-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VNKQFWs7L5s6XcpDNXXPwQ1hvRVQ/ot2Q1z2oSQ2qLauBRk9ngEEShHCXZ7/V4x9 PErRpluOWgu2nSpiOsZ+jA== 0000950164-97-000295.txt : 19970923 0000950164-97-000295.hdr.sgml : 19970923 ACCESSION NUMBER: 0000950164-97-000295 CONFORMED SUBMISSION TYPE: SB-2 PUBLIC DOCUMENT COUNT: 18 FILED AS OF DATE: 19970922 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: WYMAN PARK BANCORPORATION INC CENTRAL INDEX KEY: 0001046354 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: SB-2 SEC ACT: SEC FILE NUMBER: 333-36119 FILM NUMBER: 97683797 BUSINESS ADDRESS: STREET 1: 11 WEST RIDGELY RD CITY: LUTHERVILLE STATE: MD ZIP: 21903-5172 BUSINESS PHONE: 4102526450 MAIL ADDRESS: STREET 1: 11 WEST RIDGELY RD CITY: LUTHERVILLE STATE: MD ZIP: 21903-5172 SB-2 1 FORM SB-2 As filed with the Securities and Exchange Commission on September 22, 1997 Registration No. 333-_______ ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------- FORM SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ---------- WYMAN PARK BANCORPORATION, INC. (Exact name of registrant as specified in its charter)
Delaware 6035 Applied For (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.) incorporation or organization) Classification Code Number)
11 West Ridgely Road, Lutherville, Maryland 21094 (410) 252-6450 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) ---------- Ernest A. Moretti, President Wyman Park Bancorporation, Inc. 11 West Ridgely Road Lutherville, Maryland 21094 (410) 252-6450 (Name, address, including zip code, and telephone number, including area code, of agent for service) ---------- Please send copies of all communications to: Jeffrey M. Werthan, P.C. Gary A. Lax, P.C. SILVER, FREEDMAN & TAFF, L.L.P. (a limited liability partnership including professional corporations) 1100 New York Avenue, NW Washington, DC 20005-3934 (202) 414-6100 ---------- Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective 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 effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [X] CALCULATION OF REGISTRATION FEE
==================================================================================================================================== Proposed Maximum Proposed Maximum Title of Each Class of Amount to be Offering Price Aggregate Amount of Securities to be Registered Registered(1) Per Share (1) Offering Price(1) Registration Fee - ------------------------------------------------------------------------------------------------------------------------------------ Common Stock, par value $.01 per share 925,750 shares $10.00 $9,257,500 $2,806(1) ====================================================================================================================================
(1) Estimated solely for the purpose of calculating the registration fee. The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. Prospectus [LOGO] WYMAN PARK BANCORPORATION, INC. (Proposed Holding Company for Wyman Park Federal Savings & Loan Association) $10.00 Per Share 805,000 Shares of Common Stock (Anticipated Maximum) Wyman Park Bancorporation, Inc. (the "Holding Company") is offering up to 805,000 shares of common stock, par value $0.01 per share (the "Common Stock"), in connection with the conversion of Wyman Park Federal Savings & Loan Association, Lutherville, Maryland ("Wyman Park" or the "Association") from a federally chartered mutual savings and loan association to a federally chartered stock savings and loan association and the issuance of all of Wyman Park's outstanding stock to the Holding Company (the "Conversion"). Pursuant to the Association's plan of conversion (the "Plan of Conversion" or the "Plan"), non-transferable rights to subscribe for the Common Stock ("Subscription Rights") have been given, in order or priority, to (i) Wyman Park's depositors with qualifying minimum deposits as of March 31, 1996 ("Eligible Account Holders"), (ii) tax-qualified employee plans of Wyman Park and the Holding Company ("Tax-Qualified Employee Plans") including the Holding Company's Employee Stock Ownership Plan (the "ESOP"), provided, however, that the Tax-Qualified Employee Plans shall have first priority Subscription Rights to the extent that the total number of shares of Common Stock sold in the Conversion exceeds the maximum of the Estimated Valuation Range as defined below, (iii) Wyman Park's depositors as of September 30, 1997 ("Supplemental Eligible Account Holders"), (iv) depositors as of ________, 1997 and certain borrowers ("Other Members"), and (v) its employees, officers and directors (the "Subscription Offering"). (continued on next page) ---------- FOR INFORMATION ON HOW TO SUBSCRIBE, CALL THE STOCK INFORMATION CENTER AT (410) ___-____. ---------- FOR A DISCUSSION OF CERTAIN FACTORS TO BE CONSIDERED, SEE "RISK FACTORS" BEGINNING ON PAGE __. ---------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES REGULATOR, THE OFFICE OF THRIFT SUPERVISION OR THE FEDERAL DEPOSIT INSURANCE CORPORATION, NOR HAS SUCH COMMISSION, REGULATOR, OFFICE OR CORPORATION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR SAVINGS DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. ================================================================================ Estimated Underwriting Fees Commissions and Estimated Net Purchase Other Conversion Price(1) Expenses(2) Proceeds(3) -------- ----------- ----------- Per Share(4) ................. $10.00 $.59 $9.41 Minimum Total ................ $5,950,000.00 $392,129.00 $5,557,871.00 Midpoint Total ............... $7,000,000.00 $410,000.00 $6,590,000.00 Maximum Total ................ $8,050,000.00 $427,871.00 $7,622,129.00 Maximum Total, As Adjusted(5) $9,257,500.00 $448,423.00 $8,809,077.00 ================================================================================ - ---------- (1) Determined on the basis of an appraisal prepared by Ferguson & Company, Inc. ("Ferguson") dated as of August 22, 1997, which states that the estimated pro forma market value of the Common Stock ranged from $5,950,000 to $8,050,000 or between 595,000 shares and 815,000 shares, of Common Stock at $10.00 per share. See "The Conversion - Stock Pricing and Number of Shares to be Issued." (2) Consists of estimated costs to the Association and the Holding Company in the Conversion, including commissions payable to Trident Securities, Inc. ("Trident Securities") estimated to be $392,129 and $427,871, respectively, based on the minimum and the maximum of the Estimated Valuation Range, in connection with the Subscription and Community Offering. Trident Securities has no obligation to purchase the Common Stock. Such fees and commissions to selected dealers, if any, may be deemed to be underwriting fees. See "Pro Forma Data" and "The Conversion - Stock Price and Number of Shares to be Issued" for information regarding such fees and expenses. The Holding Company has agreed to indemnify Trident Securities against certain liabilities, including liabilities arising under the Securities Act of 1933, as amended (the "Act"). Actual expenses and thus net proceeds, may be more or less than estimated amounts. (3) Net Conversion proceeds may vary from the estimated amounts, depending on the number of shares issued and the number of shares sold subject to commissions. The actual number of shares of Common Stock to be issued in the Conversion will not be determined until after the close of the offering. (4) Assumes the sale of the midpoint number of shares. If the minimum, maximum or 15% above the maximum number of shares are sold, estimated expenses per share would be $.66, $.53 or $.48, respectively, resulting in estimated net Conversion proceeds per share of $9.34, $9.47 or $9.52, respectively. (5) As adjusted to give effect to the sale of up to an additional 120,750 shares (15% above the maximum of the Estimated Valuation Range) which may be offered in the Conversion without the resolicitation of subscribers or any right of cancellation, to reflect changes in market and financial conditions following the commencement of the Offering. See "Pro Forma Data," and "The Conversion - Stock Pricing and Number of Shares to be Issued." TRIDENT SECURITIES, INC. The date of this Prospectus is ________, 1997 (continued from prior page) Subject to the prior rights of holders of Subscription Rights, the Holding Company may offer the Common Stock for sale in a direct community offering to members of the general public, with a first preference to natural persons residing in Baltimore and Anne Arundel Counties, Maryland (the "Community Offering" and when combined with the Subscription Offering are referred collectively as the "Subscription and Community Offering"). The Association and the Holding Company reserve the right, in their absolute discretion, to accept or reject, in whole or in part, any or all orders in the Community Offering. Subscription Rights are non- transferrable. Persons found to be selling or otherwise transferring their right to purchase stock in the Subscription Offering or purchasing Common Stock on behalf of another person will be subject to forfeiture of such rights and possible further sanctions and penalties imposed by the Office of Thrift Supervision (the "OTS"), an agency of the United States Government. The total number of shares to be issued in the Conversion will be based upon an appraised valuation of the estimated aggregate pro forma market value of the Holding Company and the Association as converted. The purchase price per share ("Purchase Price") has been fixed at $10.00. Based on the current aggregate valuation range of $5.95 million to $8.05 million (the "Estimated Valuation Range"), the Holding Company is offering for sale up to 805,000 shares. Depending upon the market and financial conditions at the time of the completion of the offering, if any, the total number of shares to be issued in the Conversion may be increased or decreased from the 805,000 shares offered hereby, provided that the product of the total number of shares multiplied by the price per share remains within, or does not exceed by more than 15% the maximum of the Estimated Valuation Range. If the aggregate Purchase Price of the Common Stock sold in the Conversion is below $5,950,000 or above $9,257,500, or if the offering is extended beyond __________, 1997, subscribers will be permitted to modify or cancel their subscriptions and to have their subscription funds returned promptly with interest. Under such circumstances, if subscribers take no action, their subscription funds will be promptly returned to them with interest. In all other circumstances, subscriptions are irrevocable by subscribers. See "The Conversion - Offering of Holding Company Common Stock." With the exception of the Tax-Qualified Employee Plans and certain large depositors, no Eligible Account Holder, Supplemental Eligible Account Holder or Other Member may purchase in their capacity as such in the Subscription Offering more than $100,000 of Common Stock. In the aggregate, no person, together with associates of and persons acting in concert with such person or persons on a single account, may purchase more than $100,000 of Common Stock offered in the Conversion based on the Estimated Valuation Range. Under certain circumstances, the maximum purchase limitations may be increased or decreased at the sole discretion of the Association and the Holding Company up to 9.99% of the total number of shares of Common Stock sold in the Conversion or to one percent of shares of Common Stock offered in the Conversion. The minimum purchase is 25 shares. See "The Conversion - Additional Purchase Restrictions." The Holding Company must receive an order form and certification form (together referred to as the "Order Form"), together with full payment at $10.00 per share (or appropriate instructions authorizing a withdrawal from a deposit account at the Association) for all shares for which subscription is made, at any office of the Association, by 12:00 noon, Lutherville, Maryland time, on ________, 1997, unless the Subscription and Community Offering is extended, at the discretion of the Board of Directors, up to an additional 45 days with the approval of the OTS, if necessary, but without additional notice to subscribers (the "Expiration Date"). See "The Conver sion - Offering of Holding Company Common Stock." Subscriptions paid by check, bank draft or money order will be placed in a segregated account at the Association and will earn interest at the Association's passbook rate from the date of receipt until completion or termination of the Conversion. Payments authorized by withdrawal from deposit accounts at the Association will continue to earn interest at the contractual rate until the Conversion is completed or terminated; these funds will be otherwise unavailable to the depositor until such time. Authorized withdrawals from certificate accounts for the purchase of Common Stock will be permitted without the imposition of early withdrawal penalties or loss of interest. Following the completion of the offering, it is anticipated that the common stock will be traded on the over-the-counter market with quotations available through the OTC Electronic Bulletin Board ("OTC Bulletin Board"). If the common stock cannot be quoted and traded on the Bulletin Board it is expected that the transactions in the common stock will be reported in the pink sheets published by the National Quotation Bureau, Inc. Prior to this offering there has not been a public market for the Common Stock, and there can be no assurance that an active and liquid trading market for the Common Stock will develop or that resales of the Common Stock can be made at or above the Purchase Price. See "Market for Common Stock" and "The Conversion - Stock Pricing and Number of Shares to be Issued." 2 [MAP TO COME] 3 PROSPECTUS SUMMARY The following summary does not purport to be complete and is qualified in its entirety by the detailed information and financial statements appearing elsewhere herein. Wyman Park Bancorporation, Inc. The Holding Company, Wyman Park Bancorporation, Inc., was formed in 1997 by Wyman Park under the laws of Delaware for the purpose of becoming a savings and loan holding company which will own all of the outstanding capital stock that Wyman Park will issue in connection with the Conversion. Immediately following the Conversion, the only significant assets of the Holding Company will be the capital stock of Wyman Park and up to approximately 50% of the net proceeds from the Conversion, a portion of which is expected to be used to fund the Holding Company's loan to its Employee Stock Ownership Plan ("ESOP"). See "Use of Proceeds." Upon completion of the Conversion, the Holding Company's business initially will consist only of the business of Wyman Park. The executive office of the Holding Company is located at 11 West Ridgely Road, Lutherville, Maryland 21093 and its telephone number at that address is (410) 252-6450. See "Wyman Park Bancorporation, Inc." Wyman Park Wyman Park was founded in 1914 as an Maryland-chartered mutual association and converted to a federally chartered association in 1937. Wyman Park serves the financial needs of families and local businesses in its primary market area through its main office located in central Baltimore County and through its branch office located in northern Anne Arundel County, Maryland. Its deposits are insured up to applicable limits by the Federal Deposit Insurance Corporation ("FDIC"). At June 30, 1997, Wyman Park had total assets of $62.2 million, deposits of $56.1 million and retained earnings of $4.8 million (or 7.7% of total assets). Wyman Park's business involves attracting deposits from the general public and using such deposits to originate one- to four-family permanent and construction residential mortgage and, to a lesser extent, commercial real estate, multi-family, consumer (secured and unsecured), land and second mortgage loans in its market area. The Association also invests in investment securities consisting primarily of U.S. government obligations and various types of short-term liquid assets. See "Business." The Association's basic mission is to maintain its focus as an independent, community- oriented financial institution serving customers in its primary market area. The Board of Directors has sought to accomplish this mission through the adoption of a strategy designed to improve its capital position and maintain its high asset quality, manage the Association's sensitivity to changes in interest rates and improve the Association's net interest margin. The Association has attempted to effect its strategy by (i) continuing to emphasize one- to four-family permanent and construction 4 residential mortgage lending, (ii) supplementing residential lending with investments in commercial real estate, consumer and other loans, (iii) emphasizing the origination of adjustable rate and short-and medium-term (up to 15 years) loans and investments; and (iv) maintaining a low overhead. Financial highlights of the Association include the following: o Capital Position. - At June 30, 1997, the Association had retained earnings of $4.8 million (7.6 of total assets). Wyman Park's regulatory capital exceeds all regulatory capital requirements. At June 30, 1997, Wyman Park's risk-based capital totaled $5.0 million which was approximately $2.3 million above the Association's capital requirement at such date. Assuming on a pro forma basis that $8.05 million of shares, the maximum of the Estimated Valuation Range, were sold in the Conversion and approximately 50% of the net Conversion proceeds were contributed to Wyman Park by the Holding Company, as of June 30, 1997, the Association's risk-based capital would have been $7.9 million (22.5% of risk adjusted total assets). See "Regulation - Regulatory Capital Requirements." o Asset Quality. - The Association's ratio of non-performing assets to total assets was .28% at June 30, 1997. The Association's non-performing assets primarily consist of one- to four-family mortgage loans. See "Business - Delinquencies and Non- Performing Assets." The information set forth above should be considered in light of the factors described under the caption "Risk Factors." For additional information regarding the implementation of the Association's business strategy, see "Management's Discussion and Analysis of Financial Condition and Results of Operations - Asset/Liability Management." Forward-Looking Statements When used in this Form 10-KSB and in future filings by the Holding Company with the Securities and Exchange Commission (the "SEC"), in the Company's press releases or other public or shareholder communications, and in oral statements made with the approval of an authorized executive officer, the words or phrases "will likely result", "are expected to", "will continue", "is anticipated", "estimate", "project" or similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to risks and uncertainties, including but not limited to changes in economic conditions in the Holding Company's market area, changes in policies by regulatory agencies, fluctuations in interest rates, demand for loans in the Holding Company's market area and competition, all or some of which could cause actual results to differ materially from historical earnings and those presently anticipated or projected. The Holding Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made and are subject to the above-stated qualifications in any event. The Holding Company wishes to advise readers that the factors listed above could affect the Holding Company's financial performance and could cause the Holding Company's actual results for future periods to differ 5 materially from any opinions or statements expressed with respect to future periods in any current statements. The Holding Company does not undertake--and specifically declines any obligation--to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. The Conversion Plan of Conversion. Under the Plan of Conversion, the Conversion is subject to certain conditions, including the prior approval of the Plan by the Association's members at a Special Meeting to be held on __________, 1997. After the Conversion, the Association's current voting members (who include certain deposit account holders and certain borrowers) will have no voting rights in Wyman Park and will have no voting rights in the Holding Company unless they become Holding Company stockholders. Eligible Account Holders and Supplemental Eligible Account Holders, however, will have certain liquidation rights in the Association. See "The Conversion Effects of Conversion to Stock Form on Depositors and Borrowers of the Association - Liquidation Rights." The Subscription and Community Offering. The shares of Common Stock to be issued in the Conversion are being offered at a Purchase Price of $10.00 per share in the Subscription Offering pursuant to nontransferable Subscription Rights in the following order of priority: (i) Eligible Account Holders (i.e., depositors in the Association on March 31, 1996); (ii) Tax-Qualified Employee Plans (in this case, the Holding Company's ESOP); provided, however, that the Tax- Qualified Employee Plans shall have first priority Subscription Rights to the extent that the total number of shares of Common Stock sold in the Conversion exceeds the maximum of the Estimated Valuation Range; (iii) Supplemental Eligible Account Holders (i.e., depositors in the Association on September 30, 1997); (iv) Other Members (e.g., depositors of the Association as of _________, 1997); and (v) employees, officers and directors of the Association. Subscription Rights received in any of the foregoing categories will be subordinated to the Subscription Rights received by those in a prior category. Subscription Rights will expire if not exercised by _:__ _.m., Lutherville, Maryland time, on __________, 1997, unless extended (the "Expiration Date"). Concurrently, and subject to the prior rights of holders of Subscription Rights, any shares of Common Stock not subscribed for in the Subscription Offering are being offered at the same price in the Community Offering to members of the general public, with a preference given to natural persons residing in Baltimore and Anne Arundel Counties, Maryland. The Association and the Holding Company have engaged Trident Securities as financial advisor and to assist in the distribution of shares of Common stock. Depending on market conditions and subject to the prior rights of holders of Subscription Rights, the Common Stock may be offered for sale to the general public on a best efforts basis in the Community Offering through a selected dealers arrangement to be coordinated by Trident Securities. 6 The Association has established a Stock Information Center, managed by Trident Securities, to coordinate the Subscription and Community Offering, including tabulating orders and answering questions about the Subscription and Community Offering received by telephone. All subscribers will be instructed to mail payment to the Stock Information Center or deliver payment directly to the Association's office. Payment for shares of Common Stock may be made by cash (if delivered in person), check or money order or by authorization of withdrawal from deposit accounts maintained with the Association. Such funds will not be available for withdrawal and will not be released until the Conversion is completed or terminated. The Association will not accept wire transfers for the payment of stock for any reason. See "The Conversion - Method of Payment for Subscriptions." Purchase Limitations. The Plan of Conversion places limitations on the number of shares which may be purchased in the Conversion by various categories of persons. With the exception of the Tax-Qualified Employee Plans and certain large depositors, no Eligible Account Holder, Supplemental Eligible Account Holder or Other Member may purchase in their capacity as such in the Subscription Offering more than $100,000 of Common Stock offered in the Conversion. In the aggregate, no person or group of persons acting in concert (other than the Tax-Qualified Employee Plans) or persons on a single account may purchase more than $100,000 of Common Stock offered in the Conversion. These purchase limits may be increased or decreased consistent with OTS regulations at the sole discretion of the Holding Company and the Association. See "The Con version - Offering of Holding Company Common Stock." Prospectus Delivery and Procedure for Purchasing Shares. To ensure that each purchaser receives a prospectus at least 48 hours prior to the Expiration Date in accordance with Rule 15c2-8 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), no prospectus will be mailed any later than five days prior to such date or hand delivered any later than two days prior to such date. Execution of the order form will confirm receipt or delivery in accordance with Rule 15c2-8. Order forms will be distributed only with a prospectus. The Association will accept for processing orders submitted on original order forms with an executed certification. Photocopies or facsimile copies of order forms or the form of certification will not be accepted. Payment by cash, check, money order, bank draft or debit authorization to an existing account at the Association must accompany the order form. No wire transfers will be accepted. See "The Conversion - Method of Payment for Subscriptions." In order to ensure that Eligible Account Holders, Supplemental Eligible Account Holders and Other Members receive their stock purchase priorities, depositors must list all accounts on the Order Form, giving all names on each account and the account number as of the applicable record date. Restrictions on Transfer of Subscription Rights. Prior to the completion of the Conversion, no person may transfer or enter 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 upon their exercise. Each person exercising Subscription Rights will be required to certify that a purchase of Common Stock is solely for the purchaser's own account and that there is no agreement or 7 understanding regarding the sale or transfer of such shares. Persons found to be selling or otherwise transferring their right to purchase stock in the Subscription Offering or purchasing Common Stock on behalf of another person will be subject to forfeiture of such rights and possible federal penalties and sanctions. See "The Conversion - Restrictions on Transfer of Subscription Rights and Shares." Stock Pricing. The price of the Common Stock is $10.00 per share and is the same for all purchasers, including insiders. The aggregate pro forma market value of the Holding Company and Wyman Park, as converted, was estimated by Ferguson, a firm experienced in appraising converting thrift institutions, to range from $5,950,000 to $8,050,000 at August 22, 1997 (the "Estimated Valuation Range"). Depending on market and financial conditions at the completion of the Subscription and Community Offering, the number of shares of Common Stock to be issued in the Conversion may be increased or decreased significantly from the 805,000 shares offered hereby and the price per share may be decreased. However, subscribers will be permitted to modify or rescind their subscriptions if the product of the number of shares to be issued multiplied by the price per share is less than $5,950,000 or more than $9,257,500. See "Pro Forma Data" and "The Conversion - Stock Pricing and Number of Shares to be Issued" for a description of the manner in which such valuation was made and the limitations on its use. The Ferguson appraisal is not intended to be, and must not be interpreted as, a recommendation of any kind as to the advisability of voting to approve the Conversion or of purchasing shares of Common Stock. The appraisal considers Wyman Park and the Holding Company only as going concerns and should not be considered as any indication of the liquidation value of Wyman Park or the Holding Company. Moreover, the appraisal is necessarily based on many factors which change from time to time. There can be no assurance that persons who purchase shares in the Conversion will be able to sell such shares at prices at or above the Purchase Price. Purchases by Directors and Officers The directors and officers of Wyman Park intend to purchase, in the Subscription Offering for investment purposes and at the same price as the shares are sold to other investors in the Conversion, approximately $600,000 of Common Stock or 8.6% of the shares to be issued in the Conversion at the midpoint of the Estimated Valuation Range (exclusive of an aggregate of 8% of the shares to be issued in the Conversion which are anticipated to be purchased by the ESOP). See "The Conversion - Participation by the Board." Potential Benefits of Conversion to Directors and Executive Officers Employee Stock Ownership Plan. The Board of Directors of the Association has adopted an ESOP, a tax-qualified employee benefit plan for officers and employees of the Holding Company and the Association. All employees of the Association are eligible to participate in the ESOP after they attain age 21 and complete one year of service. The Association contribution to the ESOP is allocated among participants on the basis of their relative compensation. Each participant's account will be credited with cash and shares of the Holding Company's Common Stock based upon compensation earned during the year with respect to which the contribution is made. The ESOP 8 intends to buy up to 8% of the Common Stock issued in the Conversion (approximately $476,000 to $644,000 of the Common Stock based on the issuance of the minimum and the maximum of the Estimated Valuation Range and the $10.00 per share Purchase Price). The ESOP will purchase the shares with funds borrowed from the Holding Company, and it is anticipated that the ESOP will repay the loans through periodic tax-deductible contributions from the Association over a ten-year period. These contributions will increase the compensation expense of the Association. See "Management - Benefit Plans - Employee Stock Ownership Plan" for a description of this plan. Employment Agreement. The Association has had, since 1989, an employment contract with its President, Ernest A. Moretti. The agreement provides for a salary, contains bonus provisions tied to the Association's performance, and has a term of three years (subject to an annual extension for an additional year following an annual performance review). The key terms of this agreement are expected to be incorporated into a new agreement which also provides that under certain circumstances, including a change in control, Mr. Moretti would be entitled, subject to certain limitations, to a severance payment. See "Management - Executive Compensation - Employment Agreement." Other Stock Benefit Plans. In addition to the ESOP and the employment agreements, in the future the Holding Company may consider the implementation of a stock option plan ("Stock Option Plan") and recognition and retention plan ("RRP") for the benefit of selected directors, officers and employees of the Holding Company and the Association. Any such stock option plan or RRP will not be implemented within one year of the date of the consummation of the Conversion, subject to continuing OTS jurisdiction. If a determination is made to implement a stock option plan or RRP, it is anticipated that any such plans will be submitted to stockholders for their consideration at which time stockholders would be provided with detailed information regarding such plan. If such plans are approved, they will affect the Holding Company's net income and stockholders' equity, although the actual results cannot be determined until such plans are implemented. Use of Proceeds The net proceeds from the sale of Common Stock in the Conversion (estimated at $5.6 million, $6.6 million, $7.6 million and $8.8 million based on the minimum, midpoint, maximum and 15% above the maximum respectively, number of shares, respectively) will substantially increase the capital of Wyman Park. See "Pro Forma Data." The Holding Company will utilize approximately 50% of the net proceeds from the issuance of the Common Stock to purchase all of the common stock of Wyman Park to be issued upon Conversion and will retain approximately 50% of the net proceeds. The proceeds retained by the Holding Company will be invested initially in short-term securities of a type similar to those invested in by the Association. In addition, the Holding Company, subject to regulatory approval, is expected to fund the ESOP loan. Such proceeds will also be available for general corporate purposes, including the possible repurchase of shares of the Common Stock, as permitted by applicable regulation. The Holding Company currently has no specific plan to make any such repurchases of any of its Common Stock. The net proceeds received by Wyman Park will become part of Wyman Park's general funds for use in its business, subject to applicable regulatory restrictions, and will be available to use for the acquisition of deposits or assets or both from other institutions, although no such acquisitions are being 9 contemplated at this time, or for other corporate purposes. See "Use of Proceeds" for additional information on the utilization of the offering proceeds as well as on the OTS restrictions on repurchases of the Holding Company's stock. Dividends The Holding Company anticipates paying an initial annual cash dividend on the Common Stock at a rate of approximately 3.0% of the Purchase Price ($.30 per share) of the Common Stock following the first full quarter following completion of the Conversion. Dividends, when and if paid, will be subject to determination and declaration by the Board of Directors in its discretion, which will take into account the Holding Company's consolidated financial condition and results of operations, tax considerations, industry standards, economic conditions, regulatory restrictions, general business practices and other factors. See "Dividends," "Regulation - Regulatory Capital Requirements" and "- Limitations on Dividends and Other Capital Distributions." The Holding Company currently has no intention to initiate, and will not initiate for a period of at least one year following completion of the Stock Conversion, any action which leads to a return of capital (as distinguished from a dividend) to stockholders of the Holding Company. Market For Common Stock The Holding Company has never issued capital stock to the public and, consequently, there is no existing market for the Common Stock. Following the completion of the offering, it is anticipated that the common stock will be traded on the over-the-counter market with quotations available through the OTC Bulletin Board. Trident Securities has indicated its intention to make a market in the Common Stock If the common stock cannot be quoted and traded on the OTC Bulletin Board it is expected that the transactions in the common stock will be reported in the pink sheets published by the National Quotation Bureau, Inc. Making a market may include the solicitation of potential buyers and sellers in order to match buy and sell orders. However, Trident will not be subject to any obligation with respect to such efforts. There can be no assurance that an active or liquid trading market will develop for the Common Stock, or if a market develops, that it will continue. A public market having the desirable characteristics of depth, liquidity and orderliness depends upon the presence in the marketplace of both willing buyers and sellers of the Common Stock at any given time, which is not within the control of the Holding Company or any market maker. Accordingly, there can be no assurance that purchasers will be able to sell their shares at or above the Purchase Price. See "Market for Common Stock." Risk Factors Special attention should be given to the following factors discussed under "Risk Factors": lending activities; vulnerability to changes in interest rates; competition; geographical concentration of loans; certain anti-takeover provisions; voting control of shares by the Board, management, and 10 employee plans; low return on equity and low net interest margin; ESOP compensation expense; absence of prior market for common stock; proposed federal legislation; and risk of delay. 11 SELECTED CONSOLIDATED FINANCIAL INFORMATION June 30, ------------------------------------------ 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- (In Thousands) Selected Financial Condition Data: - ---------------------------------- Total assets ...................... $62,241 $63,866 $64,258 $64,666 $65,405 Loans receivable, net ............. 55,189 53,244 54,403 52,093 48,724 Mortgage-backed securities ........ 356 424 520 605 4,912 Investment securities ............. 2,993 2,964 5,920 7,935 8,300 Deposits .......................... 56,095 57,871 58,474 59,389 59,765 Retained earnings- substantially restricted ......... 4,755 4,621 4,327 3,894 3,396 Year Ended June 30, ------------------------------------------ 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- (In Thousands) Selected Operations Data: - ------------------------- Total interest income ............ $ 4,658 $ 4,725 $ 4,788 $ 4,537 $ 4,988 Total interest expense ........... 2,756 3,073 2,891 2,777 3,202 ------- ------- ------- ------- ------- Net interest income ........... 1,902 1,652 1,897 1,760 1,786 Provision for (recovery of) loan losses ..................... 145 25 (88) 183 133 ------- ------- ------- ------- ------- Net interest income after provision for loan losses ....... 1,757 1,627 1,985 1,577 1,653 Fees and service charges ......... 48 47 36 28 23 Gain on sales of loans, mortgage-backed securities and investment securities ....... 6 20 23 442 354 Other non-interest income ........ 24 39 26 177 135 ------- ------- ------- ------- ------- Total non-interest income ........ 78 106 85 647 512 Total non-interest expense ....... 1,614 1,278 1,361 1,411 1,222 ------- ------- ------- ------- ------- Income before taxes and cumulative effect of accounting change ............... 221 455 709 813 943 Income tax provision ............. 87 161 276 315 370 Cumulative effect of accounting change ............... -- -- -- -- 69 ------- ------- ------- ------- ------- Net income ....................... $ 134 $ 294 $ 433 $ 498 $ 642 ======= ======= ======= ======= ======= 12
Year Ended June 30, ------------------------------------------------------- 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- Selected Financial Ratios and Other Data: - ----------------------------------------- Performance Ratios: Return on assets (ratio of net income to average total assets) ....................................................... .22% .46% .67% .80% .99% Return on retained earnings (ratio of net income to average equity) ............................................... 2.87 6.56 10.52 13.22 21.02 Interest rate spread information: Average during period .......................................... 2.76 2.26 2.70 2.46 2.54 End of period .................................................. 2.77 2.19 2.25 2.93 2.86 Net interest margin(1) .......................................... 3.14 2.63 2.98 2.75 2.81 Ratio of operating expense to average total assets .............. 2.62 2.01 2.11 2.27 1.89 Ratio of average interest-earning assets to average interest-bearing liabilities .................................. 108.40 107.66 106.24 106.66 105.31 Loans as a percentage of total assets ........................... 88.67 83.37 84.66 80.56 74.50 Quality Ratios: Non-performing assets to total assets at end of period ........... .28 .04 .30 .25 .28 Allowance for loan losses to non-performing loans ................ 153.11 456.89 51.89 196.32 234.46 Allowance for loan losses to loans receivable, net ............... .49 .24 .18 .60 .87 Capital Ratios: Retained earnings to total assets at end of period ............... 7.64 7.24 6.73 6.02 5.19 Average retained earnings to average assets ...................... 7.58 7.04 6.36 6.05 4.71 Other Data: Number of full-service offices ................................... 2 2 2 2 2
- ----------- (1) Net interest income divided by average interest earning assets. 13 RISK FACTORS The following factors, in addition to those discussed elsewhere in this Prospectus, should be considered by investors before deciding whether to purchase the Common Stock offered in the Subscription and Community Offering. Vulnerability to Changes in Interest Rates The Association's profitability, like that of many financial institutions, is dependent to a large extent upon its net interest income, which is the difference between its interest income on interest-earning assets, such as loans and investments, and its interest expense on interest-bearing liabilities, such as deposits. When interest-bearing liabilities mature or reprice more quickly than interest-earning assets in a given period, a significant increase in market rates of interest could adversely affect net interest income. Similarly, when interest-earning assets mature or reprice more quickly than interest-bearing liabilities, falling interest rates could result in a decrease in net interest income. At June 30, 1997, fixed-rate loans totaled $35.4 million or 63.4% of the Association's loan portfolio while adjustable-rate loans totaled $20.5 million or 36.6% of the Association's loan portfolio. It is likely that, in the event of an increase in interest rates, the Association would experience a decline in profitability. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Asset and Liability Management." Competition The Association experiences strong competition in its local market area in both originating loans and attracting deposits. This competition arises from a highly competitive market area with numerous savings institutions and commercial banks, as well as credit unions, mortgage bankers and, with respect to deposits, banking institutions and other financial intermediaries. The Association recognizes its need to monitor competition and modify its products and services as necessary and possible, taking into consideration the cost impact. As a result, such competition may limit Wyman Park's growth and profitability in the future. See "Business - Competition" and "- Originations, Purchases and Sales of Loans." Geographical Concentration of Loans At June 30, 1997, substantially all of the Association's real estate mortgage loans were secured by properties located in the Association's market area of Baltimore County and its contiguous counties in Maryland. While the Association currently believes that its loans are adequately secured or reserved for, in the event that real estate prices in the Association's market area substantially weaken or economic conditions in its market area deteriorate, some borrowers may default and the value of the real estate collateral may be insufficient to fully secure the loan. In such events, the Association may experience increased levels of delinquencies and related losses having an adverse impact on net income. 14 Certain Anti-Takeover Provisions Certain provisions of the Holding Company's certificate of incorporation and bylaws, including a provision limiting voting rights of beneficial owners of more than 10% of the Common Stock, and Wyman Park's stock charter and bylaws as well as certain Delaware laws and regulations, will assist the Holding Company in maintaining its status as an independent publicly owned corporation and may have certain anti-takeover effects. See "Restrictions on Acquisition of Stock and Related Takeover Defensive Provisions." Certificate of Incorporation and Bylaws of the Holding Company. The Holding Company's certificate of incorporation and bylaws provide for, among other things, a limit on voting more than 10% of the Common Stock described above, staggered terms for members of its Board of Directors, noncumulative voting for directors, limits on the calling of special meetings of stockholders and director nominations, a fair price or supermajority stockholder approval requirement for certain business combinations and certain shareholder proposal notice requirements. Federal Stock Charter of the Association. Provisions in Wyman Park's federal stock charter that have an anti-takeover effect could also be applicable to changes in control of the Holding Company as the sole shareholder of the Association. Wyman Park's federal stock charter will include a provision applicable for five years which prohibits the acquisition or offer to acquire directly or indirectly the beneficial ownership of more than 10% of Wyman Park's securities by any person or entity other than the Holding Company. Any person violating this restriction may not vote Wyman Park's securities in excess of 10%. These provisions in the Holding Company's and Wyman Park's governing instruments may discourage potential proxy contests and other takeover attempts by making the Holding Company less attractive to a potential acquiror, particularly those takeover attempts which have not been negotiated with the Board of Directors of the Holding Company and/or Wyman Park, as the case may be. These provisions may also have the effect of discouraging a future takeover attempt which would not be approved by the Holding Company's Board, but pursuant to which stockholders may receive a substantial premium for their shares over then current market prices. As a result, stockholders who might desire to participate in such a transaction may not have any opportunity to do so. In addition, certain of these provisions that limit the ability of persons (including management or others) owning more than 10% of the shares to vote their shares will be enforced by the Board of Directors of the Holding Company or Wyman Park, as the case may be, to limit the voting rights of 10% or greater stockholders and thus could have the effect in a proxy contest or other solicitation to defeat a proposal that is desired by the holders of a majority of the shares of Common Stock. Federal Law and Regulations. Federal law also requires OTS approval prior to the acquisition of "control" (as defined in OTS regulations) of an insured institution, including a holding company thereof. In the event any person or group of persons acquires shares in violation of these limitations, such person or group may be restricted from voting his shares in excess of 10% of the outstanding Common Stock. Such laws and regulations may also limit a person's ability without regulatory approval to solicit proxies enabling him to elect one third or more of the Holding 15 Company's Board of Directors or exert a controlling influence on the operations of Wyman Park or the Holding Company. In addition, certain of these provisions may limit the ability of persons (including management or others) owning more than 10% of the shares to vote their shares (by proxy or otherwise) for proposals that they believe to be in the best interests of shareholders. See "Management of the Association - Benefit Plans," "Description of Capital Stock" and "Restrictions on Acquisitions of Stock and Related Takeover Defensive Provisions." Voting Control of Shares by the Board, Management and Employee Plans The proposed purchases by the Board of Directors, management and employees in the Subscription and Community Offering could render it more difficult to obtain majority support for stockholder proposals opposed by the Board and management. Assuming the sale of shares at the minimum, midpoint and maximum of the Estimated Valuation Range, the proposed purchases of $600,000 of shares of the Common Stock by the Board and the executive officers would represent 10.1%, 8.6% and 7.5%, respectively, of the shares to be outstanding upon completion of the Stock Conversion. In addition, the ESOP intends to purchase 8% of the shares of Common Stock sold in the Subscription and Community Offering. (Prior to allocation, shares held by the ESOP will be voted by the independent trustee in its sole discretion.) See "Management - Benefit Plans," "Description of Capital Stock" and "Takeover Defensive Provisions." Low Return on Equity and Low Net Interest Margin As a result of the Association's high capital levels and the additional capital that will be raised in the Conversion, its ability to leverage quickly the net proceeds from the Conversion is highly likely to be limited. In addition, recent policy changes may limit the amount of repurchases of common stock that can be effected by the Holding Company. Further, in comparison to its peers, the Association has a low net interest margin due in part to a high relative balance of certificate accounts compared to transaction accounts. Certificate accounts are traditionally believed to be subject to more rate competition than are transaction accounts, which can result in an otherwise higher cost of funds. Accordingly, it is anticipated that, for several years, net interest margin and return on equity are likely to be low in comparison to the Association's peers. ESOP Compensation Expense In November, 1993, the American Institute of Certified Public Accountants ("AICPA") issued Statement of Position 93-6 "Employers' Accounting for Employee Stock Ownership Plans" ("SOP 93-6"). SOP 93-6 requires an employer to record compensation expense in an amount equal to the fair value of shares committed to be released to employees from an employee stock ownership plan. Assuming shares of Common Stock appreciate in value over time, the adoption of SOP 93-6 will increase compensation expense relating to the ESOP to be established in connection with the Conversion. It is impossible to determine at this time the extent of such impact on future net income. 16 Absence of Prior Market for Common Stock Wyman Park, as a mutual thrift institution, and the Holding Company, as a newly organized company, have never issued capital stock. Consequently, there is not at this time an existing market for the Common Stock. Following the completion of the offering, it is anticipated that the common stock will be traded on the over-the-counter market with quotations available through the OTC Bulletin Board. If the common stock cannot be quoted and traded on the OTC Bulletin Board it is expected that the transactions in the common stock will be reported in the pink sheets published by the National Quotation Bureau, Inc. Making a market may include the solicitation of potential buyers and sellers in order to match buy and sell orders. However, Trident will not be subject to any obligation with respect to such efforts. There can be no assurance that an active and liquid market for the Common Stock will develop or be maintained, or that resales of the Common Stock can be made at or above the conversion offering price after the completion of the Conversion. See "Market for Common Stock." A public trading market having the desirable characteristics of depth, liquidity and orderliness depends upon the presence in the marketplace of both willing buyers and sellers of the Common Stock at any given time. Accordingly, there can be no assurance that an active and liquid market for the Common Stock will develop or be maintained or that resales of the Common Stock can be made at or above the Purchase Price. See "Market for Common Stock" and "The Conversion - Stock Pricing and Number of Shares to be Issued." Proposed Federal Legislation The United States Congress is considering legislation that would require all federal thrift institutions, such as Wyman Park, to either convert to a national bank or a state chartered financial institution by a specified date to be determined. In addition, under the legislation the Holding Company likely would not be regulated as a thrift holding company, but rather as a bank holding company. The OTS would also be abolished and its functions transferred among the other federal banking regulators. Certain aspects of the legislation remain to be resolved and therefore no assurance can be given as to whether or in what form the legislation will be enacted or its effect on the Holding Company and the Association. Risk of Delayed Offering The Subscription and Community Offering will expire at 12:00 noon, Lutherville, Maryland time on __________, 1997 unless extended by the Association and the Holding Company. However, unless waived by the Holding Company or the Association, all orders will be irrevocable unless the Conversion is not completed by __________, 1997. In the event the Conversion is not completed by __________, 1997, subscribers will have the right to modify or rescind their subscriptions and to have their subscription funds returned with interest. 17 USE OF PROCEEDS Although the actual net proceeds from the sale of the Common Stock cannot be determined until the Conversion is completed, it is presently anticipated that such net proceeds will be between $5.6 million and $7.6 million (or up to $8.8 million in the event of an increase in the aggregate pro forma market value of the Common Stock of up to 15% above the maximum of the Estimated Valuation Range). See "Pro Forma Data" and "The Conversion - Stock Pricing and Number of Shares to be Issued" as to the assumptions used to arrive at such amounts. The net proceeds from the sale of the Common Stock in the Conversion will substantially increase the capital of Wyman Park and will be used for general corporate purposes including its lending and investment activities. For information on the amount of pro forma net proceeds assuming the sale of various amounts of Common Stock, see "Pro Forma Data." In exchange for all of the common stock of Wyman Park issued upon conversion, the Holding Company will contribute to Wyman Park approximately 50% of the net proceeds from the sale of the Holding Company's Common Stock and the Holding Company will retain the remaining 50% of the net proceeds. On an interim basis, the proceeds will be invested by the Holding Company and Wyman Park in short-term investments or to repay borrowings. Such short-term investments are generally anticipated to be similar to those currently contained in the Association's portfolio. The specific types and amounts of short-term assets will be determined based on market conditions at the time of the completion of the Conversion. In addition, the Holding Company, subject to regulatory approval, is expected to provide the funding for the ESOP loan. See "Business - Lending Activities" and " - Investment Activities" and "Management of the Association - Benefit Plans - Employee Stock Ownership Plan." While the new capital resulting from the Conversion could increase the Association's return on assets (as a result of the earnings on the new capital), it will probably result in a decline in return on equity because it is unlikely that the Association will quickly be able to (i) invest the new capital in assets with rates equal to the average rates earned on the Association's seasoned asset portfolio and (ii) leverage the new capital by increasing liabilities to fund asset growth. See "Risk Factors Low Return on Equity and Low Net Interest Margin." In the future the Holding Company may consider the adoption of a restricted stock plan (i.e., the RRP) at the earliest, one year following the Conversion and subject to stockholder ratification. If such a plan is implemented, the Holding Company may use a portion of the net proceeds to fund the purchase by the plan of the Holding Company's Common Stock. After the completion of the Conversion, it is anticipated that the Association will reinvest the proceeds of the interim short-term investments in loans and investment securities. Proceeds reinvested in loans are anticipated to be allocated among the Association's loan programs in proportions similar to recent lending volumes, provided suitable opportunities are available to the Association. Investment securities are anticipated to be similar to those in the Association's current portfolio. However, the reinvestment of the proceeds will be based on market conditions and 18 investment opportunities. The timing and amount of such investments cannot now be determined nor can the Association identify the specific assets in which investments will be made. The proceeds may also be utilized by the Holding Company to repurchase (at prices which may be above or below the initial offering price) shares of the Common Stock through an open market repurchase program available to all stockholders subject to regulatory limitations, although the Holding Company currently has no specific plan to repurchase any of its stock. In the future, the Board of Directors of the Holding Company will make decisions on the repurchase of the Common Stock based on its view of the appropriateness of the price of the Common Stock as well as the Holding Company's and the Association's investment opportunities and capital needs. Under current OTS regulations, no repurchases may be made within the first year following Conversion except with OTS approval under "exceptional circumstances." During the second and third years following Conversion, OTS regulations permit, subject to certain limitations, the repurchase of up to 5% of the outstanding shares of stock during each twelve-month period with a greater amount permitted with OTS approval. In general, the OTS regulations do not restrict repurchases thereafter other than indirectly by virtue of limits on the Association's ability to pay dividends to the Holding Company which may be necessary to fund the repurchase. For a description of the restrictions on the Association's ability to provide the Holding Company with funds through dividends or other distributions, see "Dividends" and "The Conversion -Restrictions on Repurchase of Stock." The Holding Company or Wyman Park may consider expansion through the acquisition of other financial services providers (or branches, deposits or assets thereof) or through the expansion of banking services through Wyman Park's internet web site (www.wymanpark.com), although there are no specific plans, negotiations or written or oral agreements regarding any acquisitions at this time. In general, the Board will evaluate acquisition and diversification opportunities, if any, by whether they would enhance the Holding Company's and the Association's ability to fulfill their financial goals. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." The Holding Company may use remaining net proceeds to engage in activities not permissible for the Association. See "Regulation - Holding Company Regulation." DIVIDENDS The Holding Company anticipates paying an initial annual cash dividend on the Common Stock at a rate of approximately 3.0% of the Purchase Price ($.30 per share) of the Common Stock following the first full quarter following completion of the Conversion. Dividends, when and if paid, will be subject to determination and declaration by the Board of Directors in its discretion, which will take into account the Holding Company's consolidated financial condition and results of operations, tax considerations, industry standards, economic conditions, regulatory restrictions, general business practices and other factors. See "Dividends," "Regulation - Regulatory Capital Requirements" and "- Limitations on Dividends and Other Capital Distributions." 19 The Holding Company currently has no intention to initiate, and will not initiate for a period of at least one year following completion of the Stock Conversion, any action which leads to a return of capital (as distinguished from a dividend) to stockholders of the Holding Company. MARKET FOR COMMON STOCK The Holding Company has never issued capital stock to the public and, consequently, there is no existing market for the Common Stock. Following the completion of the offering, it is anticipated that the common stock will be traded on the over-the-counter market with quotations available through the OTC Bulletin Board. Trident Securities has indicated its intention to make a market in the Common Stock If the common stock cannot be quoted and traded on the OTC Bulletin Board it is expected that the transactions in the common stock will be reported in the pink sheets published by the National Quotation Bureau, Inc. Making a market may include the solicitation of potential buyers and sellers in order to match buy and sell orders. However, Trident will not be subject to any obligation with respect to such efforts. There can be no assurance that an active or liquid trading market will develop for the Common Stock, or if a market develops, that it will continue. A public market having the desirable characteristics of depth, liquidity and orderliness depends upon the presence in the marketplace of both willing buyers and sellers of the Common Stock at any given time, which is not within the control of the Holding Company or any market maker. Accordingly, there can be no assurance that purchasers will be able to sell their shares at or above the Purchase Price. See "Market for Common Stock." WYMAN PARK BANCORPORATION, INC. The Holding Company was incorporated by Wyman Park under the laws of the State of Delaware in September 1997 for the purpose of owning all of the outstanding stock of Wyman Park issued in the Conversion. The Holding Company has applied to the OTS to acquire all of the common stock of Wyman Park which will be outstanding upon completion of the Conversion. As a Delaware corporation, the Holding Company is authorized to engage in any activity that is permitted by the Delaware General Corporation Law. The Board of Directors of the Holding Company anticipates that, after completion of the Conversion, the Holding Company will conduct its business as a savings and loan holding company. The holding company structure will provide the Holding Company with greater flexibility than the Association by itself would have to diversify its business activities, through existing or newly formed subsidiaries, or through acquisitions or mergers of both mutual and stock thrift institutions as well as other companies. Although there are no current arrangements, understandings or agreements regarding any such acquisition, the Holding Company will be in a position after the Conversion to take advantage of any favorable acquisition opportunities that may arise, subject to regulatory restrictions. 20 The assets of the Holding Company will initially consist of the stock of Wyman Park and approximately 50% of the net proceeds from the Conversion. The initial activities of the Holding Company are anticipated to be funded by such retained proceeds and the income thereon. Thereafter, activities of the Holding Company may also be funded through dividends from Wyman Park, if any, sales of additional securities, borrowings and income generated by other activities of the Holding Company. At this time, there are no plans regarding such activities. See "Dividends" and "Regulation-Holding Company Regulation." WYMAN PARK FEDERAL SAVINGS & LOAN ASSOCIATION Wyman Park's business involves attracting deposits from the general public and using such deposits to originate one- to four-family permanent and construction residential mortgage and, to a lesser extent, commercial real estate, multi-family, consumer (secured and unsecured), land and second mortgage loans in its market area. The Association also invests in investment securities consisting primarily of U.S. government obligations and various types of short-term liquid assets. See "Business." The Association's basic mission is to maintain its focus as an independent, community- oriented financial institution serving customers in its primary market area. The Board of Directors has sought to accomplish this mission through the adoption of a strategy designed to improve its capital position and maintain its high asset quality, manage the Association's sensitivity to changes in interest rates and improve the Association's net interest margin. The Association has attempted to effect its strategy by (i) continuing to emphasize one- to four-family permanent and construction residential mortgage lending, (ii) supplementing residential lending with investments in commercial real estate, consumer and other loans, (iii) emphasizing the origination of adjustable rate and short-and medium-term (up to 15 years) loans and investments; and (iv) maintaining a low overhead. PRO FORMA DATA The following table sets forth the historical net income and retained earnings of Wyman Park at and for the year ended June 30, 1997 and, after giving effect to the Conversion, the pro forma consolidated net income, capital stock and stockholders' equity of the Holding Company at and for the year ended June 30, 1997. The pro forma data is computed on the assumptions that (i) the specified number of shares of Common Stock was sold at the beginning of the specified periods and yielded net proceeds to the Holding Company as indicated, (ii) 50% of such net proceeds were retained by the Holding Company and the remainder were used to purchase all of the stock of Wyman Park, and (iii) such net proceeds, less the amount of the ESOP funding, were invested by the Association and Holding Company at the beginning of the periods to yield a net after-tax return of 3.5% for the year ended June 30, 1997. The assumed return is based on the one year treasury bills, as adjusted for applicable federal taxes totaling 38.0% of such assumed returns. The use of this current rate is viewed to be more relevant in the current low rate environment than the use of an 21 arithmetic average of the weighted average yield earned by the Association on its interest-earning assets and the weighted average rate paid on its deposits during such periods. In calculating the underwriting fees, the table assumes that (i) no commission was paid on $600,000 of shares sold to directors and officers and (ii) 8% of the total shares sold in the Conversion were sold to the ESOP at no commission. Total expenses are estimated to be $410,000 at the Midpoint of the Estimated Valuation Range. Actual Conversion expenses may be more or less than those estimated because the fees paid to Trident Securities and other brokers will depend upon the categories of purchasers, the Purchase Price and market conditions and other factors. The pro forma net income amounts derived from the assumptions set forth herein should not be considered indicative of the actual results of operations of the Holding Company that would have been attained for any period if the Conversion had been actually consummated at the beginning of such period, and the assumptions regarding investment yields should not be considered indicative of the actual yields expected to be achieved during any future period. The total number of shares to be issued in the Conversion may be increased or decreased significantly, and/or the price per share decreased, to reflect changes in market and financial conditions prior to the close of the Subscription and Community Offering. However, if the aggregate Purchase Price of the Common Stock sold in the Conversion is below $5.95 million (the minimum of the Estimated Valuation Range) or more than $9.26 million (15% above the Estimated Valuation Range), subscribers will be offered the opportunity to modify or cancel their subscriptions. See "The Conversion - Stock Pricing and Number of Shares to be Issued." 22
At or For the Year Ended June 30, 1997 ------------------------------------------------- 595,000 700,000 805,000 925,750 Shares Shares Shares Shares $10.00 $10.00 $10.00 $10.00 per Share per Share per Share per Share (Minimum (Midpoint (Maximum (Supermax of Range) of Range) of Range) of Range) --------- --------- --------- --------- (Dollars in Thousands, Except Per Share Amounts) Gross proceeds ....................... $ 5,950 $ 7,000 $ 8,050 $ 9,257 Less offering expenses and commissions ......................... (392) (410) (428) (448) --------- --------- --------- --------- Estimated net conversion proceeds ... 5,558 6,590 7,622 8,809 Less common stock acquired by ESOP(2) (476) (560) (644) (741) Less common stock acquired by RRP(3) (238) (280) (322) (370) --------- --------- --------- --------- Estimated proceeds available for investment ......................... $ 4,844 $ 5,750 $ 6,656 $ 7,698 ========= ========= ========= ========= Net Income: Historical ......................... $ 134 $ 134 $ 134 $ 134 Pro Forma Adjustments: Net income from proceeds(2) ....... 170 201 233 270 ESOP(2) ........................... (30) (35) (40) (46) RRP(3) ............................ (30) (35) (40) (46) --------- --------- --------- --------- Pro forma ....................... $ 245 $ 266 $ 287 $ 312 ========= ========= ========= ========= Per Share: Historical(4) .................... $ .23 $ .20 $ .17 $ .15 Pro forma Adjustments: Net income from proceeds ........ .31 .31 .31 .31 ESOP(2) ......................... (.05) (.05) (.05) (.05) RRP(3) .......................... (.05) (.05) (.05) (.05) --------- --------- --------- --------- Pro forma(8) ................ $ .44 $ .41 $ .38 $ .36 ========= ========= ========= ========= Pro forma price to earnings (P/E ratio)(1)(7) ................... 22.7 x 24.4x 26.3x 27.8 x Number of shares used in calculating earnings per share .................. 552,160 649,600 747,040 859,096 Stockholders' Equity (Book Value)(5): Historical ......................... $ 4,750 $ 4,750 $ 4,750 $ 4,750 Estimated net Conversion proceeds .. 5,558 6,590 7,622 8,809 Less common stock acquired by: ESOP(2) ........................... (476) (560) (644) (741) RRP(3) ............................ (238) (280) (322) (370) --------- --------- --------- --------- Pro forma(6) .................. $ 9,594 $ 10,500 $ 11,406 $ 12,448 ========= ========= ========= ========= Per Share(4): Historical(4) ...................... $ 7.98 $ 6.79 $ 5.90 $ 5.13 Estimated net conversion proceeds .. 9.34 9.41 9.47 9.52 Less common stock acquired by: ESOP(2) ........................... (.80) (.80) (.80) (.80) RRP(3) ............................ (.40) (.40) (.40) (.40) --------- --------- --------- --------- Pro forma(6)(8) ............... $ 16.12 $ 15.00 $ 14.17 $ 13.45 ========= ========= ========= ========= Pro forma price to book value ........ 62.0% 66.7% 70.6% 74.4% Number of shares used in calculating equity per share .................... 595,000 700,000 805,000 925,750
23 - --------------------- (1) Net income includes an after-tax charge of approximately $235,000 taken during the year ended June 30, 1997, representing a special assessment of 65.7 basis points on the Association's deposits at March 31, 1995, pursuant to legislation enacted to recapitalize SAIF. Excluding that charge, based on the other assumptions as reflected in this table, management estimates that pro forma earnings per share would have been $.87, $.77, $.70 and $.64, and the price to earnings ratio would have been 11.5, 13.0, 14.3 and 15.7 at the minimum, midpoint, maximum and 15% above the maximum of the Estimated Valuation Range, respectively. (2) It is assumed that 8% of the shares of Common Stock offered in the Conversion will be purchased by the ESOP. The funds used to acquire such shares will be borrowed by the ESOP from the net proceeds from the Conversion retained by the Holding Company. The Association intends to make contributions to the ESOP in amounts at least equal to the principal and interest requirement of the debt. The Association's payment of the ESOP debt is based upon equal installments of principal over a ten-year period plus interest. Interest income earned by the Holding Company on the ESOP debt offsets the interest paid by the Association on the ESOP loan. Accordingly, only the principal payments on the ESOP debt are recorded as an expense (tax-effected) to the Holding Company on a consolidated basis. The amount borrowed is reflected as a reduction of stockholders' equity. No reinvestment is assumed on proceeds contributed to fund the ESOP. The ESOP expense has been computed based on the requirements of SOP 93-6 which requires recognition of expense based upon the average market price of shares committed to be released during the year and the exclusion of unallocated shares from earnings per share computations. The valuation of shares committed to be released is based upon the average market value of the shares during the year, which, for purposes of this calculation, is assumed to be equal to the $10.00 per share offering price. In computing earnings per share, 10% of the ESOP shares purchased in the conversion are assumed to be committed to be released. See "Management - Benefit Plans - Employee Stock Ownership Plan." (3) Assumes a number of shares of Common Stock equal to 4% of the Common Stock to be sold in the Conversion will be purchased by the RRP in the open market following conversion. The dollar amount of the Common Stock to be purchased by the RRP is based on the Purchase Price in the Conversion and represents unearned compensation and is reflected as a reduction of capital. Such amount does not reflect possible increases or decreases in the value of such stock relative to the Purchase Price in the Conversion. As the Association accrues compensation expense to reflect the vesting of such shares pursuant to the RRP, the charge against capital will be reduced accordingly. RRP expense is based on amortization of the RRP over five years. Implementation of the RRP will require stockholder approval. For purposes of these tables, it is assumed that the RRP will be adopted by the Association's Board of Directors and approved by the Company's stockholders, and that the RRP will purchase the shares in the open market. If the shares to be purchased by the RRP are assumed to be newly issued shares purchased from the Company by the RRP at the Purchase Price, at the minimum, midpoint, maximum and 15% above of the maximum of the Estimated Valuation Range, the offering price to pro forma stockholders' equity per share would be 62.9%, 67.5%, 71.4% and 75.1%, for the year ended June 30, 1997. Assuming that all RRP shares are awarded through the use of authorized but unissued common stock, stockholders would be diluted by approximately 3.85%. See "Prospectus Summary - Benefits of Stock Conversion to Directors and Executive Officers -- Other Stock Benefit Plans." (4) Historical per share amounts have been computed as if the shares of Common Stock expected to be issued in the Conversion had been outstanding during the period or on the dates shown, but without any adjustment of historical net income or historical equity capital to reflect the investment of the estimated net proceeds of the sale of shares in the Conversion or the additional ESOP expense as described above. (5) "Book value" represents the difference between the stated amounts of the Association's assets and liabilities. The amounts shown do not reflect the effect of the Liquidation Account which will be established for the benefit of Eligible and Supplemental Eligible Account Holders in the Conversion and the tax bad debt reserves. See "The Conversion Effects of Conversion to Stock Form on Depositors and Borrowers of the Association" and "Regulation - Federal and State Taxation." The amounts shown for book value do not represent fair market values or amounts distributable to shareholders in the unlikely event of liquidation. (6) Does not represent possible future price appreciation or depreciation. (7) The pro forma price to earnings ratio for the year ended June 30, 1997 is determined by dividing the $10.00 Purchase Price by the annualized pro forma earnings per share. The annualized pro forma earnings per shares is determined by multiplying the pro forma earnings per share by six. (8) In the future the Holding Company may consider the implementation of a stock option plan for the benefit of selected directors, officers and employees of the Holding Company and the Association. Any such stock option plan will be implemented no earlier than one year after the date of the consummation of the Stock Conversion. If a determination is made to implement a stock option plan, it is anticipated that any such plan will be submitted to stockholders for their consideration at which time stockholders would be provided with detailed information regarding such plan. Assuming that such plan is approved and assuming that options are granted to purchase an aggregate amount of Common Stock equal to 10% of the shares issued in the Conversion at exercise prices equal to the market price of the Common Stock on the date of grant, then in the event the shares issued under the plan consist of newly issued shares of Common Stock and all options available for award under the plan were awarded, the interests of existing stockholders would be diluted. At the minimum, midpoint, maximum and 15% above the maximum of the Estimated Valuation Range, if all shares under the plan were equal to the Purchase Price in the Conversion, the additional shares issued would be 59,500, 70,000, 80,500 and 82,575, respectively, stockholders' equity per share at June 30, 1997 would be $15.57, $14.55, $13.79 and $13.13 respectively, net income per share for the year ended June 30, 1997 would be $.43, $.40, $.38 and $.36. 24 PRO FORMA REGULATORY CAPITAL ANALYSIS At June 30, 1997, the Association exceeded each of the three OTS capital requirements. Set forth below is a summary of the Association's compliance with the OTS capital standards as of June 30, 1997 on a historical basis, in accordance with generally accepted accounting principles ("GAAP"), and on a pro forma basis using the assumptions contained under the caption "Pro Forma Data" and assuming that the indicated number of shares were sold as of such date.
