Warren Chapter and chairman of the Board and trustee of the Society's Insurance Trust. In addition, Mr. Olsen is a member of the American Institute of Certified Public Accountants, a trustee and past chairman of the Board of the Midland School Foundation and a past board member of Mrs. Wilson's (Halfway House).
Gary T. Jolliffe joined Millington Savings Bank in January 1986 as its executive vice president and was appointed as its president in 1990. In 1992, Mr. Jolliffe was also appointed to the position of chief executive officer and also became a director. Mr. Jolliffe has been a member of the Board of Governors of the New Jersey League of Community Bankers since July 1999 serving in numerous positions, including chairman of the New Jersey League of Community Bankers from July 2004 to June 30, 2005. Mr. Jolliffe is a member of the Board of Trustees of Freedom House Foundation, Glen Gardner, New Jersey, and is also a member of the Bernardsville Rotary Club in which he has held the positions of director, president, vice president and treasurer.
E. Haas Gallaway, Jr. is the principal owner and licensed manager/president of Gallaway and Crane Funeral Home, Inc. located in Basking Ridge, New Jersey, with a second location in Bernardsville, New Jersey. The business was founded by Mr. E. Haas Gallaway, Sr. and Mr. Gallaway, Jr. joined the company full time in 1960, purchased a minority position in 1963 and the remainder of the company in
1976 when he became president. He is a licensed funeral director and embalmer in New Jersey as well as Florida.
W. Scott Gallaway founded Gallaway Associates, a real estate brokerage and appraisal firm, in 1975 and sold the brokerage portion of the business in 2000 to Remax Properties. He is currently a broker/salesperson with Remax. Mr. E. Haas Gallaway, Jr. and Mr. W. Scott Gallaway are brothers.
Dr. Thomas G. McCain became principal of the Fairmount Avenue School in Chatham, New Jersey in 1964 after having taught in Berlin, Connecticut. He left Chatham nine years later to become Assistant Superintendent of Schools in Freeport, New York and in 1978 was appointed Superintendent of Schools in Bernardsville, New Jersey, the district from which he retired from public education in 1988. Since then Mr. McCain has been president and sole owner of Learning Builders, a firm that provides planning and training services to schools and businesses in several states.
Ferdinand (Fred) J. Rossi is currently the township administrator for the Township of Morris in Morris County, New Jersey and has held that office since 1995. Previously, Mr. Rossi served as the county administrator for Morris County, New Jersey for 15 years, and the township clerk and then administrator for the Township of Long Hill (formerly Passaic Township) for 12 years.
Michael A. Shriner has been employed by the Bank since 1987 and became its vice president in 1990, senior vice president in 1997, executive vice president in 2002 and chief operating officer in 2006. He was appointed to the Board of Directors in 1999. Mr. Shriner currently serves as chairman of the Mortgage Steering Committee, is a member of the Residential Lending and Affordable Housing Committee and a former member of the Consumer Lending and CRA Committee of the New Jersey League of Community Bankers. He is a graduate of The National School of Banking (Fairfield University). Mr. Shriner is currently the financial secretary for the Knights of Columbus in Roselle Park, New Jersey.
Jeffrey E. Smith joined Millington Savings Bank in 1996. He was appointed as its controller in 1998, vice president and controller in 2002, and in 2006 became vice president and chief financial officer. Mr. Smith previously served as vice president and controller for United National Bank in Plainfield, New Jersey where he was employed for 11 years.
Nancy E. Schmitz has been employed by Millington Savings Bank since 1997 and started as its assistant corporate secretary and commercial lending officer. In 1999, Ms. Schmitz became corporate secretary. In addition to being the commercial lending officer, she has been responsible for the Bank's consumer loan portfolio since 1997. In 2006 she became a vice president and the chief lending officer for Millington Savings Bank. Ms. Schmitz has over 25 years banking experience, beginning as a branch loan officer for Llyods Bank California in 1978 and serving at that institution and others in various positions including as a commercial credit analyst, a vice president of corporate lending and a senior corporate banking officer.
Susan M. Schumann joined Millington Savings Bank in 1984 as a teller and has been promoted several times. She is currently a vice president and responsible for security, marketing, advertising and facilities. Ms. Schumann also serves as the Bank Secrecy Act officer.
Betty Zangari joined Millington Savings Bank in 1992 as a teller and was promoted to head teller in 1996. In 1998, Ms. Zangari became Assistant Corporate Secretary. She was appointed Operations Supervisor in 2005 and became a vice president in 2006.
Director Compensation
Millington Savings Bank directors currently are paid a fee of $2,200 per board meeting. The chairman of the Board of Directors currently is paid a fee of $4,400 per board meeting. The Board has regular meetings on a monthly basis and annually holds a special strategic planning meeting, for a total of 13 meetings per year. No additional compensation is paid for serving on the Boards of MSB Financial Corp. or MSB Financial, MHC. Mr. Jolliffe and Mr. Shriner, as employee directors, are not compensated for serving as directors of the Bank, MSB Financial Corp. or MSB Financial, MHC. Each of the Bank's directors, including the employee directors, serves on the subsidiary service corporation's Board of Directors and is paid a $200 quarterly retainer.
Directors are paid a flat monthly fee of $300 for their committee participation. The Board maintains an Audit Committee, an Asset/Liability Management Committee and an Asset/Quality Committee. The Board has recently established a Compensation Committee and a Nominating Committee.
The Bank has an unfunded Directors Consultation and Retirement Plan (the "DCRP"), which provides retirement benefits to the directors of the Bank based upon the number of years of service to the Bank's board. To be eligible to receive benefits under the DCRP, a director generally must have completed at least 10 years of service and must not retire from the board prior to reaching 65 years of age. If a director agrees to become a consulting director to the Bank's board upon retirement, he will receive a monthly payment equal to 30-60% of the highest Bank's board fee and retainer in effect during the three-year period prior to the date of retirement based on the number of years of service as a director. Benefits under the DCRP begin upon a director's retirement and are paid for 120 months; provided, however, that in the event of a director's death prior to the receipt of all monthly payments, payments shall continue to the director's surviving spouse or estate until 120 payments have been made. The retirement benefit amount is payable to the participant for an additional period of 24 months for each additional period of five years of service completed by the director in excess of twenty years of service as of their actual retirement date. In the event there is a change in control (as defined in the DCRP), all directors will be presumed to have 20 years of service and attained age 65 under the DCRP and each director will receive a lump sum payment equal to the present value of future benefits payable. All payments under the plan need to be in accordance with Code Section 409A. Benefits under the DCRP are unvested and forfeitable until retirement at or after age 65 with at least 10 years of service, termination of service following a change in control, disability following at least 10 years of service or death. For the year ended June 30, 2006, the Bank's contribution and benefits paid under the DCRP totaled $24,000.
Executive Compensation
Summary Compensation Table. The following table sets forth the cash and non-cash compensation awarded to or earned by the president and chief executive officer and other named executive officers for the year ended June 30, 2006.
Annual Compensation(1)
----------------------
All Other
Name and Principal Position Year Salary Bonus Compensation
--------------------------- ------ ------ ----- ------------
Gary T. Jolliffe 2006 $182,598 $16,000 $78,353 (2)
President and Chief Executive Officer
Michael A. Shriner 2006 $130,312 $16,000 $28,678 (3)
Executive Vice President and Chief Operating Officer
Jeffrey E. Smith 2006 $93,444 $6,000 $20,352 (4)
Vice President and Chief Financial Officer
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(2) Consists of $902 for life insurance, an employer contribution to the 401(k) Plan in the amount of $27,237 and an award under the executive incentive retirement plan of $50,214.
(3) Consists of $144 for life insurance, an employer contribution to the 401(k) Plan in the amount of $18,761 and an award under the executive incentive retirement plan of $9,773.
(4) Consists of $485 for life insurance, an employer contribution to the 401(k) Plan in the amount of $12,841 and an award under the executive incentive retirement plan of $7,026.
Employment Agreements. The Bank has entered into employment agreements with Messrs. Jolliffe, Shriner and Smith. Mr. Jolliffe's, Mr Shriner's and Mr. Smith's current base salaries are $197,500, $142,000 and $101,000, respectively. Mr. Jolliffe's and Mr. Shriner's employment agreements have terms of three years while Mr. Smith's agreement has a term of one year. Each of the agreements provides for an annual one-year extension of the term of the agreement upon determination of the Board of Directors that the executive's performance has met the requirements and standards of the Board, so that the remaining term of the agreement continues to be three years, in the case of Messrs. Jolliffe and Shriner, and one year, in the case of Mr. Smith. If the Bank terminates Messrs. Jolliffe, Shriner or Smith without "just cause" as defined in the agreement, they will be entitled to a continuation of their salary from the date of termination through the remaining term of their agreement, but in no event for a period of less than 12 months and during the same period, the cost of obtaining all health, life, disability, and other benefits at levels substantially equal to those being provided on the date of termination of employment. Messrs. Jolliffe, Shriner and Smith's employment agreements provide that if their employment is terminated without just cause within twenty-four months of a change in control, they will be paid an amount equal to approximately three times their base salary for Messrs. Jolliffe and Shriner and one year in the case of Mr. Smith. This amount may be paid in a lump sum at the employee's discretion. If not paid in a lump sum, the amount is paid over 36 months for Messrs. Jolliffe and Shriner and 12 months for Mr. Smith or the remaining term of the agreement, whichever is less. If change in control payments had been made under the agreements as of June 30, 2006, the payments would have equaled approximately $592,000, $426,000, and $101,000, to Mr. Jolliffe, Mr. Shriner and Mr. Smith, respectively.
The Bank has entered into one year employment agreements with three other officers on terms substantially the same as Mr. Smith's agreement.
Executive Incentive Retirement Plan. The Bank's unfunded, non-qualified executive incentive retirement plan provides for equal annual installments for a period of 15 years commencing on the first day of the calendar month following the termination of employment due to retirement, resignation, disability
or death. All payments under the plan are in accordance with Code Section 409A. The amount payable is based on the vested balance of the executive's accumulated awards plus interest at the prime rate published in The Wall Street Journal, credited quarterly, but no less than 4% or greater than 12%. The annual awards are based upon the executive's base salary in effect at the beginning of the plan year and the Bank's net income for the prior fiscal year. The percentage vested is based on the sum of the executive's age and years of service. The participant becomes fully vested at age 65, death, disability or upon a change in control of the Bank. Upon the death of the participant, the beneficiary shall receive the remaining balance paid in a lump sum. The plan expense for the year ended June 30, 2006 was approximately $103,000.
Split Dollar Life Insurance Agreement. The Bank has entered into Life Insurance Agreements with Officers Jolliffe, Shriner and Smith, which provide a death benefit equal to the following: if the executive is: (i) employed by the Bank at the time of his or her death, (ii) has retired from employment with the Bank after completion of not less than twenty (20) years of service with the Bank, or (iii) has retired from employment with the Bank and at such date of retirement the sum of the executive's age and years of service equals not less than 70, then the executive's beneficiary is entitled to payment of an amount equal to 200% of the executive's highest annual base salary (not including bonus, equity compensation, deferred compensation or any other forms of compensation) in effect at the Bank at any time during the three calendar years prior to the date of death of the executive. The maximum death benefits for Officers Jolliffe, Shriner and Smith are approximately $375,000, $402,000 and $367,000, respectively.
If a change in control of the Bank shall occur prior to the executive's termination of employment or retirement, then the death benefit coverage shall remain in effect until the executive's death, unless the agreement is otherwise terminated pursuant to its terms prior to such date of a change in control. Coverage under the agreement for the executive who terminates employment with the Bank (for reasons other than death or a change in control of the Bank) prior to completion of at least ten years of service with the Bank (and prior to the occurrence of a change of control) will cease on his or her last day of employment with the Bank.
Savings Plan. The Bank sponsors a tax-qualified defined contribution savings plan for the benefit of its employees. The plan has a profit-sharing component and an annual contribution is made by the Bank to the plan for all employees who have completed twelve months of service. Employees may also voluntarily elect to defer between 1% and 8% of compensation, not to exceed applicable limits under federal tax laws. All eligible employees receive the profit-sharing contribution regardless of whether they defer salary under the plan. In calendar year 2006, an employee could defer up to the lower of $15,000 or 8% of his salary. Employees age 50 and over may make catch-up contributions ($5,000 in 2006). In addition, the plan provides for matching contributions up to a maximum of 50% of the first 6% of a person's salary for each participant. Employee contributions are immediately fully vested. Matching contributions and the annual profit-sharing contribution are vested at a rate of 20% per year after two years and completely vested after six years of service. Participants in this plan will also be able to direct plan assets to be invested in shares of MSB Financial Corp. in the stock offering and following the stock offering.
Stock Benefit Plans
Employee Stock Ownership Plan. The Bank intends to establish an employee stock ownership plan for the exclusive benefit of participating employees of Millington Savings Bank, to be implemented prior to the completion of the offering. Participating employees are salaried, full-time employees who have completed at least one year of service and have attained the age of 21. An application for a letter of
determination as to the tax-qualified status of the employee stock ownership plan will be submitted to the IRS. Although no assurances can be given, we expect that the employee stock ownership plan will receive a favorable letter of determination from the IRS.
The employee stock ownership plan is to be funded by contributions made by Millington Savings Bank in cash or common stock. Benefits may be paid either in shares of the common stock or in cash. The plan will borrow funds with which to acquire up to 8% of the shares sold in the offering. The employee stock ownership plan may elect, in whole or in part, to fill its order through open market purchases subsequent to the closing of the offering, subject to any required regulatory approval. The employee stock ownership plan intends to borrow funds from MSB Financial Corp. The loan is expected to be for a term of ten years at an annual interest rate equal to the prime rate published in The Wall Street Journal. Presently it is anticipated that the employee stock ownership plan will purchase up to 8% of the shares sold in the offering. The loan will be secured by the shares purchased and earnings of employee stock ownership plan assets. Shares purchased with loan proceeds will be held in a suspense account for allocation among participants as the loan is repaid. It is anticipated that all contributions will be tax-deductible.
Contributions to the employee stock ownership plan and shares released from the suspense account will be allocated among participants on the basis of base compensation. All participants must be employed on the last day of a plan year, or have terminated employment following death, disability or retirement, in order to receive an allocation. Participant benefits become fully vested in plan allocations following five years of service. Employment service before the adoption of the employee stock ownership plan shall be credited for the purposes of vesting. Contributions to the employee stock ownership plan by Millington Savings Bank are discretionary and as a result benefits payable under this plan cannot be estimated.
The Board of Directors has appointed the non-employee directors to a committee that will administer the plan and serve as the plan's trustees. The trustees must vote all allocated shares held in the plan as directed by plan participants. Unallocated shares and allocated shares for which no timely direction is received will be voted as directed by the Board of Directors or the plan's committee, subject to the trustees' fiduciary duties.
Stock Option Plan. We intend to adopt a stock option plan for the benefit of directors and officers after the passage of at least six months following the completion of the offering. Up to 4.9% of the total number of shares of common stock outstanding after the offering, including shares held by MSB Financial, MHC, will be reserved for issuance under the stock option plan. No determinations have been made as to any specific grants to be made under the stock option plan or the terms thereof.
The purpose of the stock option plan will be to attract and retain qualified personnel in key positions, provide officers and directors with a proprietary interest in MSB Financial Corp. as an incentive to contribute to our success and reward directors and officers for outstanding performance. Although the terms of the stock option plan have not yet been determined, it is expected that the stock option plan will provide for the grant of: (1) options to purchase the common stock intended to qualify as incentive stock options under the Internal Revenue Code (incentive stock options); and (2) options that do not so qualify (non-incentive stock options). The exercise price of any options will be not less than the fair market value of the common stock on the date of grant. Any stock option plan would be in effect for up to 10 years following the earlier of adoption by the Board of Directors or approval by the stockholders. Options would expire no later than 10 years following the date granted and would expire earlier if the option committee so determines or in the event of termination of employment. Options would be granted based upon several factors, including seniority, job duties and responsibilities and job performance.
Restricted Stock Plan. We also intend to establish a restricted stock plan to provide our officers and directors with a proprietary interest in MSB Financial Corp. after the passage of at least six months following the completion of the offering. The restricted stock plan is expected to provide for the award of common stock, subject to vesting restrictions, to eligible officers and directors.
We expect to contribute funds to the restricted stock plan to acquire, in the aggregate, up to 1.96% of the total number of shares of common stock outstanding after the offering, including shares held by MSB Financial, MHC. Shares used to fund the restricted stock plan may be acquired through open market purchases or provided from authorized but unissued shares. No determinations have been made as to the specific terms of the restricted stock plan.
Dilution. While our intention is to fund the stock option plan and restricted stock plan through open market purchases, stockholders will experience a reduction or dilution in ownership interest if the plans are instead funded with newly-issued shares.
The issuance of authorized but unissued shares of stock to the restricted stock plan instead of open market purchases would dilute the voting interests of existing stockholders by approximately 1.9%.
The issuance of authorized but unissued shares of stock to the stock option plan instead of open market purchases would dilute the voting interests of existing stockholders by approximately 4.7%.
Compensation Committee Interlocks and Insider Participation
During the year ended June 30, 2006, MSB Financial Corp. had no "interlocking" relationships in which (i) an executive officer of MSB Financial Corp. served as a director or member of the compensation committee of another entity, one of whose executive officers served on the Board of Directors of MSB Financial Corp.; (ii) an executive officer of MSB Financial Corp. served as a director of another entity, one of whose executive officers served on Board of Directors of MSB Financial Corp.; and (iii) an executive officer of MSB Financial Corp. served as a director or member of the compensation committee of another entity, one of whose executive officers served as a director of MSB Financial Corp.
Transactions with Management and Others
No directors, executive officers or their immediate family members were engaged, directly or indirectly, in transactions with MSB Financial Corp. or any subsidiary during the three years ended June 30, 2006 that exceeded $60,000 (excluding loans with Millington Savings Bank).
Millington Savings Bank makes loans to its officers, directors and employees in the ordinary course of business and offers them a 50 basis point reduction on interest rates for consumer loans or primary residence mortgage loans. Such loans do not include more than the normal risk of collectibility or present other unfavorable features. At June 30, 2006, loans to officers and directors or their immediate family members totaled $5.4 million and were all current and performing in accordance with their terms.
THE OFFERING
The Board of Directors adopted the plan authorizing the stock offering on July 17, 2006, subject to the approval of the Office of Thrift Supervision. We received authorization from the Office of Thrift Supervision to conduct the stock offering on November __, 2006. Office of Thrift Supervision
authorization does not constitute a recommendation or endorsement of an investment in our stock by the Office of Thrift Supervision.
General
MSB Financial Corp. will sell its common stock to eligible depositors of Millington Savings Bank in a subscription offering and, if shares are available, to the general public in a community offering and/or a syndicated community offering. The stock offering will be accomplished in accordance with the procedures set forth in the plan, the requirements of applicable laws and regulations, and the policies of the Office of Thrift Supervision.
We are offering for sale between 1,625,625 shares at the minimum and 2,199,375 shares at the maximum of the offering range (2,529,281 shares at the adjusted maximum. The minimum purchase is 25 shares of common stock (minimum investment of $250). Our common stock is being offered at a fixed price of $10.00 per share in the offering. Interest will be paid on subscription funds from the date the payment is received until the offering is either completed or terminated.
We may cancel the offering at any time prior to completion. If we do, orders for common stock already submitted will be canceled and subscribers' funds will be returned with interest.
In accordance with Rule 15c2-4 of the Securities Exchange Act of 1934, pending completion or termination of the offering, subscription funds received by us will be invested only in investments permissible under Rule 15c2-4.
Purposes of the Stock Offering
The proceeds from the sale of common stock of MSB Financial Corp. will provide Millington Savings Bank with new equity capital, which will support future growth and expanded operations. While Millington Savings Bank currently exceeds all regulatory capital requirements to be considered well capitalized, the sale of stock, coupled with the accumulation of earnings, less dividends or other reductions in capital, from year to year, provides a means for the orderly preservation and expansion of Millington Savings Bank's capital base.
The offering will afford our directors, officers and employees the opportunity to become stockholders, which we believe to be an effective performance incentive and an effective means of attracting and retaining qualified personnel. The offering also will provide our customers and local community members with an opportunity to acquire our stock.
Conduct of the Offering
Subject to the limitations of the plan of stock issuance adopted by our Board of Directors, shares of common stock are being offered in descending order of priority in the subscription offering to:
o Eligible Account Holders (depositors at the close of business on June 30, 2005 with deposits of at least $50.00);
o the employee stock ownership plan of Millington Savings Bank; and
o Supplemental Eligible Account Holders (depositors at the close of business on September 30, 2006 with deposits of at least $50.00).
To the extent that shares remain available and depending on market conditions at or near the completion of the subscription offering, we may conduct a community offering and possibly a syndicated community offering. The community offering, if any, may commence at any time during or subsequent to the completion of the subscription offering. A syndicated community offering, if we conduct one, would commence just prior to, or as soon as practicable after, the termination of the subscription offering. In any community offering or syndicated community offering, we will fill orders for our common stock in an equitable manner as determined by the Board of Directors in order to achieve a wide distribution of the stock.
Any shares sold above the maximum of the offering range may be sold to the employee stock ownership plan before satisfying remaining unfilled orders of Eligible Account Holders to fill the plan's subscription, or the plan may purchase some or all of the shares covered by its subscription after the offering in the open market, subject to any required regulatory approval.
Subscription Offering
Subscription Rights. Non-transferable subscription rights to subscribe for the purchase of common stock have been granted under the plan of stock issuance to the following persons in the following order of priority:
Priority 1: Eligible Account Holders. Each Eligible Account Holder shall be given the opportunity to purchase, subject to the overall limitations described under The Stock Offering - Limitations on Purchases of Common Stock, up to the greater of (i) the maximum purchase limitation in the community offering (i.e., 20,000 shares), (ii) one-tenth of 1% of the total shares of common stock offered in the subscription and community offering, and (iii) 15 times the product (rounded down to the next whole number) obtained by multiplying the total number of shares of common stock offered in the subscription and community offering by a fraction, of which the numerator is the total amount of the qualifying deposits of the Eligible Account Holder and the denominator is the total amount of all qualifying deposits of all Eligible Account Holders. If there are insufficient shares available to satisfy all subscriptions of Eligible Account Holders, shares will be allocated to Eligible Account Holders so as to permit each subscribing Eligible Account Holder to purchase a number of shares sufficient to make his total allocation equal to the lesser of 100 shares or the number of shares ordered. Thereafter, unallocated shares will be allocated to remaining subscribing Eligible Account Holders whose subscriptions remain unfilled in the same proportion that each subscriber's qualifying deposit bears to the total amount of qualifying deposits of all subscribing Eligible Account Holders, in each case measured as of June 30, 2005, whose subscriptions remain unfilled. Subscription rights received by officers and directors of MSB Financial Corp. or Millington Savings Bank, and such persons' associates, based on their increased deposits in Millington Savings Bank in the one year preceding June 30, 2005 will be subordinated to the subscription rights of all other Eligible Account Holders. To ensure proper allocation of stock, each Eligible Account Holder must list on his order form all accounts in which he had an ownership interest as of the Eligibility Record Date. Failure to list an account, or providing incorrect information, could result in the loss of all or a part of the subscriber's allocation.
Priority 2: The Employee Stock Ownership Plan. If there are sufficient shares remaining after satisfaction of subscriptions by Eligible Account Holders, the employee stock ownership plan may be given the opportunity to purchase in the aggregate up to but less than 5% of the total number of shares of common
stock issued in the offering to public stockholders and to MSB Financial, MHC. It is expected that Millington Savings Bank's employee stock ownership plan will purchase up to 8% of the shares sold in the offering. To the extent the employee stock ownership plan does not purchase shares in the offering, the employee stock ownership plan intends to purchase shares in the open market purchases subsequent to the closing of the offering, subject to any required regulatory approval.
Priority 3: Supplemental Eligible Account Holders. If there are sufficient shares remaining after satisfaction of subscriptions by Eligible Account Holders and the employee stock ownership plan, each Supplemental Eligible Account Holder shall be given the opportunity to purchase, subject to the overall limitations described under The Stock Offering - Limitations on Purchases of Common Stock, up to the greater of (i) the maximum purchase limitation in the community offering (i.e., 20,000 shares), (ii) one-tenth of 1% of the total shares of common stock offered in the subscription and community offering, and (iii) 15 times the product (rounded down to the next whole number) obtained by multiplying the total number of shares of common stock offered in the subscription and community offering by a fraction, of which the numerator is the amount of the qualifying deposits of the Supplemental Eligible Account Holder and the denominator is the total amount of all qualifying deposits of all Supplemental Eligible Account Holders. If Supplemental Eligible Account Holders subscribe for a number of shares which, when added to the shares subscribed for by Eligible Account Holders and the employee stock ownership plan, is in excess of the total number of shares offered in the offering, the shares of common stock will be allocated among subscribing Supplemental Eligible Account Holders first so as to permit each subscribing Supplemental Eligible Account Holder to purchase a number of shares sufficient to make his total allocation equal to the lesser of 100 shares or the number of shares ordered. Thereafter, unallocated shares will be allocated to each subscribing Supplemental Eligible Account Holder whose subscription remains unfilled in the same proportion that each subscriber's qualifying deposit bear to the total amount of qualifying deposits of all subscribing Supplemental Eligible Account Holders, in each case measured as of September 30, 2006, whose subscriptions remain unfilled. To ensure proper allocation of stock, each Supplemental Eligible Account Holder must list on his order form all accounts in which he had an ownership interest as of the Supplemental Eligibility Record Date. Failure to list an account, or providing incorrect information, could result in the loss of all or a part of the subscriber's allocation.
Restrictions on Transfer of Subscription Rights and Shares. Applicable regulations and the plan of stock issuance prohibits any person with subscription rights, including Eligible Account Holders and Supplemental Eligible Account Holders, from transferring or entering into any agreement or understanding to transfer the legal or beneficial ownership of the subscription rights or the shares of common stock to be issued when subscription rights are exercised. Subscription rights may be exercised only by the person to whom they are granted. Each person subscribing for shares will be required to certify that such person is purchasing shares solely for his own account and that he has no agreement or understanding regarding the sale or transfer of the shares. The regulations also prohibit any person from offering or making an announcement of an offer or intent to make an offer to purchase subscription rights or shares of common stock before the completion of the offering.
We will pursue any and all legal and equitable remedies in the event we become aware of the transfer of subscription rights and will not honor orders which we determine involve the transfer of subscription rights.
Deadlines for Purchasing Stock
The subscription offering will terminate at 12:00 noon, Eastern time, on December ___, 2006. We may extend this expiration date without notice to you for up to 45 days, until _______________, 2007.
Once submitted, your order is irrevocable unless the offering is extended beyond ________________, 2007. We may request permission from the Office of Thrift Supervision to extend the offering beyond ________________, 2007, and the Office of Thrift Supervision may grant one or more extensions of the offering of up to 90 days per extension, but in no event may the offering be extended beyond ____________, 2008. If the offering is extended beyond ________________, 2007, we will notify each subscriber and subscribers will have the right to confirm, modify or rescind their subscriptions. If an affirmative response is not received prior to the expiration of the resolicitation period, a subscriber's subscription will be canceled and funds will be returned with interest.
A community offering and a syndicated community offering, if such offerings are conducted, may terminate at any time without notice but no later than ________________, 2007.
Community Offering
If less than the total number of shares of common stock to be subscribed for in the offering are sold in the subscription offering then shares remaining unsubscribed may be made available for purchase in the community offering to certain members of the general public. The maximum amount of common stock that any person may purchase in the community offering is 20,000 shares, or $200,000.
Preference in the community shall be given first to natural persons residing in Morris and Somerset Counties, New Jersey and second to other natural persons residing in New Jersey. If shares are available for these "preferred purchasers" in the community offering but there are insufficient shares to satisfy all orders, the available shares will be allocated first to each preferred purchasers whose order we accept in an amount equal to the lesser of 100 shares or the number of shares ordered by each such subscriber, if possible. After that, unallocated shares will be allocated among the remaining preferred purchasers whose orders remain unsatisfied in the same proportion that the unfilled order of each such subscriber bears to the total unfilled orders of all such subscribers. If, after filling the orders of the first group of preferred purchasers (natural persons residing in Morris and Somerset Counties, New Jersey) and then the orders of the second group of preferred purchasers (natural persons residing in New Jersey), shares are available for other subscribers in the community offering but there are insufficient shares to satisfy all orders, shares will be allocated in the same manner as for preferred purchasers.
We will consider persons residing in one of the specified counties if they occupy a dwelling in the county and establish an ongoing physical presence in the county that is not merely transitory in nature. We may utilize depositor or loan records or other evidence provided to us to make a determination as to whether a person is a resident in one of the specified counties. In all cases, the determination of residence status will be made by us in our sole discretion.
The community offering, if any, may commence at any time during or subsequent to the completion of the subscription offering. The community offering, if any, must be completed within 45 days after the completion of the subscription offering unless otherwise extended by the Office of Thrift Supervision.
If we receive regulatory approval for an extension, all subscribers will be notified of the extension and of the duration of any extension that has been granted, and will have the right to confirm, increase, decrease or rescind their orders. If we do not receive an affirmative response from a subscriber to any resolicitation, the subscriber's order will be rescinded and all funds received will be promptly returned with interest.
The opportunity to subscribe for shares of common stock in the community offering is subject to our right to reject orders, in whole or part, either at the time of receipt of an order or as soon as practicable following the expiration date of the offering. If your order is rejected in part, you will not have the right to cancel the remainder of your order.
Syndicated Community Offering
The plan of stock issuance provides that, if necessary, all shares of common stock not purchased in the subscription offering and community offering may be offered for sale to the general public in a syndicated community offering to be managed by Keefe, Bruyette and Woods, Inc., acting as our agent. In such capacity, Keefe, Bruyette and Woods, Inc. may form a syndicate of other broker-dealers. Alternatively, we may sell any remaining shares in an underwritten public offering. Neither Keefe, Bruyette and Woods, Inc. nor any registered broker-dealer will have any obligation to take or purchase any shares of the common stock in the syndicated community offering; however, Keefe, Bruyette and Woods, Inc. has agreed to use its best efforts in the sale of shares in any syndicated community offering. The syndicated community offering would terminate no later than 45 days after the expiration of the subscription offering, unless extended by us, with approval of the Office of Thrift Supervision. See - Community Offering above for a discussion of rights of subscribers in the event an extension is granted.
The opportunity to subscribe for shares of common stock in the syndicated community offering is subject to our right to reject orders, in whole or part, either at the time of receipt of an order or as soon as practicable following the expiration date of the offering. If your order is rejected in part, you will not have the right to cancel the remainder of your order.
Purchasers in the syndicated community offering are eligible to purchase up to $200,000 of common stock (which equals 20,000 shares). We may begin the syndicated community offering or underwritten public offering at any time following the commencement of the subscription offering.
If we are unable to find purchasers from the general public for all unsubscribed shares, we will make other purchase arrangements, if feasible. Other purchase arrangements must be approved by the Office of Thrift Supervision and may provide for purchases by directors, officers, their associates and other persons in excess of the limitations provided in the plan of stock issuance and in excess of the proposed director purchases discussed earlier, although no purchases are currently intended. If other purchase arrangements cannot be made, we may do any of the following: terminate the stock offering and promptly return all funds; return all funds, then set a new offering range and notify all subscribers to give them the opportunity to confirm, cancel or change their orders; or take such other actions as may be permitted by the Office of Thrift Supervision.
Limitations on Purchases of Common Stock
The following additional limitations have been imposed on purchases of shares of common stock:
1. The maximum number of shares which may be purchased in the offering by any individual (or individuals through a single account) shall not exceed 20,000 shares, or $200,000. This limit applies to stock purchases in total in the subscription, community and syndicated community offerings.
2. The maximum number of shares that may be purchased by any individual together with any associate or group of persons acting in concert is 25,000 shares, or $250,000. Any
persons or entities having the same address on an account or stock order form are considered to be acting in concert. This limit applies to stock purchases in total in the subscription, community and syndicated community offerings. This limit does not apply to our employee stock ownership plan which may subscribe for up to but less than 5% of the total number of shares of common stock issued in the offering to public stockholders and to MSB Financial, MHC.
3. The maximum number of shares which may be purchased in all categories in the offering by our officers and directors and their associates in the aggregate shall not exceed 30% of the total number of shares sold in the offering.
4. The minimum order is 25 shares, or $250.
5. If the number of shares otherwise allocable to any person or that person's associates would be in excess of the maximum number of shares permitted as set forth above, the number of shares allocated to that person shall be reduced to the lowest limitation applicable to that person, and then the number of shares allocated to each group consisting of a person and that person's associates shall be reduced so that the aggregate allocation to that person and his associates complies with the above maximums, and the maximum number of shares shall be reallocated among that person and his associates in proportion to the shares subscribed by each (after first applying the maximums applicable to each person, separately).
6. Depending on market or financial conditions, we may decrease or increase the purchase limitations, provided that the maximum purchase limitations may not be increased to a percentage in excess of 5% of the offering. If we increase the maximum purchase limitations, we are only required to resolicit persons who subscribed for the maximum purchase amount and may, in our sole discretion, resolicit certain other large subscribers.
7. If the total number of shares offered increases in the offering due to an increase in the maximum of the estimated valuation range of up to 15% (the adjusted maximum) the additional shares will generally be issued in the following order of priority: (a) to fill the employee stock ownership plan's subscription; (b) if there is an oversubscription at the Eligible Account Holder level, to fill unfilled subscriptions of Eligible Account Holders; (c) if there is an oversubscription at the Supplemental Eligible Account Holder level, to fill unfilled subscriptions of Supplemental Eligible Account Holders; (d) to fill orders received in a community offering; with preference given to persons who live in the local community; and (e) to fill orders received in the syndicated community offering. The employee stock ownership plan may, however, elect to fill part or all of its stock order in the open market, after completion of the stock offering.
8. No person will be allowed to purchase any stock if that purchase would be illegal under any federal or state law or regulation or would violate regulations or policies of the National Association of Securities Dealers. We and/or our representatives may ask for an acceptable legal opinion from any purchaser regarding the legality of the purchase and may refuse to honor any purchase order if that opinion is not timely furnished.
9. We have the right to reject any order submitted by a person whose representations we believe are untrue or who we believe is violating, circumventing or intends to violate, evade or circumvent the terms and conditions of the plan of stock issuance, either alone or acting in concert with others.
10. The above restrictions also apply to purchases by persons acting in concert under applicable regulations of the Office of Thrift Supervision. Under regulations of the Office of Thrift Supervision, our directors are not considered to be affiliates or a group acting in concert with other directors solely as a result of membership on our Board of Directors.
11. In addition, in any community offering or syndicated community offering, we must first fill orders for our common stock up to a maximum of 2% of the total shares issued in the offering in a manner that will achieve a wide distribution of the stock, and thereafter any remaining shares will be allocated on an equal number of shares per order basis, until all orders have been filled or the shares have been exhausted.
The term "associate" of a person is defined in the plan of stock issuance to mean:
(1) any corporation or organization of which that person is a senior officer or partner or is, directly or indirectly, the beneficial owner of 10% or more of any class of equity securities;
(2) any trust or other estate in which that person has a substantial beneficial interest or as to which that person serves as trustee or in a similar fiduciary capacity; or
(3) an individual who is related by blood or marriage to that person if they live in the same home as that person.
For example, a corporation for which a person serves as an officer would be an associate of that person and all shares purchased by that corporation would be included with the number of shares which that person individually could purchase under the above limitations.
The term "acting in concert" means:
(1) knowing participation in a joint activity or interdependent conscious parallel action towards a common goal whether or not pursuant to an express agreement; or
(2) 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 or company which acts in concert with another person or company ("other party") shall also be deemed to be acting in concert with any person or company who is also acting in concert with that other party. We will presume that certain persons are acting in concert based upon various facts, including the fact that persons have joint account relationships or the fact that such persons have filed joint Schedules 13D with the Securities and Exchange Commission with respect to other companies. We reserve the right to make an independent investigation of any facts or circumstances brought to our attention that indicate that one or more persons acting independently or as a group acting in concert may be attempting to violate or circumvent the regulatory prohibition on the transferability of subscription rights.
We have the right, in our sole discretion, to determine whether prospective purchasers are "associates" or "acting in concert." These determinations are in our sole discretion and may be based on whatever evidence we believe to be relevant, including joint account relationships or shared addresses on the records of Millington Savings Bank.
Each person purchasing shares of the common stock in the offering will be considered to have confirmed that his purchase does not conflict with the maximum purchase limitation. If the purchase limitation is violated by any person or any associate or group of persons affiliated or otherwise acting in concert with that person, we will have the right to purchase from that person at the $10.00 purchase price per share all shares acquired by that person in excess of that purchase limitation or, if the excess shares have been sold by that person, to receive the difference between the purchase price per share paid for the excess shares and the price at which the excess shares were sold by that person. Our right to purchase the excess shares will be assignable.
Common stock purchased pursuant to the offering will be freely transferable, except for shares purchased by our directors and executive officers. For certain restrictions on the common stock purchased by our directors and executive officers, see The Offering - Restrictions on Transferability by Directors and Executive Officers.
Ordering and Receiving Common Stock
Use of Order Forms. Rights to subscribe may only be exercised by completion of an order form. Any person receiving an order form who desires to subscribe for shares of common stock must do so prior to the applicable expiration date by delivering by mail or in person a properly executed and completed order form, together with full payment of the purchase price for all shares for which subscription is made or include appropriate authorization in the space provided on the order form for withdrawal of full payment from a deposit account at Millington Savings Bank; provided, however, that if the employee stock ownership plan subscribes for shares during the subscription offering, it will not be required to pay for the shares at the time it subscribes but rather may pay for the shares upon completion of the offering. All subscription rights will expire on the expiration date, whether or not we have been able to locate each person entitled to subscription rights. To place an order in the community offering, an investor must complete an order form and return it prior to the applicable expiration date. Once submitted, subscription orders cannot be revoked without our consent.
We may, in our sole discretion, permit institutional investors to submit irrevocable orders together with the legally binding commitment for payment and to thereafter pay for such shares of common stock for which they subscribe in the community offering at any time before the 48 hours prior to the completion of the offering. This payment may be made by wire transfer. Our interpretation of the terms and conditions of the plan of stock issuance and of the acceptability of the order forms will be final.
To ensure that your stock purchase eligibility and priority are properly identified, you must list all accounts on the order form, giving all names in each account and the account number as of the appropriate eligibility date. We will strive to identify your ownership in all accounts, but cannot guarantee we will identify all accounts in which you have an ownership interest.
If a stock order form:
o is not delivered to a subscriber and is returned to us by the United States Postal Service or we are unable to locate the addressee;
o is not received by us or is received after the applicable expiration date;
o is not completed correctly or executed; or
o is not accompanied by the full required payment for the shares subscribed for, including instances where a savings account or certificate balance from which withdrawal is authorized is unavailable, uncollected or insufficient to fund the required payment, but excluding subscriptions by the employee stock ownership plan;
then the subscription rights for that person will lapse as though that person failed to return the completed order form within the time period specified.
However, we may, but will not be required to, waive any irregularity on any order form or require the submission of corrected order forms or the remittance of full payment for subscribed shares by a date that we may specify. The waiver of an irregularity on an order form in no way obligates us to waive any other irregularity on any other order form. Waivers will be considered on a case by case basis. We are not required to accept orders received on photocopies or facsimile order forms, or for which payment is to be made by wire transfer or payment from private third parties. Our interpretation of the terms and conditions of the plan of stock issuance and of the acceptability of the order forms will be final, subject to the authority of the Office of Thrift Supervision.
The reverse side of the order form contains a certification form mandated by regulation. We will not accept order forms where the certification form is not executed. By executing and returning the certification form, you will be certifying that you received this prospectus and acknowledging that the common stock is not a deposit account and is not insured or guaranteed by the federal government. You also will be acknowledging that you received disclosure concerning the risks involved in this offering. The certification form could be used as support to show that you understand the nature of this investment.
To ensure that each purchaser receives a prospectus at least 48 hours before the applicable expiration date, in accordance with Rule 15c2-8 of the Securities Exchange Act of 1934, no prospectus will be mailed any later than five days prior to the expiration date or hand delivered any later than two days prior to the expiration date. Execution of the order form will confirm receipt or delivery in accordance with Rule 15c2-8. Order forms will only be distributed with a prospectus.
Payment for Shares. For subscriptions to be valid, payment for all subscribed shares will be required to accompany all properly completed order forms, on or prior to the expiration date specified on the order form unless we extend the date. The employee stock ownership plan may pay for the shares it subscribes for upon completion of the offering. Payment for shares of common stock may be made:
o in cash, if delivered in person;
o by check or money order made payable to MSB Financial Corp.; or
o for shares subscribed for in the subscription offering, by authorization of withdrawal from deposit accounts maintained with Millington Savings Bank.
If you choose to pay by cash, you must deliver the stock order and certification form and payment in person to any branch office of Millington Savings Bank and it will be exchanged for a bank check or money order. Please do not send cash in the mail.
In accordance with Rule 15c2-4 of the Securities Exchange Act of 1934, subscribers' checks must be made payable to MSB Financial Corp., and checks received by the stock information center will be deposited directly to the segregated deposit account at Millington Savings Bank established to hold funds received as payment for shares. We may, at our discretion, determine during the offering period that it is in the best interest of Millington Savings Bank to hold subscription funds in an escrow account at another insured financial institution instead of at Millington Savings Bank.
The employee stock ownership plan will not be required to pay for the shares subscribed for at the time it subscribes, but rather may pay for shares of common stock subscribed for upon the completion of the offering; provided that there is in force from the time of its subscription until the completion of the offering a loan commitment from an unrelated financial institution or from us to lend to the employee stock ownership plan, at that time, the aggregate purchase price of the shares for which it subscribed.
Appropriate means by which account withdrawals may be authorized are provided on the order form. If a subscriber authorizes us to withdraw the amount of the purchase price from his or her deposit account, we will do so as of the completion of the offering, though the account must contain the full amount necessary for payment at the time the subscription is received. Once a withdrawal has been authorized, none of the designated withdrawal amount may be used by a subscriber for any purpose other than to purchase the common stock for which a subscription has been made until the offering has been completed or terminated. In the case of payments authorized to be made through withdrawal from savings accounts, all sums authorized for withdrawal will continue to earn interest at the applicable account rate until the offering has been completed or terminated. Sums authorized for withdrawal from a certificate of deposit will continue to earn interest at the contract rate on the certificate until the offering has been completed or terminated. Interest penalties for early withdrawal applicable to certificate accounts will not apply to withdrawals authorized for the purchase of shares. However, if a partial withdrawal results in a certificate account with a balance less than the applicable minimum balance requirement, the certificate shall be canceled at the time of withdrawal, without penalty, and the remaining balance will be converted into a savings account and will earn interest at the regular passbook savings rate subsequent to the withdrawal. In the case of payments made in cash or by check or money order, funds will be placed in a segregated account and interest will be paid by Millington Savings Bank at the regular passbook savings rate from the date payment is received until the offering is completed or terminated. An executed order form, once we receive it, may not be modified, amended, or rescinded without our consent, unless the offering is not completed within 45 days after the conclusion of the subscription offering, in which event subscribers may be given the opportunity to increase, decrease, or rescind their subscription for a specified period of time. If the offering is not completed for any reason, all funds submitted pursuant to the offerings will be promptly refunded with interest as described above.
A subscriber interested in using funds in an individual retirement account to purchase common stock must do so through a self-directed IRA account. Millington Savings Bank IRA accounts are not self- directed accounts. To use funds in an IRA account at Millington Savings Bank, a subscriber must make a trustee-to-trustee transfer of the IRA funds held at Millington Savings Bank to a trustee offering a self-directed IRA program with the agreement that the funds will be used to purchase shares in the offering. There will be no early withdrawal or Internal Revenue Service interest penalties for transfers. The new trustee would hold the common stock in a self-directed account in the same manner as we now hold the depositor's IRA funds. An annual administrative fee may be payable to the new trustee. Subscribers interested in using funds in a Millington Savings Bank IRA account to purchase common stock should contact the stock information center as soon as possible so that the necessary forms may be forwarded for execution and returned before the subscription offering ends. In addition, federal laws and regulations
require that officers, directors and 10% stockholders who use self-directed IRA funds to purchase shares of common stock in the subscription offering, make purchases for the exclusive benefit of IRA accounts.
Federal regulations prohibit Millington Savings Bank from lending funds or extending credit to any person to purchase the common stock in the offering.
Stock Information Center. Our stock information center is located at the Bank's main office at 1902 Long Hill Road, Millington, New Jersey. The phone number is (___) ___-____. The stock information center's hours of operation are generally _____ a.m. to ____ p.m., Eastern time, Monday through Friday.
Delivery of Stock Certificates. Certificates representing common stock issued in the offering will be mailed by our transfer agent to the persons entitled thereto at the address noted on the order form, as soon as practicable following completion of the offering. Any certificates returned as undeliverable will be held until claimed by persons legally entitled thereto or otherwise disposed of in accordance with applicable law. Until certificates for the common stock are available and delivered to subscribers, subscribers may not be able to sell the shares of stock for which they subscribed, even though trading of our common stock may have commenced.
Restrictions on Repurchase of Shares
Under Office of Thrift Supervision regulations, we may not, for a period of one year from the date of the completion of the offering, repurchase any of our common stock from any person, except (1) in an offer made to all stockholders to repurchase the common stock on a pro rata basis, approved by the Office of Thrift Supervision, (2) the repurchase of qualifying shares of a director, or (3) repurchases to fund restricted stock plans or tax-qualified employee stock benefit plans, including the employee stock ownership plan. Where extraordinary circumstances exist, the Office of Thrift Supervision may approve the open market repurchase of up to 5% of our common stock during the first year following the offering. To receive such approval, we must establish compelling and valid business purposes for the repurchase to the satisfaction of the Office of Thrift Supervision. Furthermore, repurchases of any common stock are prohibited if they would cause Millington Savings Bank's regulatory capital to be reduced below the amount required under the regulatory capital requirements imposed by the Office of Thrift Supervision. If, in the future, the rules and regulations regarding the repurchase of stock are liberalized, we may utilize the rules and regulations then in effect.
How We Determined the $10.00 Per Share Price and the Number of Shares to Be Issued in the Stock Offering
The plan of stock issuance requires that the purchase price of the common stock must be based on the appraised pro forma market value of MSB Financial Corp. and Millington Savings Bank, as determined on the basis of an independent valuation. For its services in making this appraisal, RP Financial's fees and out-of-pocket expenses are estimated to total approximately $47,000. We have agreed to indemnify RP Financial and any employees of RP Financial who act for or on behalf of RP Financial in connection with the appraisal against any and all loss, cost, damage, claim, liability or expense of any kind, including claims under federal and state securities laws, arising out of any misstatement, untrue statement of a material fact or omission to state a material fact in the information supplied by us to RP Financial, unless RP Financial is determined to be negligent or otherwise at fault.
RP Financial made its appraisal in reliance upon the information contained in this prospectus, including the financial statements. RP Financial also considered the following factors, among others:
o the present and projected operating results and financial condition of MSB Financial Corp. and Millington Savings Bank, which were prepared by Millington Savings Bank and then adjusted by RP Financial to reflect the estimated net proceeds of this offering, the estimated expense of our stock benefit plans and the economic and demographic conditions in Millington Savings Bank's existing marketing area as prepared by RP Financial;
o certain historical, financial and other information relating to Millington Savings Bank prepared by Millington Savings Bank; and
o the impact of the stock offering on our net worth and earnings potential as calculated by RP Financial.
The appraisal also incorporated an analysis of a peer group of publicly-traded mutual holding companies that RP Financial considered to be comparable to Millington Savings Bank. The peer group analysis conducted by RP Financial included a total of 10 publicly-traded mutual holding companies with total assets of more than $100 million and less than $500 million. The analysis of comparable publicly- traded institutions included an evaluation of the average and median price-to-earnings and price-to-book value ratios indicated by the market prices of the peer companies. RP Financial applied the peer group's pricing ratios, as adjusted to allow for differences between MSB Financial Corp. and the peer group, to MSB Financial Corp.'s pro forma earnings and book value to derive the estimated pro forma market value of MSB Financial Corp.
On the basis of the foregoing, RP Financial advised in its opinion, dated September 1, 2006, that the estimated pro forma market value of MSB Financial Corp. on a fully-converted basis ranged from a minimum of $36.1 million to a maximum of $48.9 million with a midpoint of $42.5 million. The Board of Directors determined that 45% of the total shares of common stock to be outstanding upon completion of the offering should be sold. Based on the estimated valuation and the $10.00 per share price, the total number of shares of common stock that MSB Financial Corp. will issue, including shares issued to MSB Financial, MHC, will range from a minimum of 3,612,500 shares to a maximum of 4,887,500 shares, with a midpoint of 4,250,000 shares. The shares of MSB Financial Corp. stock that are not offered for sale in the offering will be issued to MSB Financial, MHC, which will own 55% of the total outstanding common stock upon completion of the offering.
The estimated valuation range may be amended with the approval of the Office of Thrift Supervision or if necessitated by subsequent developments in the consolidated financial condition of MSB Financial Corp. or market conditions generally. In the event the estimated valuation range is updated to amend the value of MSB Financial Corp. on a fully-converted basis below $36.1 million, which is the minimum of the estimated valuation range, or above $56.2 million, which is the adjusted maximum of the estimated valuation range, a new appraisal will be filed with the Office of Thrift Supervision.
RP Financial' valuation is not intended, and must not be construed, as a recommendation of any kind as to the advisability of purchasing MSB Financial Corp.'s shares. RP Financial did not independently verify the consolidated financial statements and other information provided by us, nor did RP Financial value independently our assets or liabilities. The valuation considers us as a going concern and should not be considered as an indication of our liquidation value. Moreover, because this valuation is necessarily based upon estimates and projections of a number of matters, all of which are subject to change from time
to time, no assurance can be given that persons purchasing common stock in the offerings will thereafter be able to sell such shares at prices at or above the purchase price or in the range of the valuation described above.
No sale of shares of common stock in the stock offering may be completed unless RP Financial confirms that nothing of a material nature has occurred which would cause it to conclude that the aggregate value of the common stock to be issued is materially incompatible with the estimate of the aggregate consolidated pro forma market value of MSB Financial Corp. and Millington Savings Bank. If this confirmation is not received, we may cancel the stock offering, extend the offering period and establish a new estimated valuation and offering range and/or estimated price range, extend, reopen or hold a new offering or take any other action the Office of Thrift Supervision may permit.
Depending upon market or financial conditions following the start of the subscription offering, the total number of shares of common stock to be issued may be increased or decreased without a resolicitation of subscribers, provided that the product of the total number of shares issued times the purchase price is not below the minimum or more than 15% above the maximum of the estimated valuation range. If market or financial conditions change so as to cause the aggregate value of the common stock to be issued to be below the minimum of the estimated valuation range or more than 15% above the maximum of this range, purchasers will be resolicited and be permitted to continue their orders, in which case they will need to reconfirm their subscriptions prior to the expiration of the resolicitation offering or their subscription funds will be promptly refunded with interest, or be permitted to modify or rescind their subscriptions. Any change in the estimated valuation range must be approved by the Office of Thrift Supervision.
An increase in the number of shares of common stock to be issued as a result of an increase in the estimated pro forma market value would decrease both a subscriber's ownership interest and MSB Financial Corp.'s pro forma net income and stockholders' equity on a per share basis while increasing pro forma net income and stockholders' equity on an aggregate basis. A decrease in the number of shares of common stock to be issued would increase both a subscriber's ownership interest and MSB Financial Corp.'s pro forma net income and stockholders' equity on a per share basis while decreasing pro forma net income and stockholders' equity on an aggregate basis.
Copies of the appraisal report of RP Financial, including any amendments, and the detailed report of the appraiser setting forth the method and assumptions for the appraisal are available for inspection at the Bank's main office and the other locations specified under Where You Can Find More Information. The appraisal report is an exhibit to the registration statement filed with the Securities and Exchange Commission.
Plan of Distribution/Marketing Arrangements
We have engaged Keefe, Bruyette and Woods, Inc., a broker-dealer registered with the National Association of Securities Dealers, as a financial and marketing advisor in connection with the offering of our common stock. In its role as financial and marketing advisor, Keefe, Bruyette and Woods, Inc. will assist us in the offering as follows:
o consulting as to the securities marketing implications of any aspect of the plan of stock issuance;
o reviewing with our Board of Directors the securities marketing implications of the independent appraiser's appraisal of the common stock;
o reviewing all offering documents, including the prospectus, stock order forms and related offering materials (we are responsible for the preparation and filing of such documents);
o assisting in the design and implementation of a marketing strategy for the offering;
o assisting us in scheduling and preparing for meetings with potential investors and broker-dealers; and
o providing such other general advice and assistance we may request to promote the successful completion of the offering.
For these services, Keefe, Bruyette and Woods, Inc. will receive a fee of 1.0% of the aggregate dollar amount of the common stock sold in the subscription and community offerings if the stock issuance is consummated, excluding in each case shares purchased by the employee stock ownership plan and shares purchased by our directors, officers and employees and their immediate families.
The plan of stock issuance provides that, if necessary, all shares of common stock not purchased in the subscription offering and community offering may be offered for sale to the general public in a syndicated community offering to be managed by Keefe, Bruyette and Woods, Inc. In such capacity, Keefe, Bruyette and Woods, Inc. may form a syndicate of other broker-dealers. Neither Keefe, Bruyette and Woods, Inc. nor any registered broker-dealer will have any obligation to take or purchase any shares of the common stock in the syndicated community offering; however, Keefe, Bruyette and Woods, Inc. has agreed to use its best efforts in the sale of shares in any syndicated community offering. If there is a syndicated community offering, Keefe, Bruyette and Woods, Inc. will receive a management fee of 1.0% of the aggregate dollar amount of the common stock sold in the syndicated community offering. The total fees payable to Keefe, Bruyette and Woods, Inc. and other National Association of Securities Dealers member firms in the syndicated community offering shall not exceed 5.5% of the aggregate dollar amount of the common stock sold in the syndicated community offering.
We also will reimburse Keefe, Bruyette and Woods, Inc. for its reasonable out-of-pocket expenses (including legal fees and expenses) associated with its marketing effort, up to a maximum of $65,000. If the plan of stock issuance is terminated or if Keefe, Bruyette and Woods, Inc. terminates its agreement with us in accordance with the provisions of the agreement, Keefe, Bruyette and Woods, Inc. will only receive reimbursement of its reasonable out-of-pocket expenses. We will indemnify Keefe, Bruyette and Woods, Inc. against liabilities and expenses (including legal fees) incurred in connection with certain claims or litigation arising out of or based upon untrue statements or omissions contained in the offering material for the common stock, including liabilities under the Securities Act of 1933.
Keefe, Bruyette and Woods, Inc. has not prepared any report or opinion constituting a recommendation or advice to us or to persons who subscribe for our common stock, nor has it prepared an opinion as to the fairness to us of the purchase price or the terms of the common stock offered for sale. Keefe, Bruyette and Woods, Inc. expresses no opinion as to the prices at which the common stock, once issued, may trade.
Our directors and executive officers may participate in the solicitation of offers to purchase common stock. Other trained employees may participate in the offering in ministerial capacities, providing clerical work in effecting a sales transaction or answering questions of a ministerial nature. Other questions of prospective purchasers will be directed to executive officers or registered representatives of Keefe, Bruyette and Woods, Inc. We will rely on Rule 3a4-1 of the Securities Exchange Act of 1934 so as to
permit officers, directors and employees to participate in the sale of our common stock. No officer, director or employee will be compensated for his or her participation by the payment of commissions or other remuneration based either directly or indirectly on the transactions in the common stock.
Proposed Stock Purchases by Management
Preliminary indications from our directors and executive officers and their associates are that they will subscribe for approximately 132,000 shares in the aggregate. If 1,912,500 shares are sold (the midpoint of the offering range), their anticipated purchases would represent 3.1% of the total shares outstanding after the offering, including shares issued to MSB Financial, MHC.
If the stock benefit plans are adopted as discussed in this prospectus (1.96% of the total number of shares of common stock outstanding after the offering for the restricted stock plan and 4.9% of the total number of shares of common stock outstanding after the offering for the stock option plan), and assuming that the plans are funded with newly issued shares instead of shares acquired in open market purchases, the aggregate ownership of directors and executive officers would increase. See Management - Stock Benefit Plans.
Purchases of common stock in the offering by directors and executive officers will be counted toward the minimum of 1,625,625 shares required to be sold to public stockholders to complete the offering. Management may, but is not required to, purchase additional shares in the offering to satisfy this minimum, subject to the limitation on the individual maximum share purchase limitations and the requirement that directors, executive officers and their associates may not purchase, in the aggregate, more than 30% of the shares sold in the offering.
Shares of common stock purchased by directors and executive officers and their associates cannot be sold for a period of one year following the offering, and stock certificates issued to directors and executive officers will bear a legend restricting their sale. See The Offering - Restrictions on Transferability by Directors and Executive Officers.
Restrictions on Transferability by Directors and Executive Officers
Shares of the common stock purchased by our directors or executive officers cannot be sold for a period of one year following completion of the offering, except for a disposition of shares after death. To ensure this restriction is upheld, shares of the common stock issued to directors and executive officers will bear a legend restricting their sale. Appropriate instructions will be issued to the transfer agent with respect to applicable restrictions on transfer of such stock. Any shares issued to directors and executive officers as a stock dividend, stock split or otherwise with respect to restricted stock will be subject to the same restriction.
For a period of three years following the offering, our directors and executive officers and their associates may not, without the prior approval of the Office of Thrift Supervision, purchase our common stock except from a broker or dealer registered with the SEC. This prohibition does not apply to negotiated transactions including more than 1% of our common stock or purchases made by tax qualified or non-tax qualified employee stock benefit plans which may be attributable to individual directors or executive officers.
We have filed with the Securities and Exchange Commission a registration statement under the Securities Act of 1933 for the registration of the common stock to be issued in the offering. This
registration does not cover the resale of the shares. Shares of common stock purchased by persons who are not affiliates of us may be resold without registration. Shares purchased by an affiliate of us will have resale restrictions under Rule 144 of the Securities Act. If we meet the current public information requirements of Rule 144, each affiliate of ours who complies with the other conditions of Rule 144, including those that require the affiliate's sale to be aggregated with those of certain other persons, would be able to sell in the public market, without registration, a number of shares not to exceed, in any three-month period, the greater of 1% of our outstanding shares or the average weekly volume of trading in the shares during the preceding four calendar weeks. We may make future provisions to permit affiliates to have their shares registered for sale under the Securities Act under certain circumstances.
Restrictions on Agreements or Understandings Regarding Transfer of Common Stock to be Purchased in the Offering
Before the completion of the offering, no depositor may transfer or enter into an agreement or understanding to transfer any subscription rights or the legal or beneficial ownership of the shares of common stock to be purchased in the offering. Depositors who submit an order form will be required to certify that their purchase of common stock is solely for their own account and there is no agreement or understanding regarding the sale or transfer of their shares. We intend to pursue any and all legal and equitable remedies after we become aware of any agreement or understanding, and will not honor orders we reasonably believe to involve an agreement or understanding regarding the sale or transfer of shares.
Effects of the Stock Offering
General. The stock offering will not have any effect on Millington Savings Bank's present business of accepting deposits and investing its funds in loans and other investments permitted by law. The stock offering will not result in any change in the existing services provided to depositors and borrowers, or in existing offices, management, and staff. After the stock offering, Millington Savings Bank will continue to be subject to regulation, supervision, and examination by the New Jersey Department of Banking and Insurance and the Federal Deposit Insurance Corporation.