Pro Forma at June 30, 1997 ------------------------------------------------------------------------ 925,750 Shares 595,000 Shares 700,000 Shares 805,000 Shares 15% above Historical Minimum Midpoint Maximum Maximum ---------------- ----------------- ---------------- ---------------- ----------------- Amount Percent(1) Amount Percent(1) Amount Percent(1) Amount Percent(1) Amount Percent(1) ------ --------- ------ ---------- ------ ---------- ------ ---------- ------ ---------- (Dollars in Thousands) GAAP Capital(2) ..................... $4,750 7.6% $6,815 10.5% $7,205 11.0% $7,595 11.6% $8,044 12.1% ====== ==== ====== ==== ====== ==== ====== ==== ====== ==== Tangible Capital: Capital level ..................... 4,755 7.6 6,820 10.5 7,210 11.0 7,600 11.6 8,049 12.1 Requirement ....................... 934 1.5 972 1.5 979 1.5 986 1.5 994 1.5 ------ ---- ------ ---- ------ ---- ------ ---- ------ ---- Excess ............................ 3,821 6.1 5,848 9.0 6,231 9.5 6,614 10.1 7,055 10.6 ====== ==== ====== ==== ====== ==== ====== ==== ====== ==== Core Capital: Capital level ..................... 4,755 7.6 6,820 10.5 7,210 11.0 7,600 11.6 8,049 12.1 Requirement ....................... 1,867 3.0 1,944 3.0 1,958 3.0 1,972 3.0 1,989 3.0 ------ ---- ------ ---- ------ ---- ------ ---- ------ ---- Excess ............................ 2,888 4.6 4,876 7.5 5,252 8.0 5,628 8.6 6,060 9.1 ====== ==== ====== ==== ====== ==== ====== ==== ====== ==== Risk-Based Capital: Capital level(3) .................. 5,025 14.6 7,090 20.3 7,480 21.4 7,870 22.5 8,319 23.7 Requirement(4) .................... 2,748 8.0 2,788 8.0 2,796 8.0 2,803 8.0 2,812 8.0 ------ ---- ------ ---- ------ ---- ------ ---- ------ ---- Excess ............................ $2,277 6.6% $4,302 12.3% $4,684 13.4% $5,067 14.5% $5,507 15.7% ====== ==== ====== ==== ====== ==== ====== ==== ====== ====
- -------------- (1) Tangible and core capital levels are shown as a percentage of adjusted total assets; risk-based capital levels are shown as a percentage of risk-weighted assets. (2) Total retained earnings as calculated under GAAP. Assumes that the Association receives 50% of the net proceeds, offset in part by the aggregate purchase price of Common Stock acquired at $10.00 per share by the ESOP in the Conversion. The amount expected to be borrowed by the ESOP is deducted from pro forma capital to illustrate the possible impact on the Association. (3) Includes $270,000 of general valuation allowances, all of which qualify as supplementary capital. See "Regulation - Regulatory Capital Requirements." (4) Assumes reinvestment of net proceeds in 20% risk-weighted assets. 25 CAPITALIZATION Set forth below is the capitalization, including deposits, of Wyman Park as of June 30, 1997, and the pro forma capitalization of the Holding Company at the minimum, the midpoint, the maximum and 15% above the maximum of the Estimated Valuation Range, after giving effect to the Conversion and based on other assumptions set forth in the table and under the caption "Pro Forma Data."
Pro Forma Based Upon Sale at $10.00 Per Share of -------------------------------------------------------- 595,000 700,000 805,000 925,750 Historical Shares Shares Shares Shares ---------- ------ ------ ------ ------ (Dollars in thousands) Deposits(1) ......................................... $ 56,095 $ 56,095 $ 56,095 $ 56,095 $ 56,095 Borrowed funds(3) ................................... -- -- -- -- -- -------- -------- -------- -------- -------- Total deposits and borrowed funds ................... $ 56,095 $ 56,095 $ 56,095 $ 56,095 $ 56,095 ======== ======== ======== ======== ======== Stockholders' Equity: Serial Preferred Stock ($.01 par value) Authorized - 500,000 shares; none to be outstanding ................................... -- -- -- -- -- Common Stock ($.01 par value) Authorized - 2,000,000 shares; to be outstanding - (as shown)(4)(5) ................... -- 6 7 8 9 Additional paid-in capital ......................... -- 5,552 6,583 7,614 8,800 Retained earnings, substantially restricted(2) .................................... 4,755 4,755 4,755 4,755 4,755 Unrealized loss on securities available for sale, net of income taxes .................... (5) (5) (5) (5) (5) Less common stock acquired by: ESOP(3) .......................................... -- (476) (560) (644) (741) RRP(4) ........................................... -- (238) (280) (322) (370) -------- -------- -------- -------- -------- Total stockholders' equity ..................... $ 4,750 $ 9,594 $ 10,500 $ 11,406 $ 12,448 ======== ======== ======== ======== ======== Total stockholders equity as a percent of total assets ....................................... 7.6% 14.3% 15.4% 16.6% 17.8% ======== ======== ======== ======== ========
26 - ---------------- (1) No effect has been given to withdrawals from savings accounts for the purpose of purchasing Common Stock in the Stock Conversion. Any such withdrawals will reduce pro forma deposits by the amount of such withdrawals. (2) See "Dividends" and "Regulation - Limitations on Dividends and Other Capital Distributions" regarding restrictions on future dividend payments and "The Conversion - Effects of Conversion to Stock Form on Depositors and Borrowers of the Association" regarding the liquidation account to be established upon the Stock Conversion. (3) Assumes that 8.0% of the shares issued in the Stock Conversion will be acquired by the ESOP and that the ESOP will be funded by the Holding Company. The Association intends to make contributions to the ESOP sufficient to service and ultimately retire its debt. Since the Holding Company will finance the ESOP debt, the ESOP debt will be eliminated through consolidation and no liability will be reflected on the Holding Company's consolidated financial statements. Accordingly, the amount of stock acquired by the ESOP is shown in this table as a reduction of total stockholders' equity. See "Management - Benefit Plans - Employee Stock Ownership Plan." (4) Assumes a number of shares of Common Stock equal to 4% of the Common Stock to be sold in the Conversion will be purchased by the RRP in open market purchases. The dollar amount of Common Stock to be purchased is based on the $10.00 per share Purchase Price in the Conversion and represents unearned compensation and is reflected as a reduction of capital. Such amount does not reflect possible increases or decreases in the value of such stock relative to the Purchase Price in the Conversion. As the Association accrues compensation expense to reflect the vesting of such shares pursuant to the RRP, the charge against capital will be reduced accordingly. Implementation of the RRP will require stockholder approval. If the shares to fund the RRP are assumed to come from authorized but unissued shares purchased by the RRP from the Company at the Purchase price, at the minimum, midpoint, maximum and 15% above the maximum of the Estimated Valuation Range, the number of outstanding shares would be 618,800, 728,000, 837,200 and 962,780, respectively, and total stockholders' equity would be $9.8 million, $10.8 million, $11.7 million and $12.8 million, respectively, at June 30, 1997. As a result of the RRP acquiring authorized but unissued shares from the Company, stockholders' ownership in the Company would be diluted by approximately 3.85%. See "Prospectus Summary - Benefits of Stock Conversion to Directors and Executive Officers -- Other Stock Benefit Plans." (5) Does not include additional shares of Common Stock that possibly could be purchased by participants in the Option Plan, if implemented, under which directors, executive officers and other employees could be granted options to purchase an aggregate amount of Common Stock equal to 10% of the shares issued in the Conversion (70,000 shares at the midpoint of the Estimated Valuation Range) at exercise prices equal to the market price of the Common Stock on the date of grant. Implementation of the Option Plan may require stockholder approval. See "Prospectus Summary - Benefits of Stock Conversion to Directors and Executive Officers -- Other Stock Benefit Plans." CONSOLIDATED STATEMENTS OF OPERATIONS The following Consolidated Statements of Operations of Wyman Park for each of the years in the three year period ended June 30, 1997 have been audited by Wooden & Benson, Chartered, independent certified public accountants, whose report thereon appears elsewhere herein. The Statements of Income should be read in conjunction with the Consolidated Financial Statements and related Notes included elsewhere herein. 27 WYMAN PARK FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY Lutherville, Maryland CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED JUNE 30, 1997 AND 1996
1997 1996 ---------- ---------- Interest and fees on loans receivable $4,250,470 $4,157,290 Interest on mortgage-backed securities 26,733 35,236 Interest on investment securities 140,065 306,709 Interest on other investments 240,959 226,328 ---------- ---------- Total interest income 4,658,227 4,725,563 Interest on savings deposits 2,749,541 3,064,802 Interest on Federal Home Loan Bank advances -- -- Interest on escrow deposits 6,424 8,481 ---------- ---------- Total interest expense 2,755,965 3,073,283 Net interest income before provision for loan losses 1,902,262 1,652,280 Provision for loan losses (Notes 1 and 4) 145,000 25,000 ---------- ---------- Net interest income 1,757,262 1,627,280 Other Income Loan fees and service charges 48,284 46,937 Gain on sales of loans receivable 5,816 19,888 Gain on sale of investment securities, net -- -- Other 24,411 39,303 ---------- ---------- Total other income 78,511 106,128 General and Administrative Expenses Salaries and employee benefits 620,513 602,958 Occupancy costs 91,219 96,340 Federal deposit insurance premiums ( Note 11) 461,177 134,371 Data processing 67,071 65,173 Advertising 63,145 68,914 Franchise and other taxes 44,730 46,681 Other 267,225 263,735 ---------- ---------- Total general and administrative expenses 1,615,080 1,278,172 Income before tax provision 220,693 455,236 Provision for income taxes (Notes 1 and 8) 86,888 161,119 ---------- ---------- Net income $ 133,805 $ 294,117 ========== ==========
The accompanying notes to financial statements are an integral part of these statements. 28 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General Management's discussion and analysis of financial condition and results of operations is intended to assist in understanding the financial condition and results of operations of the Association. The information contained in this section should be read in conjunction with the consolidated financial statements and accompanying notes thereto and other sections contained in this Prospectus. The principal business of the Association consists of accepting deposits from the general public and investing these funds primarily in loans, investment securities and short-term liquid investments. The Association's loans consist primarily of loans secured by residential real estate located in its market areas, commercial real estate loans and consumer loans. The Association's net income is dependent primarily on its net interest income, which is the difference between interest earned on interest-earning assets and the interest paid on interest-bearing liabilities. Net interest income is a function of the Association's "interest rate spread," which is the difference between the average yield earned on interest-earning assets and the average rate paid on interest-bearing liabilities. The interest rate spread is affected by regulatory, economic and competitive factors that influence interest rates, loan demand and deposit flows. To a lesser extent, the Association's net income also is affected by the level of general and administrative expenses and the level of other income, which primarily consists of service charges and other fees. The operations of the Association are significantly affected by prevailing economic conditions, competition and the monetary, fiscal and regulatory policies of government agencies. Lending activities are influenced by the demand for and supply of housing, competition among lenders, the level of interest rates and the availability of funds. Deposit flows and costs of funds are influenced by prevailing market rates of interest, primarily on competing investments, account maturities and the levels of personal income and savings in the Association's market area. Historically, the Association's mission has been to originate loans on a profitable basis to the communities it serves. In seeking to accomplish this mission, the Board of Directors and management have adopted a business strategy designed (i) to maintain the Association's capital level in excess of regulatory requirements; (ii) to maintain the Association's asset quality; (iii) to maintain, and if possible, increase the Association's earnings; and (iv) to manage the Association's exposure to changes in interest rates. Financial Condition June 30, 1997 compared to June 30, 1996 Total assets decreased approximately $1.7 million or 2.5%, to $62.2 million at June 30, 1997 from $63.9 million at June 30, 1996. This decrease in total assets was primarily the result of a $3.4 million decrease in cash and cash equivalents, including short-term interest bearing deposits in other banks and federal funds sold, which more than offset a $1.9 million increase in loans receivable. The 29 decrease in cash and cash equivalents was primarily due to management's decision during the year ended June 30, 1997 to improve the Association's net interest spread by investing excess liquid assets in higher yielding loans, as well as reducing interest expense by decreasing the level of certificate accounts. Management's strategy resulted in an increase in total loans receivable, which primarily consisted of a $769,000 increase in residential mortgage loans and a $1.4 million increase in commercial loans secured by real estate, including participating interests purchased from other lenders. Total liabilities decreased approximately $1.8 million, or 3.0%, to $57.5 million at June 30, 1997 from $59.3 million at June 30, 1996. This decrease was primarily the result of a $1.8 million decrease in total deposits to approximately $56.1 million at June 30, 1997 from $57.9 million at June 30, 1996. This decrease in deposits consisted of a decrease in time deposits of approximately $2.1 million, resulting from management's decision to lower the Association's interest expense, and an increase of approximately $300,000 in other deposit accounts. Total equity of the Association increased approximately $151,000 to $4.75 million at June 30, 1997 from $4.60 million at June 30, 1990, due to net income of approximately $134,000 and a decrease of approximately $17,000 in unrealized losses on available-for-sale securities for the year ended June 30, 1997. Results of Operations Comparison of Operating Results for the Years Ended June 30, 1997 and 1996 Performance Summary. Net income for the year ended June 30, 1997 was approximately $134,000, a decrease of $160,000, or 54.5%, from net income of $294,000 for the year ended June 30, 1996. This decrease was primarily due to an increase in non-interest expenses of $337,000, which included a one time assessment of $383,000 for federal insurance premiums; an increase in provision for loan losses of $120,000, and a decrease in non-interest income of $28,000. These items more than offset the positive effects of a $250,000 increase in net interest income, producing a decrease of $234,000 in income before provision for income taxes of $221,000 for the year ended June 30, 1997 as compared to $455,000 for the year ended June 30, 1996. For the years ended June 30, 1997 and 1996, the returns on average assets were .22% and .46%, respectively, while the returns on average equity were 2.87% and 6.56%, respectively. Net Interest Income. Net interest income increased by approximately $250,000, or 15.1%, to $1,902,000 for the year ended June 30, 1997 from $1,652,000 for the year ended June 30, 1996. This reflects a decrease of $67,000, or 1.4%, in interest income to $4,658,000 in fiscal 1997 from $4,725,000 in fiscal 1996 while interest expense was decreasing by $317,000, or 10.3%, to $2,756,000 in fiscal 1997 from $3,073,000 in fiscal 1996. The increase in net interest margin was primarily from the decrease in both average balances and rates of interest paid on certificate accounts. For the year ended June 30, 1997, the average yield on interest-earning assets was 7.69% compared to 7.52% for the year ended June 30, 1996. The average cost of interest-bearing liabilities 30 was 4.93% for the year ended June 30, 1997, a decrease from 5.26% for the year ended June 30, 1996. The average balance of interest-earning assets decreased by $2.3 million or 3.6% to $60.6 million for year ended June 30, 1997, compared to $62.9 million for the year ended June 30, 1996. The average balance of interest-bearing liabilities decreased by $2.5 million or 4.3% to $55.9 million for the year ended June 30, 1997, compared to $58.4 million for the year ended June 30, 1996. The average interest rate spread increased to 2.76% for the year ended June 30, 1997 from 2.26% for the year ended June 30, 1996. The average net interest income margin increased to 3.14% for the year ended June 30, 1997 from 2.63% for the year ended June 30, 1996. 31 Yields Earned and Rates Paid The following table presents for the periods indicated the total dollar amount of interest income from average interest earning assets and the resultant yields, as well as the interest expense on average interest bearing liabilities, expressed both in dollars and rates. No tax equivalent adjustments were made. All average balances are monthly average balances. Non-accruing loans have been included in the table as loans carrying a zero yield.
Year Ended June 30, -------------------------------------------------------------------------------------------- 1997 1996 1995 ---------------------------- ----------------------------- ---------------------------- Average Interest Average Interest Average Interest Outstanding Earned/ Yield/ Outstanding Earned/ Yield/ Outstanding Earned/ Yield/ Balance Paid Rate Balance Paid Rate Balance Paid Rate ------- ---- ---- ------- ---- ---- ------- ---- ---- (Dollars in Thousands) Interest-Earning Assets: Loans receivable(1)................ $53,903 $4,250 7.88% $53,033 $4,157 7.84% $55,460 $4,325 7.80% Mortgage-backed securities......... 383 27 7.05 468 35 7.49 552 33 5.98 Investment securities.............. 2,402 140 5.83 5,298 307 5.79 5,845 329 5.63 FHLB stock......................... 510 37 7.25 510 37 7.25 510 36 7.06 Other investments.................. 3,382 204 6.03 3,547 189 5.33 1,192 65 5.45 -------- ------- ---- ------- ------- ---- ------- ------ ---- Total interest-earning assets(1).. $60,580 4,658 7.69 $62,856 4,725 7.52 $63,559 4,788 7.53 ======= ------ ======= ------ ======= ------ Interest-Earning Liabilities: Savings deposits................... $ 5,856 174 2.97 $ 5,593 178 3.18 $ 5,777 204 3.53 Demand and NOW deposits............ 9,745 309 3.17 9,632 317 3.29 9,990 332 3.32 Certificate accounts............... 40,182 2,267 5.64 43,010 2,570 5.98 42,326 2,254 5.33 Escrow deposits.................... 115 6 5.22 147 8 5.44 193 11 5.69 Borrowings......................... --- --- --- --- --- --- 1,542 90 5.83 ------- ------- ----- ------- ------- ----- ------- ------- ---- Total interest-bearing liabilities $55,898 2,756 4.93 $58,382 3,073 5.26 $59,828 2,891 4.83 ======= ------- ======= ------- ======= ------- Net interest income................. $1,902 $1,652 $1,897 ====== ====== ====== Net interest rate spread............ 2.76% 2.26% 2.70% ==== ==== ==== Net earning assets.................. $4,682 $4,474 $3,731 ====== ====== ====== Net yield on average interest- earning assets...................... 3.14% 2.63% 2.98% ==== ==== ==== Average interest-earning assets to average interest-bearing liabilities 1.08x 1.08x 1.06x ===== ===== =====
- ----------------- (1) Calculated net of deferred loan fees, loan discounts, loans in process and loss reserves. 32 The following table presents the weighted average yields earned on loans, investments and other interest-earning assets, and the weighted average rates paid on savings deposits and the resultant interest rate spreads at the dates indicated. Weighted average balances are based on monthly balances. At June 30, ------------ 1997 1996 ---- ---- Weighted average yield on: Loans receivable .................... 7.89% 7.84% Mortgage-backed securities .......... 7.52 7.46 Investment securities ............... 5.94 5.61 Other interest-earning assets ....... 5.95 5.53 Combined weighted average yield on interest-earning assets ........ 7.71 7.50 Weighted average rate paid on: Savings deposits .................... 3.11 3.06 Demand and NOW deposits ............. 2.93 3.24 Certificate accounts ................ 5.71 6.07 Other interest-bearing liabilities .. 5.50 5.50 Combined weighted average rate paid on interest-bearing liabilities . 4.94 5.31 Spread ............................... 2.77 2.19 Provision for Loan Losses. During the year ended June 30, 1997, the Association recorded a provision for loan losses of $145,000 compared to $25,000 for the year ended June 30, 1996. This provision was recorded due to significant growth of $1.4 million or 30.6% in commercial real estate loans in the year ended June 30, 1997. The increased provision for loan losses is based on the continued growth in this type of lending as well as other commercial real estate lending, including participations, which has perceived higher credit risk than traditional thrift lending on residential real estate loans. During the year ended June 30, 1997, the Association's nonperforming loans increased from $27,000 to $176,000, represented by two residential loans. This increase did not have a significant effect on the Association's provision for loan losses as management expects minimal losses, if any, related to these two loans. Management will continue to monitor its allowance for loan losses and make additions to the allowance through the provision for loan losses as economic conditions and other factors dictate. Although the Association maintains its allowance for loan losses at a level which it considers to be adequate to provide for loan losses, there can be no assurance that future losses will not exceed estimated amounts or that additional provisions for loan losses will not be required in the future. Non-Interest Income. For the year ended June 30, 1997, non-interest income decreased by approximately $28,000 or 26.0%, to $78,000 from $106,000 for the year ended June 30, 1996. This 33 decrease is primarily from a decrease in gains on the sale of loans receivable of $14,000 and a decrease in other non-interest income of $15,000. Non-Interest Expense. Non-interest expense increased by approximately $337,000 or 26.4%, to $1,615,000 for the year ended June 30, 1997 from $1,278,000 for the year ended June 30, 1996. This increase was primarily due to the increase in federal deposit insurance expense of $327,000 or 243.2% for the year ended June 30, 1997. The Savings Association Insurance Fund (the "SAIF") made a one time assessment to all associations during the year ended June 30, 1997 to recapitalize that fund. The Association's portion of that one time assessment was approximately $383,000. The rate of deposit insurance declined beginning January 1, 1997 as a result of the one time assessment. See "Regulation - Insurance of Accounts and Regulation by the FDIC." In addition, in the future, non-interest expense may increase due to expenses associated with the ESOP, other benefit programs and the costs of being a public company. Income Taxes. The provision for income taxes decreased by approximately $74,000 or 46.1% to $87,000 for the year ended June 30, 1997 from $161,000 for the year ended June 30, 1996. This decrease results from the decrease in income before the tax provision. The Association's effective tax rates were 39.4% and 35.4% for the years ended June 30, 1997 and 1996, respectively. The Association is generally taxed at a federal rate of 34% based on the IRS tax rate schedule for corporations. The Association is also subject to a Maryland franchise tax based on earnings at a flat rate of 7% of taxable income. This produces a combined federal and Maryland tax rate of 38.6% when the deductibility of the Maryland tax for federal purposes is considered. Variances from this rate in any given year are the result of certain items of income or expense not being included in or deducted from taxable income; and, from changes in the tax estimates of prior periods. The decrease in the provision for income taxes for the year ended June 30, 1997 is primarily the result of the corresponding $234,000 decrease in income before taxes. 34 Rate Volume Analysis The following schedule presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. It distinguishes between the changes related to outstanding balances and that due to the changes in interest rates. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (i) changes in volume (i.e., changes in volume multiplied by old rate) and (ii) changes in rate (i.e., changes in rate multiplied by old volume). For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately to the change due to volume and the change due to rate.
Year Ended June 30, ------------------------------------------------------------------------ 1996 vs. 1997 1995 vs. 1996 ----------------------------------- -------------------------------- Increase Increase (Decrease) (Decrease) Due to Total Due to Total ------------------- Increase ------------------ Increase Volume Rate (Decrease) Volume Rate (Decrease) ------ ---- ---------- ------ ---- ---------- (Dollars in Thousands) Interest-earning assets: Loans receivable .................................... $ 68 $ 25 $ 93 $(190) $ 22 $(168) Mortgage-backed securities .......................... (6) (2) (8) (5) 7 2 Investment securities ............................... (169) 2 (167) (31) 9 (22) Other ............................................... (10) 25 15 130 (5) 125 ----- ----- ----- ----- ----- ----- Total interest-earning assets ..................... $(117) $ 50 (67) $ (96) $ 33 (63) ===== ===== ----- ===== ===== ----- Interest-bearing liabilities: Savings deposits .................................... $ 8 $ (12) (4) $ (7) $ (19) (26) Demand and NOW deposits ............................. 3 (11) (8) (12) (3) (15) Borrowings .......................................... -- -- -- (90) -- (90) Certificate accounts ................................ (169) (134) (303) 38 278 316 Escrow deposits ..................................... (2) -- (2) (3) -- (3) Total interest-bearing liabilities ................ $(160) $(157) (317) $ (74) $ 256 182 ===== ===== ----- ===== ===== ----- Net interest income .................................. $ 250 $(245) ===== =====
35 Asset/Liability Management One of the Association's principal financial objectives is to achieve long-term profitability while reducing its exposure to fluctuations in interest rates. The Association has sought to reduce exposure of its earnings to changes in market interest rates by managing the mismatch between asset and liability maturities and interest rates. The principal element in achieving this objective has been to increase the interest-rate sensitivity of the Association's assets by originating loans with interest rates subject to periodic repricing to market conditions. Accordingly, the Association has emphasized the origination of one- to three-year adjustable rate mortgage loans, balloon loans, short-term and adjustable-rate commercial loans, and consumer loans for retention in its portfolio. An asset or liability is interest rate sensitive within a specific time period if it will mature or reprice within that time period. If the Association's assets mature or reprice more quickly or to a greater extent than its liabilities, the Association's net portfolio value and net interest income would tend to increase during periods of rising interest rates but decrease during periods of falling interest rates. If the Association's assets mature or reprice more slowly or to a lesser extent than its liabilities, the Association's net portfolio value and net interest income would tend to decrease during periods of rising interest rates but increase during periods of falling interest rates. The Association's Board of Directors has formulated an Interest Rate Risk Management policy designed to promote long-term profitability while managing interest-rate risk. The Board of Directors has established an Asset/Liability Committee which consists primarily of the management team of the Association. This committee meets periodically and reports to the Board of Directors quarterly concerning asset/liability policies, strategies and the Association's current interest rate risk position. The committee's first priority is to structure and price the Association's assets and liabilities to maintain an acceptable interest rate spread while reducing the net effects of changes in interest rates. Management's principal strategy in managing the Association's interest rate risk has been to maintain short and intermediate term assets in the portfolio, including one and three year adjustable rate mortgage loans, as well as increased levels of commercial and consumer loans, which typically are for short or intermediate terms and carry higher interest rates than residential mortgage loans. In addition, in managing the Association's portfolio of investment securities and mortgage-backed and related securities, management seeks to purchase securities that mature on a basis that approximates as closely as possible the estimated maturities of the Association's liabilities or purchase securities that have adjustable rate provisions. The Association does not engage in hedging activities. In addition to shortening the average repricing of its assets, the Association has sought to lengthen the average maturity of its liabilities by adopting a tiered pricing program for its certificates of deposit, which provides higher rates of interest on its longer term certificates in order to encourage depositors to invest in certificates with longer maturities. This policy is blended with management's strategy for reducing the overall balance in certificate accounts in order to reduce the Association's interest expense. 36 Net Portfolio Value. In order to encourage associations to reduce their interest rate risk, the OTS adopted a rule incorporating an interest rate risk ("IRR") component into the risk-based capital rules. The IRR component is a dollar amount that will be deducted from total capital for the purpose of calculating an institution's risk-based capital requirement and is measured in terms of the sensitivity of its net portfolio value ("NPV") to changes in interest rates. NPV is the difference between incoming and outgoing discounted cash flows from assets, liabilities, and off-balance sheet contracts. An institution's IRR is measured as the change to its NPV as a result of a hypothetical 200 basis points ("bp") change in market interest rates. A resulting change in NPV of more than 2% of the estimated market value of its assets will require the institution to deduct from its capital 50% of that excess change. The rules provide that the OTS will calculate the IRR component quarterly for each institution. Management reviews the OTS measurements on a quarterly basis. In addition to monitoring selected measures on NPV, management also monitors effects on net interest income resulting from increases or decreases in rates. This measure is used in conjunction with NPV measures to identify excessive interest rate risk. The following table presents the Association's NPV at June 30, 1997, as calculated by the OTS, based on information provided to the OTS by the Association. NPV as % of Portfolio Value Net Portfolio Value of Assets Change --------------------------------------- --------------------- in Rates $ Amount $ Change % Change NPV Ratio % Change -------- -------- -------- -------- --------- -------- (Dollars in Thousands) +400 $3,154 $(3,681) (54)% 5.39% (5.27)% +300 4,150 (2,685) (39) 6.92 (3.74) +200 5,143 (1,692) (25) 8.37 (2.29) +100 6,072 (763) (11) 9.66 (1.00) Static 6,835 --- --- 10.66 --- (100) 7,273 438 6 11.18 .52 (200) 7,270 435 6 11.07 .41 (300) 7,075 340 4 10.71 .05 (400) 6,979 144 2 10.48 (.18) In the above table, the first column on the left presents the basis points increments of yield curve shifts. The second column presents the overall dollar amount of NPV at each basis point increment. The third and fourth columns present the Association's actual position in dollar change and percentage change in NPV at each basis point increment. The remaining columns present the Association's percentage and percentage change in its NPV as a percentage of portfolio value of assets. Had it been subject to the IRR component at June 30, 1997 the Association would have been considered to have had a greater than normal level of interest rate exposure and a deduction from capital of $89,000 would have been required. Although the OTS has informed the Association that it is not subject to the IRR component discussed above, the Association is still subject to interest rate risk and, as can be seen above, rising interest rates will reduce the Association's NPV. The OTS has the authority to require otherwise exempt institutions to comply with the rule concerning interest rate risk. See "Regulation - Regulatory Capital Requirements." 37 Certain shortcomings are inherent in the method of analysis presented in the computation of NPV. Although certain assets and liabilities may have similar maturities or periods within which they will reprice, they may react differently to changes in market interest rates. The interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. The Association's Board of Directors is responsible for reviewing the Association's asset and liability policies. The Board reviews interest rate risk and trends on a quarterly basis and liquidity, capital ratios and requirements, on a monthly. Management is responsible for administering the policies and determinations of the Board of Directors with respect to the Bank's assets and liability goals and strategies. Notwithstanding its efforts with respect to asset/liability management, the Association remains subject to IRR, and expects that its profit margin will decrease if interest rates rise. Liquidity The primary investment activity of the Association is originating one- to four-family residential mortgages, commercial real estate loans, and consumer loans to be held to maturity. For the fiscal years ended June 30, 1997 and 1996 the Association originated loans for its portfolio in the amount of $8.9 million and $9.0 million, respectively. For the same two fiscal years, these activities were funded from repayments of $7.2 million and $9.5 million, respectively, and sales and participations of $1.3 million and $990,000, respectively. The Association is required to maintain minimum levels of liquid assets under government regulations. The Association's short-term liquidity is determined by adding (1) cash on hand, (2) daily investable deposits, (3) U.S. Government agency obligations with maturities of less than one year and (4) accrued interest on unpledged liquid assets. Securities with maturities of greater than one year and less than five years are added to short-term liquidity to equal the Association's total liquidity. The Association's liquidity ratio is determined by dividing the liquidity by the average total liabilities of the preceding month. The Association's most liquid assets are cash and cash equivalents, which include short-term investments. At June 30, 1997 and 1996, cash and cash equivalents were $2.4 million and $5.8 million, respectively. In addition, the Association has used jumbo certificates of deposit as a source of funds. Deposits of $100,000 or more represented $5.7 million at June 30, 1997 (of which $4.2 million were jumbo certificates of deposit) and $5.2 million at June 30, 1996, or 10.1% and 8.9% of total deposits, respectively. The regulatory minimum for the Association is 1.0% short-term liquidity and 5.0% total liquidity. The Association has always met the liquidity requirements. The Association's eligible short-term liquidity ratios were 4.4% and 12.1%, respectively, at June 30, 1997 and 1996. The Association's eligible total liquidity ratios were 9.8% and 15.4%, respectively, at June 30, 1997 and 1996. 38 Liquidity management for the Association is both an ongoing and long-term function of the Association's asset/liability management strategy. Excess funds, when applicable, generally are invested in overnight deposits at a correspondent bank and at the FHLB of Atlanta. Currently when the Association requires funds, beyond its ability to general deposits, additional sources of funds are available through the FHLB of Atlanta. The Association has the ability to pledge its FHLB of Atlanta stock or certain other assets as collateral for such advances. The Association has not used FHLB advances during the past two fiscal years, but may use FHLB advances in the future to fund loan demand in excess of available funds. Management and the Board of Directors believe that due to significant amounts of adjustable rate mortgage loans that could be sold and the Association's ability to acquire funds from the FHLB of Atlanta, the Association's liquidity is adequate. Year Ended June 30, ---------------------------------- 1997 1996 1995 ------- ------- -------- (In Thousands) Net income .............................. $ 134 $ 294 $ 433 Adjustment to reconcile net income to net cash from operating activities .................. 118 78 (302) ------- ------- ------- Net cash from operating activities ...... 252 372 131 Net cash from investing activities ...... (1,937) 4,333 (9) Net cash from financing activities ...... (1,739) (750) (823) ------- ------- ------- Net change in cash and cash equivalents ........................... (3,424) 3,955 (701) Cash and cash equivalents at beginning of period ................... 5,801 1,846 2,547 ------- ------- ------- Cash and cash equivalents at end of period ......................... $ 2,377 $ 5,801 $ 1,846 ======= ======= ======= The Association's principal sources of funds are deposits, loan repayments and prepayments, and other funds provided by operations. While scheduled loan repayments are relatively predictable, deposit flows and early loan prepayments are more influenced by interest rates, general economic conditions, and competition. The Association maintains investments in liquid assets based upon management's assessment of (1) need for funds, (2) expected deposit flows, (3) yields available on short-term liquid assets and (4) objectives of the asset/liability management program. OTS regulations presently require the Association to maintain an average daily balance of investments in United States Treasury, federal agency obligations and other investments having maturities of five years or less in an amount equal to 5% of the sum of the Association's average daily balance of net withdrawable deposit accounts and borrowings payable in one year or less. The liquidity requirement, which may be changed from time to time by the OTS to reflect changing economic conditions, is intended to provide a source of relatively liquid funds upon which the Association may rely, if necessary, to fund deposit withdrawals or other short-term funding needs. At June 30, 1997, the Association's regulatory liquidity was 9.8%. For the last five fiscal years, the Association was in compliance with such requirement and management believes that the Association's liquidity is adequate. It should be noted that the Association has an immediately accessible line of credit with the FHLB Atlanta for $8.0 million. On June 30, 1997, the Association had commitments to originate fixed-rate commercial and residential loans totaling $1.8 million, and variable rate commercial and residential real estate mortgage loans totaling $49,000. Loan commitments are generally for 60 days. The Association considers its liquidity and capital reserves sufficient to meet its outstanding short- and long-term needs. 39 The Association is required by OTS regulations to meet certain minimum capital requirements, which must be generally as stringent as the requirements established for banks. Current capital requirements call for tangible capital of 1.5% of adjusted total assets, core capital (which for the Association consists solely of tangible capital) of 3.0% of adjusted total assets and risk-based capital (which for the Association consists of core capital and general valuation allowances) of 8% of risk-weighted assets (assets are weighted at percentage levels ranging from 0% to 100% depending on their relative risk). The OTS has proposed to amend the core capital requirement so that those associations that do not have the highest examination rating and an acceptable level of risk will be required to maintain core capital of from 4% to 5%, depending on the association's examination rating and overall risk. The Association does not anticipate that it will be adversely affected if the core capital requirements regulations are amended as proposed. The following table summarizes the Association's regulatory capital requirements and actual capital at June 30, 1997. (See Note 11 of Notes to Consolidated Financial Statements for a reconciliation of capital under generally accepted accounting principles and regulatory capital amounts.)
Excess of Actual Capital Over Current Actual Capital Current Requirement Requirement ------------------- ------------------- --------------------- Amount Percent Amount Percent Amount Percent Asset Total ------- ------- -------- ------- ---------- ------- ----------- Tangible Capital .......... $ 4,755 7.6% $ 934 1.5% $ 3,821 6.1% $62,249 Core Capital .............. 4,755 7.6 1,867 3.0 2,888 4.7 62,249 Risk-based Capital ........ 5,025 14.6 2,748 8.0 2,277 6.6 34,344
At June 30, 1997, the Association had a commitment for $27,500 of capital expenditures related to computer equipment and data processing. Impact of Inflation and Changing Prices The financial statements and related data presented herein have been prepared in accordance with generally accepted accounting principles which 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. The primary impact of inflation on the operations of the Association is reflected in increased operating costs. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates, generally, have a more significant impact on a financial institution's performance than does inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services. 40 Current Accounting Issues Statement of Financial Accounting Standards (SFAS) No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" was issued by the Financial Accounting Standards Board (FASB) in June 1996. This statement provides that transfers of financial assets be recognized as sales only when certain specified criteria related to the transferor surrendering control of the assets are met. These criteria are more restrictive than under previous generally accepted accounting principles. The provisions of this statement will affect the accounting for certain transactions commonly entered into by community financial institutions such as repurchase agreements, bankers acceptances and participation loans. The statement is effective for transactions occurring after December 31, 1996 and is to be applied prospectively. SFAS No. 127, "Deferral of the Effective Date of Certain Provisions of FASB Statement No. 125" was issued in December 1996. This statement defers, for one year, the effective date of Statement No. 125 for repurchase agreements, dollar-roll, securities lending and similar transactions. The effect, on the Association's financial position and results of operations, of implementing Statement No. 125 in 1997 was not material. SFAS No. 130, "Reporting Comprehensive Income" was issued in June 1997. This statement requires that comprehensive income - made up of all revenues, expenses, gains and losses - be reported and displayed in an entity's financial statements with the same prominence as its other financial statements. Currently, the only item that would be presented as a component of its net income is the change during the year in unrealized gain or loss on available for sale securities. The statement, which is effective for years beginning after December 15, 1997, will not affect the Association's financial position or its results of operations. 41 BUSINESS General Located in Lutherville, Maryland, the Association is a financial institution primarily engaged in the business of attracting savings deposits from the general public and investing such funds in permanent mortgage loans secured by one- to four-family residential real estate located primarily in central Baltimore County and northern Baltimore City, Maryland. Through its branch office located in Glen Burnie, a suburb to the south of Baltimore, the Association also services Anne Arundel County, Maryland. In addition to permanent mortgage loans, the Association also originates, to a lesser extent, loans for the construction of one- to four-family real estate, commercial loans secured by multi-family real estate (over four units) and nonresidential real estate, and consumer loans, including home equity lines of credit, home improvement loans, and loans secured by savings deposits. The Association invests in U.S. government obligations, interest-bearing deposits in other financial institutions, mortgage-backed securities, and other investments permitted by applicable law. Lending Activities General. The principal lending activity of the Association is originating first mortgage loans secured by owner-occupied one- to four-family residential properties located in its primary market areas. In addition, in order to increase the yield and the interest rate sensitivity of its portfolio and in order to provide more comprehensive financial services to families and community businesses in the Association's primary market area, Wyman Park also originates commercial real estate, multi-family, consumer (secured and unsecured), land, and second mortgage loans. See "- Originations, Purchases and Sales of Loans." The Association reserves the right in the future to adjust or discontinue any product offerings to respond to competitive or economic factors. 42 Loan Portfolio Composition. The following information concerning the composition of the Association's loan portfolios in dollar amounts and in percentages (before deductions for loans in process, deferred fees and discounts and allowances for losses) as of the dates indicated. June 30, ------------------------------------------- 1997 1996 ------------------ ------------------- Amount Percent Amount Percent ------ ------- ------ ------- (Dollars in Thousand) Real Estate Loans: One- to four-family ....... $46,346 82.92% $45,669 84.82% Multi-family .............. 211 .38 128 .24 Commercial ................ 5,806 10.39 4,448 8.26 Construction or development 150 .27 270 .50 ------- ------ ------- ------ Total real estate loans . 52,513 93.96 50,515 93.82 ------- ------ ------- ------ Other Loans: Consumer Loans: Deposit account loans .... 176 .31 138 .26 Home equity .............. 3,184 5.70 3,189 5.92 Home improvement ......... 16 .03 -- -- Total consumer loans .... 3,376 6.04 3,327 6.18 ------- -------- ------- ------ Total loans, gross ...... 55,889 100.00% 53,842 100.00% ------- ======== ------- ====== Less: Loans in process .......... (231) (270) Deferred fees and discounts (199) (203) Allowance for losses ...... (270) (125) ------- ------- Total loans receivable, net $55,189 $53,244 ======= ======= 43 The following table shows the composition of the Association's loan portfolios by fixed- and adjustable-rate at the dates indicated. June 30, ---------------------------------------- 1997 1996 ---------------- ---------------- Amount Percent Amount Percent ------ ------- ------ ------- (Dollars in Thousand) Fixed-Rate Loans: Real estate: One- to four-family .............. $30,505 54.58% $28,093 52.18% Multi-family ..................... -- -- 78 .14 Commercial ....................... 4,596 8.22 3,424 6.36 Construction or development ...... 150 .27 270 .50 ------- ------ ------- ------ Total real estate loans ....... 35,251 63.07 31,865 59.18 Consumer .......................... 192 .34 138 .26 ------- ------ ------- ------ Total fixed-rate loans ........ 35,443 63.41 32,003 59.44 ------- ------ ------- ------ Adjustable-Rate Loans: Real estate: One- to four-family .............. 15,841 28.34 17,576 32.64 Multi-family ..................... 211 .38 50 .09 Commercial ....................... 1,210 2.17 1,024 1.90 ------- ------ ------- ------ Total real estate loans ....... 17,262 30.89 18,650 34.63 Consumer .......................... 3,184 5.70 3,189 5.93 ------- ------ ------- ------ Total adjustable-rate loans ... 20,446 36.59 21,839 40.56 ------- ------ ------- ------ Total loans ................... 55,889 100.00% 53,842 100.00% ------- ====== ------- ====== Less: Loans in process .................. (231) (270) Deferred fees and discounts ....... (199) (203) Allowance for loan losses ......... (270) (125) ------- ------- Total loans receivable, net .... $55,189 $53,244 ======= ======= 44 The following schedule illustrates the interest rate sensitivity of the Association's loan portfolio at June 30, 1997. Mortgages which have adjustable or renegotiable interest rates are shown as maturing in the period during which the contract is due. The schedule does not reflect the effects of possible prepayments or enforcement of due-on-sale clauses. Real Estate --------------------------------------------------------- Multi-family and Construction One- to Four-Family Commercial or Development ------------------- ---------------- ----------------- Weighted Weighted Weighted Average Average Average Amount Rate Amount Rate Amount Rate ------ ---- ------ ---- ------ ---- (Dollars in Thousands) Due During Years Ending June 30, - ------------------ 1998(1) .......... $17,811 7.53% $ 485 9.14% $ 150 8.25% 1999 and 2000 .... 5,396 7.03 1,622 9.86 -- -- 2001 and 2002 .... 3,063 8.00 229 9.45 -- -- 2003-2007 ........ 6,138 7.61 1,210 9.92 -- -- 2008-2017 ........ 10,824 7.05 1,742 9.42 -- -- 2018 and following 3,114 7.57 729 7.34 -- -- ------- ------- ------- $46,346 7.40 $ 6,017 9.37 $ 150 8.25% ======= ======= ======= Consumer Total ---------------- ------------------- Weighted Weighted Average Average Amount Rate Amount Rate ------ ---- ------ ---- Due During Years Ending June 30, - ------------------ 1998(1) .................... $ 3,360 9.56% $21,806 7.88% 1999 and 2000 .............. 3 9.25 7,021 7.68 2001 and 2002 .............. 13 9.52 3,305 8.11 2003-2007 .................. -- -- 7,348 7.95 2008-2017 .................. -- -- 12,566 7.38 2018 and following ......... -- -- 3,843 7.53 ------- ------- $ 3,376 9.56 $55,889 7.74 ======= ======= - ---------- (1) Includes demand loans and loans having no stated maturity. The total amount of loans due after June 30, 1997 which have predetermined interest rates is $35,443,000 while the total amount of loans due after such dates which have floating or adjustable interest rates is $20,446,000. 45 Under federal law, the aggregate amount of loans that the Association is permitted to make to any one borrower is generally limited to 15% of unimpaired capital and surplus (25% if the security for such loan has a "readily ascertainable" value or 30% for certain residential development loans). At June 30, 1997, based on the above, the Association's regulatory loan-to-one borrower limit was approximately $750,000. On the same date, the Association had no borrowers with outstanding balances in excess of this amount. As of June 30, 1997, the largest dollar amount of indebtedness to one borrower or group of related borrowers was a $630,000 loan secured by a strip shopping center. The next two largest loans had outstanding balances of $627,000 and $583,000, respectively, and were secured by warehouse and offices, and a fast food restaurant and retail establishment. Such loans are performing in accordance with their terms. Loan applications are accepted by salaried employees at the Association's offices. Loan applications are presented for approval to the Loan or Executive Loan Committees of the Board of Directors or to the full Board of Directors, depending on the loan amount. Generally, the Loan Committee acts with respect to loan requests equal to or less than $250,000 (except for single family loan requests conforming to certain criteria, as to which the Loan Committee may approve amounts up to $500,000, while the Executive Loan Committee acts with respect to loan requests for more than $250,000 up to $500,000). Decisions on loan applications are made on the basis of detailed applications and property valuations (consistent with the Association's written lending policy) by qualified independent appraisers. The loan applications are designed primarily to determine the borrower's ability to repay and include income, length of employment, past credit history and the amount of current indebtedness. Significant items on the application are verified through use of credit reports, financial statements, tax returns and/or confirmations. The Association is an equal opportunity lender. One- to Four-Family Residential Real Estate Lending The cornerstone of the Association's lending program has long been the origination of long-term permanent loans secured by mortgages on owner-occupied one- to four-family residences. At June 30, 1997, $46.3 million, or 82.9% of the Association's gross loan portfolio consisted of permanent loans on one- to four-family residences. At that date, the average outstanding residential loan balance was approximately $73,000 and the largest outstanding residential loan had a principal balance of $382,000. Virtually all of the residential loans originated by Wyman Park are secured by properties located in the Association's market area. See "- Originations, Purchases and Sales of Loans." Although the Bank has generally sold its fixed-rate loan production since 1989, historically, Wyman Park originated for retention in its own portfolio 30-year fixed-rate loans secured by one- to four-family residential real estate. Beginning in the mid-1980s, in order to reduce its exposure to changes in interest rates, Wyman Park began to originate adjustable rate mortgage loans ("ARMs"), subject to market conditions and consumer preference. The Association has from time to time sold some of its ARM production, which conforms to standards promulgated by the Federal Home Loan Mortgage Corporation ("FHLMC"), and as a result of continued consumer demand, particularly during periods of relatively low interest rates, Wyman Park has also continued to originate fixed-rate residential loans in amounts and at rates and terms which are monitored for 46 compliance with the Association's asset/liability management policy. Currently, the Association originates both conforming and jumbo construction and jumbo fixed-rate permanent loans with maturities of up to 30 years. At June 30, 1997, the Association had $30.5 million of fixed-rate permanent residential loans, constituting 54.6% of the Association's loan portfolio at such date. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Asset/Liability Management." The Association's ARM and balloon loans are offered at rates, terms and points determined in accordance with market and competitive factors. The Association's current one- to four-family residential ARMs are fully amortizing loans with contractual maturities of up to 30 years. Balloon loans also have terms of up to 30 years. Though from time to time "teaser" rates are offered, applicants are qualified pursuant to FHLMC guidelines, which permits qualifications at less than the fully indexed rate, and no ARMs allow for negative amortization. The interest rates on the ARMs originated by Wyman Park are generally subject to adjustment at one-, three- and five-year intervals based on a margin over the Treasury Securities Constant Maturity Index. Decreases or increases in the interest rate of the Association's ARMs are generally limited to 6% above the initial interest rate over the life of the loan, and up to a 2% per adjustment period per year or per adjustment period. The Association's ARMs may be convertible into fixed-rate loans, depending on the program selected, and do not contain prepayment penalties. Loans are not assumable. At June 30, 1997, the total balance of one- to four-family ARMs was $15.8 million, or 28.3% of the Association's loan portfolio. As a service to its older customers, the Association also has originated, and thereafter sold, reverse mortgages, enabling the "homeowner" to utilize equity values that have built up in the underlying property. As discussed above, the Association evaluates both the borrower's ability to make principal, interest and escrow payments and the value of the property that will secure the loan. Wyman Park originates residential mortgage loans with loan-to-value ratios up to 97%. On mortgage loans exceeding an 80% loan-to-value ratio at the time of origination, Wyman Park will generally require private mortgage insurance in an amount intended to reduce the Association's exposure to less than 80% of the appraised value of the underlying property. The Association requires title insurance on its mortgage loans as well as fire and extended coverage casualty insurance in amounts at least equal to the principal amount of the loan or the value of improvements on the property, depending on the type of loan. The Association also requires flood insurance to protect the property securing its interest when the property is located in a flood plain. The Association's residential mortgage loans customarily include due-on-sale clauses giving the Association the right to declare the loan immediately due and payable in the event that, among other things, the borrower sells or otherwise disposes of the property subject to the mortgage and the loan is not repaid. 47 Construction and Development Lending The Association makes construction loans to individuals for the construction of their primary or secondary residences. Loans to individuals for the construction of their residences typically run for up to nine months. The borrower pays interest only during the construction period. Residential construction loans are generally underwritten pursuant to the same guidelines used for originating permanent residential loans. At June 30, 1997, the Association had one construction loan with an outstanding aggregate balance of $150,000 secured by residential property. The Association has participated in loans to builders and developers to finance the construction of residential property. Such loans generally have adjustable interest rates based upon prime or treasury indexes with terms of 18 months. The proceeds of the loan are advanced during construction based upon the percentage of completion as determined by an inspection by the lead lender. The loan amount normally does not exceed 75% of projected completed value. Whether the Association is willing to provide permanent takeout financing to the purchaser of the home is determined independently of the construction loan by separate underwriting. In the event that upon completion the house is not sold, the builder is required to make principal and interest payments until the house is sold. Building lot loans, which include loans to acquire vacant or raw land, are made to individuals. All of such loans are secured by land zoned for residential developments and located within the Association's market area. Before extending credit, the Association will require percolation tests and related permits to be secured. Construction and development lending, through participation or direct lending, generally affords the Association an opportunity to receive interest at rates higher than those obtainable from residential lending and to receive higher origination and other loan fees. In addition, such loans are generally made for relatively short terms. Nevertheless, construction lending to persons other than owner-occupants is generally considered to involve a higher level of credit risk than one- to four-family permanent residential lending due to the concentration of principal in a limited number of loans and borrowers and the effects of general economic conditions on construction projects, real estate developers and managers. In addition, the nature of these loans is such that they are more difficult to evaluate and monitor. The Association's risk of loss on a construction or development loan is dependent largely upon the accuracy of the initial estimate of the property's value upon completion of the project and the estimated cost (including interest) of the project. If the estimate of value proves to be inaccurate, the Association may be confronted, at or prior to the maturity of the loan, with a project with a value which is insufficient to assure full repayment and/or the possibility of having to make substantial investments to complete and sell the project. Because defaults in repayment may not occur during the construction period, it may be difficult to identify problem loans at an early stage. When loan payments become due, the cash flow from the property may not be adequate to service the debt. In such cases, the Association may be required to modify the terms of the loan. 48 Commercial Real Estate Lending The Association's commercial real estate loan portfolio consists of loans on a variety of non-residential properties including retail facilities, warehouses, small office buildings, small industrial parks and shopping centers. At June 30, 1997, the Association's largest commercial real estate loan totaled $630,000 At that date, the Association had 23 other commercial real estate loans, all totaling $5.8 million or 10.4 % of gross loans receivable. As of June 30, 1997, none of these loans were non-performing. The Association has originated both balloon, adjustable-rate and fixed-rate commercial real estate loans, although most current originations have balloon or adjustable rates. Commercial loans generally adjust based on a constant maturity index plus a margin. Adjustable rate loans generally have a balloon feature after one or two adjustment periods to allow the Association to re-evaluate the terms of the loan. Balloon loans mature at the end of the initial balloon term and may be modified, extended or refinanced by the Association. Commercial loans are generally underwritten in amounts of up to 75% of the appraised value of the underlying property. Appraisals on properties securing commercial real estate loans originated by the Association are performed by a qualified independent appraiser at the time the loan is made. In addition, the Association's underwriting procedures generally require verification of the borrower's credit history, income and financial statements, banking relationships and income projections or operating histories for the property. Personal guarantees are generally obtained for the Association's commercial real estate loans. Substantially all of the commercial real estate loans originated by the Association are secured by properties located within the Association's market area. The table below sets forth by type of security property the estimated number, loan amount and outstanding balance of Wyman Park's commercial real estate loans at June 30, 1997. Outstanding Number of Original Principal Loans Loan Amount Balance --------- ----------- ----------- (Dollars in Thousands) Office ............................ 10 $1,850 $1,653 Retail ............................ 4 1,725 1,641 Small industrial .................. 2 535 482 Warehouse ......................... 4 1,372 1,262 Apartment ......................... 1 83 59 Land .............................. 3 758 709 ------ ------ ------ Total .......................... 24 $6,323 $5,806 ====== ====== ====== Commercial real estate loans generally present a higher level of credit risk than loans secured by one- to four-family residences. This greater risk is due to several factors, including the concentration of principal in a limited number of loans and borrowers, the effects of general economic conditions on income producing properties and the increased difficulty of evaluating and 49 monitoring these types of loans. Furthermore, the repayment of loans secured by commercial real estate is typically dependent upon the successful operation of the related real estate project. If the cash flow from the project is reduced (for example, if leases are not obtained or renewed), the borrower's ability to repay the loan may be impaired. Multi-Family Lending The Association has historically made a few permanent multi-family loans in its primary market area. As with commercial real estate loans, multi-family loans present a higher level of credit risk than do loans secured by one-to four-family residences. At June 30, 1997, loans secured by multi-family properties aggregated $211,000, or .38% of the Association's gross loans receivable. The Association's multi-family loan portfolio includes loans secured by five or more unit residential buildings located primarily in the Association's market area. Consumer Lending Management believes that offering consumer loan products helps to expand the Association's customer base and to create stronger ties to its existing customer base. In addition, because consumer loans generally have shorter terms to maturity and carry higher rates of interest than do residential mortgage loans, they can be valuable asset/liability management tools. The Association currently originates substantially all of its consumer loans in its market area. At June 30, 1997, the Association's consumer loans totaled $3.4 million or 6.0% of the Association's gross loan portfolio. Wyman Park offers a variety of consumer loans, including loans secured by savings deposits and home equity lines of credit as well as unsecured home improvement loans. The largest component of the Association's consumer lending program is its home equity line. At June 30, 1997, home equity loans totaled $3.2 million or 5.7% of gross loans receivable. The Association also employs its standard underwriting criteria discussed above in deciding whether to extend credit. The Association's home equity lines of credit are originated in amounts which, together with the amount of the first mortgage, generally do not exceed 80% of the appraised value of the property securing the loan. At June 30, 1997, the Association had $5.5 million of funds committed, but undrawn, under such lines. Home equity loans are adjustable in nature, floating at a stated margin above prime. The terms of other types of consumer loans vary according to the type of collateral, length of contract and creditworthiness of the borrower. The underwriting standards employed by the Association for consumer loans include a determination of the applicant's payment history on other debts and an assessment of the borrower's ability to meet payments on the proposed loan along with his existing obligations. In addition to the creditworthiness of the applicant, the underwriting process also includes a comparison of the value of the security, if any, in relation to the proposed loan amount. 50 Consumer loans may entail greater risk than residential mortgage loans, particularly in the case of consumer loans which are unsecured or secured by rapidly depreciable assets. In addition, consumer loan collections are dependent on the borrower's continuing financial stability, and thus are more likely to be affected by adverse personal circumstances. Furthermore, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans. Originations, Purchases and Sales of Loans The Association originates real estate and other loans through employees located at the Association's offices. Walk-in customers and referrals from its current customer base, advertisement, real estate brokers, mortgage loan brokers and builders are also important sources of loan originations as well as Wyman Park's internet web-site (www.wymanpark.com). The association utilized the services of mortgage or loan brokers from time to time. While generally a portfolio lender, the Association may in the future evaluate loan sale opportunities as they arise and make sales depending on market conditions. The following table shows the loan origination, purchase, sale and repayment activities of the Association for the periods indicated. Year Ended June 30, ------------------- 1997 1996 ------ ------- (Dollars in Thousands) Originations by type: Adjustable rate: Real estate - one- to four-family.................. $2,843 $ 1,314 - multi-family..................... 90 --- - commercial....................... 1,100 190 ------ ------- Total adjustable-rate....................... 4,033 1,504 ------ ------- Fixed rate: Real estate - one- to four-family.................. 3,907 6,991 - commercial....................... 936 550 Non-real estate - consumer......................... 18 --- ------ ------- Total fixed-rate............................ 4,861 7,541 ------ ------- Total loans originated...................... 8,894 9,045 ------ ------- Purchases: Real estate - one- to four-family.................. 983 --- - commercial....................... 805 300 ------ ------- Total loans purchased....................... 1,788 300 ------ ------- Sales and Repayments: Real estate - one- to four-family.................. 395 990 - commercial....................... 900 --- ------ ------- Total loans sold............................ 1,295 990 Principal repayments............................... 7,177 9,539 ------ ------- Total reductions............................ 8,472 10,529 Increase (decrease) in other items, net.............. (265) 24 ------ ------- Net increase (decrease)..................... $1,945 $(1,160) ====== ======= 51 Delinquencies and Non-Performing Assets Loan Portfolio Management. When a borrower fails to make a required payment on a loan, the Association attempts to cause the delinquency to be cured by contacting the borrower. A late notice is generated on all loans over 15 and 30 days delinquent. Another late notice is sent 60 days after the due date followed by telephone contact. If the delinquency is not cured by the 65th day, the customer is provided written notice that the account will be referred to counsel for collection and foreclosure, if necessary. A good faith effort by the borrower at this time will defer foreclosure for a reasonable length of time depending on individual circumstances. After 90 days, foreclosure proceedings are generally instituted. The Association may agree to accept a deed in lieu of foreclosure. If it becomes necessary to foreclose, the property is sold at public sale and the Association may bid on the property to protect its interest. Unsecured consumer loans are charged off if they remain delinquent for 120 days unless the borrower and lender agree on a payment plan. If terms of the plan are not met, they are then subject to charge off. Real estate acquired by Wyman Park as a result of foreclosure is classified as real estate owned until it is sold. When property is acquired by foreclosure, it is recorded at the lower of cost or estimated fair value, less estimated selling costs, at the date of acquisition, and any write-down resulting therefrom is charged to the allowance for loan losses. Subsequent decreases in the value of the property are charged to operations through the creation of a valuation allowance. After acquisition, all costs incurred in maintaining the property are expensed. Costs relating to the development and improvement of the property, however, are capitalized to the extent of estimated fair value less estimated costs to sell. The following table sets forth the Association's loan delinquencies by type, by amount and by percentage of type at June 30, 1997.
Loans Delinquent For: ----------------------------------------------------- 60-89 Days 90 Days and Over Total Delinquent Loans ------------------------- ------------------------- -------------------------- Percent Percent Percent of Loan of Loan of Loan Number Amount Category Number Amount Category Number Amount Category ------ ------ -------- ------ ------ -------- ------ ------ -------- (Dollars in Thousands) Real Estate: One- to four-family ..................... 5 $178 .38% 2 $176 .38% 7 $354 .76% ---- ---- --- ---- --- --- Total .................................. 5 $178 .32% 2 $176 .31% 7 $354 .63% ==== ==== === ==== === ===
52 Non-Performing Assets. The table below sets forth the amounts and categories of non-performing assets in the Association's loan portfolio. Loans are placed on non-accrual status when the collection of principal and/or interest become doubtful. Foreclosed assets include assets acquired in settlement of loans. June 30, --------------- 1997 1996 ---- ---- (Dollars in Thousands) Non-accruing loans: One- to four family............................ $176 $ 27 ---- ---- Total non-performing assets...................... $176 $ 27 ==== ==== Total as a percentage of total assets............ .28% .04% === === For the year ended June 30, 1997 gross interest income which would have been recorded had the non-accruing loans been current in accordance with their original terms amounted to $18,964. The amount that was included in interest income on such loans was $14,492 for the year ended June 30, 1997. Classification of Assets. Federal regulations require that each savings institution classify its own assets on a regular basis. In addition, in connection with examinations of savings institutions, OTS and FDIC examiners have authority to identify problem assets and, if appropriate, require them to be classified. There are three classifications for problem assets: Substandard, Doubtful and Loss. Substandard assets have one or more defined weaknesses and are characterized by the distinct possibility that the Association will sustain some loss if the deficiencies are not corrected. Doubtful assets have the weaknesses of Substandard assets, with the additional characteristics that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions and values questionable, and there is a high possibility of loss. An asset classified Loss is considered uncollectible and of such little value that continuance as an asset on the balance sheet of the institution, without establishment of a specific valuation allowance or charge-off, is not warranted. Assets classified as Substandard or Doubtful require the institution to establish prudent general allowances for loan losses. If an asset or portion thereof is classified as a Loss, the institution may charge off such amount against the loan loss allowance. If an institution does not agree with an examiner's classification of an asset, it may appeal this determination to the District Director of the OTS. On the basis of management's review of its assets, at June 30, 1997, the Association had two loans classified substandard with total principal of $176,000. Other Assets of Concern. In addition to non-performing loans and substandard loans discussed above, as of June 30, 1997, the Association had five loans totalling $178,000, which, because of known information about the possible credit problems of the borrowers or the cash flows of the security property, would cause management to have some doubts as to the ability of the 53 borrowers to comply with present loan repayment terms and may result in the future inclusion of such assets in non-performing asset categories. Allowance for Loan Losses. The allowance for loan losses is established through a provision for loan losses charged to earnings based on management's evaluation of the risk inherent in its entire loan portfolio and changes in the nature and volume of its loan activity. Such evaluation, which includes a review of all loans of which full collectibility may not be reasonably assured, considers the estimated net realizable value of the underlying collateral, economic conditions, historical loan loss experience and other factors that warrant recognition in providing for an adequate allowance for loan losses. In determining the general reserves under these policies, historical charge-offs and recoveries, changes in the mix and levels of the various types of loans, net realizable values, the current loan portfolio and current economic conditions are considered. Management also considers the Association's non-performing assets in establishing its allowance for loan losses. As of June 30, 1997, the Association's allowance for loan losses as a percent of gross loans receivable and as a percent of non-performing loans amounted to .5% and 153%, respectively. In light of the level of non-performing assets to total assets and the nature of these assets, management believes that the allowance for loan losses is adequate. While management believes that it uses the best information available to determine the allowance for loan losses, unforeseen market conditions could result in adjustments to the allowance for loan losses, and net earnings could be significantly affected, if circumstances differ substantially from the assumptions used in making the final determination. The following table sets forth an analysis of the Association's allowance for loan losses. Year Ended June 30, ------------------- 1997 1996 ---- ---- (Dollars in Thousands) Balance at beginning of period.................... $125 $100 Charge-offs: Commercial real estate.......................... -- -- ---- ---- -- -- ---- ---- Net charge-offs................................... -- -- Additions charged to operations................... 145 25 ---- ---- Balance at end of period.......................... $270 $125 ==== ==== Ratio of net charge-offs during the period to average loans outstanding during the period...... --% --% ==== ==== Ratio of net charge-offs during the period to average non-performing assets.................... --% --% ==== ==== 54 The distribution of the Association's allowance for losses on loans at the dates indicated is summarized as follows:
June 30, -------------------------------------------------------------------------------- 1997 1996 ------------------------------------ ------------------------------------ Percent Percent of Loans of Loans Loan in Each Loan in Each Amount of Amounts Category Amount of Amounts Category Loan Loss by to Total Loan Loss by to Total Allowance Category Loans Allowance Category Loans --------- -------- -------- --------- -------- -------- (Dollars in Thousands) One- to four-family ................ $ 25 $46,346 82.92% $ 22 $45,669 84.82% Multi-family ....................... -- 211 .38 -- 128 .24 Commercial real estate ............. 56 5,806 10.39 43 4,448 8.26 Construction or development ....... -- 150 .27 -- 270 .50 Consumer ........................... -- 3,376 6.04 -- 3,327 6.18 Unallocated ........................ 189 -- -- 59 -- -- ------- ------- ------ ------- ------- ------ Total ......................... $ 270 $55,889 100.00% $ 125 $53,842 100.00% ======= ======= ====== ======= ======= ======
Investment Activities As part of its asset/liability management strategy and liquidity requirements, the Association invests in U.S. government and agency obligations to supplement its lending activities. The Association's investment policy also allows for investments in overnight funds, mortgage-backed securities and certificates of deposit. The Association may consider the expansion of investments into other securities if deemed appropriate. At June 30, 1997, the Association did not own any securities of a single issuer which exceeded 10% of the Association's retained earnings, other than U.S. government or federal agency obligations. See Note 3 of the Notes to the Consolidated Financial Statements for additional information regarding the Association's investment securities portfolio. The Association is required by federal regulations to maintain a minimum amount of liquid assets that may be invested in specified securities and is also permitted to make certain other securities investments. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital." Cash flow projections are regularly reviewed and updated to assure that adequate liquidity is provided. As of June 30, 1997, the Association's liquidity ratio (liquid assets as a percentage of net withdrawable savings and current borrowings) was 9.8% as compared to the OTS requirement of 5.0%. All of the Association's investment securities are classified as available for sale. There were no sales of investment securities in fiscal 1997 or 1996. The Association may elect to classify investment securities acquired in the future as trading securities or as held to maturity, instead of available-for-sale, but there are no current plans to do so. 55 The following table sets forth the composition of the Association's investment and mortgage-backed securities at the dates indicated.
June 30, ------------------------------------------------ 1997 1996 --------------------- -------------------- Book % of Book % of Value Total Value Total ------ ------ ------ ------ (Dollars in Thousands) Investment securities: Federal agency obligations ........................... $2,992 85.44% $2,964 85.32% ------ ------ ------ ------ Subtotal .......................................... 2,992 85.44 2,964 85.32 FHLB stock ........................................... 510 14.56 510 14.68 ------ ------ ------ ------ Total investment securities and FHLB stock ........ $3,502 100.00% $3,474 100.00% ====== ====== ====== ====== Average remaining life of investment securities ........ 1.3 years 2.3 years Other interest-earning assets: Interest-bearing deposits with banks ................. $1,093 57.05% $3,483 60.46% Federal funds sold ................................... 823 42.95 2,278 39.54 ------ ------ ------ ------ Total ............................................. $1,916 100.00% $5,761 100.00% ====== ====== ====== ====== Mortgage-backed securities: FNMA ................................................. $ 2 .56% $ 3 .71% FHLMC ................................................ 354 99.44 421 99.29 ------ ------ ------ ------ Total mortgage-backed securities .................. $ 356 100.00% $ 424 100.00% ====== ====== ====== ======
At June 30, 1997, the composition and maturities of the investment securities portfolio, excluding FHLB stock, are indicated in the following table. 1 to 5 Years Total Investment Securities ------ --------------------------- Book Value Book Value Market Value ---------- ---------- ------------ (Dollars in Thousands) Federal agency obligations.......... $2,992 $2,992 $2,992 ------ ------ ------ Total investment securities......... $2,992 $2,992 $2,992 ====== ====== ====== Weighted average yield.............. 5.94% 5.94% 5.94% Mortgage-Backed Securities. Wyman Park has a $356,000 portfolio of mortgage-backed securities, all of which are insured or guaranteed by FHLMC or the Federal National Mortgage Association ("FNMA"). Accordingly, management believes that the Association's mortgage-backed securities are generally resistant to credit problems. Because these securities represent a passthrough of principal and interest from underlying individual thirty year mortgages, such securities do present prepayment risk. Any such individual security contains mortgages that can be prepaid at any time over the life of the security. In a rising interest rate environment the underlying mortgages are likely to extend their lives versus a stable or declining rate environment. A declining rate environment can result in rapid prepayment. There is no certainty as to the security life or speed of prepayment. The geographic makeup and correlated economic conditions of the underlying mortgages also pay an 56 important role in determining prepayment. In addition to prepayment risk, interest rate risk is inherent in holding any debt security. As interest rates rise the value of the security declines and conversely as interest rates decline values rise. Adjustable rate mortgage-backed securities have the advantage of moving their interest rate within limits with the contractual index used, subject to the risk of prepayment. All of the adjustable rate mortgage-backed securities in the portfolio are tied to the One Year Constant Maturity Treasury Index and all are considered held for investment. The market valuation does not consequently present a direct impact on equity. Mortgage-backed securities can serve as collateral for borrowings and, through sales and repayments, as a source of liquidity. For information regarding the carrying and market values of Wyman Park's mortgage-backed securities portfolio, see Note 3 of the Notes to Consolidated Financial Statements. Under the Association's risk-based capital requirement, mortgage-backed securities have a risk weight of 20% in contrast to the 50% risk weight carried by residential loans. See "Regulation." The following table sets forth the contractual maturities of the Association's mortgage-backed securities at June 30, 1997. Due in June 30, 1997 10 to 20 Balance Years Outstanding ----- ----------- (In Thousands) Federal Home Loan Mortgage Corporation.......... $354 $354 Federal National Mortgage Association........... 2 2 ----- ---- Total...................................... $356 $356 ==== ==== Sources of Funds General. The Association's primary sources of funds are deposits, amortization and prepayment of loan principal, maturities of investment securities, short-term investments and funds provided from operations as well as FHLB advances. Deposits. Wyman Park offers a variety of deposit accounts having a wide range of interest rates and terms. The Association's deposits consist of passbook and statement accounts, NOW accounts, Christmas Club and money market and certificate accounts, including Individual Retirement Accounts. The Association relies primarily on advertising, including newspaper and radio, pricing policies and customer service to attract and retain these deposits. Neither premiums nor brokered deposits are utilized. The flow of deposits is influenced significantly by general economic conditions, changes in money market and prevailing interest rates and competition. The Association's mix of transaction accounts and certificate accounts is less favorable than its peers, resulting in a higher cost of funds for the Association in relation to its peer group. At June 30, 1997, 28.3% of the Association's deposits were in transaction accounts, versus 71.7% in certificates. See "Risk Factors - Low Return on Equity and Low Net Interest Margin" and "-- Competition." 57 The Association has become more susceptible to short-term fluctuations in deposit flows, as customers have become more interest rate conscious. The Association manages the pricing of its deposits in keeping with its asset/liability management, profitability and growth objectives. Based on its experience, the Association believes that its passbook, demand and NOW accounts are relatively stable sources of deposits. However, the ability of the Association to attract and maintain certificate deposits, and the rates paid on these deposits, has been and will continue to be significantly affected by market conditions. The following table sets forth the savings flows at the Association during the periods indicated. Year Ended June 30, ---------------------- 1997 1996 --------- -------- (Dollars in Thousands) Opening balance............................. $ 57,871 $ 58,473 Deposits.................................... 53,394 43,873 Withdrawals................................. (57,930) (47,539) Interest credited........................... 2,762 3,064 -------- -------- Ending balance.............................. $ 56,097 $ 57,871 ======== ======== Net decrease................................ $ (1,774) $ (602) ======== ======== Percent decrease............................ (3.07)% (1.03)% ======== ======== The following table sets forth the dollar amount of savings deposits in the various types of deposit programs offered by the Association for the periods indicated. Year Ended June 30, -------------------------------------- 1997 1996 ----------------- ----------------- Percent Percent Amount of Total Amount of Total ------ -------- ------ -------- (Dollars in Thousands) Transactions and Savings Deposits: Commercial Demand 0% ............ $ 587 1.05% $ 337 .58% Passbook Accounts 2.96% ......... 6,027 10.74 5,857 10.12 NOW Accounts 1.75 % ............. 1,615 2.88 1,673 2.89 Money Market Accounts 3.10% ..... 7,627 13.59 7,637 13.19 ------- ------ ------- ------ Total Non-Certificates .......... 15,856 28.26 15,504 26.78 ------- ------ ------- ------ Certificates: 4.00 - 5.99% .................. $26,366 46.99% $23,101 39.90% 6.00 - 7.99% .................. 13,492 24.04 16,657 28.77 8.00 - 9.99% .................. 383 .68 2,609 4.51 ------- ------ ------- ------ Total Certificates .............. 40,241 71.71 42,367 73.18 ------- ------ ------- ------ Accrued Interest ................ 19 .03 21 .04 ------- ------ ------- ------ Total Deposits .................. $56,116 100.00% $57,892 100.00% ======= ====== ======= ====== 58 The following table shows rate and maturity information for the Association's certificates of deposit as of June 30, 1997. 4.00- 6.00- 8.00- Percent 5.99% 7.99% 9.99% Total of Total ----- ----- ----- ----- -------- (Dollars in Thousands) Certificate accounts maturing in quarter ending: - ------------------ September 30, 1997............. $ 5,540 $ 991 $ --- $ 6,531 16.23% December 31, 1997.............. 5,470 967 186 6,623 16.46 March 31, 1998................. 3,605 179 15 3,799 9.44 June 30, 1998.................. 3,216 86 --- 3,302 8.21 September 30, 1998............. 2,910 61 163 3,134 7.79 December 31, 1998.............. 2,292 53 3 2,348 5.83 March 30, 1999................. 506 451 16 973 2.42 June 30, 1999.................. 492 1,079 --- 1,571 3.90 September 30, 1999............. 267 1,227 --- 1,494 3.71 December 31, 1999.............. 138 900 --- 1,038 2.58 March 31, 2000................. 19 2,129 --- 2,148 5.34 Thereafter..................... 1,911 5,369 --- 7,280 18.09 -------- -------- ----- -------- ------ Total....................... $26,366 $13,492 $383 $40,241 100.00% ======= ======= ==== ======= ====== Percent of total............ 65.52% 33.53% .95% ===== ===== === At June 30, 1997 the Association had approximately $4.2 million in certificate accounts in amounts of $100,000 or more maturing as follows: Weighted Maturity Period Amount Average Rate --------------- ------ ------------ (Dollars in thousands) Three months or less..................... $ 983 4.78% Over three through six months............ 449 5.48 Over six through 12 months............... 213 5.08 Over 12 months........................... 2,552 6.23 ------- Total.................................... $4,197 5.75 ======= 59 The following table indicates the amount of the Association's certificates of deposit and other deposits by time remaining until maturity as of June 30, 1997.