Deposits and Loans. Each holder of a deposit account in Millington Savings Bank at the time of the stock offering will continue as an account holder in Millington Savings Bank after the stock offering, and the stock offering will not affect the deposit balance, interest rate or other terms. Each deposit account will be insured by the Federal Deposit Insurance Corporation to the same extent as before the stock offering. Depositors will continue to hold their existing certificates, savings records, checkbooks and other evidence of their accounts. The stock offering will not affect the loans of any borrower from Millington Savings Bank. The amount, interest rate, maturity, security for, and obligations under each loan will remain contractually fixed as they existed prior to the stock offering.
Voting Rights. As a New Jersey chartered stock savings bank, all voting rights of Millington Savings Bank are held solely by its sole stockholder, MSB Financial Corp. All voting rights of MSB Financial Corp. are held solely by its sole stockholder, MSB Financial, MHC. All voting rights of MSB Financial, MHC are held by the Board of Directors of MSB Financial, MHC. After the stock offering, the voting rights of MSB Financial Corp. will be held by its stockholders. MSB Financial, MHC will own a majority of the outstanding common stock of MSB Financial Corp., and thus the Board of Directors of MSB Financial, MHC, which is comprised of the same individuals who are directors of MSB Financial Corp., will control the affairs of MSB Financial Corp., including the election of directors of MSB Financial Corp.
Material Federal and State Tax Consequences of the Offering. We have received an opinion from Malizia Spidi & Fisch, PC on the material federal tax consequences of the stock offering to MSB Financial Corp., the purchasers of its common stock and the recipients of subscription rights to purchase such common stock. The opinion has been filed as an exhibit to the registration statement of which this prospectus is a part and covers those federal tax matters that are material to the transaction. Such opinion is made in reliance upon various statements, representations and declarations as to matters of fact made by us, as detailed in the opinion. The opinion provides that:
o we will recognize no gain or loss upon the receipt of money in exchange for shares of common stock; and
o no gain or loss will be recognized by Eligible Account Holders or Supplemental Eligible Account Holders upon the distribution to them of the nontransferable subscription rights to purchase shares of common stock.
The opinion in the second bullet above is predicated on representations from Millington Savings Bank, MSB Financial Corp. and MSB Financial, MHC that no person shall receive any payment, whether in money or property, in lieu of the issuance of subscription rights. The opinion in the second bullet above is also based on the position that the subscription rights to purchase shares of common stock received by Eligible Account Holders and Supplemental Eligible Account Holders have a fair market value of zero. In reaching their opinion stated in the second bullet above, Malizia Spidi & Fisch, PC has noted that the subscription rights will be granted at no cost to the recipients, will be legally non-transferable and of short duration, and will provide the recipients with the right only to purchase shares of common stock at the same price to be paid by members of the general public in any community offering. Malizia Spidi & Fisch, PC believes that it is more likely than not that the fair market value of the subscription rights to purchase common stock is zero. Malizia Spidi & Fisch, PC has noted in its opinion that they are not aware of the Internal Revenue Service claiming in any similar transaction that subscription rights have any market value. In that there are no judicial opinions or official Internal Revenue Service positions on this issue, however, such position related to subscription rights comes to a reasoned conclusion instead of an absolute conclusion on these issues. Such conclusion of counsel is supported by a letter from RP Financial furnished to us which states that the subscription rights do not have any value when they are distributed or exercised. If the Internal Revenue Service disagrees with this valuation of subscription rights and determines that such subscription rights have value, income may be recognized by recipients of these rights, in certain cases whether or not the rights are exercised. This income may be capital gain or ordinary income, and MSB Financial Corp. could recognize gain on the distribution of these rights. Based on the foregoing, Malizia Spidi & Fisch, PC believes that it is more likely than not that the nontransferable subscription rights to purchase our common stock have no value.
We are also subject to New Jersey income taxes and have received an opinion from Beard Miller Company LLP that the stock offering will be treated for New Jersey state tax purposes similar to the treatment of the stock offering for federal tax purposes.
Unlike a private letter ruling from the IRS, the federal and state tax opinions have no binding effect or official status, and no assurance can be given that the conclusions reached in any of those opinions would be sustained by a court if contested by the IRS or the New Jersey tax authorities. Eligible Account Holders and Supplemental Eligible Account Holders are encouraged to consult with their own tax advisers as to the tax consequences in the event the subscription rights are determined to have any market value.
Interpretation, Amendment or Termination of the Plan of Stock Offering
If determined to be necessary or desirable by the Board of Directors, the plan may be amended by a two-thirds vote of the full Board, with the concurrence of the Office of Thrift Supervision. To the extent permitted by law, all interpretations by us of the plan of stock issuance will be final; however, such interpretations have no binding effect on the Office of Thrift Supervision. The plan of stock issuance provides that, if deemed necessary or desirable, we may substantively amend the plan of stock issuance as a result of comments from regulatory authorities or otherwise.
Completion of the offering requires the sale of all shares of the common stock within ninety days following approval of the plan of stock issuance by the Office of Thrift Supervision, unless an extension is granted by the Office of Thrift Supervision. If this condition is not satisfied, the plan of stock issuance will be terminated and we will continue our business. We may terminate the plan of stock issuance at any time.
Conditions to the Offering
Completion of the offering is subject to several factors, including:
1. the receipt of all the required approvals of the Office of Thrift Supervision for the issuance of common stock in the offering, and
2. the sale of 1,625,625 shares of common stock.
If such conditions are not met before we complete the offering, all funds received will be promptly returned with interest and all withdrawal authorizations will be canceled. The stock purchases of our officers and directors will be counted for purposes of meeting the minimum number of shares.
RESTRICTIONS ON ACQUISITION OF MSB FINANCIAL CORP.
General
The principal federal regulatory restrictions which affect the ability of any person, firm or entity to acquire MSB Financial Corp., Millington Savings Bank or their respective capital stock are described below. Also discussed are certain provisions in MSB Financial Corp.'s charter and bylaws which may be deemed to affect the ability of a person, firm or entity to acquire MSB Financial Corp.
Statutory and Regulatory Restrictions on Acquisition
The Change in Bank Control Act provides that no person, acting directly or indirectly or through or in concert with one or more other persons, may acquire control of a savings institution unless the Office of Thrift Supervision has been given 60 days prior written notice. The Home Owners' Loan Act provides that no company may acquire "control" of a savings institution without the prior approval of the Office of Thrift Supervision. Any company that acquires such control becomes a savings and loan holding company subject to registration, examination and regulation by the Office of Thrift Supervision. Pursuant to federal regulations, control of a savings institution is conclusively deemed to have been acquired by, among other things, the acquisition of more than 25% of any class of voting stock of the institution or the ability to control the election of a majority of the directors of an institution. Moreover, control is presumed to have been acquired, subject to rebuttal, upon the acquisition of more than 10% of any class of voting stock,
or of more than 25% of any class of stock of a savings institution, where certain enumerated "control factors" are also present in the acquisition.
The Office of Thrift Supervision may prohibit an acquisition of control if:
o it would result in a monopoly or substantially lessen competition;
o the financial condition of the acquiring person might jeopardize the financial stability of the institution; or
o the competence, experience or integrity of the acquiring person indicates that it would not be in the interest of the depositors or of the public to permit the acquisition of control by such person.
These restrictions do not apply to the acquisition of a savings institution's capital stock by one or more tax-qualified employee stock benefit plans, provided that the plans do not have beneficial ownership of more than 25% of any class of equity security of the savings institution.
For a period of three years following completion of the stock issuance, Office of Thrift Supervision regulations generally prohibit any person from acquiring or making an offer to acquire beneficial ownership of more than 10% of the stock of MSB Financial Corp. or Millington Savings Bank without Office of Thrift Supervision approval.
Current Office of Thrift Supervision regulations permit a mutual holding company to be acquired by a mutual institution or in a remutualization transaction. However, the Office of Thrift Supervision has issued a policy statement indicating that it views remutualization transactions as raising significant issues concerning disparate treatment of minority stockholders and mutual members of the target entity and raising issues concerning the effect on the mutual members of the acquiring entity. Under certain circumstances, the Office of Thrift Supervision intends to give these issues special scrutiny and reject applications providing for the remutualization of a mutual holding company unless the applicant can clearly demonstrate that the Office of Thrift Supervision's concerns are not warranted.
Charter and Bylaws of MSB Financial Corp.
The following discussion is a summary of certain provisions of the charter and bylaws of MSB Financial Corp. that relate to corporate governance. The description is necessarily general and qualified by reference to the charter and bylaws.
Classified Board of Directors. The Board of Directors of MSB Financial Corp. is required by the bylaws to be divided into three staggered classes as equal in size as is possible, with one class elected annually by stockholders for three-year terms. A classified Board promotes continuity and stability of management of MSB Financial Corp., but makes it more difficult for stockholders to change a majority of the directors because it generally takes at least two annual elections of directors for this to occur. Directors are elected by a plurality of votes cast, and because MSB Financial, MHC will own a majority of the common stock, it will control the election of directors.
Limitation of Beneficial Ownership and Voting. For a period of three years following the offering, Office of Thrift Supervision regulations generally prohibit any person from acquiring or making an offer to acquire beneficial ownership of more than 10% of the then-outstanding shares of MSB Financial Corp. common stock without Office of Thrift Supervision prior approval.
Additionally, our charter includes a provision that limits the voting rights of a single stockholder to no more than 10% of the then-outstanding shares, including shares held by MSB Financial, MHC, for a period of five years from the date this stock offering is completed.
Authorized but Unissued Shares of Capital Stock. Following the stock offering, MSB Financial Corp. will have authorized but unissued shares of preferred stock and common stock. See Description of Capital Stock. Although these shares could be used by the Board of Directors of MSB Financial Corp. to make it more difficult or to discourage an attempt to obtain control of MSB Financial Corp. through a merger, tender offer, proxy contest or otherwise, it is unlikely that we would use or need to use shares for these purposes because MSB Financial, MHC will own a majority of the common stock.
Special Meetings of Stockholders. MSB Financial Corp.'s bylaws provide that special meetings of stockholders may be called only by the chairman of the Board, the president, or a majority of the Board of Directors, or upon the written request of the holders of not less than one-tenth of all of the outstanding stock of MSB Financial Corp.
How Shares are Voted. MSB Financial Corp.'s bylaws provide that there will not be cumulative voting by stockholders for the election of MSB Financial Corp.'s directors. No cumulative voting rights means that MSB Financial, MHC, as the holder of a majority of the shares eligible to be voted at a meeting of stockholders, may elect all directors of MSB Financial Corp. to be elected at that meeting. This could prevent minority stockholder representation on MSB Financial Corp.'s Board of Directors.
Procedures for Stockholder Nominations. MSB Financial Corp.'s bylaws provide that any stockholder wanting to make a nomination for the election of directors or a proposal for new business at a meeting of stockholders must send written notice to the Secretary of MSB Financial Corp. at least five days before the date of the annual meeting. The bylaws further provide that if a stockholder wanting to make a nomination or a proposal for new business does not follow the prescribed procedures, the proposal will not be considered until an adjourned, special, or annual meeting of the stockholders taking place thirty days or more thereafter. Management believes that it is in the best interests of MSB Financial Corp. and its stockholders to provide enough time for management to disclose to stockholders information about a dissident slate of nominations for directors. This advance notice requirement may also give management time to solicit its own proxies in an attempt to defeat any dissident slate of nominations if management thinks it is in the best interest of stockholders generally. Similarly, adequate advance notice of stockholder proposals will give management time to study such proposals and to determine whether to recommend to the stockholders that such proposals be adopted.
Indemnification. MSB Financial Corp.'s bylaws provide for indemnification of its officers, directors and employees to the fullest extent authorized by the regulations of the Office of Thrift Supervision.
DESCRIPTION OF CAPITAL STOCK
General
MSB Financial Corp. is authorized to issue 10,000,000 shares of common stock, par value $0.10 per share and 5,000,000 shares of serial preferred stock, no par value. Upon completion of the stock offering, we will have between 3,612,500 shares of common stock at the minimum and 4,887,500 shares of common stock at the maximum of the offering range outstanding (5,620,625 shares at the adjusted maximum), including shares that will be held by MSB Financial, MHC. Upon payment of the purchase
price shares of common stock issued in the offering will be fully paid and non-assessable. Each share of common stock will have the same relative rights as, and will be identical in all respects with, each other share of common stock. The common stock will represent non-withdrawable capital, will not be an account of insurable type and will not be insured by the Federal Deposit Insurance Corporation or any other governmental agency. The Board of Directors can, without stockholder approval, issue additional shares of common stock, although MSB Financial, MHC, so long as it is in existence, must own a majority of MSB Financial Corp.'s outstanding shares of common stock.
Common Stock
Distributions. MSB Financial Corp. can pay dividends if, as and when declared by its Board of Directors, subject to compliance with limitations which are imposed by law. See Our Policy Regarding Dividends. The holders of common stock of MSB Financial Corp. will be entitled to receive and share equally in such dividends as may be declared by the Board of Directors of MSB Financial Corp. out of funds legally available therefor. If MSB Financial Corp. issues preferred stock, the holders thereof may have a priority over the holders of the common stock with respect to dividends.
Voting Rights. The holders of common stock will possess exclusive voting rights in MSB Financial Corp. The holder of shares of common stock will be entitled to one vote for each share held on all matters subject to stockholder vote and will not have any right to cumulate votes in the election of directors.
Liquidation Rights. In the event of any liquidation, dissolution, or winding-up of MSB Financial Corp., the holders of the common stock generally would be entitled to receive, after payment of all debts and liabilities of MSB Financial Corp. (including all debts and liabilities of Millington Savings Bank), all assets of MSB Financial Corp. available for distribution. If preferred stock is issued, the holders thereof may have a priority over the holders of the common stock in the event of liquidation or dissolution.
Preemptive Rights; Redemption. Because the holders of the common stock do not have any preemptive rights with respect to any shares MSB Financial Corp. may issue, the Board of Directors may sell shares of capital stock of MSB Financial Corp. without first offering such shares to existing stockholders. The common stock will not be subject to any redemption provisions.
Preferred Stock
We are authorized to issue up to 5,000,000 shares of serial preferred stock and to fix and state voting powers, designations, preferences, or other special rights of preferred stock and the qualifications, limitations and restrictions of those shares as the Board of Directors may determine in its discretion. Preferred stock may be issued in distinctly designated series, may be convertible into common stock and may rank prior to the common stock as to dividends rights, liquidation preferences, or both, and may have full or limited voting rights. The issuance of preferred stock could adversely affect the voting and other rights of holders of common stock.
The authorized but unissued shares of preferred stock and the authorized but unissued and unreserved shares of common stock will be available for issuance in future mergers or acquisitions, in future public offerings or private placements. Except as otherwise required to approve the transaction in which the additional authorized shares of preferred stock would be issued, no stockholder approval generally would be required for the issuance of these shares.
LEGAL AND TAX OPINIONS
The legality of the issuance of the common stock being offered and certain matters relating to the stock offering and federal taxation will be passed upon for us by Malizia Spidi & Fisch, PC, Washington, D.C. Matters relating to state taxation will be passed upon for us by Beard Miller Company LLP, Pine Brook, New Jersey. Certain legal matters will be passed upon for Keefe, Bruyette & Woods, Inc. by Muldoon Murphy & Aguggia LLP, Washington, D.C.
EXPERTS
The consolidated financial statements of MSB Financial Corp. at June 30, 2006 and 2005 and for each of the years in the three year period ended June 30, 2006 have been included in this prospectus in reliance upon the report of Beard Miller Company LLP, appearing elsewhere in this prospectus, and upon the authority of said firm as experts in accounting and auditing.
RP Financial, LC has consented to the publication in this document of a summary of its letter to MSB Financial Corp. setting forth its conclusion as to the estimated pro forma market value of the common stock and has also consented to the use of its name and statements with respect to it appearing in this document.
CHANGE IN INDEPENDENT AUDITOR
On April 1, 2005, MSB Financial Corp.'s former independent auditor, Radics & Co., LLC ("Radics"), merged with Beard Miller Company LLP to become the Pine Brook, New Jersey office of Beard Miller. As a result of the merger, on April 1, 2005, Radics resigned as independent auditors of MSB Financial Corp. and MSB Financial Corp. engaged Beard Miller as its successor independent audit firm. MSB Financial Corp.'s engagement of Beard Miller was approved by the Audit Committee. The report of Radics on MSB Financial Corp.'s consolidated financial statements as of and for the fiscal year ended June 30, 2004 did not contain an adverse opinion or disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope, or accounting principles. During the 2004 fiscal year, and in connection with the audit of MSB Financial Corp.'s consolidated financial statements for such period, and for the period from July 1, 2004 to April 1, 2005, there were no disagreements between MSB Financial Corp. and Radics on any matter of accounting principles or practices, consolidated financial statement disclosure, or auditing scope or procedure, which, if not resolved to the satisfaction of Radics, would have caused Radics to make reference to such matter in connection with its audit reports on MSB Financial Corp.'s consolidated financial statements.
REGISTRATION REQUIREMENTS
Prior to completion of the offering, we will register our common stock with the SEC pursuant to Section 12(g) of the Securities Exchange Act of 1934, as amended. We will be subject to the information, proxy solicitation, insider trading restrictions, tender offer rules, periodic reporting and other requirements of the SEC under the Securities Exchange Act of 1934. We will not deregister the common stock under the Securities Exchange Act of 1934 for a period of at least three years following the stock offering.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the Securities Act of 1933, as amended, with respect to the common stock offered in this document. As permitted by the rules and regulations of the SEC, this document does not contain all the information set forth in the registration statement. The statements contained in this document as to the contents of any contract or other document filed as an exhibit to the Form S-1 are, of necessity, brief descriptions. The registration statement and exhibits can be examined without charge at the public reference facilities of the SEC located at 100 F Street, N.W., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling 1-800-SEC-0330. The SEC also maintains a web site that contains reports, proxy and information statements and other information regarding registrants, including MSB Financial Corp., that file electronically with the SEC. The address for this web site is http://www.sec.gov.
We have filed an application for approval of the stock issuance with the Office of Thrift Supervision. This prospectus omits certain information contained in that application. That information can be examined without charge at the public reference facilities of the Office of Thrift Supervision located at 1700 G Street, N.W., Washington, D.C. 20552.
A copy of our charter and bylaws, filed as exhibits to the registration statement as well as those of Millington Savings Bank and MSB Financial, MHC, are available without charge from MSB Financial Corp. Copies of the plan of stock issuance are also available without charge.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm......................F-1
Consolidated Statements of Financial Condition
as of June 30, 2006 and 2005 ...................................... F-2
Consolidated Statements of Income
for the Years Ended June 30, 2006, 2005 and 2004....................F-3
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended June 30, 2006, 2005 and 2004....................F-4
Consolidated Statements of Cash Flows
for the Years Ended June 30, 2006, 2005 and 2004................... F-5
Notes to Consolidated Financial Statements.................................. F-7
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All schedules are omitted as the required information either is not applicable or is included in the consolidated financial statements or related notes.
[LOGO BMC]
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholder
MSB Financial Corp. and Subsidiaries
Millington, New Jersey
We have audited the accompanying consolidated statements of financial condition of MSB Financial Corp. and subsidiaries (the "Company") as of June 30, 2006 and 2005, and the related consolidated statements of income, changes in stockholder's equity, and cash flows for each of the years in the three-year period ended June 30, 2006. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of MSB Financial Corp. and subsidiaries as of June 30, 2006 and 2005, and the consolidated results of their operations and their cash flows for each of the years in the three-year period ended June 30, 2006, in conformity with accounting principles generally accepted in the United States of America.
/s/Beard Miller Company LLP
Beard Miller Company LLP
Pine Brook, New Jersey
August 8, 2006
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MSB FINANCIAL CORP. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
June 30,
------------------------------------
2006 2005
--------------- ---------------
(Dollars in Thousands, except Per
Share Amounts)
ASSETS
Cash and due from banks $ 1,779 $ 2,140
Interest-earning demand deposits with banks 4,102 3,526
--------------- ---------------
Cash and Cash Equivalents 5,881 5,666
Trading securities 109 82
Securities held to maturity (fair value of $26,821 and $28,095, respectively) 27,707 28,292
Loans receivable, net of allowance for loan losses of $921 and $874, respectively 218,321 187,192
Investment in real estate 97 825
Premises and equipment 8,899 8,438
Federal Home Loan Bank of New York stock, at cost 2,821 1,503
Bank owned life insurance 4,004 3,842
Accrued interest receivable 1,350 1,088
Deferred income taxes 752 676
Other assets 243 265
--------------- ---------------
Total Assets $270,184 $237,869
=============== ===============
LIABILITIES AND RETAINED EARNINGS
LIABILITIES
Deposits:
Non-interest bearing $ 9,135 $ 8,421
Interest bearing 185,620 188,510
--------------- ---------------
Total Deposits 194,755 196,931
Advances from Federal Home Loan Bank of New York 54,181 21,195
Advance payments by borrowers for taxes and insurance 529 470
Other liabilities 1,228 1,184
--------------- ---------------
Total Liabilities 250,693 219,780
--------------- ---------------
COMMITMENTS AND CONTINGENCIES - -
--------------- ---------------
STOCKHOLDER'S EQUITY
Common stock, par value $0.10; 10,000,000 shares authorized; 10,000 shares issued 1 1
and outstanding
Paid-in capital 199 199
Retained earnings 19,291 17,889
--------------- ---------------
Total Stockholder's Equity 19,491 18,089
--------------- ---------------
Total Liabilities and Stockholder's Equity $270,184 $237,869
=============== ===============
See notes to consolidated financial statements.
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MSB FINANCIAL CORP. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF INCOME
Years Ended June 30,
------------------------------------------------------
2006 2005 2004
---------------- ---------------- ---------------
(In Thousands, Except Per Share Amounts)
INTEREST INCOME
Loans receivable, including fees $12,773 $10,457 $ 8,967
Securities held to maturity 1,177 1,215 1,736
Other 167 82 66
---------------- ---------------- ---------------
Total Interest Income 14,117 11,754 10,769
---------------- ---------------- ---------------
INTEREST EXPENSE
Deposits 4,995 3,963 3,808
Borrowings 1,666 423 48
---------------- ---------------- ---------------
Total Interest Expense 6,661 4,386 3,856
---------------- ---------------- ---------------
Net Interest Income 7,456 7,368 6,913
PROVISION FOR LOAN LOSSES 60 135 134
---------------- ---------------- ---------------
Net Interest Income after Provision for Loan Losses 7,396 7,233 6,779
---------------- ---------------- ---------------
NON-INTEREST INCOME
Fees and service charges 338 322 335
Income from Bank Owned Life Insurance 162 156 56
Unrealized gain on trading securities 27 14 5
Income from investment in real estate - 52 51
Other 76 85 70
---------------- ---------------- ---------------
Total Non-Interest Income 603 629 517
---------------- ---------------- ---------------
NON-INTEREST EXPENSES
Salaries and employee benefits 2,790 2,493 2,201
Directors compensation 307 280 255
Occupancy and equipment 961 970 849
Service bureau fees 502 496 446
Advertising 235 232 213
Loss from investment in real estate 120 - -
Other 848 961 936
---------------- ---------------- ---------------
Total Non-Interest Expenses 5,763 5,432 4,900
---------------- ---------------- ---------------
Income before Income Taxes 2,236 2,430 2,396
INCOME TAXES 834 919 948
---------------- ---------------- ---------------
Net Income $ 1,402 $ 1,511 $ 1,448
================ ================ ===============
WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING, BASIC 10 10 10
AND DILUTED
================ ================ ===============
EARNINGS PER SHARE - BASIC AND DILUTED $140.20 $151.10 $144.80
================ ================ ===============
See notes to consolidated financial statements.
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F-3
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MSB FINANCIAL CORP. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
Total
Common Paid-In Retained Stockholder's
Stock Capital Earnings Equity
--------------- ---------------- ---------------- ---------------
(In Thousands)
BALANCE - JUNE 30, 2003 $ - $ - $15,230 $15,230
Issuance of common stock to MSB Financial,
MHC 1 199 - 200
Initial funding of MSB Financial, MHC - - (300) (300)
Net income - - 1,448 1,448
--------------- ---------------- ---------------- ---------------
BALANCE - JUNE 30, 2004 1 199 16,378 16,578
Net income - - 1,511 1,511
--------------- ---------------- ---------------- ---------------
BALANCE - JUNE 30, 2005 1 199 17,889 18,089
Net income - - 1,402 1,402
--------------- ---------------- ---------------- ---------------
BALANCE - JUNE 30, 2006 $ 1 $199 $19,291 $19,491
=============== ================ ================ ===============
See notes to consolidated financial statements.
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F-4
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MSB FINANCIAL CORP. AND SUBSIDIARIES
------------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended June 30,
------------------------------------------------------
2006 2005 2004
---------------- ---------------- ---------------
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,402 $ 1,511 $ 1,448
Adjustments to reconcile net income to net cash provided by
operating activities:
Net amortization (accretion) of securities premiums and
discounts 1 2 2
Net amortization of loan fees (122) (145) (163)
Depreciation and amortization expense 505 488 439
Provision for loan losses 60 135 134
Earnings on bank owned life insurance (162) (156) (56)
Unrealized gain on trading securities (27) (14) (5)
Realized loss on sale of investment in real estate 110 - -
(Increase) in accrued interest receivable (262) (115) (35)
Deferred income taxes (76) (120) (84)
(Increase) decrease in other assets 22 (107) 35
Increase in other liabilities 118 360 45
Increase (decrease) in interest payable (74) (47) 9
---------------- ---------------- ---------------
Net Cash Provided by Operating Activities 1,495 1,792 1,769
---------------- ---------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES Activity in held to maturity securities:
Purchases - - (16,994)
Maturities, calls and principal repayments 584 3,221 23,083
Net increase in loans receivable (31,067) (18,568) (30,089)
Proceeds from sale of investment in real estate 558 - -
Purchase of bank owned life insurance - - (3,500)
Purchase of bank premises and equipment (906) (4,532) (1,364)
Purchase of Federal Home Loan Bank of New York stock (3,594) (211) (55)
Redemptions of Federal Home Loan Bank of New York stock 2,276 - -
---------------- ---------------- ---------------
Net Cash Used in Investing Activities (32,149) (20,090) (28,919)
---------------- ---------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits (2,176) 6,431 10,158
Net increase in short-term borrowings 33,750 250 7,500
Proceeds from long-term debt - 14,000 -
Repayments of long-term debt (764) (555) -
Increase in advance payments by borrowers for taxes and insurance 59 38 54
Initial capitalization of mutual holding company - - (300)
Sale of capital stock to mutual holding company - - 200
---------------- ---------------- ---------------
Net Cash Provided by Financing Activities 30,869 20,164 17,612
---------------- ---------------- ---------------
Net Increase (Decrease) in Cash and Cash Equivalents 215 1,866 (9,538)
CASH AND CASH EQUIVALENTS - BEGINNING 5,666 3,800 13,338
---------------- ---------------- ---------------
CASH AND CASH EQUIVALENTS - ENDING $ 5,881 $ 5,666 $ 3,800
================ ================ ===============
See notes to consolidated financial statements.
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MSB FINANCIAL CORP. AND SUBSIDIARIES
------------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended June 30,
------------------------------------------------------
2006 2005 2004
---------------- ---------------- ---------------
(In Thousands)
SUPPLEMENTARY CASH FLOWS INFORMATION
Interest paid $ 6,735 $ 4,433 $ 3,847
================ ================ ===============
Income taxes paid $ 967 $ 1,015 $ 1,098
================ ================ ===============
Transfer of premises and equipment to investment in real estate $ - $ 711 $ -
================ ================ ===============
See notes to consolidated financial statements.
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F-6
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND BUSINESS
On February 11, 2004, the Board of Directors of Millington Savings Bank ("MSB" or the Savings Bank) adopted a Plan of Reorganization from a State Mutual Savings Bank to a State Mutual Savings Bank Holding Company (the "Plan"). Pursuant to the Plan, the MSB reorganized as follows:
(i) The MSB organized MSB Financial, MHC ("MHC"), a Mutual Holding Company;
(ii) The MHC organized MSB Financial Corp. ("SHC" or the Company), a stock holding company, as a wholly-owned subsidiary;
(iii) The MHC organized an interim stock savings bank ("Interim") as a wholly-owned subsidiary; and
(iv) The MSB exchanged its charter for a stock savings bank charter and became a stock savings bank (the "Savings Bank") with MSB's depositors receiving an interest in a liquidation account established in the Savings Bank and constructively receiving shares of stock in the Savings Bank for their equity interest (i.e., voting and liquidation rights) in MSB (the "Bank Conversion"). At the same time, Interim merged with and into the Savings bank. As part of the Plan, the Savings Bank's ownership interest in MHC was cancelled and all of the initially issued stock of the Savings Bank constructively held by the Savings Bank stockholders was transferred to MHC in exchange for membership interests in MHC. At the conclusion of these steps, the former members (i.e., the depositors) of MSB owned all of MHC by virtue of their membership interests in MHC, MHC owned all the outstanding stock of SHC, and SHC owned all of the outstanding stock of the Savings Bank.
The Plan was approved by the Commissioner of the New Jersey Department of Banking and the Office of Thrift Supervision. Additionally, a letter of non-objection was received from the Federal Deposit Insurance Corporation.
A special meeting of depositors of the MSB ("Special Meeting") to approve the Plan was held in accordance with New Jersey banking laws.
Following the completion of the Reorganization on February 11, 2004, all depositors who had membership or liquidation rights with respect to the Savings Bank continue to have such rights solely with respect to the MHC as long as they continue to hold deposit accounts with the Savings Bank.
Although SHC is authorized to issue stock to persons other than MHC, SHC has not issued stock to such persons. As of June 30, 2006, the MHC remains the owner of 100% of the issued and outstanding shares of the Company. Should stock be issued to persons other than MHC in the future, the SHC will always be a majority-owned subsidiary of MHC as long as MHC is in existence. See Note 17 for information regarding the stock issuance plan approved by the Board of Directors on July 17, 2006.
SHC and MHC are authorized to exercise all rights and powers authorized to a corporation, a bank holding company and a New Jersey State mutual savings and loan holding company, respectively, subject to restrictions applicable to bank holding companies and savings bank holding companies under federal and New Jersey law. Currently, the only business activity of MHC is to hold all of the outstanding stock of SHC and the only business activity of SHC is to hold all of the outstanding stock of the Savings Bank.
The primary business of the SHC is the ownership and operation of the Savings Bank. The Savings Bank is principally engaged in the business of attracting deposits from the general public and using these deposits, together with other funds, to purchase securities and to make loans secured by real estate.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidated Financial Statement Presentation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, the Savings Bank and Millington Savings Service Corp. All significant intercompany accounts and transactions have been eliminated in consolidation.
The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the dates of the consolidated statements of financial condition and revenues and expenses for the periods then ended. Actual results could differ significantly from those estimates.
A material estimate that is particularly susceptible to significant changes relates to the determination of the allowance for loan losses. Management believes that the allowance for loan losses is adequate. While management uses available information to recognize losses on loans, future additions to the allowance for loan losses may be necessary based on changes in economic conditions in the Savings Bank's market area.
In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Savings Bank's allowance for loan losses. Such agencies may require the Savings Bank to recognize additions to the allowance for loan losses based on their judgments about information available to them at the time of their examination.
Cash and Cash Equivalents
Cash and cash equivalents include cash and amounts due from depository institutions and interest-bearing deposits with original maturities of three months or less.
Securities
Investments in debt securities that the Savings Bank has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized holding gains and losses included in earnings. Debt and equity securities not classified as trading securities nor as held-to-maturity securities are classified as available for sale securities and reported at fair value, with unrealized holding gains or losses, net of applicable income taxes, reported in a separate component of stockholder's equity.
Individual securities are considered impaired when fair value is less than amortized cost. Management evaluates on a monthly basis whether any securities are other-than-temporarily impaired. In making this determination, we consider the extent and duration of the impairment, the nature and financial health of the issuer, other factors relevant to specific securities, and our ability and intent to hold securities for a period of time sufficient to allow for any anticipated recovery in market value. If a security is determined to be other-than-temporarily impaired, an impairment loss is charged to operations.
Discounts and premiums on securities are accreted/amortized to maturity by use of the level-yield method. Gain or loss on sales of securities is based on the specific identification method.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Concentration of Risk
The Savings Bank's lending activities are concentrated in loans secured by real estate located primarily in the State of New Jersey.
Loans Receivable
Loans receivable are stated at unpaid principal balances less the allowance for loan losses and deferred loan fees. Loan origination fees and certain direct loan origination costs are deferred and accreted/amortized as an adjustment of yield over the contractual lives of the related loans.
The Savings Bank provides an allowance for uncollected interest on loans that are contractually delinquent ninety days or more. The allowance is established by a charge to interest income equal to all interest previously accrued. Income is subsequently recognized only to the extent that cash payments are received until such collections result in the reduction of the loan's delinquent status to under ninety days, at which time the loan is returned to accrual status.
Allowance for Loan Losses
An allowance for loan losses is maintained at a level that represents management's best estimate of losses known and inherent in the loan portfolio that are both probable and estimable. The allowance for loan losses is established through a provision for loan losses charged to operations. The allowance is reduced by loans charged off and increased by recoveries, if any, of amounts previously charged off. Management of the Savings Bank, in determining the allowance for loan losses, considers the risks inherent in its loan portfolio and changes in the nature and volume of its loan activities, along with the general economic and real estate market conditions. The Savings Bank utilizes a two tier approach: (1) identification of impaired loans and establishment of specific loss allowances on such loans; and (2) establishment of general valuation allowances on the remainder of its loan portfolio. The Savings Bank maintains a loan review system which allows for a periodic review of its loan portfolio and the early identification of potential impaired loans. Such system takes into consideration, among other things, delinquency status, size of loans, type of collateral and financial condition of the borrowers. Specific loan loss allowances are established for identified loans based on a review of such information and/or appraisals of the underlying collateral. General loan loss allowances are based upon a combination of factors including, but not limited to, actual loan loss experience, composition of the loan portfolio, current economic conditions and management's judgment. Although management believes that adequate specific and general loan loss allowances are established, actual losses are dependent upon future events and, as such, further additions to the level of the loan loss allowance may be necessary.
A loan evaluated for impairment is deemed to be impaired when, based on current information and events, it is probable that the Savings Bank will be unable to collect all amounts due according to the contractual terms of the loan agreement. All loans identified as impaired are evaluated independently. The Savings Bank does not aggregate such loans for evaluation purposes. Payments received on impaired loans are applied first to accrued interest receivable and then to principal.
Investment in Real Estate
Investment in real estate consists of real property originally acquired for banking operations and subsequently used as rental property. Net income from operations is recorded in operations as earned. Depreciation charges are computed on the straight line method over the estimated useful life of the property.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Premises and Equipment
Premises and equipment are comprised of land, at cost, and buildings, building improvements, furnishings and equipment and leasehold improvements, at cost, less accumulated depreciation and amortization. Depreciation and amortization charges are computed on the straight-line method over the following estimated useful lives:
Years
---------------------
Building and improvements 5 - 50
Furnishings and equipment 3 - 15
Leasehold improvements Shorter of useful
life or term of lease
|
Significant renewals and betterments are charged to the property and equipment account. Maintenance and repairs are charged to operations in the year incurred. Rental income is netted against occupancy costs in the consolidated statements of income.
Bank Owned Life Insurance
Bank owned life insurance is carried at net cash surrender value. The change in the net asset value is recorded as a component of non-interest income.
Income Taxes
The Company and its subsidiaries file a consolidated federal income tax return with the MHC. Federal income taxes are allocated based on the contribution of their respective income or loss to the consolidated income tax return. Separate state income tax returns are filed.
Federal and state income taxes have been provided on the basis of reported income. The amounts reflected on the income tax returns differ from these provisions due principally to temporary differences in the reporting of certain items of income and expense for financial reporting and income tax reporting purposes. Deferred income taxes are recorded to recognize such temporary differences.
Off-Balance Sheet Credit-Related Financial Instruments
In the ordinary course of business, we enter into commitments to extend credit, including commitments under lines of credit. Such financial instruments are recorded when they are funded.
Interest Rate Risk
The Savings Bank is principally engaged in the business of attracting deposits from the general public and using these deposits, together with other funds, to purchase securities and to make loans secured by real estate. The potential for interest-rate risk exists as a result of the generally shorter duration of the Savings Bank's interest-sensitive liabilities compared to the generally longer duration of its interest-sensitive assets. In a rising rate environment, liabilities will reprice faster than assets, thereby reducing net interest income. For this reason, management regularly monitors the maturity structure of the Savings Bank's assets and liabilities in order to measure its level of interest-rate risk and to plan for future volatility.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Reclassification
Certain amounts for the years ended June 30, 2005 and 2004 have been reclassified to conform to the current year's presentation.
NOTE 3 - SECURITIES HELD TO MATURITY
The amortized cost of securities held to maturity and their approximate fair values are summarized as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------------- ---------------- ---------------- ---------------
(In Thousands)
June 30, 2006:
U.S. Government agencies $24,127 $ - $854 $23,273
Mortgage-backed securities 3,580 32 64 3,548
--------------- ---------------- ---------------- ---------------
$27,707 $32 $918 $26,821
=============== ================ ================ ===============
June 30, 2005:
U.S. Government agencies $24,133 $ 1 $288 $23,846
Mortgage-backed securities 4,159 92 2 4,249
--------------- ---------------- ---------------- ---------------
$28,292 $ 93 $290 $28,095
=============== ================ ================ ===============
|
All mortgage-backed securities at June 30, 2006 and 2005 have been issued by
FNMA, FHLMC or GNMA.
The amortized cost and estimated fair value of securities held to maturity at June 30, 2006, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Amortized Fair
Cost Value
---------------- ---------------
(In Thousands)
U.S. Government agencies:
Due after one year through five years $15,000 $14,449
Due after five years through ten years 4,000 3,943
Due thereafter 5,127 4,881
---------------- ---------------
24,127 23,273
Mortgage-backed securities 3,580 3,548
---------------- ---------------
$27,707 $26,821
================ ===============
|
NOTE 3 - SECURITIES HELD TO MATURITY (CONTINUED)
There were no sales of securities held to maturity during the years ended June 30, 2006, 2005 and 2004. At June 30, 2006 and 2005, securities held to maturity with a carrying value of approximately $481,000 and $488,000, respectively, were pledged to secure public funds on deposit.
The following table shows the gross unrealized losses and fair value of securities in an unrealized loss position, and the length of time that such securities have been in a continuous unrealized loss position:
Less than 12 Months More than 12 Months Total
------------------------------ ------------------------------ -----------------------------
Gross Gross Gross
Fair Unrealized Fair Unrealized Fair Unrealized
Value Losses Value Losses Value Losses
-------------- -------------- -------------- -------------- -------------- --------------
(In Thousands)
June 30, 2006:
U.S. Government
agencies $1,044 $ 47 $22,192 $807 $23,236 $854
Mortgage-backed
securities 1,113 63 80 1 1,193 64
-------------- -------------- -------------- -------------- -------------- --------------
$2,157 $110 $22,272 $808 $24,429 $918
============== ============== ============== ============== ============== ==============
June 30, 2005:
U.S. Government
agencies $ - $ - $22,712 $288 $22,712 $288
Mortgage-backed
securities 214 1 58 1 272 2
-------------- -------------- -------------- -------------- -------------- --------------
$ 214 $ 1 $22,770 $289 $22,984 $290
============== ============== ============== ============== ============== ==============
|
At June 30, 2006, management concluded that the unrealized losses above (which related to thirteen U.S. Government Agency bonds and five Fannie Mae or Freddie Mac mortgage-backed securities) are temporary in nature since they are not related to the underlying credit quality of the issuers and the Company has the ability and intent to hold these securities for a time necessary to recover their cost. The losses above are primarily related to market interest rates.
NOTE 4 - LOANS RECEIVABLE
The composition of loans receivable at June 30, 2006 and 2005 is as follows:
2006 2005
---------------- ---------------
(In Thousands)
Real estate mortgage:
One-to-four family $120,921 $113,488
Commercial 23,587 17,971
---------------- ---------------
144,508 131,459
---------------- ---------------
Real estate construction 23,276 18,398
---------------- ---------------
Consumer:
Deposit account 1,167 1,156
Equity 49,257 38,291
Automobile 464 418
Personal 77 94
Overdraft protection 153 151
---------------- ---------------
51,118 40,110
---------------- ---------------
Commercial 5,497 4,029
---------------- ---------------
Total Loans 224,399 193,996
Loans in process (4,968) (5,719)
Allowance for loan losses (921) (874)
Deferred loan fees (189) (211)
---------------- ---------------
$218,321 $187,192
================ ===============
|
At June 30, 2006 and 2005, loans serviced by the Savings Bank for the benefit of others totaled approximately $535,000 and $560,000, respectively.
The following table presents changes in the allowance for loan losses for the years ended June 30, 2006, 2005 and 2004:
2006 2005 2004
---------------- ---------------- ---------------
(In Thousands)
Balance, beginning $874 $742 $651
Provision charged to operations 60 135 134
Loans charged off (17) (3) (45)
Recoveries of loans previously charged off 4 - 2
---------------- ---------------- ---------------
Balance, ending $921 $874 $742
================ ================ ===============
|
NOTE 4 - LOANS RECEIVABLE (CONTINUED)
At and during the years ended June 30, 2006 and 2005, the Savings Bank had no loans that are considered to be impaired. Loans on which the accrual of interest has been discontinued amounted to $424,000 and $2,238,000 at June 30, 2006 and 2005, respectively. During the years ended June 30, 2006, 2005, and 2004 $35,000, $104,000, and $78,000 respectively, in interest was collected and recognized on these loans. During the years ended June 30, 2006, 2005, and 2004 had all such loans been performing in accordance with their original terms, interest income of $34,000, $155,000, and $118,000, respectively, would have been recognized. The Savings Bank is not committed to lend additional funds on these non-accrual loans.
NOTE 5 - PREMISES AND EQUIPMENT
The components of premises and equipment at June 30, 2006 and 2005 are as follows:
2006 2005
---------------- ---------------
(In Thousands)
Land $ 671 $ 671
Buildings and improvements 3,166 3,119
Leasehold improvements 1,241 1,241
Furnishings and equipment 2,031 1,918
Leasehold improvements/construction in process 4,680 3,934
---------------- ---------------
11,789 10,883
Accumulated depreciation and amortization (2,890) (2,445)
---------------- ---------------
$ 8,899 $ 8,438
================ ===============
|
Depreciation and amortization expense on premises and equipment totaled $445,000, $469,000, and $418,000 during the years ended June 30, 2006, 2005, and 2004, respectively.
NOTE 6 - ACCRUED INTEREST RECEIVABLE
The components of interest receivable at June 30, 2006 and 2005 are as follows:
2006 2005
---------------- ---------------
(In Thousands)
Loans $1,047 $ 791
Securities held to maturity 303 297
---------------- ---------------
$1,350 $1,088
================ ===============
|
NOTE 7 - DEPOSITS
Deposits at June 30, 2006 and 2005 consist of the following major classifications:
2006 2005
--------------------------------- ---------------------------------
Average Average
Amount Rate Amount Rate
--------------- ------------- --------------- -------------
(Dollars in Thousands)
Non-interest bearing demand $ 9,135 - % $ 8,421 - %
NOW 26,968 0.95 30,325 0.88
Super NOW 1,339 1.00 2,376 1.00
Savings and club 42,696 1.49 48,916 1.22
Money market demand 2,589 1.15 3,057 1.15
Certificates of deposit 112,028 4.15 103,836 3.30
--------------- ---------------
$194,755 2.87 % $196,931 2.21 %
=============== ===============
|
A summary of certificates of deposit by maturity at June 30, 2006 is as follows (in thousands):
Year ended June 30:
2007 $ 76,463
2008 19,382
2009 3,784
2010 1,729
2011 666
Thereafter 10,004
----------------
$112,028
================
|
The aggregate amount of certificates of deposit with a minimum denomination of $100,000 was $37,208,000 and $32,323,000 at June 30, 2006 and 2005, respectively.
A summary of interest expense for the years ended June 30, 2006, 2005 and 2004 is as follows:
2006 2005 2004
---------------- ---------------- ---------------
(In Thousands)
Demand $ 329 $ 334 $ 319
Savings and club 568 604 597
Certificates of deposit 4,098 3,025 2,892
---------------- ---------------- ---------------
$4,995 $3,963 $3,808
================ ================ ===============
|
NOTE 8 - ADVANCES FROM FEDERAL HOME LOAN BANK OF NEW YORK
The Savings Bank has various credit facilities with the Federal Home Loan Bank, which expire on July 31, 2006, and provide borrowings up to $56,163,000. Short-term borrowings against this facility totaled $41,500,000 and $7,750,000 as of June 30, 2006 and 2005, respectively. The interest rate on short-term borrowings at June 30, 2006 and 2005 was 5.42% and 3.49%, respectively. Long-term debt due to the Federal Home Loan Bank at June 30, 2006 and 2005, consisted of the following:
Fixed
Interest
Maturity Rate 2006 2005
------------------------------------------------------------------- ------------ ---------------- ---------------
(In Thousands)
August 11, 2009 3.60 % $ 2,681 $ 3,445
December 30, 2009 4.25 5,000 5,000
June 1, 2010 4.28 5,000 5,000
---------------- ---------------
4.12 % $12,681 $13,445
================ ===============
|
The advances are secured by a blanket assignment of unpledged and qualifying mortgage loans.
NOTE 9 - LEASE COMMITMENTS AND TOTAL RENTAL EXPENSE
The Savings Bank leases two branch locations under long-term operating leases. Future minimum lease payments by year and in the aggregate, under noncancellable operating leases with initial or remaining terms of one year or more, consisted of the following at June 30, 2006 (in thousands):
2007 $ 237
2008 237
2009 237
2010 237
2011 237
Thereafter 566
----------------
$1,751
================
|
The minimum payments have not been reduced by minimum sublease rentals of $579,000 due in the future under noncancellable subleases.
The total rental expense for all leases for the years ended June 30, 2006, 2005, and 2004 was approximately $242,000, $237,000, and $192,000 respectively.
NOTE 10 - INCOME TAXES
The income tax provision consists of the following for the years ended June 30, 2006, 2005 and 2004:
2006 2005 2004
---------------- ---------------- ---------------
(In Thousands)
Current:
Federal $701 $ 805 $ 799
State 209 233 233
---------------- ---------------- ---------------
910 1,038 1,032
---------------- ---------------- ---------------
Deferred:
Federal (57) (93) (65)
State (19) (26) (19)
---------------- ---------------- ---------------
(76) (119) (84)
---------------- ---------------- ---------------
$834 $ 919 $ 948
================ ================ ===============
|
A reconciliation of the statutory federal income tax at a rate of 34% to the income tax expense included in the statements of income at June 30, 2006, 2005 and 2004 is as follows:
2006 2005 2004
------------------------- ------------------------- -------------------------
% of % of % of
Pretax Pretax Pretax
Amount Income Amount Income Amount Income
------------ ----------- ------------ ----------- ------------- -----------
(Dollars in Thousands)
Federal income tax at statutory rate $760 34.0 % $826 34.0 % $815 34.0 %
State tax, net of federal benefit 125 5.6 137 5.6 141 5.9
Other (51) (2.3) (44) (1.8) (8) (0.3)
------------ ----------- ------------ ----------- ------------- -----------
$834 37.3 % $919 37.8 % $948 39.6 %
============ =========== ============ =========== ============= ===========
|
NOTE 10 - INCOME TAXES (CONTINUED)
The components of the net deferred tax asset at June 30, 2006 and 2005 are as follows:
2006 2005
---------------- ---------------
(In Thousands)
Deferred tax assets:
Depreciation $ 39 $ 26
Allowance for loan losses 368 349
Uncollected interest 7 45
Benefit plans 326 251
Debit card loss 12 5
---------------- ---------------
752 676
Deferred tax liabilities - -
---------------- ---------------
Net Deferred Tax Asset $752 $676
================ ===============
|
Retained earnings include $1,466,000 at June 30, 2006 and 2005, for which no provision for income tax has been made. These amounts represent deductions for bad debt reserves for tax purposes which were only allowed to savings institutions which met certain definitional tests prescribed by the Internal Revenue Code of 1986, as amended. The Small Business Job Protection Act of 1996 eliminated the special bad debt deduction granted solely to thrifts. Under the terms of the Act, there would be no recapture of the pre-1988 (base year) reserves. However, these pre-1988 reserves would be subject to recapture under the rules of the Internal Revenue Code if the Savings Bank itself pays a cash dividend in excess of earnings and profits, or liquidates. The Act also provides for the recapture of deductions arising from "applicable excess reserve" defined as the total amount of reserve over the base year reserve. The Savings Bank's total reserve exceeds the base year reserve and deferred taxes have been provided for this excess.
NOTE 11 - BENEFIT PLANS
Directors' Retirement Plan
The Savings Bank has a directors' retirement plan, which provides that any director meeting specified age and service requirements may retire and continue to be paid. This plan is unfunded.
The following table sets forth the plan's funded status and activity for the years ended June 30, 2006 and 2005:
2006 2005
---------------- ---------------
(Dollars In Thousands)
Actuarial present value of benefit obligations $563 $525
================ ===============
Projected benefit obligation - beginning $600 $468
Service cost 21 16
Interest cost 36 31
Actuarial loss 1 11
Annuity payment (24) (24)
Plan amendment - 98
---------------- ---------------
Projected benefit obligation - ending $634 $600
================ ===============
Plan assets at fair value - beginning $ - $ -
Employer contribution 24 24
Settlements/payments (24) (24)
---------------- ---------------
Plan assets at fair value - ending $ - $ -
================ ===============
Projected benefit obligation in excess of fair value $634 $600
Unrecognized loss 2 2
Unrecognized past service liability (86) (133)
Amount contributed in the fourth quarter (6) (6)
---------------- ---------------
Accrued pension cost included in other liabilities $544 $463
================ ===============
Assumptions:
Discount rate 6.25% 6.13%
Fee increase 3.25% 3.25%
|
NOTE 11 - BENEFIT PLANS (CONTINUED)
Directors' Retirement Plan (Continued)
Net periodic pension cost for the years ended June 30, 2006 and 2005 included the following:
2006 2005 2004
------------- ------------- ------------
(Dollars In Thousands)
Service cost $ 21 $16 $13
Interest cost 36 31 28
Amortization of unrecognized past service liability 47 40 36
------------- ------------- ------------
Net periodic plan cost $104 $87 $77
============= ============= ============
Assumptions:
Discount rate 6.13% 6.13% 6.25%
Fee increase 3.25% 3.25% N/A
|
The Savings Bank's contribution and benefits paid amounted to $24,000 for the years ended June 30, 2006 and 2005.
For the year ended June 30, 2007, the Savings Bank's expects to contribute $27,000 to the plan.
Estimated future benefit payments for years ending June 30, which reflect expected future service, as appropriate, are as follows (in thousands):
2007 $ 27 2008 36 2009 47 2010 45 2011 62 2012 - 2016 408 |
Executive Incentive Retirement Plan
The Savings Bank has an unfunded, non-qualified executive incentive retirement plan covering all eligible executives. The plan provides for either a lump sum payment or equal annual installments for a period of 15 years commencing on the first day of the calendar month following the termination of employment due to retirement, resignation, disability or death. The amount payable is based on the vested balance of the executive's accumulated awards plus interest. The annual awards are based upon the executive's base salary in effect at the beginning of the plan year and the Savings Bank's net income for the prior fiscal year. The percentage vested is based on the sum of the executive's age and years of service. The plan expense for the year ended June 30, 2006, 2005, and 2004 was approximately $103,000, $63,000 and $29,000, respectively. The unfunded liability totaled approximately $195,000 and $92,000 at June 30, 2006 and 2005, respectively.
NOTE 11 - BENEFIT PLANS (CONTINUED)
Pension Plan
The Savings Bank has a non-contributory money purchase plan covering all eligible employees. Pension plan costs are determined by a money purchase formula and no interest assumption is involved. Total pension plan expense for the years ended June 30, 2006, 2005, and 2004 was approximately $177,000, $152,000 and $153,000, respectively.
Savings Plan
The Savings Bank sponsors a savings plan, pursuant to Section 401(k) of the Internal Revenue Code, for all eligible employees. Employees may elect to defer up to 8% of their compensation. The Savings Bank will match 50% of 6% of the employee's contribution up to a maximum of 3% of each employee's compensation. The Plan expense amounted to approximately $43,000, $33,000 and $35,000 for the years ended June 30, 2006, 2005, and 2004, respectively.
NOTE 12 - TRANSACTIONS WITH OFFICERS AND DIRECTORS
The Savings Bank has had, and may be expected to have in the future, banking transactions in the ordinary course of business with its officers, directors, their immediate families, and affiliated companies (commonly referred to as related parties), on the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with others. These persons were indebted to the Savings Bank for loans totaling $5,427,000 and $4,427,000 at June 30, 2006 and 2005, respectively. During 2006, $2,080,000 of new loans and $1,080,000 of repayments were made.
NOTE 13 - REGULATORY CAPITAL
The Savings Bank is subject to various regulatory capital requirements administered by Federal and State banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Savings Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Savings Bank must meet specific capital guidelines that involve quantitative measures of the Savings Bank's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Savings Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weighting, and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Savings Bank to maintain minimum amounts and ratios (set forth in the table below) of tangible, core and risk-based capital as defined in the regulations. Management believes, as of June 30, 2006 and 2005, that the Savings Bank met all capital adequacy requirements to which it is subject.
As of January 18, 2006, the most recent notification from the regulators categorized the Savings Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Savings Bank must maintain minimum core, Tier 1 risk-based and total risk-based ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the institution's category.
NOTE 13 - REGULATORY CAPITAL (CONTINUED)
The following tables present a reconciliation of capital per accounting principles generally accepted in the United States of America ("GAAP") and regulatory capital and information as to the Savings Bank's capital levels at the dates presented:
June 30,
-----------------------------------
2006 2005
---------------- ---------------
(In Thousands)
GAAP capital $19,292 $17,890
Investment in subsidiary (180) (181)
---------------- ---------------
Core and tangible capital 19,112 17,709
General valuation allowance 921 874
---------------- ---------------
$20,033 $18,583
================ ===============
|
To be Well
Capitalized under
For Capital Adequacy Prompt Corrective
Actual Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
---------- ------- ----------- ------- ---------- -------
(Dollars In Thousands)
June 30, 2006:
Tangible $19,112 7.19% $=> 3,987 =>1.50% N/A N/A
Core (leverage) 19,112 7.19 =>10,632 =>4.00 $=>13,290 => 5.00%
Tier 1 risk-based 19,112 10.49 N/A N/A =>10,933 => 6.00
Total risk-based 20,033 10.99 =>14,577 =>8.00 =>18,222 =>10.00
June 30, 2005:
Tangible $17,709 7.58% $=> 3,502 =>1.50% N/A N/A
Core (leverage) 17,709 7.58 => 9,339 =>4.00 $=>11,674 => 5.00%
Tier 1 risk-based 17,709 11.51 N/A N/A => 9,234 => 6.00
Total risk-based 18,583 12.07 =>12,312 =>8.00 =>15,390 =>10.00
|
NOTE 14 - COMMITMENTS AND CONTINGENCIES
The Savings Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and letters of credit. Such commitments involve, to varying degrees, elements of credit, and interest rate risk in excess of the amount recognized in the statements of financial condition.
NOTE 14 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Savings Bank's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and letters of credit is represented by the contractual amount of those instruments. The Savings Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.
At June 30, 2006 and 2005, the following financial instruments were outstanding whose contract amounts represent credit risk:
2006 2005
---------------- ---------------
(In Thousands)
Commitments to grant loans $ 2,979 $ 7,017
Unfunded commitments under lines of credit 26,546 22,974
Standby letters of credit 108 255
---------------- ---------------
$29,633 $30,246
================ ===============
|
At June 30, 2006, the commitments to grant loans included $2,479,000 of fixed rate mortgage loans with interest rates ranging from 5.75% to 9.00% and $500,000 of variable rate construction loans with an initial interest rate ranging from 8.25% to 9.00%. Of the unfunded commitments under lines of credit at June 30, 2006, $23,806,000 was available under a homeowner's equity lending program, $634,000 was available under an overdraft protection lending program and $2,106,000 was available under commercial lines of credit. Amounts outstanding under these programs were assessed interest ranging from 0.50% below the prime rate to 4.00% over the prime rate. At June 30, 2006, amounts drawn on standby letters of credit were assessed rates of 2.00% over rate being earned on the passbook collateralizing the credit.
At June 30, 2005, the commitments to grant loans included $4,817,000 of fixed rate mortgage loans with interest rates ranging from 4.63% to 6.88% and $2,200,000 of variable rate construction loans with an initial interest rate of 6.75%. Of the unfunded commitments under lines of credit at June 30, 2005, $20,586,000 was available under a homeowner's equity lending program, $558,000 was available under an overdraft protection lending program and $1,830,000 was available under commercial lines of credit. Amounts outstanding under these programs were assessed interest ranging from 2.00% below the prime rate to 5.00% over the prime rate. At June 30, 2005, amounts drawn on standby letters of credit were assessed rates ranging from 1.00% over the prime rate of 1.50% over the prime rate.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Savings Bank evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Savings Bank upon extension of credit, is based on management's credit evaluation. Collateral held varies but primarily includes residential and income-producing commercial real estate properties.
NOTE 14 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Standby letters of credit are conditional commitments issued by the Savings Bank to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending other loan commitments. The Savings Bank requires collateral supporting these letters of credit when deemed necessary. Management believes that the proceeds obtained through a liquidation of such collateral would be sufficient to cover the maximum potential amount of future payments required under the corresponding guarantees. The amount of the liability as of June 30, 2006 and 2005 for guarantees under standby letters of credit issued is not material.
NOTE 15 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of a financial instrument is defined as the amount at which the instrument could be exchanged in a current transaction between willing parties, other than a forced liquidation sale. Significant estimations were used for the purposes of this disclosure. Estimated fair values have been determined using the best available data and estimation methodology suitable for each category of financial instruments. However, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Savings Bank could have realized in a sales transaction on the dates indicated. The estimated fair value amounts have been measured as of their respective year ends, and have not been reevaluated or updated for purposes of these financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each year end.
The following information should not be interpreted as an estimate of the fair value of the entire Savings Bank since a fair value calculation is only provided for a limited portion of the Savings Bank's assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Savings Bank's disclosures, and those of other companies may not be meaningful. The fair value estimates, methods and assumptions for financial instruments are set forth below.
Cash and Cash Equivalents
For cash and cash equivalents, the carrying amount is a reasonable estimate of fair value.
Securities Held to Maturity and Trading Securities
The fair values for securities held to maturity and trading securities are based on quoted market prices, where available. If quoted market prices are not available, fair value is estimated using quoted market prices for similar securities.
Loans Receivable
The fair value of loans receivable is estimated by discounting future cash flows, using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities, of such loans.
Federal Home Loan Bank Stock
The carrying amount of Federal Home Loan Bank stock approximates fair value.
NOTE 15 - FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
Accrued Interest Receivable and Payable
The carrying amount of accrued interest receivable and payable approximates fair value.
Deposits
Fair values for demand deposits, savings accounts and club accounts are, by definition, equal to the amount payable on demand at the reporting date. Fair values of fixed-maturity certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on similar instruments with similar maturities.
Short-Term Borrowings and Long-term Debt
Fair values of borrowings are estimated using discounted cash flow analyses, based on rates currently available to the Savings Bank for advances from the Federal Home Loan Bank with similar terms and remaining maturities.
Off-Balance Sheet Financial Instruments
Fair values of commitments to extend credit are estimated using the fees currently charged to enter into similar agreements, taking into account market interest rates, the remaining terms, and the present credit worthiness of the counterparties.
As of June 30, 2006 and 2005, the fair value of the commitments to extend credit were not considered to be material.