Maturity ------------------------------------------- Over Over 3 Months 3 to 6 6 to 12 Over or Less Months Months 12 months Total -------- ------- ------- --------- ------- Certificates of deposit less than $100,000 $ 5,548 $ 6,174 $ 6,888 $17,434 $36,044 Certificates of deposit of $100,000 or more 983 449 213 2,552 4,197 Total certificates of deposit ............. $ 6,531 $ 6,623 $ 7,101 $19,986 $40,241 ======= ======= ======= ======= =======
For additional information regarding the composition of the Association's deposits, see Note 7 of Notes to Consolidated Financial Statements. Borrowings. Wyman Park's other available sources of funds, not currently utilized, include advances from the FHLB of Atlanta and other borrowings. As a member of the FHLB of Atlanta, the Association is required to own capital stock in the FHLB of Atlanta and is authorized to apply for advances from the FHLB of Atlanta. Each FHLB credit program has its own interest rate, which may be fixed or variable, and range of maturities. The FHLB of Atlanta may prescribe the acceptable uses for these advances, as well as limitations on the size of the advances and repayment provisions. The Association's immediate credit availability at the FHLB of Atlanta is approximately $8 million at June 30, 1997. The Association did not have any outstanding borrowings during the last two fiscal years, although the Association did borrow $1 million from the FHLB of Atlanta during the first quarter of fiscal 1998. Service Corporations As a federally chartered savings association, Wyman Park is permitted by OTS regulations to invest up to 2% of its assets, or approximately $1.3 million at June 30, 1997, in the stock of, or loans to, service corporation subsidiaries. As of such date, Wyman Park had one investment in a service corporation, WP Financial Corporation, which engages in the sale of annuities. The income derived from WP Financial Corporation is not material to the Association's results of operations. Competition Wyman Park experiences strong competition both in originating real estate loans and in attracting deposits. This competition arises from a highly competitive market area with numerous commercial banks and savings institutions, as well as credit unions and mortgage bankers and, with respect to deposits, banking institutions and other financial intermediaries. The Association competes for loans principally on the basis of the interest rates and loan fees it charges, the types of loans it originates and the quality of services it provides to borrowers. 60 The Association attracts all of its deposits through the communities in which its offices are located; therefore, competition for those deposits is principally from other savings institutions, commercial banks, securities firms, money market and mutual funds and credit unions located in the same community. The ability of the Association to attract and retain deposits depends on its ability to provide an investment opportunity that satisfies the requirements of investors as to rate of return, liquidity, risk, convenient locations and other factors. The Association competes for these deposits by offering a variety of deposit accounts at competitive rates, convenient business hours and a customer-oriented staff. At June 30, 1997, the Association had in excess 60 financial institutions competing with it in its market area. The Association estimates its market share of savings deposits in its market area to be approximately 11.4%. Competition may limit Wyman Park's growth and profitability in the future. See "Risk Factors - Competition." Employees At June 30, 1997, the Association had a total of 15 full-time employees and one part-time employee. None of the Association's employees are represented by any collective bargaining group. Management considers its employee relations to be good. Properties The following table sets forth information concerning the main office and a branch office of the Association at June 30, 1997. The Association believes that its current facilities are adequate. Net Book Owned Value at Year or June 30, Location Opened Leased(1) 1997 -------- ------ --------- ---- Main Office: 11 Ridgely Road 1977 Land Leased;(2) Lutherville, MD 21093 Building Owned $95,000 Branch Office: 7963 Baltimore/Annapolis Blvd. 1977 Leased(3) N/A Glen Burnie, MD 21060 - --------- (1) See Note 6 to Notes to Consolidated Financial Statements. (2) There are five, five-year options which expire in May 2027. (3) Lease expires in November, 2001. 61 The Association's depositor and borrower customer files are maintained by an independent data processing company. The net book value of the data processing and computer equipment utilized by the Association at June 30, 1997 was approximately $12,000. Legal Proceedings From time to time, Wyman Park is involved as plaintiff or defendant in various legal proceedings arising in the normal course of its business. While the ultimate outcome of these various legal proceedings cannot be predicted with certainty, it is the opinion of management that the resolution of these legal actions should not have a material effect on Wyman Park's financial position or results of operations. REGULATION General Wyman Park is a federally chartered savings association, the deposits of which are federally insured and backed by the full faith and credit of the United States Government. Accordingly, Wyman Park is subject to broad federal regulation and oversight extending to all its operations. Wyman Park is a member of the FHLB of Atlanta and is subject to certain limited regulation by the Board of Governors of the Federal Reserve System ("Federal Reserve Board"). As the savings and loan holding company of Wyman Park, the Holding Company also is subject to federal regulation and oversight. The purpose of the regulation of the Holding Company and other holding companies is to protect subsidiary savings associations. Wyman Park is a member of the SAIF, which together with the BIF are the two deposit insurance funds administered by the FDIC, and the deposits of Wyman Park are insured by the FDIC. As a result, the FDIC has certain regulatory and examination authority over Wyman Park. Certain of these regulatory requirements and restrictions are discussed below or elsewhere in this document. Federal Regulation of Savings Associations The OTS has extensive authority over the operations of savings associations. As part of this authority, Wyman Park is required to file periodic reports with the OTS and is subject to periodic examinations by the OTS and the FDIC. The last regular OTS examination of Wyman Park was as of December, 1996. Under agency scheduling guidelines, it is likely that another examination will be initiated in the near future. When these examinations are conducted by the OTS and the FDIC, the examiners may require the Association to provide for higher general or specific loan loss reserves. All savings associations are subject to a semi-annual assessment, based upon the savings association's total assets, to fund the operations of the OTS. The Association's OTS assessment for the fiscal year ended June 30, 1997 was $21,845. 62 The OTS also has extensive enforcement authority over all savings institutions and their holding companies, including Wyman Park and the Holding Company. This enforcement authority includes, among other things, the ability to assess civil money penalties, to issue cease-and-desist or removal orders and to initiate injunctive actions. In general, these enforcement actions may be initiated for violations of laws and regulations and unsafe or unsound practices. Other actions or inactions may provide the basis for enforcement action, including misleading or untimely reports filed with the OTS. Except under certain circumstances, public disclosure of final enforcement actions by the OTS is required. In addition, the investment, lending and branching authority of the Association is prescribed by federal laws and it is prohibited from engaging in any activities not permitted by such laws. For instance, no savings institution may invest in non-investment grade corporate debt securities. In addition, the permissible level of investment by federal associations in loans secured by non-residential real property may not exceed 400% of total capital, except with approval of the OTS. Federal savings associations are also generally authorized to branch nationwide. Wyman Park is in compliance with the noted restrictions. Wyman Park's general permissible lending limit for loans-to-one-borrower is equal to the greater of $500,000 or 15% of unimpaired capital and surplus (except for loans fully secured by certain readily marketable collateral, in which case this limit is increased to 25% of unimpaired capital and surplus). At June 30, 1997, the Association's lending limit under this restriction was $750,000. Assuming the sale of the minimum number of shares in the Conversion at June 30, 1997, that limit would be increased to $1.1 million. Wyman Park is in compliance with the loans-to-one-borrower limitation. The OTS, as well as the other federal banking agencies, has adopted guidelines establishing safety and soundness standards on such matters as loan underwriting and documentation, asset quality, earnings standards, internal controls and audit systems, interest rate risk exposure and compensation and other employee benefits. Any institution which fails to comply with these standards must submit a compliance plan. Insurance of Accounts and Regulation by the FDIC Wyman Park is a member of the SAIF, which is administered by the FDIC. Deposits are insured up to applicable limits by the FDIC and such insurance is backed by the full faith and credit of the United States Government. As insurer, the FDIC imposes deposit insurance premiums and is authorized to conduct examinations of and to require reporting by FDIC-insured institutions. It also may prohibit any FDIC-insured institution from engaging in any activity the FDIC determines by regulation or order to pose a serious risk to the SAIF or the BIF. The FDIC also has the authority to initiate enforcement actions against savings associations, after giving the OTS an opportunity to take such action, and may terminate the deposit insurance if it determines that the institution has engaged in unsafe or unsound practices or is in an unsafe or unsound condition. The FDIC's deposit insurance premiums are assessed through a risk-based system under which all insured depository institutions are placed into one of nine categories and assessed insurance premiums based upon their level of capital and supervisory evaluation. Under the system, institutions 63 classified as well capitalized (i.e., a core capital ratio of at least 5%, a ratio of Tier 1 or core capital to risk-weighted assets ("Tier 1 risk-based capital") of at least 6% and a risk-based capital ratio of at least 10%) and considered healthy pay the lowest premium while institutions that are less than adequately capitalized (i.e., core or Tier 1 risk-based capital ratios of less than 4% or a risk-based capital ratio of less than 8%) and considered of substantial supervisory concern pay the highest premium. Risk classification of all insured institutions is made by the FDIC for each semi-annual assessment period. The FDIC is authorized to increase assessment rates, on a semiannual basis, if it determines that the reserve ratio of the SAIF will be less than the designated reserve ratio of 1.25% of SAIF insured deposits. In setting these increased assessments, the FDIC must seek to restore the reserve ratio to that designated reserve level, or such higher reserve ratio as established by the FDIC. The FDIC may also impose special assessments on SAIF members to repay amounts borrowed from the United States Treasury or for any other reason deemed necessary by the FDIC. In order to equalize the deposit insurance premium schedules for BIF and SAIF insured institutions, the FDIC imposed a one-time special assessment on all SAIF-assessable deposits pursuant to federal legislation passed on September 30, 1996. Wyman Park's special assessment, which was $383,000, was paid in November 1996, and included in federal deposit insurance expense in the fiscal year ended June 30, 1997. Effective January 1, 1997, the premium schedule for BIF and SAIF insured institutions ranged from 0 to 27 basis points. However, SAIF-insured institutions are required to pay a Financing Corporation (FICO) assessment, in order to fund the interest on bonds issued to resolve thrift failures in the 1980s, equal to 6.48 basis points for each $100 in domestic deposits, while BIF- insured institutions pay an assessment equal to 1.52 basis points for each $100 in domestic deposits. The assessment is expected to be reduced to 2.43 no later than January 1, 2000, when BIF insured institutions fully participate in the assessment. These assessments, which may be revised based upon the level of BIF and SAIF deposits will continue until the bonds mature in the year 2017. The Association will continue to be insured by the SAIF following completion of the Conversion. Regulatory Capital Requirements Federally insured savings associations, such as Wyman Park, are required to maintain a minimum level of regulatory capital. The OTS has established capital standards, including a tangible capital requirement, a leverage ratio (or core capital) requirement and a risk-based capital requirement applicable to such savings associations. These capital requirements must be generally as stringent as the comparable capital requirements for national banks. The OTS is also authorized to impose capital requirements in excess of these standards on individual associations on a case-by-case basis. The capital regulations require tangible capital of at least 1.5% of adjusted total assets (as defined by regulation). Tangible capital generally includes common stockholders' equity and retained income, and certain noncumulative perpetual preferred stock and related income. In addition, all intangible assets, other than a limited amount of purchased mortgage servicing rights, must be deducted from tangible capital for calculating compliance with the requirement. At June 30, 1997, the Association did not have any intangible assets. 64 The OTS regulations establish special capitalization requirements for savings associations that own subsidiaries. In determining compliance with the capital requirements, all subsidiaries engaged solely in activities permissible for national banks or engaged in certain other activities solely as agent for its customers are "includable" subsidiaries that are consolidated for capital purposes in proportion to the association's level of ownership. For excludable subsidiaries the debt and equity investments in such subsidiaries are deducted from assets and capital. Wyman Park does not have any non-includable subsidiaries. At June 30, 1997, Wyman Park had tangible capital of $4.8 million, or 7.6% of total assets, which is approximately $3.8 million above the minimum requirement of 1.5% of adjusted total assets in effect on that date. On a pro forma basis, after giving effect to the sale of the minimum, midpoint and maximum number of shares of Common Stock offered in the Conversion and investment of 50% of the net proceeds in assets not excluded for tangible capital purposes, Wyman Park would have had tangible capital equal to 10.5%, 11.0% and 11.6%, respectively, of adjusted total assets at June 30, 1997, which is $5.8 million, $6.2 million and $6.6 million, respectively, above the requirement. The capital standards also require core capital equal to at least 3% of adjusted total assets. Core capital generally consists of tangible capital plus certain intangible assets, including a limited amount of purchased credit card relationships. As a result of the prompt corrective action provisions discussed below, however, a savings association must maintain a core capital ratio of at least 4% to be considered adequately capitalized unless its supervisory condition is such to allow it to maintain a 3% ratio. At June 30, 1997, Wyman Park had no intangibles which were subject to these tests. At June 30, 1997, Wyman Park had core capital equal to $4.8 million, or 7.6% of adjusted total assets, which is $2.9 million above the minimum leverage ratio requirement of 3% as in effect on that date. On a pro forma basis, after giving effect to the sale of the minimum, midpoint and maximum number of shares of Common Stock offered in the Conversion and investment of 50% of the net proceeds in assets not excluded from core capital, Wyman Park would have had core capital equal to 10.5%, 11.0% and 11.6%, respectively, of adjusted total assets at June 30, 1997, which is $4.9 million, $5.3 million and $5.6 million, respectively, above the requirement. The OTS risk-based requirement requires savings associations to have total capital of at least 8% of risk-weighted assets. Total capital consists of core capital, as defined above, and supplementary capital. Supplementary capital consists of certain permanent and maturing capital instruments that do not qualify as core capital and general valuation loan and lease loss allowances up to a maximum of 1.25% of risk-weighted assets. Supplementary capital may be used to satisfy the risk-based requirement only to the extent of core capital. The OTS is also authorized to require a savings association to maintain an additional amount of total capital to account for concentration of credit risk and the risk of non-traditional activities. At June 30, 1997, Wyman Park had $270,000 of general loss reserves, which was less than 1.25% of risk-weighted assets. Certain exclusions from capital and assets are required to be made for the purpose of calculating total capital. Such exclusions consist of equity investments (as defined by regulation) and that portion of land loans and nonresidential construction loans in excess of an 80% loan-to-value ratio and 65 reciprocal holdings of qualifying capital instruments. Wyman Park had no such exclusions from capital and assets at June 30, 1997. In determining the amount of risk-weighted assets, all assets, including certain off-balance sheet items, will be multiplied by a risk weight, ranging from 0% to 100%, based on the risk inherent in the type of asset. For example, the OTS has assigned a risk weight of 50% for prudently underwritten permanent one- to four-family first lien mortgage loans not more than 90 days delinquent and having a loan to value ratio of not more than 80% at origination unless insured to such ratio by an insurer approved by the FNMA or FHLMC. OTS regulations also require that savings associations with more than normal interest rate risk exposure deduct from its total capital, for purposes of determining compliance with such requirement, an amount equal to 50% of its interest-rate risk exposure multiplied by the present value of its assets. This exposure is a measure of the potential decline in the net portfolio value of a savings association, greater than 2% of the present value of its assets, based upon a hypothetical 200 basis point increase or decrease in interest rates (whichever results in a greater decline). Net portfolio value is the present value of expected cash flows from assets, liabilities and off-balance sheet contracts. The rule will not become effective until the OTS evaluates the process by which savings associations may appeal an interest rate risk deduction determination. It is uncertain as to when this evaluation may be completed. Any savings association with less than $300 million in assets and a total risk-based capital ratio in excess of 12% is exempt from this requirement unless the OTS determines otherwise. At the present time, the proposal is not expected to have a material impact on the Association. On June 30, 1997, Wyman Park had total risk-based capital of approximately $5.0 million (including $4.8 million in core capital and $270,000 in qualifying supplementary capital) and risk- weighted assets of $34.3 million; or total capital of 14.6% of risk-weighted assets. This amount was $2.3 million above the 8% requirement in effect on that date. On a pro forma basis, after giving effect to the sale of the minimum, midpoint and maximum number of shares of Common Stock offered in the Conversion, the infusion to the Association of 50% of the net Conversion proceeds and the investment of those proceeds in 20% risk-weighted government securities, Wyman Park would have had total risk- based capital of 20.3%, 21.4% and 22.5%, respectively, of risk-weighted assets, which is above the current 8% requirement by $4.3 million, $4.7 million and $5.1 million, respectively. The OTS and the FDIC are authorized and, under certain circumstances required, to take certain actions against savings associations that fail to meet their capital requirements. The OTS is generally required to take action to restrict the activities of an "undercapitalized association" (generally defined to be one with less than either a 4% core capital ratio, a 4% Tier 1 risked-based capital ratio or an 8% risk-based capital ratio). Any such association must submit a capital restoration plan and until such plan is approved by the OTS may not increase its assets, acquire another institution, establish a branch or engage in any new activities, and generally may not make capital distributions. The OTS is authorized to impose the additional restrictions that are applicable to significantly undercapitalized associations. As a condition to the approval of the capital restoration plan, any company controlling an undercapitalized association must agree that it will enter into a limited capital maintenance guarantee with respect to the institution's achievement of its capital requirements. 66 Any savings association that fails to comply with its capital plan or is "significantly undercapitalized" (i.e., Tier 1 risk-based or core capital ratios of less than 3% or a risk-based capital ratio of less than 6%) must be made subject to one or more of additional specified actions and operating restrictions which may cover all aspects of its operations and include a forced merger or acquisition of the association. An association that becomes "critically undercapitalized" (i.e., a tangible capital ratio of 2% or less) is subject to further mandatory restrictions on its activities in addition to those applicable to significantly undercapitalized associations. In addition, the OTS must appoint a receiver (or conservator with the concurrence of the FDIC) for a savings association, with certain limited exceptions, within 90 days after it becomes critically undercapitalized. Any undercapitalized association is also subject to the general enforcement authority of the OTS and the FDIC, including the appointment of a conservator or a receiver. The OTS is also generally authorized to reclassify an association into a lower capital category and impose the restrictions applicable to such category if the institution is engaged in unsafe or unsound practices or is in an unsafe or unsound condition. The imposition by the OTS or the FDIC of any of these measures on the Association may have a substantial adverse effect on its operations and profitability. Limitations on Dividends and Other Capital Distributions OTS regulations impose various restrictions on savings associations with respect to their ability to make distributions of capital, which include dividends, stock redemptions or repurchases, cash-out mergers and other transactions charged to the capital account. OTS regulations also prohibit a savings association from declaring or paying any dividends or from repurchasing any of its stock if, as a result, the regulatory capital of the association would be reduced below the amount required to be maintained for the liquidation account established in connection with its mutual to stock conversion. See "The Conversion--Effects of Conversion to Stock Form on Depositors and Borrowers of the Association" and "--Restrictions on Repurchase of Stock". Generally, savings associations, such as Wyman Park, that before and after the proposed distribution meet their capital requirements, may make capital distributions during any calendar year equal to the greater of 100% of net income for the year-to-date plus 50% of the amount by which the lesser of the association's tangible, core or risk-based capital exceeds its capital requirement for such capital component, as measured at the beginning of the calendar year, or 75% of their net income for the most recent four quarter period. However, an association deemed to be in need of more than normal supervision by the OTS may have its dividend authority restricted by the OTS. Wyman Park may pay dividends in accordance with this general authority. Savings associations proposing to make any capital distribution need only submit written notice to the OTS 30 days prior to such distribution. Savings associations that do not, or would not meet their current minimum capital requirements following a proposed capital distribution, however, must obtain OTS approval prior to making such distribution. The OTS may object to the distribution during that 30- day period notice based on safety and soundness concerns. See "- Regulatory Capital Requirements." 67 The OTS has proposed regulations that would revise the current capital distribution restrictions. Under the proposal a savings association may make a capital distribution without notice to the OTS (unless it is a subsidiary of a holding company) provided that it has a CAMEL 1 or 2 rating, is not of supervisory concern, and would remain adequately capitalized (as defined in the OTS prompt corrective action regulations) following the proposed distribution. Savings associations that would remain adequately capitalized following the proposed distribution but do not meet the other noted requirements must notify the OTS 30 days prior to declaring a capital distribution. The OTS stated it will generally regard as permissible that amount of capital distributions that do not exceed 50% of the institution's excess regulatory capital plus net income to date during the calendar year. A savings association may not make a capital distribution without prior approval of the OTS and the FDIC if it is undercapitalized before, or as a result of, such a distribution. As under the current rule, the OTS may object to a capital distribution if it would constitute an unsafe or unsound practice. No assurance may be given as to whether or in what form the regulations may be adopted. Liquidity All savings associations, including Wyman Park, are required to maintain an average daily balance of liquid assets equal to a certain percentage of the sum of its average daily balance of net withdrawable deposit accounts and borrowings payable in one year or less. For a discussion of what Wyman Park includes in liquid assets, see "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources." This liquid asset ratio requirement may vary from time to time (between 4% and 10%) depending upon economic conditions and savings flows of all savings associations. At the present time, the minimum liquid asset ratio is 5%. In addition, short-term liquid assets (e.g., cash, certain time deposits, certain bankers acceptances and short-term United States Treasury obligations) currently must constitute at least 1% of the association's average daily balance of net withdrawable deposit accounts and current borrowings. Penalties may be imposed upon associations for violations of either liquid asset ratio requirement. At June 30, 1997, the Association was in compliance with both requirements, with an overall liquid asset ratio of 9.8% and a short-term liquid assets ratio of 4.4%. Qualified Thrift Lender Test All savings associations, including Wyman Park, are required to meet a qualified thrift lender ("QTL") test to avoid certain restrictions on their operations. This test requires a savings association to have at least 65% of its portfolio assets (as defined by regulation) in qualified thrift investments on a monthly average for nine out of every 12 months on a rolling basis. As an alternative, the savings association may maintain 60% of its assets in those assets specified in Section 7701(a)(19) of the Internal Revenue Code. Under either test, such assets primarily consist of residential housing related loans and investments. At June 30, 1997, the Association met the test and has always met the test since its effectiveness. Any savings association that fails to meet the QTL test must convert to a national bank charter, unless it requalifies as a QTL and thereafter remains a QTL. If an association does not requalify and converts to a national bank charter, it must remain SAIF-insured until the FDIC permits it to transfer to 68 the BIF. If such an association has not yet requalified or converted to a national bank, its new investments and activities are limited to those permissible for both a savings association and a national bank, and it is limited to national bank branching rights in its home state. In addition, the association is immediately ineligible to receive any new FHLB borrowings and is subject to national bank limits for payment of dividends. If such association has not requalified or converted to a national bank within three years after the failure, it must divest of all investments and cease all activities not permissible for a national bank. In addition, it must repay promptly any outstanding FHLB borrowings, which may result in prepayment penalties. If any association that fails the QTL test is controlled by a holding company, then within one year after the failure, the holding company must register as a bank holding company and become subject to all restrictions on bank holding companies. See "- Holding Company Regulation." Community Reinvestment Act Under the Community Reinvestment Act ("CRA"), every FDIC insured institution has a continuing and affirmative obligation consistent with safe and sound banking practices to help meet the credit needs of its entire community, including low and moderate income neighborhoods. The CRA 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, consistent with the CRA. The CRA requires the OTS, in connection with the examination of Wyman Park, to assess the institution's record of meeting the credit needs of its community and to take such record into account in its evaluation of certain applications, such as a merger or the establishment of a branch, by Wyman Park. An unsatisfactory rating may be used as the basis for the denial of an application by the OTS. The federal banking agencies, including the OTS, have recently revised the CRA regulations and the methodology for determining an institution's compliance with the CRA. Due to the heightened attention being given to the CRA in the past few years, the Association may be required to devote additional funds for investment and lending in its local community. The Association was examined for CRA compliance in September 1995 and received a rating of satisfactory. Transactions with Affiliates Generally, transactions between a savings association or its subsidiaries and its affiliates are required to be on terms as favorable to the association as transactions with non-affiliates. In addition, certain of these transactions, such as loans to an affiliate, are restricted to a percentage of the association's capital. Affiliates of Wyman Park include the Holding Company and any company which is under common control with the Association. In addition, a savings association may not lend to any affiliate engaged in activities not permissible for a bank holding company or acquire the securities of most affiliates. The OTS has the discretion to treat subsidiaries of savings associations as affiliates on a case by case basis. Certain transactions with directors, officers or controlling persons are also subject to conflict of interest regulations enforced by the OTS. These conflict of interest regulations and other statutes also 69 impose restrictions on loans to such persons and their related interests. Among other things, such loans must generally be made on terms substantially the same as for loans to unaffiliated individuals. Holding Company Regulation The Holding Company will be a unitary savings and loan holding company subject to regulatory oversight by the OTS. As such, the Holding Company is required to register and file reports with the OTS and is subject to regulation and examination by the OTS. In addition, the OTS has enforcement authority over the Holding Company and its non-savings association subsidiaries which also permits the OTS to restrict or prohibit activities that are determined to be a serious risk to the subsidiary savings association. As a unitary savings and loan holding company, the Holding Company generally is not subject to activity restrictions. If the Holding Company acquires control of another savings association as a separate subsidiary, it would become a multiple savings and loan holding company, and the activities of the Holding Company and any of its subsidiaries (other than Wyman Park or any other SAIF-insured savings association) would become subject to such restrictions unless such other associations each qualify as a QTL and were acquired in a supervisory acquisition. If Wyman Park fails the QTL test, the Holding Company must obtain the approval of the OTS prior to continuing after such failure, directly or through its other subsidiaries, any business activity other than those approved for multiple savings and loan holding companies or their subsidiaries. In addition, within one year of such failure the Holding Company must register as, and will become subject to, the restrictions applicable to bank holding companies. The activities authorized for a bank holding company are more limited than are the activities authorized for a unitary or multiple savings and loan holding company. See "--Qualified Thrift Lender Test." The Holding Company must obtain approval from the OTS before acquiring control of any other SAIF-insured association. Such acquisitions are generally prohibited if they result in a multiple savings and loan holding company controlling savings associations in more than one state. However, such interstate acquisitions are permitted based on specific state authorization or in a supervisory acquisition of a failing savings association. Federal Securities Law The stock of the Holding Company will be registered with the SEC under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Holding Company will be subject to the information, proxy solicitation, insider trading restrictions and other requirements of the SEC under the Exchange Act. Holding Company stock held by persons who are affiliates (generally officers, directors and principal stockholders) of the Holding Company may not be resold without registration or unless sold in accordance with certain resale restrictions. If the Holding Company meets specified current public information requirements, each affiliate of the Holding Company is able to sell in the public market, without registration, a limited number of shares in any three-month period. 70 Federal Reserve System The Federal Reserve Board requires all depository institutions to maintain noninterest bearing reserves at specified levels against their transaction accounts (primarily checking, NOW and Super NOW checking accounts). At June 30, 1997, Wyman Park was in compliance with these reserve requirements. The balances maintained to meet the reserve requirements imposed by the Federal Reserve Board may be used to satisfy liquidity requirements that may be imposed by the OTS. See "-- Liquidity." Savings associations are authorized to borrow from the Federal Reserve Association "discount window," but Federal Reserve Board regulations require associations to exhaust other reasonable alternative sources of funds, including FHLB borrowings, before borrowing from the Federal Reserve Association. Federal Home Loan Bank System Wyman Park is a member of the FHLB of Atlanta, which is one of 12 regional FHLBs, that administers the home financing credit function of savings associations. Each FHLB serves as a reserve or central bank for its members within its assigned region. It is funded primarily from proceeds derived from the sale of consolidated obligations of the FHLB System. It makes loans to members (i.e., advances) in accordance with policies and procedures, established by the board of directors of the FHLB, which are subject to the oversight of the Federal Housing Finance Board. All advances from the FHLB are required to be fully secured by sufficient collateral as determined by the FHLB. In addition, all long-term advances are required to provide funds for residential home financing. As a member, Wyman Park is required to purchase and maintain stock in the FHLB of Atlanta. At June 30, 1997, Wyman Park had $510,000 in FHLB stock, which was in compliance with this requirement. In past years, Wyman Park has received substantial dividends on its FHLB stock. Over the past five fiscal years such dividends have averaged 6.5% and were 7.3% for fiscal year 1997. Under federal law the FHLBs are required to provide funds for the resolution of troubled savings associations and to contribute to low- and moderately priced housing programs through direct loans or interest subsidies on advances targeted for community investment and low- and moderate-income housing projects. These contributions have affected adversely the level of FHLB dividends paid and could continue to do so in the future. These contributions could also have an adverse effect on the value of FHLB stock in the future. A reduction in value of Wyman Park's FHLB stock may result in a corresponding reduction in Wyman Park's capital. For the year ended June 30, 1997, dividends paid by the FHLB of Atlanta to Wyman Park totaled $37,000, which was no increase over the amount of dividends received in fiscal year 1996. Federal and State Taxation Savings associations such as Wyman Park that meet certain conditions prescribed by the Internal Revenue Code of 1986, as amended (the "Code"), are permitted to establish reserves for bad debts and 71 to make annual additions thereto which may, within specified formula limits, be taken as a deduction in computing taxable income for federal income tax purposes. The amount of the bad debt reserve deduction is computed under the experience method. Under the experience method, the bad debt reserve deduction is an amount determined under a formula based generally upon the bad debts actually sustained by the savings association over a period of years. In August 1996, legislation was enacted that repealed the percentage of taxable income method used by many thrifts, including the Association, to calculate their bad debt reserve for federal income tax purposes. As a result, small thrifts such as the Association must recapture that portion of the reserve that exceeds the amount that could have been taken under the experience method for tax years beginning after December 31, 1987. The recapture will occur over a six-year period, the commencement of which will be delayed until the first taxable year beginning after December 31, 1997, provided the institution meets certain residential lending requirements. At June 30, 1997, the Association had approximately $39,000 in bad debt reserves subject to recapture for federal income tax purposes. The deferred tax liability related to the recapture has been previously established so there will be no effect on future net income. In addition to the regular income tax, corporations, including savings associations such as Wyman Park, generally are subject to a minimum tax. An alternative minimum tax is imposed at a minimum tax rate of 20% on alternative minimum taxable income, which is the sum of a corporation's regular taxable income (with certain adjustments) and tax preference items, less any available exemption. The alternative minimum tax is imposed to the extent it exceeds the corporation's regular income tax and net operating losses can offset no more than 90% of alternative minimum taxable income. A portion of the Association's reserves for losses on loans may not, without adverse tax consequences, be utilized for the payment of cash dividends or other distributions to a shareholder (including distributions on redemption, dissolution or liquidation) or for any other purpose (except to absorb bad debt losses). As of June 30, 1997, the portion of Wyman Park's reserves subject to this treatment for tax purposes totaled approximately $1.8 million. Wyman Park files federal income tax returns on a fiscal year basis using the accrual method of accounting. The Holding Company does not anticipate filing consolidated federal income tax returns with Wyman Park. Savings associations that file federal income tax returns as part of a consolidated group are required by applicable Treasury regulations to reduce their taxable income for purposes of computing the percentage bad debt deduction for losses attributable to activities of the non-savings association members of the consolidated group that are functionally related to the activities of the savings association member. Wyman Park has been audited by the IRS with respect to federal income tax returns through June, 1996. With respect to years examined by the IRS, either all deficiencies have been satisfied or sufficient reserves have been established to satisfy asserted deficiencies. In the opinion of management, any examination of still open returns (including returns of subsidiaries and predecessors of, or entities merged into, Wyman Park) would not result in a deficiency which could have a material adverse effect on the financial condition of Wyman Park. 72 Maryland Taxation. The State of Maryland generally imposes a franchise tax on thrift institutions computed at a rate of 7% of net earnings. For the purpose of the 7% franchise tax, net earnings are defined as the net income of the thrift institution as determined for federal corporate income tax purposes, plus (i) interest income from obligations of the United States, of any state, including Maryland, and of any country, municipal or public corporation authority, special district or political subdivision of any state, including Maryland, (ii) any profit realized from the sale or exchange of bonds issued by the State of Maryland or any of its political subdivisions, and (iii) any deduction for state income taxes. Delaware Taxation. As a Delaware holding company, the Holding Company is exempted from Delaware corporate income tax but is required to file an annual report with and pay an annual fee to the State of Delaware. The Holding Company is also subject to an annual franchise tax imposed by the State of Delaware. MANAGEMENT Directors and Executive Officers of the Holding Company The Board of Directors of the Holding Company currently consists of nine members, each of whom is also a director of the Association. See "Management - Directors of the Association." Each Director of the Holding Company has served as such since the Holding Company's incorporation in September 1997. Directors of the Holding Company will serve three-year staggered terms so that approximately one-third of the directors will be elected at each annual meeting of stockholders. The terms of the current directors of the Holding Company are the same as their terms as directors of the Association. The Holding Company may consider paying fees to directors. See "- Directors of the Association." 73 The executive officers of the Holding Company are elected annually and hold office until their respective successor has been elected and qualified or until death, resignation or removal by the Board of Directors. The executive officers of the Holding Company, who have held their positions since September 1997, are set forth below. Name Title - ------------------- ------------------------------------------------ Ernest A. Moretti Director, President and Chief Executive Officer Ronald W. Robinson Chief Financial Officer Charmaine M. Snyder Corporate Secretary It is not anticipated that the executive officers of the Holding Company will receive any remuneration in their capacity as Holding Company executive officers. For information regarding compensation of directors and executive officers of the Association, see "- Compensation and Meetings of the Board of Directors of the Association" and "- Executive Compensation." Committees of the Holding Company The Holding Company formed standing Audit and Nominating Committees in connection with its organization in September 1997. The Holding Company committees did not meet during fiscal 1997. The Audit Committee will review audit reports and related matters to ensure effective compliance with regulations and internal policies and procedures. This committee also will act on the recommendation by management of an accounting firm to perform the Holding Company's annual audit and acts as a liaison between the auditors and the Board. The current members of this committee are Directors Heaver, Marsiglia, Salkin and, ex officio, Mr. Moretti. The Nominating Committee will meet annually in order to nominate candidates for membership on the Board of Directors. This committee is comprised of the Board members who are not up for election. Indemnification The Certificate of Incorporation of the Holding Company provides that a director or officer of the Holding Company shall be indemnified by the Holding Company to the fullest extent authorized by the Delaware General Corporation Law against all expenses, liability and loss reasonably incurred or suffered by such person in connection with his activities as a director or officer or as a director or officer of another company, if the director or officer held such position at the request of the Holding Company. Delaware law requires that such director, officer, employee or agent, in order to be indemnified, must have acted in good faith and in a manner reasonably believed to be not opposed to the best interests of the Holding Company and, with respect to any criminal action or proceeding, either had reasonable cause to believe such conduct was lawful or did not have reasonable cause to believe his conduct was unlawful. 74 The Certificate of Incorporation and Delaware law also provide that the indemnification provisions of such Certificate and the statute are not exclusive of any other right which a person seeking indemnification may have or later acquire under any statute, provision of the Certificate of Incorporation, Bylaws of the Holding Company, agreement, vote of stockholders or disinterested directors or otherwise. These provisions may have the effect of deterring shareholder derivative actions, since the Holding Company may ultimately be responsible for expenses for both parties to the action. A similar effect would not be expected for third-party claims. In addition, the Certificate of Incorporation and Delaware law also provide that the Holding Company may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Holding Company or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Holding Company has the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law. The Holding Company intends to obtain such insurance. Directors of the Association Upon completion of the Conversion, each of the directors of the Association will continue to serve as a director of the converted Association. The Board of Directors of the Association currently consists of nine directors. The directors are divided into three classes. Approximately one-third of the directors are elected at each annual meeting of stockholders. Because the Holding Company will own all of the issued and outstanding shares of capital stock of the Association after the Conversion, directors of the Holding Company will elect the directors of the Association. Term of Director Office Name Age(1) Position(s) Held Since Expires ---- ------ ---------------- ----- ------- Allan B. Heaver 45 Chairman of the Board 1983 1998 Ernest A. Moretti 56 Director, President and Chief 1989 1999 Executive Officer H. Douglas Huether 71 Director 1965 1998 John K. White 65 Director 1987 1999 John R. Beever 64 Director 1984 1997 Albert M. Copp 62 Director 1992 1997 Gilbert D. Marsiglia, Sr. 59 Director 1988 1997 Jay H. Salkin 58 Director 1995 1998 G. Scott Barhight 40 Director 1996 1999 - -------- (1) At June 30, 1997. 75 The business experience of each director is set forth below. All directors have held their present positions for at least the past five years, except as otherwise indicated. Allan B. Heaver. Since 1986, Mr. Heaver has served as the Managing General Partner of Heaver Properties, a commercial real estate management/development company. Ernest A. Moretti. Mr. Moretti is President and Chief Executive Officer of the Association, a position he has held since 1989. M. Douglas Huether. Since 1970, Mr. Huether has served as President of Independent Can Company, a metal can manufacturing company and is currently Chairman of the Board. John K. White. For over 25 years prior to his retirement, Mr. White served as Executive Vice President and is a current member of the Board of Directors of the Baltimore Life Insurance Company and Life of Maryland Insurance. John R. Beever. Since 1967, Mr. Beever has served as President and Chairman of the Board of John Dittmar & Sons, Inc., a manufacturer of architectural woodwork. Albert M. Copp. Since 1991, Mr. Copp has served as the Director of Strategic Business Development for Whitney, Bailey, Cox & Magnani, a civil/structural engineering company. Gilbert D. Marsiglia, Sr. Mr. Marsiglia is the President of the real estate brokerage firm of Gilbert D. Marsiglia & Co., Inc., a position he has held since 1973. Jay H. Salkin. Since 1981, Mr. Salkin has served as Senior Vice President - Branch Manager of Advest, Inc., an investment brokerage company. G. Scott Barhight. Mr. Barhight has been a partner with the law firm of Whiteford, Taylor & Preston, LLP since 1992. Executive Officers Who are not Directors Each of the executive officers of the Association will retain his or her office following the Conversion. Officers are elected annually by the Board of Directors of the Association. The business experience of the executive officers who are not also directors is set forth below. Ronald W. Robinson. Mr. Robinson, age 52, currently serves as Treasurer of the Association. Mr. Robinson has been employed by the Association since 1990. Charmaine M. Snyder. Ms. Snyder, age 40, serves as the Association's Corporate Secretary and Loan Servicing Manager. Ms. Snyder has been employed by the Association since 1976. 76 Meetings and Committees of the Board of Directors The Association's Board of Directors meets at least monthly. During the fiscal year ended June 30, 1997, the Board of Directors held 13 meetings. No director attended fewer than 75% of the total meetings of the Board of Directors and committees on which such Board member served during this period. The Association has standing Loan, Marketing, Pension, Audit and Compensation Committees, as well as an Executive Loan Committee and Executive Committee for Strategic Planning. The Loan Committee meets on an as-needed basis for the purpose of reviewing and acting upon all commercial loan applications up to $250,000 and residential loan applications up to $250,000 (or up to $500,000 if the loan meets certain conditions). This committee met 2 to 3 times a week during fiscal 1997 and is comprised Offrs. Moretti and Robinson. The Marketing Committee meets quarterly for the purpose of reviewing and implementing marketing strategies. This committee met six times during fiscal 1997 and is comprised of Directors Beever, Copp, Heaver, Marsiglia, and Moretti. The Pension Committee meets on an as-needed basis for the of reviewing and discussing retirement matters effecting the Association's personnel. This committee did not meet during fiscal 1997. Its members are Directors Heaver, Huether, Moretti and White. The Audit Committee meets annually with the Association's accounting firm in order to review the annual audit. This committee met once in fiscal 1997 and is comprised of Directors Heaver, Marsiglia, Moretti and Salkin. The Compensation Committee meets on an as-needed basis, but at least once during a fiscal year for the purpose of reviewing officers' salaries and bonuses. This committee met 3 times during fiscal 1997. The members of this committee are Directors Copp, Heaver, Huether, Moretti and White. The Executive Loan Committee meets on an as-needed basis, but at least once a month, for the purpose of reviewing the purchase and sale of investments as well as acting upon those loan applications outside the authority of the Loan Committee. This committee met 12 times during fiscal 1997. Its members are Directors Heaver, Salkin, Moretti and White as well as two other directors on a rotating basis. The Executive Committee for Strategic Planning meets on an as-needed basis. This committee sets the direction of the Association's business plan and oversees the progress in meeting stated goals. This committee also decides the implementation of new products for the Association and makes other major recommendations to the Board of Directors. This committee met 3 times in fiscal 1997 and is composed of Directors Heaver, Barhight, Beever, Huether, Moretti and Salkin. 77 Director Compensation Each director of the Association is currently paid a fee of $575 for each regular meeting attended. Non-employee directors receive committee fees of $175 for each meeting attended. Employee directors do not receive fees for participation on any committees. Executive Compensation The following table sets forth information concerning the compensation paid or granted to the Association's Chief Executive Officer and each executive officer who made in excess of $100,000 during fiscal 1997. No executive officer of the Holding Company received cash compensation in excess of $100,000 in fiscal 1997.
Summary Compensation Table ------------------------------------------------------ Long-Term Compensation Annual Compensation Awards ------------------- ----------------------- Restricted Name and Principal Other Annual Stock Options/ All Other Position Year(1) Salary($) Bonus($) Compensation($) Award($) SARs(#) Compensation($)(2) ------------------ ------- --------- -------- --------------- -------- ------- ------------------ Ernest A. Moretti 1997 $115,000 $23,000 $--- $ --- ---/--- $10,550 President, Chief Executive Officer and Director
- ----------- (1) In accordance with the revised rules on executive officer and director compensation disclosure adopted by the Securities and Exchange Commission, Summary Compensation information is excluded for the years ended June 30, 1996 and 1995, as the Association was not a public company during such periods. (2) Includes $5,000 of life, health and disability premiums paid by the Association, $3,900 paid by the Association in discretionary contributions pursuant to the Association's 401(k) Plan and the value of a car provided to Mr. Moretti of $1,650. Employment Agreement. The Association has had, since 1989, an employment contract with its President, Ernest A. Moretti. The agreement provides for a salary of $115,000, contains bonus provisions tied to the Association's performance and has a term of three years (subject to an annual extension for an additional year following an annual performance review). The key terms of this agreement are expected to be incorporated into a new agreement which also provides that under certain circumstances, including a change in control, Mr. Moretti would be entitled, subject to certain limitations, to a severance payment in lieu of salary equal to a percentage of his base amount of compensation, as defined. Benefit Plans General. Wyman Park currently provides insurance benefits to its employees, including health, life, dental, disability and major medical insurance, subject to certain deductibles and copayments by employees. Additionally the Association provides its employee with a defined benefit retirement plan and 401(k) plan. Pension Plan. The Association makes available to all full-time employees who have attained the age of 21 and completed at least one year of service with Wyman Park, a defined benefit noncontributory pension plan. The pension plan provides for monthly payments to or on behalf of each covered employee upon the employee's retirement at age 65. These payments are calculated 78 in accordance with a formula based on the employee's "average monthly compensation," which is defined as the highest average of total compensation for the last five consecutive calendar years of employment. The following table sets forth, as of June 30, 1997, estimated annual retirement benefits for individuals at age 65 payable in the form of a combined ten-year certain and life annuity payment under the most advantageous plan provisions for various levels of compensation and years of service. Such payments are not subject to offset for social security benefits. The figures in this table are based upon the assumption that the Pension Plan continues in its present form and does not reflect benefits payable under the ESOP. At June 30, 1997, the estimated credited years of services of Mr. Moretti was 7 years. Pension Plan Table - ----------------------------------------------------------------------- Years of Credited Service -------------------------------------------------- High-Five Average Compensation 10 Years 15 Years 20 Years 25 Years 30 Years ------------ -------- -------- -------- -------- -------- ======================================================================= 401(k) Plan. The Association provides its employees a qualified, tax-exempt pension plan with a "cash-or-deferred arrangement" qualifying under Section 401(k) of the Internal Revenue Code (the "401(k) Plan"). Employees who have attained age 21 and who have completed one year of employment, during which they worked at least 1,000 hours, are eligible to participate in the 401(k) Plan as of the first-day of the month following their eligibility date. Eligible employees are permitted to contribute up to 15% of their compensation to the 401(k) Plan on a pre-tax basis, up to a maximum of $9,500. The Association matches 50% of the first 3% of each participant's salary reduction contribution to the 401(k) Plan. Participant contributions to the 401(k) Plan are fully and immediately vested. Withdrawals are not permitted before age 59 1/2 except in the event of death, disability, termination of employment or reasons of proven financial hardship. With certain limitations, participants may make withdrawals from their accounts while actively employed. Upon termination of employment, the participant's accounts will be distributed, unless he or she elects to defer the payment. The 401(k) Plan may be amended by the Board of Directors, except that no amendment may be made which would reduce the interest of any participant in the 401(k) Plan trust fund or divert any of the assets of the 401(k) Plan trust fund to purposes other than the benefit of participants or their beneficiaries. During fiscal 1997, the Association made $13,060 in contributions to the 401(k) Plan. Employee Stock Ownership Plan. The Boards of Directors of Wyman Park and the Holding Company have approved the adoption of an ESOP for the benefit of employees of the Holding Company and its subsidiaries, including Wyman Park. The ESOP is designed to meet the requirements of an employee stock ownership plan as described at Section 4975(e)(7) of the Code and Section 407(d)(6) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). The ESOP may borrow in order to finance purchases of the Holding Company's Common Stock. 79 It is anticipated that the ESOP will be funded with a loan from the Holding Company (not to exceed an amount equal to 8% of the gross conversion proceeds). The Holding Company intends to apply to the OTS to permit it to lend funds to the ESOP. In the event the Holding Company is not permitted to lend funds to the ESOP and the ESOP is unable to obtain financing from an unrelated lender for its stock purchase, the Holding Company may contribute funds to the ESOP to enable it purchase up to 3% of the shares of Common Stock in the Conversion; provided, however that the total contributions of the Holding Company to the ESOP and RRPs for stock purchases in the Conversion may not exceed 4% of the Common Stock sold in the Conversion. GAAP generally requires that any borrowing by the ESOP from an unaffiliated lender be reflected as a liability in the Holding Company's consolidated financial statements, whether or not such borrowing is guaranteed by, or constitutes a legally binding contribution commitment of, the Holding Company or the Association. The funds used to acquire the ESOP shares are expected to be borrowed from the Holding Company. If the Holding Company finances the ESOP debt, the ESOP debt will be eliminated through consolidation and no liability will be reflected on the Holding Company's consolidated financial statements. In addition, shares purchased with borrowed funds will, to the extent of the borrowings, be excluded from stockholders' equity, representing unearned compensation to employees for future services not yet performed. Consequently, if the ESOP purchases already-issued shares in the open market, the Holding Company's consolidated liabilities will increase to the extent of the ESOP's borrowings, and total and per share stockholders' equity will be reduced to reflect such borrowings. If the ESOP purchases newly issued shares from the Holding Company, total stockholders' equity would neither increase nor decrease, but per share stockholders' equity and per share net income would decrease because of the increase in the number of outstanding shares. In either case, as the borrowings used to fund ESOP purchases are repaid, total stockholders' equity will correspondingly increase. All employees of the Association are eligible to participate in the ESOP after they attain age 21 and complete one year of service. Employees will be credited for years of service to the Association prior to the adoption of the ESOP for participation and vesting purposes. The Association's contribution to the ESOP is allocated among participants on the basis of compensation. Each participant's account will be credited with cash and shares of Holding Company Common Stock based upon compensation earned during the year with respect to which the contribution is made. Contributions credited to a participant's account are vested on a graduated basis and become fully vested when such participant completes ten years of service. ESOP participants are en titled to receive distributions from their ESOP accounts only upon termination of service. Distributions will be made in cash and in whole shares of the Holding Company's Common Stock. Fractional shares will be paid in cash. Participants will not incur a tax liability until a distribution is made. Each participating employee is entitled to instruct the trustee of the ESOP as to how to vote the shares allocated to his or her account. The trustee will not be affiliated with the Holding Company or Wyman Park. The ESOP may be amended by the Board of Directors, except that no amendment may be made which would reduce the interest of any participant in the ESOP trust fund or divert any of the assets of the ESOP trust fund to purposes other than the benefit of participants or their beneficiaries. Other Stock Benefit Plans. In addition to the ESOP and the employment agreements, in the future the Holding Company may consider the implementation of a stock option plan ("Stock Option Plan") and recognition and retention plan ("RRP") for the benefit of selected directors, officers and employees of the Holding Company and the Association. Any such stock option plan or RRP will not be implemented within one year of the date of the consummation of the Conversion, subject to continuing OTS jurisdiction. If a determination is made to implement a stock option plan or RRP, it is anticipated that any such plans will be submitted to stockholders for their consideration at which time stockholders would be provided with detailed 80 information regarding such plan. If such plans are approved, and affected, they will have a dilutive effect on the Holding Company's stockholders as well as affect the Holding Company's net income and stockholders' equity, although the actual results cannot be determined until such plans are implemented. Indebtedness of Management The Association has followed a policy of granting loans to officers and directors. Loans to directors and executive officers are made in the ordinary course of business and on the same terms and conditions as those of comparable transactions with the general public prevailing at the time, in accordance with the Association's underwriting guidelines, and do not involve more than the normal risk of collectibility or present other unfavorable features. All loans by the Association to its directors and executive officers are subject to OTS regulations restricting loan and other transactions with affiliated persons of the Association. Federal law currently requires that all loans to directors and executive officers generally be made on terms and conditions comparable to those for similar transactions with non-affiliates. Loans to all directors and executive officers and their associates totaled $477,500 at June 30, 1997, which was 10.1% of the Association's equity capital at that date. All loans to directors and executive officers were performing in accordance with their terms at June 30, 1997. THE CONVERSION The Board of Directors of the Association and the OTS have approved the Plan of Conversion. OTS approval does not constitute a recommendation or endorsement of the Plan of Conversion. Certain terms used in the following summary of the material terms of the Conversion are defined in the Plan of Conversion, a copy of which may be obtained by contacting Wyman Park. General The Board of Directors of the Association has adopted the Plan, subject to approval by the OTS and the members of the Association. Pursuant to the Plan, the Association is to be converted from a federally chartered mutual savings association to a federally chartered stock savings association, with the concurrent formation of a holding company. The OTS has approved the Plan, subject to its approval by the affirmative vote of the members of the Association holding not less than a majority of the total number of votes eligible to be cast at a special meeting called for that purpose (the "Special Meeting"), to be held on _______, 1997. The Conversion will be accomplished through amendment of the Association's federal charter to authorize capital stock, at which time the Association will become a wholly owned subsidiary of the Holding Company. The Conversion will be accounted for as a pooling of interests. Subscription Rights have been granted to Eligible Account Holders as of March 31, 1996, the Tax- Qualified Employee Plans of the Association and Holding Company, Supplemental Eligible Account Holders as of September 30, 1997, other members, and officers, directors and employees of the Association. Additionally, members of the general public may be afforded the opportunity to subscribe for Holding Company Common Stock in a direct Community Offering, with a preference to natural persons who reside in Baltimore and Anne Arundel Counties, Maryland. See "- Offering of Holding Company Common Stock." Depending upon market conditions, any shares not initially subscribed for in the Subscription and Community Offering may be offered for sale on a best efforts basis by a selling group of broker-dealers. Subscriptions for shares will be subject to the maximum and minimum purchase limitations set forth in the Plan of Conversion. 81 Business Purposes Wyman Park has several business purposes for the Conversion. The sale of Holding Company Common Stock will have the immediate result of providing the Association with additional equity capital in order to support the Association's existing operating strategies, subject to applicable regulatory restrictions. The sale of the Common Stock is the most effective means of increasing the Association's permanent capital and does not involve the high interest cost and repayment obligation of subordinated debt. In addition, investment of that part of the net Conversion proceeds paid by the Holding Company to the Association is expected to provide additional operating income to further increase the Association's capital on a continuing basis. The Board of Directors of the Association believes that a holding company structure could facilitate the acquisition of other savings institutions in the future as well as other companies. If a multiple holding company structure is utilized in a future acquisition, the acquired savings institution would be able to operate on a more autonomous basis as a wholly owned subsidiary of the Holding Company rather than as a division of the Association. For example, the acquired savings institution could retain its own directors, officers and corporate name as well as having representation on the Board of Directors of the Holding Company. As of the date hereof, there are no plans or understandings regarding the acquisition of any other institutions. The Board of Directors of the Association also believes that a holding company structure can facilitate the diversification of the Association's business activities. While the potential for diversification will be maximized if a unitary holding company structure is utilized because the types of business activities permitted to a unitary holding company are broader than those of a multiple holding company, either type of holding company may engage in a broader range of activities than may a thrift institution directly. Currently, there are no plans that the Holding Company engage in any material activities apart from holding the shares of the Association and investing the remaining net proceeds from the sale of Common Stock in the Conversion. The preferred stock and additional common stock of the Holding Company being authorized in the Conversion will be available for future acquisitions and for issuance and sale to raise additional equity capital, generally without stockholder approval, but subject to market conditions. Although the Holding Company currently has no plans with respect to future issuances of equity securities, the more flexible operating structure provided by the Holding Company and the stock form of ownership is expected to assist the Association in competing more aggressively with other financial institutions in its principal market area. The Conversion will structure the Association in the stock form used in the United States by all commercial banks, most major business corporations and an increasing number of savings institutions. The Conversion will permit the Association's members to become stockholders of the Holding Company, thereby allowing members to own stock in the financial organization in which they maintain deposit accounts or with which they have a borrowing relationship. Such ownership should encourage members to promote the Association to others, thereby further contributing to the Association's earnings potential. The Association is also expected to benefit from its management and employees owning stock, because stock ownership is viewed as an effective performance incentive and a means of attracting, retaining and compensating personnel. Effects of Conversion to Stock Form on Depositors and Borrowers of the Association Voting Rights. Deposit account holders will have no voting rights in the converted Association or the Holding Company and will therefore not be able to elect directors of either entity or to control their affairs. These rights are currently accorded to deposit account holders with regard to the Association. Subsequent to Conversion, voting rights will be vested exclusively in the Holding Company as the sole stockholder of the 82 Association. Voting rights as to the Holding Company will be held exclusively by its stockholders. Each purchaser of Holding Company Common Stock shall be entitled to vote on any matters to be considered by the Holding Company stockholders. A stockholder will be entitled to one vote for each share of Common Stock owned, subject to certain limitations applicable to holders of 10% or more of the shares of the Common Stock. See "Description of Capital Stock." Deposit Accounts and Loans. The general terms of the Association's deposit accounts, the balances of the individual accounts and the existing FDIC insurance coverage will not be affected by the Conversion. Furthermore, the Conversion will not affect the loan accounts, the balances of these accounts, or the obligations of the borrowers under their individual contractual arrangements with the Association. Tax Effects. The Association has received an opinion from Silver, Freedman & Taff, L.L.P. with regard to federal income taxation, and an opinion from Wooden & Benson, Chartered with regard to Maryland taxation, to the effect that the adoption and implementation of the Plan of Conversion set forth herein will not be taxable for federal or Maryland tax purposes to the Association or the Holding Company. See "- Income Tax Consequences." Liquidation Rights. The Association has no plans to liquidate, either before or subsequent to the completion of the Conversion. However, if there should ever be a complete liquidation, either before or after Conversion, deposit account holders would receive the protection of insurance by the FDIC up to applicable limits. Subject thereto, liquidation rights before and after Conversion would be as follows: Liquidation Rights in Present Mutual Institution. In addition to the protection of FDIC insurance up to applicable limits, in the event of a complete liquidation of the Association, each holder of a deposit account in the Association in its present mutual form would receive his or her pro rata share of any assets of the Association remaining after payment of claims of all creditors (including the claims of all depositors in the amount of the withdrawal value of their accounts). Such holder's pro rata share of such remaining assets, if any, would be in the same proportion of such assets as the balance in his or her deposit account was to the aggregate balance in all deposit accounts in the Association at the time of liquidation. Liquidation Rights in Proposed Converted Institution. After Conversion, each deposit account holder, in the event of a complete liquidation of the Association, would have a claim of the same general priority as the claims of all other general creditors of the Association in addition to the protection of FDIC insurance up to applicable limits. Therefore, except as described below, the deposit account holder's claim would be solely in the amount of the balance in his or her deposit account plus accrued interest. The holder would have no interest in the assets of the Association above that amount. The Plan of Conversion provides that there shall be established, upon the completion of the Conversion, a special "liquidation account" for the benefit of Eligible Account Holders and Supplemental Eligible Account Holders (i.e., depositors at March 31, 1996 and September 30, 1997) in an amount equal to the net worth of the Association as of the date of its latest statement of financial condition contained in the final prospectus relating to the sales of shares of Holding Company Common Stock in the Conversion. Each Eligible Account Holder and Supplemental Eligible Account Holder would have an initial interest in such liquidation account for each deposit account held in the Association on the applicable record date. A deposit account holder's interest as to each deposit account would be in the same proportion of the total liquidation account as the balance in his or her account on the applicable record date, was to the aggregate balance in all deposit accounts of Eligible Account Holders and/or Supplemental Eligible Account Holders on such dates. For deposit accounts in existence on both dates separate subaccounts shall be determined on the basis of the qualifying deposits in such deposit accounts on such record dates. However, if the amount in the deposit account on any annual closing date of the Association is less than the lowest amount in such account on March 31, 1996 or 83 September 30, 1997 and on any subsequent closing date (each March 31st and September 30th), then the account holder's interest in this special liquidation account would be reduced by an amount proportionate to any such reduction, and the account holder's interest would cease to exist if such deposit account were closed. In addition, the interest in the special liquidation account would never be increased despite any increase in the balance of the account holders' related accounts after Conversion, and could only decrease. Any assets remaining after the above liquidation rights of Eligible Account Holders and Supplemental Eligible Account Holders were satisfied would be distributed to the Holding Company as the sole stockholder of the Association. No merger, consolidation, purchase of bulk assets with assumption of deposit accounts and other liabilities, or similar transaction, whether the Association, as converted, or another SAIF-insured institution is the surviving institution, is deemed to be a complete liquidation for purposes of distribution of the liquidation account and, in any such transaction, the liquidation account would be assumed to the full extent authorized by regulations of the OTS as then in effect. The OTS has stated that the consummation of a transaction of the type described in the preceding sentence in which the surviving entity is not a SAIF-insured institution would be reviewed on a case-by-case basis to determine whether the transaction should constitute a "complete liquidation" requiring distribution of any then remaining balance in the liquidation account. While the Association believes that such a transaction should not constitute a complete liquidation, there can be no assurance that the OTS will not adopt a contrary position. Common Stock. For information as to the characteristics of the Common Stock to be issued under the Plan of Conversion, see "Dividends" and "Description of Capital Stock." Common Stock issued under the Plan of Conversion cannot, and will not, be insured by the FDIC or any other governmental agency. The Association will continue, immediately after completion of the Conversion, to provide its services to depositors and borrowers pursuant to its existing policies and will maintain the existing management and employees of the Association. Other than for payment of expenses incident to the Conversion, no assets of the Association will be distributed in the Conversion. Wyman Park will continue to be a member of the FHLB System, and its deposit accounts will continue to be insured by the FDIC. The affairs of Wyman Park will continue to be directed by the existing Board of Directors and management. Offering of Holding Company Common Stock Under the Plan of Conversion, 805,000 shares of Holding Company Common Stock will be offered for sale, subject to certain restrictions described below, initially through a Subscription Offering. Federal conversion regulations require, with certain exceptions, that at least the minimum number of shares offered in a conversion be sold in order for the conversion to become effective. The Subscription and Community Offering will expire at 12:00 noon, Lutherville, Maryland time, on _______, 1997 (the "Subscription Expiration Date") unless extended by the Association and the Holding Company. Regulations of the OTS require that all shares to be offered in the Conversion be sold within a period ending not more than 45 days after the Subscription Expiration Date (or such longer period as may be approved by the OTS) or, despite approval of the Plan of Conversion by members, the Conversion will not be effected and Wyman Park will remain in mutual form. This period expires on _________, 1997, unless extended with the approval of the OTS. If the Subscription and Community Offering is extended beyond _________, 1997, all subscribers will have the right to modify or rescind their subscriptions and to have their subscription funds returned promptly with interest. In the event that the Conversion is not effected, all 84 funds submitted and not previously refunded pursuant to the Subscription and Community Offering will be promptly refunded to subscribers with interest at the Association's current passbook rate, and all withdrawal authorizations will be terminated. Stock Pricing and Number of Shares to be Issued Federal regulations require that the aggregate purchase price of the securities of a thrift institution sold in connection with its conversion must be based on an appraised aggregate market value of the institution as converted (i.e., taking into account the expected receipt of proceeds from the sale of the securities in the conversion), as determined by an independent valuation. Ferguson, which is experienced in the valuation and appraisal of business entities, including thrift institutions involved in the conversion process, was retained by the Association to prepare an appraisal of the estimated pro forma market value of the Association and the Holding Company upon Conversion. Ferguson will receive a fee of approximately $12,000 for its appraisal. The Association has agreed to indemnify Ferguson under certain circumstances against liabilities and expenses (including legal fees) arising out of, related to, or based upon the Conversion. Ferguson has prepared an appraisal of the estimated pro forma market value of the Association as converted. The Ferguson appraisal concluded that, at ________, 1997, an appropriate range for the estimated pro forma market value of the Association and the Holding Company was from a minimum of $5,950,000 to a maximum of $8,050,000 with a midpoint of $7,000,000. Assuming that the shares are sold at $10.00 per share in the Conversion, the estimated number of shares to be issued in the Conversion is expected to be between 595,000 and 805,000. The Purchase Price of $10.00 was determined by discussion among the Boards of Directors of the Association, the Holding Company and Ferguson, taking into account, among other factors, (i) the requirement under OTS regulation that the Common Stock be offered in a manner that would achieve the widest distribution of shares and (ii) liquidity in the Common Stock subsequent to the Conversion. The appraisal involved a comparative evaluation of the operating and financial statistics of the Association with those of other thrift institutions. The appraisal also took into account such other factors as the market for thrift institution stocks generally, prevailing economic conditions, both nationally and in Maryland which affect the operations of thrift institutions, the competitive environment within which the Association operates and the effect of the Association becoming a subsidiary of the Holding Company. No detailed individual analysis of the separate components of the Holding Company's and the Association's assets and liabilities was performed in connection with the evaluation. The Plan of Conversion requires that all of the shares subscribed for in the Subscription and Community Offering be sold at the same price per share. The Board of Directors reviewed and discussed with Ferguson the appraisal, including the methodology and the appropriateness of the assumptions utilized and determined that in its opinion the Appraisal was not unreasonable. The Estimated Valuation Range may be amended with the approval of the OTS in connection with changes in the financial condition or operating results of the Association or market conditions generally. As described below, an amendment to the Estimated Valuation Range would not be made without a resolicitation of subscriptions and/or proxies except in limited circumstances. If, upon completion of the Subscription and Community Offering, at least the minimum number of shares are subscribed for, Ferguson, after taking into account factors similar to those involved in its prior Appraisal, will determine its estimate of the pro forma market value of the Association and the Holding Company upon Conversion, as of the close of the Subscription and Community Offering. If, based on the estimate of Ferguson, the aggregate pro forma market value is not within the Estimated Valuation Range, Ferguson, upon the consent of the OTS, will determine a new Estimated Valuation 85 Range ("Amended Valuation Range"). If the aggregate pro forma market value of the Association as converted and the Holding Company has increased in the Amended Valuation Range to an amount that does not exceed $9,257,500 (i.e., 15% above the maximum of the Estimated Valuation Range), then the number of shares to be issued may be increased to accommodate such increase in value without a resolicitation of subscriptions and/or proxies. In such event the Association and the Holding Company do not intend to resolicit subscriptions and/or proxies unless the Association and the Holding Company then determine, after consultation with the OTS, that circumstances otherwise require such a resolicitation. If, however, the aggregate pro forma market value of the Holding Company and the Association, as converted, at that time is less than $5,950,000 or more than $9,257,500, a resolicitation of subscribers and/or proxies may be made, the Plan of Conversion may be terminated or such other actions as the OTS may permit may be taken. In the event that upon completion of the Subscription and Community Offering, the pro forma market value of the Holding Company and Association, as converted, is below $5,950,000 or above $9,257,500 (15% above the maximum of the Estimated Valuation Range), the Holding Company intends to file the revised appraisal with the SEC by post-effective amendment to its Registration Statement on Form SB-2. See "Additional Information." If the Plan of Conversion is terminated, all funds would be returned promptly with interest at the rate of the Association's current passbook rate, and holds on funds authorized for withdrawal from deposit accounts would be released. If there is a resolicitation of subscriptions, subscribers will be given the opportunity to cancel or change their subscriptions and to the extent subscriptions are so canceled or reduced, funds will be returned with interest at the Association's current passbook savings rate, and holds on funds authorized for withdrawal from deposit accounts will be released or reduced. Unless there is a resolicitation, stock subscriptions received by the Holding Company and the Association may not be withdrawn by the subscriber and, if accepted by the Holding Company and the Association, are final. If the Conversion is not completed prior to _________, 1999 (two years after the date of the Special Meeting), the Plan of Conversion will automatically terminate. Any increase in the total number of shares of Common Stock to be offered in the Conversion will dilute a subscriber's percentage ownership interest and will reduce the pro forma net income and net worth on a per share basis. A decrease in the number of shares to be issued in the Conversion will increase a subscriber's proportionate ownership interest and will increase both pro forma net income and net worth on a per share basis while decreasing that amount on an aggregate basis. No sale of the shares will take place unless, prior thereto, Ferguson confirms to the OTS that, to the best of Ferguson's knowledge and judgment, nothing of a material nature has occurred which would cause Ferguson to conclude that the actual Purchase Price on an aggregate basis is incompatible with its estimate of the aggregate pro forma market value of the Holding Company and the Association as converted at the time of the sale. If, however, the facts do not justify such a statement, the Subscription and Community Offering or other sale may be canceled, or a new Estimated Valuation Range set and a new offering held. In preparing its valuation of the pro forma market value of the Association and the Holding Company upon Conversion, Ferguson relied upon and assumed the accuracy and completeness of all financial and statistical information provided by the Association and the Holding Company. Ferguson also considered information based upon other publicly available sources which it believes are reliable. However, Ferguson does not guarantee the accuracy and completeness of such information and did not independently verify the financial statements and other data provided by the Association and the Holding Company or independently value the assets or liabilities of the Association and the Holding Company. The appraisal is not intended to be, and must not be interpreted as, a recommendation of any kind as to the advisability of voting to approve the Conversion or of purchasing shares of Common Stock. The appraisal considers Wyman Park and the Holding Company only as going concerns and should not be considered as any indication of the liquidation value of Wyman Park or the Holding Company. Moreover, the appraisal is necessarily based on many factors which change from time to time. There can be no assurance that persons who purchase shares in the Conversion will be able to sell such shares at prices at or above the Purchase Price. 86 Subscription Offering In accordance with OTS regulations, nontransferable Subscription Rights have been granted under the Plan of Conversion to the following persons in the following order of priority: (1) Eligible Account Holders (deposit account holders of the Association as of March 31, 1996; (2) Tax-Qualified Employee Plans; (3) Supplemental Eligible Account Holders (deposit account holders of the Association as of September 30, 1997; (4) Other Members (certain borrowers and depositors of the Association, other than Eligible Account Holders or Supplemental Eligible Account Holders at the close of business on _________, 1997, the voting record date for the Special Meeting); and (5) officers, directors and employees of the Association. All subscriptions received will be subject to the availability of Holding Company Common Stock after satisfaction of all subscriptions of all persons having prior rights in the Subscription Offering, and to the maximum and minimum purchase limitations set forth in the Plan of Conversion. The preference categories are more fully described below. Category No. 1 is reserved for the Association's Eligible Account Holders. Subscription Rights to purchase shares under this category will be allocated among Eligible Account Holders to permit each such depositor to purchase shares in an amount equal to the greater of $100,000 of Common Stock or one-tenth of one percent (.10%) of the total shares offered in the Subscription and Community Offering, 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 deposits of the Eligible Account Holder and the denominator is the total amount of the qualifying deposits of all Eligible Account Holders in the Association, in each case on the Eligibility Record Date, subject to the overall purchase limitation and exclusive of shares issued pursuant to an increase in the Estimated Valuation Range of up to 15% after satisfying the subscriptions of Tax-Qualified Employee Plans. To the extent shares are oversubscribed in this category, shares shall be allocated among subscribing Eligible Account Holders to permit each such depositor, to the extent possible, to purchase a number of shares sufficient to make his total allocations equal 100 shares. Any shares not so allocated shall be allocated among the subscribing Eligible Account Holders pro rata in the same proportion that each such subscriber's Qualifying Deposit, as defined in the Plan of Conversion, bears to the total Qualifying Deposits of all subscribing Eligible Account Holders whose subscriptions remain unsatisfied. Category No. 2 provides for the issuance of Subscription Rights to Tax-Qualified Employee Plans to purchase up to 10% of the total amount of shares of Common Stock issued in the Subscription and Community Offering on a second priority basis. However, such plans shall not, in the aggregate, purchase more than 10% of the Holding Company Common Stock issued. The ESOP intends to purchase a total of 8% of the Common Stock issued in the Conversion under this category. Subscription Rights received pursuant to this category shall be subordinated to all rights received by Eligible Account Holders to purchase shares pursuant to Category No. 1; provided, however, that notwithstanding any provision of the Plan of Conversion to the contrary, the Tax-Qualified Employee Plans shall have first priority Subscription Rights to the extent that the total number of shares of Common Stock sold in the Conversion exceeds the maximum of the Estimated Valuation Range. Category No. 3 is reserved for the Association's Supplemental Eligible Account Holders. Subscription Rights to purchase shares under this category will be allocated among Supplemental Eligible Account Holders to permit each such depositor to purchase shares in an amount equal to the greater of $100,000, one-tenth of one percent (.10%) of the total shares of Common Stock offered in the Conversion, 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 deposit of the Supplemental Eligible Account Holders in the converting Association in each case on December 31, 1996 (the 87 "Supplemental Eligibility Record Date"), subject to the overall purchase limitation after satisfying the subscriptions of Eligible Account Holders and Tax Qualified Employee Plans. In the event of an oversubscription for shares, the shares available shall be allocated first to permit each subscribing Supplemental Eligible Account Holder, to the extent possible, to purchase a number of shares sufficient to make his total allocation (including the number of shares, if any, allocated in accordance with Category No. 1) equal to 100 shares, and thereafter among each subscribing Supplemental Eligible Account Holder pro rata in the same proportion that his Qualifying Deposit bears to the total Qualifying Deposits of all subscribing Supplemental Eligible Account Holders whose subscriptions remain unsatisfied. Category No. 4 provides, to the extent that shares are then available after satisfying the subscriptions of Eligible Account Holders, Tax-Qualified Employee Plans and Supplemental Eligible Account Holders, for the issuance of Subscription Rights to Other Members to purchase shares equal to the greater of $100,000 of Common Stock or one-tenth of one percent (.10%) of the total amount of shares of Common Stock offered in the Subscription and Community Offering. In the event of an oversubscription, the available shares will be allocated on a pro rata basis in the same proportion as a subscriber's total votes on the Voting Record Date for the Special Meeting bears to the total votes of all subscribing Other Members on such date. Each depositor (including IRA and Keogh account beneficiaries) is entitled at the Special Meeting to cast one vote for each $100, or fraction thereof, of the aggregate withdrawal value of all of such depositor's savings accounts in the Association as of the applicable voting record date, up to a maximum of 1,000 votes. Each borrower member of the Association as of the Voting Record Date will be entitled to cast one vote as a borrower member. Category No. 5 provides for the issuance of Subscription Rights to officers, directors and employees of the Association, to purchase up to $100,000 of Common Stock to the extent that shares are available after satisfying the subscriptions of eligible subscribers in preference Categories 1, 2, 3 and 4. The total number of shares which may be purchased under this Category may not exceed 24% of the total number of shares sold in the Conversion. In the event of an oversubscription, the available shares will be allocated on a pro rata basis in the same proportion that orders of each person bear to the total orders of all subscribers in this Category. Community Offering To the extent that shares remain available for purchase after satisfaction of all subscriptions received and accepted in the Subscription Offering, the Association may offer shares pursuant to the Plan to certain members of the general public in the Community Offering with a preference given to natural persons residing in Baltimore and Anne Arundel Counties, Maryland. Any excess of shares available will be available for purchase by the general public in such a manner as to promote a wide distribution of the Common Stock. Finally, depending on market conditions, the Association may offer shares to the general public in a Syndicated Community Offering on a best efforts basis through a selected dealer arrangement. The opportunity to subscribe for shares of Common Stock in the Community Offering (including a Syndicated Community Offering, if any) is subject to the right of the Association and the Holding Company, in their sole discretion, to accept or reject any such orders in whole or in part either at the time of receipt of an order or as soon as practicable following the Subscription Expiration Date. Regulations of the OTS require that all shares to be offered in the Conversion be sold within a period ending not more than 45 days after the Subscription Expiration Date (or such longer period as may be approved by the OTS). This period expires on May 30, 1997 unless extended with the approval of the OTS. In addition, if the Subscription and Community Offering is extended beyond _________, 1997 all subscribers will be resolicited and notified of their rights to confirm, modify or rescind their subscriptions and to have their subscription funds returned promptly with interest. No person, together with associates of and persons acting in concert with such 88 person, may purchase more than $100,000 of Common Stock in the Community Offering. Subject to the foregoing, in the event of an oversubscription in the Community Offering, shares will be allocated first to cover orders of natural persons residing in Shelby County, next to cover orders of other persons (whose order is accepted by the Association) so that such person may receive up to 1,000 shares and thereafter, to the extent shares remain available, on a pro rata basis in the same proportion that unfilled orders of each person bears to the total unfilled orders of all persons. Additional Purchase Restrictions In addition to the purchase limitations for each priority category described above under "Subscription Offering" and for purchases in the Public Offering, the Plan also provides for certain additional limitations to be placed upon the aggregate purchase of shares in the Conversion. Specifically, no person (other than a Tax- Qualified Employee Plan or certain large depositors) by himself or herself or with an associate, and no group of persons acting in concert or persons on a single account, may subscribe for or purchase more than $100,000 of Common Stock offered in the Conversion based on the Estimated Valuation Range, without regard to an increase in the number of shares to be issued. For purposes of this limitation, an associate of a person does not include a Tax-Qualified Employee Plan or Non-Tax Qualified Employee Plan in which the person has a substantial beneficial interest or serves as a trustee or in a similar fiduciary capacity. Moreover, for purposes of this paragraph, shares held by one or more Tax Qualified or Non-Tax Qualified Employee Plans attributed to a person shall not be aggregated with shares purchased directly by or otherwise attributable to that person except for that portion of a plan which is self-directed by a person. See "-Stock Pricing and Number of Shares to be Issued" regarding potential changes in Subscription Rights in the event of a decrease in the number of shares to be issued in the Conversion. Officers and directors and their associates may not purchase, in the aggregate, more than 34% of the shares to be sold in the Conversion. For purposes of the Plan, the members of the Board of Directors are not deemed to be acting in concert solely by reason of their Board membership. For purposes of this limitation, an associate of an officer or director does not include a Tax-Qualified Employee Plan. Moreover, any shares attributable to the officers and directors and their associates, but held by a Tax- Qualified Employee Plan (other than that portion of a plan which is self-directed) shall not be included in calculating the number of shares which may be purchased under the limitations in this paragraph. Shares purchased by employees who are not officers or directors of the Association, or their associates, are not subject to this limitation. The term "associate" is used above to indicate any of the following relationships with a person: (i) any corporation or organization (other than the Holding Company or the Association or a majority-owned subsidiary of the Holding Company or the Association) of which a person is an officer or partner or is, directly or indirectly, the beneficial owner of 10% or more of any class of equity security; (ii) any trust or other estate in which such person has a substantial beneficial interest or as to which such person serves as trustee or in a similar fiduciary capacity; and (iii) any relative or spouse of such person or any relative of such spouse who has the same home as such person or who is a director or officer of the Holding Company or the Association or any subsidiary of the Holding Company or the Association. The Boards of Directors of the Holding Company and the Association, in their sole discretion, may increase the maximum purchase limitations referred to above up to 9.99% of the total shares sold in the Subscription and Community Offering, provided that the percentage by which each such order exceeds 5% of the shares being offered in the Subscription and Community Offering shall not exceed, in the aggregate, 10% of the shares being offered in the Subscription and Community Offering. Requests to purchase additional shares of Holding Company Common Stock under this provision will be allocated by the Boards of Directors on a pro rata basis giving priority in accordance with the priority rights set forth above. Depending on market and financial conditions, the Boards of Directors of the Holding Company and the Association, with the approval of the OTS and without further approval of the members, may increase any of the above purchase limitations or decrease the maximum purchase limitation to as low as 1% of the shares of Common Stock offered in the Conversion. 89 To the extent that shares are available, each subscriber must subscribe for a minimum of 25 shares. In computing the number of shares to be allocated, all numbers will be rounded down to the next whole number. Common Stock purchased in the Conversion will be freely transferable except for shares purchased by executive officers and directors of the Association or the Holding Company. See "- Restrictions on Transfer of Subscription Rights and Shares." Marketing Arrangements Wyman Park and the Holding Company have retained Trident Securities, which is a broker-dealer registered with the Securities and Exchange Commission and a member of the NASD, to act as selling agent and to advise and consult with respect to the distribution of shares in the Subscription and Community Offering. Trident Securities has no obligation to purchase the Common Stock in the Conversion. Trident Securities will assist Wyman Park and the Holding Company in the Subscription and Community Offering with respect to, but not limited to, the following: (1) training and educating Wyman Park's employees regarding the mechanics and regulatory requirements of the Stock Conversion and offering process; (2) conducting informational meetings for subscribers and other potential purchasers; (3) keeping records of all stock subscriptions; (4) organizing and staffing the Stock Information Center; and (5) otherwise assisting in the sale of stock in the Subscription and Community Offering. For their services, Trident Securities will receive (i) a fee of 1.85% of the aggregate dollar amount of stock sold in the Subscription and Community Offering, excluding purchases by directors, officers, employees and their immediate family members, and employee stock ownership and benefit plans to investors who reside in the State of Maryland; (ii) a fee of 1.40% of the aggregate dollar amount of stock sold in the Subscription and Community Offering, excluding purchases by directors, officers, employees and their immediate family members, and employee stock ownership and benefit plans to investors who reside outside the State of Maryland; (iii) reasonable out-of-pocket expenses not to exceed $12,000; and (iv) fees and expenses for Trident Securities' counsel (not to exceed $34,000). For purposes of calculating Trident Securities fee, it is assumed that the amount of stock sold in the Conversion will not exceed the midpoint of the appraisal value of the Holding Company. The Holding Company has agreed to indemnify Trident Securities against certain claims or liabilities, including certain liabilities under the Securities Act of 1933, as amended, including indemnification for damages arising from material misstatements or material omissions based upon information supplied by the Holding Company or the Association. In addition, directors and executive officers of the Holding Company and the Association, may to a limited extent, participate in the solicitation of offers to purchase Common Stock. Other employees of the Association may participate in the Subscription and Community Offering in administrative capacities, providing clerical work in effecting a sales transaction or answering questions of a potential purchaser provided that the content of the employee's responses is limited to information contained in the Prospectus or other offering document. Other questions of prospective purchasers will be directed to registered representatives. Such other employees have been instructed not to solicit offers to purchase Common Stock or provide advice regarding the purchase of Common Stock. Sales of Common Stock by directors, executive officers and registered representatives will be made from the Stock Information Center. The Holding Company will rely on Rule 3a4-1 under the Exchange Act, and sales of Common Stock will be conducted within the requirements of Rule 3a4-1, so as to permit officers, directors and employees to participate in the sale of Common Stock. No officer, director or employee of the Holding Company or Association will be compensated in connection with his participation by the payment of commissions or other remuneration based either directly or indirectly on the transactions in the Common Stock. 90 Method of Payment for Subscriptions To purchase shares in the Subscription and Community Offering, an executed original Order Form, including the certification form (facsimile and photocopies will not be accepted) with the required payment for each share subscribed for, or with appropriate authorization for withdrawal from the subscriber's deposit account at the Association (which may be given by completing the appropriate blanks in the order form), must be received by the Holding Company at an office of the Association by 12:00 noon, Lutherville, Maryland time on __________, 1997, the Subscription Expiration Date. Order Forms which are not received by such time or are executed defectively or altered or are received without full payment (or appropriate withdrawal instructions) are not required to be accepted. Payment for subscriptions may be made (i) in cash if delivered in person at the office of the Association, (ii) by check, bank draft or money order or (iii) by authorization of withdrawal from deposit accounts maintained with the Association. Interest will be paid on payments made by cash, check, bank draft or money order, whether or not the Conversion is completed or terminated, at the regular passbook rate of ___% per annum from the date payment is received until the completion or termination of the Conversion. If payment is made by authorization of withdrawal from deposit accounts, the funds authorized to be withdrawn from a deposit account will continue to accrue interest at the contractual rates until completion or termination of the Conversion, but a hold will be placed on such funds, thereby making them unavailable to the depositor until completion or termination of the Conversion. Under no circumstances will the Association accept wire transfers for payment of subscription orders. If a subscriber authorizes the Association to withdraw the amount of the purchase price from his certificate account, the Association will do so as of the effective date of Conversion. The Association will waive any applicable penalties for early withdrawal from certificate accounts. If the remaining balance in a certificate account is reduced below the applicable minimum balance requirement at the time that the funds actually are transferred under the authorization, the rate paid on the remaining balance of the certificate account will earn interest at the then-current passbook rate. If the ESOP subscribes for shares during the Subscription Offering, the ESOP will not be required to pay for the shares subscribed for at the time it subscribes, but rather, may pay for such shares of Common Stock subscribed for at the Purchase Price upon consummation of the Conversion, provided that there is in force from the time of its subscription until such time a loan commitment to lend to the ESOP, at such time, the aggregate Purchase Price of the shares for which it subscribed. Certificates representing shares of Common Stock purchased will be mailed to purchasers at the last address of such persons appearing on the records of the Holding Company, or to such other address as may be specified in properly completed order forms, as soon as practicable following consummation of the sale of all shares of Common Stock. Any certificates returned as undeliverable will be disposed of in accordance with applicable law. To ensure that each purchaser receives a prospectus at least 48 hours prior to the Expiration Date in accordance with Rule 15c2-8 under the Exchange Act, no prospectus will be mailed any later than five days prior to such date or hand delivered any later than two days prior to such date. Execution of the order form will confirm receipt or delivery in accordance with Rule 15c2-8. Order forms will only be distributed with a prospectus. The Holding Company will accept for processing only orders submitted on original order forms with the form of certification. Photocopies or facsimile copies of order forms or certifications will not be accepted. Payment by cash, check, money order, bank draft or debit authorization to an existing account at the Association must accompany the order form. No wire transfers will be accepted. 91 In order to ensure that Eligible Account Holders, Supplemental Eligible Account Holders and Other Members receive their stock purchase priorities, depositors as of the Eligibility Record Date (March 31, 1996), the Supplemental Eligibility Record Date (September 30, 1997) and/or the Voting Record Date (__________, 1997) must list all accounts on the stock order form giving all names on each account and the account number as of the applicable record date. In addition to the foregoing, if shares are offered through selected dealers in the Community Offering, a purchaser may pay for his shares with funds held by or deposited with a selected dealer. If an order form is executed and forwarded to the selected dealer or if the selected dealer is authorized to execute the order form on behalf of a purchaser, the selected dealer is required to forward the order form and funds to the Holding Company for deposit in a segregated account at the Association on or before noon of the business day following receipt of the order form or execution of the order form by the selected dealer. Alternatively, selected dealers may solicit indications of interest from their customers and thereafter seek their confirmation as to their intent to purchase. Those indicating an intent to purchase shall forward executed order forms and certifications to their selected dealer or authorize the selected dealer to execute such forms. The selected dealer will acknowledge receipt of the order to its customer in writing on the following business day and will debit such customer's account on the third business day after the customer has confirmed his intent to purchase (the "debit date") and on or before noon of the next business day following the debit date will send order forms and funds to the Holding Company for deposit in a segregated account at the Association. If such alternative procedure is employed, purchasers' funds are not required to be in their accounts with selected dealers until the debit date. Restrictions on Transfer of Subscription Rights and Shares Prior to the completion of the Conversion, the OTS conversion regulations prohibit any person with Subscription Rights, including the Tax-Qualified Employee Plans, Eligible Account Holders, Supplemental Eligible Account Holders and Other Members of the Association, from transferring or entering into any agreement or understanding to transfer the legal or beneficial ownership of the Subscription Rights issued under the Plan or the shares of Common Stock to be issued upon their exercise. Such rights may be executed only by the person to whom they are granted and only for his account. Each person exercising Subscription Rights will be required to certify that he is purchasing shares solely for his own account and that he has no agreement or understanding regarding the sale or transfer of such shares. The regulations also prohibit any person from offering or making an announcement of an offer or intent to make an offer to purchase Subscription Rights or shares of Common Stock prior to the completion of the Conversion. The Association and the Holding Company may pursue any and all legal and equitable remedies in the event they become aware of the transfer of Subscription Rights and will not honor orders known by them to involve the transfer of such rights. Except as to directors and executive officers of the Association and the Holding Company, the shares of Common Stock sold in the Conversion will be freely transferable. Shares purchased by directors, executive officers or their associates in the Conversion shall be subject to the restrictions that said shares shall not be sold during the period of one year following the date of purchase, except in the event of the death of the stockholder. Accordingly, stock certificates issued by the Holding Company to directors, executive officers and associates shall bear a legend giving appropriate notice of such restriction and, in addition, the Holding Company will give appropriate instructions to the transfer agent for the Holding Company's Common Stock with respect to the applicable restriction upon transfer of any restricted shares. Any shares issued at a later date as a stock dividend, stock split or otherwise, to holders of restricted stock, shall be subject to the same restrictions that may apply to such restricted stock. Holding Company Common Stock (like the stock of most companies) is subject to the requirements of the Securities Act of 1933, as amended (the "Securities Act"). Accordingly, the Holding 92 Company's Common Stock may be offered and sold only in compliance with registration requirements or pursuant to an applicable exemption from registration. Holding Company's Common Stock received in the Conversion by persons who are not "affiliates" of the Holding Company may be resold without registration. Shares received by affiliates of the Holding Company (primarily the directors, officers and principal stockholders of the Holding Company) will be subject to the resale restrictions of Rule 144 under the Securities Act. Rule 144 generally requires that there be publicly available certain information concerning the Holding Company, and that sales thereunder be made in routine brokerage transactions or through a market maker. If the conditions of Rule 144 are satisfied, each affiliate (or group of persons acting in concert with one or more affiliates) is entitled to sell in the public market, without registration, in any three-month period, a number of shares which does not exceed the greater of (i) 1% of the number of outstanding shares of Holding Company stock, or (ii) if the stock is admitted to trading on a national securities exchange or reported through the automated quotation system of a registered securities bank, the average weekly reported volume of trading during the four weeks preceding the sale. Participation by the Board and Executive Officers The directors and executive officers of Wyman Park have indicated their intention to purchase in the Conversion an aggregate of $600,000 of Common Stock, equal to 10.1%, 8.6%, 7.5% or 6.5% of the number of shares to be issued in the Subscription and Community Offering, at the minimum, midpoint, maximum and 15% above the maximum of the Estimated Valuation Range, respectively. The following table sets forth information regarding Subscription Rights to Common Stock intended to be exercised by each of the directors of the Association, including members of their immediate family and their IRAs, and by all directors and executive officers as a group. The following table assumes that 805,000 shares is the maximum and 700,000 is the midpoint of the Estimated Valuation Range, of Common Stock are issued at the Purchase Price of $10.00 per share and that sufficient shares will be available to satisfy the subscriptions indicated. The table does not include shares to be purchased through the ESOP (8% of shares issued in the Conversion).
Number of Aggregate Shares at Percent of Purchase $10.00 Shares at Name Title Price per Share Midpoint ---- ----- ----- --------- -------- Ernest A. Moretti............... President, Chief Executive Officer and Director $100,000 10,000 1.4% Allan B. Heaver................. Chairman of the Board 70,000 7,000 1.0 H. Douglas Huether.............. Director 75,000 7,500 1.1 John K. White................... Director 50,000 5,000 .7 John R. Beever.................. Director 70,000 7,000 1.0 Albert M. Copp.................. Director 50,000 5,000 .7 Gilbert D. Marsiglia, Sr. ...... Director 35,000 3,500 .5 Jay H. Salkin................... Director 100,000 10,000 1.4 G. Scott Barhight............... Director 50,000 5,000 .7 All directors and officers as a group (13 persons)...... $650,000 65,000 9.3
Risk of Delayed Offering The completion of the sale of all unsubscribed shares in the Subscription and Community Offering will depend, in part, upon the Association's operating results and market conditions at the time of the 93 Subscription and Community Offering. Under the Plan of Conversion, all shares offered in the Conversion must be sold within a period ending 24 months from the date of the Special Meeting. While the Association and the Holding Company anticipate completing the sale of shares offered in the Conversion within this period, if the Board of Directors of the Association and the Holding Company are of the opinion that economic conditions generally or the market for publicly traded thrift institution stocks make undesirable a sale of the Holding Company's Common Stock, then the Subscription and Community Offering may be delayed until such conditions improve. A material delay in the completion of the sale of all unsubscribed shares in the Subscription and Community Offering may result in a significant increase in the costs of completing the Conversion. Significant changes in the Association's operations and financial condition, the aggregate market value of the shares to be issued in the Conversion and general market conditions may occur during such material delay. In the event the Conversion is not consummated within 24 months after the date of the Special Meeting of Members, the Association would charge accrued Conversion costs to then current period operations. Approval, Interpretation, Amendment and Termination All interpretations of the Plan of Conversion, as well as the completeness and validity of order forms and stock order and account withdrawal authorizations, will be made by the Association and the Holding Company and will be final, subject to the authority of the OTS and the requirements of applicable law. The Plan of Conversion provides that, if deemed necessary or desirable by the Boards of Directors of the Association and the Holding Company, the Plan of Conversion may be substantively amended (including an amendment to eliminate the formation of the Holding Company as part of the Conversion) by the Boards of Directors of the Association and the Holding Company, as a result of comments from regulatory authorities or otherwise, at any time with the concurrence of the OTS. In the event the Plan of Conversion is substantially amended, other than a change in the maximum purchase limits set forth herein, the Holding Company intends to notify subscribers of the change and to permit subscribers to modify or cancel their subscriptions. The Plan of Conversion will terminate if the sale of all shares is not completed within 24 months after the date of the Special Meeting of Members. The Plan of Conversion may be terminated by the Boards of Directors of the Holding Company and the Association with the concurrence of the OTS, at any time. A specific resolution approved by a two-thirds vote of the Boards of Directors of the Holding Company and the Association would be required to terminate the Plan of Conversion prior to the end of such 24-month period. Restrictions on Repurchase of Stock For a period of three years following Conversion, the Holding Company may not repurchase any shares of its capital stock, except in the case of an offer to repurchase on a pro rata basis made to all holders of capital stock of the Holding Company. Any such offer shall be subject to the prior approval of the OTS. Furthermore, the Holding Company may not repurchase any of its stock (i) if the result thereof would be to reduce the regulatory capital of the Association below the amount required for the liquidation account to be established pursuant to OTS regulations and (ii) except in compliance with the requirements of the OTS' capital distribution rule. The above limitations are subject to the OTS conversion rules which generally provide that the Holding Company may repurchase its capital stock provided (i) no repurchases occur within one year following the Conversion (subject to certain exceptions), (ii) repurchases during the second and third year after conversion are part of an open market stock repurchase program that does not allow for a repurchase of more than 5% of the Holding Company's outstanding capital stock during a 12-month period, (iii) the repurchases do not cause the Association to become undercapitalized, and (iv) the Holding Company provides notice to the OTS at lease 10 days prior to the commencement of a repurchase program and the OTS does not object to such regulations. 94 In addition, the above limitations do not preclude repurchases of capital stock by the Holding Company in the event applicable federal regulatory limitations are subsequently liberalized. Income Tax Consequences Consummation of the Conversion is expressly conditioned upon prior receipt by the Association of either a ruling from the IRS or an opinion of Silver, Freedman & Taff, L.L.P. with respect to federal taxation, and an opinion of Wooden & Benson, Chartered with respect to Maryland taxation, to the effect that consummation of the Conversion will not be taxable to the converted Association or the Holding Company. The full text of the Silver, Freedman & Taff, L.L.P. opinion, the Ferguson Letter and the Wooden & Benson, Chartered opinion, which opinions are summarized herein, were filed with the SEC as exhibits to the Holding Company's Registration Statement on Form SB-2. See "Additional Information." An opinion which is summarized below has been received from Silver, Freedman & Taff, L.L.P. with respect to the proposed Conversion of the Association to the stock form. The Silver, Freedman & Taff, L.L.P. opinion states that (i) the Conversion will qualify as a reorganization under Section 368(a)(1)(F) of the Internal Revenue Code of 1986, as amended, and no gain or loss will be recognized to the Association in either its mutual form or its stock form by reason of the proposed Conversion, (ii) no gain or loss will be recognized to the Association in its stock form upon the receipt of money and other property, if any, from the Holding Company for the stock of the Association; and no gain or loss will be recognized to the Holding Company upon the receipt of money for Common Stock of the Holding Company; (iii) the assets of the Association in either its mutual or its stock form will have the same basis before and after the Conversion; (iv) the holding period of the assets of the Association in its stock form will include the period during which the assets were held by the Association in its mutual form prior to Conversion; (v) gain, if any, will be realized by the depositors of the Association upon the constructive issuance to them of withdrawable deposit accounts of the Association in its stock form, nontransferable subscription rights to purchase Holding Company Common Stock and/or interests in the Liquidation Account (any such gain will be recognized by such depositors, but only in an amount not in excess of the fair market value of the subscription rights and Liquidation Account interests received); (vi) the basis of the account holder's savings accounts in the Association after the Conversion will be the same as the basis of his or her savings accounts in the Association prior to the Conversion; (vii) the basis of each account holder's interest in the Liquidation Account is assumed to be zero; (viii) based on the Ferguson Letter, as hereinafter defined, the basis of the subscription rights will be zero; (ix) the basis of the Holding Company Common Stock to its stockholders will be the purchase price thereof; (x) a stockholder's holding period for Holding Company Common Stock acquired through the exercise of subscription rights shall begin on the date on which the subscription rights are exercised and the holding period for the Conversion Stock purchased in the Subscription and Community Offering will commence on the date following the date on which such stock is purchased; (xi) the Association in its stock form will succeed to and take into account the earnings and profits or deficit in earnings and profits, of the Association, in its mutual form, as of the date of Conversion; (xii) the Association, immediately after Conversion, will succeed to and take into account the bad debt reserve accounts of the Association, in mutual form, and the bad debt reserves will have the same character in the hands of the Association after Conversion as if no Conversion had occurred; and (xiii) the creation of the Liquidation Account will have no effect on the Association's taxable income, deductions or addition to reserve for bad debts either in its mutual or stock form. The opinion from Silver, Freedman & Taff, L.L.P. is based, among other things, on certain assumptions, including the assumptions that the exercise price of the Subscription Rights to purchase Holding Company Common Stock will be approximately equal to the fair market value of that stock at the time of the completion of the proposed Conversion. With respect to the Subscription Rights, the Association will receive a letter from Ferguson (the "Ferguson Letter") which, based on certain assumptions, will conclude that the Subscription Rights to be received by Eligible Account Holders, Supplemental Eligible Account Holders and 95 other eligible subscribers do not have any economic value at the time of distribution or at the time the Subscription Rights are exercised, whether or not a Public Offering takes place. The Association has also received an opinion of Silver, Freedman & Taff, L.L.P. to the effect that, based in part on the Ferguson Letter: (i) no taxable income will be realized by depositors as a result of the exercise of non-transferable Subscription Rights to purchase shares of Holding Company Common Stock at fair market value; (ii) no taxable income will be recognized by borrowers, directors, officers and employees of the Association on the receipt or exercise of Subscription Rights to purchase shares of Holding Company Common Stock at fair market value; and (iii) no taxable income will be realized by the Association or Holding Company on the issuance of Subscription Rights to eligible subscribers to purchase shares of Holding Company Common Stock at fair market value. Notwithstanding the Ferguson Letter, if the Subscription Rights are subsequently found to have a fair market value and are deemed a distribution of property, it is Silver, Freedman & Taff, L.L.P.'s opinion that gain or income will be recognized by various recipients of the Subscription Rights (in certain cases, whether or not the rights are exercised) and the Association and/or the Holding Company may be taxable on the distribution of the Subscription Rights. In any event, all recipients are encouraged to consult with their own tax advisors as to the tax consequences which may result. With respect to Maryland taxation, the Association has received an opinion from Wooden & Benson, Chartered to the effect that the Maryland tax consequences to the Association, in its mutual or stock form, the Holding Company, eligible account holders, parties receiving subscription rights, parties purchasing conversion stock, and other parties participating in the Conversion will be the same as the federal income tax consequences described above. Unlike a private letter ruling, the opinions of Silver, Freedman & Taff, L.L.P. and Wooden & Benson, Chartered, as well as the Ferguson Letter, 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 Maryland State tax authorities. RESTRICTIONS ON ACQUISITIONS OF STOCK AND RELATED TAKEOVER DEFENSIVE PROVISIONS Although the Boards of Directors of the Association and the Holding Company are not aware of any effort that might be made to obtain control of the Holding Company after Conversion, the Board of Directors, as discussed below, believes that it is appropriate to include certain provisions as part of the Holding Company's certificate of incorporation to protect the interests of the Holding Company and its stockholders from takeovers which the Board of Directors of the Holding Company might conclude are not in the best interests of the Association, the Holding Company or the Holding Company's stockholders. The following discussion is a general summary of material provisions of the Holding Company's certificate of incorporation and bylaws and certain other regulatory provisions which may be deemed to have an "anti-takeover" effect. The following description of certain of these provisions is necessarily general and, with respect to provisions contained in the Holding Company's certificate of incorporation and bylaws and the Association's proposed federal stock charter and bylaws, reference should be made in each case to the document in question, each of which is part of the Association's Conversion Application filed with the OTS and the Holding Company's Registration Statement filed with the SEC. See "Additional Information." 