The carrying amounts and estimated fair values of the Savings Bank's financial instruments at June 30,2006 and 2005 are as follows:
2006 2005
---------------------------- -----------------------------
Carrying Estimated Fair Carrying Estimated Fair
Amount Value Amount Value
-------- -------------- -------- --------------
(In Thousands)
Financial assets:
Cash and cash equivalents $ 5,881 $ 5,881 $ 5,666 $ 5,666
Trading securities 109 109 82 82
Securities held to maturity 27,707 26,821 28,292 28,095
Loans receivable 218,321 212,546 187,192 186,291
Federal Home Loan Bank stock 2,821 2,821 1,503 1,503
Accrued interest receivable 1,350 1,350 1,088 1,088
Financial liabilities:
Deposits 194,755 193,902 196,931 196,910
Advances from Federal Home Loan Bank
of New York 54,181 53,596 21,195 21,140
Accrued interest payable 114 114 186 186
|
NOTE 16 - PARENT ONLY FINANCIAL STATEMENTS
Statements of Financial Condition
June 30,
-----------------------------------
2006 2005
---------------- ---------------
(In Thousands)
ASSETS
Cash and due from banks $ 199 $ 199
Investment in subsidiaries 19,292 17,890
---------------- ---------------
Total Assets $19,491 $18,089
================ ===============
STOCKHOLDER'S EQUITY
Stockholder's equity:
Common stock 1 1
Paid-in capital 199 199
Retained earnings 19,291 17,889
---------------- ---------------
Total Stockholder's Equity $19,491 $18,089
================ ===============
|
Statements of Income
Year Ended June 30,
------------------------------------------------------
2006 2005 2004
---------------- ---------------- ---------------
(In Thousands)
Dividend from savings bank $ - $ - $ 200
Equity in undistributed earnings of subsidiaries 1,402 1,512 1,248
---------------- ---------------- ---------------
Income Before Income Taxes 1,402 1,512 1,448
Income tax expense - 1 -
---------------- ---------------- ---------------
Net Income $1,402 $1,511 $1,448
================ ================ ===============
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NOTE 16 - PARENT ONLY FINANCIAL STATEMENTS (CONTINUED)
Statements of Cash Flows
Year Ended June 30,
------------------------------------------------------
2006 2005 2004
---------------- ---------------- ---------------
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $1,402 $1,511 $1,448
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed earnings of
subsidiaries (1,402) (1,512) (1,248)
---------------- ---------------- ---------------
Net Cash Provided by (Used in) Operating
Activities - (1) 200
---------------- ---------------- ---------------
CASH FLOWS USED IN OPERATING ACTIVITIES
Purchase of common stock of savings bank - - (200)
---------------- ---------------- ---------------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
Proceeds from sale of common stock to MHC - - 200
---------------- ---------------- ---------------
Net Increase (Decrease) in Cash and Cash
Equivalents - (1) 200
CASH AND CASH EQUIVALENTS - BEGINNING 199 200 -
---------------- ---------------- ---------------
CASH AND CASH EQUIVALENTS - ENDING $ 199 $ 199 $ 200
================ ================ ===============
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NOTE 17 - STOCK OFFERING
On July 17, 2006, the Board of Directors of the MHC, Company and Savings Bank adopted a plan of stock issuance pursuant to which the Company will sell common stock representing a minority ownership of the estimated pro forma market value of the Company, which will be determined by an independent appraisal, to eligible depositors of the Bank in a subscription offering and, if necessary, to the general public of the community and/or in a syndicated offering. The majority of the common stock will continue to be owned by the MHC. The Plan is subject to approval of the Office of Thrift Supervision.
Cost incurred in connection with the offering will be recorded as reduction of the proceeds from offering. If the transaction is not consummated, all cost incurred in connection with the transaction will be expensed. At June 30, 2006, no offering costs had been incurred.
NOTE 18 - RECENT ACCOUNTING PRONOUNCEMENTS
Accounting for Stock-Based Payments
In December 2004, the Financial Accounting Standards Board (the "FASB") issued SFAS No. 123 (revised 2004), "Share-Based Payment." This statement revises the original guidance contained in SFAS No. 123 and supersedes Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and its related implementation guidance. Under SFAS No. 123 (revised 2004), an entity such as the Bank will be required to measure the cost of employee services received in exchange for any award of equity instruments made after June 30, 2006, based on the grant-date fair value of the award (with limited exceptions) and recognize such cost over the period during which an employee is required to provide service in exchange for the award (usually the vesting period). For stock options and similar instruments, grant-date fair value will be estimated using option-pricing models adjusted for the unique characteristics of instruments (unless observable market prices for the same or similar instruments are available). SFAS No. 123 (revised 2004) will not have any effect on the Company's existing historical financial statements as the Company has not had and does not currently have any stock-based compensation grants which would be subject to SFAS No. 123 (revised 2004). However, should the Company grant stock compensation awards in the future, any such awards will require the recording of compensation expense.
Accounting Changes and Error Corrections
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections." The Statement requires retroactive application of a voluntary change in accounting principle to prior period financial statements unless it is impracticable. SFAS No. 154 also requires that a change in method of depreciation, amortization, or depletion for long-lived, non-financial assets be accounted for as a change in accounting estimate that is affected by a change in accounting principle. SFAS No. 154 replaces APB Opinion 20, "Accounting Changes," and SFAS 3, "Reporting Accounting Changes in Interim Financial Statements." SFAS No. 154 will be effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. Management currently believes that adoption of the provisions of SFAS No. 154 will not have a material impact on the Company's consolidated financial statements.
You should rely only on the information contained in this document. We have not authorized anyone to provide you with information that is different. This document does not constitute an offer to sell, or the solicitation of an offer to buy, any of the securities offered hereby to any person in any jurisdiction in which the offer or solicitation would be unlawful. The affairs of MSB Financial Corp. and its subsidiaries may change after the date of this prospectus. Delivery of this document and the sales of shares made hereunder does not mean otherwise.
MSB Financial Corp. Holding Company for Millington Savings Bank
Up to 2,199,375 Shares of Common Stock
(Subject to Increase to Up to 2,529,281 Shares)
PROSPECTUS
Keefe, Bruyette & Woods
Until the later of ____________, 2006, or 25 days after commencement of the syndicated community offering, if any, whichever is later, all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
Legal Fees and Expenses........................... $110,000
Accounting Fees and Expenses...................... 70,000
Appraisal Fees and Expenses....................... 47,000
Business Plan Fees and Expenses................... 45,000
Underwriter's Fees and Expenses................... 295,000
Nasdaq Listing Fees............................... 100,000
Conversion Agent Fees............................. 25,000
Transfer and Exchange Agent Fees.................. 20,000
Printing, Postage and Mailing Expenses............ 65,000
Stock Certificate Expenses........................ 5,000
OTS Filing Fees................................... 6,400
NASD Filing Fee................................... 3,000
SEC Filing Fee.................................... 2,700
Reimbursable and other expenses................... 1,900
--------
Total..................................... $ 796,000*
=========
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* Estimated, at adjusted maximum of offering range.
Item 14. Indemnification of Directors and Officers
Section 545.121 of the Office of Thrift Supervision (OTS) regulations provides indemnification for directors and officers. Indemnification provisions are contained in the charter and bylaws of the Registrant and are described below.
(a) Any person against whom any action is brought or threatened because that person is or was a director or officer of the Registrant shall be indemnified by the Registrant for:
(i) Any amount for which that person becomes liable under a judgment in such action; and
(ii) Reasonable costs and expenses, including reasonable attorneys' fees, actually paid or incurred by that person in defending or settling such action, or in enforcing his or her rights under this section if he or she attains a favorable judgment in such enforcement action.
(b) Indemnification shall be made to such person under paragraph (b) of this Section only if:
(i) Final judgment on the merits is in his or her favor; or
(ii) In case of:
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a. Settlement,
b. Final judgment against him or her, or
c. Final judgment in his or her favor, other than on the merits, if a majority of the disinterested directors of the Registrant determine that he or she was acting in good faith within the scope of his or her employment or authority as he or she could reasonably have perceived it under the circumstances and for a purpose he or she could reasonably have believed under the circumstances was in the best interest of the Registrant. However, no indemnification shall be made unless the Registrant gives the Office at least 60 days notice of its intention to make such indemnification. Such notice shall state the facts on which the action arose, the terms of any settlement, and any disposition of the action by a court. Such notice, a copy thereof, and a certified copy of the resolution containing the required determination by the board of directors shall be sent to the Regional Director, who shall promptly acknowledge receipt thereof. The notice period shall run from the date of such receipt. No such indemnification shall be made if the OTS advises the savings bank in writing, within such notice period, of its objection thereto.
(c) As used in this paragraph:
(i) "Action" means any judicial or administrative proceeding, or threatened proceeding, whether civil, criminal, or otherwise, including any appeal or other proceeding for review;
(ii) "Court" includes, without limitation, any court to which or in which any appeal or any proceeding for review is brought;
(iii) "Final Judgment" means a judgment, decree, or order which is not appealable or as to which the period for appeal has expired with no appeal taken;
(iv) "Settlement" includes the entry of a judgment by consent or confession or a plea of guilty or of nolo contendere.
Item 15. Recent Sales of Unregistered Securities.
Not Applicable
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Item 16. Exhibits and Financial Statement Schedules.
The exhibits and financial statement schedules filed as part of this Registration Statement are as follows:
(a) Exhibits:
1 Form of Sales Agency Agreement with Keefe Bruyette & Woods, Inc.
2 Plan of Stock Issuance
3.1 Charter of MSB Financial Corp.
3.2 Bylaws of MSB Financial Corp.
4 Specimen Stock Certificate of MSB Financial Corp.
5 Opinion of Malizia Spidi & Fisch, PC regarding legality of securities registered
8.1 Federal Tax Opinion of Malizia Spidi & Fisch, PC
8.2 State Tax Opinion of Beard Miller Company LLP
10.1 Employment Agreement with Gary T. Jolliffe
10.2 Employment Agreement with Michael A. Shriner
10.3 Employment Agreement with Jeffrey E. Smith
10.4 Form of Executive Life Insurance Agreement
10.5 Millington Savings Bank Executive Incentive Retirement Plan Agreement for President
and Chief Executive Officer
10.6 Millington Savings Bank Executive Incentive Retirement Plan Agreement for the
Benefit of Senior Officers
10.7 Millington Savings Bank Directors Consultation and Retirement Plan
23.1 Consent of Beard Miller Company LLP
23.2 Consent of RP Financial, LC
23.3 Consent of Malizia Spidi & Fisch, PC (contained in its opinions filed as Exhibits 5 and
8.1)
24 Power of Attorney (set forth on the signature page)
99.1 Letter of RP Financial, LC as to the value of subscription rights
99.2 Conversion Valuation Appraisal Report prepared by RP Financial, LC*
99.3 Marketing Materials*
99.4 Stock Order Form*
______________
* To be filed by amendment.
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(b) Financial Statement Schedules:
No financial statement schedules are filed because the required information is not applicable or is included in the consolidated financial statements or the notes thereto.
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Item 17. Undertakings
The undersigned registrant hereby undertakes:
(1) To file, during any period in which it offers or sells securities, a post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the Securities Act of 1933 ("Securities Act");
(ii) Reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; and
(iii) Include any additional or changed material information on the plan of distribution.
(2) For determining liability under the Securities Act, the undersigned registrant shall treat each post-effective amendment as a new registration statement of the securities offered, and the offering of the securities at that time to be the initial bona fide offering.
(3) The undersigned registrant shall file a post-effective amendment to remove from registration any of the securities that remain unsold at the end of the offering.
(4) The undersigned registrant hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser.
(5) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act, and is therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Millington, New Jersey on September 12, 2006.
MSB FINANCIAL CORP.
By: /s/ Gary T. Jolliffe
-------------------------------------
Gary T. Jolliffe
President and Chief Executive Officer
(Duly Authorized Representative)
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We the undersigned directors and officers of MSB Financial Corp. do hereby severally constitute and appoint Gary T. Jolliffe our true and lawful attorney and agent, to do any and all things and acts in our names in the capacities indicated below and to execute all instruments for us and in our names in the capacities indicated below which he may deem necessary or advisable to enable MSB Financial Corp. to comply with the Securities Act of 1933, as amended, and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with the registration statement on Form S-1 relating to the offering of MSB Financial Corp. common stock, including specifically but not limited to, power and authority to sign for us or any of us, in our names in the capacities indicated below, the registration statement and any and all amendments (including post-effective amendments) thereto; and we hereby ratify and confirm all that he shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities indicated on September 12, 2006.
/s/ Gary T. Jolliffe /s/ Albert N. Olsen ----------------------------------------------- -------------------------------------------------- Gary T. Jolliffe Albert N. Olsen President, Chief Executive Officer and Director Chairman of the Board (Principal Executive Officer) /s/ E. Haas Gallaway, Jr. /s/ W. Scott Gallaway ----------------------------------------------- -------------------------------------------------- E. Haas Gallaway, Jr. W. Scott Gallaway Director Director /s/ Dr. Thomas G. McCain /s/ Ferdinand J. Rossi ----------------------------------------------- -------------------------------------------------- Dr. Thomas G. McCain Ferdinand J. Rossi Director Director /s/ Michael A. Shriner /s/ Jeffrey E. Smith ----------------------------------------------- -------------------------------------------------- Michael A. Shriner Jeffrey E. Smith Executive Vice President, Chief Operating Vice President and Chief Financial Officer Officer and Director (Principal Financial and Accounting Officer) |
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[FORM OF]
MSB FINANCIAL CORP.
(a federal stock corporation)
up to 2,199,375 Shares
(subject to increase up to 2,529,281 shares)
COMMON SHARES
($.10 Par Value)
Subscription Price $10.00 Per Share
AGENCY AGREEMENT
_______________, 2006
Keefe, Bruyette & Woods, Inc.
211 Bradenton Drive
Dublin, Ohio 43017-5034
Ladies and Gentlemen:
MSB Financial Corp., a federal corporation (the "Company") and the wholly-owned subsidiary of MSB Financial, MHC, a federal mutual holding company (the "MHC"), and the mid-tier holding company for all of the outstanding capital stock of Millington Savings Bank, a New Jersey-chartered stock savings bank located in Millington, New Jersey, (the "Bank"), deposit accounts in which are insured by the Federal Deposit Insurance Corporation ("FDIC"), hereby confirms its agreement with Keefe, Bruyette & Woods, Inc. (the "Agent") as follows:
Section 1. The Offering. The Company, in accordance with a plan of stock issuance adopted by the Board of Directors, (the "Plan") will offer and sell up to 2,199,375 shares (subject to increase up to 2,529,281) of its common stock, $.10 par value per share (the "Shares" or "Common Shares"), in a subscription offering (the "Subscription Offering") to (1) depositors of the Bank with Qualifying Deposits (as defined in the Plan) as of June 30, 2005 ("Eligible Account Holders"), (2) the employee stock ownership plan established by either the Bank or the Company (the "ESOP"), and (3) depositors of the Bank with Qualifying Deposits as of September 30, 2006 ("Supplemental Eligible Account Holders"). Subject to the prior subscription rights of the above-listed parties, the Company may offer for sale in a community offering (the "Community Offering" and when referred to together with or subsequent to the Subscription Offering, the "Subscription and Community Offering") the Shares not subscribed for or ordered in the Subscription Offering to members of the general public to whom a copy of the Prospectus (as hereinafter defined) is delivered with a preference given first to natural persons who are residents of Morris and Somerset Counties, New Jersey. It is anticipated that shares not subscribed for in the Subscription and Community Offering may be offered to certain members of the general public on a best efforts basis through a selected dealers agreement (the "Syndicated Community Offering") (the Subscription Offering, Community Offering and
Syndicated Community Offering are collectively referred to as the "Offering"). It is acknowledged that the purchase of Shares in the Offering is subject to the maximum and minimum purchase limitations as described in the Plan and that the Company may reject, in whole or in part, any orders received in the Community Offering or Syndicated Community Offering. The Common Shares offered for sale in the Offering will represent a minority ownership interest of 45% of the Company's total outstanding Common Shares.
The Company has filed with the Securities and Exchange Commission (the "Commission") a registration statement on Form S-1 (File No. __________) (the "Registration Statement"), containing a prospectus relating to the Offering, for the registration of the Shares under the Securities Act of 1933 (the "1933 Act"), and has filed such amendments thereof and such amended prospectuses as may have been required to the date hereof. The term "Registration Statement" shall include any documents incorporated by reference therein and all financial schedules and exhibits thereto, as amended, including post-effective amendments. The prospectus, as amended, on file with the Commission at the time the Registration Statement initially became effective is hereinafter called the "Prospectus," except that if any Prospectus is filed by the Company pursuant to Rule 424(b) or (c) of the rules and regulations of the Commission under the 1933 Act (the "1933 Act Regulations") differing from the prospectus on file at the time the Registration Statement initially became effective, the term "Prospectus" shall refer to the prospectus filed pursuant to Rule 424(b) or (c) from and after the time said prospectus is filed with the Commission.
In accordance with 12 C.F.R. Part 575 (the "Reorganization Regulations"), the Company has filed with the OTS a Form MHC-2 Application for Approval of a Minority Stock Issuance by a Subsidiary of a Mutual Holding Company ("MHC-2 Application"), including the Prospectus and the Valuation Appraisal Report prepared by RP Financial, LC (the "Appraisal") and has filed such amendments thereto as may have been required by the OTS. The MHC-2 Application has been approved by the OTS and the related Prospectus has been authorized for use by the OTS.
Section 2. Retention of Agent; Compensation; Sale and Delivery of the Shares. Subject to the terms and conditions herein set forth, the Company hereby appoints the Agent as its exclusive financial advisor and marketing agent (i) to utilize its best efforts to solicit subscriptions for Common Shares and to advise and assist the Company with respect to the Company's sale of the Shares in the Offering, and (ii) to participate in the Offering in the areas of market making, research coverage and in syndicate formation (if necessary).
On the basis of the representations, warranties, and agreements herein contained, but subject to the terms and conditions herein set forth, the Agent accepts such appointment and agrees to consult with and advise the Company and the Bank as to the matters set forth in the letter agreement, dated June 26, 2006, between the Company and the Agent (a copy of which is attached hereto as Exhibit A). It is acknowledged by the Company that the Agent shall not be required to purchase any Shares or be obligated to take any action which is inconsistent with all applicable laws, regulations, decisions or orders.
The obligations of the Agent pursuant to this Agreement (other than those set forth in Section 2(a) and (c) hereof) shall terminate upon termination of the Offering, but in no event later than 45 days after the completion of the Subscription Offering (the "End Date"). All fees or
expenses due to the Agent but unpaid will be payable to the Agent in next day funds at the earlier of the Closing Date (as hereinafter defined) or the End Date. In the event the Offering is extended beyond the End Date, the Company and the Agent may agree to renew this Agreement under mutually acceptable terms.
In the event the Company is unable to sell a minimum of 1,625,625
Shares within the period herein provided, this Agreement shall terminate and the
Company shall refund to any persons who have subscribed for any of the Shares
the full amount which it may have received from them plus accrued interest, as
set forth in the Prospectus; and none of the parties to this Agreement shall
have any obligation to the other parties hereunder, except as set forth in this
Section 2 and in Sections 6, 8 and 9 hereof. In the event the Offering is
terminated for any reason not attributable to the action or inaction of the
Agent, the Agent shall be paid the fees due to the date of such termination
pursuant to subparagraphs (a) and (d) below.
If all conditions precedent to the sale of all Shares required by the Plan to be sold, are satisfied, the Company agrees to issue the Shares sold in the Offering and to release for delivery certificates for such Shares on the Closing Date (as hereinafter defined) against payment to the Company by any means authorized by the Plan; provided, however, that no funds shall be released to the Company until the conditions specified in Section 7 hereof shall have been complied with to the reasonable satisfaction of the Agent and its counsel. The release of Shares against payment therefor shall be made on a date and at a place acceptable to the Company and the Agent. Certificates for shares shall be delivered directly to the purchasers in accordance with their directions. The date upon which the Company shall release or deliver the Shares sold in the Offering, in accordance with the terms herein, is called the "Closing Date."
The Agent shall receive the following compensation for its services hereunder:
(a) A management fee of $25,000 payable in four consecutive monthly installments of $6,250 commencing with the adoption of the Plan. This fee shall be due as it is earned and shall be non-refundable.
(b) A success fee upon completion of the Offering of 1.00% of the aggregate purchase price of the Common Shares sold in the Subscription Offering and Community Offering excluding shares purchased by the Bank's officers, directors, or employees (or members of their immediate family) or their IRAs, or the ESOP, tax qualified or stock based compensation plans or similar plans created by the Bank for some or all of its directors or employees. The management fee will be applied against the success fee.
(c) If any of the Common Shares remain available after the Subscription Offering, at the request of the Company, the Agent will seek to form a syndicate of registered broker-dealers ("Selected Dealers") to assist in the sale of such Common Shares on a best efforts basis, subject to the terms and conditions set forth in the selected dealers agreement. The Agent will endeavor to distribute the Common Shares among the Selected Dealers in a fashion which best meets the distribution objectives of the Bank and the Plan. The Agent will be paid a fee not to exceed 5.5% of the aggregate Purchase Price of the Shares sold by the Selected Dealers. The Agent will pass onto the Selected Dealers who assist in the Syndicated Community Offering an amount competitive with gross underwriting
discounts charged at such time for comparable amounts of stock sold at a comparable price per share in a similar market environment. Fees with respect to purchases effected with the assistance of Selected Dealers other than the Agent shall be transmitted by the Agent to such Selected Dealers. The decision to utilize Selected Dealers will be made by the Company upon consultation with the Agent. In the event, with respect to any stock purchases, fees are paid pursuant to this subparagraph 2(c), such fees shall be in lieu of, and not in addition to, payment pursuant to paragraph 2(b).
(d) The Company shall reimburse the Agent for reasonable out-of-pocket expenses, including costs of travel, meals and lodging, photocopying, telephone, facsimile, couriers not to exceed $20,000. In addition, the Company will reimburse the Agent for legal fees paid to the Agent's legal counsel not to exceed $40,000 and expenses of Agent's legal counsel not to exceed $5,000. The Company will bear the expenses of the Offering customarily borne by issuers including, without limitation, regulatory filing fees, SEC, "Blue Sky," and NASD filing and registration fees; the fees of the Company's accountants, attorneys, appraiser, transfer agent and registrar, printing, mailing and marketing expenses associated with the reorganization; and the fees set forth under this Section 2.
Additional Services. Agent further agrees to provide general financial advisory assistance to the Company and the Bank for a period of three years following completion of the Offering, including formation of a dividend policy and share repurchase program, assistance with shareholder reporting and shareholder relations matters, general advice on mergers and acquisitions and other related financial matters, without the payment by the Company and the Bank of any fees in addition to those set forth in this Section 2 hereof. If, however, a specific buy side assignment were to develop, Agent would look to develop a separate and specific engagement letter tailored to such a transaction, while simultaneously maintaining the elements of this Agreement in good standing.
As part of the post-Offering financial advisory services, Agent will specifically conduct the following:
o assistance with financial modeling
o assistance with the formation of dividend policy
o assistance with the formation of a share repurchase program
o assistance with shareholder reporting and shareholder relations matters
o general advice on mergers and acquisitions and other related financial matters, including updating the Company on the merger & acquisition market with specific attention being paid to comparable transactions in terms of charter, size, region, capital levels and profitability. Such updates will serve as a benchmark for understanding how merger and acquisition pricing is influenced by various profitability and efficiency metrics and will serve to keep the Company focused on continuing to achieve further franchise value.
Full payment of Agent's actual and accountable expenses, advisory fees and compensation shall be made in next day funds on the earlier of the Closing Date or a determination by the Bank to terminate or abandon the Offering.
Section 3. Sale and Delivery of Shares. If all conditions precedent to
the sale of all Shares required by the Plan to be sold, are satisfied, the
Company agrees to issue, or have issued, the Shares sold in the Offering and to
release for delivery certificates for such Shares on the Closing Date against
payment to the Company by any means authorized by the Plan; provided, however,
that no funds shall be released to the Company until the conditions specified in
Section 7 hereof shall have been complied with to the reasonable satisfaction of
the Agent and its counsel. The release of Shares against payment therefor shall
be made on a date and at a place acceptable to the Company and the Agent.
Certificates for shares shall be delivered directly to the purchasers in
accordance with their directions.
Section 4. Representations and Warranties of the Company. The Company represents and warrants to and agrees with the Agent as follows:
(a) The Registration Statement which was prepared by the Company and
the Bank and filed with the Commission has been declared effective by
the Commission, no stop order has been issued with respect thereto and
no proceedings therefor have been initiated or, to the knowledge of
the Company, threatened by the Commission. At the time the
Registration Statement, including the Prospectus contained therein
(including any amendment or supplement), became effective and at the
Closing Date, the Registration Statement complied and will comply in
all material respects with the requirements of the 1933 Act and the
1933 Act Regulations and the Registration Statement, including the
Prospectus contained therein (including any amendment or supplement
thereto), and any information regarding the Company contained in Sales
Information (as such term is defined in Section 8 hereof) authorized
by the Company for use in connection with the Offering, did not
contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they
were made, not misleading, and at the time any Rule 424(b) or (c)
Prospectus is filed with the Commission and at the Closing Date
referred to in Section 2 hereof, the Prospectus (including any
amendment or supplement thereto) and any information regarding the
Company contained in Sales Information (as such term is defined in
Section 8 hereof) authorized by the Company for use in connection with
the Offering will contain all statements that are required to be
stated therein in accordance with the 1933 Act and the 1933 Act
Regulations and will not contain an untrue statement of a material
fact or omit to state a material fact necessary in order to make the
statements therein, in light of the circumstances under which they
were made, not misleading; provided, however, that the representations
and warranties in this Section 4(a) shall not apply to statements or
omissions made in reliance upon and in conformity with written
information furnished to the Company by the Agent or its counsel
expressly regarding the Agent for use in the Prospectus under the
caption "The Offering-- Plan of Distribution/Marketing Arrangements"
or statements in or omissions from any Sales Information or
information filed pursuant to state securities or blue sky laws or
regulations regarding the Agent.
(b) The MHC-2 Application, which was prepared by the Company and the Bank and filed with the OTS, has been approved by the OTS and the related Prospectus to be delivered to members of the Bank has been authorized for use by the OTS and the MHC-2 Application complied in all material respects with the Reorganization Regulations except as otherwise waived by the OTS. No order has been issued by the OTS or the FDIC preventing or suspending the use of the Prospectus, and no action by or before any such government entity to revoke any approval, authorization or order of effectiveness related to the Offering is, to the best knowledge of the Company, pending or threatened. At the time of the approval of the MHC-2 Application, including the Prospectus (including any amendment or supplement thereto) by the OTS and at all times subsequent thereto until the Closing Date, the MHC-2 Application, including the Prospectus (including any amendment or supplement thereto), will comply in all material respects with the Reorganization Regulations, except to the extent waived or otherwise approved by the OTS. The MHC-2 Application, including the Prospectus (including any amendment or supplement thereto), does not include any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that the representations and warranties in this Section 4(b) shall not apply to statements or omissions made in reliance upon and in conformity with written information furnished to the Company by the Agent or its counsel expressly regarding the Agent for use in the Prospectus contained in the MHC-2 Application under the caption "The Offering--Plan of Distribution/Marketing Arrangements" or statements in or omissions from any sales information or information filed pursuant to state securities or blue sky laws or regulations regarding the Agent.
(c) The Company, the MHC and the Bank have filed the Prospectus and any supplemental sales literature with the Commission and the OTS. The Prospectus and all supplemental sales literature, as of the date the Registration Statement became effective and on the Closing Date referred to in Section 2, complied and will comply in all material respects with the applicable requirements of the Securities Act Regulations and, at or prior to the time of their first use, will have received all required authorizations of the OTS and Commission for use in final form. No approval of any other regulatory or supervisory or other public authority is required in connection with the distribution of the Prospectus and any supplemental sales literature that has not been obtained and a copy of which has been delivered to the Agent. The Company, the MHC and the Bank have not distributed any offering material in connection with the Offering except for the Prospectus and any supplemental sales material that has been filed with the Registration Statement and the Stock Issuance Application and authorized for use by the Commission and the OTS. The information contained in the supplemental sales material filed as an exhibit to both the Registration Statement and the Stock Issuance Application does not conflict with information contained in the Registration Statement and the Prospectus.
(d) The offer and sale of the Shares will have been conducted in all material respects in accordance with the Plan, the Reorganization Regulations except to the extent waived or otherwise approved by the OTS, and all other applicable laws, regulations, decisions and orders, including all terms, conditions, requirements and provisions precedent to the Offering imposed upon the MHC, the Company and the Bank by the OTS, the
Commission, or any other regulatory authority and in the manner described in the Prospectus. To the best knowledge of the MHC, the Company and the Bank, no person has sought to obtain review of the final action of the OTS in approving the Offering pursuant to the HOLA or any other statute or regulation.
(e) The Company is a duly organized and validly existing
federally-chartered corporation; and the Bank is a duly organized and
validly existing New Jersey-chartered savings bank in permanent
capital stock form of organization. Each of the Company and the Bank
is duly authorized to conduct its business and own its property as
described in the Registration Statement and the Prospectus; each of
the Company and the Bank has obtained all licenses, permits and other
governmental authorizations currently required for the conduct of its
business, except those that individually or in the aggregate would not
materially adversely affect the financial condition, results of
operations or business of the Company and the Bank, taken as a whole;
all such licenses, permits and governmental authorizations are in full
force and effect, and each of the Company and the Bank is in
compliance with all material laws, rules, regulations and orders
applicable to the operation of its business, except where failure to
be in compliance would not materially adversely affect the financial
condition, results of operations or business of the Company and the
Bank, taken as a whole; each of the Company and the Bank is duly
qualified as a foreign corporation to transact business and is in good
standing in each jurisdiction in which its ownership of property or
leasing of property or the conduct of its business requires such
qualification, unless the failure to be so qualified in one or more of
such jurisdictions would not have a material adverse effect on the
financial condition, results of operations or business of the Company
and the Bank, taken as a whole. Each of the Company and the Bank does
not own equity securities or any equity interest in any other business
enterprise except as described in the Prospectus or as would not be
material to the operations of the Company or the Bank, as the case may
be. Upon completion of the sale by the Company of the Shares
contemplated by the Prospectus, (i) all of the authorized and
outstanding capital stock of the Bank will be owned by the Company and
(ii) the Company will have no direct subsidiaries other than the Bank.
The Offering will be effected in all material respects in accordance
with all applicable statutes, regulations, decisions and orders; and,
except with respect to the filing of certain post-sale reports and
documents in compliance with the 1933 Act Regulations, the
Reorganization Regulations or letters of approval at the time of the
Closing, all terms, conditions, requirements and provisions with
respect to the Offering imposed by the Commission, the OTS and the
FDIC, if any, will have been complied with by the Company in all
material respects or appropriate waivers will have been obtained and
all material notice and waiting periods will have been satisfied,
waived or elapsed.
(f) The MHC is duly incorporated and validly existing as a corporation under the laws of the United States of America with corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Registration Statement and the Prospectus, and is qualified to do business as a foreign corporation in each jurisdiction in which the conduct of its business requires such qualification, except where the failure to so qualify would not have a material adverse effect on the financial condition, results of operations or business of the Company and the Bank, taken as a whole. The MHC has all licenses, permits and other governmental authorizations
currently required for the conduct of its business except those that individually or in the aggregate would not materially adversely affect the financial condition, results of operations or business of the Company and the Bank, taken as a whole; all such licenses, permits and governmental authorizations are in full force and effect, and the MHC in all material respects complies with all laws, rules, regulations and orders applicable to the operation of its business.
(g) The MHC and the Company are registered and in good standing as savings association holding companies under the Home Owners' Loan Act of 1933.
(h) The Bank is a member of the Federal Home Loan Bank of New York ("FHLB-New York"). The deposit accounts of the Bank are insured by the FDIC up to the applicable limits, and no proceedings for the termination or revocation of such insurance are pending or, to the best knowledge of the Company or the Bank, threatened. The Bank is a "qualified thrift lender" within the meaning of 12 U.S.C. ss.l467(a)(m).
(i) Each of the Company and the Bank, has good and marketable title to all real property and good title to all other assets material to the business of the Company and the Bank, taken as a whole, and to those properties and assets described in the Registration Statement and Prospectus as owned by it, free and clear of all liens, charges, encumbrances or restrictions, except such as are described in the Registration Statement and Prospectus, or are not material to the business of the Company and the Bank, taken as a whole; and all of the leases and subleases material to the business of the Company and the Bank, taken as a whole, under which, the Company or the Bank hold properties, including those described in the Registration Statement and Prospectus, are in full force and effect.
(j) The Company has received an opinion of its special counsel, Malizia Spidi & Fisch, PC, with respect to the federal income tax consequences of the Offering, all material aspects of such opinion are accurately summarized in the Registration Statement and the Prospectus. The Company represents and warrants that the facts upon which such opinion is based are truthful, accurate and complete. None of the Company, the Bank or the MHC will take any action inconsistent therewith.
(k) Each of the Company and the Bank has all such power, authority, authorizations, approvals and orders as may be required to enter into this Agreement, to carry out the provisions and conditions hereof and, with respect to the Company, to issue and sell the Shares to be sold by it as provided herein and as described in the Prospectus, subject to approval or confirmation by the OTS of the final appraisal of the Company including the Bank. The execution, delivery and performance of this Agreement have been duly and validly authorized by all necessary corporate action on the part of the Company; and the Offering has been duly and validly authorized by all necessary corporate action on the part of the Company. This Agreement has been validly executed and delivered by the Company and is the valid, legal and binding agreement of the Company enforceable in accordance with its terms (except as the enforceability thereof may be limited by bankruptcy, insolvency, moratorium, reorganization or similar laws relating to or affecting the enforcement of creditors rights generally or the rights of creditors of
savings and loan holding companies or savings banks, as the case may be, the accounts of whose subsidiaries or of which are insured by the FDIC, or by general equity principles, regardless of whether such enforceability is considered in a proceeding in equity or at law, and except to the extent, if any, that the provisions of Sections 8 and 9 hereof may be unenforceable as against public policy). The Company has all such power, authority, authorizations, approvals and orders as may be required to enter into this Agreement, to carry out the provisions and conditions hereof and to issue and sell the Shares to be sold by it as provided herein and as described in the Prospectus, subject to approval or confirmation by the OTS of the final appraisal of the Company including the Bank.
(l) None the MHC, the Company or the Bank is in violation of any directive received from the OTS, the FDIC, or any other agency to make any material change in the method of conducting its business so as to comply in all material respects with all applicable statutes and regulations (including, without limitation, regulations, decisions, directives and orders of the OTS and the FDIC) and, except as may be set forth in the Registration Statement and the Prospectus, there is no suit or proceeding or charge or action before or by any court, regulatory authority or governmental agency or body, pending or, to the knowledge of the MHC, the Company or the Bank, threatened, which might materially and adversely affect the Offering, as described in the Registration Statement and the Prospectus or which might result in any material adverse change in the financial condition, results of operations or business of the Company and the Bank, taken as a whole, or which would materially affect their properties and assets.
(m) The financial statements, schedules and notes related thereto which are included in the Prospectus fairly present the balance sheet, income statement, statement of changes in equity capital and statement of cash flows of the Company on a consolidated basis with the Bank (except as otherwise stated therein) at the respective dates indicated and for the respective periods covered thereby and comply as to form in all material respects with the applicable accounting requirements of Title 12 of the Code of Federal Regulations. Such financial statements, schedules and notes related thereto have been prepared in accordance with generally accepted accounting principles ("GAAP") consistently applied through the periods involved, present fairly in all material respects the information required to be stated therein and are consistent with the most recent financial statements and other reports filed by the Company and the Bank with the OTS, except that accounting principles employed in such regulatory filings conform to the requirements of the OTS and not necessarily to GAAP. The other financial, statistical and pro forma information and related notes included in the Prospectus present fairly the information shown therein on a basis consistent with the audited and unaudited financial statements of the Company on a consolidated basis with the Bank (except as otherwise stated therein) included in the Prospectus, and as to the pro forma adjustments, the adjustments made therein have been properly applied on the basis described therein.
(n) Since the respective dates as of which information is given in the Registration Statement including the Prospectus: (i) there has not been any material adverse change, financial or otherwise, in the condition of the Company and the Bank and their subsidiaries, considered as one enterprise, or in the earnings, capital properties or business of the Company and the Bank, whether or not arising in the ordinary course of
business; (ii) there has not been any material increase in the
long-term debt of the Company or the Bank or in the principal amount
of the Company's or the Bank's assets which are classified by the
Company or the Bank as substandard, doubtful or loss or in loans past
due 90 days or more or real estate acquired by foreclosure, by
deed-in-lieu of foreclosure or deemed in-substance foreclosure or any
material decrease in equity capital or total assets of the Company on
a consolidated basis with the Bank; nor has the MHC, the Company or
the Bank issued any securities (other than in connection with the
incorporation of the Company and the reorganization of the Bank into a
mutual holding company structure) or incurred any liability or
obligation for borrowing other than in the ordinary course of
business; (iii) there have not been any material transactions entered
into by the MHC, the Company or the Bank; (iv) there has not been any
material adverse change in the aggregate dollar amount (on a
consolidated basis with the Bank) of the Company's deposits or its net
worth; (v) there has been no material adverse change in the MHC's, the
Company's or the Bank's relationship with its insurance carriers,
including, without limitation, cancellation or other termination of
the MHC s, the Company's or the Bank's fidelity bond or any other type
of insurance coverage; (vi) except as disclosed in the Prospectus,
there has been no material change in management of the MHC, the
Company or the Bank; (vii) neither the Company nor the Bank has
sustained any material loss or interference with its respective
business or properties from fire, flood, windstorm, earthquake,
accident or other calamity, whether or not covered by insurance;
(viii) none of the MHC, the Company or the Bank has defaulted in the
payment of principal or interest on any outstanding debt obligations;
(ix) the capitalization, liabilities, assets, properties and business
of the MHC, the Company and the Bank conform in all material respects
to the descriptions thereof contained in the Prospectus; and (x)
neither the Company nor the Bank has any material contingent
liabilities, except as set forth in the Prospectus.
(o) None of the MHC, the Company or the Bank is (i) in violation of
its charter or articles of incorporation, as the case may be, or
bylaws, or (ii) in default in the performance or observance of any
material obligation, agreement, covenant, or condition contained in
any material contract, lease, loan agreement, indenture or other
instrument to which it is a party or by which it or any of its
property may be bound. The execution and delivery of this Agreement
and the consummation of the transactions herein contemplated will not:
(i) conflict with or constitute a breach of, or default under, or
result in the creation of any material lien, charge or encumbrance
upon any of the assets of the MHC, the Company or the Bank pursuant to
the Charter or Articles of Incorporation, as the case may be, and
Bylaws of the Company, the MHC or the Bank or any material contract,
lease or other instrument in which the MHC, the Company or the Bank
has a beneficial interest, or any applicable law, rule, regulation or
order; (ii) violate any authorization, approval, judgment, decree,
order, statute, rule or regulation applicable to the MHC, the Company
or the Bank, except for such violations which would not have a
material adverse effect on the financial condition and results of
operations of the Company and the Bank on a consolidated basis; or
(iii) result in the creation of any material lien, charge or
encumbrance upon any property of the Company or the Bank.
(p) All documents made available to or delivered or to be made available to or delivered by the MHC, the Company and the Bank or their representatives in connection with the issuance and sale of the Shares, including records of account holders and depositors of the Bank, or in connection with the Agent's exercise of due diligence, except for those documents which were prepared by parties other than the MHC, the Company or the Bank or their representatives, to the best knowledge of the Company, were on the dates on which they were delivered, or will be on the dates on which they are to be delivered, true, complete and correct in all material respects.
(q) No default exists, and no event has occurred which with notice or lapse of time, or both, would constitute a default on the part of the MHC, the Company or the Bank in the due performance and observance of any term, covenant or condition of any indenture, mortgage, deed of trust, note, bank loan or credit agreement or any other instrument or agreement to which the MHC, the Company or the Bank is a party or by which any of them or any of their property is bound or affected, except such defaults which would not have a material adverse affect on the financial condition or results of operations of the Company and the Bank, taken as a whole; such agreements are in full force and effect; and no other party to any such agreements has instituted or, to the best knowledge of the MHC, the Company or the Bank, threatened any action or proceeding wherein the MHC, the Company or the Bank would or might be alleged to be in default thereunder, where such action or proceeding, if determined adversely to the MHC, the Company or the Bank, would have a material adverse effect on the financial condition, results of operations, or business of the Company or the Bank, taken as a whole.
(r) Upon consummation of the Offering, the authorized, issued and outstanding equity capital of the Company will be within the range set forth in the Prospectus under the caption "Capitalization," and no Shares (other than Shares issued to the MHC) have been or will be issued and outstanding prior to the Closing Date; the Shares (including shares issued or to be issued to the MHC) have been duly and validly authorized for issuance and, when issued and delivered by the Company pursuant to the Plan against payment of the consideration calculated as set forth in the Plan and in the Prospectus, will be duly and validly issued, fully paid and non-assessable, except for shares purchased by the ESOP with funds borrowed from the Company to the extent payment therefor in cash has not been received by the Company; except to the extent that subscription rights and priorities pursuant thereto exist pursuant to the Plan, no preemptive rights exist with respect to the Shares; and the terms and provisions of the Shares will conform in all material respects to the description thereof contained in the Registration Statement and the Prospectus. Upon the issuance of the Shares, good title to the Shares will be transferred from the Company to the purchasers thereof against payment therefor, subject to such claims as may be asserted against the purchasers thereof by third-party claimants.
(s) No approval of any regulatory or supervisory or other public authority is required in connection with the execution and delivery of this Agreement or the issuance of the Shares, except for the approval of the Commission and the OTS, and any necessary qualification, notification, registration or exemption under the securities or blue sky laws of the various states in which the Shares are to be offered, and except as may be required
under the rules and regulations of the National Association of Securities Dealers, Inc. ("NASD").
(t) Beard Miller Company LLP, which has certified the audited financial statements and schedules of the Company and the Bank included in the Prospectus, has advised the Company and the Bank in writing that they are, with respect to the Company and the Bank, independent registered public accountants within the applicable rules of the Public Company Accounting Oversight Board (United States).
(u) RP Financial, LC, which has prepared the Valuation Appraisal Report (as amended or supplemented, if so amended or supplemented) of the Company including the Bank, has advised the Company in writing that it is independent of the MHC, the Company and the Bank within the meaning of the Reorganization Regulations.
(v) The Company, the MHC and the Bank have timely filed or extended all required federal, state and local tax returns; the Company, the MHC and the Bank have paid all taxes that have become due and payable in respect of such returns, except where permitted to be extended, have made adequate reserves for similar future tax liabilities and no deficiency has been asserted with respect thereto by any taxing authority.
(w) The Company and the Bank are in compliance in all material respects with the applicable financial record-keeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, and the regulations and rules thereunder.
(x) To the knowledge of the MHC, the Company and the Bank, none the MHC, the Company, the Bank or employees of the MHC, the Company or the Bank has made any payment of funds of the MHC, the Company or the Bank as a loan for the purchase of the Shares or made any other payment of funds prohibited by law, and no funds have been set aside to be used for any payment prohibited by law.
(y) Prior to the Offering, none of the MHC, the Company or the Bank has: (i) issued any securities within the last 18 months (except for notes to evidence bank loans and reverse repurchase agreements or other liabilities in the ordinary course of business or as described in the Prospectus and except in connection with the Bank's reorganization into the mutual holding company structure); (ii) had any material dealings within the 12 months prior to the date hereof with any member of the NASD, or any person related to or associated with such member, other than discussions and meetings relating to the proposed Offering and routine purchases and sales of United States government and agency and other securities in the ordinary course of business; (iii) entered into a financial or management consulting agreement except as contemplated hereunder; and (iv) engaged any intermediary between the Agent and the MHC, the Company or the Bank in connection with the offering of the Shares, and no person is being compensated in any manner for such service. Appropriate arrangements have been made for placing the funds received from subscriptions for Shares in a special interest-bearing account with the Bank until all Shares are sold and paid for, with provision for refund to the
purchasers in the event that the Offering is not completed for whatever reason or for delivery to the Company if all Shares are sold.
(z) The Company, the MHC and the Bank have not relied upon the Agent or its legal counsel for any legal, tax or accounting advice in connection with the Offering.
(aa) The records used by the Company and the Bank to determine the identity of Eligible Account Holders and Supplemental Eligible Account Holders and Other Depositors are accurate and complete in all material respects.
(bb) The Company and the MHC are not required to be registered under the Investment Company Act of 1940, as amended.
(cc) None of the Company, the Bank or the MHC or any properties owned or operated by the Company, the Bank or the MHC, is in violation of or liable under any Environmental Law (as defined below), except for such violations or liabilities that, individually or in the aggregate, would not have a material adverse effect on the financial condition, results of operations or business of the Company and the Bank, taken as a whole. There are no actions, suits or proceedings, or demands, claims, notices or investigations (including, without limitation, notices, demand letters or requests for information from any environmental agency) instituted or pending or, to the knowledge of the Company, the Bank or the MHC, threatened relating to the liability of any property owned or operated by the Company, the Bank or the MHC under any Environmental Law. For purposes of this subsection, the term "Environmental Law" means any federal, state, local or foreign law, statute, ordinance, rule, regulation, code, license, permit, authorization, approval, consent, order, judgment, decree, injunction or agreement with any regulatory authority relating to (i) the protection, preservation or restoration of the environment (including, without limitation, air, water, vapor, surface water, groundwater, drinking water supply, surface soil, subsurface soil, plant and animal life or any other natural resource), and/or (ii) the use, storage, recycling, treatment, generation, transportation, processing, handling, labeling, production, release or disposal of any substance presently listed, defined, designated or classified as hazardous, toxic, radioactive or dangerous, or otherwise regulated, whether by type or by quantity, including any material containing any such substance as a component.
(dd) The Company will file a registration statement for the Common Shares under Section 12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange Act Registration Statement").
(ee) The Company and its subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (A) transactions are executed in accordance with management's general or specific authorizations, (B) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets, (C) access to assets is permitted only in accordance with management's general or specific authorization, and (D) the recorded accounts or assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect thereto. As of
the first report filed by the Company pursuant to Section 13 or 15 of the 1934 Act, the books, records and accounts and systems of internal accounting control of the Company and its subsidiaries will comply in all material respects with the requirements of Section 13(b)(2) of the 1934 Act and the Company will maintain "disclosure controls and procedures" (as defined in Rule 13a-15(e) under the Exchange Act) that are effective in ensuring that the information it will be required to disclose in the reports it files or submits under the Exchange Act is accumulated and communicated to the Company's management (including the Company's chief executive officer and chief financial officer) in a timely manner and recorded, processed, summarized and reported within the periods specified in the Commission's rules and forms.
(ff) All of the loans represented as assets of the Company or the Bank in the Prospectus meet or are exempt from all requirements of federal, state and local law pertaining to lending, including, without limitation, truth in lending (including the requirements of Regulation Z and 12 C.F.R. Part 226), real estate settlement procedures, consumer credit protection, equal credit opportunity and all disclosure laws applicable to such loans, except for violations which, if asserted, would not have a material adverse effect on the financial condition, results of operations, or business of the Company and the Bank, taken as a whole.
(gg) The Company has taken all actions necessary to obtain at Closing a Blue Sky Memorandum from Malizia Spidi & Fisch, PC.
(hh) Any certificates signed by an officer of the MHC, the Company or the Bank pursuant to the conditions of this Agreement and delivered to the Agent or their counsel that refers to this Agreement shall be deemed to be a representation and warranty by the MHC, the Company or the Bank, as the case may be, to the Agent as to the matters covered thereby with the same effect as if such representation and warranty were set forth herein.
Section 5. Representations and Warranties of the Agent. The Agent represents and warrants to the Company and the Bank as follows:
(a) The Agent is a corporation and is validly existing in good standing under the laws of the State of New York with full power and authority to provide the services to be furnished to the Company and the Bank hereunder.
(b) The execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby have been duly and validly
authorized by all necessary action on the part of the Agent, and this
Agreement has been duly and validly executed and delivered by the
Agent and is a legal, valid and binding agreement of the Agent,
enforceable in accordance with its terms, except as the legality,
validity, binding nature and enforceability thereof may be limited by
(i) bankruptcy, insolvency, moratorium, reorganization,
conservatorship, receivership or other similar laws relating to or
affecting the enforcement of creditors' rights generally, and (ii)
general equity principles regardless of whether such enforceability is
considered in a proceeding in equity or at law.
(c) Each of the Agent and its employees, agents and representatives who shall perform any of the services hereunder shall be duly authorized and empowered, and shall have all licenses, approvals and permits necessary to perform such services; and the Agent is a registered selling agent in each of the jurisdictions in which the Shares are to be offered by the Company in reliance upon the Agent as a registered selling agent as set forth in the blue sky memorandum prepared with respect to the Offering.
(d) The execution and delivery of this Agreement by the Agent, the consummation of the transactions contemplated hereby and compliance with the terms and provisions hereof will not conflict with, or result in a breach of, any of the terms, provisions or conditions of, or constitute a default (or an event which with notice or lapse of time or both would constitute a default) under, the Articles of Incorporation or Bylaws of the Agent or any agreement, indenture or other instrument to which the Agent is a party or by which it or its property is bound.
(e) No approval of any regulatory or supervisory or other public authority is required in connection with the Agent's execution and delivery of this Agreement, except as may have been received.
(f) There is no suit or proceeding or charge or action before or by any court, regulatory authority or government agency or body or, to the knowledge of the Agent, pending or threatened, which might materially adversely affect the Agent's performance under this Agreement.
Section 5.1 Covenants of the Company. The Company hereby covenants with the Agent as follows:
(a) The Company will not, at any time after the date the Registration Statement is declared effective, file any amendment or supplement to the Registration Statement without providing the Agent and its counsel an opportunity to review such amendment or supplement or file any amendment or supplement to which amendment or supplement the Agent or its counsel shall reasonably object.
(b) The Company will not, at any time after the MHC-2 Application is approved by the OTS, file any amendment or supplement to such MHC-2 Application without providing the Agent and its counsel an opportunity to review such amendment or supplement or file any amendment or supplement to which amendment or supplement the Agent or its counsel shall reasonably object.
(c) The Company will use its best efforts to cause any post-effective amendment to the Registration Statement to be declared effective by the Commission and any post-effective amendment to the MHC-2 Application to be approved by the OTS and will immediately upon receipt of any information concerning the events listed below notify the Agent: (i) when the Registration Statement, as amended, has become effective; (ii) when the MHC-2 Application, as amended, has been approved by the OTS; (iii) of any comments from the Commission, the OTS or any other governmental entity with respect to the Offering contemplated by this Agreement; (iv) of the request by the Commission,
the OTS or any other governmental entity for any amendment or supplement to the Registration Statement, the MHC-2 Application or for additional information; (v) of the issuance by the Commission, the OTS or any other governmental entity of any order or other action suspending the Offering or the use of the Registration Statement or the Prospectus or any other filing of the Company or the Bank under the Reorganization Regulations, or other applicable law, or the threat of any such action; (vi) of the issuance by the Commission, the OTS or any authority of any stop order suspending the effectiveness of the Registration Statement or of the initiation or threat of initiation or threat of any proceedings for that purpose; or (vii) of the occurrence of any event mentioned in paragraph (h) below. The Company, the MHC and the Bank will make every reasonable effort (i) to prevent the issuance by the Commission, the OTS or any other state authority of any such order and, (ii) if any such order shall at any time be issued, to obtain the lifting thereof at the earliest possible time.
(d) The Company will deliver to the Agent and to its counsel two conformed copies of the Registration Statement and the MHC-2 Application, as originally filed and of each amendment or supplement thereto, including all exhibits. Further, the Company will deliver such additional copies of the foregoing documents to counsel to the Agent as may be required for any NASD filings.
(e) The Company will furnish to the Agent, from time to time during the period when the Prospectus (or any later prospectus related to this offering) is required to be delivered under the 1933 Act or the Securities Exchange Act of 1934 (the "1934 Act"), such number of copies of such Prospectus (as amended or supplemented) as the Agent may reasonably request for the purposes contemplated by the 1933 Act, the 1933 Act Regulations, the 1934 Act or the rules and regulations promulgated under the 1934 Act (the "1934 Act Regulations"). The Company authorizes the Agent to use the Prospectus (as amended or supplemented, if amended or supplemented) in any lawful manner contemplated by the Plan in connection with the sale of the Shares by the Agent.
(f) The Company, the MHC and the Bank will comply with any and all material terms, conditions, requirements and provisions with respect to the Offering imposed by the Commission, the OTS or the Reorganization Regulations, and by the 1933 Act, the 1933 Act Regulations, the 1934 Act and the 1934 Act Regulations to be complied with prior to or subsequent to the Closing Date and when the Prospectus is required to be delivered, and during such time period the Company and the Bank will comply, at their own expense, with all material requirements imposed upon them by the Commission, the OTS or the Reorganization Regulations, and by the 1933 Act, the 1933 Act Regulations, the 1934 Act and the 1934 Act Regulations, including, without limitation, Rule 10b-5 under the 1934 Act, in each case as from time to time in force, so far as necessary to permit the continuance of sales or dealing in the Common Shares during such period in accordance with the provisions hereof and the Prospectus.
(g) If, at any time during the period when the Prospectus relating to the Shares is required to be delivered, any event relating to or affecting the MHC, the Company or the Bank shall occur, as a result of which it is necessary or appropriate, in the opinion of counsel for the Company or in the reasonable opinion of the Agent's counsel, to amend
or supplement the Registration Statement or Prospectus in order to make the Registration Statement or Prospectus not misleading in light of the circumstances existing at the time the Prospectus is delivered to a purchaser, the Company will immediately so inform the Agent and prepare and file, at its own expense, with the Commission and the OTS, and furnish to the Agent a reasonable number of copies, of an amendment or amendments of, or a supplement or supplements to, the Registration Statement or Prospectus (in form and substance reasonably satisfactory to the Agent and its counsel after a reasonable time for review) which will amend or supplement the Registration Statement or Prospectus so that as amended or supplemented it will not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances existing at the time the Prospectus is delivered to a purchaser, not misleading. For the purpose of this Agreement, the Company will timely furnish to the Agent such information with respect to itself, the MHC and the Bank as the Agent may from time to time reasonably request.
(h) The Company will take all necessary actions in cooperating with the Agent and furnish to whomever the Agent may direct such information as may be required to qualify or register the Shares for offering and sale by it or to exempt such Shares from registration, or to exempt the Company as a broker-dealer and its officers, directors and employees as broker-dealers or agents under the applicable securities or blue sky laws of such jurisdictions in which the Shares are required under the Reorganization Regulations to be sold or as the Agent and the Company may reasonably agree upon; provided, however, that the Company shall not be obligated to file any general consent to service of process, to qualify to do business in any jurisdiction in which it is not so qualified, or to register its directors or officers as brokers, dealers, salesmen or agents in any jurisdiction. In each jurisdiction where any of the Shares shall have been qualified or registered as above provided, the Company will make and file such statements and reports in each fiscal period as are or may be required by the laws of such jurisdiction.
(i) The Company and the Bank will not sell or issue, contract to sell or otherwise dispose of, for a period of 90 days after the Closing Date, without the Agent's prior written consent, any of their shares of their common stock, other than the Common Shares or other than in connection with any plan or arrangement described in the Prospectus.
(j) The Company will register its common stock under Section 12(g) of the 1934 Act. The Company shall maintain the effectiveness of such registration for not less than three years from the time of effectiveness or such shorter period as may be required by the OTS.
(k) During the period during which the common stock is registered under the 1934 Act or for three years from the date hereof, whichever period is greater, the Company will furnish to its shareholders as soon as practicable after the end of each fiscal year an annual report of the Company (including a consolidated balance sheet and statements of consolidated income, shareholders' equity and cash flows of the Company and its subsidiaries as at the end of and for such year, certified by independent public accountants in accordance with Regulation S-X under the 1933 Act and the 1934 Act).
(l) During the period of three years from the date hereof, the Company will furnish to the Agent: (i) as soon as practicable after such information is publicly available, a copy of each report of the Company furnished to or filed with the Commission under the 1934 Act or any national securities exchange or system on which any class of securities of the Company is listed or quoted (including, but not limited to, reports on Forms 10-K or 10-KSB, 10-Q or 10-QSB and 8-K and all proxy statements and annual reports to stockholders), (ii) a copy of each other non-confidential report of the Company mailed to its shareholders or filed with the Commission, the OTS or any other supervisory or regulatory authority or any national securities exchange or system on which any class of securities of the Company is listed or quoted, each press release and material news items and additional documents and information with respect to the MHC, the Company or the Bank as the Agent may reasonably request; and (iii) from time to time, such other nonconfidential information concerning the MHC, the Company or the Bank as the Agent may reasonably request.
(m) The Company and the Bank will use the net proceeds from the sale of the Shares in the manner set forth in the Prospectus under the caption "Use of Proceeds."
(n) Other than as permitted by the Reorganization Regulations, the Home Owners' Loan Act of 1933, the 1933 Act, the 1933 Act Regulations and the rules and regulations and the laws of any state in which the Shares are registered or qualified for sale or exempt from registration, the Company will not distribute any prospectus, offering circular or other offering material in connection with the offer and sale of the Shares.
(o) Reserved.
(p) The Company will maintain appropriate arrangements for depositing all funds received from persons mailing subscriptions for or orders to purchase Shares in the Offering with the Bank or another financial institution whose deposits are insured by the FDIC, on an interest-bearing basis at the rate described in the Prospectus until the Closing Date and satisfaction of all conditions precedent to the release of the Company's or the Bank's obligation to refund payments received from persons subscribing for or ordering Shares in the Offering in accordance with the Plan and as described in the Prospectus or until refunds of such funds have been made to the persons entitled thereto or withdrawal authorizations canceled in accordance with the Plan and as described in the Prospectus. The Bank will maintain such records of all funds received to permit the funds of each subscriber to be separately insured by the FDIC (to the maximum extent allowable) and to enable the Bank to make the appropriate refunds of such funds in the event that such refunds are required to be made in accordance with the Plan and as described in the Prospectus.
(q) The will report the use of proceeds of the Offering in accordance with Rule 463 under the 1933 Act.
(r) Reserved.
(s) The Company will notify the Agent and the Agent's counsel of any amendments to the Plan.
(t) The Company shall assist the Agent, if necessary, in connection with the allocation of the Shares in the event of an oversubscription and shall provide the Agent with any information necessary to assist the Company in allocating the Shares in such event and such information shall be accurate and reliable in all material respects.
(u) Prior to the Closing Date, the Company will inform the Agent of any event or circumstances of which it is aware as a result of which the Registration Statement and/or Prospectus, as then amended or supplemented, would contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein not misleading.
(v) The Company will not deliver the Shares until the MHC, the Company and the Bank have satisfied or caused to be satisfied each condition set forth in Section 7 hereof, unless such condition is waived in writing by the Agent.
(w) Subsequent to the date the Registration Statement is declared effective by the Commission and prior to the Closing Date, except as otherwise may be indicated or contemplated therein or set forth in an amendment or supplement thereto, neither the MHC, the Company nor the Bank will have: (i) issued any securities or incurred any liability or obligation, direct or contingent, for borrowed money, except borrowings from the same or similar sources indicated in the Prospectus in the ordinary course of its business, or (ii) entered into any transaction which is material in light of the business and properties of the Company and the Bank, taken as a whole.
(x) Until the Closing Date, the MHC, the Company and the Bank will conduct their businesses in compliance in all material respects with all applicable federal and state laws, rules, regulations, decisions, directives and orders, including all decisions, directives and orders of the Commission, the FDIC and the OTS.
(y) The MHC, the Company and the Bank shall comply in all material respects with any and all terms, conditions, requirements and provisions with respect to the Offering imposed by the OTS, the Reorganization Regulations, the Commission, the 1933 Act and the 1933 Act Regulations, the 1934 Act and the 1934 Act Regulations to be complied with subsequent to the Closing Date. The Company will comply with all provisions of all undertakings contained in the Registration Statement.