96 Provisions of the Holding Company's Certificate of Incorporation and Bylaws Directors. Certain provisions of the Holding Company's certificate of incorporation and bylaws will impede changes in majority control of the Board of Directors. The Holding Company's certificate of incorporation provides that the Board of Directors of the Holding Company will be divided into three classes, with directors in each class elected for three-year staggered terms except for the initial directors. Thus, assuming a Board of nine directors, it would take two annual elections to replace a majority of the Holding Company's Board. The Holding Company's bylaws provide that the size of the Board of Directors may be in creased or decreased only by a majority vote of the whole Board or by a vote of 80% of the shares eligible to be voted at a duly constituted meeting of stockholders called for such purpose. The bylaws also provide that any vacancy occurring in the Board of Directors, including a vacancy created by an increase in the number of directors, shall be filled for the remainder of the unexpired term by a majority vote of the directors then in office. Finally, the bylaws impose certain notice and information requirements in connection with the nomination by stockholders of candidates for election to the Board of Directors or the proposal by stockholders of business to be acted upon at an annual meeting of stockholders. The certificate of incorporation provides that a director may only be removed for cause by the affirmative vote of 80% of the shares eligible to vote. Restrictions on Call of Special Meetings. The certificate of incorporation of the Holding Company provides that a special meeting of stockholders may be called only pursuant to a resolution of the Board of Directors and for only such business as directed by the Board. Stockholders are not authorized to call a special meeting. Absence of Cumulative Voting. The Holding Company's certificate of incorporation does not provide for cumulative voting rights in the election of directors. Authorization of Preferred Stock. The certificate of incorporation of the Holding Company authorizes 500,000 shares of serial preferred stock, $.01 par value. The Holding Company is authorized to issue preferred stock from time to time in one or more series subject to applicable provisions of law, and the Board of Directors is authorized to fix the designations, powers, preferences and relative participating, optional and other special rights of such shares, including voting rights (which could be multiple or as a separate class) and conversion rights. In the event of a proposed merger, tender offer or other attempt to gain control of the Holding Company that the Board of Directors does not approve, it might be possible for the Board of Directors to authorize the issuance of a series of preferred stock with rights and preferences that would impede the completion of such a transaction. An effect of the possible issuance of preferred stock, therefore, may be to deter a future takeover attempt. The Board of Directors has no present plans or understandings for the issuance of any preferred stock and does not intend to issue any preferred stock except on terms which the Board deems to be in the best interests of the Holding Company and its stockholders. Limitation on Voting Rights. The certificate of incorporation of the Holding Company provides that in no event shall any record owner of any outstanding Common Stock which is beneficially owned, directly or indirectly, by a person who beneficially owns in excess of 10% of the then outstanding shares of Common Stock (the "Limit"), be entitled or permitted to have any vote in respect of the shares held in excess of the Limit. This limitation would not inhibit any person from soliciting (or voting) proxies from other beneficial owners for more than 10% of the Common Stock or from voting such proxies. Beneficial ownership is to be determined pursuant to Rule 13d-3 of the General Rules and Regulations of the Exchange Act, and in any event includes shares beneficially owned by any affiliate of such person, shares which such person or his affiliates (as defined in the certificate of incorporation) have the right to acquire upon the exercise of conversion rights or options and shares as to which such person and his affiliates have or share investment or voting power. Directors and 97 officers of the Holding Company by reason of their acting in such capacity, shall not be deemed to beneficially own any shares owned by any other director or officer. This provision will be enforced by the Board of Directors to limit the voting rights of persons beneficially owning more than 10% of the stock and thus could be utilized in a proxy contest or other solicitation to defeat a proposal that is desired by a majority of the stockholders. Procedures for Certain Business Combinations. The Holding Company's certificate of incorporation requires that certain business combinations (including transactions initiated by management) between the Holding Company (or any majority-owned subsidiary thereof) and a 10% or more stockholder either (i) be approved by at least 80% of the total number of outstanding voting shares, voting as a single class, of the Holding Company, (ii) be approved by two-thirds of the continuing Board of Directors (i.e., persons serving prior to the 10% stockholder becoming such) or (iii) involve consideration per share generally equal to that paid by such 10% stockholder when it acquired its block of stock. It should be noted that since the Board and executive officers intend to purchase approximately $600,000 of the shares offered in the Conversion and may control the voting of additional shares through the ESOP, the Board and management may be able to block the approval of combinations requiring an 80% vote even where a majority of the stockholders vote to approve such combinations. Amendment to Certificate of Incorporation and Bylaws. Amendments to the Holding Company's certificate of incorporation must be approved by the Holding Company's Board of Directors and also by a majority of the outstanding shares of the Holding Company's voting stock, provided, however, that approval by at least 80% of the outstanding voting stock is generally required for certain provisions (i.e., provisions re lating to number, classification, election and removal of directors; amendment of bylaws; call of special stockholder meetings; offers to acquire and acquisitions of control; director liability; certain business combinations; power of indemnification; and amendments to provisions relating to the foregoing in the certificate of incorporation). The bylaws may be amended by a majority vote of the Board of Directors or the affirmative vote of at least 80% of the total votes eligible to be voted at a duly constituted meeting of stockholders. Purpose and Takeover Defensive Effects of the Holding Company's Certificate of Incorporation and Bylaws. The Board of Directors of the Association believes that the provisions described above are prudent and will reduce the Holding Company's vulnerability to takeover attempts and certain other transactions which have not been negotiated with and approved by its Board of Directors. These provisions will also assist the Association in the orderly deployment of the Conversion proceeds into productive assets during the initial period after the Conversion. The Board of Directors believes these provisions are in the best interest of the Association and of the Holding Company and its stockholders. In the judgment of the Board of Directors, the Holding Com pany's Board will be in the best position to determine the true value of the Holding Company and to negotiate more effectively for what may be in the best interests of its stockholders. Accordingly, the Board of Directors believes that it is in the best interests of the Holding Company and its stockholders to encourage potential acquirors to negotiate directly with the Board of Directors of the Holding Company and that these provisions will encourage such negotiations and discourage hostile takeover attempts. It is also the view of the Board of Directors that these provisions should not discourage persons from proposing a merger or other transaction at prices reflective of the true value of the Holding Company and which is in the best interests of all stockholders. Attempts to take over financial institutions and their holding companies have recently become increasingly common. Takeover attempts which have not been negotiated with and approved by the Board of Directors present to stockholders the risk of a takeover on terms which may be less favorable than might otherwise be available. A transaction which is negotiated and approved by the Board of Directors, on the other 98 hand, can be carefully planned and undertaken at an opportune time in order to obtain maximum value for the Holding Company and its stockholders, with due consideration given to matters such as the management and business of the acquiring corporation and maximum strategic development of the Holding Company's assets. An unsolicited takeover proposal can seriously disrupt the business and management of a corporation and cause it great expense. Although a tender offer or other takeover attempt may be made at a price substantially above then current market price, such offers are sometimes made for less than all of the outstanding shares of a target company. As a result, stockholders may be presented with the alternative of partially liqui dating their investment at a time that may be disadvantageous, or retaining their investment in an enterprise which is under different management and whose objectives may not be similar to those of the remaining stockholders. The concentration of control, which could result from a tender offer or other takeover attempt, could also deprive the Holding Company's remaining stockholders of the benefits of certain protective provisions of the Exchange Act, if the number of beneficial owners becomes less than the 300 required for Exchange Act registration. Despite the belief of the Association and the Holding Company as to the benefits to stockholders of these provisions of the Holding Company's certificate of incorporation and bylaws, these provisions may also have the effect of discouraging a future takeover attempt which would not be approved by the Holding Company's Board, but pursuant to which stockholders may receive a substantial premium for their shares over then current market prices. As a result, stockholders who might desire to participate in such a transaction may not have any opportunity to do so. Such provisions will also render the removal of the Holding Company's Board of Directors and of management more difficult. The Board will enforce the voting limitation provisions of the charter in proxy solicitations and accordingly could utilize these provisions to defeat proposals that are favored by a majority of the stockholders. The Boards of Directors of the Association and the Holding Company, however, have concluded that the potential benefits outweigh the possible disadvantages. Pursuant to applicable law, at any annual or special meeting of its stockholders after the Conversion, the Holding Company may adopt additional charter provisions regarding the acquisition of its equity securities that would be permitted to a Delaware corporation. The Holding Company and the Association do not presently intend to propose the adoption of further restrictions on the acquisition of the Holding Company's equity securi ties. Other Restrictions on Acquisitions of Stock Delaware Anti-Takeover Statute. The State of Delaware has enacted legislation which provides that subject to certain exceptions a publicly held Delaware corporation may not engage in any business combination with an "interested stockholder" for three years after such stockholder became an interested stockholder, unless, among other things, the interested stockholder acquired at least 85% of the corporation's voting stock in the transaction that resulted in the stockholder becoming an interested stockholder. This legislation generally defines "interested stockholder" as any person or entity that owns 15% or more of the corporation's voting stock. The term "business combination" is defined broadly to cover a wide range of corporate transactions, including mergers, sales of assets, issuances of stock, transactions with subsidiaries and the receipt of disproportionate financial benefits. Under certain circumstances, either the board of directors or both the board and two-thirds of the stockholders other than the acquiror may approve a given business combination and thereby exempt the corporation from the operation of the statute. However, these statutory provisions do not apply to Delaware corporations with fewer than 2,000 stockholders or which do not have voting stock listed on a national exchange or listed for quotation with a registered national securities association. The Holding Company's common stock has not been approved for listing on a national exchange or for quotation with a registered national securities association. 99 Federal Regulation. A federal regulation prohibits any person prior to the completion of a conversion from transferring, or entering into any agreement or understanding to transfer, the legal or beneficial ownership of the subscription rights issued under a plan of conversion or the stock to be issued upon their exercise. This regulation also prohibits any person prior to the completion of a conversion from offering, or making an announcement of an offer or intent to make an offer, to purchase such subscription rights or stock. For three years following conversion, this regulation prohibits any person, without the prior approval of the OTS, from acquiring or making an offer to acquire more than 10% of the stock of any converted savings institution if such person is, or after consummation of such acquisition would be, the beneficial owner of more than 10% of such stock. In the event that any person, directly or indirectly, violates this regulation, the securities beneficially owned by such person in excess of 10% may not be counted as shares entitled to vote and may not be voted by any person or counted as voting shares in connection with any matter submitted to a vote of stockholders. Like the charter provisions outlined above, these federal regulations can make a change in control more difficult, even if desired by the holders of the majority of the shares of the stock. The Board of Directors reserves the right to ask the OTS or other federal regulators to enforce these restrictions against persons seeking to obtain control of the Company, whether in a proxy solicitation or otherwise. The policy of the Board is that these legal restrictions must be observed in every case, including instances in which an acquisition of control of the Company is favored by a majority of the stockholders. Federal law provides that no company, "directly or indirectly or acting in concert with one or more persons, or through one or more subsidiaries, or through one or more transactions," may acquire "control" of a savings association at any time without the prior approval of the OTS. In addition, federal regulations require that, prior to obtaining control of a savings association, a person, other than a company, must give 60 days' prior notice to the OTS and have received no OTS objection to such acquisition of control. Any company that acquires such control becomes a "savings and loan holding company" subject to registration, examination and regulation as a savings and loan holding company. Under federal law (as well as the regulations referred to below) the term "savings association" includes state and federally chartered SAIF-insured institutions and federally chartered savings banks whose accounts are insured by the SAIF and holding companies thereof. Control, as defined under federal law, in general means ownership, control of or holding irrevocable proxies representing more than 25% of any class of voting stock, control in any manner of the election of a majority of a savings association's directors, or a determination by the OTS that the acquiror has the power to direct, or directly or indirectly to exercise a controlling influence over, the management or policies of the institution. Acquisition of more than 10% of any class of a savings association's voting stock, if the acquiror also is subject to any one of eight "control factors," constitutes a rebuttable determination of control under the regulations. Such control factors include the acquiror being one of the two largest stockholders. The determination of control may be rebutted by submission to the OTS, prior to the acquisition of stock or the occurrence of any other circumstances giving rise to such determination, of a statement setting forth facts and circumstances which would support a finding that no control relationship will exist and containing certain undertakings. The regulations provide that persons or companies which acquire beneficial ownership exceeding 10% or more of any class of a savings association's stock must file with the OTS a certification that the holder is not in control of such institution, is not subject to a rebuttable determination of control and will take no action which would result in a determination or rebuttable determination of control without prior notice to or approval of the OTS, as applicable. 100 DESCRIPTION OF CAPITAL STOCK Holding Company Capital Stock The 3.0 million shares of capital stock authorized by the Holding Company certificate of incorporation are divided into two classes, consisting of 2.5 million shares of Common Stock (par value $.01 per share) and 500,000 shares of serial preferred stock (par value $.01 per share). The Holding Company currently expects to issue between 595,000 and 805,000 shares of Common Stock in the Conversion and no shares of serial preferred stock. The aggregate par value of the issued shares will constitute the capital account of the Holding Company on a consolidated basis. Upon payment of the Purchase Price, all shares issued in the Conversion will be duly authorized, fully paid and nonassessable. The balance of the Purchase Price of Common Stock, less expenses of Conversion, will be reflected as paid-in capital on a consolidated basis. See "Capitalization." Each share of the Common Stock will have the same relative rights and will be identical in all respects with each other share of the Common Stock. The Common Stock of the Holding Company will represent non-withdrawable capital, will not be of an insurable type and will not be insured by the FDIC. Under Delaware law, the holders of the Common Stock will possess exclusive voting power in the Holding Company. Each stockholder will be entitled to one vote for each share held on all matters voted upon by stockholders, subject to the limitation discussed under "Restrictions on Acquisitions of Stock and Related Takeover Defensive Provisions - Provisions of the Holding Company's Certificate of Incorporation and Bylaws Limitation on Voting Rights." If the Holding Company issues preferred stock subsequent to the Conversion, holders of the preferred stock may also possess voting powers. Liquidation or Dissolution. In the event of any liquidation, dissolution or winding up of the Association, the Holding Company, as the sole holder of the Association's capital stock would be entitled to receive, after payment or provision for payment of all debts and liabilities of the Association (including all deposit accounts and accrued interest thereon) and after distribution of the balance in the special liquidation account to Eligible and Supplemental Eligible Account Holders, all assets of the Association available for distribution. In the event of liquidation, dissolution or winding up of the Holding Company, the holders of its Common Stock would be entitled to receive, after payment or provision for payment of all its debts and liabilities, all of the assets of the Holding Company available for distribution. See "The Conversion - Effects of Conversion to Stock Form on Depositors and Borrowers of the Association." If preferred stock is issued subsequent to the Conversion, the holders thereof may have a priority over the holders of Common Stock in the event of liquidation or dissolution. No Preemptive Rights. Holders of the Common Stock will not be entitled to preemptive rights with respect to any shares which may be issued. The Common Stock will not be subject to call for redemption, and, upon receipt by the Holding Company of the full Purchase Price therefor, each share of the Common Stock will be fully paid and nonassessable. Preferred Stock. After Conversion, the Board of Directors of the Holding Company will be authorized to issue preferred stock in series and to fix and state the voting powers, designations, preferences and relative, participating, optional or other special rights of the shares of each such series and the qualifications, limitations and restrictions thereof. Preferred stock may rank prior to the Common Stock as to dividend rights, liquidation preferences, or both, and may have full or limited voting rights. The holders of preferred stock will be entitled to vote as a separate class or series under certain circumstances, regardless of any other voting rights which such holders may have. 101 Except as discussed above, the Holding Company has no present plans for the issuance of the additional authorized shares of Common Stock or for the issuance of any shares of preferred stock. In the future, the authorized but unissued and unreserved shares of Common Stock will be available for general corporate purposes, including but not limited to possible issuance as stock dividends or stock splits, in future mergers or acquisitions, under a cash dividend reinvestment and stock purchase plan, in a future underwritten or other public offering, or under a stock based employee plan. The authorized but unissued shares of preferred stock will similarly be available for issuance in future mergers or acquisitions, in a future underwritten public offering or private placement or for other general corporate purposes. Except as described above or as otherwise required to approve the transaction in which the additional authorized shares of common stock or authorized shares of preferred stock would be issued, no stockholder approval will be required for the issuance of these shares. Accordingly, the Board of Directors of the Holding Company, without stockholder approval, can issue preferred stock with voting and conversion rights which could adversely affect the voting power of the holders of Common Stock. Restrictions on Acquisitions. See "Restrictions on Acquisitions of Stock and Related Takeover Defensive Provisions" for a description of certain provisions of the Holding Company's certificate of incorporation and bylaws which may affect the ability of the Holding Company's stockholders to participate in certain transactions relating to acquisitions of control of the Holding Company. Dividends. The Holding Company's Board of Directors may consider a policy of paying cash dividends on the Common Stock in the future. No decision has been made, however, as to the amount or timing of such dividends, if any. The declaration and payment of dividends are subject to, among other things, the Holding Company's then current and projected consolidated operating results, financial condition, regulatory restrictions, future growth plans and other factors the Board deems relevant. Therefore, no assurance can be given that any dividends will be declared. The ability of the Holding Company to pay cash dividends to its stockholders will be dependent, in part, upon the ability of the Association to pay dividends to the Holding Company. OTS regulations do not permit the Association to declare or pay a cash dividend on its stock or repurchase shares of its stock if the effect thereof would be to cause its regulatory capital to be reduced below the amount required for the liquidation account or to meet applicable regulatory capital requirements. Delaware law generally limits dividends of the Holding Company to an amount equal to the excess of its net assets over its paid-in capital or, if there is no such excess, to its net earnings for the current and immediately preceding fiscal year. In addition, as the Holding Company does not anticipate, for the immediate future, engaging in activities other than (i) investing in cash, short-term securities and investment and mortgage-backed securities similar to those invested in by the Association and (ii) holding the stock of Wyman Park, the Holding Company's ability to pay dividends will be limited, in part, by the Association's ability to pay dividends, as set forth above. Earnings appropriated to the Association's "Excess" bad debt reserves and deducted for federal income tax purposes cannot be used by the Association to pay cash dividends to the Holding Company without adverse tax consequences. See "Regulation - Federal and State Taxation." LEGAL MATTERS The legality of the Common Stock and the federal income tax consequences of the Conversion will be passed upon for Wyman Park by the firm of Silver, Freedman & Taff, L.L.P. (a limited liability partnership 102 including professional corporations), 1100 New York Avenue, N.W., Washington, DC 20005. Silver, Freedman & Taff, L.L.P. has consented to the references herein to its opinions. The Maryland tax consequences of the Conversion will be passed upon by Wooden & Benson, Chartered. Wooden & Benson, Chartered has consented to references herein to its opinion. Trident Securities, Inc. has been represented in the Conversion by Luse Lehman Gorman Pomerenk & Schick P.C., Washington, DC 20005. EXPERTS The financial statements of Wyman Park as of June 30, 1997 and 1996 and for each of the two years in the period ended June 30, 1997, appearing in this Prospectus and Registration Statement have been audited by Wooden & Benson, Chartered, independent auditors, as set forth in their report appearing elsewhere herein and in the Registration Statement, and are included in reliance upon such report given upon the authority of said firm as experts in accounting and auditing. Ferguson has consented to the inclusion herein of the summary of its appraisal report to the Association setting forth its opinion as to the estimated pro forma market value of the Holding Company and the Association as converted and to the reference to its opinion that Subscription Rights do not have any economic value. ADDITIONAL INFORMATION The Holding Company has filed with the SEC a registration statement under the Securities Act of 1933, as amended, with respect to the Common Stock offered hereby. As permitted by the rules and regulations of the SEC, this Prospectus does not contain all the information set forth in the registration statement. Such information can be examined without charge at the public reference facilities of the SEC located at 450 Fifth Street, N.W., Washington, DC 20549, and copies of such material can be obtained from the SEC at prescribed rates. The statements contained herein as to the contents of any contract or other document filed as an exhibit to the registration statement are, of necessity, brief descriptions thereof of the material aspects of such contract or other document; each such statement is qualified by reference to such contract or document. The Association has filed an Application for Conversion with the OTS with respect to the Conversion. Pursuant to the rules and regulations of the OTS, this Prospectus omits certain information contained in that Application. The Application may be examined at the principal offices of the OTS, 1700 G Street, N.W., Washington, D.C. 20552 and at the Southeast Regional Office of the OTS, 1475 Peachtree Street, N.E., Atlanta, GA 30309, without charge. In connection with the Conversion, the Holding Company will register the Common Stock with the SEC under Section 12(g) of the Exchange Act, and, upon such registration, the Holding Company and the holders of its Common Stock will become subject to the proxy solicitation rules, reporting requirements and restrictions on stock purchases and sales by directors, officers and greater than 10% stockholders, the annual and periodic reporting and certain other requirements of the Exchange Act. Under the Plan, the Holding Company has undertaken that it will not terminate such registration for a period of at least three years following the Conversion. A copy of the Certificate of Incorporation and Bylaws of the Holding Company are available without charge from the Association. 103 WYMAN PARK BANCORPORATION, INC. Lutherville, Maryland INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Independent Auditors' Report............................................... F-2 Consolidated Financial Statements: Consolidated Statements of Financial Condition at June 30, 1997 and 1996............................................................. F-3 Consolidated Statements of Operations for the Years Ended June 30, 1997 and 1996.................................................... 28 Consolidated Statements of Equity for the Years Ended June 30, 1997 and 1996......................................... F-4 Consolidated Statements of Cash Flows for the Years Ended June 30, 1997 and 1996........................................ F-5 Notes to Consolidated Financial Statements................................. F-6 # # # # # All schedules are omitted because the required information is not applicable or is included in the Consolidated Financial Statements and related notes. Financial Statements of the Holding Company have not been provided because Wyman Park Bancorporation, Inc. has not conducted any operations to date and has not been capitalized. F-1 Independent Auditors' Report The Board of Directors Wyman Park Federal Savings and Loan Association and Subsidiary Lutherville, Maryland We have audited the accompanying consolidated statements of financial condition of Wyman Park Federal Savings and Loan Association and Subsidiary as of June 30, 1997 and 1996 and the related consolidated statements of operations, equity and cash flows for the years then ended. These financial statements are the responsibility of the Association's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Wyman Park Federal Savings and Loan Association and Subsidiary as of June 30, 1997 and 1996, and the consolidated results of their operations and their cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/Wooden & Benson July 18, 1997 Baltimore, Maryland F-2 WYMAN PARK FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY Lutherville, Maryland CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION JUNE 30, 1997 AND 1996
1997 1996 ----------- ----------- Assets Cash and noninterest bearing deposits $ 461,268 $ 40,139 Interest-bearing deposits in other banks 1,092,682 3,482,926 Federal funds sold 823,142 2,278,181 ----------- ----------- Total cash and cash equivalents (Notes 1 and 12) 2,377,092 5,801,246 Loans receivable, net (Notes 1, 4 and 12) 55,188,566 53,243,580 Mortgage-backed securities held-to-maturity at amortized cost, fair value of $360,666 (1997) and $428,502 (1996) (Notes 1, 3 and 12) 356,187 424,009 Investment securities available-for-sale at fair value, amortized cost of $3,000,000 (1997 and 1996) (Notes 1, 3 and 12) 2,992,500 2,964,375 Federal Home Loan Bank of Atlanta stock, at cost (Notes 2 and 12) 509,900 509,900 Accrued interest receivable (Note 5) 337,394 349,477 Ground rents owned, at cost (Note 12) 129,108 130,129 Property and equipment, net (Notes 1 and 6) 203,319 259,045 Prepaid expenses and other assets 88,764 100,715 Federal and state income taxes receivable -- 83,632 Deferred tax asset (Notes 1 and 8) 58,506 -- ----------- ----------- Total assets $62,241,336 $63,866,108 =========== =========== Liabilities and Equity Liabilities Demand deposits $ 5,892,975 $ 5,710,113 Money market and NOW accounts 9,960,827 9,793,334 Time deposits 40,241,530 42,367,177 ----------- ----------- Total deposits (Notes 7 and 12) 56,095,332 57,870,624 Advance payments by borrowers for taxes, insurance and ground rents (Note 12) 1,240,877 1,206,553 Accrued interest payable on savings deposits 18,994 20,874 Accrued expenses and other liabilities 120,151 142,963 Federal and State income taxes payable 16,163 -- Deferred income taxes (Notes 1 and 8) -- 26,310 ----------- ----------- Total liabilities 57,491,517 59,267,324 Commitments and contingencies (Notes 4, 8 and 12) -- -- Equity Retained earnings, substantially restricted (Notes 8 and 11) 4,754,419 4,620,614 Unrealized losses on available for sale securities (Notes 1 and 3) (4,600) (21,830) ----------- ----------- Total equity 4,749,819 4,598,784 ----------- ----------- Total liabilities and equity $62,241,336 $63,866,108 =========== ===========
The accompanying notes to financial statements are an integral part of these statements. F-3 WYMAN PARK FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY Lutherville, Maryland CONSOLIDATED STATEMENTS OF EQUITY FOR THE YEARS ENDED JUNE 30, 1997 AND 1996 Unrealized Losses Retained on Available For Income Sale Securities Total -------- ----------------- ---------- Balance at June 30, 1995 $4,326,497 $(49,005) $4,277,492 Net income 294,117 -- 294,117 Adjustment to unrealized holding gains (losses) - debt and equity securities -- 27,175 27,175 ---------- -------- ---------- Balance at June 30, 1996 4,620,614 (21,830) 4,598,784 Net income 133,805 -- 133,805 Adjustment to unrealized holding gains (losses) - debt and equity securities -- 17,230 17,230 ---------- -------- ---------- Balance at June 30, 1997 $4,754,419 $ (4,600) $4,749,819 ========== ======== ========== The accompanying notes to financial statements are an integral part of these statements. F-4 WYMAN PARK FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY Lutherville, Maryland CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JUNE 30, 1997 AND 1996
1997 1996 ----------- ----------- Cash flows from operating activities Net income $ 133,805 $ 294,117 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 59,693 60,823 Deferred income tax provision (benefit) (95,712) 74,272 Provision for loan losses 145,000 25,000 Amortization of loan fees, premiums and discounts, net (88,311) (92,855) Loss on disposal of property and equipment 5,730 -- Gain on sales of loans receivable (5,816) (19,888) Decrease in accrued interest receivable 12,083 18,819 (Increase) decrease in prepaid expenses and other assets 10,140 (24,324) Increase (decrease) in accrued expenses and other liabilities (22,812) 10,857 Decrease in federal and state income taxes receivable 83,632 24,426 Increase in federal and state income taxes payable 16,163 -- Decrease in accrued interest payable on savings deposits (1,880) (799) Other -- 1,457 ----------- ----------- Net cash provided by operating activities 251,715 371,905 ----------- ----------- Cash flows from investing activities Purchases of investment securities (1,000,000) (1,000,000) Sales and maturities of investment securities 1,000,000 4,000,000 Net (increase) decrease in loans receivable (3,290,858) 256,299 Sales of loans receivable 1,295,000 989,500 Mortgage-backed securities principal repayments 67,822 96,004 Purchases of property and equipment (9,697) (9,032) Sale of ground rents owned 1,021 822 ----------- ----------- Net cash provided by (used in ) investing activities (1,936,712) 4,333,593 ----------- ----------- Cash flows from financing activities Net decrease in savings deposits (1,773,481) (603,855) Increase (decrease) in advance payments by borrowers for taxes, insurance and ground rents 34,324 (145,970) ----------- ----------- Net cash used in financing activities (1,739,157) (749,825) ----------- ----------- Net increase (decrease) in cash and cash equivalents (3,424,154) 3,955,673 Cash and cash equivalents at beginning of year 5,801,246 1,845,573 ----------- ----------- Cash and cash equivalents at end of year $ 2,377,092 $ 5,801,246 =========== =========== Supplemental information Interest paid on savings deposits and borrowed funds $ 2,751,421 $ 3,074,082 =========== =========== Income taxes paid $ 82,805 $ 62,421 =========== ===========
The accompanying notes to financial statements are an integral part of these statements. F-5 WYMAN PARK FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY Lutherville, Maryland NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1997 Note 1 -- Summary of Significant Accounting Policies ------------------------------------------ Principals of Consolidation The accompanying consolidated financial statements for the year ended June 30, 1997 include the Association and its wholly-owned subsidiary, W.P. Financial Corp. All significant intercompany transactions have been eliminated. Prior to the year ended June 30, 1997, W.P. Financial Corp. was inactive. Nature of Operations The Association operates as a thrift institution taking deposits from the general public and using those funds to promote home ownership by making real estate loans in its service area. The Association also engages in other forms of lending and investments. As such, the Association is subject to the inherent risk that borrowers will default and properties or other collateral will not be sufficient to recover the loan balance. The Association's sound lending policies have mitigated this risk and losses from loans have been minimal. The Association is also subject to the risk that severe changes in prevailing interest rates could cause impairment of its earnings capability and the fair value of its net assets. However, management's operating strategies combined with a relatively stable interest rate environment since the mid-1980's, has resulted in the Association being profitable and increasing its capital position. Basis of Presentation The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses and the valuation of investments in real estate. In connection with these determinations, management obtains independent appraisals for significant properties and prepares net realizable value analyses as appropriate. Management believes that the allowances for losses on loans and investments in real estate are adequate. While management uses available information to recognize losses on loans and investments in real estate, future additions to the allowances may be necessary based on changes in economic conditions, particularly in the State of Maryland. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Association's allowances for losses on F-6 WYMAN PARK FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY Lutherville, Maryland NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1997 Note 1 -- Summary of Significant Accounting Policies -- Continued ------------------------------------------ Basis of Presentation - Continued loans and investments in real estate. Such agencies may require the Association to recognize additions to the allowances based on their judgments about information available to them at the time of their examination. Investment Securities and Mortgage-Backed Securities The Association's debt and equity securities are classified into two categories. Debt securities that the Association has the positive intent and ability to hold to maturity are classified as held-to-maturity and recorded at amortized cost. Debt securities not classified as held-to-maturity and equity securities with readily determinable fair values are considered available-for-sale and are reported at fair value, with unrealized gains and losses excluded from earnings and reported as a separate component of retained earnings (net of tax effects). The Association does not invest in securities for trading purposes. Fair value is determined based on bid prices published in financial newspapers or bid quotations received from securities dealers. Premiums and discounts on investment and mortgage-backed securities are amortized over the term of the security using methods which approximate the interest method. Gain or loss on sale of investments available-for-sale is reflected in income at the time of sale using the specific identification method. Property and Equipment Property and equipment are carried at cost less accumulated depreciation and amortization. Depreciation and amortization are accumulated using the straight-line method over the estimated useful lives of the assets. Additions and improvements are capitalized, and charges for repairs and maintenance are expensed when incurred. The related cost and accumulated depreciation or amortization are eliminated from the accounts when an asset is sold or retired and the resultant gain or loss is credited or charged to income. Income Taxes Deferred income taxes result primarily because of temporary differences resulting from recognizing loan origination fees and costs in different periods for financial reporting purposes and income tax purposes prior to January 1, 1994, depreciation methods, loan loss recognition, Federal Home Loan Bank (FHLB) stock dividends, and a deferred compensation agreement. The Association changed its method of accounting for loan origination fees and costs for tax purposes for all transactions occurring on or after July 1, 1994 to conform with the method utilized for financial reporting purposes. F-7 WYMAN PARK FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY Lutherville, Maryland NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1997 Note 1 -- Summary of Significant Accounting Policies -- Continued ------------------------------------------ Loan Fees Origination and commitment fees and direct origination costs are deferred and amortized to income over the contractual lives of the related loans using the interest method. Under certain circumstances, commitment fees are recognized over the commitment period or upon expiration of the commitment. Unamortized loan fees are recognized in income when the related loans are sold or prepaid. Origination and commitment fees and direct origination costs on loans originated for sale are deferred and recognized as a component of gain or loss at the time of sale. Provision for Loan Losses The provision for loan losses is determined based on management's review of the loan portfolio and analyses of the borrowers' ability to repay, past collection experience, risk characteristics of individual loans or groups of similar loans and underlying collateral, current and prospective economic conditions and status of nonperforming loans. Loans or portions thereof are charged-off when considered, in the opinion of management, uncollectible. Interest on potential problem loans is not accrued when, in the opinion of management, the full collection of principal or interest is in doubt. Any interest ultimately collected on such loans is recorded in income in the period of recovery. In October, 1994, the Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 114 "Accounting by Creditors for Impairment of a Loan" was amended by Statement No. 118 "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures" (collectively referred to as SFAS No. 114). SFAS No. 114 is effective for fiscal years beginning after December 15, 1994. The Statement addresses the accounting by creditors for impairment of certain loans. It is generally applicable for all loans except large groups of smaller balance homogenous loans that are collectively evaluated for impairment, including residential mortgage loans and consumer installment loans. It also applies to all loans that are restructured in a troubled debt restructuring involving a modification of terms. However, if a loan was restructured in a troubled debt restructuring involving a modification of terms before the effective date of this Statement and it is not impaired based on the terms specified by the restructuring agreement, a creditor may continue to account for the loan in accordance with the provisions of Statement No. 15, "Accounting for Troubled Debt Restructurings" prior to its amendment by this Statement. F-8 WYMAN PARK FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY Lutherville, Maryland NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1997 Note 1 -- Summary of Significant Accounting Policies -- Continued ------------------------------------------ Provision for Loan Losses -- Continued SFAS No. 114 requires that impaired loans be measured based on the present value of expected future cash flows discounted at the loan's effective interest rates, or at the loan's observable market price or the fair value of the collateral if the loan is collateral dependent. A loan is considered impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. The Association adopted the provisions of SFAS No. 114 on July 1, 1995. Adoption of the Statement had no impact on the Association's financial condition or results of its operations as of and for the year ended June 30, 1996. Foreclosed Real Estate Real estate acquired through foreclosure is initially recorded at the lower of cost or estimated fair value, less estimated selling costs. Management periodically evaluates the carrying value of real estate owned and establishes a valuation allowance for declines in fair value, less estimated selling costs, below the initially recorded value. Costs relating to holding such real estate are charged against income in the current period, while costs relating to improving such real estate are capitalized until a saleable condition is reached. Statements of Cash Flows For purposes of the statements of cash flows, the Association considers all highly liquid investments with maturities at date of purchase of three months or less to be cash equivalents. Cash equivalents consist of interest-bearing deposits and federal funds sold. Note 2 -- Insurance of Savings Accounts and Related Matters ------------------------------------------------- The Federal Deposit Insurance Corporation, through the Savings Association Insurance Fund, insures deposits of account holders up to $100,000. The Association pays an annual premium to provide for this insurance. The Association is a member of the Federal Home Loan Bank System and is required to maintain an investment in the stock of the Federal Home Loan Bank of Atlanta equal to at least 1% of the unpaid principal balances of its residential mortgage loans, .3% of its total assets or 5% of its outstanding advances from the bank, whichever is greater. Purchases and sales of stock are made directly with the bank at par value. F-9 WYMAN PARK FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY Lutherville, Maryland NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1997 Note 3 -- Investment Securities --------------------- Investment securities are summarized as follows: Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value ---------- ---------- ---------- ---------- Available-for-Sale Securities: June 30, 1997 U.S. government and agency securities $3,000,000 $ -- $ (7,500) $2,992,500 June 30, 1996 U.S. government and agency securities 3,000,000 -- (35,625) 2,964,375 Held-to-Maturity Securities: June 30, 1997 Mortgage-backed securities 356,187 4,479 -- 360,666 June 30, 1996 Mortgage-backed securities 424,009 4,493 -- 428,502 The scheduled maturities of securities held-to-maturity and securities (other than equity securities) available-for-sale at June 30, 1997, were as follows: Held-to-Maturity Available-for-Sale ---------------------- ------------------------- Amortized Estimated Amortized Estimated Cost Fair Value Cost Fair Value --------- ---------- ---------- ---------- Due in one year or less $ -- $ -- $ -- $ -- Due from one to five years -- -- 3,000,000 2,992,500 Mortgage-backed securities 356,187 360,666 -- -- -------- -------- ---------- ---------- $356,187 $360,666 $3,000,000 $2,992,500 ======== ======== ========== ========== There were no sales of investment securities during the years ended June 30, 1997 and 1996. F-10 WYMAN PARK FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY Lutherville, Maryland NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1997 Note 4 -- Loans Receivable ---------------- Substantially all of the Association's loans receivable are mortgage loans secured by residential and commercial real estate properties located in the State of Maryland. Loans are extended only after evaluation by management of customers' creditworthiness and other relevant factors on a case-by-case basis. The Association generally does not lend more than 90% of the appraised value of a property and requires private mortgage insurance on residential mortgages with loan-to-value ratios in excess of 80%. In addition, the Association generally obtains personal guarantees of repayment from borrowers and/or others for construction, commercial and multi-family residential loans and disburses the proceeds of construction and similar loans only as work progresses on the related projects. Residential lending is generally considered to involve less risk than other forms of lending, although payment experience on these loans is dependent to some extent on economic and market conditions in the Association's primary lending area. Commercial and construction loan repayments are generally dependent on the operations of the related properties or the financial condition of its borrower or guarantor. Accordingly, repayment of such loans can be susceptible to adverse conditions in the real estate market and the regional economy. Loans receivable are summarized as follows at June 30: 1997 1996 ----------- ----------- Loans secured by first mortgages on real estate: Residential $46,532,633 $45,763,895 FHA insured and VA guaranteed 23,273 33,258 Commercial 5,806,328 4,447,535 Construction loans 150,000 270,000 ----------- ----------- Total first mortgage loans 52,512,234 50,514,688 Home equity lines-of-credit 3,183,895 3,189,104 Home improvement loans 16,358 124 Loans secured by savings deposits 175,898 137,553 ----------- ----------- 55,888,385 53,841,469 Less: Undisbursed portion of loans in process (231,000) (270,000) Unearned loan fees, net (198,819) (202,889) Allowance for loan losses (270,000) (125,000) ----------- ----------- Loans receivable, net $55,188,566 $53,243,580 =========== =========== Average annual yield on loans receivable for the years ended June 30 7.88% 7.84% ==== ==== F-11 WYMAN PARK FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY Lutherville, Maryland NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1997 Note 4 -- Loans Receivable -- Continued ---------------- The following is a summary of nonperforming loans and troubled debt restructuring as of June 30: 1997 1996 -------- -------- Nonaccrual loans $176,349 $ 27,359 Troubled debt restructuring -- -- -------- -------- Total nonperforming loans and troubled debt restructuring $176,349 $ 27,359 ======== ======== The contractual amount of interest that would have been recorded on the above nonaccrual and troubled debt restructuring loans at June 30, 1997 and 1996 was $4,472 and $3,480, respectively. Actual interest income recorded on such loans was $14,492 in 1997, $2,566 in 1996 and $17,498 in 1995. The Association, through its normal asset review process, classifies certain loans which management believes involve a degree of risk warranting additional attention. These classifications are special mention, substandard, doubtful and loss. Not included above in nonperforming and restructured loans was $178,260 and $270,387 which was classified as special mention at June 30, 1997 and 1996, respectively. Changes in the allowance for losses on loans are summarized as follows for the years ended June 30: 1997 1996 -------- -------- Balance at beginning of year $125,000 $100,000 Provision for loan losses 145,000 25,000 Charge-offs -- -- --------- -------- Balance at end of year $270,000 $125,000 ======== ======== Commitments to extend credit are agreements to lend to customers, provided that terms and conditions established in the related contracts are met. At June 30, 1997 the Association had commitments to originate first mortgage loans on real estate and home equity loans, exclusive of undisbursed loan funds, of $1,821,100, of which $1,225,800 carry a fixed rate based on the market rate at the date of commitment and $595,300 carry a variable rate of interest. The Association also had commitments to loan funds under unused home-equity lines of credit aggregating approximately $5,464,623. Such commitments carry a floating rate of interest. F-12 WYMAN PARK FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY Lutherville, Maryland NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1997 Note 4 -- Loans Receivable -- Continued ---------------- Commitments for mortgage loans generally expire within six months and such loans and other commitments are generally funded from loan principal repayments, excess liquidity and savings deposits. Since certain of the commitments may expire without being drawn upon or may not be utilized, the total commitment amounts do not necessarily represent future cash requirements. Substantially all of the Association's outstanding commitments at June 30, 1997 are for loans which would be secured by real estate with appraised values in excess of the commitment amounts. The Association's exposure to credit loss under these contracts in the event of non-performance by the other parties, assuming that the collateral proves to be of no value, is represented by the commitment amounts. Loans serviced for others, which are not included in the Association's assets, were approximately $2,338,256 and $1,490,408 at June 30, 1997 and 1996, respectively. A fee is charged for such servicing based on the unpaid principal balances. In the normal course of business, loans are made to officers and directors of the Association and their related interests. These loans are consistent with sound banking practices, are within regulatory lending limitations and do not involve more than normal risk of collectibility. Transactions in these loans (omitting loans which aggregate less than $60,000 per officer or director) for the year ended June 30, 1997 are summarized as follows: Balance at June 30, 1996 $391,775 New loans 89,524 Repayments (57,583) -------- Balance at June 30, 1997 $423,716 ======== Note 5 -- Accrued Interest Receivable --------------------------- Accrued interest receivable is summarized as follows at June 30: 1997 1996 -------- -------- Loans receivable $269,162 $272,329 Mortgage-backed securities 4,360 5,045 Investment securities 57,688 58,523 Other 6,184 13,580 -------- -------- $337,394 $349,477 ======== ======== F-13 WYMAN PARK FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY Lutherville, Maryland NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1997 Note 6 -- Property and Equipment ---------------------- Property and equipment are summarized as follows at June 30: Estimated 1997 1996 Useful Lives -------- -------- ------------ Buildings and improvements $357,668 $357,668 23 years Furniture, fixtures and equipment 308,110 368,030 3-20 years Leasehold improvements 75,220 73,441 5-10 years -------- -------- Total at cost 740,998 799,139 Less accumulated depreciation and amortization 537,679 540,094 -------- -------- Property and equipment, net $203,319 $259,045 ======== ======== The provision for depreciation charged to operations for the years ended June 30, 1997 and 1996 amounted to $59,693 and $60,823, respectively. Depreciation is calculated on a straight line basis over the estimated useful life. The Association is obligated under long-term operating leases for its branch offices. These leases expire at various dates to 2002, subject to renewal options. The approximate future minimum rental payments under these leases at June 30, 1997 are as follows: Due in Year Ended June 30, -------------- 1998 $ 37,896 1999 37,896 2000 37,896 2001 37,896 2002 28,390 Subsequent to 2002 21,600 -------- Total $201,574 ======== Rent expense was $37,906 and $37,288 for the years ended June 30, 1997 and 1996, respectively. F-14 WYMAN PARK FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY Lutherville, Maryland NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1997 Note 7 -- Deposits -------- Time deposits are summarized as follows at June 30: 1997 1996 ------------------ ------------------ Amount % Amount % ----------- ----- ----------- ----- Contractual maturity of certificate accounts from June 30: Under 12 months $20,255,689 50.3 $25,374,796 59.9 12 to 24 months 8,026,606 20.0 6,940,432 16.4 24 to 36 months 6,013,397 15.0 3,533,550 8.3 36 to 48 months 1,107,957 2.8 5,376,465 12.7 48 to 60 months 4,802,948 11.9 1,071,780 2.5 Over 60 months 34,933 0.0 70,154 0.2 ----------- ----- ----------- ----- $40,241,530 100.0 $42,367,177 100.0 =========== ===== =========== ===== Average annual rate on savings deposits for the year ended June 30 4.94% 5.31% ==== ==== Interest expense on savings deposits consists of the following for the years ended June 30: 1997 1996 ---------- ---------- Certificates $2,267,188 $2,570,023 Passbook 173,461 178,314 NOW and money market 308,892 316,465 ---------- ---------- $2,749,541 $3,064,802 As of June 30, 1997 and 1996, the Association had customer deposits in savings accounts of $100,000 or more of approximately $5,680,377 and $5,166,170, respectively. Note 8 -- Income Taxes ------------ The provision for income taxes consists of the following for the years ended June 30: 1997 1996 -------- -------- Current: Federal $149,745 $ 70,025 State 32,855 16,822 -------- -------- 182,600 86,847 -------- -------- Deferred: Federal (78,364) 60,539 State (17,348) 13,733 -------- -------- (95,712) 74,272 -------- -------- Provision for income taxes $ 86,888 $161,119 ======== ======== F-15 WYMAN PARK FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY Lutherville, Maryland NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1997 Note 8 -- Income Taxes -- Continued ------------ The net deferred tax asset (liability) at June 30, 1997 and 1996 consists of total deferred tax assets of $175,506 and $143,808, respectively, and deferred tax liabilities of $117,000 and $170,118, respectively. The tax effects of temporary differences between the financial reporting and income tax basis of assets and liabilities relate to the following at June 30: 1997 1996 -------- -------- Interest and fees on loans $ 51,392 $ 63,437 Allowance for losses on loans 104,274 47,288 Federal Home Loan Bank stock dividends (80,684) (79,033) Deferred compensation 16,940 19,288 Unrealized loss on investment securities 2,900 13,795 Tax bad debt reserve (11,897) (29,263) Other (24,419) (61,822) -------- -------- $ 58,506 $(26,310) ======== ======== No valuation allowance has been provided against the net deferred tax asset at June 30, 1997 because the amount could be realized through a carryback against taxable income of prior years. A reconciliation between the provision for income taxes and the amount computed by multiplying income before provision for income taxes by the statutory Federal income tax rate of 34% is as follows for the years ended June 30: 1997 1996 -------- -------- Tax provision at statutory rate $ 75,036 $154,780 State income taxes, net of Federal income tax benefit 10,235 20,166 Other 1,617 (13,827) -------- -------- $ 86,888 $161,119 ======== ======== Before 1996, the Association was able to use the most beneficial of either the percentage of income method or an experience method, similar to that used by commercial banks, to determine its tax deduction for bad debts under Section 593 of the Internal Revenue Code. Under provisions of the Small Business Protection Act of 1996, Section 593 was repealed. The new law also provided that cumulative bad debt deductions taken after 1987 (the base year) were to be recaptured as taxable income over a six-year period beginning in 1996. It further provided that the first installment of the recapture could be deferred for up to two years if a residential lending test is met. The Association did not meet this test in the year ended June 30, 1997. There was no material adverse effect on the Association's financial position or results of F-16 WYMAN PARK FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY Lutherville, Maryland NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1997 Note 8 -- Income Taxes -- Continued ------------ operations as a result of the new law. The Association qualifies as a small bank eligible to use the bank experience method for bad debt deductions. However, the deductions under this method are not expected to be as beneficial for determining the current tax provision as the method previously allowed. Retained earnings at June 30, 1997 include approximately $1,777,000 for which no deferred income tax liability has been recognized. This amount represents an allocation of income to bad-debt deductions for tax purposes only. Reduction of amounts so allocated for purposes other than tax bad-debt losses or adjustments arising from carryback of net operating losses would create income for tax purposes only, which would be subject to the then current corporate income tax rate. The unrecorded deferred income tax liability on the above amount is approximately $686,000. Note 9 -- Pension Plan ------------ Substantially all employees of the Association are participants in the Financial Institutions Retirement Fund, a multi-employer non-contributory defined benefit pension plan. Pension expense in connection with the Financial Institutions Retirement Fund reflects the Association's required annual contribution to the Fund. Pension expense for the years ended June 30, 1997 and 1996 was $17,652 and $28,410, respectively. Note 10 -- Accounting Pronouncements With Future Effective Dates ----------------------------------------------------- SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" was issued in June 1996. This statement provides that transfers of financial assets be recognized as sales only when certain specified criteria related to the transferor surrendering control of the assets are met. These criteria are more restrictive than under previous generally accepted accounting principles. The provisions of this statement will affect the accounting for certain transactions commonly entered into by community financial institutions such as repurchase agreements, bankers acceptances and participation loans. The statement is effective for transactions occurring after December 31, 1996 and is to be applied prospectively. F-17 WYMAN PARK FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY Lutherville, Maryland NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1997 Note 10 -- Accounting Pronouncements With Future Effective Dates -- Continued ----------------------------------------------------- SFAS No. 127, "Deferral of the Effective Date of Certain Provisions of FASB Statement No. 125" was issued in December 1996. This statement defers, for one year, the effective date of Statement No. 125 for repurchase agreements, dollar-roll, securities lending and similar transactions. The effect on the Association's financial position and results of operations of implementing Statement No. 125 in 1997 was not material. SFAS No. 130, "Reporting Comprehensive Income" was issued in June 1997. This statement requires that comprehensive income - made up of all revenues, expenses, gains and losses - be reported and displayed in an entity's financial statements with the same prominence as its other financial statements. Currently, the only item that would be presented as a component of the Association's comprehensive income which is not also a component of its net income is the change during the year in unrealized gain or loss on available for sale securities. The statement, which is effective for years beginning after December 15, 1997, will not affect the Association's financial position or its results of operations. F-18 WYMAN PARK FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY Lutherville, Maryland NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1997 Note 11 -- Regulatory Matters ------------------ The Association is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by the regulators that, if undertaken, could have a direct material effect on the Association's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Association must meet specific capital guidelines that involve quantitative measures of the Association's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Association's capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Association to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulations) and risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined). Management believes, as of June 30, 1997, that the Association meets all capital adequacy requirements to which it is subject. As of June 30, 1997, the most recent notification from the Office of Thrift Supervision categorized the Association as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized the Association must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the Associations' category. The Association's actual capital amounts and ratios are also presented in the table.