(z) The facts and representations provided to Malizia Spidi & Fisch, PC by the Bank and the Company and upon which Malizia Spidi & Fisch, PC will base its opinion under Section 7(b)( 1) are and will be truthful, accurate and complete.
(aa) The Company, the MHC and the Bank will not distribute any offering material in connection with the Offering except for the Prospectus and any supplemental sales material that has been filed with the Registration Statement and the Stock Issuance Application and authorized for use by the Commission and the OTS. The information contained in any supplemental sales
material (in addition to the supplemental sales material filed as an exhibit to the Registration Statement and the Stock Issuance Application) shall not conflict with the information contained in the Registration Statement and the Prospectus.
Section 6. Payment of Expenses. Whether or not the sale of the Shares by the Company is consummated, the Company agrees to pay or reimburse the Agent for: (a) all filing fees in connection with all filings related to the Offering with the NASD; (b) any stock issue or transfer taxes which may be payable with respect to the sale of the Shares; (c) subject to Section 2(d), all expenses of the Offering, including but not limited to the Agent's attorneys' fees and expenses, blue sky fees, transfer agent, registrar and other agent charges, fees relating to auditing and accounting or other advisors and costs of printing all documents necessary in connection with the Offering. In the event the Company is unable to sell the minimum number of shares necessary to complete the Offering or the Offering is terminated or otherwise abandoned, the Company shall promptly reimburse the Agent in accordance with Section 2(d) hereof.
In the event that the Agent incurs any expenses on behalf of the Company that are customarily borne by the issuer, the Company will pay or reimburse the Agent for such expenses regardless of whether the Offering is successfully completed, and such reimbursements will not be included in the expense limitations set forth in Section 2(d) hereof. The Company acknowledges, however, that such limitations may be increased by the mutual consent of the Company and Agent in the event of delay in the Offering requiring the Agent to utilize a Syndicated Community Offering, a delay as a result of circumstances requiring material additional work by Agent or its counsel or an update of the financial information in tabular form contained in the Prospectus for a period later than June 30, 2006. Not later than two days prior to the Closing Date, the Agent will provide the Company with an accounting of all reimbursable expenses to be paid at the Closing in next day funds. In the event the Company determines to abandon or terminate the Offering prior to Closing, payment of such expenses shall be made in next day funds on the date such determination is made.
Section 7. Conditions to the Agent's Obligations. The obligations of the Agent hereunder, as to the Shares to be delivered at the Closing Date, are subject, to the extent not waived in writing by the Agent, to the condition that all representations and warranties of the Company, herein are, at and as of the commencement of the Offering and at and as of the Closing Date, true and correct in all material respects, the condition that the Company and the Bank shall have performed all of its obligations hereunder to be performed on or before such dates, and to the following further conditions:
(a) The Registration Statement shall have been declared effective by the Commission and the MHC-2 Application shall have been approved by the OTS not later than 5:30 p.m. on the date of this Agreement, or with the Agent's consent at a later time and date; and at the Closing Date, no stop order suspending the effectiveness of the Registration Statement shall have been issued under the 1933 Act or proceedings therefore initiated or threatened by the Commission or any state authority, and no order or other action suspending the authorization of the Prospectus or the consummation of the Offering shall have been issued or proceedings therefore initiated or, to the Company's or the Bank's knowledge, threatened by the Commission, the OTS, the FDIC or any other state authority.
(b) At the Closing Date, the Agent shall have received:
(1) The favorable opinion, dated as of the Closing Date and addressed to the Agent and for its benefit, of Malizia Spidi & Fisch, PC, special counsel for the Company in form and substance to the effect that:
(i) The Company and the MHC have been incorporated and are validly existing as corporations under the laws of the United States of America.
(ii) The Company and the MHC have corporate power and authority to own, lease and operate their properties and to conduct their business as described in the Registration Statement and the Prospectus.
(iii) The Bank is a validly existing New Jersey-chartered savings bank in stock form and is authorized to conduct its business and own its property as described in the Registration Statement and the Prospectus. All of the outstanding capital stock of the Bank is authorized and validly issued, fully-paid and non-assessable and is owned by the Company, to such counsel's Actual Knowledge, free and clear of any liens, encumbrances, claims or other restrictions.
(iv) The Bank is a member of the FHLB-New York. The deposit accounts of the Bank are insured by the FDIC up to the maximum amount allowed under law and to such counsel's Actual Knowledge, no proceedings for the termination or revocation of such insurance are pending or threatened.
(v) Immediately following the consummation of the Offering, the authorized, issued and outstanding common shares of capital stock of the Company will be within the range set forth in the Prospectus under the caption "Capitalization," and no shares of capital stock of the Company have been issued prior to the Closing Date (other than shares of common stock issued to the MHC); at the time of the Offering, the Common Shares subscribed for pursuant to the Offering will have been duly and validly authorized for issuance, and when issued and delivered by the Company pursuant to the Plan against payment of the consideration calculated as set forth in the Plan and Prospectus, will be duly and validly issued and fully paid and non-assessable, except for shares purchased by the ESOP with funds borrowed from the Company to the extent payment therefor in cash has not been received by the Company; except to the extent that subscription rights and priorities pursuant thereto exist pursuant to the Plan, the issuance of the Shares is not subject to preemptive rights (other than subscription rights as provided in the Plan) and the terms and provisions of the Shares conform in all material respects to the description thereof contained in the Prospectus. To such counsel's Actual
Knowledge, the Shares will not, when issued, be subject to any liens, charges, encumbrances or other claims created by the Company.
(vi) The Company has full corporate power and authority to enter into this Agreement and to consummate the transactions contemplated thereby and by the Plan. The execution and delivery of this Agreement and the consummation of the Offering have been duly and validly authorized by all necessary action on the part of the Company and the Bank; and this Agreement is a valid and binding obligation of the Company, enforceable against the Company, in accordance with its terms, except as the enforceability thereof may be limited by (i) bankruptcy, insolvency, reorganization, moratorium, conservatorship, receivership or other similar laws now or hereafter in effect relating to or affecting the enforcement of creditors rights generally or the rights of creditors of federally chartered holding companies or New Jersey chartered savings banks, (ii) general equitable principles, (iii) laws relating to the safety and soundness of insured depository institutions, and (iv) applicable law or public policy with respect to the indemnification and/or contribution provisions contained herein and except that no opinion need be expressed as to the effect or availability of equitable remedies or injunctive relief (regardless of whether such enforceability is considered in a proceeding in equity or at law).
(vii) The MHC-2 Application has been approved by the OTS and the Prospectus has been authorized for use by the OTS and no action has been taken, and to such counsel's Actual Knowledge none is pending or threatened, to revoke any such authorization or approval.
(viii) Based upon the minutes of the proceedings of the Board of Directors, the Plan has been duly adopted by the required vote of the directors of the Company.
(ix) Subject to the satisfaction of the conditions to the OTS s approval of the Offering, no further approval, registration, authorization, consent or other order of any federal regulatory agency is required in connection with the execution and delivery of this Agreement and the issuance of the Shares, except as may be required under the securities or blue sky laws of various jurisdictions (as to which no opinion need be rendered) and except as may be required under the rules and regulations of the NASD (as to which no opinion need be rendered).
(x) The Registration Statement is effective under the 1933 Act and no stop order suspending the effectiveness has been issued under the 1933 Act or proceedings therefor initiated or, to such counsel's Actual Knowledge, threatened by the Commission.
(xi) At the time the MHC-2 Application, including the Prospectus contained therein, was approved by the OTS, the MHC-2 Application, including the Prospectus contained therein, complied as to form in all material respects with the requirements of the Reorganization Regulations except as waived or otherwise approved by the OTS (other than the financial statements, the notes thereto, and other tabular, financial, statistical and appraisal data included therein, as to which no opinion need be rendered).
(xii) At the time that the Registration Statement became effective, (i) the Registration Statement (as amended or supplemented, if so amended or supplemented) (other than the financial statements, the notes thereto, and other tabular, financial, statistical and appraisal data included therein, as to which no opinion need be rendered), complied as to form in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations, and (ii) the Prospectus (other than the financial statements, the notes thereto, and other tabular, financial, statistical and appraisal data included therein, as to which no opinion need be rendered) complied as to form in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations.
(xiii) The terms and provisions of the shares of common stock of the Company conform, in all material respects, to the description thereof contained in the Registration Statement and Prospectus, and the form of certificate used to evidence the Shares complies with applicable laws.
(xiv) To such counsel's Actual Knowledge, there are no legal or governmental proceedings pending or threatened (i) asserting the invalidity of this Agreement, (ii) seeking to prevent the offer, sale or issuance of the Shares, or (iii) which are required to be disclosed in the Registration Statement and Prospectus, other than those disclosed therein.
(xv) Neither the MHC, the Company nor the Bank are required to be registered as an investment company under the Investment Company Act of 1940.
(xvi) To such counsel's Actual Knowledge, neither the MHC, the Company nor the Bank is in violation of any directive from the OTS or the FDIC to make any material change in the method of conducting its respective business.
(xvii) To such counsel's Actual Knowledge, there are no material contracts, indentures, mortgages, loan agreements, notes, leases or other instruments required to be described or referred to in the MHC-2 Application, the Registration Statement or the Prospectus or required to be filed as exhibits thereto other than those described or referred to therein or filed as exhibits thereto in the MHC-2 Application, the Registration
Statement or the Prospectus. The description in the MHC-2 Application, the Registration Statement and the Prospectus of such documents and exhibits is accurate in all material respects and fairly presents the information required to be shown.
(xviii) Except as waived or otherwise approved by the OTS, the Plan complies in all material respects with all applicable federal law, rules, regulations, decisions and orders including, but not limited to, the Reorganization Regulations; to such counsel's Actual Knowledge, no order has been issued by the OTS, the Commission, the FDIC, or any state authority to suspend the Offering or the use of the Prospectus, and no action for such purposes has been instituted or threatened by the OTS, the Commission, the FDIC, or any other state authority and, to such counsel's Actual Knowledge, no person has sought to obtain regulatory or judicial review of the final action of the OTS approving the Plan, the MHC-2 Application or the Prospectus.
(xix) To such counsel's Actual Knowledge, the Company, the MHC and the Bank have obtained all material licenses, permits and other governmental authorizations currently required for the conduct of their businesses as described in the Registration Statement, and all such licenses, permits and other governmental authorizations are in full force and effect, and the MHC, the Company and the Bank are in all material respects complying therewith.
(xx) To such counsel's Actual Knowledge, none of the MHC, the Company or the Bank is in violation of its Charter and Bylaws or in default or violation of any obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, loan agreement, note, lease or other instrument to which it is a party or by which it or its property may be bound, except for such defaults or violations which would not have a material adverse impact on the financial condition or results of operations of the MHC, the Company and the Bank on a consolidated basis; to such counsel's Actual Knowledge, the execution and delivery of this Agreement, the incurrence of the obligations herein set forth and the consummation of the transactions contemplated herein will not, in any material respect, conflict with or constitute a breach of, or default under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the MHC, the Company or the Bank pursuant to any material contract, indenture, mortgage, loan agreement, note, lease or other instrument to which the MHC, the Company or the Bank is a party or by which any of them may be bound, or to which any of the property or assets of the MHC, the Company or the Bank are subject; and such action will not result in any violation of the provisions of the Charter or Bylaws of the Company, the Bank or MHC, or result, in any material respect, in any violation of any applicable federal or state law, act, regulation (except that no opinion with respect to the securities and
blue sky laws of various jurisdictions or the rules or regulations of the NASD need be rendered) or order or court order, writ, injunction or decree.
(xxi) Except as waived or otherwise approved by the OTS, the Company s, Bank's and MHC's Charter and Bylaws each comply in all material respects with the laws of the United States of America.
(xxii) The information in the Prospectus under the captions "Regulation," "Taxation," (with respect to federal taxation only) "The Offering," "Restrictions on the Acquisition of MSB Financial Corp. and Millington Savings Bank" and "Description of Capital Stock of MSB Financial Corp.," to the extent that such information constitutes matters of law, summaries of legal matters, documents or proceedings, or legal conclusions, has been reviewed by such counsel and is accurate in all material respects. The description of the Offering process in the Prospectus under the caption "The Offering" to the extent that such information constitutes matters of law, summaries of legal matters, documents or proceedings, or legal conclusions, has been reviewed by such counsel and fairly describes such process in all material respects. The descriptions in the Prospectus of statutes or regulations are accurate summaries and fairly present, in all material respects, the information required to be shown. The information under the caption "The Offering-- Effects of the Stock Offering -- Material Federal and State Tax Consequences of the Offering" has been reviewed by such counsel and fairly describes the federal tax opinions rendered by them to the Company with respect to such matters.
In addition, such counsel shall state that during the preparation of the MHC-2 Application, the Registration Statement and the Prospectus, they participated in conferences with certain officers of, the independent public and internal accountants for, and other representatives of, the Company, the MHC and the Bank, at which conferences the contents of the MHC-2 Application, the Registration Statement and the Prospectus and related matters were discussed and, while such counsel have not confirmed the accuracy or completeness of or otherwise verified the information contained in the MHC-2 Application, the Registration Statement or the Prospectus and do not assume any responsibility for such information, based upon such conferences and a review of documents deemed relevant for the purpose of rendering their opinion (relying as to materiality as to factual matters on certificates of officers and other factual representations by the Company), nothing has come to their attention that would lead them to believe that the MHC-2 Application, the Registration Statement, the Prospectus, or any amendment or supplement thereto (other than the financial statements, the notes thereto, and other tabular, financial, statistical and appraisal data included therein as to which no view need be rendered) contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.
In giving such opinion, such counsel may rely as to all matters of fact on certificates of officers or directors of the Company, the MHC and the Bank and certificates of public officials. Such counsel's opinion shall be limited to matters governed by federal laws.
For purposes of such opinion, no proceedings shall be deemed to be pending, no order or stop order shall be deemed to be issued, and no action shall be deemed to be instituted unless, in each case, a director or executive officer of the Company, the MHC or the Bank shall have received a copy of such proceedings, order, stop order or action. In addition, such opinion may be limited to present statutes, regulations and judicial interpretations and to facts as they presently exist; in rendering such opinion, such counsel need assume no obligation to revise or supplement it should the present laws be changed by legislative or regulatory action, judicial decision or otherwise; and such counsel need express no view, opinion or belief with respect to whether any proposed or pending legislation, if enacted, or any proposed or pending regulations or policy statements issued by any regulatory agency, whether or not promulgated pursuant to any such legislation, would affect the validity of the Offering or any aspect thereof. Such counsel may assume that any agreement is the valid and binding obligation of any parties to such agreement other than the Company or the Bank.
(c) A Blue Sky Memorandum from Malizia Spidi & Fisch, PC relating to the Offering, including Agent's participation therein, and should be furnished to the Agent with a copy thereof addressed to Agent or upon which Malizia Spidi & Fisch, PC shall state the Agent may rely. The Blue Sky Memorandum will relate to the necessity of obtaining or confirming exemptions, qualifications or the registration of the Shares under applicable state securities law.
(d) At the Closing Date, the Agent shall receive a certificate of the
Chief Executive Officer and the Chief Financial Officer of the Company
in form and substance reasonably satisfactory to the Agent's Counsel,
dated as of such Closing Date, to the effect that: (i) they have
carefully examined the Prospectus and, in their opinion, at the time
the Prospectus became authorized for final use, the Prospectus did not
contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading;
(ii) since the date the Prospectus became authorized for final use, no
event has occurred which should have been set forth in an amendment or
supplement to the Prospectus which has not been so set forth,
including specifically, but without limitation, any material adverse
change in the condition, financial or otherwise, or in the earnings,
capital, properties or business of the Company, the MHC or the Bank
and the conditions set forth in this Section 7 have been satisfied;
(iii) since the respective dates as of which
information is given in the Registration Statement and the Prospectus,
there has been no material adverse change in the condition, financial
or otherwise, or in the earnings, capital or properties of the
Company, the MHC or the Bank independently, or of the Company, the MHC
and the Bank considered as one enterprise, whether or not arising in
the ordinary course of business; (iv) the representations and
warranties in Section 4 are true and correct with the same force and
effect as though expressly made at and as of the Closing Date; (v) the
Company has complied in all material respects with all agreements and
satisfied all conditions on their part to be performed or satisfied at
or prior to the Closing Date and will comply in all material respects
with all obligations to be satisfied by it after the Closing Date;
(vi) no stop order suspending the effectiveness of the Registration
Statement has been initiated or, to the best knowledge of the Company,
the MHC or the Bank, threatened by the Commission or any state
authority; (vii) no order suspending the Offering or the effectiveness
of the Prospectus has been issued and no proceedings for that purpose
are pending or, to the best knowledge of the Company, the MHC or the
Bank, threatened by the OTS, the Commission, the FDIC, or any state
authority; and (viii) to the best knowledge of the MHC, the Company or
the Bank, no person has sought to obtain review of the final action of
the OTS approving the Offering.
(e) None of the MHC, the Company or the Bank shall have sustained, since the date of the latest financial statements included in the Registration Statement and Prospectus, any material loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth in the Registration Statement and the Prospectus, and since the respective dates as of which information is given in the Registration Statement and the Prospectus, there shall not have been any material adverse effect on the financial condition, results of operations, or business of the MHC, the Company or the Bank that is in the Agent's reasonable judgment sufficiently material and adverse as to make it impracticable or inadvisable to proceed with the Offering or the delivery of the Shares on the terms and in the manner contemplated in the Prospectus.
(f) Prior to and at the Closing Date: (i) in the reasonable opinion of the Agent, there shall have been no material adverse change in the financial condition, results of operations or business of the Company, the MHC and the Bank considered as one enterprise, from that as of the latest dates as of which such condition is set forth in the Prospectus, other than transactions referred to or contemplated therein; (ii) the Company, the MHC or the Bank shall not have received from the OTS or the FDIC any direction (oral or written) to make any material change in the method of conducting their business with which it has not complied (which direction, if any, shall have been disclosed to the Agent) or which materially and adversely would affect the financial condition, results of operations or business of the Company, the MHC and the Bank taken as a whole; (iii) neither the Company nor the Bank shall have been in default (nor shall an event have occurred which, with notice or lapse of time or both, would constitute a default) under any provision of any agreement or instrument relating to any outstanding indebtedness; (iv) no action, suit or proceeding, at law or in equity or before or by any federal or state commission, board or other administrative agency, not disclosed in the Prospectus, shall be pending or, to the knowledge of the Company, the MHC or the Bank, threatened
against the Company, the MHC or the Bank or affecting any of their properties wherein an unfavorable decision, ruling or finding would materially and adversely affect the financial condition, results of operations or business of the MHC, the Company and the Bank taken as a whole; and (v) the Shares shall have been qualified or registered for offering and sale or exempted therefrom under the securities or blue sky laws of the jurisdictions as the Agent shall have reasonably requested and as agreed to by the Company.
(g) Concurrently with the execution of this Agreement, the Agent shall
receive a letter from Beard Miller Company LLP, dated as of the date
hereof and addressed to the Agent: (i) confirming that Beard Miller
Company LLP is a firm of independent registered public accountants
within the applicable rules of the Public Company Accounting Oversight
Board (United States) and stating in effect that in its opinion the
consolidated financial statements and related notes of the Company as
of June 30, 2006 and 2005, and for each of the years in the two year
period ended June 30, 2006, and covered by their opinion included
therein, and any other more recent unaudited financial statements
included in the Prospectus comply as to form in all material respects
with the applicable accounting requirements and related published
rules and regulations of the OTS and the 1933 Act; (ii) stating in
effect that, on the basis of certain agreed upon procedures (but not
an audit in accordance with standards of the Public Company Accounting
Oversight Board (United States)) consisting of a reading of the latest
available consolidated financial statements of the Company prepared by
the Company, a reading of the minutes of the meetings of the Board of
Directors, Executive Committee and Audit Committee of the Company and
the Bank and consultations with officers of the Company and the Bank
responsible for financial and accounting matters, nothing came to
their attention which caused them to believe that: (A) audited
consolidated financial statements and any unaudited interim financial
statements included in the Prospectus are not in conformity with the
1933 Act, applicable accounting requirements of the OTS and accounting
principles generally accepted in the United States of America applied
on a basis substantially consistent with that of the audited
consolidated financial statements included in the Prospectus; or (B)
during the period from the date of the latest financial statements
included in the Prospectus to a specified date not more than three
business days prior to the date of the Prospectus, except as has been
described in the Prospectus, there was any increase in borrowings of
the Company, other than normal deposit fluctuations for the Bank; or
(C) there was any decrease in the net assets of the Company at the
date of such letter as compared with amounts shown in the latest
balance sheet included in the Prospectus; and (iii) stating that, in
addition to the audit referred to in their opinion included in the
Prospectus and the performance of the procedures referred to in clause
(ii) of this subsection (g), they have compared with the general
accounting records of the Company, which are subject to the internal
controls of the Company, the accounting system and other data prepared
by the Company, directly from such accounting records, to the extent
specified in such letter, such amounts and/or percentages set forth in
the Prospectus as the Agent may reasonably request; and they have
found such amounts and percentages to be in agreement therewith
(subject to rounding).
(h) At the Closing Date, the Agent shall receive a letter dated the Closing Date, addressed to the Agent, confirming the statements made by Beard Miller Company LLP in the letter delivered by it pursuant to subsection (g) of this Section 7, the "specified date" referred to in clause (ii) of subsection (g) to be a date specified in the letter required by this subsection (h) which for purposes of such letter shall not be more than three business days prior to the Closing Date.
(i) At the Closing Date, the Company shall receive a letter from RP Financial, LC, dated the Closing Date (i) confirming that said firm is independent of the Company, the MHC and the Bank and is experienced and expert in the area of corporate appraisals within the meaning of Title 12 of the Code of Federal Regulations, Section 563b.200(b), (ii) stating in effect that the Appraisal prepared by such firm complies in all material respects with the applicable requirements of Title 12 of the Code of Federal Regulations, and (iii) further stating that its opinion of the aggregate pro forma market value of the Company including the Bank, as most recently updated, remains in effect.
(j) At or prior to the Closing Date, the Agent shall receive: (i) a
copy of the letters from the OTS approving the MHC-2 Application and
authorizing the use of the Prospectus; (ii) a copy of the orders from
the Commission declaring the Registration Statement and the Exchange
Act Registration Statement effective; (iii) a certificate from the OTS
evidencing the valid existence of the MHC, the Company and the Bank;
(iv) a certificate from the FDIC evidencing the Bank's insurance of
accounts; (v) a certificate from the FHLB-New York evidencing the
Bank's membership therein; and (vi) a certified copy of the Company's
Charter and Bylaws.
(k) Subsequent to the date hereof, there shall not have occurred any of the following; (i) a suspension or limitation in trading in securities generally on the New York Stock Exchange (the "NYSE") or in the over-the-counter market, or quotations halted generally on The Nasdaq Stock Market, or minimum or maximum prices for trading have been fixed, or maximum ranges for prices for securities have been required by either of such exchanges or the NASD or by order of the Commission or any other governmental authority; (ii) a general moratorium on the operations of commercial banks, or federal savings and loan associations or a general moratorium on the withdrawal of deposits from commercial banks or federal savings and loan associations declared by federal or state authorities; (iii) the engagement by the United States in hostilities which have resulted in the declaration, on or after the date hereof, of a national emergency or war; or (iv) a material decline in the price of equity or debt securities if the effect of such a declaration or decline, in the Agent's reasonable judgment, makes it impracticable or inadvisable to proceed with the Offering or the delivery of the Shares on the terms and in the manner contemplated in the Registration Statement and the Prospectus.
(l) At or prior to the Closing Date, counsel to the Agent shall have been furnished with such documents and opinions as they may reasonably require for the purpose of enabling them to pass upon the sale of the Shares as herein contemplated and related proceedings or in order to evidence the occurrence or completeness of any of the representations or warranties, or the fulfillment of any of the conditions, herein contained; and all proceedings taken by the Company in connection with the sale of the
Shares as herein contemplated shall be satisfactory in form and substance to the Agent and its counsel.
(m) All such opinions, certificates, letters and documents will be in compliance with the provisions hereof only if they are reasonably satisfactory in form and substance to the Agent and to counsel for the Agent. Any certificate signed by an officer of the Company and delivered to the Agent or to counsel for the Agent shall be deemed a representation and warranty by the Company to the Agent as to the statements made therein.
Section 8. Indemnification.
(a) The Company agrees to indemnify and hold harmless the Agent, its
respective officers and directors, employees and agents, and each
person, if any, who controls the Agent within the meaning of Section
15 of the 1933 Act or Section 20(a) of the 1934 Act, against any and
all loss, liability, claim, damage or expense whatsoever (including,
but not limited to, settlement expenses), joint or several, that the
Agent or any of them may suffer or to which the Agent and any such
persons may become subject under all applicable federal or state laws
or otherwise, and to promptly reimburse the Agent and any such persons
upon written demand for any expense (including all fees and
disbursements of counsel) incurred by the Agent or any of them in
connection with investigating, preparing or defending any actions,
proceedings or claims (whether commenced or threatened) to the extent
such losses, claims, damages, liabilities or actions: (i) arise out of
or are based upon any untrue statement or alleged untrue statement of
a material fact contained in the Registration Statement (or any
amendment or supplement thereto), preliminary or final Prospectus (or
any amendment or supplement thereto), the MHC-2 Application (or any
amendment or supplement thereto), or any instrument or document
executed by the Company or based upon written information supplied by
the Company filed in any state or jurisdiction to register or qualify
any or all of the Shares or to claim an exemption therefrom or
provided to any state or jurisdiction to exempt the Company as a
broker-dealer or its officers, directors and employees as
broker-dealers or agents, under the securities laws thereof
(collectively, the "Blue Sky Application"), or any document,
advertisement, oral statement or communication ("Sales Information")
prepared, made or executed by or on behalf of the Company with its
consent and based upon written or oral information furnished by or on
behalf of the Company, whether or not filed in any jurisdiction, in
order to qualify or register the Shares or to claim an exemption
therefrom under the securities laws thereof; (ii) arise out of or are
based upon the omission or alleged omission to state in any of the
foregoing documents or information a material fact required to be
stated therein or necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading; or
(iii) arise from any theory of liability whatsoever relating to or
arising from or based upon the Registration Statement (or any
amendment or supplement thereto), preliminary or final Prospectus (or
any amendment or supplement thereto), the MHC-2 Application (or any
amendment or supplement thereto), any Blue Sky Application or Sales
Information or other documentation distributed in connection with the
Offering; provided, however, that no indemnification is required under
this paragraph (a) to the extent such losses, claims, damages,
liabilities or actions arise out of or are based upon any untrue
material statement or alleged untrue material statement in, or
material omission or alleged material omission from, the Registration Statement (or any amendment or supplement thereto), preliminary or final Prospectus (or any amendment or supplement thereto), the MHC-2 Application, any Blue Sky Application or Sales Information made in reliance upon and in conformity with information furnished in writing to the Company, by the Agent or its counsel regarding the Agent, and provided, that it is agreed and understood that the only information furnished in writing to the Company, by the Agent regarding the Agent is set forth in the Prospectus under the caption "The Offering--Plan of Distribution/Marketing Arrangements"; and, provided further, that such indemnification shall be limited to the extent prohibited by the Commission, the OTS, the FDIC and the Board of Governors of the Federal Reserve.
(b) The Agent agrees to indemnify and hold harmless the Company, the MHC and the Bank, their directors and officers and each person, if any, who controls the Company, the MHC or the Bank within the meaning of Section 15 of the 1933 Act or Section 20(a) of the 1934 Act against any and all loss, liability, claim, damage or expense whatsoever (including but not limited to settlement expenses), joint or several, which they, or any of them, may suffer or to which they, or any of them may become subject under all applicable federal and state laws or otherwise, and to promptly reimburse the Company, the Bank, and any such persons upon written demand for any expenses (including reasonable fees and disbursements of counsel) incurred by them, or any of them, in connection with investigating, preparing or defending any actions, proceedings or claims (whether commenced or threatened) to the extent such losses, claims, damages, liabilities or actions: (i) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or any amendment or supplement thereto), the MHC-2 Application (or any amendment or supplement thereto), the preliminary or final Prospectus (or any amendment or supplement thereto), any Blue Sky Application or Sales Information, (ii) are based upon the omission or alleged omission to state in any of the foregoing documents a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or (iii) arise from any theory of liability whatsoever relating to or arising from or based upon the Registration Statement (or any amendment or supplement thereto), preliminary or final Prospectus (or any amendment or supplement thereto), the MHC-2 Application (or any amendment or supplement thereto), or any Blue Sky Application or Sales Information or other documentation distributed in connection with the Offering; provided, however, that the Agent's obligations under this Section 8(b) shall exist only if and only to the extent that such untrue statement or alleged untrue statement was made in, or such material fact or alleged material fact was omitted from, the Registration Statement (or any amendment or supplement thereto), the preliminary or final Prospectus (or any amendment or supplement thereto), the MHC-2 Application (or any amendment or supplement thereto), any Blue Sky Application or Sales Information in reliance upon and in conformity with information furnished in writing to the Company, by the Agent or its counsel regarding the Agent, and provided, that it is agreed and understood that the only information furnished in writing to the Company, by the Agent regarding the Agent is set forth in the Prospectus under the caption "The Offering--Plan of Distribution/Marketing Arrangements."
(c) Each indemnified party shall give prompt written notice to each indemnifying party of any action, proceeding, claim (whether commenced or threatened), or suit instituted against it in respect of which indemnity may be sought hereunder, but failure to so notify an indemnifying party shall not relieve it from any liability which it may have on account of this Section 8 or otherwise. An indemnifying party may participate at its own expense in the defense of such action. In addition, if it so elects within a reasonable time after receipt of such notice, an indemnifying party, jointly with any other indemnifying parties receiving such notice, may assume defense of such action with counsel chosen by it and approved by the indemnified parties that are defendants in such action, unless such indemnified parties reasonably object to such assumption on the ground that there may be legal defenses available to them that are different from or in addition to those available to such indemnifying party. If an indemnifying party assumes the defense of such action, the indemnifying parties shall not be liable for any fees and expenses of counsel for the indemnified parties incurred thereafter in connection with such action, proceeding or claim, other than reasonable costs of investigation. In no event shall the indemnifying parties be liable for the fees and expenses of more than one separate firm of attorneys (and any special counsel that said firm may retain) for each indemnified party in connection with any one action, proceeding or claim or separate but similar or related actions, proceedings or claims in the same jurisdiction arising out of the same general allegations or circumstances.
Section 9. Contribution. In order to provide for just and equitable
contribution in circumstances in which the indemnification provided for in
Section 8 is due in accordance with its terms but is for any reason held by a
court to be unavailable from the Company, the Agent, the Company and the Agent
shall contribute to the aggregate losses, claims, damages and liabilities
(including any investigation, legal and other expenses incurred in connection
with, and any amount paid in settlement of, any action, suit or proceeding, but
after deducting any contribution received by the Company or the Agent from
persons other than the other parties thereto, who may also be liable for
contribution) in such proportion so that the Agent is responsible for that
portion represented by the percentage that the fees paid to the Agent pursuant
to Section 2 of this Agreement (not including expenses) bears to the gross
proceeds received by the Company from the sale of the Shares in the Offering,
and the Company shall be responsible for the balance. If, however, the
allocation provided above is not permitted by applicable law, then each
indemnifying party shall contribute to such amount paid or payable by such
indemnified party in such proportion as is appropriate to reflect not only such
relative fault of the Company on the one hand and the Agent on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions, proceedings or claims in respect
thereto), but also the relative benefits received by the Company on the one hand
and the Agent on the other from the Offering (before deducting expenses). The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company on the one hand or the Agent on the other and the parties relative
intent, good faith, knowledge, access to information and opportunity to correct
or prevent such statement or omission. The Company and the Agent agree that it
would not be just and equitable if contribution pursuant to this Section 9 were
determined by pro-rata allocation or by any other method of allocation which
does not take into account the equitable considerations referred to above in
this Section 9. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages or liabilities (or actions, proceedings or
claims in respect thereof) referred to above in this Section 9 shall be deemed
to include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action, proceeding
or claim. It is expressly agreed that the Agent shall not be liable for any
loss, liability, claim, damage or expense or be required to contribute any
amount pursuant to Section 8(b) or this Section 9 which in the aggregate exceeds
the amount paid (excluding reimbursable expenses) to the Agent under this
Agreement. It is understood that the above stated limitation on the Agent's
liability is essential to the Agent and that the Agent would not have entered
into this Agreement if such limitation had not been agreed to by the parties to
this Agreement. No person found guilty of any fraudulent misrepresentation
(within the meaning of Section 11(f) of the 1933 Act) shall be entitled to
contribution from any person who was not found guilty of such fraudulent
misrepresentation. The obligations of the Company and the Agent under this
Section 9 and under Section 8 shall be in addition to any liability which the
Company and the Agent may otherwise have. For purposes of this Section 9, each
of the Agent's, the Company's officers and directors and each person, if any,
who controls the Agent or the Company within the meaning of the 1933 Act and the
1934 Act shall have the same rights to contribution as the Agent, or, the
Company. Any party entitled to contribution, promptly after receipt of notice of
commencement of any action, suit, claim or proceeding against such party in
respect of which a claim for contribution may be made against another party
under this Section 9, will notify such party from whom contribution may be
sought, but the omission to so notify such party shall not relieve the party
from whom contribution may be sought from any other obligation it may have
hereunder or otherwise than under this Section 9.
Section 10. Survival of Agreements, Representations and Indemnities. The respective indemnities of the Company and the Agent, the representations and warranties and other statements of the Company and the Agent set forth in or made pursuant to this Agreement and the provisions relating to contribution shall remain in full force and effect, regardless of any termination or cancellation of this Agreement or any investigation made by or on behalf of the Agent, the Company or any controlling person referred to in Section 8 hereof, and shall survive the issuance of the Shares, and any successor or assign of the Agent, the Company, and any such controlling person shall be entitled to the benefit of the respective agreements, indemnities, warranties and representations.
Section 11. Termination. The Agent may terminate this Agreement by giving the notice indicated below in this Section 11 at any time after this Agreement becomes effective as follows:
(a) If any domestic or international event or act or occurrence has materially disrupted the United States securities markets such as to make it, in the Agent's reasonable opinion, impracticable to proceed with the offering of the Shares; or if trading on the NYSE shall have suspended (except that this shall not apply to the imposition of NYSE trading collars imposed on program trading); or if the United States shall have become involved in a war or major hostilities; or if a general banking moratorium has been declared by a state or federal authority which has a material effect on the Company on a consolidated basis; or if a moratorium in foreign exchange trading by major international banks or persons has been declared; or if there shall have been a material adverse change in the financial condition, results of operations or business of the Company on a consolidated basis, or if the Company on a consolidated basis shall have
sustained a material or substantial loss by fire, flood, accident, hurricane, earthquake, theft, sabotage or other calamity or malicious act, whether or not said loss shall have been insured; or if there shall have been a material adverse change in the financial condition, results of operations or business of the Company on a consolidated basis.
(b) In the event the Company fails to sell the required minimum number of the Shares by the date when such sales must be completed, in accordance with the provisions of the Offering or as required by the Reorganization Regulations, and applicable law, this Agreement shall terminate upon refund by the Company to each person who has subscribed for or ordered any of the Shares the full amount which it may have received from such person, together with interest as provided in the Prospectus, and no party to this Agreement shall have any obligation to the other hereunder, except as set forth in Sections 2(a) and (d), 6, 8 and 9 hereof.
(c) If any of the conditions specified in Section 7 shall not have been fulfilled when and as required by this Agreement, unless waived in writing, or by the Closing Date, this Agreement and all of the Agent's obligations hereunder may be cancelled by the Agent by notifying the Company of such cancellation in writing or by telegram at any time at or prior to the Closing Date, and any such cancellation shall be without liability of any party to any other party except as otherwise provided in Sections 2(a), 2(d), 6, 8 and 9 hereof.
(d) If the Agent elects to terminate this Agreement as provided in this Section, the Company shall be notified promptly by telephone or telegram, confirmed by letter.
The Company may terminate this Agreement in the event the Agent is in
material breach of the representations and warranties or covenants contained in
Section 5 and such breach has not been cured after the Company has provided the
Agent with notice of such breach.
This Agreement may also be terminated by mutual written consent of the parties hereto.
Section 12. Notices. All communications hereunder, except as herein otherwise specifically provided, shall be mailed in writing and if sent to the Agent shall be mailed, delivered or telegraphed and confirmed to Keefe, Bruyette & Woods, 211 Bradenton Drive, Dublin, Ohio 43017-5034, Attention: Charles E. Sloane (with a copy to Muldoon Murphy & Aguggia, 5101 Wisconsin Avenue, N.W., Washington, DC 20016, Attention: Lori M. Beresford) and, if sent to the Company, shall be mailed, delivered or telegraphed and confirmed to the Company at 1902 Long Hill Road, Millington, New Jersey 07946-0417, Attention: Gary T. Jolliffe (with a copy to Malizia Spidi & Fisch, PC, 901 New York Avenue, NW, Suite 210 East, Washington, DC 20001, Attention: Samuel J. Malizia).
Section 13. Parties. The Company shall be entitled to act and rely on any request, notice, consent, waiver or agreement purportedly given on behalf of the Agent when the same shall have been given by the undersigned. The Agent shall be entitled to act and rely on any request, notice, consent, waiver or agreement purportedly given on behalf of the Company, when the same shall have been given by the undersigned or any other officer of the Company. This Agreement shall inure solely to the benefit of, and shall be binding upon, the Agent, the Company, and their respective successors and assigns, and no other person shall have or be
construed to have any legal or equitable right, remedy or claim under or in respect of or by virtue of this Agreement or any provision herein contained. It is understood and agreed that this Agreement is the exclusive agreement among the parties hereto, and supersedes any prior agreement among the parties and may not be varied except in writing signed by all the parties.
Section 14. Closing. The closing for the sale of the Shares shall take place on the Closing Date at such location as mutually agreed upon by the Agent and the Company. At the closing, the Company shall deliver to the Agent in next day funds the commissions, fees and expenses due and owing to the Agent as set forth in Sections 2 and 6 hereof and the opinions and certificates required hereby and other documents deemed reasonably necessary by the Agent shall be executed and delivered to effect the sale of the Shares as contemplated hereby and pursuant to the terms of the Prospectus.
Section 15. Partial Invalidity. In the event that any term, provision or covenant herein or the application thereof to any circumstance or situation shall be invalid or unenforceable, in whole or in part, the remainder hereof and the application of said term, provision or covenant to any other circumstances or situation shall not be affected thereby, and each term, provision or covenant herein shall be valid and enforceable to the full extent permitted by law.
Section 16. Construction. This Agreement shall be construed in accordance with the laws of the State of New York.
Section 17. Counterparts. This Agreement may be executed in separate counterparts, each of which so executed and delivered shall be an original, but all of which together shall constitute but one and the same instrument.
Section 18. Entire Agreement. This Agreement, including schedules and exhibits hereto, which are integral parts hereof and incorporated as though set forth in full, constitutes the entire agreement between the parties pertaining to the subject matter hereof superseding any and all prior or contemporaneous oral or prior written agreements, proposals, letters of intent and understandings, and cannot be modified, changed, waived or terminated except by a writing which expressly states that it is an amendment, modification or waiver, refers to this Agreement and is signed by the party to be charged. No course of conduct or dealing shall be construed to modify, amend or otherwise affect any of the provisions hereof.
If the foregoing correctly sets forth the arrangement between the Company and the Agent, please indicate acceptance thereof in the space provided below for that purpose, whereupon this letter and the Agent's acceptance shall constitute a binding agreement.
Very truly yours,
MSB FINANCIAL CORP.
By Its Authorized Representative:
Accepted as of the date first above
written
Keefe, Bruyette & Woods, Inc.
MSB FINANCIAL, MHC
MSB FINANCIAL CORP.
MILLINGTON SAVINGS BANK
Millington, New Jersey
PLAN OF STOCK ISSUANCE
Adopted by the Board of Directors on July 17, 2006
PLAN OF STOCK ISSUANCE
MSB FINANCIAL, MHC
MSB FINANCIAL CORP.
MILLINGTON SAVINGS BANK
TABLE OF CONTENTS
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PAGE
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1. Introduction.............................................................................. 1
2. Definitions............................................................................... 1
3. Conditions to Completion of Stock Offering................................................ 4
4. Stock Offering Documents.................................................................. 4
5. Stock Offering............................................................................ 5
6. Subscription Rights of Eligible Account Holders
(First Priority)........................................................................ 6
7. Subscription Rights of Employee Plans (Second Priority)................................... 6
8. Supplemental Eligible Account Holders (Third Priority).................................... 6
9. Community Offering........................................................................ 7
10. Syndicated Community Offering............................................................. 8
11. Limitation on Purchases................................................................... 8
12. Payment for Common Stock.................................................................. 10
13. Manner of Exercising Subscription Rights Through Order Forms.............................. 11
14. Undelivered, Defective or Late Order Forms:
Insufficient Payment.................................................................... 12
15. Restrictions on Resale or Subsequent Disposition.......................................... 12
16. Charter and Bylaws of the Mutual Holding Company, the Stock Holding Company
and the Bank............................................................................ 12
17. Payment of Dividends and Repurchase of Stock.............................................. 13
18. Residents of Foreign Countries and Certain States......................................... 13
19. Registration and Market Making............................................................ 13
20. Expenses of Offering...................................................................... 13
21. Amendment or Termination of Plan of Stock Issuance........................................ 13
22. Miscellaneous............................................................................. 14
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PLAN OF STOCK ISSUANCE
1. INTRODUCTION
In February 2004, pursuant to a Plan of Reorganization from a New Jersey State Mutual Savings Bank to a Federal Mutual Holding Company, Millington Savings Bank (the "Bank") reorganized into the mutual holding company form of organization without conducting a minority stock offering and is now a New Jersey Stock Savings Bank wholly owned by MSB Financial Corp. (the "Stock Holding Company"), a federally chartered mutual holding company subsidiary, which is wholly owned by MSB Financial, MHC (the "Mutual Holding Company"), a federally chartered mutual holding company. On July 17, 2006, the Boards of Directors of the Bank, the Stock Holding Company and the Mutual Holding Company, by at least two-thirds votes, resolved to adopt this Plan of Stock Issuance, pursuant to which the Stock Holding Company proposes to conduct a stock offering of up to but less than 50% of the Stock Holding Company's total outstanding common stock.
In adopting this Plan, the Board of Directors has determined that the Stock Offering is advisable and in the best interest of the Bank, the Stock Holding Company, the Mutual Holding Company and the Bank's depositors. The Stock Offering will enable the Stock Holding Company and the Bank to increase capital through the issuance of stock without undertaking a full conversion from the mutual to the stock form of organization. The Stock Offering will not foreclose the opportunity to effect a conversion of the Mutual Holding Company to a stock form of organization at a later date. The Stock Offering will significantly increase capital and enable the Bank to further grow through internal expansion, the possible acquisition of branch offices or financial institutions and possible diversification into other related financial service activities, enhancing the Bank's ability to render services to the public. The mutual holding company structure also will allow the Bank to minimize over-capitalization by providing the flexibility to raise capital through the issuance of stock in a manner designed to meet the Bank's growth needs, rather than in a single stock offering as required in a standard mutual-to-stock conversion.
Pursuant to Section 10(o) of the Home Owners' Loan Act, as amended, 12 U.S.C. 1467a(o), the Stock Offering will be accomplished in accordance with the procedures contained in this Plan, the Rules and Regulations of the Office of Thrift Supervision (the "OTS") and the New Jersey Department of Banking and Insurance (the "DOBI"), and as otherwise may be required by the OTS and the DOBI.
2. DEFINITIONS
As used in this Plan, the terms set forth below have the following meanings:
Account Holder: any Person holding a Savings Account in the Bank.
Acting in Concert: (i) knowing 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 which 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 plan will be aggregated. Persons who have the same address on an
account or stock order form or who have a joint account relationship may be considered to be acting in concert.
Affiliate: a Person who, directly or indirectly, through one or more intermediaries, controls or is controlled by or is under common control with another Person.
Associate: when used to indicate a relationship with any Person, means
(i) A corporation or organization (other than the Stock Holding
Company, the Bank or any of their majority-owned subsidiaries) if such
Person is a senior officer or partner, or beneficially owns, directly
or indirectly, 10 percent or more of any class of equity securities of
the corporation or organization; (ii) a trust or other estate if the
Person has a substantial beneficial interest in the trust or estate or
is a trustee or fiduciary of the trust or estate; provided, however
that a Person who has a substantial beneficial interest in a
Tax-Qualified or non-tax-qualified Employee Stock Benefit Plan of the
Bank or the Stock Holding Company, or who is a trustee or a fiduciary
of such plan, is not an associate of such plan and provided further
that for purposes of aggregating total shares that may be held by
Officers, Directors and their Associates, a Tax-Qualified Employee
Stock Benefit Plan of the Bank or the Stock Holding Company is not an
Associate of any Person; (iii) Any Person who is related by blood or
marriage to such Person and (i) who lives in the same home as the
Person; or (ii) who is a Director or Officer.
Bank: Millington Savings Bank, a New Jersey chartered stock savings bank.
Common Stock: the common stock, par value $0.10, of the Stock Holding Company.
Community Offering: the offering of the Common Stock for sale to certain members of the general public directly by the Stock Holding Company.
Director: a member of the Board of Directors of the Bank and, where applicable, a member of the Board of Directors of the Mutual Holding Company and the Stock Holding Company.
DOBI: the New Jersey Department of Banking and Insurance.
Effective Date: date of completion of the Stock Offering in accordance with this Plan and the Rules and Regulations of the OTS.
Eligible Account Holder: any Person holding a Qualifying Deposit in a Savings Account at the Bank on the Eligibility Record Date. Only the name(s) of the Person(s) listed on the account as of the Eligibility Record Date (or a successor entity or estate) is an Eligible Account Holder. Any Person(s) added to a Savings Account after the Eligibility Record Date is not an Eligible Account Holder.
Eligibility Record Date: the date for determining Eligible Account Holders in the Bank as of the close of business on June 30, 2005.
Employee: a Person employed by the Bank at the date of the Stock Offering.
Employee Plans: the Tax-Qualified Employee Stock Benefit Plans, including the Employee Stock Ownership Plan, approved by the Board of Directors of the Bank or Stock Holding Company.
Independent Appraiser: an appraiser retained to prepare an appraisal of the pro forma market value of the Common Stock.
Local Community: the counties in which the Bank has an office and the counties in the Bank's Community Reinvestment Act assessment area.
Majority Interest: greater than fifty percent (50%) of the combined voting power or value of all classes of stock of the Stock Holding Company.
Minority Stock Offering: one or more offerings of up to but less than 50% in the aggregate of the outstanding Common Stock of the Stock Holding Company to Persons other than the Mutual Holding Company.
Mutual Holding Company: MSB Financial, MHC, a federally chartered mutual holding company.
Officer: an executive officer of the Mutual Holding Company, Stock Holding Company or Bank, which includes the President, Chief Executive Officer, any Executive Vice President or Senior Vice President in charge of a principal business unit, division or function, and any other individual who performs significant policy making functions.
Order Form: any form together with attached cover letter, sent by the Bank to any Person containing among other things a description of the alternatives available to such Person under this Plan and by which any such Person may make elections regarding subscriptions for Common Stock in the Subscription and Community Offerings.
OTS: the Office of Thrift Supervision or any successor agency.
Participants: the Eligible Account Holders, Employee Plans and Supplemental Eligible Account Holders.
Person: an individual, a corporation, a partnership, an association, a joint venture, a joint-stock company, a limited liability company, a trust, an unincorporated organization, a government, a political subdivision of a government or any other entity.
Plan: this Plan of Stock Issuance as it exists on the date hereof and as it may hereafter be amended in accordance with its terms.
Purchase Price: the per share price at which the Common Stock will be sold in accordance with the terms hereof.
Qualifying Deposit: the balance of each Savings Account of $50 or more in the Bank at the close of business on the Eligibility Record Date or Supplemental Eligibility Record Date. Savings Accounts with total deposit balances of less than $50 shall not constitute a Qualifying Deposit.
Savings Account: any withdrawable account as defined in the Rules and Regulations of the OTS, including certificates of deposit and demand accounts as defined in the Rules and Regulations of the OTS.
SEC: the United States Securities and Exchange Commission.
Stock Holding Company: MSB Financial Corp., a federally chartered mutual holding company subsidiary.
Stock Offering: the offering of the Common Stock to Persons other than the Mutual Holding Company in a Subscription Offering, and to the extent shares remain available, in a Community Offering or otherwise.
Subscription Offering: the offering of the Common Stock for purchase through Order Forms to Participants.
Supplemental Eligibility Record Date: the close of business on the last day of the calendar quarter preceding the approval of this Plan by the OTS.
Supplemental Eligible Account Holder: a holder of a Qualifying Deposit in the Bank (other than an Officer or Director or their Associates) at the close of business on the Supplemental Eligibility Record Date.
Syndicated Community Offering: the offering of the Common Stock for sale through a syndicate of registered brokers or dealers.
Tax-Qualified Employee Stock Benefit Plan: any defined benefit or defined contribution plan, such as an employee stock ownership plan, stock bonus plan, profit-sharing plan or other plan, which, with its related trust, meets the requirements to be "qualified" under Section 401 of the Internal Revenue Code.
3. CONDITIONS TO COMPLETION OF STOCK OFFERING
Completion of the Stock Offering is expressly conditioned upon the following:
1. This Plan is approved by at least two-thirds of the Boards of Directors;
2. An Application for Approval of Minority Stock Issuance is filed with and approved by the OTS and copies of the Application are provided to the DOBI and the Federal Deposit Insurance Corporation;
3. Receipt of a favorable ruling of the Internal Revenue Service or an opinion of the Bank's tax advisor with respect to federal taxation to the effect that the Stock Offering will not be a taxable event to the Mutual Holding Company, the Stock Holding Company, the Bank or the Bank's depositors; and
4. Receipt of either a private letter ruling of the New Jersey Department of Revenue or an opinion of the Bank's tax advisor with respect to state taxation to the effect that completion of the Stock Offering will not be a taxable event to the Mutual Holding Company, the Stock Holding Company, the Bank or to the Bank's depositors.
5. The stock offering prospectus of the Stock Holding Company is declared effective by the SEC.
4. STOCK OFFERING DOCUMENTS
The Stock Holding Company and the Bank intend to commence a Minority Stock Offering within ten (10) days of the satisfaction of all of the conditions of Section 3 hereof. The Stock Holding Company and the Bank shall not distribute the final prospectus until such prospectus has been approved for use by the OTS and declared effective by the SEC.
5. STOCK OFFERING
A. Number of Shares. The number of shares and price per share of Common Stock to be offered pursuant to this Plan shall be initially determined by the Boards of Directors of the Stock Holding Company and the Bank in conjunction with the determination of the Independent Appraiser. The number of shares to be issued will be on a minimum-maximum basis within a range determined by the Board of Directors (the "Offering Range") and may be adjusted at or immediately subsequent to the completion of the Stock Offering without notifying Participants and without a resolicitation of subscriptions. The number of shares to be offered or Offering Range may be subsequently adjusted at or immediately subsequent to the completion of the Stock Offering for any reason, including a change in the appraisal. The total number of shares of Common Stock that may be issued to Persons other than the Mutual Holding Company at the close of the Stock Offering must be less than 50% of the issued and outstanding shares of the Stock Holding Company.
B. Independent Evaluation and Purchase Price of Shares. All shares of Common Stock sold in the Stock Offering shall be sold at a uniform price per share, referred to herein as the "Purchase Price." The Purchase Price and number of shares shall be determined by the Board of Directors of the Stock Holding Company and the Bank 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 Stock Holding Company and the Bank and the fact that the shares offered represent a minority interest in the Stock Holding Company (the "Independent Evaluation"). Therefore, the Independent Evaluation and the resulting Purchase Price may reflect a discount to the valuation applied to a standard mutual-to-stock conversion. The aggregate Purchase Price for the Common Stock will not be inconsistent with such market value of the Stock Holding Company and the Bank. The Independent Evaluation of the Stock Holding Company and the Bank shall be determined for such purpose by an Independent Appraiser on the basis of such appropriate factors as are not inconsistent with OTS regulations. The total amount of Common Stock that may be issued to Persons other than the Mutual Holding Company must be less than 50% of the outstanding stock of the Stock Holding Company. The Common Stock to be issued in the Stock Offering shall be fully paid and nonassessable.
C. Minority Ownership Percentage. Based upon the Independent Appraiser's valuation of the Stock Holding Company and the Bank as updated prior to the commencement of the Stock Offering, the Board of Directors will establish the minimum and maximum ownership percentage applicable to the Stock Offering. The final minority ownership percentages or interest will be determined by the Stock Holding Company and the Bank as follows: (a) the product of (x) the total number of shares of Common Stock to be issued and sold and (y) the Purchase Price shall be by divided by (b) the estimated aggregate pro forma market value of the Stock Holding Company and the Bank immediately after the Stock Offering as determined by the Independent Appraiser, expressed in terms of a specific aggregate dollar amount upon the closing of the Stock Offering or sale of all the Common Stock.
D. Method of Offering Shares. Subject to the discretion of the Stock Holding Company and the Bank and the limitations set forth in Section 11, the opportunity to purchase Common Stock will be given, at no cost, in accordance with Sections 6, 7, 8, 9 and 10 hereof and pursuant to priorities established by the Board of Directors in accordance with this Plan. The Stock Offering shall be conducted on a minimum-maximum basis, setting forth the minimum and maximum amount of stock that must be offered and sold before closing. The Stock Holding Company and the Bank may elect to pay fees on either a fixed fee or commission basis or combination thereof to an investment bank firm which assists it in the sale of the Common Stock in the Stock Offering.
The Stock Holding Company and the Bank may also elect to offer to pay fees on a per share basis to brokers who assist purchasers in determining to purchase shares in the Syndicated Community Offering and whose broker's name appears on the purchaser's Order Form.
6. SUBSCRIPTION RIGHTS OF ELIGIBLE ACCOUNT HOLDERS (FIRST PRIORITY)
A. Each Eligible Account Holder shall receive, without payment,
nontransferable subscription rights to subscribe for shares of Common Stock
equal to the greater of: (i) the maximum established for the Community Offering;
(ii) one-tenth of one percent of the Conversion Stock offered; or (iii) 15 times
the product (rounded down to the next whole number) obtained by multiplying the
total number of shares of Common Stock offered by a fraction of which the
numerator is the amount of the Qualifying Deposit of such Eligible Account
Holder and the denominator is the total amount of Qualifying Deposits of all
Eligible Account Holders but in no event greater than the maximum purchase
limitation specified in Section 11 hereof. All such purchases are subject to the
maximum and minimum purchase limitations specified in Section 11 and are
exclusive of an increase in the total number of shares issued due to an increase
in the maximum of the Offering Range of up to 15%. Only a Person(s) with a
Qualifying Deposit as of the Eligibility Record Date (or a successor entity or
estate) shall receive subscription rights. Any Person(s) added to a Savings
Account after the Eligibility Record Date is not an Eligible Account Holder.
B. In the event that Eligible Account Holders exercise Subscription Rights for a number of shares of Common Stock in excess of the total number of such shares eligible for subscription, the shares of Common Stock shall be allocated among the subscribing Eligible Account Holders so as to permit each subscribing Eligible Account Holder, to the extent possible, to purchase a number of shares sufficient to make his or her total allocation of Common Stock equal to the lesser of 100 shares or the number of shares subscribed for by the Eligible Account Holder. Any shares remaining after that allocation will be allocated among the subscribing Eligible Account Holders whose subscriptions remain unsatisfied in the proportion that the amount of the Qualifying Deposit of each Eligible Account Holder whose subscription remains unsatisfied bears to the total amount of the Qualifying Deposits of all Eligible Account Holders whose subscriptions remain unsatisfied. If the amount so allocated exceeds the amount subscribed for by any one or more Eligible Account Holders, the excess shall be reallocated (one or more times as necessary) among those Eligible Account Holders whose subscriptions are still not fully satisfied on the same principle until all available shares have been allocated or all subscriptions satisfied.
C. Subscription rights as Eligible Account Holders received by Directors and Officers and their Associates which are based on deposits made by such Persons during the twelve (12) months preceding the Eligibility Record Date shall be subordinated to the Subscription Rights of all other Eligible Account Holders.
7. SUBSCRIPTION RIGHTS OF EMPLOYEE PLANS (SECOND PRIORITY)
Subject to the availability of sufficient shares after filling
subscription orders of Eligible Account Holders under Section 6, the Employee
Plans shall receive without payment nontransferable subscription rights to
purchase in the Subscription Offering the number of shares of Common Stock
requested by such Plans, subject to the purchase limitations set forth in
Section 11. The Employee Plans may, in whole or in part, fill their orders
through open market purchases subsequent to the closing of the Stock Offering.
The Employee Plans shall not be deemed to be Associates of or Acting in Concert with any Director or Officer.
8. SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS (THIRD PRIORITY)
A. In the event that the Eligibility Record Date is more than 15 months prior to the date of the latest amendment to the application filed prior to OTS approval, then, and only in that event, each Supplemental Eligible Account Holder shall receive, without payment, nontransferable subscription rights entitling such Supplemental Eligible Account Holder to purchase that number of shares of Common Stock which is equal to the greater of: (i) the maximum purchase limitation established for the Community Offering;
(ii) one-tenth of 1% of the Common Stock Offered; and (iii) or 15 times the product (rounded down to the next whole number) obtained by multiplying the total number of shares of 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 the Qualifying Deposits of all Supplemental Eligible Account Holders. All such purchases are subject to the maximum and minimum purchase limitations in Section 11 and are exclusive of an increase in the total number of shares issued due to an increase in the maximum of the Offering Range of up to 15%. Any Person(s) added to a Savings Account after the Supplemental Eligibility Record Date is not a Supplemental Account Holder.
B. Subscription rights received pursuant to this Category shall be subordinated to the subscription rights received by Eligible Account Holders and by the Employee Plans.
C. Any subscription rights to purchase shares of Common Stock received by an Eligible Account Holder in accordance with Section 6 shall reduce to the extent thereof the subscription rights to be distributed pursuant to this Section.
D. In the event of an oversubscription for shares of Common Stock pursuant to this Section, shares of Common Stock shall be allocated among the subscribing Supplemental Eligible Account Holders as follows:
(1) Shares of Common Stock shall be allocated so as to permit each such Supplemental Eligible Account Holder, to the extent possible, to purchase a number of shares of Common Stock sufficient to make his total allocation (including the number of shares of Common Stock, if any, allocated in accordance with Section 6) equal to 100 shares of Common Stock or the total amount of his subscription, whichever is less.
(2) Any shares of Common Stock not allocated in accordance with subparagraph (1) above shall be allocated among the subscribing Supplemental Eligible Account Holders on an equitable basis, related to the amounts of their respective Qualifying Deposits as compared to the total Qualifying Deposits of all subscribing Supplemental Eligible Account Holders.
9. COMMUNITY OFFERING
If less than the total number of shares of Common Stock to be subscribed for in the Stock Offering are sold in the Subscription Offering, shares remaining may be made available for purchase in the Community Offering to certain members of the general public.
The maximum amount of Common Stock that any Person may purchase in the Community Offering, subject to the further limitations of Section 11 hereof (and exclusive of an increase in the total number of shares issued due to an increase in the maximum of the Offering Range of up to 15%), shall not exceed $200,000. The maximum amount may be decreased or increased to up to 5% of the total offering of shares in the Stock Offering, subject to any required regulatory approval but without notice to Participants, subject to the preferences set forth in Section 11 hereof. In the Community Offering, if any, shares will be available for purchase by certain members of the general public, and a preference may be given to natural persons and trusts of natural persons residing in the Local Community and second, to natural persons and trusts of natural persons residing in the State of New Jersey ("Community Purchasers").