To be Well Capitalized Under For Capital Prompt Corrective Actual Adequacy Purposes Action Provisions -------------------- ------------------- ------------------- Amount Ratio Amount Ratio Amount Ratio ---------- ------ ---------- ----- ---------- ----- As of June 30, 1997: Total Capital (to Risk Weighted Assets) $5,024,419 14.63% $2,747,520 8% $3,434,400 10% Tier I Capital (to Risk Weighted Assets) 4,754,419 13.84% 1,373,760 4% 2,060,640 6% Tier I Capital (to Average Assets) 4,754,419 7.73% 2,461,062 4% 3,076,328 5% As of June 30, 1996 Total Capital (to Risk Weighted Assets) 4,745,614 14.33% 2,649,760 8% 3,312,200 10% Tier I Capital (to Risk Weighted Assets) 4,620,614 13.95% 1,324,880 4% 1,987,320 6% Tier I Capital (to Average Assets) 4,620,614 7.25% 2,548,844 4% 3,186,055 5%
F-19 WYMAN PARK FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY Lutherville, Maryland NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1997 Note 11 -- Regulatory Matters -- Continued ------------------ The Association also exceeds the minimum capital standards required by the Office of Thrift Supervision, its primary regulator, as follows: Actual Required Minimum Excess ---------- ---------------- ---------- As of June 30, 1997: Tangible capital $4,754,419 $ 934,000 $3,820,419 Core capital 4,754,419 1,867,000 2,887,419 Risk-based capital 5,024,419 2,748,000 2,276,419 As of June 30, 1996: Tangible capital 4,620,614 958,000 3,662,614 Core capital 4,620,614 1,916,000 2,704,614 Risk-based capital 4,745,614 2,650,000 2,095,614 The Economic Growth and Regulatory Paperwork Reduction Act of 1996 was signed into law on September 30, 1996. One major provision of the act was that institutions such as the Bank, with deposits insured by the Federal Deposit Insurance Corporation's Savings Association Insurance Fund (SAIF), were assessed a one time charge to recapitalize the SAIF. Subsequent regulations established the amount of this assessment at .657% of the institution's insured deposits as of March 31, 1995. The law also provided that the assessment would be deductible for tax purposes in the year it was paid. The Bank paid its one-time assessment in the amount of $382,726 in November 1996. It is anticipated that future deposit insurance premiums will be less than those paid in the past because of the one-time assessment making the SAIF solvent. F-20 WYMAN PARK FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY Lutherville, Maryland NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1997 Note 11 -- Regulatory Matters -- Continued ------------------ The act also allows for a merger of the SAIF with the Bank Insurance Fund as of January 1, 1999 if no savings institutions exist at that time. Consequently, the Bank may be required to change its charter to a national bank or state chartered bank before that date. Note 12 -- Disclosures About Fair Value of Financial Instruments ----------------------------------------------------- The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: Cash and Cash Equivalents -- For cash, non-interest bearing deposits, variable rate interest-bearing deposits in other banks and federal funds sold, the carrying amount is a reasonable estimate of fair value. Securities -- For marketable securities available for sale and mortgage-backed securities, fair values are based on quoted market prices or dealer quotes. Loans Receivable -- For fixed rate residential mortgages, fair value is based on computed present value of cash flows using weighted average term to maturity and weighted average rate of the Association's portfolio. For variable rate loans, the carrying amount is considered a reliable estimate of fair value. Ground Rents -- The fair value of ground rents is estimated by management based on anticipated realization in the current market. Federal Home Loan Bank Stock -- Because of the limited nature of the market for this instrument, the carrying amount is a reasonable estimate of fair value. Deposit Liabilities -- The fair value of demand deposits, savings accounts and advance payments by borrowers for taxes, insurance and ground rents is the amount payable on demand at the reporting date. The fair value for certificate accounts, is based on computed present value of cash flows using the rates currently offered for deposits of similar remaining maturities. Commitments -- For commitments to originate loans and purchase loans and mortgage-backed securities, fair value considers the differences between current levels of interest rates and committed rates if any. F-21 WYMAN PARK FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY Lutherville, Maryland NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1997 Note 12 -- Disclosures About Fair Value of Financial Instruments -- Continued ----------------------------------------------------- The estimated fair values of the Association's financial instruments as of June 30 are as follows:
1997 1996 -------------------------- -------------------------- Carrying Carrying Amount Fair Value Amount Fair Value ----------- ----------- ----------- ----------- Financial Assets Cash and cash equivalents $ 2,377,092 $ 2,377,092 $ 5,801,246 $ 5,801,246 Investments securities available for sale 2,992,500 2,992,500 2,964,375 2,964,375 Mortgage-backed securities 356,187 360,666 424,009 428,502 Loans receivable 55,458,566 53,368,580 Less: allowance for loan losses 270,000 125,000 ----------- ----------- 55,188,566 56,052,888 53,243,580 53,886,140 Ground rents 129,108 77,465 130,129 78,077 Federal Home Loan Bank stock 509,900 509,900 509,900 509,900 Financial Liabilities Savings deposits 56,095,332 56,485,590 57,870,624 58,426,486 Advance payments by borrowers for taxes, insurance and ground rents 1,240,877 1,240,877 1,206,553 1,206,553 Loan commitments 7,285,723 7,285,723 6,792,764 6,792,764
Note 13 -- Plan of Conversion ------------------ On June 18, 1997, the Board of Directors adopted a plan of conversion which provides for (i) the conversion of the Association from a federally chartered mutual savings and loan association to a federally chartered stock savings and loan association, the "Converted Association," and (ii) the concurrent formation of a holding company for the Converted Association, the "Holding Company." The Association's plan of conversion provides for an initial issuance of shares of capital stock to be offered to eligible members, employees and officers of the Association at a price based on an appraisal by an independent appraisal firm. Any shares not purchased by eligible members may be sold at the discretion of the Association to the public. Costs, including underwriting discounts, if any, to complete the conversion are expected to be deferred and deducted from the proceeds from the sale of capital stock. If the conversion does not take place all costs incurred will be charged to expense. Deferred costs aggregated $32,720 at June 30, 1997. F-22 WYMAN PARK FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY Lutherville, Maryland NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1997 Note 13 -- Plan of Conversion - Continued ------------------ For the purpose of granting eligible members of the Association a priority in the event of future liquidation, the Association will, at the time of conversion, establish a liquidation account equal to its retained income as of the date of the latest consolidated statement of financial condition used in the final conversion offering circular. In the event of future liquidation of the Association (and only in such an event), an eligible deposit account holder who continues to maintain his deposit account shall be entitled to receive a prorata distribution from the liquidation account, based on such holder's proportionate amount of the total current adjusted balances for deposit accounts then held by all eligible account holders, before any liquidation distribution may be made with respect to capital stock. After the conversion, no dividends may be paid to stockholders if such dividends reduce retained income of the Association below the amount required for the liquidation account. F-23 No person has been authorized to give any information or to make any representations in connection with this offering other than those contained in this Prospectus and, if given or made, such other information and representations must not be relied upon as having been authorized by the Holding Company. Neither the delivery of this Prospectus nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Holding Company since the date hereof or that the information contained herein is correct as of any time subsequent to its date. This Prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities other than the registered securities to which it relates. This Prospectus does not constitute an offer to sell or a solicitation of a offer to buy such securities in any circumstances or jurisdictions in which such offer or solicitation is unlawful. TABLE OF CONTENTS Page ---- Prospectus Summary................................... Selected Consolidated Financial Information.......... Risk Factors......................................... Use of Proceeds...................................... Dividends............................................ Market for Common Stock.............................. Wyman Park Bancorporation, Inc....................... Wyman Park Federal Savings & Loan Association........ Pro Forma Data....................................... Pro Forma Regulatory Capital Analysis................ Capitalization....................................... Consolidated Statements of Operations................ Management's Discussion and Analysis of Financial Condition and Results of Operations....... Business............................................. Regulation........................................... Management........................................... The Conversion....................................... Restrictions on Acquisitions of Stock and Related Takeover Defensive Provisions............... Description of Capital Stock......................... Legal Matters........................................ Experts.............................................. Additional Information............................... Index to Consolidated Financial Statements........... Until the later of ________, 1997 or 25 days after commencement of the Offering all dealers effecting transactions in the registered securities, whether or not participating in this distribution, may be required to deliver a prospectus. This is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. [ ] Shares [LOGO] WYMAN PARK BANCORPORATION, INC. (Proposed Holding Company for Wyman Park Federal Savings & Loan Association) Common Stock Prospectus Trident Securities, Inc. __________, 1997 PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 24. Indemnification of Directors and Officers - --------------------------------------------------- Article Eleventh of the Holding Company's Certificate of Incorporation provides for indemnification of directors and officers of the Holding Company against any and all liabilities, judgments, fines and reasonable settlements, costs, expenses and attorneys' fees incurred in any actual, threatened or potential proceeding, except to the extent that such indemnification is limited by Delaware law and such law cannot be varied by contract or bylaw. Article Eleventh also provides for the authority to purchase insurance with respect thereto. Section 145 of the General Corporation Law of the State of Delaware authorizes a corporation's Board of Directors to grant indemnity under certain circumstances to directors and officers, when made, or threatened to be made, parties to certain proceedings by reason of such status with the corporation, against judgments, fines, settlements and expenses, including attorneys' fees. In addition, under certain circumstances such persons may be indemnified against expenses actually and reasonably incurred in defense of a proceeding by or on behalf of the corporation. Similarly, the corporation, under certain circumstances, is authorized to indemnify directors and officers of other corporations or enterprises who are serving as such at the request of the corporation, when such persons are made, or threatened to be made, parties to certain proceedings by reason of such status, against judgments, fines, settlements and expenses, including attorneys' fees; and under certain circumstances, such persons may be indemnified against expenses actually and reasonably incurred in connection with the defense or settlement of a proceeding by or in the right of such other corporation or enterprise. Indemnification is permitted Item 25. Other Expenses of Issuance and Distribution - ----------------------------------------------------- Set forth below is an estimate of the amount of fees and expenses (other than underwriting discounts and commissions) to be incurred in connection with the issuance of the shares. Counsel fees and expenses ................................... $ 75,000 Accounting fees and expenses ................................ 30,000 Appraisal and business plan preparation fees and expenses ......................................... 24,000 Conversion Agent fees and expenses .......................... 8,000 Underwriting fees(1) (including financial advisory fee and expenses) ............................... 125,911 Underwriter's counsel fees and expenses ..................... 40,000 Printing, postage and mailing ............................... 50,000 Registration and Filing Fees ................................ 25,000 Blue Sky fees and expenses .................................. 6,000 Stock Transfer Agent and Certificates ....................... 7,500 Other expenses(1) ........................................... 36,460 -------- TOTAL .................................................. $427,871 ======== - ------------- (1) Based on maximum of Estimated Valuation Range. where such person (i) was acting in good faith; (ii) was acting in a manner he reasonably believed to be in or not opposed to the best interests of the corporation or other corporation or enterprise, as appropriate; (iii) with respect to a criminal proceeding, has no reasonable cause to believe his conduct was unlawful; and (iv) was not adjudged to be liable to the corporation or other corporation or enterprise (unless the court where the proceeding was brought determines that such person is fairly and reasonably entitled to indemnity). Unless ordered by a court, indemnification may be made only following a determination that such indemnification is permissible because the person being indemnified has met the requisite standard of conduct. Such determination may be made (i) by the Board of Directors of the Holding Company by a majority vote of a quorum consisting of directors not at the time parties to such proceeding; or (ii) if such a quorum cannot be obtained or the quorum so directs, then by independent legal counsel in a written opinion; or (iii) by the stockholders. Section 145 also permits expenses incurred by directors and officers in defending a proceeding to be paid by the corporation in advance of the final disposition of such proceedings upon the receipt of an undertaking by the director or officer to repay such amount if it is ultimately determined that he is not entitled to be indemnified by the corporation against such expenses. Item 26. Recent Sales of Unregistered Securities - ------------------------------------------------- The Registrant is newly incorporated, solely for the purpose of acting as the holding company of the Wyman Park Federal Savings & Loan Association, pursuant to the Plan of Conversion (filed as Exhibit 2 herein), and no sales of its securities have occurred to date. Item 27. Exhibits and Financial Statement Schedules - ---------------------------------------------------- (a) Exhibits: 1.1 Letter Agreement regarding management, marketing and consulting services* 1.2 Form of Agency Agreement* 2 Plan of Conversion 3.1 Certificate of Incorporation of the Holding Company 3.2 Bylaws of the Holding Company 3.3 Charter of Association in stock form 3.4 Bylaws of Association in stock form 4 Form of Stock Certificate of the Holding Company 5 Opinion of Silver, Freedman & Taff, L.L.P. with Respect to Legality of Stock 8.1 Opinion of Silver, Freedman & Taff, L.L.P. with respect to Federal income tax consequences of the Stock Conversion 8.2 Opinion of Wooden & Benson Chartered with respect to Maryland income tax consequences of the Stock Conversion 10.1 Letter Agreement regarding Appraisal Services and Business Plan Preparation* 10.2 Employee Stock Ownership Plan 10.3 Directors Retirement Plan* 22 Subsidiaries 24.1 Consent of Silver, Freedman & Taff, L.L.P. 24.2 Consent of Wooden & Benson Chartered 24.3 Consent of Ferguson & Company 25 Power of Attorney (set forth on signature page) 99.1 Appraisal 99.2 Proxy Statement and form of proxy to be furnished to the Association's account holders 99.3 Stock Order Form and Order Form Instructions* 99.4 Certification 99.5 Question and Answer Brochure* 99.6 Advertising, Training and Community Informational Meeting Materials* 99.7 Letter of Appraiser with respect to Subscription Rights* - ----------- * To be filed supplementally or by amendment. Item 28. Undertakings - ---------------------- The undersigned Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: (i) To include any Prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the Prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement; and (iii) To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. Insofar as indemnification for liabilities arising under the Securities Act of 1933 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 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 Act and it will be governed by the final adjudication of such issue. The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. SIGNATURES In accordance with the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements of filing on Form SB-2 and authorized this Registration Statement to be signed on its behalf by the undersigned, in the City of Lutherville, State of Maryland, on September 22, 1997. WYMAN PARK BANCORPORATION, INC. By: /s/ Ernest A. Moretti --------------------------------- Ernest A. Moretti, President and Chief Executive Officer (Duly Authorized Representative) KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Ernest A. Moretti his true and lawful attorneys-in-fact and agents, with full power of substitution and re-substitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all said attorneys-in-fact and agents or their substitutes or substitute may lawfully 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 and on the dates indicated. /s/ Ernest A. Moretti /s/ Ronald W. Robinson - ------------------------------------- ------------------------------ Ernest A. Moretti, Director, Ronald W. Robinson, President and Chief Executive Officer Chief Financial Officer (Chief Operating Officer) (Principal Financial Officer) /s/ Allan B. Heaver /s/ H. Douglas Huether - -------------------------------------- ------------------------------ Allan B. Heaver, Chairman of the Board H. Dougals Huether, Director /s/ John K. White /s/ John R. Beever - -------------------------------------- ------------------------------ John T. White, Director John R. Beever, Director /s/ Albert M. Copp /s/ Gilbert D. Marsiglia, Sr. - -------------------------------------- ------------------------------ Albert M. Copp, Director Gilbert D. Marsiglia, Director /s/ Jay H. Salkin /s/ G. Scott Barhight - -------------------------------------- ------------------------------ Jay H. Salkin, Director G. Scott Barhight, Director As filed with the Securities and Exchange Commission on September 22, 1997 Registration No. 333-________ ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------- EXHIBITS TO FORM SB-2 UNDER THE SECURITIES ACT OF 1933 ---------- WYMAN PARK BANCORPORATION, INC. 11 West Ridgely Road Lutherville, Maryland 21094 ================================================================================ EXHIBIT INDEX Exhibits: - --------- 1.1 Letter Agreement regarding management, marketing and consulting services* 1.2 Form of Agency Agreement* 2 Plan of Conversion 3.1 Certificate of Incorporation of the Holding Company 3.2 Bylaws of the Holding Company 3.3 Charter of Association in stock form 3.4 Bylaws of Association in stock form 4 Form of Stock Certificate of the Holding Company 5 Opinion of Silver, Freedman & Taff, L.L.P. with Respect to Legality of Stock 8.1 Opinion of Silver, Freedman & Taff, L.L.P. with respect to Federal income tax consequences of the Stock Conversion 8.2 Opinion of Wooden & Benson Chartered with respect to Maryland income tax consequences of the Stock Conversion 10.1 Employment Agreement with Ernest A. Moretti 10.2 Letter Agreement regarding Appraisal Services and Business Plan Preparation* 10.3 Employee Stock Ownership Plan 22 Subsidiaries 24.1 Consent of Silver, Freedman & Taff, L.L.P. 24.2 Consent of Wooden & Benson Chartered 24.3 Consent of Ferguson & Company 25 Power of Attorney (set forth on signature page) 99.1 Appraisal* 99.2 Proxy Statement and form of proxy to be furnished to the Association's account holders 99.3 Stock Order Form and Order Form Instructions* 99.4 Certification 99.5 Question and Answer Brochure* 99.6 Advertising, Training and Community Informational Meeting Materials* 99.7 Letter of Appraiser with respect to Subscription Rights* - ------------ * To be filed supplementally or by amendment. EX-2 2 EXHIBIT 2 EXHIBIT 2 PLAN OF CONVERSION WYMAN PARK FEDERAL SAVINGS & LOAN ASSOCIATION Lutherville, Maryland PLAN OF CONVERSION From Mutual to Stock Form of Organization I. GENERAL On June 18, 1997, the Board of Directors of Wyman Park Federal Savings & Loan Association (the "Association") adopted a Plan of Conversion whereby the Association would convert from a federal mutual savings institution to a federal stock savings institution pursuant to the Rules and Regulations of the OTS. The Plan includes, as part of the conversion, the concurrent formation of a holding company. The new holding company is proposed to be chartered as a Delaware corporation under the name to be selected. The Plan provides that non-transferable subscription rights to purchase Holding Company Conversion Stock will be offered first to Eligible Account Holders of record as of the Eligibility Record Date, then to the Association's Tax-Qualified Employee Plans, then to Supplemental Eligible Account Holders of record as of the Supplemental Eligibility Record Date, then to Other Members, and then to directors, officers and employees. Concurrently with, at any time during, or promptly after the Subscription Offering, and on a lowest priority basis, an opportunity to subscribe may also be offered to the general public in a Direct Community Offering. The price of the Holding Company Conversion Stock will be based upon an independent appraisal of the Association and will reflect its estimated pro forma market value, as converted. It is the desire of the Board of Directors of the Association to attract new capital to the Association in order to increase its capital, support future savings growth and increase the amount of funds available for residential and other mortgage lending. The Converted Association is also expected to benefit from its management and other personnel having a stock ownership in its business, since stock ownership is viewed as an effective performance incentive and a means of attracting, retaining and compensating management and other personnel. No change will be made in the Board of Directors or management as a result of the Conversion. II. DEFINITIONS Acting in Concert: The term "acting in concert" shall have the same meaning given it in ss.574.2(c) of the Rules and Regulations of the OTS. Actual Subscription Price: The price per share, determined as provided in Section V of the Plan, at which Holding Company Conversion Stock will be sold in the Subscription Offering. Affiliate: An "affiliate" of, or a Person "affiliated" with, a specified Person, is a Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by or is under common control with, the Person specified. Associate: The term "associate," when used to indicate a relationship with any Person, means (i) any corporation or organization (other than the Holding Company, the Association or 1 a majority-owned subsidiary of the Holding Company) of which such Person is an officer or partner or is, directly or indirectly, the beneficial owner of ten percent or more of any class of equity securities, (ii) any trust or other estate in which such Person has a substantial beneficial interest or as to which such Person serves as trustee or in a similar fiduciary capacity, and (iii) any relative or spouse of such Person, or any relative of such spouse, who has the same home as such Person or who is a director or officer of the Holding Company or the Association or any subsidiary of the Holding Company; provided, however, that any Tax-Qualified or Non-Tax- Qualified Employee Plan shall not be deemed to be an associate of any director or officer of the Holding Company or the Association, to the extent provided in Section V hereof. Association: Wyman Park Federal Savings & Loan Association, or such other name as the institution may adopt. Conversion: Change of the Association's charter and bylaws to federal stock charter and bylaws; sale by the Holding Company of Holding Company Conversion Stock; and issuance and sale by the Converted Association of Converted Association Common Stock to the Holding Company, all as provided for in the Plan. Converted Association: The federally chartered stock savings institution resulting from the Conversion of the Association in accordance with the Plan. Deposit Account: Any withdrawable or repurchasable account or deposit in the Association. Direct Community Offering: The offering to the general public of any unsubscribed shares which may be effected as provided in Section V hereof. Eligibility Record Date: The close of business on March 31, 1996. Eligible Account Holder: Any Person holding a Qualifying Deposit in the Association on the Eligibility Record Date. Exchange Act: The Securities Exchange Act of 1934, as amended. Holding Company: A Delaware corporation, the name of which will be determined, which upon completion of the Conversion will own all of the outstanding common stock of the Converted Association. Holding Company Conversion Stock: Shares of common stock, par value $.01 per share, to be issued and sold by the Holding Company as a part of the Conversion; provided, however, that for purposes of calculating Subscription Rights and maximum purchase limitations under the Plan, references to the number of shares of Holding Company Conversion Stock shall refer to the number of shares offered in the Subscription Offering. 2 Market Maker: A dealer (i.e., any Person who engages directly or indirectly as agent, broker or principal in the business of offering, buying, selling, or otherwise dealing or trading in securities issued by another Person) who, with respect to a particular security, (i) regularly publishes bona fide, competitive bid and offer quotations in a recognized inter-dealer quotation system; or (ii) furnishes bona fide competitive bid and offer quotations on request; and (iii) is ready, willing, and able to effect transactions in reasonable quantities at his quoted prices with other brokers or dealers. Maximum Subscription Price: The price per share of Holding Company Conversion Stock to be paid initially by subscribers in the Subscription Offering. Member: Any Person or entity that qualifies as a member of the Association pursuant to its charter and bylaws. Non-Tax-Qualified Employee Plan: Any defined benefit plan or defined contribution plan of the Association or the Holding Company, such as an employee stock ownership plan, stock bonus plan, profit-sharing plan or other plan, which with its related trust does not meet the requirements to be "qualified" under Section 401 of the Internal Revenue Code. OTS: Office of Thrift Supervision, Department of the Treasury. Officer: An executive officer of the Holding Company or the Association, including the Chairman of the Board, President, Executive Vice Presidents, Senior Vice Presidents in charge of principal business functions, Secretary and Treasurer. Order Forms: Forms to be used in the Subscription Offering to exercise Subscription Rights. Other Members: Members of the Association, other than Eligible Account Holders, Tax-Qualified Employee Plans or Supplemental Eligible Account Holders, as of the Voting Record Date. Person: An individual, a corporation, a partnership, an association, a joint-stock company, a trust, any unincorporated organization, or a government or political subdivision thereof. Plan: This Plan of Conversion of the Association, including any amendment approved as provided in this Plan. Qualifying Deposit: The aggregate balance of each Deposit Account of an Eligible Account Holder as of the Eligibility Record Date or of a Supplemental Eligible Account Holder as of the Supplemental Eligibility Record Date. SAIF: Savings Association Insurance Fund. SEC: Securities and Exchange Commission. 3 Special Meeting: The Special Meeting of Members called for the purpose of considering and voting upon the Plan of Conversion. Subscription Offering: The offering of shares of Holding Company Conversion Stock for subscription and purchase pursuant to Section V of the Plan. Subscription Rights: Non-transferable, non-negotiable, personal rights of the Association's Eligible Account Holders, Tax-Qualified Employee Plans, Supplemental Eligible Account Holders, Other Members, and directors, Officers and employees to subscribe for shares of Holding Company Conversion Stock in the Subscription Offering. Supplemental Eligibility Record Date: The last day of the calendar quarter preceding approval of the Plan by the OTS. Supplemental Eligible Account Holder: Any person holding a Qualifying Deposit in the Association (other than an officer or director and their associates) on the Supplemental Eligibility Record Date. Tax-Qualified Employee Plans: Any defined benefit plan or defined contribution plan of the Association or the Holding Company, such as an employee stock ownership plan, stock bonus plan, profit-sharing plan or other plan, which with its related trust meets the requirements to be "qualified" under Section 401 of the Internal Revenue Code. Voting Record Date: The date set by the Board of Directors in accordance with federal regulations for determining Members eligible to vote at the Special Meeting. III. STEPS PRIOR TO SUBMISSION OF PLAN OF CONVERSION TO THE MEMBERS FOR APPROVAL Prior to submission of the Plan of Conversion to its Members for approval, the Association must receive from the OTS approval of the Application for Approval of Conversion to convert to the federal stock form of organization. The following steps must be taken prior to such regulatory approval: A. The Board of Directors shall adopt the Plan by not less than a two-thirds vote. B. The Association shall notify its Members of the adoption of the Plan by publishing a statement in a newspaper having a general circulation in each community in which the Association maintains an office. C. Copies of the Plan adopted by the Board of Directors shall be made available for inspection at each office of the Association. 4 D. The Association will promptly cause an Application for Approval of Conversion on Form AC to be prepared and filed with the OTS, an Application on Form H-(e)1 (or other applicable form) to be prepared and filed with the OTS and a Registration Statement on Form S-1 to be prepared and filed with the SEC. E. Upon receipt of notice from the OTS to do so, the Association shall notify its Members that it has filed the Application for Approval of Conversion by posting notice in each of its offices and by publishing notice in a newspaper having general circulation in each community in which the Association maintains an office. IV. CONVERSION PROCEDURE Following approval of the application by the OTS, the Plan will be submitted to a vote of the Members at the Special Meeting. If the Plan is approved by Members holding a majority of the total number of votes entitled to be cast at the Special Meeting, the Association will take all other necessary steps pursuant to applicable laws and regulations to convert to a federal stock savings institution as part of a concurrent holding company formation pursuant to the terms of the Plan. The Holding Company Conversion Stock will be offered for sale in the Subscription Offering at the Maximum Subscription Price to Eligible Account Holders, Tax-Qualified Employee Plans, Supplemental Eligible Account Holders, Other Members and directors, Officers and employees of the Association, prior to or within 45 days after the date of the Special Meeting. The Association may, either concurrently with, at any time during, or promptly after the Subscription Offering, also offer the Holding Company Conversion Stock to and accept subscriptions from other Persons in a Direct Community Offering; provided that the Association's Eligible Account Holders, Tax-Qualified Employee Plans, Supplemental Eligible Account Holders, Other Members and directors, Officers and employees shall have the priority rights to subscribe for Holding Company Conversion Stock set forth in Section V of this Plan. However, the Holding Company and the Association may delay commencing the Subscription Offering beyond such 45 day period in the event there exist unforeseen material adverse market or financial conditions. If the Subscription Offering commences prior to the Special Meeting, subscriptions will be accepted subject to the approval of the Plan at the Special Meeting. The period for the Subscription Offering and Direct Community Offering will be not less than 20 days nor more than 45 days unless extended by the Association. In connection with such extensions, subscribers and other purchasers will be permitted to increase, decrease or rescind their subscriptions or purchase orders to the extent required by the OTS in approving the extensions. Completion of the sale of all shares of Holding Company Conversion Stock is required within 24 months after the date of the Special Meeting. 5 V. STOCK OFFERING A. Total Number of Shares and Purchase Price of Holding Company Conversion Stock The total number of shares of Holding Company Conversion Stock to be issued and sold in the Conversion will be determined jointly by the Boards of Directors of the Holding Company and the Association prior to the commencement of the Subscription Offering, subject to adjustment if necessitated by market or financial conditions prior to consummation of the Conversion. The total number of shares of Holding Company Conversion Stock shall also be subject to increase in connection with any oversubscriptions in the Subscription Offering or Direct Community Offering. The aggregate price for which all shares of Holding Company Conversion Stock will be sold will be based on an independent appraisal of the estimated total pro forma market value of the Holding Company and the Converted Association. Such appraisal shall be performed in accordance with OTS guidelines and will be updated as appropriate under or required by applicable regulations. The appraisal will be made by an independent investment banking or financial consulting firm experienced in the area of thrift institution appraisals. The appraisal will include, among other things, an analysis of the historical and pro forma operating results and net worth of the Converted Association and a comparison of the Holding Company, the Converted Association and the Holding Company Conversion Stock with comparable thrift institutions and holding companies and their respective outstanding capital stocks. Based upon the independent appraisal, the Boards of Directors of the Holding Company and the Association will jointly fix the Maximum Subscription Price. The Actual Subscription Price for each share of Holding Company Conversion Stock will be determined by dividing the estimated appraised aggregate pro forma market value of the Holding Company and the Converted Association, based on the independent appraisal as updated upon completion of the Subscription Offering or other sale of all of the Holding Company Conversion Stock, by the total number of shares of Holding Company Conversion Stock to be issued and sold by the Holding Company upon Conversion. Such appraisal will then be expressed in terms of a specific aggregate dollar amount rather than as a range. B. Subscription Rights Non-transferable Subscription Rights to purchase shares will be issued without payment therefor to Eligible Account Holders, Tax-Qualified Employee Plans, Supplemental Eligible Account Holders, Other Members and directors, Officers and employees of the Association as set forth below. 6 1. Preference Category No. 1: Eligible Account Holders Each Eligible Account Holder shall receive non-transferable Subscription Rights to subscribe for shares of Holding Company Conversion Stock in an amount equal to the greater of $100,000, one-tenth of one percent (.10%) of the total offering of shares, or 15 times the product (rounded down to the next whole number) obtained by multiplying the total number of shares of common stock to be issued by a fraction of which the numerator is the amount of the qualifying deposit of the Eligible Account Holder and the denominator is the total amount of qualifying deposits of all Eligible Account Holders in the converting Association in each case on the Eligibility Record Date. If sufficient shares are not available, shares shall be allocated first to permit each subscribing Eligible Account Holder to purchase to the extent possible 100 shares, and thereafter among each subscribing Eligible Account Holder pro rata in the same proportion that his Qualifying Deposit bears to the total Qualifying Deposits of all subscribing Eligible Account Holders whose subscriptions remain unsatisfied. Non-transferable Subscription Rights to purchase Holding Company Conversion Stock received by directors and Officers of the Association and their Associates, based on their increased deposits in the Association in the one year period preceding the Eligibility Record Date, shall be subordinated to all other subscriptions involving the exercise of non-transferable Subscription Rights of Eligible Account Holders. 2. Preference Category No. 2: Tax-Qualified Employee Plans Each Tax-Qualified Employee Plan shall be entitled to receive non-transferable Subscription Rights to purchase up to 10% of the shares of Holding Company Conversion Stock, provided that singly or in the aggregate such plans (other than that portion of such plans which is self-directed) shall not purchase more than 10% of the shares of the Holding Company Conversion Stock. Subscription Rights received pursuant to this Category shall be subordinated to all rights received by Eligible Account Holders to purchase shares pursuant to Category No. 1; provided, however, that notwithstanding any other provision of this Plan to the contrary, the Tax-Qualified Employee Plans shall have a first priority Subscription Right to the extent that the total number of shares of Holding Company Conversion Stock sold in the Conversion exceeds the maximum of the appraisal range as set forth in the subscription prospectus. 3. Preference Category No. 3: Supplemental Eligible Account Holders Each Supplemental Eligible Account Holder shall receive non-transferable Subscription Rights to subscribe for shares of Holding Company Conversion Stock in an amount equal to the greater of $100,000, one-tenth of one percent (.10%) of the total offering of shares, or 15 times the product (rounded down to the next whole number) obtained by multiplying the total number of shares of common stock to be issued by a fraction of which the numerator is the amount of the qualifying deposit of the Supplemental Eligible Account Holder and the denominator is the total amount of qualifying deposits of 7 all Supplemental Eligible Account Holders in the converting Association in each case on the Supplemental Eligibility Record Date. Subscription Rights received pursuant to this category shall be subordinated to all Subscription Rights received by Eligible Account Holders and Tax-Qualified Employee Plans pursuant to Category Nos. 1 and 2 above. Any non-transferable Subscription Rights to purchase shares received by an Eligible Account Holder in accordance with Category No. 1 shall reduce to the extent thereof the Subscription Rights to be distributed to such person pursuant to this Category. In the event of an oversubscription for shares under the provisions of this subparagraph, the shares available shall be allocated first to permit each subscribing Supplemental Eligible Account Holder to the extent possible, to purchase a number of shares sufficient to make his total allocation (including the number of shares, if any, allocated in accordance with Category No. 1) equal to 100 shares, and thereafter among each subscribing Supplemental Eligible Account Holder pro rata in the same proportion that his Qualifying Deposit bears to the total Qualifying Deposits of all subscribing Supplemental Eligible Account Holders whose subscriptions remain unsatisfied. 4. Preference Category No. 4: Other Members Each Other Member shall receive non-transferable Subscription Rights to subscribe for shares of Holding Company Conversion Stock remaining after satisfying the subscriptions provided for under Category Nos. 1 through 3 above, subject to the following conditions: a. Each Other Member shall be entitled to subscribe for an amount of shares equal to the greater of $100,000 or one-tenth of one percent (.10%) of the total offering of shares of common stock in the Conversion, to the extent that Holding Company Conversion Stock is available. b. In the event of an oversubscription for shares under the provisions of this subparagraph, the shares available shall be allocated among the subscribing Other Members pro rata in the same proportion that his number of votes on the Voting Record Date bears to the total number of votes on the Voting Record Date of all subscribing Other Members on such date. Such number of votes shall be determined based on the Association's mutual charter and bylaws in effect on the date of approval by members of this Plan of Conversion. 5. Preference Category No. 5: Directors, Officers and Employees Each director, Officer and employee of the Association as of the date of the commencement of the Subscription Offering shall be entitled to receive non-transferable Subscription Rights to purchase shares of the Holding Company Conversion Stock to the 8 extent that shares are available after satisfying subscriptions under Category Nos. 1 through 4 above. The shares which may be purchased under this Category are subject to the following conditions: a. The total number of shares which may be purchased under this Category may not exceed 24% of the number of shares of Holding Company Conversion Stock. b. The maximum amount of shares which may be purchased under this Category by any Person is $100,000 of Holding Company Conversion Stock. In the event of an oversubscription for shares under the provisions of this subparagraph, the shares available shall be allocated pro rata among all subscribers in this Category. C. Direct Community Offering Any shares of Holding Company Conversion Stock not subscribed for in the Subscription Offering may be offered for sale in a Direct Community Offering. This will involve an offering of all unsubscribed shares directly to the general public with a preference to those natural persons residing in any county in which the Association has an office. The Direct Community Offering, if any, shall be for a period of not less than 20 days nor more than 45 days unless extended by the Holding Company and the Association, and shall commence concurrently with, during or promptly after the Subscription Offering. The purchase price per share to the general public in a Direct Community Offering shall be the same as the Actual Subscription Price. The Holding Company Conversion Stock will be offered and sold in the Direct Community Offering, in accordance with OTS regulations, so as to achieve the widest distribution of the Holding Company Conversion Stock. In the event that the number of shares subscribed for under this Section V.C. exceeds the number of available shares, will be allocated (to the extent shares remain available) first to cover orders of natural persons residing in any county in which the Association has an office, then to cover the orders of any other person subscribing for shares in the Community Offering so that each such person may receive 1,000 shares, and thereafter, on a pro rata basis to such persons based on the amount of their respective subscriptions. Securities dealers may also be used to sell unsubscribed shares. Commissions, fees and expenses of securities dealers in selling unsubscribed shares shall be paid by the Association. The Association may pay a reasonable consulting fee to investment banking firms that provided assistance and advice in connection with the Direct Community Offering. The Association and the Holding Company, in their sole discretion, may reject subscriptions, in whole or in part, received from any Person under this Section V.C. 9 If purchasers cannot be found for an insignificant residue of unsubscribed shares from the general public, other purchase arrangements will be made by the Board of Directors of the Association, if possible. Such other purchase arrangements will be subject to the approval of the OTS and may provide for purchases by directors, officers, their Associates and other persons in excess of the limitations provided in this Section V. If such other purchase arrangements cannot be made, the Plan will terminate. D. Additional Limitations Upon Purchases of Shares of Holding Company Conversion Stock The following additional limitations shall be imposed on all purchases of Holding Company Conversion Stock in the Conversion: 1. No Person, by himself or herself, or with an Associate or group of Persons acting in concert, may subscribe for or purchase in the Conversion an amount of shares of Holding Company Conversion Stock which exceeds $100,000 of Holding Company Conversion Stock offered in the Conversion based on the appraisal range contained in the Association's subscription prospectus (exclusive of any additional shares that may be offered pursuant to an increase in such appraisal range not requiring a resolicitation of subscribers). For purposes of this paragraph, an Associate of a Person does not include a Tax-Qualified or Non-Tax-Qualified Employee Plan in which the person has a substantial beneficial interest or serves as a trustee or in a similar fiduciary capacity. Moreover, for purposes of this paragraph, shares held by one or more Tax-Qualified or Non-Tax- Qualified Employee Plans attributed to a Person shall not be aggregated with shares purchased directly by or otherwise attributable to that Person. 2. Directors and Officers and their Associates may not purchase in all categories in the Conversion an aggregate of more than 34% of the Holding Company Conversion Stock. For purposes of this paragraph, an Associate of a Person does not include any Tax- Qualified Employee Plan. Moreover, any shares attributable to the Officers and directors and their Associates, but held by one or more Tax-Qualified Employee Plans shall not be included in calculating the number of shares which may be purchased under the limitation in this paragraph. 3. The minimum number of shares of Holding Company Conversion Stock that may be purchased by any Person in the Conversion is 25 shares, provided sufficient shares are available. 4. The Boards of Directors of the Holding Company and the Association may, in their sole discretion, increase the maximum purchase limitation referred to in subparagraph 1. herein up to 9.99%, provided that orders for shares exceeding 5% of the shares being offered in the Subscription Offering shall not exceed, in the aggregate, 10% of the shares being offered in the Subscription Offering. Requests to purchase additional shares of Holding Company Conversion Stock under this provision will be allocated by the Boards 10 of Directors on a pro rata basis giving priority in accordance with the priority rights set forth in this Section V. Depending upon market and financial conditions, the Boards of Directors of the Holding Company and the Association, with the approval of the OTS and without further approval of the Members, may increase or decrease any of the above purchase limitations. For purposes of this Section V, the directors of the Holding Company and the Association shall not be deemed to be Associates or a group acting in concert solely as a result of their serving in such capacities. Each Person purchasing Holding Company Conversion Stock in the Conversion shall be deemed to confirm that such purchase does not conflict with the above purchase limitations. E. Restrictions and Other Characteristics of Holding Company Conversion Stock Being Sold 1. Transferability. Holding Company Conversion Stock purchased by Persons other than directors and Officers of the Holding Company or the Association will be transferable without restriction. Shares purchased by directors or Officers shall not be sold or otherwise disposed of for value for a period of one year from the date of Conversion, except for any disposition of such shares (i) following the death of the original purchaser, or (ii) resulting from an exchange of securities in a merger or acquisition approved by the applicable regulatory authorities. Any transfers that could result in a change of control of the Association or the Holding Company or result in the ownership by any Person or group acting in concert of more than 10% of any class of the Association's or the Holding Company's equity securities are subject to the prior approval of the OTS. The certificates representing shares of Holding Company Conversion Stock issued to directors and Officers shall bear a legend giving appropriate notice of the one year holding period restriction. Appropriate instructions shall be given to the transfer agent for such stock with respect to the applicable restrictions relating to the transfer of restricted stock. Any shares of common stock of the Holding Company subsequently issued as a stock dividend, stock split, or otherwise, with respect to any such restricted stock, shall be subject to the same holding period restrictions for Holding Company or Association directors and Officers as may be then applicable to such restricted stock. No director or Officer of the Holding Company or of the Association, or Associate of such a director or Officer, shall purchase any outstanding shares of capital stock of the Holding Company for a period of three years following the Conversion without the prior written approval of the OTS, except through a broker or dealer registered with the SEC or in a "negotiated transaction" involving more than one percent of the then-outstanding shares of common stock of the Holding Company. As used herein, the term "negotiated transaction" means a transaction in which the securities are offered and the terms and arrangements relating to any sale are arrived at through direct communications between 11 the seller or any Person acting on its behalf and the purchaser or his investment representative. The term "investment representative" shall mean a professional investment advisor acting as agent for the purchaser and independent of the seller and not acting on behalf of the seller in connection with the transaction. 2. Repurchase and Dividend Rights. For a period of three years following Conversion, the Converted Association shall not repurchase any shares of its capital stock, except in the case of an offer to repurchase on a pro rata basis made to all holders of capital stock of the Converted Association. Any such offer shall be subject to the prior approval of the OTS. A repurchase of qualifying shares of a director shall not be deemed to be a repurchase for purposes of this Section V.E.2. Present regulations also provide that the Converted Association may not declare or pay a cash dividend on or repurchase any of its stock (i) if the result thereof would be to reduce the regulatory capital of the Converted Association below the amount required for the liquidation account to be established pursuant to Section XIII hereof, and (ii) except in compliance with requirements of Section 563.134 of the Rules and Regulations of the OTS. The above limitations are subject to Section 563b.3(g)(3) of the Rules and Regulations of the OTS, which generally provides that the Converted Association may repurchase its capital stock provided (i) no repurchases occur within one year following conversion, (ii) repurchases during the second and third year after conversion are part of an open market stock repurchase program that does not allow for a repurchase of more than 5% of the Association's outstanding capital stock during a twelve-month period without OTS approval, (iii) the repurchases do not cause the Association to become undercapitalized, and (iv) the Association provides notice to the OTS at least 10 days prior to the commencement of a repurchase program and the OTS does not object. In addition, the above limitations shall not preclude payments of dividends or repurchases of capital stock by the Converted Association in the event applicable federal regulatory limitations are liberalized subsequent to OTS approval of the Plan. 3. Voting Rights. After Conversion, holders of deposit accounts will not have voting rights in the Converted Association or the Holding Company. Exclusive voting rights as to the Converted Association will be vested in the Holding Company, as the sole stockholder of the Converted Association. Voting rights as to the Holding Company will be held exclusively by its stockholders. F. Exercise of Subscription Rights; Order Forms 1. If the Subscription Offering occurs concurrently with the solicitation of proxies for the Special Meeting, the subscription prospectus and Order Form may be sent to each Eligible Account Holder, Tax-Qualified Employee Plan, Supplemental Eligible Account Holder, Other Member, and director, Officer and employee at their last known address as shown on the records of the Association. However, the Association may, and if the Subscription Offering commences after the Special Meeting the Association shall, furnish 12 a subscription prospectus and Order Form only to Eligible Account Holders, Tax-Qualified Employee Plans, Supplemental Eligible Account Holders, Other Members, and directors, Officers and employees who have returned to the Association by a specified date prior to the commencement of the Subscription Offering a post card or other written communication requesting a subscription prospectus and Order Form. In such event, the Association shall provide a postage-paid post card for this purpose and make appropriate disclosure in its proxy statement for the solicitation of proxies to be voted at the Special Meeting and/or letter sent in lieu of the proxy statement to those Eligible Account Holders, Tax-Qualified Employee Plans or Supplemental Eligible Account Holders who are not Members on the Voting Record Date. 2. Each Order Form will be preceded or accompanied by a subscription prospectus describing the Holding Company and the Converted Association and the shares of Holding Company Conversion Stock being offered for subscription and containing all other information required by the OTS or the SEC or necessary to enable Persons to make informed investment decisions regarding the purchase of Holding Company Conversion Stock. 3. The Order Forms (or accompanying instructions) used for the Subscription Offering will contain, among other things, the following: (i) A clear and intelligible explanation of the Subscription Rights granted under the Plan to Eligible Account Holders, Tax-Qualified Employee Plans, Supplemental Eligible Account Holders, Other Members, and directors, Officers and employees; (ii) A specified expiration date by which Order Forms must be returned to and actually received by the Association or its representative for purposes of exercising Subscription Rights, which date will be not less than 20 days after the Order Forms are mailed by the Association; (iii) The Maximum Subscription Price to be paid for each share subscribed for when the Order Form is returned; (iv) A statement that 25 shares is the minimum number of shares of Holding Company Conversion Stock that may be subscribed for under the Plan; (v) A specifically designated blank space for indicating the number of shares being subscribed for; (vi) A set of detailed instructions as to how to complete the Order Form including a statement as to the available alternative methods of payment for the shares being subscribed for; 13 (vii) Specifically designated blank spaces for dating and signing the Order Form; (viii) An acknowledgement that the subscriber has received the subscription prospectus; (ix) A statement of the consequences of failing to properly complete and return the Order Form, including a statement that the Subscription Rights will expire on the expiration date specified on the Order Form unless such expiration date is extended by the Holding Company and the Association, and that the Subscription Rights may be exercised only by delivering the Order Form, properly completed and executed, to the Association or its representative by the expiration date, together with required payment of the Maximum Subscription Price for all shares of Holding Company Conversion Stock subscribed for; (x) A statement that the Subscription Rights are non-transferable and that all shares of Holding Company Conversion Stock subscribed for upon exercise of Subscription Rights must be purchased on behalf of the Person exercising the Subscription Rights for his own account; and (xi) A statement that, after receipt by the Association or its representative, a subscription may not be modified, withdrawn or canceled without the consent of the Association. G. Method of Payment Payment for all shares of Holding Company Conversion Stock subscribed for, computed on the basis of the Maximum Subscription Price, must accompany all completed Order Forms. Payment may be made in cash (if presented in Person), by check or money order, or, if the subscriber has a Deposit Account in the Association (including a certificate of deposit), the subscriber may authorize the Association to charge the subscriber's account. If a subscriber authorizes the Association to charge his or her account, the funds will continue to earn interest, but may not be used by the subscriber until all Holding Company Conversion Stock has been sold or the Plan of Conversion is terminated, whichever is earlier. The Association will allow subscribers to purchase shares by withdrawing funds from certificate accounts without the assessment of early withdrawal penalties with the exception of prepaid interest in the form of promotional gifts. In the case of early withdrawal of only a portion of such account, the certificate evidencing such account shall be canceled if the remaining balance of the account is less than the applicable minimum balance requirement, in which event the remaining balance will earn interest at the passbook rate. This waiver of the early withdrawal penalty is applicable only to withdrawals made in connection with the purchase of Holding Company Conversion Stock under the Plan of Conversion. Interest will also be paid, at not less than the then-current passbook rate, on all orders paid in cash, by check or money order, from the date payment is received until consummation of the Conversion. Payments made in cash, by check or 14 money order will be placed by the Association in an escrow or other account established specifically for this purpose. In the event of an unfilled amount of any subscription order, the Converted Association will make an appropriate refund or cancel an appropriate portion of the related withdrawal authorization, after consummation of the Conversion, including any difference between the Maximum Subscription Price and the Actual Subscription Price (unless subscribers are afforded the right to apply such difference to the purchase of additional whole shares). If for any reason the Conversion is not consummated, purchasers will have refunded to them all payments made and all withdrawal authorizations will be canceled in the case of subscription payments authorized from accounts at the Association. If any Tax-Qualified Employee Plans or Non-Tax-Qualified Employee Plans subscribe for shares during the Subscription Offering, such plans will not be required to pay for the shares subscribed for at the time they subscribe, but may pay for such shares of Holding Company Conversion Stock subscribed for upon consummation of the Conversion. In the event that, after the completion of the Subscription Offering, the amount of shares to be issued is increased above the maximum of the appraisal range included in the subscription prospectus, the Tax-Qualified and Non-Tax-Qualified Employee Plans shall be entitled to increase their subscriptions by a percentage equal to the percentage increase in the amount of shares to be issued above the maximum of the appraisal range provided that such subscriptions shall continue to be subject to applicable purchase limits and stock allocation procedures. H. Undelivered, Defective or Late Order Forms; Insufficient Payment The Boards of Directors of the Holding Company and the Association shall have the absolute right, in their sole discretion, to reject any Order Form, including but not limited to, any Order Forms which (i) are not delivered or are returned by the United States Postal Service (or the addressee cannot be located); (ii) are not received back by the Association or its representative, or are received after the termination date specified thereon; (iii) are defectively completed or executed; (iv) are not accompanied by the total required payment for the shares of Holding Company Conversion Stock subscribed for (including cases in which the subscribers' Deposit Accounts or certificate accounts are insufficient to cover the authorized withdrawal for the required payment); or (v) are submitted by or on behalf of a Person whose representations the Boards of Directors of the Holding Company and the Association believe to be false or who they otherwise believe, either alone or acting in concert with others, is violating, evading or circumventing, or intends to violate, evade or circumvent, the terms and conditions of this Plan. In such event, the Subscription Rights of the Person to whom such rights have been granted will not be honored and will be treated as though such Person failed to return the completed Order Form within the time period specified therein. The Association may, but will not be required to, waive any irregularity relating to any Order Form or require submission of corrected Order Forms or the remittance of full payment for subscribed shares by such date as the Association may specify. The interpretation of the Holding Company and the Association of the terms and conditions of this Plan and of the proper completion of the Order Form will be final, subject to the authority of the OTS. 15 I. Member in Non-Qualified States or in Foreign Countries The Holding Company and the Association will make reasonable efforts to comply with the securities laws of all states in the United States in which Persons entitled to subscribe for Holding Company Conversion Stock pursuant to the Plan reside. However, no shares will be offered or sold under the Plan of Conversion to any such Person who (1) resides in a foreign country or (2) resides in a state of the United States in which a small number of Persons otherwise eligible to subscribe for shares under the Plan of Conversion reside or as to which the Holding Company and the Association determine that compliance with the securities laws of such state would be impracticable for reasons of cost or otherwise, including, but not limited to, a requirement that the Holding Company or the Association or any of their officers, directors or employees register, under the securities laws of such state, as a broker, dealer, salesman or agent. No payments will be made in lieu of the granting of Subscription Rights to any such Person. VI. FEDERAL STOCK CHARTER AND BYLAWS A. As part of the Conversion, the Association will take all appropriate steps to amend its charter to read in the form of federal stock savings institution charter as prescribed by the OTS. A copy of the proposed stock charter is available upon request. By their approval of the Plan, the Members of the Association will thereby approve and adopt such charter. B. The Association will also take appropriate steps to amend its bylaws to read in the form prescribed by the OTS for a federal stock savings institution. A copy of the proposed federal stock bylaws is available upon request. C. The effective date of the adoption of the Association's federal stock charter and bylaws shall be the date of the issuance and sale of the Holding Company Conversion Stock as specified by the OTS. VII. HOLDING COMPANY CERTIFICATE OF INCORPORATION A copy of the proposed certificate of incorporation of the Holding Company will be made available from the Association upon request. VIII. DIRECTORS OF THE CONVERTED ASSOCIATION Each Person serving as a member of the Board of Directors of the Association at the time of the Conversion will thereupon become a director of the Converted Association. 16 IX. STOCK OPTION AND INCENTIVE PLAN AND RECOGNITION AND RETENTION PLAN In order to provide an incentive for directors, Officers and employees of the Holding Company and its subsidiaries (including the Association), the Board of Directors of the Holding Company intends to adopt, subject to shareholder approval, a stock option and incentive plan and a recognition and retention plan as permitted by applicable regulation. X. CONTRIBUTIONS TO TAX-QUALIFIED EMPLOYEE PLANS The Converted Association and the Holding Company may in their discretion make scheduled contributions to any Tax-Qualified Employee Plans, provided that any such contributions which are for the acquisition of Holding Company Conversion Stock, or the repayment of debt incurred for such an acquisition, do not cause the Converted Association to fail to meet its regulatory capital requirements. XI. SECURITIES REGISTRATION AND MARKET MAKING Promptly following the Conversion, the Holding Company will register its stock with the SEC pursuant to the Exchange Act. In connection with the registration, the Holding Company will undertake not to deregister such stock, without the approval of the OTS, for a period of three years thereafter. The Holding Company shall use its best efforts to encourage and assist two or more Market Makers to establish and maintain a market for its common stock promptly following Conversion. The Holding Company will also use its best efforts to cause its common stock to be quoted on the National Association of Securities Dealers, Inc. Automated Quotations System or to be listed on a national or regional securities exchange. XII. STATUS OF SAVINGS ACCOUNTS AND LOANS SUBSEQUENT TO CONVERSION Each Deposit Account holder shall retain, without payment, a withdrawable Deposit Account or Accounts in the Converted Association, equal in amount to the withdrawable value of such account holder's Deposit Account or Accounts prior to Conversion. All Deposit Accounts will continue to be insured by the Federal Deposit Insurance Corporation up to the applicable limits of insurance coverage, and shall be subject to the same terms and conditions (except as to voting and liquidation rights) as such Deposit Account in the Association at the time of the Conversion. All loans shall retain the same status after Conversion as these loans had prior to Conversion (except as to voting rights, if any). 17 XIII. LIQUIDATION ACCOUNT For purposes of granting to Eligible Account Holders and Supplemental Eligible Account Holders who continue to maintain Deposit Accounts at the Converted Association a priority in the event of a complete liquidation of the Converted Association, the Converted Association will, at the time of Conversion, establish a liquidation account in an amount equal to the net worth of the Association as shown on its latest statement of financial condition contained in the final offering circular used in connection with the Conversion. The creation and maintenance of the liquidation account will not operate to restrict the use or application of any of the regulatory capital accounts of the Converted Association; provided, however, that such regulatory capital accounts will not be voluntarily reduced below the required dollar amount of the liquidation account. Each Eligible Account Holder and Supplemental Eligible Account Holder shall, with respect to the Deposit Account held, have a related inchoate interest in a portion of the liquidation account balance ("subaccount balance"). The initial subaccount balance of a Deposit Account held by an Eligible Account Holder or Supplemental Eligible Account Holder shall be determined by multiplying the opening balance in the liquidation account by a fraction of which the numerator is the amount of the Qualifying Deposit in the Deposit Account on the Eligibility Record Date or the Supplemental Eligibility Record Date and the denominator is the total amount of the Qualifying Deposits of all Eligible Account Holders and Supplemental Eligible Account Holders on such record dates in the Association. Such initial subaccount balance shall not be increased, and it shall be subject to downward adjustment as provided below. If the deposit balance in any Deposit Account of an Eligible Account Holder or Supplemental Eligible Account Holder at the close of business on any annual closing date subsequent to the record date is less than the lesser of (i) the deposit balance in such Deposit Account at the close of business on any other annual closing date subsequent to the Eligibility Record Date or the Supplemental Eligibility Record Date or (ii) the amount of the Qualifying Deposit in such Deposit Account on the Eligibility Record Date or Supplemental Eligibility Record Date, the subaccount balance shall be reduced in an amount proportionate to the reduction in such deposit balance. In the event of a downward adjustment, the subaccount balance shall not be subsequently increased, notwithstanding any increase in the deposit balance of the related Deposit Account. If all funds in such Deposit Account are withdrawn, the related subaccount balance shall be reduced to zero. In the event of a complete liquidation of the Association (and only in such event), each Eligible Account Holder and Supplemental Eligible Account Holder shall be entitled to receive a liquidation distribution from the liquidation account in the amount of the then-current adjusted subaccount balances for Deposit Accounts then held before any liquidation distribution may be made to stockholders. No merger, consolidation, bulk purchase of assets with assumptions of Deposit Accounts and other liabilities, or similar transactions with another institution the accounts of which are insured by the Federal Deposit Insurance Corporation, shall be considered to be a complete liquidation. In such transactions, the liquidation account shall be assumed by the surviving institution. 