If the Persons whose orders would otherwise be accepted, subscribe for more shares than are available for purchase, the shares available to them will be allocated among those Persons submitting orders in the Community Offering up to a maximum of 2% of the Common Stock offered in the Stock Offering and thereafter remaining shares shall be allocated on an equal number of shares basis per order until all orders have
been filled. The Stock Holding Company and the Bank may establish all terms and conditions of such offer in order to allocate shares in an equitable manner as determined by the Board of Directors.
The Community Offering, if any, may commence simultaneously with, during or subsequent to the completion of the Subscription Offering and if commenced simultaneously with or during the Subscription Offering the Community Offering may be limited to Community Purchasers. The Community Offering must be completed within 45 days after the completion of the Subscription Offering unless otherwise extended by the OTS.
The Bank and the Stock Holding Company, in their absolute discretion, reserve the right to reject any or all orders in whole or in part which are received in the Community Offering, at the time of receipt or as soon as practicable following the completion of the Community Offering.
10. SYNDICATED COMMUNITY OFFERING
Any shares of Common Stock not sold in the Subscription Offering or in the Community Offering, if any, may then be sold through a syndicate of registered brokers or dealers at the Purchase Price in a Syndicated Community Offering, subject to such terms, conditions and procedures as may be determined by the Board of Directors of the Bank and the Stock Holding Company, in a manner that will achieve a wide distribution of the Common Stock and subject to the right of the Bank and the Stock Holding Company, in their absolute discretion, to accept or reject in whole or in part all subscriptions in the Syndicated Community Offering. In the Syndicated Community Offering, if any, any Person together with any Associate or group of Persons Acting in Concert may purchase up to the maximum purchase limitation established for the Community Offering, subject to the maximum and minimum purchase limitations specified in Section 11 and exclusive of an increase in the total number of shares issued due to an increase in the maximum of the Offering Range of up to 15%. Shares purchased by any Person together with any Associate or group of Persons Acting in Concert pursuant to Section 9 shall be counted toward meeting the maximum purchase limitation specified for this Section. The Bank may commence the Syndicated Community Offering at any time after the commencement of the Subscription Offering. It is expected that the Syndicated Community Offering, if any, will commence just prior to, or as soon as practicable after, the termination of the Subscription Offering. The Syndicated Community Offering shall be completed within 45 days after the termination of the Subscription Offering, unless such period is extended as provided above.
11. LIMITATION ON PURCHASES
The following limitations shall apply to all purchases of shares of Common Stock in the Stock Offering:
A. The maximum number of shares of Common Stock which may be purchased in the Subscription Offering by any Person, or Persons through a single account, in the First Priority and Third Priority shall not exceed $200,000 divided by the Purchase Price.
B. The number of shares of Common Stock which may be purchased by any Person or group of Persons Acting in Concert in the Community and/or Syndicated Community Offering shall not exceed $200,000 divided by the Purchase Price.
C. The maximum number of shares of Common Stock which may be subscribed for or purchased in all categories in the Stock Offering by any Person together with any Associate or group of Persons Acting in Concert shall not exceed $250,000 divided by the Purchase Price per share, except for Employee Plans, which in the aggregate may subscribe for up to 8% of the shares of Common Stock issued in the Stock Offering to Persons other than the Mutual Holding Company.
D. The maximum number of shares of Common Stock which may be purchased in all categories in the Stock Offering by Officers and Directors and their Associates in the aggregate shall not exceed 30% of the total number of shares of Common Stock issued in the Stock Offering.
E. A minimum of 25 shares of Common Stock must be purchased by each Person purchasing shares in the Stock Offering to the extent those shares are available; provided, however, that the minimum number of shares requirement will not apply if the number of shares of Common Stock purchased times the price per share exceeds $500.
F. If the number of shares of Common Stock otherwise allocable pursuant to Sections 6 through 10, inclusive, to any Person or that Person's Associates would be in excess of the maximum number of shares permitted as set forth above, the number of shares of Common Stock allocated to each such Person shall be reduced to the lowest limitation applicable to that Person, and then the number of shares allocated to each group consisting of a Person and that Person's Associates shall be reduced so that the aggregate allocation to that Person and his Associates complies with the above maximums, and such maximum number of shares shall be reallocated among that Person and his Associates as they may agree, or in the absence of an agreement, in proportion to the shares subscribed by each (after first applying the maximums applicable to each Person, separately).
G. Depending upon market or financial conditions, the Board of Directors of the Mutual Holding Company, the Stock Holding Company and the Bank, without notification to Participants, may decrease or increase the purchase limitations herein, provided that the maximum purchase limitations may not be increased to a percentage in excess of 5% of the Stock Offering. If the Mutual Holding Company, the Stock Holding Company and the Bank increase the maximum purchase limitations, the Stock Holding Company is only required to resolicit Persons who subscribed for the maximum purchase amount and may, in the sole discretion of the Stock Holding Company, resolicit certain other large subscribers. For purposes of this Section, Directors shall not be deemed to be Associates or a group affiliated with each other or otherwise Acting in Concert solely as a result of their being Directors.
H. In the event of an increase in the total number of shares offered in the Stock Offering due to an increase in the maximum of the Offering Range of up to 15% (the "Adjusted Maximum") the additional shares will be used in the following order of priority: (i) to fill the Employees Plan's subscription (unless the Employee Plans elect to purchase stock subsequent to the Stock Offering in the open market); (ii) in the event that there is an oversubscription at the Eligible Account Holder level, to fill unfilled subscriptions of Eligible Account Holders exclusive of the Adjusted Maximum according to Section 6; (iii) in the event that there is an oversubscription at the Supplemental Eligible Account Holder level, to fill unfilled subscriptions of Supplemental Eligible Account Holders exclusive of the Adjusted Maximum according to Section 8; and (iv) to fill unfilled Subscriptions in the Community Offering exclusive of the Adjusted Maximum.
I. Each Person purchasing Common Stock in the Stock Offering shall be deemed to confirm that such purchase does not conflict with the above purchase limitations contained herein.
J. For a period of three years following the Stock Offering, no Officer, Director or their Associates shall purchase, without the prior written approval of the OTS, any outstanding shares of the Common Stock, except from a registered broker-dealer. This provision shall not apply to negotiated transactions involving more than one percent of the outstanding shares of the Common Stock, the exercise of any options pursuant to a stock option plan or purchases of the Common Stock made by or held by any Tax-Qualified Employee Stock Benefit Plan or Non-Tax Qualified Employee Stock Benefit Plan of the Stock Bank or Stock Holding Company (including the Employee Plans) which may be attributable to any Officer or Director. As used herein, the term "negotiated transaction" means a transaction in which the securities are offered and the terms and arrangements relating to any sale are arrived at through direct communications
between the seller or any Person acting on its behalf and the purchaser or his investment representative. The term "investment representative" shall mean a professional investment advisor acting as agent for the purchaser and independent of the seller and not acting on behalf of the seller in connection with the transaction.
12. PAYMENT FOR COMMON STOCK
All payments for Common Stock subscribed for in the Subscription and Community Offering (if any), must be delivered in full to the Bank, together with a properly completed and executed Order Form, on or prior to the expiration date specified on the Order Form or purchase order, as the case may be, unless such date is extended by the Bank; provided, however, that if the Employee Plans subscribe for shares during the Subscription Offering, the Employee Plans will not be required to pay for the shares at the time they subscribe but rather may pay for such shares of Common Stock upon consummation of the Stock Offering. The Bank may make scheduled discretionary contributions to Employee Plans provided such contributions do not cause the Bank to fail to meet its regulatory capital requirement.
Notwithstanding the foregoing, the Bank and the Stock Holding Company shall have the right, in their sole discretion, to permit institutional investors to submit contractually irrevocable orders in the Community Offering (if any), and to thereafter submit payment for the Common Stock for which they are subscribing in the Community Offering (if any), at any time prior to the completion of the Stock Offering.
Payment for Common Stock subscribed for shall be made by cash (if delivered in person), check or money order. Alternatively, subscribers in the Subscription and Community Offering (if any) may pay for the shares subscribed for by authorizing the Bank on the Order Form to make a withdrawal from the subscriber's Savings Account at the Bank in an amount equal to the purchase price of such shares. Such authorized withdrawal, whether from a savings passbook or certificate account, shall be without penalty as to premature withdrawal. If the authorized withdrawal is from a certificate account, and the remaining balance does not meet the applicable minimum balance requirement, the certificate shall be canceled at the time of withdrawal, without penalty, and the remaining balance will earn interest at the passbook rate. Funds for which a withdrawal is authorized will remain in the subscriber's Savings Account but may not be used by the subscriber until the Common Stock has been sold or the 45-day period (or such longer period as may be approved by the OTS) following the Subscription Offering has expired, whichever occurs first. Thereafter, the withdrawal will be given effect only to the extent necessary to satisfy the subscription (to the extent it can be filled) at the Purchase Price per share. Interest will continue to be earned on any amounts authorized for withdrawal until such withdrawal is given effect. Interest will be paid by the Bank at not less than the annual passbook rate on payments for Common Stock received by cash, money order or check. Such interest will be paid from the date payment is received by the Bank until consummation or termination of the Stock Offering. If for any reason the Stock Offering is not consummated, all payments made by subscribers in the Stock Offering will be refunded to them with interest. In case of amounts authorized for withdrawal from Savings Accounts, refunds will be made by canceling the authorization for withdrawal.
The Bank is prohibited by regulation from knowingly making any loans or granting any lines of credit for the purchase of stock in the Stock Offering.
13. MANNER OF EXERCISING SUBSCRIPTION RIGHTS THROUGH ORDER FORMS
As soon as practicable after the prospectus prepared by the Bank and the Stock Holding Company has been approved by the OTS, received the non-objection of the DOBI, and declared effective by the SEC, Order Forms will be distributed to the Participants at their last known addresses appearing on the records of the Bank for the purpose of subscribing to shares of Common Stock in the Subscription Offering and may be made available for use in the Community Offering. Notwithstanding the foregoing, the Bank may elect to send Order Forms only to those Persons who request them after such notice as is approved by the OTS and is adequate to apprise the Participants of the pendency of the Subscription Offering has been given.
Each Order Form will be preceded or accompanied by a prospectus. Each Order Form will contain, among other things, the following:
A. A specified date by which all Order Forms must be received by the
Bank, which date shall be not less than twenty (20), nor more than forty-five
(45) days, following the date on which the Order Forms are mailed by the Bank,
and which date will constitute the termination of the Subscription Offering;
B. The purchase price per share for shares of Common Stock to be sold in the Subscription and Community Offering (if any);
C. A description of the minimum and maximum number of shares of Common Stock which may be subscribed for pursuant to the exercise of Subscription Rights or otherwise purchased in the Community Offering;
D. Instructions as to how the recipient of the Order Form is to indicate thereon the number of shares of Common Stock for which such Person elects to subscribe and the available alternative methods of payment therefor;
E. An acknowledgment that the recipient of the Order Form has received a final copy of the prospectus, as the case may be, prior to execution of the Order Form.
F. A statement to the effect that all subscription rights are nontransferable, will be void at the end of the Subscription Offering, and can only be exercised by delivering within the subscription period such properly completed and executed Order Form, together with cash (if delivered in person), check or money order in the full amount of the purchase price as specified in the Order Form for the shares of Common Stock for which the recipient elects to subscribe in the Subscription Offering (or by authorizing on the Order Form that the Bank withdraw said amount from the subscriber's Savings Account at the Bank) to the Bank; and
G. A statement to the effect that the executed Order Form, once received by the Bank, may not be modified or amended by the subscriber without the consent of the Bank.
Notwithstanding the above, the Bank reserves the right in its sole discretion to accept or reject orders received on photocopied or facsimilied order forms or whose payment is to be made by wire transfer.
14. UNDELIVERED, DEFECTIVE OR LATE ORDER FORMS: INSUFFICIENT PAYMENT
In the event Order Forms (a) are not delivered and are returned to the
Bank by the United States Postal Service or the Bank is unable to locate the
addressee, (b) are not received back by the Bank or are received by the Bank
after the expiration date specified thereon, (c) are defectively filled out or
executed, (d) are not accompanied by the full required payment, or, in the case
of institutional investors in the Community Offering, by delivering irrevocable
orders together with a legally binding commitment to pay by cash, check, money
order or wire transfer the full amount of the purchase price prior to 48 hours
before the completion of the conversion for the shares of Common Stock
subscribed for (including cases in which Savings Accounts from which withdrawals
are authorized are insufficient to cover the amount of the required payment), or
(e) are not mailed pursuant to a "no mail" order placed in effect by the account
holder, the subscription rights of the Person to whom such rights have been
granted will lapse as though such Person failed to return the completed Order
Form within the time period specified thereon; provided, however, that the Bank
may, but will not be required to, waive any immaterial irregularity on any Order
Form or require the submission of corrected Order Forms or the remittance of
full payment for subscribed shares by such date as the Bank may specify. The
interpretation of the Bank of terms and conditions of this Plan and of the Order
Forms will be final, subject to the authority of the OTS.
15. RESTRICTIONS ON RESALE OR SUBSEQUENT DISPOSITION
A. All shares of Common Stock purchased by Directors or Officers or their Associates in the Stock Offering shall be subject to the restriction that, except as provided in Section 15B below, or as may be approved by the OTS, no interest in such shares may be sold or otherwise disposed of for value for a period of one year following the date of purchase.
B. The restriction on disposition of shares of Common Stock set forth in Section 15A above shall not apply to any disposition of such shares following the death of the individual to whom such shares were initially sold under the terms of this Plan.
C. With respect to all shares of Common Stock subject to restrictions on resale or subsequent disposition, each of the following provisions shall apply;
(i) Each certificate representing shares restricted within the meaning of Section 15A, above, shall bear a legend prominently stamped on its face giving notice of the restriction;
(ii) Instructions shall be issued to the stock transfer agent to recognize or effect any transfer of any certificate or record of ownership of any such shares in violation of the restriction on transfer; and
(iii) Any shares of capital stock of the Stock Holding Company issued with respect to a stock dividend, stock split, or otherwise with respect to ownership of outstanding shares of Common Stock subject to the restriction on transfer hereunder shall be subject to the same restriction as is applicable to such Common Stock.
16. CHARTER AND BYLAWS OF THE MUTUAL HOLDING COMPANY, THE STOCK HOLDING COMPANY AND THE BANK
As part of the Stock Offering, the charters and bylaws of the Mutual Holding Company, the Stock Holding Company and the Bank shall be revised as necessary in connection with the Stock Offering.
17. PAYMENT OF DIVIDENDS AND REPURCHASE OF STOCK
The Bank and the Stock Holding Company may declare dividends or make other capital distributions or repurchase stock in accordance with applicable laws and regulations. In accordance with applicable law, and the regulations and policies of the OTS and the Federal Deposit Insurance Corporation, the Mutual Holding Company may waive its right to receive dividends declared to it by the Stock Holding Company.
18. RESIDENTS OF FOREIGN COUNTRIES AND CERTAIN STATES
The Stock Holding Company will make reasonable efforts to comply with the securities laws of all states in the United States in which Persons entitled to subscribe for shares of Common Stock pursuant to this Plan reside. However, Persons may not be issued subscription rights nor be permitted to purchase shares of Conversion Stock in the Subscription Offering (i) if such Person resides in a foreign country or (ii) if such Person resides in a state of the United States with respect to which, in the sole judgment of the Board of Directors, any of the following apply: (a) a small number of Persons otherwise eligible to subscribe for shares under this Plan reside in such state; (b) the issuance of subscription rights or the offer or sale of shares of Common Stock to such Persons would require the Bank, under the securities laws of such state, to register as a broker, dealer, salesman or agent or to register or otherwise qualify its securities for sale in such state; and (c) registration or qualification in such state would be impracticable for reasons of cost or otherwise.
19. REGISTRATION AND MARKET MAKING
Within the time period required by applicable laws and regulations, the Stock Holding Company will register the securities issued in connection with the Offering pursuant to the Securities Exchange Act of 1934 and will not deregister such securities for a period of at least three years thereafter, except that the maintenance of registration for three years requirement may be fulfilled by any successor to the Stock Holding Company. In addition, the Stock Holding Company will use its best efforts to encourage and assist a market-maker to establish and maintain a market for the Common Stock and to list those securities on a national or regional securities exchange or the Nasdaq System.
20. EXPENSES OF OFFERING
The Bank shall use its best efforts to assure that expenses incurred by it in connection with the Offering shall be reasonable.
21. AMENDMENT OR TERMINATION OF PLAN OF STOCK ISSUANCE
This Plan may be substantively amended by the Board of Directors of the Bank as a result of comments from the regulatory authorities or otherwise prior to the commencement of the Offering, and at any time thereafter with the concurrence of the OTS. This Plan may be terminated by the Board of Directors of the Bank at any time prior to the completion of the Offering, and at any time thereafter with the concurrence of the OTS.
In the event that mandatory new regulations pertaining to mutual holding companies are adopted by the OTS or the DOBI prior to the completion of the Stock Offering, this Plan may be amended to conform to the new mandatory regulations. In the event that new mutual holding company regulations adopted by the OTS or the DOBI prior to completion of the Stock Offering contain optional provisions, this Plan may be amended to utilize such optional provisions at the discretion of the Board of Directors.
22. MISCELLANEOUS
All interpretations of this Plan and application of its provisions to particular circumstances by a majority of the Board of Directors of the Mutual Holding Company, the Stock Holding Company and the Bank shall be final, subject to the authority of the OTS and the DOBI.
If any term, provision, covenant or restriction contained in this Plan is held by a court or a federal or state regulatory agency of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions contained in this Plan shall remain in full force and effect, and shall in no way be affected, impaired or invalidated.
This Plan is to be governed by and construed in accordance with the laws of the United States. None of the cover page, the table of contents, or the section headings are to be considered a part of this Plan, but are included solely for convenience of reference and shall in no way define, limit, extend, or describe the scope or intent of any of the provisions hereof. Words in the singular include the plural, and words in the plural include the singular. Except for such rights as are set forth herein for eligible account holders, this Plan shall create no rights in any Person.
MSB FINANCIAL CORP.
Federal MHC Subsidiary Holding Company Charter
Section 1. Corporate title. The full corporate title of the MHC subsidiary holding company is MSB Financial Corp. (the "MHC subsidiary holding company").
Section 2. Domicile. The domicile of the MHC subsidiary holding company shall be in Millington, New Jersey.
Section 3. Duration. The duration of the MHC subsidiary holding company is perpetual.
Section 4. Purpose and powers. The purpose of the MHC subsidiary holding company is to pursue any or all of the lawful objectives of a federal mutual holding company chartered under section 10(o) of the Home Owners' Loan Act, 12 U.S.C. 1467a(o), and to exercise all of the express, implied, and incidental powers conferred thereby and by all acts amendatory thereof and supplemental thereto, subject to the Constitution and laws of the United States as they are now in effect, or as they may hereafter be amended, and subject to all lawful and applicable rules, regulations, and orders of the Office of Thrift Supervision ("Office").
Section 5. Capital stock. The total number of shares of all classes of capital stock that the MHC subsidiary holding company has the authority to issue is 15,000,000, of which 10,000,000 shall be common stock of par value of $0.10 per share and of which 5,000,000 shall be preferred stock of par value of $0.10 per share. The shares may be issued from time to time as authorized by the board of directors without further approval of stockholders, except as otherwise provided in this Section 5 or to the extent that such approval is required by governing law, rule, or regulation. The consideration for the issuance of the shares shall be paid in full before their issuance and shall not be less than the par value. Neither promissory notes nor future services shall constitute payment or part payment for the issuance of shares of the MHC subsidiary holding company. The consideration for the shares shall be cash, tangible or intangible property (to the extent direct investment in such property would be permitted), labor, or services actually performed for the MHC subsidiary holding company, or any combination of the foregoing. In the absence of actual fraud in the transaction, the value of such property, labor, or services, as determined by the board of directors of the MHC subsidiary holding company, shall be conclusive. Upon payment of such consideration, such shares shall be deemed to be fully paid and nonassessable. In the case of a stock dividend, that part of the retained earnings of the MHC subsidiary holding company that is transferred to common stock or paid-in capital accounts upon the issuance of shares as a stock dividend shall be deemed to be the consideration for their issuance.
Except for shares issued in the initial organization of MHC subsidiary holding company, no shares of capital stock (including shares issuable upon conversion, exchange, or exercise of other securities) shall be issued, directly or indirectly, to officers, directors, or controlling persons (except for shares issued to Millington MHC, the parent mutual holding company of the MHC subsidiary holding company) of the MHC subsidiary holding company other than as part of a general public offering or as qualifying shares to
a director, unless their issuance or the plan under which they would be issued has been approved by a majority of the total votes eligible to be cast at a legal meeting.
Nothing contained in this Section 5 (or in any supplementary sections hereto) shall entitle the holders of any class or series of capital stock to vote as a separate class or series or to more than one vote per share: Provided, that this restriction on voting separately by class or series shall not apply:
(i) To any provision which would authorize the holders of preferred stock, voting as a class or series, to elect some members of the board of directors, less than a majority thereof, in the event of default in the payment of dividends on any class or series of preferred stock;
(ii) To any provision that would require the holders of preferred stock, voting as a class or series, to approve the merger or consolidation of the MHC subsidiary holding company with another corporation or the sale, lease, or conveyance (other than by mortgage or pledge) of properties or business in exchange for securities of a corporation other than the MHC subsidiary holding company if the preferred stock is exchanged for securities of such other corporation: Provided, that no provision may require such approval for transactions undertaken with the assistance or pursuant to the direction of the Office or the Federal Deposit Insurance Corporation;
(iii) To any amendment which would adversely change the specific terms of any class or series of capital stock as set forth in this Section 5 (or in any supplementary sections hereto), including any amendment which would create or enlarge any class or series ranking prior thereto in rights and preferences. An amendment which increases the number of authorized shares of any class or series of capital stock, or substitutes the surviving entity in a merger or consolidation for the MHC subsidiary holding company, shall not be considered to be such an adverse change.
A description of the different classes and series (if any) of the MHC subsidiary holding company's capital stock and a statement of the designations, and the relative rights, preferences, and limitations of the shares of each class of and series (if any) of capital stock are as follows:
A. Common stock. Except as provided in this Section 5 (or in any supplementary sections thereto), the holders of common stock shall exclusively possess all voting power. Each holder of shares of common stock shall be entitled to one vote for each share held by such holder and there shall be no right to cumulate votes in an election of directors.
Whenever there shall have been paid, or declared and set aside for payment, to the holders of the outstanding shares of any class of stock having preference over the common stock as to the payment of dividends, the full amount of dividends and of sinking fund, retirement fund, or other retirement payments, if any, to which such holders are respectively entitled in preference to the common stock, then dividends may be paid on the common stock and on any class or series of stock entitled to participate therewith as to dividends out of any assets legally available for the payment of dividends.
In the event of any liquidation, dissolution, or winding up of the MHC subsidiary holding company, the holders of the common stock (and the holders of any class or series of stock entitled to participate with
the common stock in the distribution of assets) shall be entitled to receive, in cash or in kind, the assets of the MHC subsidiary holding company available for distribution remaining after: (i) payment or provision for payment of the MHC subsidiary holding company's debts and liabilities; (ii) distributions or provision for distributions in settlement of any liquidation account; and (iii) distributions or provisions for distributions to holders of any class or series of stock having preference over the common stock in the liquidation, dissolution, or winding up of the MHC subsidiary holding company. Each share of common stock shall have the same relative rights as and be identical in all respects with all the other shares of common stock.
B. Preferred stock. The MHC subsidiary holding company may provide in supplementary sections to its charter for one or more classes of preferred stock, which shall be separately identified. The shares of any class may be divided into and issued in series, with each series separately designated so as to distinguish the shares thereof from the shares of all other series and classes. The terms of each series shall be set forth in a supplementary section to the charter. All shares of the same class shall be identical except as to the following relative rights and preferences, as to which there may be variations between different series:
(a) The distinctive serial designation and the number of shares constituting such series;
(b) The dividend rate or the amount of dividends to be paid on the shares of such series, whether dividends shall be cumulative and, if so, from which date(s), the payment date(s) for dividends, and the participating or other special rights, if any, with respect to dividends;
(c) The voting powers, full or limited, if any, of shares of such series;
(d) Whether the shares of such series shall be redeemable and, if so, the price(s) at which, and the terms and conditions on which, such shares may be redeemed;
(e) The amount(s) payable upon the shares of such series in the event of voluntary or involuntary liquidation, dissolution, or winding up of the MHC subsidiary holding company;
(f) Whether the shares of such series shall be entitled to the benefit of a sinking or retirement fund to be applied to the purchase or redemption of such shares, and if so entitled, the amount of such fund and the manner of its application, including the price(s) at which such shares may be redeemed or purchased through the application of such fund;
(g) Whether the shares of such series shall be convertible into, or exchangeable for, shares of any other class or classes of stock of the MHC subsidiary holding company and, if so, the conversion price(s) or the rate(s) of exchange, and the adjustments thereof, if any, at which such conversion or exchange may be made, and any other terms and conditions of such conversion or exchange;
(h) The price or other consideration for which the shares of such series shall be issued; and
(i) Whether the shares of such series which are redeemed or converted shall have the status of authorized but unissued shares of serial preferred stock and whether such shares may be reissued as shares of the same or any other series of serial preferred stock.
Each share of each series of serial preferred stock shall have the same relative rights as and be identical in all respects with all the other shares of the same series.
The board of directors shall have authority to divide, by the adoption of supplementary charter sections, any authorized class of preferred stock into series, and, within the limitations set forth in this section and the remainder of this charter, fix and determine the relative rights and preferences of the shares of any series so established.
Prior to the issuance of any preferred shares of a series established by a supplementary charter section adopted by the board of directors, the MHC subsidiary holding company shall file with the Secretary of the Office a dated copy of that supplementary section of this charter establishing and designating the series and fixing and determining the relative rights and preferences thereof.
Section 6. Preemptive rights. Holders of the capital stock of the MHC subsidiary holding company shall not be entitled to preemptive rights with respect to any shares of the MHC subsidiary holding company which may be issued.
Section 7. Directors. The MHC subsidiary holding company shall be under the direction of a board of directors. The authorized number of directors, as stated in the MHC subsidiary holding company's bylaws, shall not be fewer than five nor more than fifteen except when a greater or lesser number is approved by the Director of the Office, or his or her delegate.
Section 8. Certain provisions applicable for five years. Not withstanding anything contained in the MHC subsidiary holding company's charter or bylaws to the contrary, for a period of five years from the date of the completion of the conversion of Millington Savings Bank from the mutual to stock form, the following provisions shall apply:
A. Beneficial ownership limitation. No person, other than MSB Financial, MHC, the parent mutual holding company of the MHC subsidiary holding company, shall directly or indirectly offer to acquire or acquire the beneficial ownership of more than 10 percent of any class of an equity security of the MHC subsidiary holding company. This limitation shall not apply to the purchase of shares by underwriters in connection with a public offering, or the purchase of shares by a tax-qualified employee stock benefit plan which is exempt from the approval requirements under Section 574.3(c)(1)(vi) of the Office's regulations.
In the event shares are acquired in violation of this Section 8, all shares beneficially owned by any person in excess of 10% shall be considered "excess shares" and shall not be counted as shares entitled to vote and shall not be voted by any person or counted as voting shares in connection with any matters submitted to the stockholders for a vote.
For purposes of this Section 8, the following definitions apply:
(1) The term "person" includes an individual, a group acting in concert, a corporation, a partnership, an association, a joint stock company, a trust, an unincorporated organization or similar company, a syndicate or any other group formed for the purpose of acquiring, holding or disposing of the equity securities of the MHC subsidiary holding company.
(2) The term "offer" includes every offer to buy or otherwise acquire, solicitation of an offer to sell, tender offer for, or request or invitation for tenders of, a security or interest in a security for value.
(3) The term "acquire" includes every type of acquisition, whether effected by purchase, exchange, operation of law or otherwise.
(4) The term "acting in concert" means (a) knowing participation in a joint activity or conscious parallel action toward a common goal whether or not pursuant to an express agreement, or (b) a combination or pooling of voting or other interests in the securities of an issuer for a common purpose pursuant to any contract, understanding, relationship, agreement or other arrangements, whether written or otherwise.
B. Call for special meeting. Special meetings of stockholders relating to changes in control of the MHC subsidiary holding company or amendments to its charter shall be called only upon direction of the board of directors.
Section 9. Amendment of charter. Except as provided in Section 5, no amendment, addition, alteration, change, or repeal of this charter shall be made, unless such is proposed by the board of directors of the MHC subsidiary holding company, approved by the stockholders by a majority of the votes eligible to be cast at a legal meeting, unless a higher vote is otherwise required, and approved or preapproved by the Office.
MSB FINANCIAL CORP.
Attest: By:
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Nancy Schmitz Gary T. Jolliffe
Corporate Secretary President and Chief Executive Officer
OFFICE OF THRIFT SUPERVISION
Attest: By:
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Corporate Secretary of the Director of the Office of Thrift
Office of Thrift Supervision Supervision
Effective Date:
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MSB FINANCIAL CORP.
Federal MHC Subsidiary Holding Company Bylaws
ARTICLE I - HOME OFFICE
The home office of MSB Financial Corp. (the "Subsidiary Holding Company") shall be at 1902 Long Hill Road, Millington, New Jersey 07946.
ARTICLE II - SHAREHOLDERS
Section 1. Place of Meetings. All annual and special meetings of shareholders shall be held at the home office of the Subsidiary Holding Company or at such other convenient place as the board of directors may determine.
Section 2. Annual Meeting. A meeting of the shareholders of the
Subsidiary Holding Company for the election of directors and for the transaction
of any other business of the Subsidiary Holding Company shall be held annually
within 150 days after the end of the Subsidiary Holding Company's fiscal year on
the third Monday of the month of July if not a legal holiday, and if a legal
holiday, then on the next day following which is not a legal holiday, at 4:00
p.m., or at such date and time within such 150-day period as the board of
directors may determine.
Section 3. Special Meetings. Special meetings of the shareholders for any purpose or purposes, unless otherwise prescribed by the regulations of the Office of Thrift Supervision (the "Office") may be called at any time by the chairman of the board, the president, or a majority of the board of directors, and shall be called by the chairman of the board, the president, or the secretary upon the written request of the holders of not less than one-tenth of all of the outstanding capital stock of the Subsidiary Holding Company entitled to vote at the meeting. Such written request shall state the purpose or purposes of the meeting and shall be delivered to the home office of the Subsidiary Holding Company addressed to the chairman of the board, the president, or the secretary.
Section 4. Conduct of Meetings. Annual and special meetings shall be conducted in accordance with the most current edition of Robert's Rules of Order unless otherwise prescribed by regulations of the Office or these bylaws or the board of directors adopts another written procedure for the conduct of meetings. The board of directors shall designate, when present, either the chairman of the board or president to preside at such meetings.
Section 5. Notice of Meetings. Written notice stating the place, day, and hour of the meeting and the purpose(s) for which the meeting is called shall be delivered not fewer than 20 nor more than 50 days before the date of the meeting, either personally or by mail, by or at the direction of the chairman of the board, the president, or the secretary, or the directors calling the meeting, to each shareholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the mail, addressed to the shareholder at the address as it appears on the stock transfer books or records of the Subsidiary Holding Company as of the record date prescribed in Section 6 of this Article II with postage prepaid. When any shareholders' meeting, either annual or special, is adjourned for 30 days or more, notice of the adjourned meeting shall be given as in the case of an original meeting. It shall not be necessary to give
any notice of the time and place of any meeting adjourned for less than 30 days or of the business to be transacted at the meeting, other than an announcement at the meeting at which such adjournment is taken.
Section 6. Fixing of Record Date. For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment, or shareholders entitled to receive payment of any dividend, or in order to make a determination of shareholders for any other proper purpose, the board of directors shall fix in advance a date as the record date for any such determination of shareholders. Such date in any case shall be not more than 60 days and, in case of a meeting of shareholders, not fewer than 20 days prior to the date on which the particular action, requiring such determination of shareholders, is to be taken. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this section, such determination shall apply to any adjournment.
Section 7. Voting Lists. At least 20 days before each meeting of the shareholders, the officer or agent having charge of the stock transfer books for shares of the Subsidiary Holding Company shall make a complete list of the shareholders of record entitled to vote at such meeting, or any adjournment thereof, arranged in alphabetical order, with the address and the number of shares held by each. This list of shareholders shall be kept on file at the home office of the Subsidiary Holding Company and shall be subject to inspection by any shareholder of record or the shareholder's agent at any time during usual business hours for a period of 20 days prior to such meeting. Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to inspection by any shareholder of record or the shareholder's agent during the entire time of the meeting. The original stock transfer book shall constitute prima facie evidence of the shareholders entitled to examine such list or transfer books or to vote at any meeting of shareholders. In lieu of making the shareholder list available for inspection by shareholders as provided in the preceding paragraph, the board of directors may elect to follow the procedures prescribed in ss. 552.6(d) of the Office's regulations as now or hereafter in effect.
Section 8. Quorum. A majority of the outstanding shares of the Subsidiary Holding Company entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of shareholders. If less than a majority of the outstanding shares is represented at a meeting, a majority of the shares so represented may adjourn the meeting from time to time without further notice. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. The shareholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough shareholders to constitute less than a quorum. If a quorum is present, the affirmative vote of the majority of the shares represented at the meeting and entitled to vote on the subject matter shall be the act of the shareholders, unless the vote of a greater number of shareholders voting together or voting by classes is required by law or the charter. Directors, however, are elected by a plurality of the votes cast at an election of directors.
Section 9. Proxies. At all meetings of shareholders, a shareholder may vote by proxy executed in writing by the shareholder or by his or her duly authorized attorney in fact. Proxies may be given telephonically or electronically as long as the holder uses a procedure for verifying the identity of the shareholder. Proxies solicited on behalf of the management shall be voted as directed by the shareholder or, in the absence of such direction, as determined by a majority of the board of directors. No proxy shall be valid more than eleven months from the date of its execution except for a proxy coupled with an interest.
Section 10. Voting of Shares in the Name of Two or More Persons. When ownership stands in the name of two or more persons, in the absence of written directions to the Subsidiary Holding Company
to the contrary, at any meeting of the shareholders of the Subsidiary Holding Company, any one or more of such shareholders may cast, in person or by proxy, all votes to which such ownership is entitled. In the event an attempt is made to cast conflicting votes, in person or by proxy, by the several persons in whose names shares of stock stand, the vote or votes to which those persons are entitled shall be cast as directed by a majority of those holding such and present in person or by proxy at such meeting, but no votes shall be cast for such stock if a majority cannot agree.
Section 11. Voting of Shares of Certain Holders. Shares standing in the name of another corporation may be voted by any officer, agent, or proxy as the bylaws of such corporation may prescribe, or, in the absence of such provision, as the board of directors of such corporation may determine. Shares held by an administrator, executor, guardian, or conservator may be voted by him or her, either in person or by proxy, without a transfer of such shares into his or her name. Shares standing in the name of a trustee may be voted by him or her, either in person or by proxy, but no trustee shall be entitled to vote shares held by him or her, without a transfer of such shares into his or her name. Shares held in trust in an IRA or Keogh Account, however, may be voted by the Subsidiary Holding Company if no other instructions are received. Shares standing in the name of a receiver may be voted by such receiver, and shares held by or under the control of a receiver may be voted by such receiver without the transfer into his or her name if authority to do so is contained in an appropriate order of the court or other public authority by which such receiver was appointed.
A shareholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee, and thereafter the pledgee shall be entitled to vote the shares so transferred.
Neither treasury shares of its own stock held by the Subsidiary Holding Company nor shares held by another corporation, if a majority of the shares entitled to vote for the election of directors of such other corporation are held by the Subsidiary Holding Company, shall be voted at any meeting or counted in determining the total number of outstanding shares at any given time for purposes of any meeting.
Section 12. Inspectors of Election. In advance of any meeting of shareholders, the board of directors may appoint any persons other than nominees for office as inspectors of election to act at such meeting or any adjournment. The number of inspectors shall be either one or three. Any such appointment shall not be altered at the meeting. If inspectors of election are not so appointed, the chairman of the board or the president may, or on the request of not fewer than 10 percent of the votes represented at the meeting shall, make such appointment at the meeting. If appointed at the meeting, the majority of the votes present shall determine whether one or three inspectors are to be appointed. In case any person appointed as inspector fails to appear or fails or refuses to act, the vacancy may be filled by appointment by the board of directors in advance of the meeting or at the meeting by the chairman of the board or the president.
Unless otherwise prescribed by regulations of the Office, the duties of such inspectors shall include: determining the number of shares and the voting power of each share, the shares represented at the meeting, the existence of a quorum, and the authenticity, validity and effect of proxies; receiving votes, ballots, or consents; hearing and determining all challenges and questions in any way arising in connection with the rights to vote; counting and tabulating all votes or consents; determining the result; and such acts as may be proper to conduct the election or vote with fairness to all shareholders.
Section 13. Nominating Committee. The board of directors shall act as a nominating committee for selecting the management nominees for election as directors. Except in the case of a nominee substituted as a result of the death or other incapacity of a management nominee, the nominating committee shall deliver written nominations to the secretary at least 20 days prior to the date of the annual meeting. Upon delivery, such nominations shall be posted in a conspicuous place in each office of the Subsidiary Holding Company. No nominations for directors except those made by the nominating committee shall be voted upon at the annual meeting unless other nominations by shareholders are made in writing and delivered to the Secretary of the Subsidiary Holding Company at least five days prior to the date of the annual meeting. Upon delivery, such nominations shall be posted in a conspicuous place in each office of the Subsidiary Holding Company. Ballots bearing the names of all persons nominated by the nominating committee and by shareholders shall be provided for use at the annual meeting. However, if the nominating committee shall fail or refuse to act at least 20 days prior to the annual meeting, nominations for directors may be made at the annual meeting by any shareholder entitled to vote and shall be voted upon.
Section 14. New Business. Any new business to be taken up at the annual meeting shall be stated in writing and filed with the secretary of the Subsidiary Holding Company at least five days before the date of the annual meeting, and all business so stated, proposed and filed shall be considered at the annual meeting; but no other proposal shall be acted upon at the annual meeting. Any shareholder may make any other proposal at the annual meeting and the same may be discussed and considered, but unless stated in writing and filed with the secretary at least five days before the meeting, such proposal shall be laid over for action at an adjourned, special or annual meeting of the shareholders taking place 30 days or more thereafter. This provision shall not prevent the consideration and approval or disapproval at the annual meeting of reports of officers, directors and committees; but in connection with such reports, no new business shall be acted upon at such annual meeting unless stated and filed as herein provided.
Section 15. Informal Action by Shareholders. Any action required to be taken at a meeting of the shareholders, or any other action which may be taken at a meeting of shareholders, may be taken without a meeting if consent in writing, setting forth the action so taken, shall be given by all of the shareholders entitled to vote with respect to the subject matter.
ARTICLE III - BOARD OF DIRECTORS
Section 1. General Powers. The business and affairs of the Subsidiary Holding Company shall be under the direction of its board of directors. The board of directors shall annually elect a chairman of the board and a president from among its members and shall designate, when present, either the chairman of the board or the president to preside at its meetings.
Section 2. Number and Term. The board of directors shall consist of seven members and shall be divided into three classes as nearly equal in number as possible. The members of each class shall be elected for a term of three years and until their successors are elected and qualified. One class shall be elected by ballot annually.
Section 3. Regular Meetings. A regular meeting of the board of directors shall be held without other notice than this bylaw following the annual meeting of shareholders. The board of directors may provide, by resolution, the time and place, for the holding of additional regular meetings without other notice than such resolution. Directors may participate in a meeting by means of a conference telephone or similar
communications device through which all persons participating can hear each other at the same time. Participation by such means shall constitute presence in person for all purposes.
Section 4. Qualification. Each director shall at all times be the beneficial owner of not less than 100 shares of capital stock of the Subsidiary Holding Company unless the Subsidiary Holding Company is a wholly owned subsidiary of a holding company.
Section 5. Special Meetings. Special meetings of the board of directors may be called by or at the request of the chairman of the board, the president or one-third of the directors. The persons authorized to call special meetings of the board of directors may fix any place, within the Subsidiary Holding Company's normal lending territory, as the place for holding any special meeting of the board of directors called by such persons.
Members of the board of directors may participate in special meetings by means of conference telephone or similar communications equipment by which all persons participating in the meeting can hear each other. Such participation shall constitute presence in person for all purposes.
Section 6. Notice. Written notice of any special meeting shall be given to each director at least 24 hours prior thereto when delivered personally or by telegram or at least five days prior thereto when delivered by mail at the address at which the director is most likely to be reached. Such notice shall be deemed to be delivered when deposited in the mail so addressed, with postage prepaid if mailed, when delivered to the telegraph company if sent by telegram, or when the Subsidiary Holding Company receives notice of delivery if electronically transmitted. Any director may waive notice of any meeting by a writing filed with the secretary. The attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any meeting of the board of directors need be specified in the notice of waiver of notice of such meeting.
Section 7. Quorum. A majority of the number of directors fixed by
Section 2 of this Article III shall constitute a quorum for the transaction of
business at any meeting of the board of directors; but if less than such
majority is present at a meeting, a majority of the directors present may
adjourn the meeting from time to time. Notice of any adjourned meeting shall be
given in the same manner as prescribed by Section 6 of this Article III.
Section 8. Manner of Acting. The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the board of directors, unless a greater number is prescribed by regulation of the Office or by these bylaws.
Section 9. Action Without a Meeting. Any action required or permitted to be taken by the board of directors at a meeting may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the directors.
Section 10. Resignation. Any director may resign at any time by sending a written notice of such resignation to the home office of the Subsidiary Holding Company addressed to the chairman of the board or the president. Unless otherwise specified, such resignation shall take effect upon receipt by the chairman of the board or the president. More than three consecutive absences from regular meetings of the board of
directors, unless excused by resolution of the board of directors, shall automatically constitute a resignation, effective when such resignation is accepted by the board of directors.
Section 11. Vacancies. Any vacancy occurring on the board of directors may be filled by the affirmative vote of a majority of the remaining directors although less than a quorum of the board of directors. A director elected to fill a vacancy shall be elected to serve until the next election of directors by the shareholders. Any directorship to be filled by reason of an increase in the number of directors may be filled by election by the board of directors for a term of office continuing only until the next election of directors by the shareholders.
Section 12. Compensation. Directors, as such, may receive a stated salary for their services. By resolution of the board of directors, a reasonable fixed sum, and reasonable expenses of attendance, if any, may be allowed for attendance at each regular or special meeting of the board of directors. Members of either standing or special committees may be allowed such compensation for attendance at committee meetings as the board of directors may determine.
Section 13. Presumption of Assent. A director of the Subsidiary Holding Company who is present at a meeting of the board of directors at which action on any Subsidiary Holding Company matter is taken shall be presumed to have assented to the action taken unless his or her dissent or abstention shall be entered in the minutes of the meeting or unless he or she shall file a written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the secretary of the Subsidiary Holding Company within five days after the date a copy of the minutes of the meeting is received. Such right to dissent shall not apply to a director who voted in favor of such action.
Section 14. Removal of Directors. At a meeting of shareholders called expressly for that purpose, any director may be removed only for cause by a vote of the holders of a majority of the shares then entitled to vote at an election of directors. Whenever the holders of the shares of any class are entitled to elect one or more directors by the provisions of the charter or supplemental sections thereto, the provisions of this section shall apply, in respect to the removal of a director or directors so elected, to the vote of the holders of the outstanding shares of that class and not to the vote of the outstanding shares as a whole.
Section 15. Age Limitation on Directors. No person more than 70 years of age shall be eligible for election, reelection, appointment, or reappointment as a director of the Subsidiary Holding Company, except for persons serving as directors of Millington Savings Bank as of October 30, 1992.
ARTICLE IV - EXECUTIVE AND OTHER COMMITTEES
Section 1. Appointment. The board of directors, by resolution adopted by a majority of the full board, may designate the chief executive officer and two or more of the other directors to constitute an executive committee. The designation of any committee pursuant to this Article IV and the delegation of authority shall not operate to relieve the board of directors, or any director, of any responsibility imposed by law or regulation.
Section 2. Authority. The executive committee, when the board of directors is not in session, shall have and may exercise all of the authority of the board of directors except to the extent, if any, that such authority shall be limited by the resolution appointing the executive committee; and except also that the
executive committee shall not have the authority of the board of directors with reference to: the declaration of dividends; the amendment of the charter or bylaws of the Subsidiary Holding Company, or recommending to the stockholders a plan of merger, consolidation, or conversion; the sale, lease, or other disposition of all or substantially all of the property and assets of the Subsidiary Holding Company otherwise than in the usual and regular course of its business; a voluntary dissolution of the Subsidiary Holding Company; a revocation of any of the foregoing; or the approval of a transaction in which any member of the executive committee, directly or indirectly, has any material beneficial interest.
Section 3. Tenure. Subject to the provisions of Section 8 of this Article IV, each member of the executive committee shall hold office until the next regular annual meeting of the board of directors following his or her designation and until a successor is designated as a member of the executive committee.
Section 4. Meetings. Regular meetings of the executive committee may be held without notice at such times and places as the executive committee may fix from time to time by resolution. Special meetings of the executive committee may be called by any member thereof upon not less than one day's notice stating the place, date, and hour of the meeting, which notice may be written or oral. Any member of the executive committee may waive notice of any meeting and no notice of any meeting need be given to any member thereof who attends in person. The notice of a meeting of the executive committee need not state the business proposed to be transacted at the meeting.
Section 5. Quorum. A majority of the members of the executive committee shall constitute a quorum for the transaction of business at any meeting thereof, and action of the executive committee must be authorized by the affirmative vote of a majority of the members present at a meeting at which a quorum is present.
Section 6. Action Without a Meeting. Any action required or permitted to be taken by the executive committee at a meeting may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the members of the executive committee.
Section 7. Vacancies. Any vacancy in the executive committee may be filled by a resolution adopted by a majority of the full board of directors.
Section 8. Resignations and Removal. Any member of the executive committee may be removed at any time with or without cause by resolution adopted by a majority of the full board of directors. Any member of the executive committee may resign from the executive committee at any time by giving written notice to the presiding officer or secretary of the Subsidiary Holding Company. Unless otherwise specified, such resignation shall take effect upon its receipt; the acceptance of such resignation shall not be necessary to make it effective.
Section 9. Procedure. The executive committee shall elect a presiding officer from its members and may fix its own rules of procedure, which shall not be inconsistent with these bylaws. It shall keep regular minutes of its proceedings and report the same to the board of directors for its information at the meeting held next after the proceedings shall have occurred.
Section 10. Other Committees. The board of directors may by resolution establish an audit, loan, or other committee composed of directors as they may determine to be necessary or appropriate for the
conduct of the business of the Subsidiary Holding Company and may prescribe the duties, constitution, and procedures thereof.
ARTICLE V - OFFICERS
Section 1. Positions. The officers of the Subsidiary Holding Company shall be a president, one or more vice presidents, a secretary, and a treasurer or comptroller, each of whom shall be elected by the board of directors. The board of directors may also designate the chairman of the board as an officer. The offices of the secretary and treasurer may be held by the same person and a vice president may also be either the secretary or the treasurer or comptroller. The board of directors may designate one or more vice presidents as executive vice president or senior vice president. The board of directors may also elect or authorize the appointment of such other officers as the business of the Subsidiary Holding Company may require. The officers shall have such authority and perform such duties as the board of directors may from time to time authorize or determine. In the absence of action by the board of directors, the officers shall have such powers and duties as generally pertain to their respective offices.
Section 2. Election and Term of Office. The officers of the Subsidiary Holding Company shall be elected annually at the first meeting of the board of directors held after each annual meeting of the shareholders. If the election of officers is not held at such meeting, such election shall be held as soon thereafter as possible. Each officer shall hold office until a successor has been duly elected and qualified or until the officer's death, resignation, or removal in the manner hereinafter provided. Election or appointment of an officer, employee, or agent shall not of itself create contractual rights. The board of directors may authorize the Subsidiary Holding Company to enter into an employment contract with any officer in accordance with regulations of the Office, but no such contract shall impair the right of the board of directors to remove any officer at any time in accordance with Section 3 of this Article V.
Section 3. Removal. Any officer may be removed by the board of directors whenever in its judgment the best interests of the Subsidiary Holding Company will be served thereby, by such removal, other than for cause, shall be without prejudice to the contractual rights, if any, of the person so removed.
Section 4. Vacancies. A vacancy in any office because of death, resignation, removal, disqualification, or otherwise may be filled by the board of directors for the unexpired portion of the term.
Section 5. Remuneration. The remuneration of the officers shall be fixed from time to time by the board of directors.
ARTICLE VI - CONTRACTS, LOANS, CHECKS, AND DEPOSITS
Section 1. Contracts. To the extent permitted by regulations of the Office, and except as otherwise prescribed by these bylaws with respect to certificates for shares, the board of directors may authorize any officer, employee, or agent of the Subsidiary Holding Company to enter into any contract or execute and deliver any instrument in the name of and on behalf of the Subsidiary Holding Company. Such authority may be general or confined to specific instances.
Section 2. Loans. No loans shall be contracted on behalf of the Subsidiary Holding Company and no evidence of indebtedness shall be issued in its name unless authorized by the board of directors. Such authority may be general or confined to specific instances.
Section 3. Checks, Drafts, etc. All checks, drafts, or other orders for the payment of money, notes, or other evidences of indebtedness issued in the name of the Subsidiary Holding Company shall be signed by one or more officers, employees, or agents of the Subsidiary Holding Company in such manner as shall from time to time be determined by the board of directors.
Section 4. Deposits. All funds of the Subsidiary Holding Company not otherwise employed shall be deposited from time to time to the credit of the Subsidiary Holding Company in any duly authorized depositories as the board of directors may select.
ARTICLE VII - CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 1. Certificates for Shares. Certificates representing shares of capital stock of the Subsidiary Holding Company shall be in such form as shall be determined by the board of directors and approved by the Office. Such certificates shall be signed by the chief executive officer or by any other officer of the Subsidiary Holding Company authorized by the board of directors, attested by the secretary or an assistant secretary, and sealed with the corporate seal or a facsimile thereof. The signatures of such officers upon a certificate may be facsimiles if the certificate is manually signed on behalf of a transfer agent or a registrar other than the Subsidiary Holding Company itself or one of its employees. Each certificate for shares of capital stock shall be consecutively numbered or otherwise identified. The name and address of the person to whom the shares are issued, with the number of shares and date of issue, shall be entered on the stock transfer books of the Subsidiary Holding Company. All certificates surrendered to the Subsidiary Holding Company for transfer shall be canceled and no new certificate shall be issued until the former certificate for a like number of shares has been surrendered and canceled, except that in the case of a lost or destroyed certificate, a new certificate may be issued upon such terms and indemnity to the Subsidiary Holding Company as the board of directors may prescribe.
Section 2. Transfer of Shares. Transfer of shares of capital stock of the Subsidiary Holding Company shall be made only on its stock transfer books. Authority for such transfer shall be given only by the holder of record or by his or her legal representative, who shall furnish proper evidence of such authority, or by his attorney authorized by a duly executed power of attorney and filed with the Subsidiary Holding Company. Such transfer shall be made only on surrender for cancellation of the certificate for such shares. The person in whose name shares of capital stock stand on the books of the Subsidiary Holding Company shall be deemed by the Subsidiary Holding Company to be the owner for all purposes.
ARTICLE VIII - FISCAL YEAR; ANNUAL AUDIT
The fiscal year of the Subsidiary Holding Company shall end on the 30th day of June of each year. The appointment of accountants shall be subject to annual ratification by the shareholders.
ARTICLE IX - DIVIDENDS
Subject to the terms of the Subsidiary Holding Company's charter and the regulations and orders of the Office, the board of directors may, from time to time, declare, and the Subsidiary Holding Company may pay, dividends on its outstanding shares of capital stock.
ARTICLE X - CORPORATE SEAL
The board of directors shall provide a Subsidiary Holding Company seal which shall be two concentric circles between which shall be the name of the Subsidiary Holding Company. The year of incorporation or an emblem may appear in the center.
ARTICLE XI - AMENDMENTS
These bylaws may be amended in a manner consistent with regulations of the Office and shall be effective after: (i) approval of the amendment by a majority vote of the authorized board of directors, or by a majority vote of the votes cast by the shareholders of the Subsidiary Holding Company at any legal meeting, and (ii) receipt of any applicable regulatory approval. When a Subsidiary Holding Company fails to meet its quorum requirements, solely due to vacancies on the board, then the affirmative vote of a majority of the sitting board will be required to amend the bylaws.
====================================================================================================================================
COMMON STOCK __________ SHARES
CERTIFICATE NO. __ MSB FINANCIAL CORP.
INCORPORATED UNDER THE
LAWS OF THE UNITED STATES
CUSIP ___________
SEE REVERSE FOR CERTAIN DEFINITIONS
THIS
CERTIFIES
THAT
IS THE
OWNER OF _________________________________________________
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, $0.10 PAR VALUE PER SHARE, OF
MSB FINANCIAL CORP.
The shares evidenced by this certificate are transferable only on the books of the Company by the holder of record hereof
in person or by attorney, upon the surrender of this certificate properly endorsed. This certificate and the shares represented
thereby are issued and shall be subject to all the provisions contained in the Charter and Bylaws of the Company and any amendments
thereto (copies of which are on file with the Company, and to all the provisions to which the holder, by acceptance hereof, assents.
These shares are nonwithdrawable and are not of an insurable type. This certificate is not valid unless countersigned and
registered by the Company's transfer agent and registrar.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE NOT A DEPOSIT OR ACCOUNT
AND ARE NOT FEDERALLY INSURED OR GUARANTEED.
In Witness Whereof, MSB Financial Corp. has caused this certificate to be executed by the facsimile signatures of its duly
authorized officers and has caused a facsimile of its corporate seal to be hereunto affixed.
Dated:
______________________________________ _____________________________________
Nancy E. Schmitz Gary T. Jolliffe
Secretary [SEAL] President and Chief Executive Officer
====================================================================================================================================
|
MSB FINANCIAL CORP.
The shares represented by this certificate are issued subject to all the provisions of the Charter and Bylaws of
MSB FINANCIAL CORP. (the "Company"), as from time to time amended (copies of which are on file at the principal office of the
Company), to all of which the holder by acceptance hereof assents.
The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though
they were written out in full according to applicable laws or regulations.
TEN COM - as tenants in common UNIF GIFT TRAN ACT - _____ Custodian ___________
(Cus) (Minor)
TEN ENT - as tenants by the entireties
under Uniform Transfers to Minors Act
JT TEN - as joint tenants with right of _____________________________________
survivorship and not as tenants ( State)
in common
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, ______________________________________ hereby sell, assign and transfer unto ______________________,
_____________________ shares of the common stock evidenced by this certificate, and do hereby irrevocably constitute and appoint
________________________________, Attorney, to transfer the said shares on the books of the Company with full power of substitution.
Dated _______________, ________
________________________________
Signature
________________________________
Signature
In presence of: ____________________________________________
NOTE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME OF THE STOCKHOLDER(S) AS WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
|
MALIZIA SPIDI & FISCH, PC
ATTORNEYS AT LAW
901 NEW YORK AVENUE, N.W. 1900 SOUTH ATHERTON STREET
SUITE 210 EAST SUITE 101
WASHINGTON, D.C. 20001 STATE COLLEGE, PA 16801
(202) 434-4660 (814) 272-3502
FACSIMILE: (202) 434-4661 FACSIMILE: (814) 272-3514
September 12, 2006
Board of Directors
MSB Financial Corp.
1902 Long Hill Road
Millington, New Jersey 07946
Ladies and Gentlemen:
This opinion is rendered in connection with the Registration Statement on Form S-1 filed with the Securities and Exchange Commission under the Securities Act of 1933 relating to the offer and sale of up to 2,529,281 shares of common stock, par value $0.10 per share (the "Common Stock"), of MSB Financial Corp. (the "Company"). The Common Stock is proposed to be issued pursuant to the Plan of Minority Stock Issuance (the "Plan").
As special counsel to the Company, we have reviewed the corporate proceedings relating to the offering and the Plan and such other legal matters as we have deemed appropriate for the purpose of rendering this opinion.
Based on the foregoing, we are of the opinion that the shares of Common Stock of the Company covered by the aforesaid Registration Statement will, when issued in accordance with the terms of the Plan against full payment therefor and upon the declaration of the effectiveness of the Registration Statement on Form S-1, be legally issued, fully paid, and non-assessable shares of Common Stock of the Company.
We assume no obligation to advise you of any event that may hereafter be brought to our attention that may affect any statement made in the foregoing paragraph after the declaration of effectiveness of the Registration Statement on Form S-1.
We hereby consent to the use of this opinion and to the reference to our firm appearing in the Company's Prospectus. We also consent to any references to our legal opinion in the Prospectus.
Very truly yours,
/s/MALIZIA SPIDI & FISCH, PC MALIZIA SPIDI & FISCH, PC |
MALIZIA SPIDI & FISCH, PC
ATTORNEYS AT LAW
901 NEW YORK AVENUE, N.W. 1900 SOUTH ATHERTON STREET
SUITE 210 EAST SUITE 101
WASHINGTON, D.C. 20001 STATE COLLEGE, PENNSYLVANIA 16801
(202) 434-4660 (814) 272-3502
FACSIMILE: (202) 434-4661 FACSIMILE: (814) 272-3514
September 12, 2006
Board of Directors
Millington Savings Bank
MSB Financial Corp.
1902 Long Hill Road
Millington, NJ 07946
Members of the Board:
In accordance with your request, set forth herein below is the opinion of this firm relating to the material federal income tax consequences of the proposed initial public stock offering (the "Offering") of MSB Financial Corp. (the "Company"), a federal stock holding company.
We have examined such corporate records, certificates and other documents as we have considered necessary or appropriate for this opinion. In such examination, we have accepted, and have not independently verified, the authenticity of all original documents, the accuracy of all copies, and the genuineness of all signatures. Further, the capitalized terms which are used in this opinion and are not expressly defined herein shall have the meaning ascribed to them in the Plan of Stock Issuance (the "Plan") adopted on July 17, 2006, by the Company, MSB Financial, MHC (the "MHC"), and Millington Savings Bank (the "Bank").
Pursuant to a Plan of Reorganization from a New Jersey State Mutual Savings Bank to a Federal Mutual Holding Company dated April 14, 2003, the Bank converted to the mutual holding company form of organization in February 2004 with no stock offering. Pursuant to the Mutual Holding Company Plan of Reorganization, the Bank became a New Jersey stock savings bank, which has all of its stock owned by the Company, a federal stock holding company, which has all of its stock owned by the MHC, a federal mutual holding company. Pursuant to the Plan, the Company proposes, pursuant to the laws of the United States of America and the Rules and Regulations of the Office of Thrift Supervision ("OTS"), to conduct a stock offering of up to but less than 50% of the aggregate of the total voting stock of the Company.
MALIZIA SPIDI & FISCH, PC
Board of Directors
Millington Savings Bank
MSB Financial Corp.
September 12, 2006
In adopting the Plan, the Board of Directors has determined that the Offering is advisable and in the best interest of the Bank, the Company, the MHC and its members. The Offering will enable the Company and the Bank to increase its capital through the issuance of capital stock without undertaking a full conversion from the mutual to the stock form of organization. The Offering will not foreclose the opportunity to effect a conversion of the MHC from the stock form of organization in the future. The Offering will significantly increase capital and enable the Bank to further grow through internal expansion, the possible acquisition of other assets, branch offices, financial institutions, possible diversification into other related financial service activities and other purposes and will further enhance the Bank's ability to render services to the public. The mutual holding company structure also will allow the Bank to minimize over-capitalization by providing the flexibility to raise capital through the issuance of stock in a manner designed to meet the Bank's growth needs, rather than in a single stock offering as required in a standard mutual-to-stock conversion.
Based solely upon our review of such documents, and upon such information as the Bank and the Company have provided to us (which we have not attempted to verify in any respect), and in reliance upon such documents and information, we understand the relevant facts with respect to the Offering to be as follows:
As required by OTS regulations, shares of Company common stock ("Company Stock") will be offered pursuant to non-transferable subscription rights on the basis of preference categories. The Company has established various preference categories under which shares of Company Stock may be purchased and a Community Offering and a Public Offering category for the sale of shares not purchased under the preference categories. If the third preference category is determined to be inappropriate to the Offering, then there will only be three preference categories consisting of the first, second and fourth preference categories set forth below, and all references herein to Supplemental Eligible Account Holder and the Supplemental Eligibility Record Date shall not be applicable to the Offering. To the extent that Company Stock is available, no subscriber will be allowed to purchase less than 25 shares of Company Stock, unless the aggregate purchase price exceeds $500.
The first preference category is reserved for the Company's Eligible Account Holders. The Plan defines "Eligible Account Holder" as any person holding a Qualifying Deposit. The Plan defines "Qualifying Deposit" as the aggregate balance of all savings accounts of an Eligible Account Holder in the Bank at the close of business on June 30, 2005, which is at least equal to $50.00. If a savings account holder of the Bank qualifies as an Eligible Account Holder, he or she will receive, without payment, non-transferable subscription rights to purchase Company Stock. The number of shares that each Eligible Account Holder may subscribe to is equal to the greater of (a) the maximum purchase limitation established for the Community Offering or the Public Offering; (b) one tenth of one percent of the total offering of shares; or (c) fifteen times the product (rounded down to the next whole number) obtained by multiplying the total number of shares of Company Stock to be issued by a fraction of which the numerator is the amount of the Qualifying Deposit of the Eligible Account Holder and the denominator is the total amount of the Qualifying Deposits of all Eligible Account Holders. If there is an oversubscription, shares will be allocated among subscribing Eligible Account Holders so as to permit each account holder, to the extent possible, to purchase a number of shares sufficient to make his or her total allocation equal to 100 shares. Any shares not then allocated shall be allocated among the subscribing Eligible Account Holders on an equitable basis, related to the amounts of their respective deposits as compared to the total deposits of Eligible Account Holders on
MALIZIA SPIDI & FISCH, PC
Board of Directors
Millington Savings Bank
MSB Financial Corp.
September 12, 2006
the Eligibility Record Date. Non-transferable subscription rights to purchase Company Stock received by officers and directors of the Company and their associates based on their increased deposits in the Company 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 of Company Stock under the first preference category.
The second preference category is reserved for tax-qualified employee stock benefit plans of the Bank. The Plan defines "tax qualified employee stock benefit plans" as any defined benefit plan or defined contribution plan, such as an employee stock ownership plan, stock bonus plan, profit-sharing plan or other plan, which, with its related trust meets the requirements to be "qualified" under Section 401 of the Internal Revenue Code of 1986, as amended (the "Code"). Under the Plan, the Bank's tax-qualified employee stock benefit plans may subscribe for up to 8% of the shares of Company Stock to be offered in the Offering.
The third preference category is reserved for the Bank's Supplemental Eligible Account Holders. The Plan defines "Supplemental Eligible Account Holder" as any person (other than officers or directors of the Company and their associates) holding a deposit in the Bank on the last day of the calendar quarter preceding the approval of the Plan by the OTS ("Supplemental Eligibility Record Date"). This third preference category will only be used in the event that the Eligibility Record Date is more than 15 months prior to the date of the latest amendment to the Application for Approval of Offering on Form AC filed prior to approval by the OTS. The third preference category provides that each Supplemental Eligible Account Holder will receive, without payment, non-transferable subscription rights to purchase Company Stock to the extent that such shares of Company Stock are available after satisfying subscriptions for shares in the first and second preference categories above. The number of shares to which a Supplemental Eligible Account Holder may subscribe to is the greater of (a) the maximum purchase limitation established for the Community Offering; (b) one-tenth of one percent of the total offering of shares; or (c) fifteen times the product (rounded down to the next whole number) obtained by multiplying the total number of the shares of Company Stock to be issued by a fraction of which the numerator is the amount of the deposit of the Supplemental Eligible Account Holder and the denominator is the total amount of the deposits of all Supplemental Eligible Account Holders on the Supplemental Eligibility Record Date. Subscription rights received pursuant to the third preference category shall be subordinated to all rights under the first and second preference categories. Non-transferable subscription rights to be received by a Supplemental Eligible Account Holder in the third preference category shall be reduced by the subscription rights received by such account holder as an Eligible Account Holder under the first and second preference categories. In the event of an oversubscription, shares will be allocated so as to enable each Supplemental Eligible Account Holder, to the extent possible, to purchase a number of shares sufficient to make his total allocation, including shares previously allocated in the first and second preference categories, equal to 100 shares or the total amount of his subscription, whichever is less. Any shares not then allocated shall be allocated among the subscribing Supplemental Eligible Account Holders on an equitable basis related to the amount of their respective deposits as compared to the total deposits of Supplemental Eligible Account Holders on the Supplemental Eligibility Record Date.
The Plan further provides for limitations upon purchases of Company Stock. Specifically, any person by himself or herself may not purchase or subscribe more than $200,000 of Company Stock. In addition, any person with an associate or a group of persons acting in concert may purchase or subscribe for not more than the lesser of $250,000. However, Tax-Qualified Employee Stock Benefit Plans may purchase
MALIZIA SPIDI & FISCH, PC
Board of Directors
Millington Savings Bank
MSB Financial Corp.
September 12, 2006
up to 8% of the total shares of Company Stock issued. Subject to any required regulatory approval and the requirements of applicable laws and regulations, the Bank may increase or decrease any of the purchase limitations set forth herein at any time. The Board of Directors of the Bank may, in its sole discretion, increase the maximum purchase limitation up to 5.0%. Requests to purchase additional shares of Company Stock under this provision will be allocated by the Board of Directors on a pro rata basis giving priority in accordance with the priority rights set forth in the Plan. Officers and directors of the Company and their associates may not purchase in the aggregate more than 30% of the Company Stock issued pursuant to the Offering. Directors of the Company will not be deemed associates or a group acting in concert solely as a result of their membership on the Board of Directors of the Bank. All of the shares of Company Stock purchased by officers and directors will be subject to certain restrictions on sale for a period of one year.
The Plan provides that no person will be issued any subscription rights or be permitted to purchase any Company Stock if such person resides in a foreign country or in a state of the United States with respect to which all of the following apply: (a) a small number of persons otherwise eligible to subscribe for shares under the Plan reside in such state; (b) the issuance of subscription rights or the offer or sale of the Company Stock in such state, would require the Company or the Company under the securities laws of such state to register as a broker or dealer or to register or otherwise qualify its securities for sale in such state; and (c) such registration or qualification would be impracticable for reasons of cost or otherwise.
The Company will take 50% of the net proceeds from the sale of Company Stock and contribute it as a capital contribution to the Bank. The Bank will pay expenses of the Offering solely attributable to them, if any. Further, the Company will pay its own expenses of the Offering and will not pay any expenses solely attributable to the purchasers of Company Stock.
In connection with the Offering, the following statements, representations and declarations as to matters of fact have been made to us by management of the Company:
1. The Offering will be implemented in accordance with the terms of the Plan and all conditions precedent contained in the Plan shall be performed prior to the consummation of the Offering.
2. The Bank, the Company and the MHC are not currently in bankruptcy or involved in a bankruptcy proceeding. The proposed transaction does not involve a receivership, foreclosure, or similar proceeding before a federal or state agency involving a financial institution.
3. The Company, the MHC and the Bank will pay their own expenses of the Offering and will not pay any expenses solely attributable to the Company stockholders.
4. There will be no purchase price advantage for the Bank's deposit account holders who purchase Company Stock in the Offering.
MALIZIA SPIDI & FISCH, PC
Board of Directors
Millington Savings Bank
MSB Financial Corp.
September 12, 2006
5. No creditors of the Bank have taken any steps to enforce their claims against the Bank by instituting bankruptcy or other legal proceedings, in either a court or appropriate regulatory agency, that would eliminate the proprietary interests of the members of the Company prior to the Offering.
6. On a per share basis, the purchase price of the Company Stock in the Offering will be equal to the fair market value of such stock at the time of the completion of the proposed transaction.
7. No cash or property will be given to any member of the Bank in lieu of subscription rights.
Based solely upon the foregoing information and our analysis and examination of current applicable federal income tax laws, rulings, regulations, judicial precedents and provided the Offering is undertaken in accordance with the above assumptions, we render the following opinion of counsel:
1. The Company will recognize no gain or loss upon its receipt of money in exchange for shares of Company Stock. (Section 1032(a) of the Code).
2. It is more likely than not that the fair market value of the subscription rights to purchase Company Stock is zero. Accordingly, no gain or loss will be recognized by Eligible Account Holders and Supplemental Eligible Account Holders, upon the distribution to them of the nontransferable subscription rights to purchase shares of Company Stock. Gain realized, if any, by the Eligible Account Holders and Supplemental Eligible Account Holders on the distribution to them of nontransferable subscription rights to purchase shares of Company Stock will be recognized but only in an amount not in excess of the fair market value of such subscription rights (Code Section 356(a)). Eligible Account Holders and Supplemental Eligible Account Holders will not realize any taxable income as a result of the exercise by them of the nontransferable subscription rights (Rev. Rul. 56-572, 1956-2 C.B. 182).
Our opinion under paragraph 2 above is predicated on the representation that no person shall receive any payment, whether in money or property, in lieu of the issuance of subscription rights. Our opinion under paragraph 2 is based on the conclusion that the subscription rights to purchase shares of Company Stock received by Eligible Account Holders and Supplemental Eligible Account Holders have a fair market value of zero. We note that the subscription rights will be granted at no cost to the recipients, will be legally non- transferable and of short duration, and will provide the recipient with the right only to purchase shares of Company Stock at the same price to be paid by members of the general public in any Community Offering. We note that we are not aware of the Internal Revenue Service claiming in any similar transaction that subscription rights have any market value. In that there are no judicial opinions or official Internal Revenue Service positions on this issue, however, our opinion related to subscription rights comes to a reasoned conclusion instead of an absolute conclusion on these issues. Our conclusion is supported by a letter from RP Financial, LC, which states that the subscription rights do not have any value when they are distributed or exercised. If the Internal Revenue Service disagrees with this valuation of subscription rights and determines that such subscription rights have value, income may be recognized by recipients of these rights, in certain cases whether or not the rights are exercised. This income may be capital gain or ordinary income, and the Company could recognize gain on the distribution of these rights. Based on the foregoing, we believe it is more likely than not that the nontransferable subscription rights to purchase Company Stock have no value.
MALIZIA SPIDI & FISCH, PC
Board of Directors
Millington Savings Bank
MSB Financial Corp.
September 12, 2006
Our opinion is limited to the material federal income tax matters of the transaction proposed as it relates to the Company and the recipients of subscription rights to purchase the Company Stock as described above and does not address any other federal income tax considerations or any state, local, foreign, or other tax considerations. If any of the information on which we have relied is incorrect, or if changes in the relevant facts occur after the date hereof, our opinion could be affected thereby. Moreover, our opinion is based on the Code, applicable Treasury regulations promulgated thereunder, and Internal Revenue Service rulings, procedures, and other pronouncements published by the Internal Revenue Service. These authorities are all subject to change, and such change may be made with retroactive effect. We can give no assurance that, after such change, our opinion would not be different. We undertake no responsibility to update or supplement our opinion. This opinion is not binding on the Internal Revenue Service, and there can be no assurance, and none is hereby given, that the Internal Revenue Service will not take a position contrary to one or more of the positions reflected in the foregoing opinion, or that our opinion will be upheld by the courts if challenged by the Internal Revenue Service.
This opinion is given solely for the benefit of the parties to the Plan, the Eligible Account Holders and Supplemental Eligible Account Holders and those who purchase stock pursuant to the Plan, and may not be relied upon by any other party or entity or referred to in any document without our express written consent.
We hereby consent to the filing of this opinion as an exhibit to the Form MHC-2 of the Bank filed with the OTS, and the Registration Statement on Form S-1 of the Company filed under the Securities Act of 1933, as amended, and to the reference of our firm in the prospectus related to this opinion.
Very truly yours,
/s/MALIZIA SPIDI & FISCH, PC MALIZIA SPIDI & FISCH, PC |
Board of Directors
MSB Financial, MHC
MSB Financial Corp.
Millington Savings Bank
1902 Long Hill Road
Millington, New Jersey 07946
Dear Members:
You have requested our opinion regarding certain New Jersey tax consequences of the proposed initial public stock offering (the "Offering") of MSB Financial Corp. (the "Company"), a federal stock holding company.
We have examined such corporate records, certificates and other documents as we have considered necessary or appropriate for this opinion. In such examination, we have accepted, and have not independently verified, the authenticity of all original documents, the accuracy of all copies, and the genuineness of all signatures. Further, the capitalized terms which are used in this opinion and are not expressly defined herein shall have the meaning ascribed to them in the Plan of Stock Issuance (the "Plan") adopted on July 17, 2006, by the Company, MSB Financial, MHC (the "MHC"), and Millington Savings Bank (the "Bank").
Pursuant to a Plan of Reorganization from a New Jersey State Mutual Savings Bank to a Federal Mutual Holding Company dated April 14, 2003, the Bank converted to the mutual holding company form of organization in February 2004 with no stock offering. Pursuant to the Mutual Holding Company Plan of Reorganization, the Bank became a New Jersey stock savings bank, which has all of its stock owned by the Company, a federal stock holding company, which has all of its stock owned by the MHC, a federal mutual holding company. Pursuant to the Plan, the Company proposes, pursuant to the laws of the United States of America and the Rules and Regulations of the Office of Thrift Supervision ("OTS"), to conduct a stock offering of up to but less than 50% of the aggregate of the total voting stock of the Company.
The proposed transaction and its federal income tax consequences are described in an opinion letter dated September 12, 2006, from Malizia Spidi & Fisch, PC (the "Federal Opinion Letter") stating that:
1. The Company will recognize no gain or loss upon its receipt of money in exchange for shares of Company Stock (Section 1032(a) of the Code).
Board of Directors 2.
MSB Financial, MHC
MSB Financial Corp.
Millington Savings Bank
2. It is more likely than not that the fair market value of the subscription rights to purchase Company Stock is zero. Accordingly, no gain or loss will be recognized by Eligible Account Holders and Supplemental Eligible Account Holders upon the distribution to them of the nontransferable subscription rights to purchase shares of Company Stock. Gain realized, if any, by the Eligible Account Holders and Supplemental Eligible Accounts Holders on the distribution to them of nontransferable subscription rights to purchase shares of Company Stock will be recognized by only in an amount not in excess of the fair market value of such subscription rights (Code ss. 356(a)). Eligible Account Holders and Supplemental Eligible Account Holders will not realize any taxable income as a result of the exercise by them of the nontransferable subscription rights (Rev. Rul. 56-572, 1956-2 C.B. 182)
The facts, assumptions and representations and the federal tax consequences set forth in the Federal Opinion Letter are incorporated in this opinion letter by reference as if fully set forth herein. References and abbreviations used in the Federal Opinion Letter are also used herein.
In addition to the facts, assumptions and representations set forth in the Federal Opinion Letter, you have provided the following additional representations concerning the Offering:
The MHC, the Company and the Bank are subject to and have been filing returns and paying tax under the New Jersey Corporation Business Tax Reform Act, N.J.S. C54:10A-2, et seq. (the "CBT").
Based solely on the facts, assumptions and representations set forth in the Federal Opinion Letter and the foregoing supplemental representations and assuming the initial stock issuance occurs in accordance with the Plan, it is our opinion that:
To the extent that consummation of the Plan will not result in the recognition of gain or loss by the Company and will otherwise qualify as "tax free" under the Code, all as more fully described in the Federal Opinion Letter, consummation of the Plan will not result in any additional tax liabilities under the CBT.
Except for certain state adjustment under the CBT which are not impacted by consummation of the Plan, the CBT is imposed on a taxpayer's net income, which is deemed to be federal taxable income before net operating loss deduction and special deductions N.J.S.C54:10A-4. Accordingly, since the CBT is based on federal taxable income, the nonrecognition events, carryovers, and tax free exchanges under federal income tax law resulting from the Plan, all as more fully described in the Federal Opinion Letter, will be afforded the same treatment for purposes of the CBT.
Board of Directors 3.
MSB Financial, MHC
MSB Financial Corp.
Millington Savings Bank
* * * * *
Since this letter is provided in advance of the closing of the transactions contemplated by the Plan, we have assumed that such transactions will be consummated in accordance with the Plan, as well as the information and representations referred to herein. Any change in the Plan could cause us to modify the opinions expressed herein.
The opinions expressed herein are based solely on current New Jersey tax law, including applicable regulations thereunder, and current judicial and administrative authority. Any future amendments to the tax statutes cited herein or applicable regulations, or new judicial decisions or administrative interpretations, many of which could be retroactive in effect, could cause us to modify the opinions expressed herein.
We express no opinion with respect to the tax treatment of the Plan under the Code or any other law of the State of New Jersey not specifically addressed herein or the law of any other state or locality, or to the tax treatment of any conditions existing at the time of, or effects resulting from, the Plan which are not specifically covered by the items set forth in this opining letter.
This opinion is given solely for the benefit of the parties to the Plan, Eligible Account Holders, Supplemental Eligible Account Holders, Other Members and other investors who purchase shares pursuant to the Plan, and may not be (a) relied upon by any other party or entity or (b) referred to in any document without our express written consent.
We hereby consent to the filing, in connection with the Plan, of this opinion
letter as an exhibit to (a) the Form MHC-2 filed by the Bank with the OTS and
(b) the Registration Statement on Form S-1 filed by the Company with the
Securities and Exchange Commission, and to the reference thereto in the
prospectus included in the registration statement on Form S-1 related to this
opinion. In giving such consent, we do not thereby admit that we are in the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933, as amended.
/s/Beard Miller Company LLP Beard Miller Company LLP Pine Brook, New Jersey September 12, 2006 |
EMPLOYMENT AGREEMENT
As Amended and Restated
THIS AGREEMENT entered into this the 1st day of November, 2005 ("Effective Date") by and between Millington Savings Bank, Millington, New Jersey (the "Bank") and Gary T. Jolliffe (the "Employee").
WHEREAS, the Employee has heretofore been employed by the Bank as President and Chief Executive Officer of the Bank and is experienced in all phases of the business of the Bank; and
WHEREAS, the parties have previously entered into an employment agreement, which agreement has been renewed and amended from time to time ("Prior Agreement"); and
WHEREAS, the Bank desires to be ensured of the Employee's continued active participation in the business of the Bank; and
WHEREAS, the parties wish to set forth the continuing relationship of the parties.
NOW, THEREFORE, in consideration of the covenants and the mutual agreements herein contained, the parties hereby agree as follows:
1. Employment. The Employee is hereby employed by the Bank in the capacity as the President and Chief Executive Officer. The Employee hereby accepts said employment and agrees to render such administrative and management services to the Bank and any parent holding company of the Bank that may be formed in the future ("Parent") as are currently rendered and as are customarily performed by persons situated in a similar executive capacity. The Employee shall promote the business of the Bank. The Employee's other duties shall be such as the Board of Directors for the Bank (the "Board of Directors" or "Board") may from time to time reasonably direct, including normal duties as an officer of the Bank. The Employee's employment shall be for no definite period of time, and the Employee or the Bank may terminate such employment relationship at any time for any reason or no reason. The employment at-will relationship remains in full force and effect regardless of any statements to the contrary made by company personnel or set forth in any documents other than those explicitly made to the contrary and signed by the President or the Chairman of the Board of the Bank.
2. Base Compensation. The Bank agrees to pay the Employee during the Term (as hereinafter defined) of this Agreement a salary at the rate of not less than $________ per annum, payable in cash not less frequently than monthly; provided, that the rate of such salary shall be reviewed by the Board of Directors not less often than annually, and Employee shall be entitled to receive annually an increase at such percentage or in such an amount as the Board of Directors in its sole discretion may determine from time to time. The base salary may not be decreased without the Employee's express written consent.
3. Discretionary Bonus. The Employee shall be entitled to participate in an equitable manner with all other senior management employees of the Bank in discretionary bonuses that may be authorized and declared by the Board of Directors to its senior management employees from time to time. No other compensation provided for in this Agreement shall be deemed a substitute for the Employee's right to participate in such discretionary bonuses when and as declared by the Board of Directors.
4. (a) Participation in Retirement and Medical Plans. The Employee shall be entitled to participate in and receive the benefits of any plan or policy of the Bank which may be or may become applicable to senior management relating to pension or other retirement benefit plans, profit-sharing, stock options or incentive plans, life insurance, short and long term disability, medical, dental, eye-care, prescription drugs or medical reimbursement plans, or other benefit plans applicable to employees or senior management of the Bank.
(b) Employee Benefits; Expenses. The Employee shall be eligible to participate in and receive the benefits applicable to any fringe benefits which may be or may become applicable to the Bank's senior management employees, including a reasonable expense account, and any other benefits which are commensurate with the responsibilities and functions to be performed by the Employee under this Agreement. The Bank shall reimburse Employee for all reasonable out-of-pocket expenses which Employee shall incur in connection with his service for the Bank.
5. Term. The term of employment of Employee under this Agreement shall be for the period commencing on the Effective Date and ending thirty-six (36) months thereafter ("Term"). Additionally, not later than each annual anniversary date from the Effective Date, the Term of employment under this Agreement shall be extended for up to an additional one year period beyond the then effective expiration date so that the remaining Term shall thereafter be thirty-six months upon a determination and resolution of the Board of Directors that the performance of the Employee has met the requirements and standards of the Board, and that the Term of such Agreement shall be extended. References herein to the Term of this Agreement shall refer both to the initial term and successive terms.
6. Loyalty; Noncompetition.
(a) During the Term of Employee's employment under this Agreement, the Employee shall devote his full time and attention to the performance of his employment under this Agreement, and the Employee shall not engage in any business or activity contrary to the business affairs or interests of the Bank or Parent.
(b) Nothing contained in this Section 6 shall be deemed to prevent or limit the right of Employee to invest in the capital stock or other securities of any business dissimilar from that of the Bank or Parent, or, solely as a passive or minority investor, in any business.
7. Standards. During the Term of his employment under this Agreement, the Employee shall perform his duties in accordance with such reasonable standards expected of employees with comparable positions in comparable organizations and as may be established from time to time by the Board of Directors.
8. Vacation and Sick Leave. At such reasonable times as the Board of Directors shall in its discretion permit, the Employee shall be entitled, without loss of pay, to absent himself voluntarily from the performance of his employment under this Agreement, with all such voluntary absences to count as vacation time; provided that:
(a) The Employee shall be entitled to annual vacation leave in accordance with the policies as are periodically established by the Board of Directors for senior management employees of the Bank; but in no event shall such vacation leave be for a period of less than five weeks annually.
(b) The Employee shall not be entitled to accumulate unused vacation from one fiscal year to the next, except to the extent authorized by the Board of Directors for senior management employees of the Bank.
(c) The Employee shall not be entitled to accumulate unused sick leave from one fiscal year to the next, except to the extent authorized by the Board of Directors for senior management employees of the Bank.
(d) The Employee shall be entitled to receive additional compensation for any unused vacation leave or sick leave upon termination of employment, except to the extent otherwise determined by the Board of Directors.
9. Termination and Termination Pay.
The Employee's employment under this Agreement shall be terminated upon any of the following occurrences:
(a) The death of the Employee during the term of this Agreement, in which event the Employee's estate shall be entitled to receive the compensation due the Employee through the last day of the first calendar month in which Employee's death shall have occurred.
(b) The Bank may terminate the Employee's employment at any time with or without Just Cause within its sole discretion. This Agreement shall not be deemed to give Employee any right to be retained in the employment or service of the Bank, or to interfere with the right of the Bank to terminate the employment of the Employee at any time, but any termination by the Bank other than termination for Just Cause, shall not prejudice the Employee's right to compensation or other benefits detailed under the Agreement. The Employee shall have no right to receive compensation or other benefits for any period after termination for Just Cause. The Bank may
within its sole discretion, acting in good faith, terminate the Employee for Just Cause and shall notify such Employee accordingly. Termination for "Just Cause" shall include termination because of the Employee's personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule or regulation (other than traffic violations or similar offenses) or final cease-and-desist order, or material breach of any provision of the Agreement.
(c) Except as provided pursuant to Section 12 herein, in the event Employee's employment under this Agreement is terminated by the Bank without Just Cause, the Bank shall be obligated to continue to pay the Employee the salary provided pursuant to Section 2 herein, up to the date of termination of the remaining term (including any renewal term) of this Agreement, but in no event for a period of less than twelve months, and the cost of Employee obtaining all health, life, disability, and other benefits which the Employee would be eligible to participate in through such date based upon the benefit levels substantially equal to those being provided Employee at the date of termination of employment. The provisions of this Section 9(c) shall survive the expiration of this Agreement.
(d) The voluntary termination of employment by the Employee during the term of this Agreement with the delivery of no less than 60 days written notice to the Board of Directors, other than pursuant to Section 12(b), in which case the Employee shall be entitled to receive only the compensation, vested rights, and all employee benefits up to the date of such termination.
10. Regulatory Exclusion. Notwithstanding anything herein to the contrary, any payments made to the Employee pursuant to the Agreement, or otherwise, shall be subject to and conditioned upon compliance with 12 U.S.C. ss.1828(k) and any regulations promulgated thereunder.
11. Disability. If the Employee shall become disabled or incapacitated to the extent that he is unable to perform his duties hereunder, by reason of medically determinable physical or mental impairment, as determined by a doctor engaged by the Board of Directors, Employee shall nevertheless continue to receive the compensation and benefits provided under the terms of this Agreement as follows: 100% of such compensation and benefits for a period of 12 months, but not exceeding the remaining term of the Agreement, and 65% thereafter for the remainder of the term of the Agreement. Such benefits noted herein shall be reduced by any benefits otherwise provided to the Employee during such period under the provisions of disability insurance coverage in effect for Bank employees. Thereafter, Employee shall be eligible to receive benefits provided by the Bank under the provisions of disability insurance coverage in effect for Bank employees. Upon returning to active full-time employment, the Employee's full compensation as set forth in this Agreement shall be reinstated as of the date of commencement of such activities. In the event that the Employee returns to active employment on other than a full-time basis, then his compensation (as set forth in Section 2 of this Agreement) shall be reduced in proportion to the time spent in said employment, or as shall otherwise be agreed to by the parties.
12. Change in Control.
(a) Notwithstanding any provision herein to the contrary, in the event of the involuntary termination of Employee's employment during the term of this Agreement following any Change in Control of the Bank or Parent, or within 24 months thereafter of such Change in Control, absent Just Cause, Employee shall be paid an amount equal to the product of three(3.0) times the Employee's "base amount" as defined in Section 280G(b)(3) of the Internal Revenue Code of 1986, as amended (the "Code") and regulations promulgated thereunder less one(1) dollar. Said sum shall be paid, at the option of Employee, either in one (1) lump sum as of the date of such termination of service or in periodic payments over the next 36 months or the remaining term of this Agreement, whichever is less, as if Employee's employment had not been terminated, and such payments shall be in lieu of any other future payments which the Employee would be otherwise entitled to receive under Section 9 of this Agreement. Additionally, the Employee and his or her dependents shall remain eligible to participate in the medical and dental insurance programs offered by the Bank to its employees through the remaining term of the Agreement. Notwithstanding the foregoing, all sums payable hereunder shall be reduced in such manner and to such extent so that no such payments made hereunder when aggregated with all other payments to be made to the Employee by the Bank or the Parent shall be deemed an "excess parachute payment" in accordance with Section 280G of the Code and be subject to the excise tax provided at Section 4999(a) of the Code. The term "Change in Control" shall refer to (i) the control of voting proxies whether related to stockholders or mutual members by any person, other than the Board of Directors of the Bank, to direct more than 25% of the outstanding votes of the Bank, the control of the election of a majority of the Bank's directors, or the exercise of a controlling influence over the management or policies of the Bank by any person or by persons acting as a group within the meaning of Section 13(d) of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder (the "Exchange Act"), (ii) an event whereby the FDIC, the State of New Jersey Department of Banking and Insurance ("State") or any other department, agency or quasi-agency of the federal government cause or bring about, without the consent of the Bank, a change in the corporate structure or organization of the Bank; (iii) an event whereby the FDIC, the State or any other agency or quasi-agency of the federal government cause or bring about, without the consent of the Bank, a taxation or involuntary distribution of retained earnings or proceeds from the sale of securities to depositors, borrowers, any government agency or organization or civic or charitable organization; or (iv) a merger or other business combination between the Bank and another corporate entity whereby the Bank is not the surviving entity. In the event that the Bank shall convert in the future from mutual-to-stock form, the term "Change in Control" shall also refer to: (i) the sale of all, or a material portion, of the assets of the Bank or the Parent; (ii) the merger or recapitalization of the Bank or the Parent whereby the Bank or the Parent is not the surviving entity; (iii) a change in control of the Bank or the Parent, as otherwise defined or determined by the State or regulations promulgated by it; or (iv) the acquisition, directly or indirectly, of the beneficial ownership (within the meaning of that term as it is used in Section 13(d) of the Exchange Act) of twenty-five percent (25%) or more of the outstanding voting securities of the Bank or the Parent by any person, trust, entity or group. The term "person" means an individual other than the Employee, or a corporation, partnership, trust, association, joint venture, pool, syndicate, sole proprietorship, unincorporated organization or any
other form of entity not specifically listed herein. The provisions of this
Section 12(a) shall survive the expiration of this Agreement occurring after a
Change in Control.
(b) Notwithstanding any other provision of this Agreement to the contrary, the Employee may voluntarily terminate his employment during the term of this Agreement following a Change in Control of the Bank or Parent, or within twenty-four months following such Change in Control, and upon the occurrence, or within 120 days thereafter, of any of the following events, which have not been consented to in advance by the Employee in writing if: (i) the Employee would be required to move his personal residence or perform his principal executive functions more than thirty-five (35) miles from the Employee's primary office as of the signing of this Agreement; (ii) in the organizational structure of the Bank, the Employee would be required to report to a person or persons other than the Board of Directors of the Bank; (iii) the Bank should fail to maintain Employee's base compensation in effect as of the date of the Change in Control and the existing employee benefits plans, including material fringe benefit, stock option and retirement plans; (iv) the Employee would be assigned duties and responsibilities other than those normally associated with his position as referenced at Section 1, herein; (v) if Employee's responsibilities or authority have in any way been materially diminished or reduced; or (vi) the Employee would not be reelected to the Board of Directors of the Bank. Upon such voluntary termination of employment by the Employee in accordance with this subsection, Employee shall thereupon be entitled to receive the payments described in Section 12(a) of this Agreement. The provisions of this Section 12(b) shall survive the expiration of this Agreement occurring after a Change in Control.
13. Successors and Assigns.
(a) This Agreement shall inure to the benefit of and be binding upon any corporate or other successor of the Bank or Parent which shall acquire, directly or indirectly, by merger, consolidation, purchase or otherwise, all or substantially all of the assets or stock of the Bank or Parent.
(b) Since the Bank is contracting for the unique and personal skills of the Employee, the Employee shall be precluded from assigning or delegating his rights or duties hereunder without first obtaining the written consent of the Bank.
14. Amendment; Waiver. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing, signed by the Employee and such officer or officers as may be specifically designated by the Board of Directors of the Bank to sign on its behalf. No waiver by any party hereto at any time of any breach by any other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time.
15. Applicable Law. This agreement shall be governed in all respects whether as to validity, construction, capacity, performance or otherwise, by the laws of the State of New Jersey, except to the extent that Federal law shall be deemed to apply.
16. Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof.
17. Arbitration. Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration in accordance with the rules then in effect of the district office of the American Arbitration Association ("AAA") nearest to the home office of the Bank, and judgment upon the award rendered may be entered in any court having jurisdiction thereof, except to the extend that the parties may otherwise reach a mutual settlement of such issue. Further, the settlement of the dispute to be approved by the Board of the Bank may include a provision for the reimbursement by the Bank to the Employee for all reasonable costs and expenses, including reasonable attorneys' fees, arising from such dispute, proceedings or actions, or the Board of the Bank or the Parent may authorize such reimbursement of such reasonable costs and expenses by separate action upon a written action and determination of the Board following settlement of the dispute. Such reimbursement shall be paid within ten (10) days of Employee furnishing to the Bank or Parent evidence, which may be in the form, among other things, of a canceled check or receipt, of any costs or expenses incurred by Employee.
18. Confidential Information. The Employee acknowledges that during his or her employment he or she will learn and have access to confidential information regarding the Bank and the Parent and its customers and businesses ("Confidential Information"). The Employee agrees and covenants not to disclose or use for his or her own benefit, or the benefit of any other person or entity, any such Confidential Information, unless or until the Bank or the Parent consents to such disclosure or use or such information becomes common knowledge in the industry or is otherwise legally in the public domain. The Employee shall not knowingly disclose or reveal to any unauthorized person any Confidential Information relating to the Bank, the Parent, or any subsidiaries or affiliates, or to any of the businesses operated by them, and the Employee confirms that such information constitutes the exclusive property of the Bank and the Parent. The Employee shall not otherwise knowingly act or conduct himself (a) to the material detriment of the Bank or the Parent, or its subsidiaries, or affiliates, or (b) in a manner which is inimical or contrary to the interests of the Bank or the Parent. Employee acknowledges and agrees that the existence of this Agreement and its terms and conditions constitutes Confidential Information of the Bank, and the Employee agrees not to disclose the Agreement or its contents without the prior written consent of the Bank. Notwithstanding the foregoing, the Bank reserves the right in its sole discretion to make disclosure of this Agreement as it deems necessary or appropriate in compliance with its regulatory reporting requirements. Notwithstanding anything herein to the contrary, failure by the Employee to comply with the provisions of this Section may result in the immediate termination of the Agreement within the sole discretion of the Bank, disciplinary action against the Employee taken by the Bank, including but not limited to the termination of employment of the Employee for
breach of the Agreement and the provisions of this Section, and other remedies that may be available in law or in equity.
19. Indemnification; Insurance
(a) Indemnification. The Bank agrees to indemnify the Employee
and his heirs, executors, and administrators to the fullest extent permitted
under applicable law and regulations, including, without limitation 12 U.S.C.
Section 1828(k), against any and all expenses and liabilities reasonably
incurred by the Employee in connection with or arising out of any action, suit
or proceeding in which the Employee may be involved by reason of his having been
a director or officer of the Bank or any of its subsidiaries, whether or not the
Employee is a director or officer at the time of incurring any such expenses or
liabilities. Such expenses and liabilities shall include, but shall not be
limited to, judgments, court costs and attorney's fees and the cost of
reasonable settlements. The Employee shall be entitled to indemnification in
respect of a settlement only if the Board of Directors of the Bank has approved
such settlement. Notwithstanding anything herein to the contrary, (i)
indemnification for expenses shall not extend to matters for which the Employee
has been terminated for, and (ii) the obligations of this Section 19 shall
survive the termination of this Agreement. Nothing contained herein shall be
deemed to provide indemnification prohibited by applicable law or regulation.
(b) Insurance. During the Term of the Agreement, the Bank shall provide the Employee (and his heirs, executors, and administrators) with coverage under a directors' and officers' liability policy at the Bank's expense, at least equivalent to such coverage otherwise provided to the other directors and senior officers of the Bank.
20. Entire Agreement. This Agreement together with any understanding or modifications thereof as agreed to in writing by the parties, shall constitute the entire agreement between the parties hereto, and such Agreement shall supersede all prior agreements, whether in writing or otherwise, including the Prior Agreement, in all respects.
THE REMAINDER OF THIS PAGE IS INTENTIONAL BLANK.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and first hereinabove written.
MILLINGTON SAVINGS BANK
By: /s/Albert Olsen
---------------------------------
Chairman
|
/s/Gary T. Jolliffe --------------------------------- Gary T. Jolliffe, Employee |
EMPLOYMENT AGREEMENT
As Amended and Restated
THIS AGREEMENT entered into this the 1st day of November, 2005 ("Effective Date") by and between Millington Savings Bank, Millington, New Jersey (the "Bank") and Michael A. Shriner (the "Employee").
WHEREAS, the Employee has heretofore been employed by the Bank as Executive Vice President of the Bank and is experienced in all phases of the business of the Bank; and
WHEREAS, the parties have previously entered into an employment agreement, which agreement has been renewed and amended from time to time ("Prior Agreement"); and
WHEREAS, the Bank desires to be ensured of the Employee's continued active participation in the business of the Bank; and
WHEREAS, the parties wish to set forth the continuing relationship of the parties.
NOW, THEREFORE, in consideration of the covenants and the mutual agreements herein contained, the parties hereby agree as follows:
1. Employment. The Employee is hereby employed by the Bank in the capacity as the Executive Vice President. The Employee hereby accepts said employment and agrees to render such administrative and management services to the Bank and any parent holding company of the Bank that may be formed in the future ("Parent") as are currently rendered and as are customarily performed by persons situated in a similar executive capacity. The Employee shall promote the business of the Bank. The Employee's other duties shall be such as the Board of Directors for the Bank (the "Board of Directors" or "Board") may from time to time reasonably direct, including normal duties as an officer of the Bank. The Employee's employment shall be for no definite period of time, and the Employee or the Bank may terminate such employment relationship at any time for any reason or no reason. The employment at-will relationship remains in full force and effect regardless of any statements to the contrary made by company personnel or set forth in any documents other than those explicitly made to the contrary and signed by the President or the Chairman of the Board of the Bank.
2. Base Compensation. The Bank agrees to pay the Employee during the Term (as hereinafter defined) of this Agreement a salary at the rate of not less than $________ per annum, payable in cash not less frequently than monthly; provided, that the rate of such salary shall be reviewed by the Board of Directors not less often than annually, and Employee shall be entitled to receive annually an increase at such percentage or in such an amount as the Board of Directors in its sole discretion may determine from time to time. The base salary may not be decreased without the Employee's express written consent.
3. Discretionary Bonus. The Employee shall be entitled to participate in an equitable manner with all other senior management employees of the Bank in discretionary bonuses that may be authorized and declared by the Board of Directors to its senior management employees from time to time. No other compensation provided for in this Agreement shall be deemed a substitute for the Employee's right to participate in such discretionary bonuses when and as declared by the Board of Directors.
4. (a) Participation in Retirement and Medical Plans. The Employee shall be entitled to participate in and receive the benefits of any plan or policy of the Bank which may be or may become applicable to senior management relating to pension or other retirement benefit plans, profit-sharing, stock options or incentive plans, life insurance, short and long term disability, medical, dental, eye-care, prescription drugs or medical reimbursement plans, or other benefit plans applicable to employees or senior management of the Bank.
(b) Employee Benefits; Expenses. The Employee shall be eligible to participate in and receive the benefits applicable to any fringe benefits which may be or may become applicable to the Bank's senior management employees, including a reasonable expense account, and any other benefits which are commensurate with the responsibilities and functions to be performed by the Employee under this Agreement. The Bank shall reimburse Employee for all reasonable out-of-pocket expenses which Employee shall incur in connection with his service for the Bank.
5. Term. The term of employment of Employee under this Agreement shall be for the period commencing on the Effective Date and ending thirty-six (36) months thereafter ("Term"). Additionally, not later than each annual anniversary date from the Effective Date, the Term of employment under this Agreement shall be extended for up to an additional one year period beyond the then effective expiration date so that the remaining Term shall thereafter be thirty-six months upon a determination and resolution of the Board of Directors that the performance of the Employee has met the requirements and standards of the Board, and that the Term of such Agreement shall be extended. References herein to the Term of this Agreement shall refer both to the initial term and successive terms.
6. Loyalty; Noncompetition.
(a) During the Term of Employee's employment under this Agreement, the Employee shall devote his full time and attention to the performance of his employment under this Agreement, and the Employee shall not engage in any business or activity contrary to the business affairs or interests of the Bank or Parent.
(b) Nothing contained in this Section 6 shall be deemed to prevent or limit the right of Employee to invest in the capital stock or other securities of any business dissimilar from that of the Bank or Parent, or, solely as a passive or minority investor, in any business.
7. Standards. During the Term of his employment under this Agreement, the Employee shall perform his duties in accordance with such reasonable standards expected of employees with comparable positions in comparable organizations and as may be established from time to time by the Board of Directors.
8. Vacation and Sick Leave. At such reasonable times as the Board of Directors shall in its discretion permit, the Employee shall be entitled, without loss of pay, to absent himself voluntarily from the performance of his employment under this Agreement, with all such voluntary absences to count as vacation time; provided that:
(a) The Employee shall be entitled to annual vacation leave in accordance with the policies as are periodically established by the Board of Directors for senior management employees of the Bank; but in no event shall such vacation leave be for a period of less than five weeks annually.
(b) The Employee shall not be entitled to accumulate unused vacation from one fiscal year to the next, except to the extent authorized by the Board of Directors for senior management employees of the Bank.
(c) The Employee shall not be entitled to accumulate unused sick leave from one fiscal year to the next, except to the extent authorized by the Board of Directors for senior management employees of the Bank.
(d) The Employee shall be entitled to receive additional compensation for any unused vacation leave or sick leave upon termination of employment, except to the extent otherwise determined by the Board of Directors.
9. Termination and Termination Pay.
The Employee's employment under this Agreement shall be terminated upon any of the following occurrences:
(a) The death of the Employee during the term of this Agreement, in which event the Employee's estate shall be entitled to receive the compensation due the Employee through the last day of the first calendar month in which Employee's death shall have occurred.
(b) The Bank may terminate the Employee's employment at any time with or without Just Cause within its sole discretion. This Agreement shall not be deemed to give Employee any right to be retained in the employment or service of the Bank, or to interfere with the right of the Bank to terminate the employment of the Employee at any time, but any termination by the Bank other than termination for Just Cause, shall not prejudice the Employee's right to compensation or other benefits detailed under the Agreement. The Employee shall have no right to receive compensation or other benefits for any period after termination for Just Cause. The Bank may
within its sole discretion, acting in good faith, terminate the Employee for Just Cause and shall notify such Employee accordingly. Termination for "Just Cause" shall include termination because of the Employee's personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule or regulation (other than traffic violations or similar offenses) or final cease-and-desist order, or material breach of any provision of the Agreement.
(c) Except as provided pursuant to Section 12 herein, in the event Employee's employment under this Agreement is terminated by the Bank without Just Cause, the Bank shall be obligated to continue to pay the Employee the salary provided pursuant to Section 2 herein, up to the date of termination of the remaining term (including any renewal term) of this Agreement, but in no event for a period of less than twelve months, and the cost of Employee obtaining all health, life, disability, and other benefits which the Employee would be eligible to participate in through such date based upon the benefit levels substantially equal to those being provided Employee at the date of termination of employment. The provisions of this Section 9(c) shall survive the expiration of this Agreement.
(d) The voluntary termination of employment by the Employee during the term of this Agreement with the delivery of no less than 60 days written notice to the Board of Directors, other than pursuant to Section 12(b), in which case the Employee shall be entitled to receive only the compensation, vested rights, and all employee benefits up to the date of such termination.
10. Regulatory Exclusion. Notwithstanding anything herein to the contrary, any payments made to the Employee pursuant to the Agreement, or otherwise, shall be subject to and conditioned upon compliance with 12 U.S.C. ss.1828(k) and any regulations promulgated thereunder.
11. Disability. If the Employee shall become disabled or incapacitated to the extent that he is unable to perform his duties hereunder, by reason of medically determinable physical or mental impairment, as determined by a doctor engaged by the Board of Directors, Employee shall nevertheless continue to receive the compensation and benefits provided under the terms of this Agreement as follows: 100% of such compensation and benefits for a period of 12 months, but not exceeding the remaining term of the Agreement, and 65% thereafter for the remainder of the term of the Agreement. Such benefits noted herein shall be reduced by any benefits otherwise provided to the Employee during such period under the provisions of disability insurance coverage in effect for Bank employees. Thereafter, Employee shall be eligible to receive benefits provided by the Bank under the provisions of disability insurance coverage in effect for Bank employees. Upon returning to active full-time employment, the Employee's full compensation as set forth in this Agreement shall be reinstated as of the date of commencement of such activities. In the event that the Employee returns to active employment on other than a full-time basis, then his compensation (as set forth in Section 2 of this Agreement) shall be reduced in proportion to the time spent in said employment, or as shall otherwise be agreed to by the parties.
12. Change in Control.
(a) Notwithstanding any provision herein to the contrary, in the event of the involuntary termination of Employee's employment during the term of this Agreement following any Change in Control of the Bank or Parent, or within 24 months thereafter of such Change in Control, absent Just Cause, Employee shall be paid an amount equal to the product of three (3.0) times the Employee's "base amount" as defined in Section 280G(b)(3) of the Internal Revenue Code of 1986, as amended (the "Code") and regulations promulgated thereunder less one(1) dollar. Said sum shall be paid, at the option of Employee, either in one (1) lump sum as of the date of such termination of service or in periodic payments over the next 36 months or the remaining term of this Agreement, whichever is less, as if Employee's employment had not been terminated, and such payments shall be in lieu of any other future payments which the Employee would be otherwise entitled to receive under Section 9 of this Agreement. Additionally, the Employee and his or her dependents shall remain eligible to participate in the medical and dental insurance programs offered by the Bank to its employees through the remaining term of the Agreement. Notwithstanding the foregoing, all sums payable hereunder shall be reduced in such manner and to such extent so that no such payments made hereunder when aggregated with all other payments to be made to the Employee by the Bank or the Parent shall be deemed an "excess parachute payment" in accordance with Section 280G of the Code and be subject to the excise tax provided at Section 4999(a) of the Code. The term "Change in Control" shall refer to (i) the control of voting proxies whether related to stockholders or mutual members by any person, other than the Board of Directors of the Bank, to direct more than 25% of the outstanding votes of the Bank, the control of the election of a majority of the Bank's directors, or the exercise of a controlling influence over the management or policies of the Bank by any person or by persons acting as a group within the meaning of Section 13(d) of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder (the "Exchange Act"), (ii) an event whereby the FDIC, the State of New Jersey Department of Banking and Insurance ("State") or any other department, agency or quasi-agency of the federal government cause or bring about, without the consent of the Bank, a change in the corporate structure or organization of the Bank; (iii) an event whereby the FDIC, the State or any other agency or quasi-agency of the federal government cause or bring about, without the consent of the Bank, a taxation or involuntary distribution of retained earnings or proceeds from the sale of securities to depositors, borrowers, any government agency or organization or civic or charitable organization; or (iv) a merger or other business combination between the Bank and another corporate entity whereby the Bank is not the surviving entity. In the event that the Bank shall convert in the future from mutual-to-stock form, the term "Change in Control" shall also refer to: (i) the sale of all, or a material portion, of the assets of the Bank or the Parent; (ii) the merger or recapitalization of the Bank or the Parent whereby the Bank or the Parent is not the surviving entity; (iii) a change in control of the Bank or the Parent, as otherwise defined or determined by the State or regulations promulgated by it; or (iv) the acquisition, directly or indirectly, of the beneficial ownership (within the meaning of that term as it is used in Section 13(d) of the Exchange Act) of twenty-five percent (25%) or more of the outstanding voting securities of the Bank or the Parent by any person, trust, entity or group. The term "person" means an individual other than the Employee, or a corporation, partnership, trust, association, joint venture, pool, syndicate, sole proprietorship, unincorporated organization or any
other form of entity not specifically listed herein. The provisions of this
Section 12(a) shall survive the expiration of this Agreement occurring after a
Change in Control.
(b) Notwithstanding any other provision of this Agreement to the contrary, the Employee may voluntarily terminate his employment during the term of this Agreement following a Change in Control of the Bank or Parent, or within twenty-four months following such Change in Control, and upon the occurrence, or within 120 days thereafter, of any of the following events, which have not been consented to in advance by the Employee in writing if: (i) the Employee would be required to move his personal residence or perform his principal executive functions more than thirty-five (35) miles from the Employee's primary office as of the signing of this Agreement; (ii) in the organizational structure of the Bank, the Employee would be required to report to a person or persons other than the Board of Directors of the Bank; (iii) the Bank should fail to maintain Employee's base compensation in effect as of the date of the Change in Control and the existing employee benefits plans, including material fringe benefit, stock option and retirement plans; (iv) the Employee would be assigned duties and responsibilities other than those normally associated with his position as referenced at Section 1, herein; (v) if Employee's responsibilities or authority have in any way been materially diminished or reduced; or (vi) the Employee would not be reelected to the Board of Directors of the Bank. Upon such voluntary termination of employment by the Employee in accordance with this subsection, Employee shall thereupon be entitled to receive the payments described in Section 12(a) of this Agreement. The provisions of this Section 12(b) shall survive the expiration of this Agreement occurring after a Change in Control.
13. Successors and Assigns.
(a) This Agreement shall inure to the benefit of and be binding upon any corporate or other successor of the Bank or Parent which shall acquire, directly or indirectly, by merger, consolidation, purchase or otherwise, all or substantially all of the assets or stock of the Bank or Parent.
(b) Since the Bank is contracting for the unique and personal skills of the Employee, the Employee shall be precluded from assigning or delegating his rights or duties hereunder without first obtaining the written consent of the Bank.
14. Amendment; Waiver. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing, signed by the Employee and such officer or officers as may be specifically designated by the Board of Directors of the Bank to sign on its behalf. No waiver by any party hereto at any time of any breach by any other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time.
15. Applicable Law. This agreement shall be governed in all respects whether as to validity, construction, capacity, performance or otherwise, by the laws of the State of New Jersey, except to the extent that Federal law shall be deemed to apply.
16. Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof.
17. Arbitration. Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration in accordance with the rules then in effect of the district office of the American Arbitration Association ("AAA") nearest to the home office of the Bank, and judgment upon the award rendered may be entered in any court having jurisdiction thereof, except to the extend that the parties may otherwise reach a mutual settlement of such issue. Further, the settlement of the dispute to be approved by the Board of the Bank may include a provision for the reimbursement by the Bank to the Employee for all reasonable costs and expenses, including reasonable attorneys' fees, arising from such dispute, proceedings or actions, or the Board of the Bank or the Parent may authorize such reimbursement of such reasonable costs and expenses by separate action upon a written action and determination of the Board following settlement of the dispute. Such reimbursement shall be paid within ten (10) days of Employee furnishing to the Bank or Parent evidence, which may be in the form, among other things, of a canceled check or receipt, of any costs or expenses incurred by Employee.
18. Confidential Information. The Employee acknowledges that during his or her employment he or she will learn and have access to confidential information regarding the Bank and the Parent and its customers and businesses ("Confidential Information"). The Employee agrees and covenants not to disclose or use for his or her own benefit, or the benefit of any other person or entity, any such Confidential Information, unless or until the Bank or the Parent consents to such disclosure or use or such information becomes common knowledge in the industry or is otherwise legally in the public domain. The Employee shall not knowingly disclose or reveal to any unauthorized person any Confidential Information relating to the Bank, the Parent, or any subsidiaries or affiliates, or to any of the businesses operated by them, and the Employee confirms that such information constitutes the exclusive property of the Bank and the Parent. The Employee shall not otherwise knowingly act or conduct himself (a) to the material detriment of the Bank or the Parent, or its subsidiaries, or affiliates, or (b) in a manner which is inimical or contrary to the interests of the Bank or the Parent. Employee acknowledges and agrees that the existence of this Agreement and its terms and conditions constitutes Confidential Information of the Bank, and the Employee agrees not to disclose the Agreement or its contents without the prior written consent of the Bank. Notwithstanding the foregoing, the Bank reserves the right in its sole discretion to make disclosure of this Agreement as it deems necessary or appropriate in compliance with its regulatory reporting requirements. Notwithstanding anything herein to the contrary, failure by the Employee to comply with the provisions of this Section may result in the immediate termination of the Agreement within the sole discretion of the Bank, disciplinary action against the Employee taken by the Bank, including but not limited to the termination of employment of the Employee for
breach of the Agreement and the provisions of this Section, and other remedies that may be available in law or in equity.
19. Indemnification; Insurance
(a) Indemnification. The Bank agrees to indemnify the Employee
and his heirs, executors, and administrators to the fullest extent permitted
under applicable law and regulations, including, without limitation 12 U.S.C.
Section 1828(k), against any and all expenses and liabilities reasonably
incurred by the Employee in connection with or arising out of any action, suit
or proceeding in which the Employee may be involved by reason of his having been
a director or officer of the Bank or any of its subsidiaries, whether or not the
Employee is a director or officer at the time of incurring any such expenses or
liabilities. Such expenses and liabilities shall include, but shall not be
limited to, judgments, court costs and attorney's fees and the cost of
reasonable settlements. The Employee shall be entitled to indemnification in
respect of a settlement only if the Board of Directors of the Bank has approved
such settlement. Notwithstanding anything herein to the contrary, (i)
indemnification for expenses shall not extend to matters for which the Employee
has been terminated for, and (ii) the obligations of this Section 19 shall
survive the termination of this Agreement. Nothing contained herein shall be
deemed to provide indemnification prohibited by applicable law or regulation.
(b) Insurance. During the Term of the Agreement, the Bank shall provide the Employee (and his heirs, executors, and administrators) with coverage under a directors' and officers' liability policy at the Bank's expense, at least equivalent to such coverage otherwise provided to the other directors and senior officers of the Bank.
20. Entire Agreement. This Agreement together with any understanding or modifications thereof as agreed to in writing by the parties, shall constitute the entire agreement between the parties hereto, and such Agreement shall supersede all prior agreements, whether in writing or otherwise, including the Prior Agreement, in all respects.
THE REMAINDER OF THIS PAGE IS INTENTIONAL BLANK.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and first hereinabove written.
MILLINGTON SAVINGS BANK
By: /s/Gary T. Jolliffe
----------------------------
Gary T. Jolliffe
|
/s/Michael A. Shriner ---------------------------- Michael A. Shriner, Employee |
EMPLOYMENT AGREEMENT
As Amended and Restated
THIS AGREEMENT entered into this the 1st day of November, 2005 ("Effective Date") by and between Millington Savings Bank, Millington, New Jersey (the "Bank") and Jeffrey E. Smith (the "Employee").
WHEREAS, the Employee has heretofore been employed by the Bank as Vice President/Controller of the Bank and is experienced in all phases of the business of the Bank; and
WHEREAS, the parties have previously entered into an employment agreement, which agreement has been renewed and amended from time to time ("Prior Agreement"); and
WHEREAS, the Bank desires to be ensured of the Employee's continued active participation in the business of the Bank; and
WHEREAS, the parties wish to set forth the continuing relationship of the parties.
NOW, THEREFORE, in consideration of the covenants and the mutual agreements herein contained, the parties hereby agree as follows:
1. Employment. The Employee is hereby employed by the Bank in the capacity as the Vice President/Controller. The Employee hereby accepts said employment and agrees to render such administrative and management services to the Bank and any parent holding company of the Bank that may be formed in the future ("Parent") as are currently rendered and as are customarily performed by persons situated in a similar executive capacity. The Employee shall promote the business of the Bank. The Employee's other duties shall be such as the Board of Directors for the Bank (the "Board of Directors" or "Board") may from time to time reasonably direct, including normal duties as an officer of the Bank. The Employee's employment shall be for no definite period of time, and the Employee or the Bank may terminate such employment relationship at any time for any reason or no reason. The employment at-will relationship remains in full force and effect regardless of any statements to the contrary made by company personnel or set forth in any documents other than those explicitly made to the contrary and signed by the President or the Chairman of the Board of the Bank.
2. Base Compensation. The Bank agrees to pay the Employee during the Term (as hereinafter defined) of this Agreement a salary at the rate of not less than $________ per annum, payable in cash not less frequently than monthly; provided, that the rate of such salary shall be reviewed by the Board of Directors not less often than annually, and Employee shall be entitled to receive annually an increase at such percentage or in such an amount as the Board of Directors in its sole discretion may determine from time to time. The base salary may not be decreased without the Employee's express written consent.
3. Discretionary Bonus. The Employee shall be entitled to participate in an equitable manner with all other senior management employees of the Bank in discretionary bonuses that may be authorized and declared by the Board of Directors to its senior management employees from time to time. No other compensation provided for in this Agreement shall be deemed a substitute for the Employee's right to participate in such discretionary bonuses when and as declared by the Board of Directors.
4. (a) Participation in Retirement and Medical Plans. The Employee shall be entitled to participate in and receive the benefits of any plan or policy of the Bank which may be or may become applicable to senior management relating to pension or other retirement benefit plans, profit-sharing, stock options or incentive plans, life insurance, short and long term disability, medical, dental, eye-care, prescription drugs or medical reimbursement plans, or other benefit plans applicable to employees or senior management of the Bank.
(b) Employee Benefits; Expenses. The Employee shall be eligible to participate in and receive the benefits applicable to any fringe benefits which may be or may become applicable to the Bank's senior management employees, including a reasonable expense account, and any other benefits which are commensurate with the responsibilities and functions to be performed by the Employee under this Agreement. The Bank shall reimburse Employee for all reasonable out-of-pocket expenses which Employee shall incur in connection with his service for the Bank.
5. Term. The term of employment of Employee under this Agreement shall be for the period commencing on the Effective Date and ending twelve (12) months thereafter ("Term"). Additionally, not later than each annual anniversary date from the Effective Date, the Term of employment under this Agreement shall be extended for up to an additional one year period beyond the then effective expiration date so that the remaining Term shall thereafter be twelve months upon a determination and resolution of the Board of Directors that the performance of the Employee has met the requirements and standards of the Board, and that the Term of such Agreement shall be extended. References herein to the Term of this Agreement shall refer both to the initial term and successive terms.
6. Loyalty; Noncompetition.
(a) During the Term of Employee's employment under this Agreement, the Employee shall devote his full time and attention to the performance of his employment under this Agreement, and the Employee shall not engage in any business or activity contrary to the business affairs or interests of the Bank or Parent.
(b) Nothing contained in this Section 6 shall be deemed to prevent or limit the right of Employee to invest in the capital stock or other securities of any business dissimilar from that of the Bank or Parent, or, solely as a passive or minority investor, in any business.
7. Standards. During the Term of his employment under this Agreement, the Employee shall perform his duties in accordance with such reasonable standards expected of
employees with comparable positions in comparable organizations and as may be established from time to time by the Board of Directors.
8. Vacation and Sick Leave. At such reasonable times as the Board of Directors shall in its discretion permit, the Employee shall be entitled, without loss of pay, to absent himself voluntarily from the performance of his employment under this Agreement, with all such voluntary absences to count as vacation time; provided that:
(a) The Employee shall be entitled to annual vacation leave in accordance with the policies as are periodically established by the Board of Directors for senior management employees of the Bank; but in no event shall such vacation leave be for a period of less than five weeks annually.
(b) The Employee shall not be entitled to accumulate unused vacation from one fiscal year to the next, except to the extent authorized by the Board of Directors for senior management employees of the Bank.
(c) The Employee shall not be entitled to accumulate unused sick leave from one fiscal year to the next, except to the extent authorized by the Board of Directors for senior management employees of the Bank.
(d) The Employee shall be entitled to receive additional compensation for any unused vacation leave or sick leave upon termination of employment, except to the extent otherwise determined by the Board of Directors.
9. Termination and Termination Pay.
The Employee's employment under this Agreement shall be terminated upon any of the following occurrences:
(a) The death of the Employee during the term of this Agreement, in which event the Employee's estate shall be entitled to receive the compensation due the Employee through the last day of the first calendar month in which Employee's death shall have occurred.
(b) The Bank may terminate the Employee's employment at any time with or without Just Cause within its sole discretion. This Agreement shall not be deemed to give Employee any right to be retained in the employment or service of the Bank, or to interfere with the right of the Bank to terminate the employment of the Employee at any time, but any termination by the Bank other than termination for Just Cause, shall not prejudice the Employee's right to compensation or other benefits detailed under the Agreement. The Employee shall have no right to receive compensation or other benefits for any period after termination for Just Cause. The Bank may within its sole discretion, acting in good faith, terminate the Employee for Just Cause and shall notify such Employee accordingly. Termination for "Just Cause" shall include termination because of the Employee's personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty
involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule or regulation (other than traffic violations or similar offenses) or final cease-and-desist order, or material breach of any provision of the Agreement.
(c) Except as provided pursuant to Section 12 herein, in the event Employee's employment under this Agreement is terminated by the Bank without Just Cause, the Bank shall be obligated to continue to pay the Employee the salary provided pursuant to Section 2 herein, up to the date of termination of the remaining term (including any renewal term) of this Agreement, but in no event for a period of less than twelve months, and the cost of Employee obtaining all health, life, disability, and other benefits which the Employee would be eligible to participate in through such date based upon the benefit levels substantially equal to those being provided Employee at the date of termination of employment. The provisions of this Section 9(c) shall survive the expiration of this Agreement.
(d) The voluntary termination of employment by the Employee during the term of this Agreement with the delivery of no less than 60 days written notice to the Board of Directors, other than pursuant to Section 12(b), in which case the Employee shall be entitled to receive only the compensation, vested rights, and all employee benefits up to the date of such termination.
10. Regulatory Exclusion. Notwithstanding anything herein to the contrary, any payments made to the Employee pursuant to the Agreement, or otherwise, shall be subject to and conditioned upon compliance with 12 U.S.C. ss.1828(k) and any regulations promulgated thereunder.
11. Disability. If the Employee shall become disabled or incapacitated to the extent that he is unable to perform his duties hereunder, by reason of medically determinable physical or mental impairment, as determined by a doctor engaged by the Board of Directors, Employee shall nevertheless continue to receive the compensation and benefits provided under the terms of this Agreement as follows: 100% of such compensation and benefits for a period of 12 months, but not exceeding the remaining term of the Agreement, and 65% thereafter for the remainder of the term of the Agreement. Such benefits noted herein shall be reduced by any benefits otherwise provided to the Employee during such period under the provisions of disability insurance coverage in effect for Bank employees. Thereafter, Employee shall be eligible to receive benefits provided by the Bank under the provisions of disability insurance coverage in effect for Bank employees. Upon returning to active full-time employment, the Employee's full compensation as set forth in this Agreement shall be reinstated as of the date of commencement of such activities. In the event that the Employee returns to active employment on other than a full-time basis, then his compensation (as set forth in Section 2 of this Agreement) shall be reduced in proportion to the time spent in said employment, or as shall otherwise be agreed to by the parties.
12. Change in Control.
(a) Notwithstanding any provision herein to the contrary, in the event of the involuntary termination of Employee's employment during the term of this Agreement following any Change in Control of the Bank or Parent, or within 24 months thereafter of such Change in Control, absent Just Cause, Employee shall be paid an amount equal to the product of one (1.0) times the Employee's "base amount" as defined in Section 280G(b)(3) of the Internal Revenue Code of 1986, as amended (the "Code") and regulations promulgated thereunder less one(1) dollar. Said sum shall be paid, at the option of Employee, either in one (1) lump sum as of the date of such termination of service or in periodic payments over the next 12 months or the remaining term of this Agreement, whichever is less, as if Employee's employment had not been terminated, and such payments shall be in lieu of any other future payments which the Employee would be otherwise entitled to receive under Section 9 of this Agreement. Additionally, the Employee and his or her dependents shall remain eligible to participate in the medical and dental insurance programs offered by the Bank to its employees through the remaining term of the Agreement. Notwithstanding the foregoing, all sums payable hereunder shall be reduced in such manner and to such extent so that no such payments made hereunder when aggregated with all other payments to be made to the Employee by the Bank or the Parent shall be deemed an "excess parachute payment" in accordance with Section 280G of the Code and be subject to the excise tax provided at Section 4999(a) of the Code. The term "Change in Control" shall refer to (i) the control of voting proxies whether related to stockholders or mutual members by any person, other than the Board of Directors of the Bank, to direct more than 25% of the outstanding votes of the Bank, the control of the election of a majority of the Bank's directors, or the exercise of a controlling influence over the management or policies of the Bank by any person or by persons acting as a group within the meaning of Section 13(d) of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder (the "Exchange Act"), (ii) an event whereby the FDIC, the State of New Jersey Department of Banking and Insurance ("State") or any other department, agency or quasi-agency of the federal government cause or bring about, without the consent of the Bank, a change in the corporate structure or organization of the Bank; (iii) an event whereby the FDIC, the State or any other agency or quasi-agency of the federal government cause or bring about, without the consent of the Bank, a taxation or involuntary distribution of retained earnings or proceeds from the sale of securities to depositors, borrowers, any government agency or organization or civic or charitable organization; or (iv) a merger or other business combination between the Bank and another corporate entity whereby the Bank is not the surviving entity. In the event that the Bank shall convert in the future from mutual-to-stock form, the term "Change in Control" shall also refer to: (i) the sale of all, or a material portion, of the assets of the Bank or the Parent; (ii) the merger or recapitalization of the Bank or the Parent whereby the Bank or the Parent is not the surviving entity; (iii) a change in control of the Bank or the Parent, as otherwise defined or determined by the State or regulations promulgated by it; or (iv) the acquisition, directly or indirectly, of the beneficial ownership (within the meaning of that term as it is used in Section 13(d) of the Exchange Act) of twenty-five percent (25%) or more of the outstanding voting securities of the Bank or the Parent by any person, trust, entity or group. The term "person" means an individual other than the Employee, or a corporation, partnership, trust, association, joint venture, pool, syndicate, sole proprietorship, unincorporated organization or any other form of entity not specifically listed herein. The provisions of this Section 12(a) shall survive the expiration of this Agreement occurring after a Change in Control.
(b) Notwithstanding any other provision of this Agreement to the contrary, the Employee may voluntarily terminate his employment during the term of this Agreement following a Change in Control of the Bank or Parent, or within twenty-four months following such Change in Control, and upon the occurrence, or within 120 days thereafter, of any of the following events, which have not been consented to in advance by the Employee in writing if: (i) the Employee would be required to move his personal residence or perform his principal executive functions more than thirty-five (35) miles from the Employee's primary office as of the signing of this Agreement; (ii) in the organizational structure of the Bank, the Employee would be required to report to a person or persons other than the Board of Directors of the Bank; (iii) the Bank should fail to maintain Employee's base compensation in effect as of the date of the Change in Control and the existing employee benefits plans, including material fringe benefit, stock option and retirement plans; (iv) the Employee would be assigned duties and responsibilities other than those normally associated with his position as referenced at Section 1, herein; (v) if Employee's responsibilities or authority have in any way been materially diminished or reduced; or (vi) the Employee would not be reelected to the Board of Directors of the Bank. Upon such voluntary termination of employment by the Employee in accordance with this subsection, Employee shall thereupon be entitled to receive the payments described in Section 12(a) of this Agreement. The provisions of this Section 12(b) shall survive the expiration of this Agreement occurring after a Change in Control.
13. Successors and Assigns.
(a) This Agreement shall inure to the benefit of and be binding upon any corporate or other successor of the Bank or Parent which shall acquire, directly or indirectly, by merger, consolidation, purchase or otherwise, all or substantially all of the assets or stock of the Bank or Parent.
(b) Since the Bank is contracting for the unique and personal skills of the Employee, the Employee shall be precluded from assigning or delegating his rights or duties hereunder without first obtaining the written consent of the Bank.
14. Amendment; Waiver. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing, signed by the Employee and such officer or officers as may be specifically designated by the Board of Directors of the Bank to sign on its behalf. No waiver by any party hereto at any time of any breach by any other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time.
15. Applicable Law. This agreement shall be governed in all respects whether as to validity, construction, capacity, performance or otherwise, by the laws of the State of New Jersey, except to the extent that Federal law shall be deemed to apply.
16. Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof.
17. Arbitration. Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration in accordance with the rules then in effect of the district office of the American Arbitration Association ("AAA") nearest to the home office of the Bank, and judgment upon the award rendered may be entered in any court having jurisdiction thereof, except to the extend that the parties may otherwise reach a mutual settlement of such issue. Further, the settlement of the dispute to be approved by the Board of the Bank may include a provision for the reimbursement by the Bank to the Employee for all reasonable costs and expenses, including reasonable attorneys' fees, arising from such dispute, proceedings or actions, or the Board of the Bank or the Parent may authorize such reimbursement of such reasonable costs and expenses by separate action upon a written action and determination of the Board following settlement of the dispute. Such reimbursement shall be paid within ten (10) days of Employee furnishing to the Bank or Parent evidence, which may be in the form, among other things, of a canceled check or receipt, of any costs or expenses incurred by Employee.
18. Confidential Information. The Employee acknowledges that during his or her employment he or she will learn and have access to confidential information regarding the Bank and the Parent and its customers and businesses ("Confidential Information"). The Employee agrees and covenants not to disclose or use for his or her own benefit, or the benefit of any other person or entity, any such Confidential Information, unless or until the Bank or the Parent consents to such disclosure or use or such information becomes common knowledge in the industry or is otherwise legally in the public domain. The Employee shall not knowingly disclose or reveal to any unauthorized person any Confidential Information relating to the Bank, the Parent, or any subsidiaries or affiliates, or to any of the businesses operated by them, and the Employee confirms that such information constitutes the exclusive property of the Bank and the Parent. The Employee shall not otherwise knowingly act or conduct himself (a) to the material detriment of the Bank or the Parent, or its subsidiaries, or affiliates, or (b) in a manner which is inimical or contrary to the interests of the Bank or the Parent. Employee acknowledges and agrees that the existence of this Agreement and its terms and conditions constitutes Confidential Information of the Bank, and the Employee agrees not to disclose the Agreement or its contents without the prior written consent of the Bank. Notwithstanding the foregoing, the Bank reserves the right in its sole discretion to make disclosure of this Agreement as it deems necessary or appropriate in compliance with its regulatory reporting requirements. Notwithstanding anything herein to the contrary, failure by the Employee to comply with the provisions of this Section may result in the immediate termination of the Agreement within the sole discretion of the Bank, disciplinary action against the Employee taken by the Bank, including but not limited to the termination of employment of the Employee for breach of the Agreement and the provisions of this Section, and other remedies that may be available in law or in equity.
19. Indemnification; Insurance
(a) Indemnification. The Bank agrees to indemnify the Employee
and his heirs, executors, and administrators to the fullest extent permitted
under applicable law and regulations, including, without limitation 12 U.S.C.
Section 1828(k), against any and all expenses and liabilities reasonably
incurred by the Employee in connection with or arising out of any action, suit
or proceeding in which the Employee may be involved by reason of his having been
a director or officer of the Bank or any of its subsidiaries, whether or not the
Employee is a director or officer at the time of incurring any such expenses or
liabilities. Such expenses and liabilities shall include, but shall not be
limited to, judgments, court costs and attorney's fees and the cost of
reasonable settlements. The Employee shall be entitled to indemnification in
respect of a settlement only if the Board of Directors of the Bank has approved
such settlement. Notwithstanding anything herein to the contrary, (i)
indemnification for expenses shall not extend to matters for which the Employee
has been terminated for, and (ii) the obligations of this Section 19 shall
survive the termination of this Agreement. Nothing contained herein shall be
deemed to provide indemnification prohibited by applicable law or regulation.
(b) Insurance. During the Term of the Agreement, the Bank shall provide the Employee (and his heirs, executors, and administrators) with coverage under a directors' and officers' liability policy at the Bank's expense, at least equivalent to such coverage otherwise provided to the other directors and senior officers of the Bank.
20. Entire Agreement. This Agreement together with any understanding or modifications thereof as agreed to in writing by the parties, shall constitute the entire agreement between the parties hereto, and such Agreement shall supersede all prior agreements, whether in writing or otherwise, including the Prior Agreement, in all respects.
THE REMAINDER OF THIS PAGE IS INTENTIONAL BLANK.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and first hereinabove written.
MILLINGTON SAVINGS BANK
By: /s/Gary T. Jolliffe
----------------------------
Gary T. Jolliffe
/s/Jeffrey E. Smith
----------------------------
Jeffrey E. Smith, Employee
|
EXECUTIVE LIFE INSURANCE AGREEMENT
Bank: Millington Savings Bank, Millington, New Jersey ("Bank")
Insured: __________________
Relationship of Insured to Bank: Executive
The respective rights and duties of the Bank and the Insured in the above-referenced policy shall be pursuant to the terms set forth below:
I. DEFINITIONS
Refer to the policy contract for the definition of all terms in this Agreement, which contract is incorporated by reference.
II. POLICY TITLE AND OWNERSHIP
Title and ownership of the Policies referenced above shall reside in the Bank for its use and for the use of the Insured all in accordance with this Agreement. The Bank alone may, to the extent of its interest, exercise the right to borrow or withdraw on the policy cash values. Where the Bank and the Insured (or assignee, with the consent of the Insured) mutually agree to exercise the right to increase the coverage under the subject policy, then, in such event, the rights, duties and benefits of the parties to such increased coverage shall continue to be subject to the terms of this Agreement.
III. BENEFICIARY DESIGNATION RIGHTS
The Insured (or assignee) shall have the right and power to designate a beneficiary or beneficiaries to receive the Insured's share of the proceeds payable upon the death of the Insured, subject to any right or interest the Bank may have in such proceeds, as provided in this Agreement.
IV. PREMIUM PAYMENT METHOD
The Bank shall pay an amount equal to the planned premiums and any other premium payments that might become necessary to keep the policy in force. Notwithstanding the foregoing, the Bank shall have the absolute and sole right to terminate and surrender the policy that is the subject matter of this Agreement.
V. TAXABLE BENEFIT
Annually, the Insured will recognize a taxable benefit equal to the assumed cost of insurance as required by the Internal Revenue Service ("IRS"), as determined from time to time. The Bank (or its administrator) will report to the Insured the amount of such imputed income each year on IRS Form W-2 or its equivalent.
VI. DIVISION OF DEATH PROCEEDS
Subject to Paragraphs VII and X herein, the division of the death proceeds of the Policy is as follows:
A. If the Insured is:
i) employed by the Bank at the time of his or her death,
ii) has retired from employment with the Bank after completion
of not less than twenty (20 years of service with the Bank,
or
iii) has retired from employment with the Bank and at such date
of retirement the sum of the Insured's age and years of
service equals not less than 70 (subparagraph (ii) or (iii)
constituting "Retirement"),
then the Insured's Beneficiary(ies), designated in accordance with Paragraph III, shall be entitled to payment from the Policy proceeds directly from the Insurer of an amount equal to two (2) hundred percent (200%) of:
1) the Insured's highest annual base salary (not including bonus, equity compensation, deferred compensation or any other forms of compensation) in effect at the Bank at any time during the three calendar years prior to the date of death of the Insured (if the Insured is employed by the Bank at the time of death), or
2) the Insured's highest annual base salary (not including bonus, equity compensation, deferred compensation or any other forms of compensation) paid by the Bank to the Insured during the three calendar years prior to the date of Retirement of the Insured (if the Insured's death shall follow the Retirement of the Insured).
Notwithstanding the foregoing, the maximum payment due the Insured's beneficiary(ies) from the Insurer due under this Agreement and the sum of all of the Policies noted above shall not exceed $_______ in the aggregate. To the extent possible, an equal amount of each Policy's proceeds shall be payable to the Insured's Beneficiary(ies), not to exceed such Policy proceeds. Any amount payable in accordance with Section V1.A in excess of a Policy's proceeds shall thereafter be paid by any remaining Policies proceeds pro rata.
B. Subject to the obligations set forth therein, the Bank shall be entitled to the remainder of such Policy proceeds.
VII. OWNERSHIP OF THE CASH SURRENDER VALUE OF THE POLICY
The Bank shall at all times be entitled to one hundred percent (100%) of the Policy's cash value, as that term is defined in the Policy contract, less any policy loans and unpaid interest or cash withdrawals previously incurred by the Bank. Such cash value shall be determined as of the date of surrender or death as the case may be.
VIII. CHANGE OF CONTROL OF BANK
If a Change of Control of the Bank shall occur prior to the Insured's termination of employment or Retirement, then the death benefit coverage set forth in Section VI shall remain in effect until the Insured's death, unless this Agreement is otherwise terminated pursuant to its terms prior to such date of a Change in Control. Coverage under this Agreement for the Insured who terminates employment with the Bank (for reasons other than death or a Change in Control of the Bank) prior to completion of at least [ten] years of service with the Bank (and prior to the occurrence of a Change of Control) will cease on his or her last day of employment with the Bank.
For purposes of the above, A "Change of Control" shall mean: (i) the sale of all, or substantially all, of the assets of the Bank or any Parent corporation ("Parent"); (ii) the merger or recapitalization of the Bank or the parent whereby the Bank or the Parent is not the surviving entity; (iii) a change in control of the Bank or the Parent, as otherwise defined or determined by the Office of Thrift Supervision or regulations promulgated by it; or (iv) the acquisition, directly or indirectly, of the beneficial ownership (within the meaning of that term as it is used in Section 13(d) of the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder) of twenty-five percent (25%) or more of the outstanding voting securities of the Bank or Parent by any person, trust, entity or group. This limitation shall not apply to the purchase of shares by underwriters in connection with a public offering of the Parent stock, or the purchase of shares of up to twenty-five percent (25%) of any class of securities of the Parent by a tax-qualified employee stock benefit plan. The term "person" refers to an individual or a corporation, partnership, trust, association, joint venture, pool, syndicate, sole proprietorship, unincorporated organization or any other form of entity not specifically listed herein. The decision of the Board as to whether a change in control has occurred shall be conclusive and binding. However, a Change in Control shall not be deemed to have occurred as a result of (i) a holding company reorganization of the Bank and simultaneous acquisition of more than 50% of the Bank's stock (following the Bank's conversion to stock form) by a Parent, (ii) the reorganization of the Bank into a new holding company form whereby the Parent shall own 100% of the stock of the Bank and public stockholders shall own 100% of the Parent common stock, or (iii) the issuance of shares of Bank or Parent common stock to the public shareholders, provided that a
majority of the voting stock of the Bank or Parent are owned by a mutual holding company in accordance with regulations of the State of New Jersey Department of Banking and Insurance or other applicable banking regulatory agency.
IX. RIGHTS OF INSURED OR ASSIGNEES
The Insured may not, without the written consent of the Bank, assign to any individual, trust or other organization, any right, title or interest in the subject Policy nor any rights, options, privileges or duties created under this Agreement, other than the right to name a Beneficiary(ies) from time to time.
X. TERMINATION OF AGREEMENT
This Agreement shall terminate upon the occurrence of any one of the following:
A. The Insured shall be discharged from employment with the Bank "for cause." The term "for cause" shall include termination because of the Participant's personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule or regulation (other than traffic violations or similar offenses) or final cease-and-desist order, or material breach of any provision of the Plan; or
B. Surrender, lapse, or other termination of the Policy by the Bank. The Policy (and all rights of the Insured and his/her beneficiaries) will also terminate if any regulatory agency requires the Bank to sever its relationship with the Executive, if the Bank is subjected to banking regulatory restrictions limiting its ability to pay such compensation to the Insured, upon the occurrence of the bankruptcy, insolvency, receivership or dissolution of the Bank, or as may otherwise be determined by the Bank in good faith.
Upon such termination, the Insured (or assignee) shall have a fifteen (15) day right to elect to receive from the Bank an absolute assignment of the policy in consideration of a cash payment from the Insured to the Bank, whereupon this Agreement shall terminate. Such cash payment referred to hereinabove shall be equal to the cash value of the policy on the date of such assignment, as defined in this Agreement.
If, within said fifteen (15) day period, the Insured fails to exercise said option, fails to procure the entire aforestated cash payment, or dies, then the option shall terminate and the Insured (or assignee) agrees that all of the Insured's rights, interest and claims in the policy shall terminate as of the date of the termination of this Agreement.
The Insured expressly agrees that this Agreement shall constitute sufficient written notice to the Insured of the Insured's option to receive an absolute assignment of the policy as set forth herein.
Except as provided above, this Agreement shall terminate upon distribution of the death benefit proceeds in accordance with paragraph VI above.
XI. AGREEMENT BINDING UPON THE PARTIES
This Agreement shall bind the Insured and the Bank, their heirs, successors, personal representatives and assigns.
XII. GENDER
Whenever in this Agreement words are used in the masculine or neuter gender, they shall be read and construed as in the masculine, feminine or neuter gender, whenever they should so apply.
XIII. INSURANCE COMPANY NOT A PARTY TO THIS AGREEMENT
The Insurer shall not be deemed a party to this Agreement, but will respect the rights of the parties as herein developed upon receiving an executed copy of this Agreement. Payment or other performance in accordance with the policy provisions shall fully discharge the Insurer from any and all liability.
XIV. AMENDMENT OR REVOCATION
It is agreed by and between the parties hereto that, during the lifetime of the Insured, this Agreement may be amended or revoked at any time or times, in whole or in part, by the mutual written consent fo the Insured and the Bank.
XV. EFFECTIVE DATE
The Effective Date of this Agreement shall be January 1, 2004.
XVI. SEVERABILITY AND INTERPRETATION
If a provision o f this Agreement is held to be invalid or unenforceable, the remaining provisions shall nonetheless be enforceable according to their terms. Further, in the event that any provision is held to be overbroad as written, such provision shall be deemed amended to narrow its application to the extent necessary to make the provision enforceable according to law and enforced as amended.
XVII. APPLICABLE LAW
The validity and interpretation of this Agreement shall be governed by the laws of the State of New Jersey.
XVIII. ERISA PROVISIONS
The following provisions regarding the name fiduciary, the funding policy, the payment of benefits, and the claims procedure are part of this Agreement and are intended to meet the requirements of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"):
a) The Bank shall be the name fiduciary for purposes of ERISA and this Agreement.
b) All premiums paid with respect to the Policy shall be remitted to the Insurer when due in accordance with the Agreement.
c) Benefits under this Agreement shall be paid directly by the Insurer, with those benefits in turn being based on the payment of premiums as provided in the Agreement.
d) For the purposes of handling claims with respect to this Agreement, the "Claims Reviewer" shall be the Bank, unless another person or organizational unit is designated by the Bank as Claims Reviewer.
e) An initial claim for benefits under the Agreement must be made by the Insured or his or her beneficiary in accordance with the terms of the Agreement or policy through which the benefits are provided. Not later than 90 days after receipt of such a claim, the Claims Reviewer will render a written decision on the claim to the claimant, unless special circumstances require the extension of such 90-day period. If such extension is necessary, the Claims Reviewer shall provide the Insured or the Insured's beneficiary with written notification of such extension before the expiration of the initial 90-day period. Such notice shall specify the reason or reasons for such extension and the date by which a final decision can be expected. In no event shall such extension exceed a period of 90 days from the end of the initial 90-day period. In the event the Claims Reviewer denies the claim of a Insured or the Insured's beneficiary in whole or in part, the Claims Reviewer's written notification shall specify, in a manner calculated to be understood by the claimant, the reason for the denial; a reference to the Agreement or insurance policy that is the basis for the denial; a description of any additional material or information necessary for the claimant to perfect the claim; an explanation as to why such information or material is necessary; and an explanation of the applicable claims procedure. Should the claim be denied in whole or in part and should the claimant be dissatisfied with the Claims Reviewer's disposition of the claimant's claim, the claimant may have a full and fair review of the claim by the Bank upon written request therefor submitted by the claimant or the claimant's duly authorized representative and received by the
Bank within 60 days after the claimant receives written notification that the claimant's claim has been denied. In connection with such review, the claimant or the claimant's duly authorized representative shall be entitled to review pertinent documents and submit the claimant's views as to the issues, in writing. The Bank shall act to deny or accept the claim within 60 days after receipt of the claimant's written request for review unless special circumstances require the extension of such 60-day period. If such extension is necessary, the Bank shall provide the claimant with written notification of such extension before the expiration of such initial 60-day period. In all events, the Bank shall act to deny or accept the claim within 120 days of the receipt of the claimant's written request for review. The action of the Bank shall be in the form of a written notice to the claimant and its contents shall include all of the requirements for action on the original claim. In no event may a claimant commence legal action for benefits the claimant believes are due the claimant until the claimant has exhausted all of the remedies and procedures afforded the claimant by this Section XVIII.
Executed at the offices of the Bank, in Millington, New Jersey, this ____ day of ____________, 200__.
Millington Savings Bank
______________________________ By: ____________________________ Witness Title: ____________________________
______________________________ By: ____________________________ Witness Title: ____________________________
MILLINGTON SAVINGS BANK
EXECUTIVE LIFE INSURANCE AGREEMENT
BENEFICIARY DESIGNATION
Beneficiary Form / / New / / Change
----------------
________________________________________________________________________________
Name (last, first, middle initial) Social Security
Number
________________________________________________________________________________
Address
________________________________________________________________________________
Date of Hire Date of Birth
|
A. BENEFICIARY DESIGNATIONS
At my death, I direct that the beneficiary under the Executive Life Insurance Agreement with Millington Savings Bank be paid to my primary beneficiary or beneficiaries. If none of my primary beneficiaries are living, please pay my accounts to my secondary beneficiary.
________________________________________________________________________________ Primary Beneficiary Relationship ________________________________________________________________________________ Address ________________________________________________________________________________ Secondary Beneficiary Relationship ________________________________________________________________________________ Address MARITAL STATUS: / / Married / / Single |
B. EXECUTIVE AUTHORIZATION
I understand that the beneficiary elections made above will remain in effect until I file a Change Form with the Bank.
MILLINGTON SAVINGS BANK
EXECUTIVE INCENTIVE RETIREMENT PLAN AGREEMENT
As Amended and Restated
THIS AGREEMENT, made and entered into this 17th day of July, 2006, by and between Millington Savings Bank, Millington, New Jersey, a State of New Jersey chartered savings bank (hereinafter referred to as the "Bank"), and Gary T. Jolliffe, an Executive of the Bank (hereinafter referred to as the "Executive");
WHEREAS, it is deemed advisable and in the best interests of the Bank to offer such Executive with additional financial incentives in the form of deferred compensation to encourage such continued employment service to the Bank, and to remain market competitive in the Bank's ability to offer retirement income security to such Executive;
WHEREAS, the Bank and the Executive have previously entered into the Executive Incentive Retirement Plan Agreement (hereinafter referred to as the "Executive Plan"), effective May 10, 2004, and
WHEREAS, certain revisions to the Executive Plan are necessary in order to conform such Executive Plan to the requirements of Section 409A of the Internal Revenue Code of 1986, as amended ("Code") and related regulations and notices promulgated thereunder, with such revisions to be effective as of January 1, 2005.
NOW THEREFORE, BE IT RESOLVED that the Executive Plan shall be revised, amended and restated in its entirety, effective as of January 1, 2005, as follows:
I. EXECUTIVE'S PARTICIPATION IN THE EXECUTIVE PLAN
So long as the Executive shall continue to serve as the President and Chief Executive Officer of the Bank, or other senior executive position as determined within the discretion of the Board of Directors ("Board") of the Bank, the Executive shall be eligible to participate in this Executive Plan. The Plan Year for the Executive Plan shall be the same as the fiscal year for the Bank (July 1 through June 30).
II. AWARD
The Board may make an Award from time to time in accordance with this Agreement on behalf of the Executive in consideration for the Executive's continued services and job performance as determined in the sole discretion of the Board of the Bank based upon the criteria attached hereto as Exhibit "A" and fully incorporated herein by reference. Said criteria in Exhibit "A" may be modified by the Board in its sole discretion at any time. Payment of such Award to the Executive shall be deferred in accordance with this Agreement and shall be credited for the benefit of the Executive in the manner and by the terms and conditions specified in Paragraph IV herein.
III. VESTING
The Executive's accrual of Awards and earnings thereon as recorded in the Executive Incentive Retirement Plan Account shall be deemed earned and non-forfeitable in accordance with the Scheduled set forth below determined as the sum of the age of
such
Executive and the years of service of such Executive determined as of the first day of each Plan Year; with years of service determined in accordance with the definition set forth in any Internal Revenue Code ("Code") Section 401(a) tax qualified defined benefit plan sponsored by the Company or any Code Section 401(a) tax qualified defined contribution plan, if no such defined benefit plan shall be in effect at such time, any as follows:
Sum of Age and Years of Service Vesting/Earned %
------------------------------- ----------------
85 100%
80 95%
75 90
70 85
65 80
60 75
55 70
50 65
45 60
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Notwithstanding the foregoing, on and subsequent to the Executive attaining age sixty-five (65) while in the continuous employ of the Bank, upon the Executive's death while in the continuous employ of the Bank or upon a Change in Control of the Bank (as defined hereinafter), the Executive shall be one hundred percent (100%) vested in the Executive Incentive Retirement Plan Account.
IV. CREDITS TO INCENTIVE RETIREMENT PLAN ACCOUNT
The Bank shall establish a bookkeeping reserve account for the benefit of the Executive (hereinafter referred to as the "Executive Incentive Retirement Plan Account"), which shall be credited and adjusted as of the date of grant of each Award as defined in Paragraph II.
V. INTEREST ON THE INCENTIVE RETIREMENT PLAN ACCOUNT
The Executive Incentive Retirement Plan Account shall be credited with earnings on such account in an amount that is in addition to the Award(s) credited under Paragraph IV. Such amount shall be determined by multiplying the balance of the Executive's Account by a rate of interest equal to the New York average prime lending rate as quoted in the Wall Street Journal, Eastern Edition. Such rate shall be adjusted quarterly as of each January 1, April 1, July 1 and October 1, but in no event shall such per annum prime rate be less than 4% per annum or an amount greater than 12% per annum. Such earnings amount shall be credited quarterly as long as there is a balance in the Executive's Incentive Retirement Plan Account as of the last day of each calendar quarter.
VI. NATURE OF THE INCENTIVE RETIREMENT PLAN ACCOUNT
The Executive Incentive Retirement Plan Account shall be utilized solely as a device for the measurement and determination of the amount maintained as a book reserve for the benefit of the Executive under the Executive Plan and to be paid to the Executive at the times hereinafter specified, and the Bank shall not segregate any of its assets in order to satisfy any obligations under this Agreement. The Executive Incentive Retirement Plan Account shall not constitute or be treated as a trust fund of any kind. It is understood that all amounts
credited to the Executive Incentive Retirement Plan Account shall be for the sole purpose of bookkeeping and remain the sole property of the Bank, and that the Executive shall have no ownership rights of any nature with respect thereto. The Executive's rights are limited to the right to receive payments as hereinafter provided, and the Executive's position with respect thereto is that of a general, unsecured creditor of the Bank.
VII. PAYMENT OF EXECUTIVE'S DEFERRED COMPENSATION
Subject to Paragraph XIII, the amounts in the Executive Incentive Retirement Plan Account shall be paid in equal annual installments for fifteen (15) years certain. The amount payable shall be equal to the vested balance of the Executive's Incentive Retirement Plan Account as defined in Paragraph VI, including all interest credited as of the date of commencement of such payments pursuant to Paragraph V, plus additional interest earnings credited to such account based upon the periodic balance of such account during the pay-out period. Said installment payments of such vested deferred amounts shall commence on the first day of the calendar month following the Termination of Employment of the Executive due to retirement, resignation, disability, or removal or upon plan termination, whichever shall occur first.
"Termination of Employment" means the termination of the Executive's employment with the Bank for reasons other than upon the death or Disability of the Executive. Whether a Termination of Employment takes place is determined based on the facts and circumstances surrounding the termination of the Executive's employment and whether the Bank and the Executive intended for the Executive to provide significant services for the Bank following such termination. A change in the Executive's employment status will not be considered a Termination of Employment if:
(a) the Executive continues to provide services as an employee of the Bank at an annual rate that is twenty percent (20%) or more of the services rendered, on average, during the immediately preceding three full calendar years of employment (or, if employed less than three years, such lesser period) and the annual remuneration for such services is twenty percent (20%) or more of the average annual remuneration earned during the final three full calendar years of employment (or, if less, such lesser period), or
(b) the Executive continues to provide services to the Bank in a capacity other than as an employee of the Bank at an annual rate that is fifty percent (50%) or more of the services rendered, on average, during the immediately preceding three full calendar years of employment (or if employed less than three years, such lesser period) and the annual remuneration for such services is fifty percent (50%) or more of the average annual remuneration earned during the final three full calendar years of employment (or if less, such lesser period).
"Disability" (total and permanent disability) means total and permanent disability within the meaning of the Social Security Act.
PERMISSIBLE LUMP-SUM PAYOUTS Notwithstanding the foregoing, the Bank may, in its sole discretion, commence pay-out of the vested amount in such Executive Plan Account at any time following the Executive's Termination of Employment, provided that such pay-out amount shall be in an amount equal to not less than the lump sum value of such vested account balance, including interest earnings thereon, determined on the date of such pay-out; provided that such pay-out (1) accompanies the termination of the Executive's entire interest
under the Agreement and all similar arrangements that constitute
a nonqualified deferred compensation plan under Regulations at
Section 1.409A-1(c) applicable to Section 409A of the Code;(2)
the payment is made on or before the later of December 31 of the
calendar year of the Executive Termination of Employment, or the
15th day of the third month following such Termination of
Employment; (3) the payment is not greater than $10,000; and (4)
the Executive is provided no election with respect to receipt of
such lump-sum payment.
VIII. DEATH OF EXECUTIVE PRIOR TO COMMENCEMENT OF PAYMENTS
Except as set forth at Paragraph III herein, in the event of the death of the Executive prior to the commencement of payments, the Executive's vested percentage of the account balance on the date of death shall be paid in a lump sum to such individual(s) or entity(ies) as the Executive may have designated as beneficiaries in writing and filed with the Bank. Said amount shall be paid on the first day of the second month following the death of the Executive. In the event no beneficiary designation has been made, the Executive's vested percentage of the account balance on the date of death shall be paid, in a lump sum, as set forth herein to the duly qualified executor or administrator of the Executive's estate, provided however if no such executor or administrator is appointed, the Bank shall not make payment of said lump sum until said appointment.
IX. DEATH OF EXECUTIVE SUBSEQUENT TO COMMENCEMENT OF PAYMENTS
In the event of the death of the Executive after commencement of payments but prior to the Executive receiving all payments due the Executive under this Agreement, the remaining vested percentage of the account balance on the date of death shall be paid in a lump sum, on the first day of the second month following the death of the Executive, to such individual(s) or entity(ies) as the Executive may have designated as beneficiaries in writing and filed with the Bank. In the event no beneficiary designation has been made, the Executive's vested percentage of the account balance on the date of death shall be paid, in a lump sum, as set forth herein to the duly qualified executor or administrator of the Executive's estate, provided however if no such executor or administrator is appointed, the Bank shall not pay make payment of said lump sum until said appointment.
X. RESTRICTIONS UPON FUNDING
The Bank shall have no obligation to set aside, earmark or entrust any fund or money with which to pay its obligations under this Executive Plan. The Executives, their beneficiary(ies), or any successor in interest shall be and remain simply a general, unsecured creditor of the Bank in the same manner as any other creditor having a general claim for matured and unpaid compensation.
The Bank reserves the absolute right, at its sole discretion, to either fund the obligations undertaken by this Executive Plan or to refrain from funding the same and to determine the extent, nature and method of such funding. Should the Bank elect to fund this Executive Plan, in whole or in part, through the purchase of life insurance, mutual funds, disability policies or annuities, the Bank reserves the absolute right, in its sole discretion, to terminate such funding at any time, in whole or in part. At no time shall any Executive be deemed to have any lien, right, title or interest in any specific funding investment or to any assets of the Bank.
For any Executive who begins employment with the Bank subsequent to the Effective Date of this Agreement, if the Bank elects to invest in a life insurance, disability or annuity policy upon the life of the Executive, then the Executive shall reasonably cooperate with the Bank and any designated insurance company as may be requested by the Bank in order to obtain such insurance or annuities policy.
XI. MISCELLANEOUS
A. Alienability and Assignment Prohibition:
Neither the Executive, nor the Executive's surviving spouse, nor any other beneficiary(ies) under this Executive Plan shall have any power or right to transfer, assign, anticipate, hypothecate, mortgage, commute, modify or otherwise encumber in advance any of the benefits payable hereunder nor shall any of said benefits be subject to seizure for the payment of any debts, judgments, alimony or separate maintenance owed by the Executive or the Executive's beneficiary(ies), nor be transferable by operation of law in the event of Bankruptcy, insolvency or otherwise. In the event the Executive or any beneficiary attempts assignment, commutation, hypothecation, transfer or disposal of the benefits hereunder, the Bank's obligations and liabilities pursuant to this Agreement shall forthwith cease and terminate.
B. Binding Obligation of the Bank and any Successor in Interest:
The Bank shall not merge or consolidate into or with another Bank or sell substantially all of its assets to another Bank, firm or person until such Bank, firm or person expressly agrees, in writing, to assume and discharge the duties and obligations of the Bank under this Executive Plan. This Executive Plan shall be binding upon the parties hereto, their successors, beneficiaries, heirs and personal representatives.
C. Amendment, Termination or Revocation:
It is agreed by and between the parties hereto that this Executive Incentive Retirement Plan Agreement may be amended, terminated or revoked at any time or times, in whole or in part, by the Bank in its sole discretion. Upon a Change of Control as set forth in Paragraph XIII herein, it is agreed by and between the parties hereto that this Executive Plan Agreement may be amended or revoked any time or times, in whole or in part, only by the mutual written consent of the Executive and the Bank. Notwithstanding the foregoing, the Bank or any successor thereto may terminate or revoke the Agreement at anytime within its sole discretion, provided that the balance then accrued under the Executive Incentive Retirement Plan Account on behalf of the Executive shall be deemed fully earned and non-forfeitable at such time without regard to any vesting criteria, and such account shall be immediately paid to the Executive (without regard to any actual Termination of Employment) or designated beneficiary in a lump sum payment; provided, however, any such distributions to be made in accordance with this Section shall comply with the requirements and limitation under Section 409A of the Code, including that such lump-sum distribution shall only be made: (1) within thirty (30) days before, or twelve (12) months after a change in the ownership or effective control of the Bank, or change in the ownership of a substantial portion of the assets of the Bank as described in Section 409A(2)(A)(v) of the Code, provided that all distributions are made no later than twelve (12) months following such termination of the Agreement and further provided that all of the Bank's arrangements which are substantially similar to the
Agreement are terminated so the Executive and all participants
under similar arrangements shall receive all amounts of
deferred compensation under such terminated agreements within
twelve (12) months of the termination of the arrangements;
(2)Upon the Bank's dissolution or with the approval of a
bankruptcy court provided that the amounts deferred under the
Agreement are included in the Executive's gross income in the
latest of (i) the calendar year in which the Agreement
terminates; (ii) the calendar year in which the amount is no
longer subject to a substantial risk of forfeiture; or (iii)
the first calendar year in which the distribution is
administratively practical; or (3) Upon the Bank's termination
of this and all other account balance plans (as referenced in
Section 409A of the Code or the regulations thereunder),
provided that all distributions are made no earlier than
twelve (12) months and no later than twenty-four (24) months
following such termination, and the Company does not adopt any
new account balance plans for a minimum of five (5) years
following the date of such termination.
D. Gender:
Whenever in this Executive Plan words are used in the masculine or neuter gender, they shall be read and construed as in the masculine, feminine or neuter gender, whenever they should so apply.
E. Effect on Other Bank Benefit Plans:
Nothing contained in this Executive Plan shall affect the right of the Executive to participate in or be covered by any qualified or non-qualified pension, profit-sharing, group, bonus or other supplemental compensation or fringe benefit plan constituting a part of the Bank's existing or future compensation structure.
F. Headings:
Headings and subheadings in this Executive Plan are inserted for reference and convenience only and shall not be deemed a part of this Executive Plan.
G. Applicable Law:
The validity and interpretation of this Agreement shall be governed by the laws of the State of New Jersey, including, but not limited to the laws applicable to state chartered savings banks.
H. Bank Regulatory Matters:
Any payments made to the Executive pursuant to this Executive Plan, or otherwise, are subject to and conditioned upon their compliance with 12 U.S.C. ss. 1828(k) or any regulations promulgated thereunder.
Implementation of the Agreement shall be conditioned upon the Bank's receipt of a letter of approval or non-objection from the Commissioner of the New Jersey Department of Banking and Insurance, if applicable, in accordance with the applicable laws of the State of New Jersey related to state chartered savings banks at NJS 17:9A-27.26 and related statutes.
I. Partial Invalidity:
If any term, provision, covenant, or condition of this Executive Plan is determined by an arbitrator or a court, as the case may be, to be invalid, void, or unenforceable, such determination shall not render any other term, provision, covenant, or condition invalid, void, or unenforceable, and the Executive Plan shall remain in full force and effect notwithstanding such partial invalidity.
J. Employment:
No provision of this Agreement shall be deemed to restrict or limit any existing employment agreement by and between the Bank and the Executive, nor shall any conditions herein create specific employment rights to the Executive nor limit the right of the Bank to discharge the Executive with or without cause. In a similar fashion, no provision shall limit the Executive's rights to voluntarily sever his or her employment at any time.
K. Construction:
The Board shall have full power and authority to interpret, construe and administer this Executive Plan, and the Board's interpretations and construction thereof, and actions thereunder, shall be binding and conclusive on all persons for all purposes. Members of the Board of the Bank shall not be liable to any person for any action taken or omitted in connection with the interpretation and administration of this Plan unless attributable to his or her own willful, gross misconduct or intentional lack of good faith.
L. Plan Administration:
The Board of the Bank shall administer the Plan; provided, however, that the Board may appoint an administrative committee ("Committee") to provide administrative services or perform duties required by this Agreement. The Committee shall have only the authority granted to it by the Board.
M. Trust:
Except as may be specifically provided, nothing contained in this Agreement and no action taken pursuant to the provisions of this Agreement shall create or be construed to create a trust of any kind, or a fiduciary relationship between the Bank and the Executive or any other person. Any funds which may be invested under the provisions of this Agreement shall continue for all purposes to be a part of the general assets ad funds of the Bank. No person other than the Bank shall by virtue of the provisions of this Agreement have any interest in such assets and funds. The Bank shall not be under any obligation to use such funds solely to provide benefits hereunder, and no representations have been made to the Executive that such funds can or will be used only to provide benefits hereunder.
In order to facilitate the accumulation of funds necessary to meet the costs of the Bank under this Agreement (including the provision of funds necessary to pay premiums with respect to any life insurance policies purchase and to pay benefits to the extent that the cash value and/or proceeds of any such policies are not adequate to make payments to the Executive or his or her beneficiary as and when the same are due under the Agreement), the Bank may enter into a Trust Agreement. The Bank, in its discretion, may elect to place any life insurance policies purchased pursuant to the Agreement into the Trust. In addition, such sums shall be placed in said Trust as may from time to time be approved by the Board of Bank, in its sole discretion. To the extent that the assets of said Trust and/or the proceeds of any life insurance policy purchased pursuant to the Agreement are not sufficient to pay benefits accrued under this Agreement, such payments shall be made from the general assets of the Bank.
XII. ERISA PROVISION
A. Named Fiduciary and Plan Administrator:
The "Named Fiduciary and Plan Administrator" of this Executive Plan shall be the Bank until its resignation or removal by the Board. As the Named Fiduciary and Plan Administrator, the Bank shall be responsible for the management, control and administration of the Executive Plan. The Named Fiduciary may delegate to others certain aspects of the management and operation responsibilities of the Executive Plan including the employment of advisors and the delegation of ministerial duties to qualified individuals.
B. Claims Procedure and Arbitration:
In the event a dispute arises over benefits under this
Executive Plan and benefits are not paid to the Executive (or
to the Executive's beneficiary(ies) in the case of the
Executive's death) and such claimants feel they are entitled to
receive such benefits, then a written claim must be made to the
Named Fiduciary and Plan Administrator named above within sixty
(60) days from the date payments are refused. The Named
Fiduciary and Plan Administrator shall review the written claim
and if the claim is denied, in whole or in part, it shall
provide in writing within sixty (60) days of receipt of such
claim its specific reasons for such denial, reference to the
provisions of this Executive Plan upon which the denial is
based and any additional material or information necessary to
perfect the claim. Such written notice shall further indicate
the additional steps to be taken by claimants if a further
review of the claim denial is desired. A claim shall be deemed
denied if the Named Fiduciary and Plan Administrator fail to
take any action within the aforesaid sixty-day period.
If claimants desire a second review of the matter, they shall notify the Named Fiduciary and Plan Administrator in writing within sixty (60) days of the first claim denial. Claimants may review this Executive Plan or any documents relating thereto and submit any written issues and comments they may feel appropriate. The Named Fiduciary and Plan Administrator shall then review the second claim and provide a written decision within sixty (60) days of receipt of such claim. This decision shall likewise state the specific reasons for the decision and shall include reference to specific provisions of the Plan Agreement upon which the decision is based.
If claimants continue to dispute the benefit denial based upon completed performance of this Executive Plan or the meaning and effect of the terms and conditions thereof, then claimants may submit the dispute to an arbitrator for final arbitration within six (6) months from the actual or calculated date of the final written review. The arbitrator shall be selected by mutual agreement of the Bank and the claimants. The arbitrator shall operate under any generally recognized set of arbitration rules. The parties hereto agree that unless otherwise agreed by mutual written consent of both parties, there shall be no other alternative dispute resolution in law or equity other than binding arbitration and they and their heirs, personal representatives, successors and assigns shall be bound by the decision of such arbitrator with respect to any controversy properly submitted for determination. The arbitrator shall determine any award of attorney's fees or other costs of arbitration to the prevailing party.
C. Where a dispute arises as to the Bank's discharge of the Executive "for cause", such dispute shall likewise be submitted to arbitration as above described and the parties hereto agree to be bound by the decision thereunder. A determination by an arbitrator that a discharge or non reelection was not "for cause" shall govern the parties solely as to payment of benefits and shall not entitle the Executive to be reinstated or re-elected to office.
XIII. CHANGE OF CONTROL
"Change in Control" shall mean: (i) a change in ownership of
the Bank under paragraph (a) below, or (ii) a change in
effective control of the Bank under paragraph (b) below, or
(iii) a change in the ownership of a substantial portion of
the assets of the Bank under paragraph (c) below:
(a) CHANGE IN THE OWNERSHIP OF THE BANK. A change in the ownership of the Bank shall occur on the date that any one person, or more than one person acting as a group (as defined in paragraph (b)), acquires ownership of stock of the corporation that, together with stock held by such person or group, constitutes more than 50 percent of the total fair market value or total voting power of the stock of such corporation. However, if any one person or more than one person acting as a group, is considered to own more than 50 percent of the total fair market value or total voting power of the stock of a corporation, the acquisition of additional stock by the same person or persons is not considered to cause a change in the ownership of the corporation (or to cause a change in the effective control of the corporation (within the meaning of paragraph (b) below). An increase in the percentage of stock owned by any one person, or persons acting as a group, as a result of a transaction in which the corporation acquires its stock in exchange for property will be treated as an acquisition of stock for purposes of this section. This paragraph (a) applies only when there is a transfer of stock of a corporation (or issuance of stock of a corporation) and stock in such corporation remains outstanding after the transaction.
(b) CHANGE IN THE EFFECTIVE CONTROL OF THE BANK. A change in the effective control of the Bank shall occur on the date that either (i) any one person, or more than one person acting as a group (as determined below), acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) ownership of stock of the corporation possessing 35 percent or more of the total voting power of the stock of such corporation; or (ii) a majority of members of the corporation's board of directors is replaced during any 12-month period by
directors whose appointment or election is not endorsed by a majority of the members of the corporation's board of directors prior to the date of the appointment or election, provided that for purposes of this paragraph (b)(ii), the term corporation refers solely to a corporation for which no other corporation is a majority shareholder. In the absence of an event described in paragraph (i) or (ii), a change in the effective control of a corporation will not have occurred. If any one person, or more than one person acting as a group, is considered to effectively control a corporation (within the meaning of this paragraph (b)), the acquisition of additional control of the corporation by the same person or persons is not considered to cause a change in the effective control of the corporation (or to cause a change in the ownership of the corporation within the meaning of paragraph (a)). Persons will not be considered to be acting as a group solely because they purchase or own stock of the same corporation at the same time, or as a result of the same public offering.
(c) CHANGE IN THE OWNERSHIP OF A SUBSTANTIAL PORTION OF THE BANK'S ASSETS. A change in the ownership of a substantial portion of the Bank's assets shall occur on the date that any one person, or more than one person acting as a group (as determined below), acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) assets from the corporation that have a total gross fair market value equal to or more than 40% of the total gross fair market value of all of the assets of the corporation immediately prior to such acquisition or acquisitions. For this purpose, gross fair market value means the value of the assets of the corporation, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets. There is no Change in Control event under this paragraph (c) when there is a transfer to an entity that is controlled by the shareholders of the transferring corporation immediately after the transfer.
(d) Each of the sub-paragraphs (a) through (c) above shall be construed and interpreted consistent with the requirements of Section 409A of the Code and any Treasury regulations or other guidance issued thereunder. However, a change in control shall not be deemed to have occurred as a result of a holding company reorganization of the Bank and simultaneous acquisition of more than 50% of the Bank's stock (following the Bank's conversion to stock form) by a parent savings and loan holding company or bank holding company.
"Code" means the Internal Revenue Code of 1986, as amended, and regulations and guidance promulgated thereunder.
XIV. DISCHARGE FOR CAUSE
In the event the Executive shall be discharged for cause at any time, all benefits provided herein shall be forfeited. The term "for cause" shall mean any of the following that result in an adverse effect on the Bank: (i) negligence or neglect; (ii) the commission of a felony, disorderly persons offense or misdemeanor involving moral turpitude, fraud or dishonesty; (iii) the willful violation of any law, rule or regulation (other than a traffic violation or similar offense); (iv) an intentional failure to perform stated duties;, or (v) a breach of fiduciary duty involving personal profit. If a dispute arises as to payment of benefits premised upon whether a discharge is "for cause," such dispute shall be resolved by arbitration as set forth in PARAGRAPH XII (B). A determination by an arbitrator that a discharge was not "for cause" shall govern the parties solely as to the payment of benefits hereunder and shall not entitle the Executive to be reinstated.
XV. EFFECTIVE DATE
The Effective Date of this Agreement shall be April 1, 2004 with respect to the initial effective date of the Agreement, and January 1, 2005 with respect to the effective date of this amendment and restatement of the Plan.
XVI. SECTION 409A COMPLIANCE.
A. Notwithstanding anything herein to the contrary, the Committee shall make reasonable efforts to administer the Executive Plan and make benefit payments hereunder in a manner that is not deemed to be contrary to the requirements set forth at Section 409A of the Code and regulations and notices promulgated thereunder such that any payments made would result in the requirement for the recipient of such payments to pay additional interest and taxes to be imposed in accordance with Section 409A(a)(1)(B) of the Code; provided, however, neither the Bank, nor the Committee shall have any responsibility to a Executive or beneficiary(ies) with respect to any tax liabilities that may be applicable to any payments made by the Executive Plan.
B. If any provision of the Executive Plan shall be determined to be inconsistent with the requirements of Section 409A of the Code, then, the Executive Plan shall be construed, to the maximum extent possible, to give effect to such provision in a manner consistent with Section 409A of the Code, and if such construction is not possible, as if such provision had never been included.
C. Delay of Payment Commencement to Specified Employee
Notwithstanding any provision in the Executive Plan to the
contrary, if the Executive is a Specified Employee, such
Executive's benefit payments shall become first payable to him or
her as of the first day of the seventh month next following his
or her Termination of Employment, if and only if such payments,
if made earlier, would result in the recipient of such payments
to pay additional interest and taxes to be imposed in accordance
with Section 409A(a)(1)(B) of the Code; provide that such payment
delay shall not be required in the event of the death of the
Executiove. "Specified Employee" shall mean a key employee who,
at any time during the plan year, is (i) an officer of the Bank
having an annual compensation greater than $130,000 (as indexed),
(ii) a 5-percent owner of Bank, or (iii) a 1-percent owner of the
Bank having an annual compensation from the Savings Bank greater
than $150,000; provided, however, that this subparagraph shall
only be effective if the stock of the Bank or a parent
corporation is publicly traded as set forth at Section
409A(a)(2)(B)(i).
D. Distributions Upon Income Inclusion Under Section 409A of the Code. Upon the inclusion of any amount as taxable income to the Executive as a result of the failure of this non-qualified deferred compensation agreement to comply with the requirements of Section 409A of the Code, to the extent such tax liability can be covered by the then accrued Executive Incentive Retirement Plan Account balance, a distribution shall be made to the Executive as soon as is administratively practicable following the discovery o f the plan failure in an amount sufficient tfor the Executive to pay such tax liability.
[THE REMAINDER OF THIS PAGE IS INTENTIALLY BLANK]
IN WITNESS WHEREOF, the parties hereto acknowledge that each has carefully read this Agreement and executed the original thereof on the first day set forth hereinabove, and that, upon execution, each has received a conforming copy.
Millington Savings Bank
By: /s/Albert Olsen
---------------------------
Its: Chairman
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/s/Gary T. Jolliffe --------------------------- Gary T. Jolliffe, Executive |
BENEFICIARY DESIGNATION FORM
FOR THE EXECUTIVE INCENTIVE RETIREMENT
PLAN AGREEMENT
Name________________________________________________ Relationship____________________________ /__________%
Address___________________________________________________________________________________________________
(Street) (City) (State) (Zip)
Name________________________________________________ Relationship____________________________ /__________%
Address___________________________________________________________________________________________________
(Street) (City) (State) (Zip)
Name________________________________________________ Relationship____________________________ /__________%
Address:__________________________________________________________________________________________________
(Street) (City) (State) (Zip)
Name________________________________________________ Relationship____________________________ /__________%
Address:__________________________________________________________________________________________________
(Street) (City) (State) (Zip)
B. Estate as a Primary Designation:
-------------------------------
My Primary Beneficiary is The Estate of___________________________________________________________________
as set forth in the last will and testament dated the__day of____________,_______ and any codicils thereto.
C. Trust as a Primary Designation:
------------------------------
Name of the Trust:_________________________________________________________________________
Execution Date of the Trust:_________ / _____/____________
Name of the Trustee:________________________________________________________________________
Beneficiary(ies) of the Trust (please indicate the percentage for each beneficiary):
___________________________________________________________________________________
___________________________________________________________________________________
Is this an Irrevocable Life Insurance Trust?______________Yes______________No
(If yes and this designation is for a Split Dollar agreement, an
Assignment of Rights form should be completed.)
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Name________________________________________________ Relationship____________________________ /__________%
Address___________________________________________________________________________________________________
(Street) (City) (State) (Zip)
Name________________________________________________ Relationship____________________________ /__________%
Address___________________________________________________________________________________________________
(Street) (City) (State) (Zip)
Name________________________________________________ Relationship____________________________ /__________%
Address___________________________________________________________________________________________________
(Street) (City) (State) (Zip)
Name________________________________________________ Relationship____________________________ /__________%
Address___________________________________________________________________________________________________
(Street) (City) (State) (Zip)
B. Estate as a Secondary (Contingent) Designation:
----------------------------------------------
My Secondary Beneficiary is The Estate of_________________________________
as set forth in my last will and testament dated the___day of ___________,________ and any codicils thereto.
C. Trust as a Secondary (Contingent) Designation:
---------------------------------------------
Name of the Trust:________________________________________________________
Execution Date of the Trust:_________/_______/___________
Name of the Trustee:______________________________________________________
Beneficiary(ies) of the Trust (please indicate the percentage for each beneficiary):
__________________________________________________________________________________
__________________________________________________________________________________
All sums payable under the Executive Incentive Retirement Agreement by
reason of my death shall be paid to the Primary Beneficiary(ies), if he or
she survives me, and if no Primary Beneficiary(ies) shall survive me, then
to the Secondary (Contingent) Beneficiary(ies). This beneficiary
designation is valid until the participant notifies the bank in writing.
------------------------------ ---------------------
Date
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DEFERRAL DECLARATION
I. DISTRIBUTION ELECTION
Pursuant to the provisions of my Executive Incentive Retirement Plan Agreement with Millington Savings Bank, I hereby elect to have any distribution of the balance in my Incentive Retirement Plan Account paid to me in installments commencing on the later of ________________ ("Alternative Date") or the first day of the calendar month following my Termination of Employment due to retirement, resignation, disability, or removal or upon plan termination, whichever shall occur first; provided that such Alternative Date must be elected in writing not less than one year prior to the payment commencement date, absent such election, and such Alternative Date must be not less than five years later than such payment commencement date absent such updated election Each such annual installment shall be determined as of each installment date by dividing the entire amount in my Incentive Retirement Plan Account by the number of installments then remaining to be paid, plus earnings for the period, with the final installment to be the entire remaining balance in the Incentive Retirement Plan Account.
Date:_______________________________ ____________________________________ Signature
EXHIBIT "A"
Millington Savings Bank
Executive Incentive Retirement Plan
For the Benefit of Gary T. Jolliffe
The annual target Award to the Executive under the Executive Plan will be established annually for each respective plan year and will be based upon the Executive's base salary in effect as of July 1 of each calendar year and the Bank's net income for the prior fiscal year (July 1 through June 30); provided that the Board of Directors of the Bank may adjust reported net income numbers attributable to extraordinary items and the Board shall ratify such Award each year prior to such Award being credited to the Executive Incentive Retirement Plan Account.
2006 Net Income/Award Grid (July 1, 2006 through June 30, 2007)
% of Prior Year Net Income Amount Executive Award % of Base Salary ---------------------------------- -------------------------------- 79% AND BELOW 0% 80% TO 84% 10% 85% TO 94% 20% 95% TO 104% 35% 105% TO 119% 40% 120% AND HIGHER 50% |
MILLINGTON SAVINGS BANK
EXECUTIVE INCENTIVE RETIREMENT PLAN AGREEMENT
FOR THE BENEFIT OF SENIOR OFFICERS
As Amended and Restated
THIS AGREEMENT, made and entered into this 11th day of September, 2006, by and between Millington Savings Bank, Millington, New Jersey, a State of New Jersey chartered savings bank (hereinafter referred to as the "Bank"), and ___________________, an Executive of the Bank (hereinafter referred to as the "Executive");
WHEREAS, it is deemed advisable and in the best interests of the Bank to offer such Executive with additional financial incentives in the form of deferred compensation to encourage such continued employment service to the Bank, and to remain market competitive in the Bank's ability to offer retirement income security to such Executive;
WHEREAS, the Bank and the Executive have previously entered into the Executive Incentive Retirement Plan Agreement for the Benefit of Senior Officers (hereinafter referred to as the "Executive Plan"), effective May 10, 2004, and
WHEREAS, certain revisions to the Executive Plan are necessary in order to conform such Executive Plan to the requirements of Section 409A of the Internal Revenue Code of 1986, as amended ("Code") and related regulations and notices promulgated thereunder, with such revisions to be effective as of January 1, 2005.
NOW THEREFORE, BE IT RESOLVED that the Executive Plan shall be revised, amended and restated in its entirety, effective as of January 1, 2005, as follows:
I. EXECUTIVE'S PARTICIPATION IN THE EXECUTIVE PLAN
So long as the Executive shall continue to serve as the _________ ______________ of the Bank, or other senior executive position as determined within the discretion of the Board of Directors ("Board") of the Bank, the Executive shall be eligible to participate in this Executive Plan. The Plan Year for the Executive Plan shall be the same as the fiscal year for the Bank (July 1 through June 30).
II. AWARD
The Board may make an Award from time to time in accordance with this Agreement on behalf of the Executive in consideration for the Executive's continued services and job performance as determined in the sole discretion of the Board of the Bank based upon the criteria attached hereto as Exhibit "A" and fully incorporated herein by reference. Said criteria in Exhibit "A" may be modified by the Board in its sole discretion at any time. Payment of such Award to the Executive shall be deferred in accordance with this Agreement and shall be credited for the benefit of the Executive in the manner and by the terms and conditions specified in Paragraph IV herein.
III. VESTING
The Executive's accrual of Awards and earnings thereon as recorded in the Executive Incentive Retirement Plan Account shall be deemed earned and non-forfeitable in accordance with the schedule set forth below determined as the sum of the age of such Executive and the years of service of such Executive determined as of the first day of each Plan Year; with years of service determined in accordance with the definition set forth in any Internal Revenue Code ("Code") Section 401(a) tax qualified defined benefit plan sponsored by the Bank or any Code Section 401(a) tax qualified defined contribution plan, if no such defined benefit plan shall be in effect at such time, any as follows:
Sum of Age and Years of Service Vesting/Earned %
------------------------------- ----------------
85 100%
80 95%
75 90
70 85
65 80
60 75
55 70
50 65
45 60
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Notwithstanding the foregoing, on and subsequent to the Executive attaining age sixty-five (65) while in the continuous employ of the Bank, upon the Executive's death while in the continuous employ of the Bank or upon a Change in Control of the Bank (as defined hereinafter), the Executive shall be one hundred percent (100%) vested in the Executive Incentive Retirement Plan Account.
IV. CREDITS TO INCENTIVE RETIREMENT PLAN ACCOUNT
The Bank shall establish a bookkeeping reserve account for the benefit of the Executive (hereinafter referred to as the "Executive Incentive Retirement Plan Account"), which shall be credited and adjusted as of the date of grant of each Award as defined in Paragraph II.
V. INTEREST ON THE INCENTIVE RETIREMENT PLAN ACCOUNT
The Executive Incentive Retirement Plan Account shall be credited with earnings on such account in an amount that is in addition to the Award(s) credited under Paragraph IV. Such amount shall be determined by multiplying the balance of the Executive's Account by a rate of interest equal to the New York average prime lending rate as quoted in the Wall Street Journal, Eastern Edition. Such rate shall be adjusted quarterly as of each January 1, April 1, July 1 and October 1, but in no event shall such per annum prime rate be less than 4% per annum or an amount greater than 12% per annum. Such earnings amount shall be credited quarterly as long as there is a balance in the Executive's Incentive Retirement Plan Account as of the last day of each calendar quarter.
VI. NATURE OF THE INCENTIVE RETIREMENT PLAN ACCOUNT
The Executive Incentive Retirement Plan Account shall be utilized solely as a device for the measurement and determination of the amount maintained as a book reserve for the benefit of the Executive under the Executive Plan and to be paid to the Executive at the times hereinafter specified, and the Bank shall not segregate any of its assets in order to satisfy any obligations under this Agreement. The Executive Incentive Retirement Plan Account shall not constitute or be treated as a trust fund of any kind. It is understood that all amounts credited to the Executive Incentive Retirement Plan Account shall be for the sole purpose of bookkeeping and remain the sole property of the Bank, and that the Executive shall have no ownership rights of any nature with respect thereto. The Executive's rights are limited to the right to receive payments as hereinafter provided, and the Executive's position with respect thereto is that of a general, unsecured creditor of the Bank.
VII. PAYMENT OF EXECUTIVE'S DEFERRED COMPENSATION
Subject to Paragraph XIII, the amounts in the Executive Incentive Retirement Plan Account shall be paid in equal annual installments for fifteen (15) years certain. The amount payable shall be equal to the vested balance of the Executive's Incentive Retirement Plan Account as defined in Paragraph VI, including all interest credited as of the date of commencement of such payments pursuant to Paragraph V, plus additional interest earnings credited to such account based upon the periodic balance of such account during the pay-out period. Said installment payments of such vested deferred amounts shall commence on the first day of the calendar month following the Termination of Employment of the Executive due to retirement, resignation, disability, or removal or upon plan termination, whichever shall occur first.
"Termination of Employment" means the termination of the Executive's employment with the Bank for reasons other than upon the death or Disability of the Executive. Whether a Termination of Employment takes place is determined based on the facts and circumstances surrounding the termination of the Executive's employment and whether the Bank and the Executive intended for the Executive to provide significant services for the Bank following such termination. A change in the Executive's employment status will not be considered a Termination of Employment if:
(a) the Executive continues to provide services as an employee of the Bank at an annual rate that is twenty percent (20%) or more of the services rendered, on average, during the immediately preceding three full calendar years of employment (or, if employed less than three years, such lesser period) and the annual remuneration for such services is twenty percent (20%) or more of the average annual remuneration earned during the final three full calendar years of employment (or, if less, such lesser period), or
(b) the Executive continues to provide services to the Bank in a capacity other than as an employee of the Bank at an annual rate that is fifty percent (50%) or more of the services rendered, on average, during the immediately preceding three full calendar years of employment (or if employed less than three years, such lesser period) and the annual remuneration for such services is fifty percent (50%) or more of the average annual remuneration earned during the final three full calendar years of employment (or if less, such lesser period).
"Disability" (total and permanent disability) means total and permanent disability within the meaning of the Social Security Act.
PERMISSIBLE LUMP-SUM PAYOUTS Notwithstanding the foregoing, the Bank may, in its sole discretion, commence pay-out of the vested amount in such Executive Plan Account at any time following the Executive's Termination of Employment, provided that such pay-out amount shall be in an amount equal to not less than the lump sum value of such vested account balance, including interest earnings thereon, determined on the date of such pay-out; provided that such pay-out (1) accompanies the termination of the Executive's entire interest under the Agreement and all similar arrangements that constitute a nonqualified deferred compensation plan under Treasury Regulations at Section 1.409A-1(c) applicable to Section 409A of the Code; (2) the payment is made on or before the later of December 31 of the calendar year of the Executive's Termination of Employment, or the 15th day of the third month following such Termination of Employment; (3) the payment is not greater than $10,000; and (4) the Executive is provided no election with respect to receipt of such lump-sum payment.
VIII. DEATH OF EXECUTIVE PRIOR TO COMMENCEMENT OF PAYMENTS
Except as set forth at Paragraph III herein, in the event of the death of the Executive prior to the commencement of payments, the Executive's vested percentage of the account balance on the date of death shall be paid in a lump sum to such individual(s) or entity(ies) as the Executive may have designated as beneficiaries in writing and filed with the Bank. Said amount shall be paid on the first day of the second month following the death of the Executive. In the event no beneficiary designation has been made, the Executive's vested percentage of the account balance on the date of death shall be paid, in a lump sum, as set forth herein to the duly qualified executor or administrator of the Executive's estate, provided however if no such executor or administrator is appointed, the Bank shall not make payment of said lump sum until said appointment.
IX. DEATH OF EXECUTIVE SUBSEQUENT TO COMMENCEMENT OF PAYMENTS
In the event of the death of the Executive after commencement of payments but prior to the Executive receiving all payments due the Executive under this Agreement, the remaining vested percentage of the account balance on the date of death shall be paid in a lump sum, on the first day of the second month following the death of the Executive, to such individual(s) or entity(ies) as the Executive may have designated as beneficiaries in writing and filed with the Bank. In the event no beneficiary designation has been made, the Executive's vested percentage of the account balance on the date of death shall be paid, in a lump sum, as set forth herein to the duly qualified executor or administrator of the Executive's estate, provided however if no such executor or administrator is appointed, the Bank shall not pay make payment of said lump sum until said appointment.
X. RESTRICTIONS UPON FUNDING
The Bank shall have no obligation to set aside, earmark or entrust any fund or money with which to pay its obligations under this Executive Plan. The Executives, their beneficiary(ies), or any successor in interest shall be and remain simply a general, unsecured creditor of the Bank in the same manner as any other creditor having a general claim for matured and unpaid compensation.
The Bank reserves the absolute right, at its sole discretion, to either fund the obligations undertaken by this Executive Plan or to refrain from funding the same and to determine the extent, nature and method of such funding. Should the Bank elect to fund this Executive Plan, in whole or in part, through the purchase of life insurance, mutual funds, disability policies or annuities, the Bank reserves the absolute right, in its sole discretion, to terminate such funding at any time, in whole or in part. At no time shall any Executive be deemed to have any lien, right, title or interest in any specific funding investment or to any assets of the Bank.
For any Executive who begins employment with the Bank subsequent to the Effective Date of this Agreement, if the Bank elects to invest in a life insurance, disability or annuity policy upon the life of the Executive, then the Executive shall reasonably cooperate with the Bank and any designated insurance company as may be requested by the Bank in order to obtain such insurance or annuities policy.
XI. MISCELLANEOUS
A. Alienability and Assignment Prohibition:
Neither the Executive, nor the Executive's surviving spouse, nor any other beneficiary(ies) under this Executive Plan shall have any power or right to transfer, assign, anticipate, hypothecate, mortgage, commute, modify or otherwise encumber in advance any of the benefits payable hereunder nor shall any of said benefits be subject to seizure for the payment of any debts, judgments, alimony or separate maintenance owed by the Executive or the Executive's beneficiary(ies), nor be transferable by operation of law in the event of Bankruptcy, insolvency or otherwise. In the event the Executive or any beneficiary attempts assignment, commutation, hypothecation, transfer or disposal of the benefits hereunder, the Bank's obligations and liabilities pursuant to this Agreement shall forthwith cease and terminate.
B. Binding Obligation of the Bank and any Successor in Interest:
The Bank shall not merge or consolidate into or with another bank or sell substantially all of its assets to another bank, firm or person until such bank, firm or person expressly agrees, in writing, to assume and discharge the duties and obligations of the Bank under this Executive Plan. This Executive Plan shall be binding upon the parties hereto, their successors, beneficiaries, heirs and personal representatives.
C. Amendment, Termination or Revocation:
It is agreed by and between the parties hereto that this Executive Incentive Retirement Plan Agreement may be amended, terminated or revoked at any time or times, in whole or in part, by the Bank in its sole discretion. Upon a Change of Control as set forth in Paragraph XIII herein, it is agreed by and between the parties hereto that this Executive Plan Agreement may be amended or revoked any time or times, in whole or in part, only by the mutual written consent of the Executive and the Bank. Notwithstanding the foregoing, the Bank or any successor thereto may terminate or revoke the Agreement at anytime within its sole discretion, provided that the balance then accrued under the Executive Incentive Retirement Plan Account on behalf of the Executive shall be deemed fully earned and non-forfeitable at such time without regard to any vesting criteria, and
such account shall be immediately paid to the Executive (without regard to any actual Termination of Employment) or designated beneficiary in a lump sum payment; provided, however, any such distributions to be made in accordance with this Section XI.C. shall comply with the requirements and limitation under Section 409A of the Code, including that such lump-sum distribution shall only be made: (1) within thirty (30) days before, or twelve (12) months after a change in the ownership or effective control of the Bank, or change in the ownership of a substantial portion of the assets of the Bank as described in Section 409A(2)(A)(v) of the Code, provided that all distributions are made no later than twelve (12) months following such termination of the Agreement and further provided that all of the Bank's arrangements which are substantially similar to the Agreement are terminated so the Executive and all participants under similar arrangements shall receive all amounts of deferred compensation under such terminated agreements within twelve (12) months of the termination of the arrangements; (2) Upon the Bank's dissolution or with the approval of a bankruptcy court provided that the amounts deferred under the Agreement are included in the Executive's gross income in the latest of (i) the calendar year in which the Agreement terminates; (ii) the calendar year in which the amount is no longer subject to a substantial risk of forfeiture; or (iii) the first calendar year in which the distribution is administratively practical; or (3) Upon the Bank's termination of this and all other account balance plans (as referenced in Section 409A of the Code or the regulations thereunder), provided that all distributions are made no earlier than twelve (12) months and no later than twenty-four (24) months following such termination, and the Bank does not adopt any new account balance plans for a minimum of five (5) years following the date of such termination.
D. Gender:
Whenever in this Executive Plan words are used in the masculine or neuter gender, they shall be read and construed as in the masculine, feminine or neuter gender, whenever they should so apply.
E. Effect on Other Bank Benefit Plans:
Nothing contained in this Executive Plan shall affect the right of the Executive to participate in or be covered by any qualified or non-qualified pension, profit-sharing, group, bonus or other supplemental compensation or fringe benefit plan constituting a part of the Bank's existing or future compensation structure.
F. Headings:
Headings and subheadings in this Executive Plan are inserted for reference and convenience only and shall not be deemed a part of this Executive Plan.
G. Applicable Law:
The validity and interpretation of this Agreement shall be governed by the laws of the State of New Jersey, including, but not limited to the laws applicable to state chartered savings banks.
H. Bank Regulatory Matters:
Any payments made to the Executive pursuant to this Executive Plan, or otherwise, are subject to and conditioned upon their compliance with 12 U.S.C. ss. 1828(k) or any regulations promulgated thereunder.
Implementation of the Agreement shall be conditioned upon the Bank's receipt of a letter of approval or non-objection from the Commissioner of the New Jersey Department of Banking and Insurance, if applicable, in accordance with the applicable laws of the State of New Jersey related to state chartered savings banks at NJS 17:9A-27.26 and related statutes.
I. Partial Invalidity:
If any term, provision, covenant, or condition of this Executive Plan is determined by an arbitrator or a court, as the case may be, to be invalid, void, or unenforceable, such determination shall not render any other term, provision, covenant, or condition invalid, void, or unenforceable, and the Executive Plan shall remain in full force and effect notwithstanding such partial invalidity.
J. Employment:
No provision of this Agreement shall be deemed to restrict or limit any existing employment agreement by and between the Bank and the Executive, nor shall any conditions herein create specific employment rights to the Executive nor limit the right of the Bank to discharge the Executive with or without cause. In a similar fashion, no provision shall limit the Executive's rights to voluntarily sever his or her employment at any time.
K. Construction:
The Board shall have full power and authority to interpret, construe and administer this Executive Plan, and the Board's interpretations and construction thereof, and actions thereunder, shall be binding and conclusive on all persons for all purposes. Members of the Board of the Bank shall not be liable to any person for any action taken or omitted in connection with the interpretation and administration of this Plan unless attributable to his or her own willful, gross misconduct or intentional lack of good faith.
L. Plan Administration:
The Board of the Bank shall administer the Plan; provided, however, that the Board may appoint an administrative committee ("Committee") to provide administrative services or perform duties required by this Agreement. The Committee shall have only the authority granted to it by the Board.
M. Trust:
Except as may be specifically provided, nothing contained in this Agreement and no action taken pursuant to the provisions of this Agreement shall create or be construed to create a trust of any kind, or a fiduciary relationship between the Bank and the Executive or any other person. Any funds which may be invested under the provisions of this Agreement shall continue for all purposes to be a part of the general assets ad funds of the Bank. No person other than the Bank shall by virtue of the provisions of this Agreement have any interest in such assets and funds. The Bank shall not be under any obligation to use such funds solely to provide benefits hereunder, and no representations have been made to the Executive that such funds can or will be used only to provide benefits hereunder.
In order to facilitate the accumulation of funds necessary to meet the costs of the Bank under this Agreement (including the provision of funds necessary to pay premiums with respect to any life insurance policies purchase and to pay benefits to the extent that the cash value and/or proceeds of any such policies are not adequate to make payments to the Executive or his or her beneficiary as and when the same are due under the Agreement), the Bank may enter into a Trust Agreement. The Bank, in its discretion, may elect to place any life insurance policies purchased pursuant to the Agreement into the Trust. In addition, such sums shall be placed in said Trust as may from time to time be approved by the Board of Bank, in its sole discretion. To the extent that the assets of said Trust and/or the proceeds of any life insurance policy purchased pursuant to the Agreement are not sufficient to pay benefits accrued under this Agreement, such payments shall be made from the general assets of the Bank.
XII. ERISA PROVISION
A. Named Fiduciary and Plan Administrator:
The "Named Fiduciary and Plan Administrator" of this Executive Plan shall be the Bank until its resignation or removal by the Board. As the Named Fiduciary and Plan Administrator, the Bank shall be responsible for the management, control and administration of the Executive Plan. The Named Fiduciary may delegate to others certain aspects of the management and operation responsibilities of the Executive Plan including the employment of advisors and the delegation of ministerial duties to qualified individuals.
B. Claims Procedure and Arbitration:
In the event a dispute arises over benefits under this
Executive Plan and benefits are not paid to the Executive (or
to the Executive's beneficiary(ies) in the case of the
Executive's death) and such claimants feel they are entitled to
receive such benefits, then a written claim must be made to the
Named Fiduciary and Plan Administrator named above within sixty
(60) days from the date payments are refused. The Named
Fiduciary and Plan Administrator shall review the written claim
and if the claim is denied, in whole or in part, it shall
provide in writing within sixty (60) days of receipt of such
claim its specific reasons for such denial, reference to the
provisions of this Executive Plan upon which the denial is
based and any additional material or information necessary to
perfect the claim. Such written notice shall further indicate
the additional steps to be taken by claimants if a
further review of the claim denial is desired. A claim shall be deemed denied if the Named Fiduciary and Plan Administrator fail to take any action within the aforesaid sixty-day period.
If claimants desire a second review of the matter, they shall notify the Named Fiduciary and Plan Administrator in writing within sixty (60) days of the first claim denial. Claimants may review this Executive Plan or any documents relating thereto and submit any written issues and comments they may feel appropriate. The Named Fiduciary and Plan Administrator shall then review the second claim and provide a written decision within sixty (60) days of receipt of such claim. This decision shall likewise state the specific reasons for the decision and shall include reference to specific provisions of the Plan Agreement upon which the decision is based.
If claimants continue to dispute the benefit denial based upon completed performance of this Executive Plan or the meaning and effect of the terms and conditions thereof, then claimants may submit the dispute to an arbitrator for final arbitration within six (6) months from the actual or calculated date of the final written review. The arbitrator shall be selected by mutual agreement of the Bank and the claimants. The arbitrator shall operate under any generally recognized set of arbitration rules. The parties hereto agree that unless otherwise agreed by mutual written consent of both parties, there shall be no other alternative dispute resolution in law or equity other than binding arbitration and they and their heirs, personal representatives, successors and assigns shall be bound by the decision of such arbitrator with respect to any controversy properly submitted for determination. The arbitrator shall determine any award of attorney's fees or other costs of arbitration to the prevailing party.
C. Where a dispute arises as to the Bank's discharge of the Executive "for cause", such dispute shall likewise be submitted to arbitration as above described and the parties hereto agree to be bound by the decision thereunder. A determination by an arbitrator that a discharge or non reelection was not "for cause" shall govern the parties solely as to payment of benefits and shall not entitle the Executive to be reinstated or re-elected to office.
XIII. CHANGE OF CONTROL
"Change in Control" shall mean: (i) a change in ownership of
the Bank under paragraph (a) below, or (ii) a change in
effective control of the Bank under paragraph (b) below, or
(iii) a change in the ownership of a substantial portion of
the assets of the Bank under paragraph (c) below:
(a) CHANGE IN THE OWNERSHIP OF THE BANK. A change in the ownership of the Bank shall occur on the date that any one person, or more than one person acting as a group (as defined in paragraph (b)), acquires ownership of stock of the corporation that, together with stock held by such person or group, constitutes more than 50 percent of the total fair market value or total voting power of the stock of such corporation. However, if any one person or more than one person acting as a group, is considered to own more than 50 percent of the total fair market value or total voting power of the stock of a corporation, the acquisition of additional stock by the same person or persons is not considered to cause a change in the ownership of the corporation (or to cause a change in the effective control of the corporation (within the meaning of paragraph (b) below). An increase in the percentage of stock owned by any one person, or persons acting as a
group, as a result of a transaction in which the corporation acquires its stock in exchange for property will be treated as an acquisition of stock for purposes of this section. This paragraph (a) applies only when there is a transfer of stock of a corporation (or issuance of stock of a corporation) and stock in such corporation remains outstanding after the transaction.
(b) CHANGE IN THE EFFECTIVE CONTROL OF THE BANK. A change in the effective control of the Bank shall occur on the date that either (i) any one person, or more than one person acting as a group (as determined below), acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) ownership of stock of the corporation possessing 35 percent or more of the total voting power of the stock of such corporation; or (ii) a majority of members of the corporation's board of directors is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of the corporation's board of directors prior to the date of the appointment or election, provided that for purposes of this paragraph (b)(ii), the term corporation refers solely to a corporation for which no other corporation is a majority shareholder. In the absence of an event described in paragraph (i) or (ii), a change in the effective control of a corporation will not have occurred. If any one person, or more than one person acting as a group, is considered to effectively control a corporation (within the meaning of this paragraph (b)), the acquisition of additional control of the corporation by the same person or persons is not considered to cause a change in the effective control of the corporation (or to cause a change in the ownership of the corporation within the meaning of paragraph (a)). Persons will not be considered to be acting as a group solely because they purchase or own stock of the same corporation at the same time, or as a result of the same public offering.
(c) CHANGE IN THE OWNERSHIP OF A SUBSTANTIAL PORTION OF THE BANK'S ASSETS. A change in the ownership of a substantial portion of the Bank's assets shall occur on the date that any one person, or more than one person acting as a group (as determined below), acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) assets from the corporation that have a total gross fair market value equal to or more than 40% of the total gross fair market value of all of the assets of the corporation immediately prior to such acquisition or acquisitions. For this purpose, gross fair market value means the value of the assets of the corporation, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets. There is no Change in Control event under this paragraph (c) when there is a transfer to an entity that is controlled by the shareholders of the transferring corporation immediately after the transfer.
(d) Each of the sub-paragraphs (a) through (c) above shall be
construed and interpreted consistent with the requirements of
Section 409A of the Code and any Treasury regulations or other
guidance issued thereunder. However, a change in control shall
not be deemed to have occurred as a result of a holding
company reorganization of the Bank and simultaneous
acquisition of more than 50% of the Bank's stock (following
the Bank's conversion to stock form) by a parent savings and
loan holding company or bank holding company.
"Code" means the Internal Revenue Code of 1986, as amended, and regulations and guidance promulgated thereunder.
XIV. DISCHARGE FOR CAUSE
In the event the Executive shall be discharged for cause at any
time, all benefits provided herein shall be forfeited. The term
"for cause" shall mean any of the following that result in an
adverse effect on the Bank: (i) negligence or neglect; (ii) the
commission of a felony, disorderly persons offense or
misdemeanor involving moral turpitude, fraud or dishonesty;
(iii) the willful violation of any law, rule or regulation
(other than a traffic violation or similar offense); (iv) an
intentional failure to perform stated duties;, or (v) a breach
of fiduciary duty involving personal profit. If a dispute
arises as to payment of benefits premised upon whether a
discharge is "for cause," such dispute shall be resolved by
arbitration as set forth in PARAGRAPH XII (B). A determination
by an arbitrator that a discharge was not "for cause" shall
govern the parties solely as to the payment of benefits
hereunder and shall not entitle the Executive to be reinstated.
XV. EFFECTIVE DATE
The Effective Date of this Agreement shall be April 1, 2004 with respect to the initial effective date of the Agreement, and January 1, 2005 with respect to the effective date of this amendment and restatement of the Plan.
XVI. SECTION 409A COMPLIANCE.
A. Notwithstanding anything herein to the contrary, the Committee shall make reasonable efforts to administer the Executive Plan and make benefit payments hereunder in a manner that is not deemed to be contrary to the requirements set forth at Section 409A of the Code and regulations and notices promulgated thereunder such that any payments made would result in the requirement for the recipient of such payments topay additional interest and taxes to be imposed in accordance with Section 409A(a)(1)(B) of the Code; provided, however, neither the Bank, nor the Committee shall have any responsibility to a Executive or beneficiary(ies) with respect to any tax liabilities that may be applicable to any payments made by the Executive Plan.
B. If any provision of the Executive Plan shall be determined to be inconsistent with the requirements of Section 409A of the Code, then, the Executive Plan shall be construed, to the maximum extent possible, to give effect to such provision in a manner consistent with Section 409A of the Code, and if such construction is not possible, as if such provision had never been included.
C. Delay of Payment Commencement to Specified Employee. Notwith- standing any provision in the Executive Plan to the contrary, if the Executive is a Specified Employee, such Executive's benefit payments shall become first payable to him or her as of the first day of the seventh month next following his or her Termination of Employment, if and only if such payments, if made earlier, would result in the recipient of such payments to pay additional interest and taxes to be imposed in accordance with Code Section 409A(a)(1)(B) of the Code; provide that such payment delay shall not be required in the event of the death of the Executive. "Specified Employee" shall mean a key employee who, at any time during the plan year, is (i) an officer of the Bank having an annual compensation greater than $140,000 (as indexed), (ii) a 5-percent owner of Bank, or (iii) a 1-percent owner of the Bank having an annual compensation from the Savings Bank greater than $150,000; provided, however, that this subparagraph shall only be effective
if the stock of the Bank or a parent corporation is publicly traded as set forth at Code Section 409A(a)(2)(B)(i).
D. Distributions Upon Income Inclusion Under Section 409A of the Code. Upon the inclusion of any amount as taxable income to the Executive as a result of the failure of this non-qualified deferred compensation agreement to comply with the requirements of Section 409A of the Code, to the extent such tax liability can be covered by the then accrued Executive Incentive Retirement Plan Account balance, a distribution shall be made to the Executive as soon as is administratively practicable following the discovery of the plan failure in an amount sufficient for the Executive to pay such tax liability.
[THE REMAINDER OF THIS PAGE IS INTENTIALLY BLANK]
IN WITNESS WHEREOF, the parties hereto acknowledge that each has carefully read this Agreement and executed the original thereof on the first day set forth hereinabove, and that, upon execution, each has received a conforming copy.
Millington Savings Bank
___________________________ By:_________________________________ Attest Its: ___________________________ _________________________________ Witness __________________, Executive |
BENEFICIARY DESIGNATION FORM
FOR THE EXECUTIVE INCENTIVE RETIREMENT
PLAN AGREEMENT
Name________________________________________________ Relationship____________________________ /__________%
Address___________________________________________________________________________________________________
(Street) (City) (State) (Zip)
Name________________________________________________ Relationship____________________________ /__________%
Address___________________________________________________________________________________________________
(Street) (City) (State) (Zip)
Name________________________________________________ Relationship____________________________ /__________%
Address:__________________________________________________________________________________________________
(Street) (City) (State) (Zip)
Name________________________________________________ Relationship____________________________ /__________%
Address:__________________________________________________________________________________________________
(Street) (City) (State) (Zip)
B. Estate as a Primary Designation:
-------------------------------
My Primary Beneficiary is The Estate of___________________________________________________________________
as set forth in the last will and testament dated the__day of___________,________and any codicils thereto.
C. Trust as a Primary Designation:
------------------------------
Name of the Trust:_________________________________________________________________________
Execution Date of the Trust:_________ / _____/____________
14
|
Name of the Trustee:________________________________________________________________________
Beneficiary(ies) of the Trust (please indicate the percentage for each beneficiary):
____________________________________________________________________________________________
____________________________________________________________________________________________
Is this an Irrevocable Life Insurance Trust?______________Yes______________No
(If yes and this designation is for a Split Dollar agreement, an
Assignment of Rights form should be completed.)
15
|
II. SECONDARY (CONTINGENT) DESIGNATION
----------------------------------
A. Person(s) as a Secondary (Contingent) Designation:
--------------------------------------------------
(Please indicate the percentage for each beneficiary.)
Name________________________________________________ Relationship____________________________ /__________%
Address___________________________________________________________________________________________________
(Street) (City) (State) (Zip)
Name________________________________________________ Relationship____________________________ /__________%
Address___________________________________________________________________________________________________
(Street) (City) (State) (Zip)
Name________________________________________________ Relationship____________________________ /__________%
Address___________________________________________________________________________________________________
(Street) (City) (State) (Zip)
Name________________________________________________ Relationship____________________________ /__________%
Address___________________________________________________________________________________________________
(Street) (City) (State) (Zip)
B. Estate as a Secondary (Contingent) Designation:
----------------------------------------------
My Secondary Beneficiary is The Estate of_________________________________________________________________
as set forth in my last will and testament dated the___day of__________,_________and any codicils thereto.
C. Trust as a Secondary (Contingent) Designation:
---------------------------------------------
Name of the Trust:________________________________________________________________________________________
Execution Date of the Trust:_________/_______/___________
Name of the Trustee:_______________________________________________________________
Beneficiary(ies) of the Trust (please indicate the percentage for each beneficiary):
____________________________________________________________________________________
____________________________________________________________________________________
All sums payable under the Executive Incentive Retirement Agreement by
reason of my death shall be paid to the Primary Beneficiary(ies), if he or
she survives me, and if no Primary Beneficiary(ies) shall survive me, then
to the Secondary (Contingent) Beneficiary(ies). This beneficiary
designation is valid until the participant notifies the bank in writing.
------------------------------ ------------------
Date
|
DEFERRAL DECLARATION
I. DISTRIBUTION ELECTION
Pursuant to the provisions of my Executive Incentive Retirement Plan Agreement with Millington Savings Bank, I hereby elect to have any distribution of the balance in my Incentive Retirement Plan Account paid to me in installments commencing on the later of ________________ ("Alternative Date") or the first day of the calendar month following my Termination of Employment due to retirement, resignation, disability, or removal or upon plan termination, whichever shall occur first; provided that such Alternative Date must be elected in writing not less than one year prior to the payment commencement date, absent such election, and such Alternative Date must be not less than five years later than such payment commencement date absent such updated election Each such annual installment shall be determined as of each installment date by dividing the entire amount in my Incentive Retirement Plan Account by the number of installments then remaining to be paid, plus earnings for the period, with the final installment to be the entire remaining balance in the Incentive Retirement Plan Account.
Date:_______________________________ ____________________________________ Signature
EXHIBIT "A"
Millington Savings Bank
Executive Incentive Retirement Plan
For the Benefit of Senior Officers
The annual target Award to the Executive under the Executive Plan will be established annually for each respective plan year and will be based upon the Executive's base salary in effect as of July 1 of each calendar year and the Bank's net income for the prior fiscal year (July 1 through June 30); provided that the Board of Directors of the Bank may adjust reported net income numbers attributable to extraordinary items and the Board shall ratify such Award each year prior to such Award being credited to the Executive Incentive Retirement Plan Account.
2006 Net Income/Award Grid (July 1, 2006 through June 30, 2007)
% of Prior Year Net Income Amount Executive Award % of Base Salary
--------------------------------- --------------------------------
79% AND BELOW 0%
80% TO 84% 3%
85% TO 94% 5%
95% TO 104% 10%
105% TO 119% 12%
120% AND HIGHER 15%
|
* AMENDED JUNE 12, 2006*
MILLINGTON SAVINGS BANK
MILLINGTON, NEW JERSEY
DIRECTORS CONSULTATION AND RETIREMENT PLAN
AS AMENDED AND RESTATED
WHEREAS, Millington Savings Bank, Millington, New Jersey (the "Savings Bank") has previously implemented the Millington Savings Bank Directors Consultation and Retirement Plan (the "Plan"), effective February 10, 1997, and
WHEREAS, certain revisions to the Plan are necessary in order to conform the Plan to the requirements of Section 409A of the Internal Revenue Code of 1986, as amended and related regulations and notices promulgated thereunder ("Code").
NOW THEREFORE, BE IT RESOLVED that the Plan shall be revised, amended and restated, effective January 1, 2005, as follows:
ARTICLE I
DEFINITIONS
The following words and phrases as used herein shall, for the purpose of the Plan and any subsequent amendment thereof, have the following meanings unless a different meaning is plainly required by the content:
"Beneficiary" means the surviving spouse of the Participant (if any) as of the date of death of such Participant, or in the alternative, the estate of the Participant. The term Beneficiary shall include the estate of the surviving spouse. Notwithstanding the foregoing, the Participant may designate a Beneficiary or Contingent Beneficiaries in writing on forms provided for this purpose by the Committee, which written designations may be changed from time to time by similar written notice to the Committee. Such written designations shall only be effective upon actual delivery to and acknowledgment by the Committee. References to beneficiaries in the will of a Participant shall not be binding on the Plan.
"Board" means the Board of Directors of the Savings Bank, as constituted from time to time, and successors thereto.
"Change in Control" shall mean: (i) a change in ownership of the Bank under paragraph (a) below, or (ii) a change in effective control of the Bank under paragraph (b) below, or (iii) a change in the ownership of a substantial portion of the assets of the Bank under paragraph (c) below:
(a) CHANGE IN THE OWNERSHIP OF THE BANK. A change in the ownership of the Bank shall occur on the date that any one person, or more than one person acting as a group (as defined in paragraph (b)), acquires ownership of stock of the corporation that, together with stock held by such person or group, constitutes more than 50 percent of the total fair market value or total voting power of the stock of such corporation. However, if any one person or more than one person acting as a group, is considered to own more than 50 percent of the total fair market value or total voting power of the stock of a corporation, the acquisition of additional stock by the same person or persons is not considered to cause a change in the ownership of the corporation (or to cause a change in the effective control of the corporation (within the meaning of paragraph (b) below). An increase in the percentage of stock owned by any one person, or persons acting as a group, as a result of a transaction in which the corporation acquires its stock in exchange for property will be treated as an acquisition of stock for purposes of this section. This paragraph (a) applies only when there is a transfer of stock of a corporation (or issuance of stock of a corporation) and stock in such corporation remains outstanding after the transaction.
(b) CHANGE IN THE EFFECTIVE CONTROL OF THE BANK. A change in the effective control of the Bank shall occur on the date that either (i) any one person, or more than one person acting as a group (as determined below), acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) ownership of stock of the corporation possessing 35 percent or more of the total voting power of the stock of such corporation; or (ii) a majority of members of the corporation's board of directors is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of the corporation's board of directors prior to the date of the appointment or election, provided that for purposes of this paragraph (b)(ii), the term corporation refers solely to a corporation for which no other corporation is a majority shareholder. In the absence of an event described in paragraph (i) or (ii), a change in the effective control of a corporation will not have occurred. If any one person, or more than one person acting as a group, is considered to effectively control a corporation (within the meaning of this paragraph (b)), the acquisition of additional control of the corporation by the same person or persons is not considered to cause a change in the effective control of the corporation (or to cause a change in the ownership of the corporation within the meaning of paragraph (a)). Persons will not be considered to be acting as a group solely because they purchase or own stock of the same corporation at the same time, or as a result of the same public offering.
(c) CHANGE IN THE OWNERSHIP OF A SUBSTANTIAL PORTION OF THE BANK'S ASSETS. A change in the ownership of a substantial portion of the Bank's assets shall occur on the date that any one person, or more than one person acting as a group (as determined below), acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) assets from the corporation that have a total gross fair market value equal to or more than 40% of the total gross fair market value of all of the assets of the corporation immediately prior to such acquisition or acquisitions. For this purpose, gross fair
market value means the value of the assets of the corporation, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets. There is no Change in Control event under this paragraph (c) when there is a transfer to an entity that is controlled by the shareholders of the transferring corporation immediately after the transfer.
(d) Each of the sub-paragraphs (a) through (c) above shall be construed and interpreted consistent with the requirements of Section 409A of the Code and any Treasury regulations or other guidance issued thereunder. However, a change in control shall not be deemed to have occurred as a result of a holding company reorganization of the Bank and simultaneous acquisition of more than 50% of the Bank's stock (following the Bank's conversion to stock form) by a parent savings and loan holding company or bank holding company.
"Code" means the Internal Revenue Code of 1986, as amended, and regulations and guidance promulgated thereunder.
"Committee" means the Board or the administrative committee as appointed by the Board pursuant to Section 7.11 herein.
"Department" means the New Jersey Department of Banking.
"Director" means a member of the Board of Directors of the Savings Bank.
"Disability" means total and permanent disability within the meaning of the Social Security Act.
"Effective Date" means February 10, 1997 with respect to the initial effective date of the Plan and January 1, 2005 with respect to the effective date of this amendment and restatement of the Plan.
"Participant" means a Director serving on or after the Effective Date and electing to participate in the Plan. A Director's participation in the Plan shall continue as long as he or she fulfills all the requirements for participation subject to the right of termination, amendment, and modification of the Plan set forth herein.
"Plan" means the Millington Savings Bank Directors Consultation and Retirement Plan, as amended and restated, as set forth herein, and as may be amended from time to time by the Board.
"Retirement Benefit Amount" means the benefit payable under the Plan in accordance Section 2.4 herein.
"Retirement Date" means the date of termination of service as a Director following a Participant's completion of not less than ten (10) years of service as a Director. Upon death or Disability, a Director shall be deemed to have terminated service as of such date.
"Savings Bank" or "Bank" means Millington Savings Bank, Millington, New Jersey, or any successor thereto.
"Service" means all years of service as a Director of the Savings Bank and all predecessor (or successor) entities of the Savings Bank, including years of service prior to the Effective Date. Years of service as a Director need not be continuous.
"Trust" shall mean any trust agreement entered into on behalf of the Plan by the Savings Bank for the purpose of holding assets of the Savings Bank in order to promote the efficient administration of the Plan.
ARTICLE II
BENEFITS
2.1 Retirement. Upon a Participant's termination from service as a Director on or after his or her Retirement Date whereby such Participant has completed not less than ten (10) years of service, the Savings Bank shall pay to the Participant the Retirement Benefit Amount, as described and in the amount set forth at Article II, Section 2.4. Payment of such Retirement Benefit Amount shall begin on the first business day of the month immediately following a Participant's Retirement Date or such later date as specified in the agreement contained at Schedule A hereto and approved by the Committee, but in no event shall such payments commence prior to the date that such Participant shall have attained the minimum age of at least sixty-five (65); provided that any such later date requested by a Participant shall be requested in writing not less than one year prior to the Retirement Date and such commencement date shall be not earlier than five years from the Retirement Date. The payments will continue to be paid on the first business day of each subsequent month until all scheduled payments are made to the Participant or the Beneficiary. Except as provided at Article II, Sections 2.2, 2.3, and 2.5 herein, upon a Participant's termination from service as a Director of the Savings Bank prior to his or her Retirement Date, the Savings Bank shall have no financial obligations to the Participant under the Plan.
2.2 Change in Control.
(a) Benefits payable to a Participant that has terminated from service as a Director prior to the date of a Change in Control of the Savings Bank shall nevertheless remain payable thereafter without regard to such Change in Control. However, upon a Change in Control, all future benefits payable pursuant to Sections 2.1, 2.2, 2.3, and 2.5 of the Plan, shall be made in a lump sum payment equal to the present value of all future benefits payable to such Participant. The interest rate in effect for a 3 year U.S. Treasury Note on the date of the lump sum payment shall be used for purposes of calculating the present value of amounts payable in accordance with Section 2.4.
(b) A Participant that has not terminated from
service as a Director prior to the date of Change in Control
of the Savings Bank shall, as of the date of a Change in
Control, be presumed to have completed not less than twenty
(20) years of service and attained the age of not less than
65, and such Participant shall be eligible to receive the
Retirement Benefit Amount set forth herein at Article II,
Section 2.4 immediately upon termination of service as a
Director following the date of a Change in Control without
regard to the actual years of service or age of such
Participant, if less than that provided herein. Such
Retirement Benefit Amount shall be paid at the election of the
Participant in the form of a lump sum payment equal to the
present value of the Retirement Benefit Amount payable under
Section 2.4 discounted as provided at Section 2.2(a). Payment
of the lump sum amount shall be made to the Participant as
soon as practicable after the Participant's termination from
service following a Change in Control.
2.3 Total and Permanent Disability. In the event of the Disability of a Participant prior to the Retirement Date, such Participant will be paid the Retirement Benefit Amount specified at Article II, Section 2.4 based upon the presumption that such Participant shall have attained at least age 65. For purposes of benefits accrual, such Participant's years of service shall be determined based upon the date of certification of his or her Disability; provided that no benefits shall be payable hereunder if such Participant shall have completed less than ten (10) years of service as of the date of such Disability. Payment of such benefits shall begin on the first business day of the month immediately following the Savings Bank's receipt of a certification of such Participant's Disability.
2.4 Level of Benefit Payments.
(a) A Participant who retires as a Director on or after his or her Retirement Date and who enters into an agreement with the Savings Bank to be a consulting director of the Savings Bank (in a form similar to that contained at Schedule A hereto) shall receive the Retirement Benefit Amount for a period of 120 monthly payments, except as otherwise detailed at Section 2.4(b); The Retirement Benefit Amount shall be calculated as a percentage of the sum of the highest monthly Board retainer and monthly Board meeting fee paid by the Bank to the Participant during the three year period preceding such Participant's retirement from the Board. Notwithstanding anything herein to the contrary, in the event that the Participant receives compensation during the three year period preceding such Participant's retirement for service as the Chairman of the Board of Directors, such Participant's compensation for purposes of calculation of the Retirement Benefit Amount shall be determined based upon the compensation that such Participant received or would have received for service solely as a Director and shall exclude any additional compensation that such Participant may have received for service as the Chairman above that which would have been paid for service solely as a Director.
Years of Service Percentage of at Retirement Retirement Benefit Amount ------------- ------------------------- 10 but less than 15 30% 15 but less than 20 45% 20 or more 60% |
(b) Notwithstanding anything herein to the contrary, the Retirement Benefit Amount shall be payable to a Participant or Beneficiary for an additional period of 24 months for each additional period of five (5) Years of Service completed by the Director in excess of twenty (20) Years of Service as of their actual Retirement Date; (for example, the Retirement Benefit Amount shall be payable for a period of 144 monthly payments for those Directors who shall have completed not less than 25 years of service as of their actual Retirement Date).
2.5 Death of Participant. Upon the death of a Participant who is receiving benefit payments under the Plan prior to his or her death, the remaining payments to be made under the Plan (if any) shall be paid to the Beneficiary, during such Beneficiary's lifetime after the Participant's death. Upon the death of a Participant who is not receiving benefit payments under the Plan prior to his or her death who as of the date of death otherwise meets the requirements of the Plan, regardless of whether he or she meets the minimum age set forth at Section 2.1, the Savings Bank shall pay to the Beneficiary the Retirement Benefit Amount set forth at Article II, Section 2.4, during such Beneficiary's lifetime. If a Beneficiary dies prior to receiving all payments of the Retirement Benefit Amount, then the remaining monthly payments will be paid to such Beneficiary's estate, unless the Participant shall have designated Contingent Beneficiaries in
writing on forms provided for this purpose by the Committee, which written designations may be changed from time to time by similar written notice to the Committee. Such written designations shall only be effective upon actual delivery to and acknowledgment by the Committee. References to beneficiaries in the will of a Participant shall not be binding on the Plan.
2.6 Notice of Retirement. A director electing to participate in the
Plan shall deliver written notice ("Notice") to the Board not less than thirty
(30) days prior to the actual Retirement Date that such Director elects to
participate in the Plan. Such Notice, in a form similar to that contained at
Schedule A hereto, shall specify the date of such retirement from the Board as a
Director and the Participant's availability as a Consulting Director. A
Participant who terminates service as a Director upon death, Disability, or a
Change in Control shall not be required to deliver such Notice in order to be
entitled to receive benefits under the Plan.
2.7 Section 409A Compliance.
(a) Notwithstanding anything herein to the contrary, the Committee shall make reasonable efforts to administer the Plan and make benefit payments hereunder in a manner that is not deemed to be contrary to the requirements set forth at Section 409A of the Code and regulations and notices promulgated thereunder such that any payments made would result in the requirement for the recipient of such payments to pay additional interest and taxes to be imposed in accordance with Section 409A(a)(1)(B) of the Code; provided, however, neither the Bank, nor the Committee shall have any responsibility to a Participant or Beneficiary with respect to any tax liabilities that may be applicable to any payments made by the Plan.
(b) If any provision of the Plan shall be determined to be inconsistent with the requirements of Section 409A of the Code, then, the Plan shall be construed, to the maximum extent possible, to give effect to such provision in a manner consistent with Section 409A of the Code, and if such construction is not possible, as if such provision had never been included.
(c) Delay of Payment Commencement to Specified Employees. Notwithstanding any provision in the Plan to the contrary, if a Participant is a Specified Employee, such Participant's benefit payments shall become first payable to him or her as of the first day of the seventh month next following his or her Retirement Date, or other termination of service, if and only if such payments, if made earlier, would result in the recipient of such payments to pay additional interest and taxes to be imposed in accordance with Section 409A(a)(1)(B) of the Code; provide that such payment delay shall not be required in the event of the death of a Participant. "Specified Employee" shall mean a key employee who, at any time during the plan year, is (i) an officer of the Savings Bank having an annual compensation greater than $130,000 (as indexed), (ii) a 5-percent owner of Savings Bank, or (iii) a 1-percent owner of the Savings Bank having an annual compensation from the Savings Bank greater than $150,000; provided, however, that this subparagraph shall only be effective if the stock of the Bank or a parent corporation is publicly traded as set forth at Section 409A(a)(2)(B)(i).
ARTICLE III
INSURANCE/OTHER INVESTMENTS
3.1 Ownership of Insurance. The Savings Bank, in its sole discretion, may elect to purchase one or more life insurance policies on the lives of Participants in order to provide funds to the Savings Bank to pay part or all of the benefits accrued under this Plan. All rights and incidents of ownership in any life insurance policy that the Savings Bank may purchase insuring the life of the Participant (including any right to proceeds payable thereunder) shall belong exclusively to the Savings Bank or its designated Trust, and neither the Participant, nor any beneficiary or other person claiming under or through him or her shall have any rights, title or interest in or to any such insurance policy. The Participant shall not have any power to transfer, assign, hypothecate or otherwise encumber in advance any of the benefits payable thereunder, nor shall any benefits be subject to seizure for the benefit of any debts or judgments, or be transferable by operation of law in the event of bankruptcy, insolvency or otherwise. Any life insurance policy purchased pursuant hereto and any proceeds payable thereunder shall remain subject to the claims of the Savings Bank's general creditors.
3.2 Physical Examination. As a condition of becoming or remaining covered under this Plan, each Participant, as may be requested by the Savings Bank from time to time shall take a physical examination by a physician approved by an insurance carrier. The cost of the examination shall not be borne by the Participant. The report of such examination shall be transmitted directly from the physician to the insurance carrier designated by the Savings Bank to establish certain costs associated with obtaining insurance coverages as may be deemed necessary under this Plan. Such examination shall remain confidential among the Participant, the physician and the insurance carrier and shall not be made available to the Savings Bank in any form or manner.
3.3 Death of Participant. On death of the Participant, the proceeds derived from such insurance policy, if any, shall be paid to the Savings Bank or its designated Trust.
ARTICLE IV
TRUST/NON-FUNDED STATUS OF PLAN
4.1 Trust/Non-Funded Status of Plan. Except as may be specifically provided, nothing contained in this Plan and no action taken pursuant to the provisions of this Plan shall create or be construed to create a trust of any kind, or a fiduciary relationship between the Savings Bank and the Participant or any other person. Any funds which may be invested under the provisions of this Plan shall continue for all purposes to be a part of the general funds of the Savings Bank. No person other than the Savings Bank shall by virtue of the provisions of this Plan have any interest in such funds. The Savings Bank shall not be under any obligation
to use such funds solely to provide benefits hereunder, and no representations have been made to any Participant that such funds can or will be used only to provide benefits hereunder. To the extent that any person acquires a right to receive payments from the Savings Bank under the Plan, such rights shall be no greater than the right of any unsecured general creditor of the Savings Bank.
In order to facilitate the accumulation of funds necessary to meet the costs of the Savings Bank under this Plan (including the provision of funds necessary to pay premiums with respect to any life insurance policies purchased pursuant to Article III, and to pay benefits to the extent that the cash value and/or proceeds of any insurance policies are not adequate to make payments to a Participant or Beneficiary when such payments shall become due under the Plan), the Savings Bank may enter into a Trust Agreement. The Savings Bank, in its discretion, may elect to place any life insurance policies purchased pursuant to Article III into a Trust. In addition, the Board may (in its sole discretion) place in said Trust such additional amounts as it deems appropriate from time to time. To the extent that the assets of said Trust and/or the proceeds of any life insurance policy purchased pursuant to Article III are not sufficient to pay benefits accrued under this Plan, such payments shall be made from the general assets of the Savings Bank.
ARTICLE V
VESTING
5.1 Vesting. All benefits under this Plan are deemed non-vested and forfeitable prior to a Participant meeting the requirements set forth at Sections 2.1, 2.2, 2.3 and 2.5 herein. All benefits payable hereunder shall be deemed 100% vested and non-forfeitable by the Participant upon his or her meeting the requirements set forth at Sections 2.1, 2.2, 2.3 or 2.5 herein. No benefits shall be deemed payable hereunder for any period prior to the time that such benefits shall be deemed 100% vested and non-forfeitable.
ARTICLE VI
TERMINATION
6.1 Termination. All the rights of a Participant shall terminate immediately upon the Participant ceasing to be in the active service of the Savings Bank prior to the time that benefits payable under the Plan shall be deemed to be 100% vested and non-forfeitable in accordance with Article V. A leave of absence approved by the Board shall not constitute a cessation of service within the meaning of this Section 5.1.
ARTICLE VII
GENERAL PROVISIONS
7.1 Other Benefits. Nothing in this Plan shall diminish or impair a Participant's eligibility, participation or benefit entitlement under any other benefit, insurance or compensation plan or agreement of the Savings Bank now or hereinafter in effect.
7.2 No Effect on Employment or Service. This Plan shall not be deemed to give any Participant or other person in the employ or service of the Savings Bank any right to be retained in the employment or service of the Savings Bank, or to interfere with the right of the Savings Bank to terminate any Participant or such other person at any time and to treat him or her without regard to the effect which such treatment might have upon him or her as a Participant in this Plan.
7.3 Legally Binding. The rights, privileges, benefits and obligations under this Plan are intended to be legal obligations of the Savings Bank and binding upon the Savings Bank, its successors and assigns.
7.4 Modification. The Savings Bank, by action of the Board of Directors, reserves the exclusive right to amend, modify, or terminate this Plan. Any such termination, modification or amendment shall not terminate or diminish any rights or benefits accrued by any Participant prior thereto without regard to whether such rights or benefits shall be deemed vested as of such date. The Savings Bank shall give thirty (30) days notice in writing to any Participant prior to the effective date of any amendment, modification or termination of this Plan.
7.5 Arbitration. Any controversy or claim arising out of or relating to the Plan or the breach thereof shall be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association, with such arbitration hearing to be held at the offices of the American Arbitration Association ("AAA") nearest to the home office of the Savings Bank, unless otherwise mutually agreed to by the Participant and the Savings Bank, and judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof.
7.6 Limitation. No rights of any Participant are assignable by any Participant or Beneficiary, in whole or in part, either by voluntary or involuntary act or by operation of law. The rights of a Participant or Beneficiary hereunder are not subject to anticipation, alienation, sale, transfer, assignment, pledge, hypothecation, encumbrance or garnishment by creditors of the Participant or Beneficiary. Further, a Participant's rights under the Plan are not subject to the debts, contracts, liabilities, engagements, or torts of any Participant. No Participant or Beneficiary shall have any right under this Plan or right against any assets held or acquired pursuant thereto other than the rights of a general, unsecured creditor of the Savings Bank pursuant to the unsecured promise of the Savings Bank to pay the benefits accrued hereunder in accordance with the terms of this Plan. The Savings Bank has no obligation under this Plan to fund or otherwise secure its obligations to render payments hereunder to a Participant or Beneficiary. No Participant or Beneficiary shall have any discretion in the use, disposition, or investment of any asset acquired or set aside by the Savings Bank to provide benefits under this Plan.
7.7 ERISA and IRC Disclaimer. It is intended that the Plan be neither an "employee welfare benefit plan" nor an "employee pension benefit plan" for purposes of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). Further, it is intended that the Plan will not cause the interest of a Participant under the Plan to be includable in the gross income of such Participant prior to the actual receipt of a payment under the Plan for purposes of the Internal Revenue Code of 1986, as amended ("IRC").
7.8 Regulatory Matters.
(a) The Participant or Beneficiary shall have no right to receive compensation or other benefits in accordance with the Plan for any period after termination of service for Just Cause. Termination for "Just Cause" shall include termination because of the Participant's personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule or regulation (other than traffic violations or similar offenses) or final cease-and-desist order, or material breach of any provision of the Plan.
(b) Notwithstanding anything herein to the contrary, any payments made to a Participant or Beneficiary pursuant to the Plan shall be subject to and conditioned upon compliance with 12 USC ss.1828(k) and any regulations promulgated thereunder.
7.9 Incompetency. If the Savings Bank shall find that any person to whom any payment is payable under the Plan is deemed unable to care for his or her personal affairs because of illness or accident, any payment due (unless a prior claim therefor shall have been made by a duly appointed guardian, committee or other legal representative) may be paid to the spouse, a child, a parent, or a brother or sister, or to any person deemed by the Savings Bank to have incurred expense for such person otherwise entitled to payment, in such manner and proportions as the Board may determine in its sole discretion. Any such payments shall constitute a complete discharge of the liabilities of the Savings Bank under the Plan.
7.10 Construction. The Committee shall have full power and authority to interpret, construe and administer this Plan and the Committee's interpretations and construction thereof, and actions thereunder, shall be binding and conclusive on all persons for all purposes. Directors of the Savings Bank shall not be liable to any person for any action taken or omitted in connection with the interpretation and administration of this Plan unless attributable to his or her own willful, gross misconduct or lack of good faith.
7.11 Plan Administration. The Board shall administer the Plan; provided, however, that the Board may appoint an administrative committee (i.e., the Committee) to provide administrative services or perform duties required by this Plan. The Committee shall have only the authority granted to it by the Board.
7.12 Governing Law. This Plan shall be construed in accordance with and governed by the laws of the State of New Jersey ("State"), except to the extent that federal law shall be deemed to apply.
7.13 Successors and Assigns. The Plan shall be binding upon any successor or successors of the Savings Bank, and unless clearly inapplicable, reference herein to the Savings Bank shall be deemed to include any successor or successors of the Savings Bank.
7.14 Sole Agreement. The Plan expresses, embodies, and supersedes all previous agreements, understandings, and commitments, whether written or oral, between the Savings Bank and any Participants hereto with respect to the subject matter hereof.
IN WITNESS WHEREOF, the Savings Bank has caused the Plan, as amended and restated, to be executed by its duly authorized officer.
Millington Savings Bank
___________________ By: _______________________________
Date
Title: _______________________________
___________________ _______________________________________
Date Witness
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SCHEDULE A
MILLINGTON SAVINGS BANK
MILLINGTON, NEW JERSEY
DIRECTORS' CONSULTATION AND RETIREMENT PLAN
NOTICE OF RETIREMENT AND PARTICIPATION
WHEREAS, the Board of Directors of Millington Savings Bank, Millington, New Jersey ("Savings Bank") has previously adopted the Millington Savings Bank Directors Consultation and Retirement Plan ("Plan"); and
WHEREAS, upon retirement as a Director, I am eligible to elect to participate in the Plan.
My signature below hereby evidences my request to the Savings Bank of my election to participate in the Plan, as follows:
1. This election to participate in the Plan is being delivered to the Savings Bank effective ________________;
2. I hereby resign as a director of the Savings Bank as of _____________________ ("Retirement Date");
3. Upon retirement from the Board as of the Retirement Date, I shall be appointed as a Consulting Director to the Savings Bank and shall be available to advise the Savings Bank from time to time on business and community relations matters as may be requested;
4. As a Consulting Director, I will not have any specific duties or responsibilities, except as may be specifically requested from time to time by the Board;
5. Compensation as a Consulting Director shall be as specified at Article II of the Plan as a consulting retainer and retirement benefit;
6. Except as otherwise detailed by me in writing previously delivered to the Bank, any benefits payable in accordance with the Plan on or after my death shall be payable to my spouse if then living and the estate of my spouse thereafter, if applicable. If my spouse should predecease me, then upon my death, all benefit payments shall be payable to my estate;
7. I hereby request that benefit payments shall commence as of the first business day of the calendar month immediately following my Retirement Date or such later date that may be elected in accordance with the Plan; provided that any such later date requested by a Participant shall be requested in writing not less than one year prior to the Retirement Date and such commencement date shall be not earlier than five years from the Retirement Date. I hereby request that benefit payments shall commence as of ________________ (but in no event prior to my attaintment of age 65).
8. I understand that the above listed items constitute the only benefits that shall be delivered to me as a Participant in the Plan as further detailed in the Plan.
Entered into on such date as noted below:
Accepted: _________________________________________ _______________
Retiring Director Date
Accepted: _________________________________________ _______________
For the Savings Bank Date
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CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the use of our report, dated August 8, 2006, on the consolidated financial statements of MSB Financial Corp. and Subsidiaries as of June 30, 2006 and 2005, and for each of the years in the three-year period ended June 30, 2006, in the Registration Statement and Prospectus on Form S-1 to be filed with the Securities and Exchange and in the Application for Approval of Stock Issuance on Form MHC-2 to be filed with the Office of Thrift Supervision. We further consent to the use of our name as it appears under the captions "The Stock Offering - Effects of the Stock Offering - Material Federal and State Tax Consequences," "Legal and Tax Opinions," and "Experts."
/s/Beard Miller Company LLP Beard Miller Company LLP Pine Brook, New Jersey September 12, 2006 |
September 12, 2006
Board of Directors
MSB Financial, MHC
MSB Financial Corp.
Millington Savings Bank
1902 Long Hill Road
Millington, New Jersey 07946
Members of the Boards of Directors:
We hereby consent to the use of our firm's name in the Form MHC-2, and any amendments thereto, and in the Registration Statement on Form S-1, and any amendments thereto. We also hereby consent to the inclusion of, summary of and references to our Appraisal and our statement concerning subscription rights in such filings including the prospectus of MSB Financial Corp.
Sincerely,
RP FINANCIAL, LC.
/s/RP FINANCIAL, LC.
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Washington Headquarters
Rosslyn Center Telephone: (703) 528-1700
1700 North Moore Street, Suite 2210 Fax No.: (703) 528-1788
Arlington, VA 22209 Toll-Free No.: (866) 723-0594
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September 12, 2006
Board of Directors
MSB Financial, MHC
MSB Financial Corp.
Millington Savings Bank
1902 Long Hill Road
Millington, New Jersey 07946
Members of the Boards of Directors:
All capitalized terms not otherwise defined in this letter have the meanings given such terms in the plan of stock issuance (the "Plan") adopted by the Board of Directors of MSB Financial Corp. ("MSB Financial" or the "Company"). Pursuant to the Plan, MSB Financial will issue a majority of its common stock to MSB Financial, MHC and sell a minority of its stock to the public.
We understand that in accordance with the Plan, subscription rights to purchase shares of common stock in the Company are to be issued to: (1) Eligible Account Holders; (2) the Employee Stock Ownership Plan; and (3) Supplemental Eligible Account Holders. Based solely upon our observation that the subscription rights will be available to such parties without cost, will be legally non-transferable and of short duration, and will afford such parties the right only to purchase shares of common stock at the same price as will be paid by members of the general public in the community offering, but without undertaking any independent investigation of state or federal law or the position of the Internal Revenue Service with respect to this issue, we are of the belief that, as a factual matter:
(1) the subscription rights will have no ascertainable market value; and
(2) the price at which the subscription rights are exercisable will not be more or less than the pro forma market value of the shares upon issuance.
Changes in the local and national economy, the legislative and regulatory environment, the stock market, interest rates, and other external forces (such as natural disasters or significant world events) may occur from time to time, often with great unpredictability and may materially impact the value of thrift stocks as a whole or the Company's value alone. Accordingly, no assurance can be given that persons who subscribe to shares of common stock in the subscription offering will thereafter be able to buy or sell such shares at the same price paid in the subscription offering.
Sincerely,
RP FINANCIAL, LC.
/s/RP FINANCIAL, LC.
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Washington Headquarters
Rosslyn Center Telephone: (703) 528-1700
1700 North Moore Street, Suite 2210 Fax No.: (703) 528-1788
Arlington, VA 22209 Toll-Free No.: (866) 723-0594
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