18 XIV. RESTRICTIONS ON ACQUISITION OF CONVERTED ASSOCIATION Regulations of the OTS limit acquisitions, and offers to acquire, direct or indirect beneficial ownership of more than 10% of any class of an equity security of the Converted Association or the Holding Company. In addition, consistent with the regulations of the OTS, the charter of the Converted Association shall provide that for a period of five years following completion of the Conversion: (i) no Person (i.e., no individual, group acting in concert, corporation, partnership, association, joint stock company, trust, or unincorporated organization or similar company, syndicate, or any other group formed for the purpose of acquiring, holding or disposing of securities of an insured institution) shall directly or indirectly offer to acquire or acquire beneficial ownership of more than 10% of any class of the Association's equity securities. Shares beneficially owned in violation of this charter provision shall not be counted as shares entitled to vote and shall not be voted by any Person or counted as voting shares in connection with any matter submitted to the shareholders for a vote. This limitation shall not apply to any offer to acquire or acquisition of beneficial ownership of more than 10% of the common stock of the Association by a corporation whose ownership is or will be substantially the same as the ownership of the Association, provided that the offer or acquisition is made more than one year following the date of completion of the Conversion; (ii) shareholders shall not be permitted to cumulate their votes for elections of directors; and (iii) special meetings of the shareholders relating to changes in control or amendment of the charter may only be called by the Board of Directors. XV. AMENDMENT OR TERMINATION OF PLAN If necessary or desirable, the Plan may be amended at any time prior to submission of the Plan and proxy materials to the Members by a two-thirds vote of the respective Boards of Directors of the Holding Company and the Association. After submission of the Plan and proxy materials to the Members, the Plan may be amended by a two-thirds vote of the respective Boards of Directors of the Holding Company and the Association only with the concurrence of the OTS. In the event that the Association determines that for tax purposes or otherwise it is in the best interest of the Association to convert from a federal mutual to a federal stock institution without the concurrent formation of a holding company, the Plan may be substantively amended, with OTS approval, in such respects as the Board of Directors of the Association deems appropriate to reflect such change from a holding company conversion to a direct conversion. In the event the Plan is so amended, common stock of the Association will be substituted for Holding Company Conversion Stock in the Subscription and Direct Community Offerings, and subscribers will be resolicited as described in Section V hereof. Any amendments to the Plan (including amendments to reflect the elimination of the concurrent holding company formation) made after approval by the Members with the concurrence of the OTS shall not necessitate further approval by the Members unless otherwise required. The Plan may be terminated by a two-thirds vote of the Association's Board of Directors at any time prior to the Special Meeting of Members, and at any time following such Special Meeting with the concurrence of the OTS. In its discretion, the Board of Directors of the Association may modify or terminate the Plan upon the order or with the approval of the OTS and without further approval by Members. The Plan shall terminate if the sale of all shares of Holding 19 Company Conversion Stock is not completed within 24 months of the date of the Special Meeting. A specific resolution approved by a majority of the Board of Directors of the Association is required in order for the Association to terminate the Plan prior to the end of such 24 month period. XVI. EXPENSES OF THE CONVERSION The Holding Company and the Association shall use their best efforts to assure that expenses incurred by them in connection with the Conversion shall be reasonable. XVII. TAX RULING Consummation of the Conversion is expressly conditioned upon prior receipt of either a ruling of the United States Internal Revenue Service or an opinion of tax counsel with respect to federal taxation, and either a ruling of the Maryland taxation authorities or an opinion of tax counsel or other tax advisor with respect to Maryland taxation, to the effect that consummation of the transactions contemplated herein will not be taxable to the Holding Company or the Association. XVIII. EXTENSION OF CREDIT FOR PURCHASE OF STOCK The Association may not knowingly loan funds or otherwise extend credit to any Person to purchase in the Conversion shares of Holding Company Conversion Stock. 20 EX-3 3 EXHIBIT 3.1 EXHIBIT 3.1 CERTIFICATE OF INCORPORATION OF THE HOLDING COMPANY CERTIFICATE OF INCORPORATION OF WYMAN PARK BANCORPORATION, INC. FIRST: The name of the Corporation is Wyman Park Bancorporation, Inc. (hereinafter sometimes referred to as the "Corporation"). SECOND: The address of the registered office of the Corporation in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of the registered agent at that address is The Corporation Trust Company. THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of Delaware. FOURTH: A. The total number of shares of all classes of stock which the Corporation shall have the authority to issue is two million five hundred thousand (2,500,000) consisting of: 1. Five hundred thousand (500,000) shares of preferred stock, par value one cent ($.01) per share (the "Preferred Stock"); and 2. Two million (2,000,000) shares of common stock, par value one cent ($.01) per share (the "Common Stock"). B. The Board of Directors is hereby expressly authorized, subject to any limitations prescribed by law, to provide for the issuance of the shares of Preferred Stock in series, and by filing a certificate pursuant to the applicable law of the State of Delaware (such certificate being hereinafter referred to as a "Preferred Stock Designation"), to establish from time to time the number of shares to be included in each such series, and to fix the designation, powers, preferences and rights of the shares of each such series and any qualifications, limitations or restrictions thereof. The number of authorized shares of the Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the Common Stock, without a vote of the holders of the Preferred Stock, or of any series thereof, unless a vote of any such holders is required pursuant to the terms of any Preferred Stock Designation. C.1. Notwithstanding any other provision of this Certificate of Incorporation, in no event shall any record owner of any outstanding Common Stock which is beneficially owned, directly or indirectly, by a person who, as of any record date for the determination of stockholders entitled to vote on any matter, beneficially owns in excess of 10% of the then-outstanding shares of Common Stock (the "Limit"), be entitled, or permitted to any vote in respect of the shares held in excess of the Limit. The number of votes which may be cast by any record owner by virtue of the provisions hereof in respect of Common Stock beneficially owned by such person owning shares in excess of the Limit shall be a number equal to the total number of votes which a single record owner of all 1 Common Stock owned by such person would be entitled to cast, multiplied by a fraction, the numerator of which is the number of shares of such class or series beneficially owned by such person and owned of record by such record owner and the denominator of which is the total number of shares of Common Stock beneficially owned by such person owning shares in excess of the Limit. C.2. The following definitions shall apply to this Section C of this Article FOURTH: (a) An "affiliate" of a specified person shall mean a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the person specified. (b) "Beneficial ownership" shall be determined pursuant to Rule 13d-3 of the General Rules and Regulations under the Securities Exchange Act of 1934 (or any successor rule or statutory provision), or, if said Rule 13d-3 shall be rescinded and there shall be no successor rule or statutory provision thereto, pursuant to said Rule 13d-3 as in effect on October 31, 1994; provided, however, that a person shall, in any event, also be deemed the "beneficial owner" of any Common Stock: (1) which such person or any of its affiliates beneficially owns, directly or indirectly; or (2) which such person or any of its affiliates has (i) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding (but shall not be deemed to be the beneficial owner of any voting shares solely by reason of an agreement, contract, or other arrangement with this Corporation to effect any transaction which is described in any one or more of the clauses of Section A of Article EIGHTH) or upon the exercise of conversion rights, exchange rights, warrants, or options or otherwise, or (ii) sole or shared voting or investment power with respect thereto pursuant to any agreement, arrangement, understanding, relationship or otherwise (but shall not be deemed to be the beneficial owner of any voting shares solely by reason of a revocable proxy granted for a particular meeting of stockholders, pursuant to a public solicitation of proxies for such meeting, with respect to shares of which neither such person nor any such affiliate is otherwise deemed the beneficial owner); or (3) which are beneficially owned, directly or indirectly, by any other person with which such first mentioned person or any of its affiliates acts as a partnership, limited partnership, syndicate or other group pursuant to any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of capital stock of this Corporation; and provided further, however, that (1) no director or officer of this Corporation (or any affiliate of any such director or officer) shall, solely by reason of any or all of such directors or officers acting in their capacities as such, be deemed, for any purposes hereof, to beneficially own any Common Stock beneficially owned by any other such director or officer (or any affiliate thereof), and (2) neither any employee stock ownership or similar plan of 2 this Corporation or any subsidiary of this Corporation nor any trustee with respect thereto (or any affiliate of such trustee) shall, solely by reason of such capacity of such trustee, be deemed, for any purposes hereof, to beneficially own any Common Stock held under any such plan. For purposes of computing the percentage beneficial ownership of Common Stock of a person, the outstanding Common Stock shall include shares deemed owned by such person through application of this subsection but shall not include any other Common Stock which may be issuable by this Corporation pursuant to any agreement, or upon exercise of conversion rights, warrants or options, or otherwise. For all other purposes, the outstanding Common Stock shall include only Common Stock then outstanding and shall not include any Common Stock which may be issuable by this Corporation pursuant to any agreement, or upon the exercise of conversion rights, warrants or options, or otherwise. (c) A "person" shall mean any individual, firm, corporation, or other entity. (d) The Board of Directors shall have the power to construe and apply the provisions of this section and to make all determinations necessary or desirable to implement such provisions, including but not limited to matters with respect to (1) the number of shares of Common Stock beneficially owned by any person, (2) whether a person is an affiliate of another, (3) whether a person has an agreement, arrangement, or understanding with another as to the matters referred to in the definition of beneficial ownership, (4) the application of any other definition or operative provision of this Section to the given facts, or (5) any other matter relating to the applicability or effect of this Section. C.3. The Board of Directors shall have the right to demand that any person who is reasonably believed to beneficially own Common Stock in excess of the Limit (or holds of record Common Stock beneficially owned by any person in excess of the Limit) (a "Holder in Excess") supply the Corporation with complete information as to (1) the record owner(s) of all shares beneficially owned by such Holder in Excess, and (2) any other factual matter relating to the applicability or effect of this section as may reasonably be requested of such Holder in Excess. The Board of Directors shall further have the right to receive from any Holder in Excess reimbursement for all expenses incurred by the Board in connection with its investigation of any matters relating to the applicability or effect of this section on such Holder in Excess, to the extent such investigation is deemed appropriate by the Board of Directors as a result of the Holder in Excess refusing to supply the Corporation with the information described in the previous sentence. C.4. Except as otherwise provided by law or expressly provided in this Section C, the presence, in person or by proxy, of the holders of record of shares of capital stock of the Corporation entitling the holders thereof to cast one-third of the votes (after giving effect, if required, to the provisions of this Section) entitled to be cast by the holders of shares of capital stock of the Corporation entitled to vote shall constitute a quorum at all meetings of the stockholders, and every reference in this Certificate of Incorporation to a majority or other proportion of capital stock (or the holders thereof) for purposes of determining any quorum requirement or any requirement for stockholder consent or approval shall be deemed to refer to such majority or other proportion of the votes (or the holders thereof) then entitled to be cast in respect of such capital stock. 3 C.5. Any constructions, applications, or determinations made by the Board of Directors, pursuant to this Section in good faith and on the basis of such information and assistance as was then reasonably available for such purpose, shall be conclusive and binding upon the Corporation and its stockholders. C.6. In the event any provision (or portion thereof) of this Section C shall be found to be invalid, prohibited or unenforceable for any reason, the remaining provisions (or portions thereof) of this Section shall remain in full force and effect, and shall be construed as if such invalid, prohibited or unenforceable provision had been stricken herefrom or otherwise rendered inapplicable, it being the intent of this Corporation and its stockholders that each such remaining provision (or portion thereof) of this Section C remain, to the fullest extent permitted by law, applicable and enforceable as to all stockholders, including stockholders owning an amount of stock over the Limit, notwithstanding any such finding. FIFTH: The following provisions are inserted for the management of the business and the conduct of the affairs of the Corporation, and for further definition, limitation and regulation of the powers of the Corporation and of its directors and stockholders: A. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. In addition to the powers and authority expressly conferred upon them by Statute or by this Certificate of Incorporation or the By-laws of the Corporation, the directors are hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation. B. The directors of the Corporation need not be elected by written ballot unless the By-laws so provide. C. Subject to the rights of holders of any class or series of Preferred Stock, any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of stockholders of the Corporation and may not be effected by any consent in writing by such stockholders. D. Subject to the rights of holders of any class or series of Preferred Stock, special meetings of stockholders of the Corporation may be called only by the Board of Directors pursuant to a resolution adopted by a majority of the total number of directors which the Corporation would have if there were no vacancies on the Board of Directors (the "Whole Board"). E. Stockholders shall not be permitted to cumulate their votes for the election of directors. SIXTH: A. The number of directors shall be fixed from time to time exclusively by the Board of Directors pursuant to a resolution adopted by a majority of the Whole Board. The directors, other than those who may be elected by the holders of any class or series of Preferred Stock, shall be 4 divided into three classes, as nearly equal in number as reasonably possible, with the term of office of the first class to expire at the conclusion of the first annual meeting of stockholders, the term of office of the second class to expire at the conclusion of the annual meeting of stockholders one year thereafter and the term of office of the third class to expire at the conclusion of the annual meeting of stockholders two years thereafter, with each director to hold office until his or her successor shall have been duly elected and qualified. At each annual meeting of stockholders following such initial classification and election, directors elected to succeed those directors whose terms expire shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders after their election, with each director to hold office until his or her successor shall have been duly elected and qualified. B. Subject to the rights of the holders of any series of Preferred Stock then outstanding, newly created directorships resulting from any increase in the authorized number of directors or any vacancies in the Board of Directors resulting from death, resignation, retirement, disqualification, removal from office or other cause may be filled only by a majority vote of the directors then in office, though less than a quorum, and directors so chosen shall hold office for a term expiring at the annual meeting of stockholders at which the term of office of the class to which they have been elected expires, and until such director's successor shall have been duly elected and qualified. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. C. Advance notice of stockholder nominations for the election of directors and of business to be brought by stockholders before any meeting of the stockholders of the Corporation shall be given in the manner provided in the By-laws of the Corporation. D. Subject to the rights of the holders of any series of Preferred Stock then outstanding, any directors, or the entire Board of Directors, may be removed from office at any time, but only for cause and only by the affirmative vote of the holders of at least 80% of the voting power of all of the then-outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (after giving effect to the provisions of Article FOURTH of this Certificate of Incorporation), voting together as a single class. SEVENTH: The Board of Directors is expressly empowered to adopt, amend or repeal the By-laws of the Corporation. Any adoption, amendment or repeal of the By-laws of the Corporation by the Board of Directors shall require the approval of a majority of the Whole Board. The stockholders shall also have power to adopt, amend or repeal the By-laws of the Corporation. In addition to any vote of the holders of any class or series of stock of this Corporation required by law or by this Certificate of Incorporation, the affirmative vote of the holders of at least 80% of the voting power of all of the then-outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors (after giving effect to the provisions of Article FOURTH hereof), voting together as a single class, shall be required to adopt, amend or repeal any provisions of the By-laws of the Corporation. 5 EIGHTH: A. In addition to any affirmative vote required by law or this Certificate of Incorporation, and except as otherwise expressly provided in this Section: 1. any merger or consolidation of the Corporation or any Subsidiary (as hereinafter defined) with (i) any Interested Stockholder (as hereinafter defined) or (ii) any other corporation (whether or not itself an Interested Stockholder) which is, or after such merger or consolidation would be, an Affiliate (as hereinafter defined) of an Interested Stockholder; or 2. any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions) to or with any Interested Stockholder, or any Affiliate of any Interested Stockholder, of any assets of the Corporation or any Subsidiary having an aggregate Fair Market Value (as hereafter defined) equaling or exceeding 25% or more of the combined assets of the Corporation and its Subsidiaries; or 3. the issuance or transfer by the Corporation or any Subsidiary (in one transaction or a series of transactions) of any securities of the Corporation or any Subsidiary to any Interested Stockholder or any Affiliate of any Interested Stockholder in exchange for cash, securities or other property (or a combination thereof) having an aggregate Fair Market Value equaling or exceeding 25% of the combined assets of the Corporation and its Subsidiaries except pursuant to an employee benefit plan of the Corporation or any Subsidiary thereof; or 4. the adoption of any plan or proposal for the liquidation or dissolution of the Corporation proposed by or on behalf of any Interested Stockholder or any Affiliate of any Interested Stockholder; or 5. any reclassification of securities (including any reverse stock split), or recapitalization of the Corporation, or any merger or consolidation of the Corporation with any of its Subsidiaries or any other transaction (whether or not with or into or otherwise involving an Interested Stockholder) which has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class of equity or convertible securities of the Corporation or any Subsidiary which is directly or indirectly owned by any Interested Stockholder or any Affiliate of any Interested Stockholder (a "Disproportionate Transaction"); provided, however, that no such transaction shall be deemed a Disproportionate Transaction if the increase in the proportionate ownership of the Interested Stockholder or Affiliate as a result of such transaction is no greater than the increase experienced by the other stockholders generally; shall require the affirmative vote of the holders of at least 80% of the voting power of the then-outstanding shares of stock of the Corporation entitled to vote in the election of directors (the "Voting Stock"), voting together as a single class. Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that a lesser percentage may be specified, by law or by any other provisions of this Certificate of Incorporation or any Preferred Stock Designation or in any agreement with any national securities exchange or quotation system or otherwise. 6 The term "Business Combination" as used in this Article EIGHTH shall mean any transaction which is referred to in any one or more of paragraphs 1 through 5 of Section A of this Article EIGHTH. B. The provisions of Section A of this Article EIGHTH shall not be applicable to any particular Business Combination, and such Business Combination shall require only the affirmative vote of the majority of the outstanding shares of capital stock entitled to vote, or such vote as is required by law or by this Certificate of Incorporation, if, in the case of any Business Combination that does not involve any cash or other consideration being received by the stockholders of the Corporation solely in their capacity as stockholders of the Corporation, the condition specified in the following paragraph 1 is met or, in the case of any other Business Combination, all of the conditions specified in either of the following paragraphs 1 and 2 are met: 1. The Business Combination shall have been approved by a majority of the Disinterested Directors (as hereinafter defined). 2. All of the following conditions shall have been met: (a) The aggregate amount of the cash and the Fair Market Value as of the date of the consummation of the Business Combination of consideration other than cash to be received per share by the holders of Common Stock in such Business Combination shall at least be equal to the higher of the following: I. (if applicable) the Highest Per Share Price, including any brokerage commissions, transfer taxes and soliciting dealers' fees, paid by the Interested Stockholder or any of its Affiliates for any shares of Common Stock acquired by it (X) within the two-year period immediately prior to the first public announcement of the proposal of the Business Combination (the "Announcement Date"), or (Y) in the transaction in which it became an Interested Stockholder, whichever is higher. II. the Fair Market Value per share of Common Stock on the Announcement Date or on the date on which the Interested Stockholder became an Interested Stockholder (such latter date is referred to in this Article EIGHTH as the "Determination Date"), whichever is higher. (b) The aggregate amount of the cash and the Fair Market Value as of the date of the consummation of the Business Combination of consideration other than cash to be received per share by holders of shares of any class of outstanding Voting Stock other than Common Stock shall be at least equal to the highest of the following (it being intended that the requirements of this subparagraph (b) shall be required to be met with respect to every such class of outstanding Voting Stock, whether or not the Interested Stockholder has previously acquired any shares of a particular class of Voting Stock): 7 I. (if applicable) the Highest Per Share Price (as hereinafter defined), including any brokerage commissions, transfer taxes and soliciting dealers' fees, paid by the Interested Stockholder for any shares of such class of Voting Stock acquired by it (X) within the two-year period immediately prior to the Announcement Date, or (Y) in the transaction in which it became an Interested Stockholder, whichever is higher; II. (if applicable) the highest preferential amount per share to which the holders of shares of such class of Voting Stock are entitled in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation; and III. the Fair Market Value per share of such class of Voting Stock on the Announcement Date or on the Determination Date, whichever is higher. (c) The consideration to be received by holders of a particular class of outstanding Voting Stock (including Common Stock) shall be in cash or in the same form as the Interested Stockholder has previously paid for shares of such class of Voting Stock. If the Interested Stockholder has paid for shares of any class of Voting Stock with varying forms of consideration, the form of consideration to be received per share by holders of shares of such class of Voting Stock shall be either cash or the form used to acquire the largest number of shares of such class of Voting Stock previously acquired by the Interested Stockholder. The price determined in accordance with subparagraph B.2 of this Article EIGHTH shall be subject to appropriate adjustment in the event of any stock dividend, stock split, combination of shares or similar event. (d) After such Interested Stockholder has become an Interested Stockholder and prior to the consummation of such Business Combination; (i) except as approved by a majority of the Disinterested Directors, there shall have been no failure to declare and pay at the regular date therefor any full quarterly dividends (whether or not cumulative) on any outstanding stock having preference over the Common Stock as to dividends or liquidation; (ii) there shall have been (X) no reduction in the annual rate of dividends paid on the Common Stock (except as necessary to reflect any subdivision of the Common Stock), except as approved by a majority of the Disinterested Directors, and (Y) an increase in such annual rate of dividends as necessary to reflect any reclassification (including any reverse stock split), recapitalization, reorganization or any similar transaction which has the effect of reducing the number of outstanding shares of Common Stock, unless the failure to so increase such annual rate is approved by a majority of the Disinterested Directors; and (iii) neither such Interested Stockholder nor any of its Affiliates shall have become the beneficial owner of any additional shares of Voting Stock except as part of the transaction which results in such Interested Stockholder becoming an Interested Stockholder. (e) After such Interested Stockholder has become an Interested Stockholder, such Interested Stockholder shall not have received the benefit, directly or indirectly (except 8 proportionately as a stockholder), of any loans, advances, guarantees, pledges or other financial assistance or any tax credits or other tax advantages provided by the Corporation, whether in anticipation of or in connection with such Business Combination or otherwise. (f) A proxy or information statement describing the proposed Business Combination and complying with the requirements of the Securities Exchange Act of 1934 and the rules and regulations thereunder (or any subsequent provisions replacing such Act, rules or regulations) shall be mailed to stockholders of the Corporation at least 30 days prior to the consummation of such Business Combination (whether or not such proxy or information statement is required to be mailed pursuant to such Act or subsequent provisions). C. For the purposes of this Article EIGHTH: 1. A "Person" shall include an individual, a group acting in concert, a corporation, a partnership, an association, a joint venture, a pool, a joint stock company, a trust, an unincorporated organization or similar company, a syndicate or any other group formed for the purpose of acquiring, holding or disposing of securities. 2. "Interested Stockholder" shall mean any Person (other than the Corporation or any holding company or Subsidiary thereof) who or which: (a) is the beneficial owner, directly or indirectly, of more than 10% of the voting power of the outstanding Voting Stock; or (b) is an Affiliate of the Corporation and at any time within the two-year period immediately prior to the date in question was the beneficial owner, directly or indirectly, of 10% or more of the voting power of the then-outstanding Voting Stock; or (c) is an assignee of or has otherwise succeeded to any shares of Voting Stock which were at any time within the two-year period immediately prior to the date in question beneficially owned by any Interested Stockholder, if such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933. 3. A Person shall be a "beneficial owner" of any Voting Stock: (a) which such Person or any of its Affiliates or Associates (as hereinafter defined) beneficially owns, directly or indirectly within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as in effect on October 31, 1994; or (b) which such Person or any of its Affiliates or Associates has (i) the right to acquire (whether such right is exercisable immediately or only after the passage of time), 9 pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (ii) the right to vote pursuant to any agreement, arrangement or understanding (but neither such Person nor any such Affiliate or Associate shall be deemed to be the beneficial owner of any shares of Voting Stock solely by reason of a revocable proxy granted for a particular meeting of stockholders, pursuant to a public solicitation of proxies for such meeting, and with respect to which shares neither such Person nor any such Affiliate or Associate is otherwise deemed the beneficial owner); or (c) which are beneficially owned, directly or indirectly within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as in effect on October 31, 1994, by any other Person with which such Person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purposes of acquiring, holding, voting (other than solely by reason of a revocable proxy as described in Subparagraph (b) of this Paragraph 3) or in disposing of any shares of Voting Stock; provided, however, that, in the case of any employee stock ownership or similar plan of the Corporation or of any Subsidiary in which the beneficiaries thereof possess the right to vote any shares of Voting Stock held by such plan, no such plan nor any trustee with respect thereto (nor any Affiliate of such trustee), solely by reason of such capacity of such trustee, shall be deemed, for any purposes hereof, to beneficially own any shares of Voting Stock held under any such plan. 4. For the purpose of determining whether a Person is an Interested Stockholder pursuant to Paragraph 2 of this Section C, the number of shares of Voting Stock deemed to be outstanding shall include shares deemed owned through application of Paragraph 3 of this Section C but shall not include any other shares of Voting Stock which may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise. 5. "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on October 31, 1994. 6. "Subsidiary" means any corporation of which a majority of any class of equity security is owned, directly or indirectly, by the Corporation; provided, however, that for the purposes of the definition of Interested Stockholder set forth in Paragraph 2 of this Section C, the term "Subsidiary" shall mean only a corporation of which a majority of each class of equity security is owned, directly or indirectly, by the Corporation. 7. "Disinterested Director" means any member of the Board of Directors who is unaffiliated with the Interested Stockholder and was a member of the Board of Directors prior to the time that the Interested Stockholder became an Interested Stockholder, and any director who is thereafter chosen to fill any vacancy on the Board of Directors or who is elected and who, in either event, is unaffiliated with the Interested Stockholder, and in connection with his or 10 her initial assumption of office is recommended for appointment or election by a majority of Disinterested Directors then on the Board of Directors. 8. "Fair Market Value" means: (a) in the case of stock, the highest closing sales price of the stock during the 30-day period immediately preceding the date in question of a share of such stock of the National Association of Securities Dealers Automated Quotations ("NASDAQ") System or any system then in use, or, if such stock is admitted to trading on a principal United States securities exchange registered under the Securities Exchange Act of 1934, Fair Market Value shall be the highest sale price reported during the 30-day period preceding the date in question, or, if no such quotations are available, the Fair Market Value on the date in question of a share of such stock as determined by the Board of Directors in good faith, in each case with respect to any class of stock, appropriately adjusted for any dividend or distribution in shares of such stock or in combination or reclassification of outstanding shares of such stock into a smaller number of shares of such stock, and (b) in the case of property other than cash or stock, the Fair Market Value of such property on the date in question as determined by the Board of Directors in good faith. 9. Reference to "Highest Per Share Price" shall in each case with respect to any class of stock reflect an appropriate adjustment for any dividend or distribution in shares of such stock or any stock split or reclassification of outstanding shares of such stock into a greater number of shares of such stock or any combination or reclassification of outstanding shares of such stock into a smaller number of shares of such stock. 10. In the event of any Business Combination in which the Corporation survives, the phrase "consideration other than cash to be received" as used in Subparagraphs (a) and (b) of Paragraph 2 of Section B of this Article EIGHTH shall include the shares of Common Stock and/or the shares of any other class of outstanding Voting Stock retained by the holders of such shares. D. A majority of the Disinterested Directors of the Corporation shall have the power and duty to determine for the purposes of this Article EIGHTH, on the basis of information known to them after reasonable inquiry, (a) whether a person is an Interested Stockholder; (b) the number of shares of Voting Stock beneficially owned by any person; (c) whether a person is an Affiliate or Associate of another; and (d) whether the assets which are the subject of any Business Combination have, or the consideration to be received for the issuance or transfer of securities by the Corporation or any Subsidiary in any Business Combination has an aggregate Fair Market Value equaling or exceeding 25% of the combined assets of the Corporation and its Subsidiaries. A majority of the Disinterested Directors shall have the further power to interpret all of the terms and provisions of this Article EIGHTH. E. Nothing contained in this Article EIGHTH shall be construed to relieve any Interested Stockholder from any fiduciary obligation imposed by law. F. Notwithstanding any other provisions of this Certificate of Incorporation or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote 11 of the holders of any particular class or series of the Voting Stock required by law, this Certificate of Incorporation or any Preferred Stock Designation, the affirmative vote of the holders of at least 80% of the voting power of all of the then-outstanding shares of the Voting Stock, voting together as a single class, shall be required to alter, amend or repeal this Article EIGHTH. NINTH: The Board of Directors of the Corporation, when evaluating any offer of another Person (as defined in Article EIGHTH hereof) to (A) make a tender or exchange offer for any equity security of the Corporation, (B) merge or consolidate the Corporation with another corporation or entity or (C) purchase or otherwise acquire all or substantially all of the properties and assets of the Corporation, may, in connection with the exercise of its judgment in determining what is in the best interest of the Corporation and its stockholders, give due consideration to all relevant factors, including, without limitation, the social and economic effect of acceptance of such offer on the Corporation's present and future customers and employees and those of its Subsidiaries (as defined in Article EIGHTH hereof); on the communities in which the Corporation and its Subsidiaries operate or are located; on the ability of the Corporation to fulfill its corporate objectives as a financial institution holding company and on the ability of its subsidiary financial institution to fulfill the objectives of a federally insured financial institution under applicable statutes and regulations. TENTH: A. Except as set forth in Section B of this Article TENTH, in addition to any affirmative vote of stockholders required by law or this Certificate of Incorporation, any direct or indirect purchase or other acquisition by the Corporation of any Equity Security (as hereinafter defined) of any class from any Interested Person (as hereinafter defined) shall require the affirmative vote of the holders of at least 80% of the Voting Stock of the Corporation that is not beneficially owned (for purposes of this Article TENTH beneficial ownership shall be determined in accordance with Section C.2(b) of Article FOURTH hereof) by such Interested Person, voting together as a single class. Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that a lesser percentage may be specified, by law or by any other provisions of this Certificate of Incorporation or any Preferred Stock Designation or in any agreement with any national securities exchange or quotation system, or otherwise. Certain defined terms used in this Article TENTH are as set forth in Section C below. B. The provisions of Section A of this Article TENTH shall not be applicable with respect to: 1. any purchase or other acquisition of securities made as part of a tender or exchange offer by the Corporation or a Subsidiary (which term, as used in this Article TENTH, is as defined in the first clause of Section C.6 of Article EIGHTH hereof) of the Corporation to purchase securities of the same class made on the same terms to all holders of such securities and complying with the applicable requirements of the Securities Exchange Act of 1934 and the rules and regulations thereunder (or any subsequent provision replacing such Act, rules or regulations); 12 2. any purchase or acquisition made pursuant to an open market purchase program approved by a majority of the Board of Directors, including a majority of the Disinterested Directors (which term, as used in this Article TENTH, is as defined in Article EIGHTH hereof); or 3. any purchase or acquisition which is approved by a majority of the Board of Directors, including a majority of the Disinterested Directors, and which is made at no more than the Market Price (as hereinafter defined), on the date that the understanding between the Corporation and the Interested Person is reached with respect to such purchase (whether or not such purchase is made or a written agreement relating to such purchase is executed on such date), of shares of the class of Equity Security to be purchased. C. For the purposes of this Article TENTH: 1. The term Interested Person shall mean any Person (other than the Corporation, Subsidiaries of the Corporation, pension, profit sharing, employee stock ownership or other employee benefit plans of the Corporation and its Subsidiaries, entities organized or established by the Corporation or any of its Subsidiaries pursuant to the terms of such plans and trustees and fiduciaries with respect to any such plan acting in such capacity) that is the direct or indirect beneficial owner of 5% or more of the Voting Stock of the Corporation, and any Affiliate or Associate of any such person. 2. The Market Price of shares of a class of Equity Security on any day shall mean the highest sale price of shares of such class of Equity Security on such day, or, if that day is not a trading day, on the trading day immediately preceding such day, on the national securities exchange or the NASDAQ System or any other system then in use on which such class of Equity Security is traded. 3. The term Equity Security shall mean any security described in Section 3(a)(11) of the Securities Exchange Act of 1934, as in effect on October 31, 1994, which is traded on a national securities exchange or the NASDAQ System or any other system then in use. 4. For purposes of this Article TENTH, all references to the term Interested Stockholder in the definition of Disinterested Director shall be deemed to refer to the term Interested Person. ELEVENTH: A. Each person who was or is made a party or is threatened to be made a party to or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he or she is or was a director or an officer of the Corporation or is or was serving at the request of the Corporation as a director or officer of another corporation, including, without limitation, any Subsidiary (as defined in Article EIGHTH herein), partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan (hereinafter an "indemnitee"), whether the basis of such proceeding is alleged action in an official capacity as a director or officer or in any other capacity while serving as a director or officer, shall be indemnified and held harmless by the Corporation to 13 the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than such law permitted the Corporation to provide prior to such amendment), against all expense, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) reasonably incurred or suffered by such indemnitee in connection therewith; provided, however, that, except as provided in Section C hereof with respect to proceedings to enforce rights to indemnification, the Corporation shall indemnify any such indemnitee in connection with a proceeding (or part thereof) initiated by such indemnitee only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. B. The right to indemnification conferred in Section A of this Article shall include the right to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition (hereinafter an "advancement of expenses"); provided, however, that, if the Delaware General Corporation Law requires, an advancement of expenses incurred by an indemnitee in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such indemnitee, including, without limitation, service to an employee benefit plan) shall be made only upon delivery to the Corporation of an undertaking (hereinafter an "undertaking"), by or on behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal (hereinafter a "final adjudication"), that such indemnitee is not entitled to be indemnified for such expenses under this Section or otherwise. The rights to indemnification and to the advancement of expenses conferred in Sections A and B of this Article shall be contract rights and such rights shall continue as to an indemnitee who has ceased to be a director or officer and shall inure to the benefit of the indemnitee's heirs, executors and administrators. C. If a claim under Section A or B of this Article is not paid in full by the Corporation within sixty days after a written claim has been received by the Corporation, except in the case of a claim for an advancement of expenses, in which case the applicable period shall be twenty days, the indemnitee may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim. If successful in whole or in part in any such suit, or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the indemnitee shall also be entitled to be paid the expense of prosecuting or defending such suit. In (i) any suit brought by the indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by the indemnitee to enforce a right to an advancement of expenses) it shall be a defense that, and (ii) in any suit by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking the Corporation shall be entitled to recover such expenses upon a final adjudication that, the indemnitee has not met any applicable standard for indemnification set forth in the Delaware General Corporation Law. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such suit that indemnification of the indemnitee is proper in the circumstances because the indemnitee has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the indemnitee has not met such applicable standard of conduct, shall create a presumption that the indemnitee has not met the 14 applicable standard of conduct or, in the case of such a suit brought by the indemnitee, be a defense to such suit. In any suit brought by the indemnitee to enforce a right to indemnification or to an advancement of expenses hereunder, or by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the indemnitee is not entitled to be indemnified, or to such advancement of expenses, under this Article or otherwise shall be on the Corporation. D. The rights to indemnification and to the advancement of expenses conferred in this Article shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, the Corporation's Certificate of Incorporation, By-laws, agreement, vote of stockholders or Disinterested Directors or otherwise. E. The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law. F. The Corporation may, to the extent authorized from time to time by a majority vote of the disinterested directors, grant rights to indemnification and to the advancement of expenses to any employee or agent of the Corporation to the fullest extent of the provisions of this Article with respect to the indemnification and advancement of expenses of directors and officers of the Corporation. TWELFTH: A director of this Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. If the Delaware General Corporation Law is hereafter amended to further eliminate or limit the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended. Any repeal or modification of the foregoing paragraph by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification. THIRTEENTH: The Corporation reserves the right to amend or repeal any provision contained in this Certificate of Incorporation in the manner prescribed by the laws of the State of Delaware and all rights conferred upon stockholders are granted subject to this reservation; provided, however, that, notwithstanding any other provision of this Certificate of Incorporation or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any vote of the holders of any class or series of the stock of this Corporation required by law or by this 15 Certificate of Incorporation, the affirmative vote of the holders of at least 80% of the voting power of all of the then-outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors (after giving effect to the provisions of Article FOURTH), voting together as a single class, shall be required to amend or repeal this Article THIRTEENTH, clauses B or C of Article FOURTH, clauses C or D of Article FIFTH, Article SIXTH, Article SEVENTH, Article EIGHTH, Article TENTH or Article ELEVENTH. FOURTEENTH: The name and mailing address of the sole incorporator are as follows: NAME MAILING ADDRES Ernest A. Moretti Wyman Park Bancorporation, Inc. 11 West Ridgely Road Lutherville, Maryland 21904 16 I, THE UNDERSIGNED, being the incorporator, for the purpose of forming a corporation under the laws of the State of Delaware, do make, file and record this Certificate of Incorporation, do certify that the facts herein stated are true, and, accordingly, have hereto set my hand this 17th day of September, 1997. /s/ Ernest A. Moretti ------------------------------- Ernest A. Moretti, Incorporator 17 EX-3 4 EXHIBIT 3.2 EXHIBIT 3.2 BYLAWS OF THE HOLDING COMPANY WYMAN PARK BANCORPORATION, INC. BY-LAWS ARTICLE I STOCKHOLDERS Section 1. Annual Meeting. An annual meeting of the stockholders, for the election of directors to succeed those whose terms expire and for the transaction of such other business as may properly come before the meeting, shall be held at such place, on such date, and at such time as the Board of Directors shall each year fix. Section 2. Special Meetings. Subject to the rights of the holders of any class or series of preferred stock of the Corporation, special meetings of stockholders of the Corporation may be called only by the Board of Directors pursuant to a resolution adopted by a majority of the total number of directors which the Corporation would have if there were no vacancies on the Board of Directors (hereinafter the "Whole Board"). Section 3. Notice of Meetings. Written notice of the place, date, and time of all meetings of the stockholders shall be given, not less than ten (10) nor more than sixty (60) days before the date on which the meeting is to be held, to each stockholder entitled to vote at such meeting, except as otherwise provided herein or required by law (meaning, here and hereinafter, as required from time to time by the Delaware General Corporation Law or the Certificate of Incorporation of the Corporation). When a meeting is adjourned to another place, date or time, written notice need not be given of the adjourned meeting if the place, date and time thereof are announced at the meeting at which the adjournment is taken; provided, however, that if the date of any adjourned meeting is more than thirty (30) days after the date for which the meeting was originally noticed, or if a new record date is fixed for the adjourned meeting, written notice of the place, date and time of the adjourned meeting shall be given in conformity herewith. At any adjourned meeting, any business may be transacted which might have been transacted at the original meeting. Section 4. Quorum. At any meeting of the stockholders, the holders of at least one-third of all of the shares of the stock entitled to vote at the meeting, present in person or by proxy, shall constitute a quorum for all purposes, unless or except to the extent that the presence of a larger number may be 1 required by law. Where a separate vote by a class or classes is required, a majority of the shares of such class or classes, present in person or represented by proxy, shall constitute a quorum entitled to take action with respect to that vote on that matter. If a quorum shall fail to attend any meeting, the chairman of the meeting or the holders of a majority of the shares of stock entitled to vote who are present, in person or by proxy, may adjourn the meeting to another place, date or time. If a notice of any adjourned special meeting of stockholders is sent to all stockholders entitled to vote thereat, stating that it will be held with those present constituting a quorum, then except as otherwise required by law, those present at such adjourned meeting shall constitute a quorum, and all matters shall be determined by a majority of the votes cast at such meeting. Section 5. Organization. Such person as the Board of Directors may have designated or, in the absence of such a person, the President of the Corporation or, in his or her absence, such person as may be chosen by the holders of a majority of the shares entitled to vote who are present, in person or by proxy, shall call to order any meeting of the stockholders and act as chairman of the meeting. In the absence of the Secretary of the Corporation, the secretary of the meeting shall be such person as the chairman appoints. Section 6. Conduct of Business. (a) The chairman of any meeting of stockholders shall determine the order of business and the procedure at the meeting, including such regulation of the manner of voting and the conduct of discussion as seem to him or her in order. (b) At any annual meeting of the stockholders, only such business shall be conducted as shall have been brought before the meeting (i) by or at the direction of the Board of Directors or (ii) by any stockholder of the Corporation who is entitled to vote with respect thereto and who complies with the notice procedures set forth in this Section 6(b). For business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder's notice must be delivered or mailed to and received at the principal executive offices of the Corporation not less than thirty (30) days prior to the date of the annual meeting; provided, however, that in the event that less than forty (40) days' notice of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be received not later than the close of business on the 10th day following the day on which such notice of the date of the annual meeting was mailed. A stockholder's notice to the Secretary shall set forth as to each matter such stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and address, as they appear on the Corporation's books, of the 2 stockholder who proposed such business, (iii) the class and number of shares of the Corporation's capital stock that are beneficially owned by such stockholder and (iv) any material interest of such stockholder in such business. Notwithstanding anything in these By-laws to the contrary, no business shall be brought before or conducted at an annual meeting except in accordance with the provisions of this Section 6(b). The officer of the Corporation or other person presiding over the annual meeting shall, if the facts so warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section 6(b) and, if he should so determine, he shall so declare to the meeting and any such business so determined to be not properly brought before the meeting shall not be transacted. At any special meeting of the stockholders, only such business shall be conducted as shall have been brought before the meeting by or at the direction of the Board of Directors or by or at the direction of the holders of not less than one-tenth of all the outstanding capital stock of the Corporation at whose instance the special meeting is called. (c) Only persons who are nominated in accordance with the procedures set forth in these By-laws shall be eligible for election as directors. Nominations of persons for election to the Board of Directors of the Corporation may be made at a meeting of stockholders at which directors are to be elected only (i) by or at the direction of the Board of Directors or (ii) by any stockholder of the Corporation entitled to vote for the election of directors at the meeting who complies with the notice procedures set forth in this Section 6(c). Such nominations, other than those made by or at the direction of the Board of Directors, shall be made by timely notice in writing to the Secretary of the Corporation. To be timely, a stockholder's notice shall be delivered or mailed to and received at the principal executive offices of the Corporation not less than 30 days prior to the date of the meeting; provided, however, that in the event that less than 40 days' notice of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the meeting was mailed. Such stockholder's notice shall set forth (i) as to each person whom such stockholder proposes to nominate for election or re-election as a director, all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); and (ii) as to the stockholder giving the notice: (x) the name and address, as they appear on the Corporation's books, of such stockholder and (y) the class and number of shares of the Corporation's capital stock that are beneficially owned by such stockholder. At the request of the Board of Directors, any person nominated by the Board of Directors for election as a director shall furnish to the Secretary of the Corporation that information required to be set forth in a stockholder's notice of nomination which pertains to the nominee. No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the provisions of this Section 6(c). The officer of the Corporation or other person presiding at the meeting shall, if the facts so warrant, determine that a nomination was not made in accordance with such provisions 3 and, if he or she should so determine, he or she shall so declare to the meeting and the defective nomination shall be disregarded. Section 7. Proxies and Voting. At any meeting of the stockholders, every stockholder entitled to vote may vote in person or by proxy authorized by an instrument in writing (or as otherwise permitted under applicable law) by the stockholder or his duly authorized attorney-in-fact filed in accordance with the procedure established for the meeting. Proxies solicited on behalf of the management shall be voted as directed by the stockholder or in the absence of such direction, as determined by a majority of the Board of Directors. No proxy shall be valid after eleven months from the date of its execution except for a proxy coupled with an interest. Each stockholder shall have one (1) vote for every share of stock entitled to vote which is registered in his or her name on the record date for the meeting, except as otherwise provided herein or in the Certificate of Incorporation of the Corporation or as required by law. All voting, including on the election of directors but excepting where otherwise required by law, may be by a voice vote; provided, however, that upon demand therefore by a stockholder entitled to vote or his or her proxy, a stock vote shall be taken. Every stock vote shall be taken by ballot, each of which shall state the name of the stockholder or proxy voting and such other information as may be required under the procedure established for the meeting. Every vote taken by ballot shall be counted by an inspector or inspectors appointed by the chairman of the meeting. All elections shall be determined by a plurality of the votes cast, and except as otherwise required by law or as provided in the Certificate of Incorporation, all other matters shall be determined by a majority of the votes cast. Section 8. Stock List. The officer who has charge of the stock transfer books of the Corporation shall prepare and make, in the time and manner required by applicable law, a list of stockholders entitled to vote and shall make such list available for such purposes, at such places, at such times and to such persons as required by applicable law. The stock transfer books shall be the only evidence as to the identity of the stockholders entitled to examine the stock transfer books or to vote in person or by proxy at any meeting of stockholders. Section 9. Consent of Stockholders in Lieu of Meeting. Subject to the rights of the holders of any class or series of preferred stock of the Corporation, any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of stockholders of the Corporation and may not be effected by any consent in writing by such stockholders. 4 Section 10. Inspectors of Election The Board of Directors shall, in advance of any meeting of stockholders, appoint one or more persons as inspectors of election, to act at the meeting or any adjournment thereof and make a written report thereof, in accordance with applicable law. ARTICLE II BOARD OF DIRECTORS Section 1. General Powers, Number and Term of Office. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. The number of directors shall be as provided for in the Certificate of Incorporation. 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. The directors, other than those who may be elected by the holders of any class or series of preferred stock, shall be divided into three classes, as nearly equal in number as reasonably possible, with the term of office of the first class to expire at the conclusion of the first annual meeting of stockholders, the term of office of the second class to expire at the conclusion of the annual meeting of stockholders one year thereafter and the term of office of the third class to expire at the conclusion of the annual meeting of stockholders two years thereafter, with each director to hold office until his or her successor shall have been duly elected and qualified. At each annual meeting of stockholders, commencing with the first annual meeting, directors elected to succeed those directors whose terms expire shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders after their election, with each director to hold office until his or her successor shall have been duly elected and qualified. Section 2. Vacancies and Newly Created Directorships. Subject to the rights of the holders of any class or series of preferred stock then outstanding, newly created directorships resulting from any increase in the authorized number of directors or any vacancies in the Board of Directors resulting from death, resignation, retirement, disqualification, removal from office or other cause may be filled only by a majority vote of the directors then in office, though less than a quorum, and directors so chosen shall hold office for a term expiring at the annual meeting of stockholders at which the term of office of the class to which they have been elected expires, and until such director's successor shall have been duly elected and qualified. No decrease in the number of authorized directors constituting the Board shall shorten the term of any incumbent director. 5 Section 3. Regular Meetings. Regular meetings of the Board of Directors shall be held at such place or places, on such date or dates, and at such time or times as shall have been established by the Board of Directors and publicized among all directors. A notice of each regular meeting shall not be required. Section 4. Special Meetings. Special meetings of the Board of Directors may be called by one-third (1/3) of the directors then in office (rounded up to the nearest whole number) or by the President and shall be held at such place, on such date, and at such time as they or he or she shall fix. Notice of the place, date, and time of each such special meeting shall be given to each director by whom it is not waived by mailing written notice not less than five (5) days before the meeting or by telegraphing or telexing or by facsimile transmission of the same not less than twenty-four (24) hours before the meeting. Unless otherwise indicated in the notice thereof, any and all business may be transacted at a special meeting. Section 5. Quorum. At any meeting of the Board of Directors, a majority of the authorized number of directors then constituting the Board shall constitute a quorum for all purposes. If a quorum shall fail to attend any meeting, a majority of those present may adjourn the meeting to another place, date, or time, without further notice or waiver thereof. Section 6. Participation in Meetings By Conference Telephone. Members of the Board of Directors, or of any committee thereof, may participate in a meeting of such Board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other and such participation shall constitute presence in person at such meeting. Section 7. Conduct of Business. At any meeting of the Board of Directors, business shall be transacted in such order and manner as the Board may from time to time determine, and all matters shall be determined by the vote of a majority of the directors present, except as otherwise provided herein or required by law. Action may be taken by the Board of Directors without a meeting if all members thereof consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors. 6 Section 8. Powers. The Board of Directors may, except as otherwise required by law, exercise all such powers and do all such acts and things as may be exercised or done by the Corporation, including, without limiting the generality of the foregoing, the unqualified power: (1) To declare dividends from time to time in accordance with law; (2) To purchase or otherwise acquire any property, rights or privileges on such terms as it shall determine; (3) To authorize the creation, making and issuance, in such form as it may determine, of written obligations of every kind, negotiable or non-negotiable, secured or unsecured, and to do all things necessary in connection therewith; (4) To remove any officer of the Corporation with or without cause, and from time to time to devolve the powers and duties of any officer upon any other person for the time being; (5) To confer upon any officer of the Corporation the power to appoint, remove and suspend subordinate officers, employees and agents; (6) To adopt from time to time such stock, option, stock purchase, bonus or other compensation plans for directors, officers, employees and agents of the Corporation and its subsidiaries as it may determine; (7) To adopt from time to time such insurance, retirement, and other benefit plans for directors, officers, employees and agents of the Corporation and its subsidiaries as it may determine; and, (8) To adopt from time to time regulations, not inconsistent with these By-laws, for the management of the Corporation's business and affairs. Section 9. Compensation of Directors. Directors, as such, may receive, pursuant to resolution of the Board of Directors, fixed fees and other compensation for their services as directors, including, without limitation, their services as members of committees of the Board of Directors. 7 ARTICLE III COMMITTEES Section 1. Committees of the Board of Directors. The Board of Directors, by a vote of a majority of the Board of Directors, may from time to time designate committees of the Board, with such lawfully delegable powers and duties as it thereby confers, to serve at the pleasure of the Board and shall, for those committees and any others provided for herein, elect a director or directors to serve as the member or members, designating, if it desires, other directors as alternate members who may replace any absent or disqualified member at any meeting of the committee. Any committee so designated may exercise the power and authority of the Board of Directors to declare a dividend, to authorize the issuance of stock or to adopt a certificate of ownership and merger pursuant to Section 253 of the Delaware General Corporation Law if the resolution which designated the committee or a supplemental resolution of the Board of Directors shall so provide. In the absence or disqualification of any member of any committee and any alternate member in his or her place, the member or members of the committee present at the meeting and not disqualified from voting, whether or not he or she or they constitute a quorum, may by unanimous vote appoint another member of the Board of Directors to act at the meeting in the place of the absent or disqualified member. Section 2. Conduct of Business. Each committee may determine the procedural rules for meeting and conducting its business and shall act in accordance therewith, except as otherwise provided herein or required by law. Adequate provision shall be made for notice to members of all meetings; one-third (1/3) of the members shall constitute a quorum unless the committee shall consist of one (1) or two (2) members, in which event one (1) member shall constitute a quorum; and all matters shall be determined by a majority vote of the members present. Action may be taken by any committee without a meeting if all members thereof consent thereto in writing, and the writing or writings are filed with the minutes of the proceedings of such committee. Section 3. Nominating Committee. The Board of Directors shall appoint a Nominating Committee of the Board, consisting of three (3) members, one of which shall be the President if, and only so long as, the President remains in office as a member of the Board of Directors. The Nominating Committee shall have authority (a) to review any nominations for election to the Board of Directors made by a stockholder of the Corporation pursuant to Section 6(c)(ii) of Article I of these By-laws in order to determine compliance with such By-law and (b) to recommend to the Whole Board nominees 8 for election to the Board of Directors to replace those directors whose terms expire at the annual meeting of stockholders next ensuing. ARTICLE IV OFFICERS Section 1. Generally. (a) The Board of Directors as soon as may be practicable after the annual meeting of stockholders shall choose a President, a Secretary and a Treasurer and from time to time may choose such other officers as it may deem proper. The President shall be chosen from among the directors. Any number of offices may be held by the same person. (b) The term of office of all officers shall be until the next annual election of officers and until their respective successors are chosen, but any officer may be removed from office at any time by the affirmative vote of a majority of the authorized number of directors then constituting the Board of Directors. (c) All officers chosen by the Board of Directors shall each have such powers and duties as generally pertain to their respective offices, subject to the specific provisions of this Article IV. Such officers shall also have such powers and duties as from time to time may be conferred by the Board of Directors or by any committee thereof. Section 2. President. The President shall be the chief executive officer and, subject to the control of the Board of Directors, shall have general power over the management and oversight of the administration and operation of the Corporation's business and general supervisory power and authority over its policies and affairs. He shall see that all orders and resolutions of the Board of Directors and of any committee thereof are carried into effect. Each meeting of the stockholders and of the Board of Directors shall be presided over by such officer as has been designated by the Board of Directors or, in his absence, by such officer or other person as is chosen at the meeting. The Secretary or, in his absence, the General Counsel of the Corporation or such officer as has been designated by the Board of Directors or, in his absence, such officer or other person as is chosen by the person presiding, shall act as secretary of each such meeting. 9 Section 3. Vice President. The Vice President or Vice Presidents, if any, shall perform the duties of the President in his absence or during his disability to act. In addition, the Vice Presidents shall perform the duties and exercise the powers usually incident to their respective offices and/or such other duties and powers as may be properly assigned to them from time to time by the Board of Directors, the Chairman of the Board or the President. Section 4. Secretary. The Secretary or an Assistant Secretary shall issue notices of meetings, shall keep their minutes, shall have charge of the seal and the corporate books, shall perform such other duties and exercise such other powers as are usually incident to such offices and/or such other duties and powers as are properly assigned thereto by the Board of Directors, the Chairman of the Board or the President. Section 5. Treasurer. The Treasurer shall have charge of all monies and securities of the Corporation, other than monies and securities of any division of the Corporation which has a treasurer or financial officer appointed by the Board of Directors, and shall keep regular books of account. The funds of the Corporation shall be deposited in the name of the Corporation by the Treasurer with such associations or trust companies as the Board of Directors from time to time shall designate. He shall sign or countersign such instruments as require his signature, shall perform all such duties and have all such powers as are usually incident to such office and/or such other duties and powers as are properly assigned to him by the Board of Directors, the Chairman of the Board or the President, and may be required to give bond for the faithful performance of his duties in such sum and with such surety as may be required by the Board of Directors. Section 6. Assistant Secretaries and Other Officers. The Board of Directors may appoint one or more assistant secretaries and one or more assistants to the Treasurer, or one appointee to both such positions, which officers shall have such powers and shall perform such duties as are provided in these By-laws or as may be assigned to them by the Board of Directors, the Chairman of the Board or the President. Section 7. Action with Respect to Securities of Other Corporations Unless otherwise directed by the Board of Directors, the President or any officer of the Corporation authorized by the President shall have power to vote and otherwise act on behalf of the Corporation, in person or by proxy, at any meeting of stockholders of or with respect to any action of stockholders of any other corporation in which this Corporation may hold securities and otherwise to exercise any and all rights and powers which this Corporation may possess by reason of its ownership of securities in such other Corporation. 10 ARTICLE V STOCK Section 1. Certificates of Stock. Each stockholder shall be entitled to a certificate signed by, or in the name of the Corporation by, the President or a Vice President, and by the Secretary or an Assistant Secretary, or the Treasurer or an Assistant Treasurer, certifying the number of shares owned by him or her. Any or all of the signatures on the certificate may be by facsimile. Section 2. Transfers of Stock. Transfers of stock shall be made only upon the transfer books of the Corporation kept at an office of the Corporation or by transfer agents designated to transfer shares of the stock of the Corporation. Except where a certificate is issued in accordance with Section 4 of Article V of these By-laws, an outstanding certificate for the number of shares involved shall be surrendered for cancellation before a new certificate is issued therefore. Section 3. Record Date. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders, or to receive payment of any dividend or other distribution or allotment of any rights or to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date on which the resolution fixing the record date is adopted and which record date shall not be more than sixty (60) nor less than ten (10) days before the date of any meeting of stockholders, nor more than sixty (60) days prior to the time for such other action as hereinbefore described; provided, however, that if no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held, and, for determining stockholders entitled to receive payment of any dividend or other distribution or allotment of rights or to exercise any rights of change, conversion or exchange of stock or for any other purpose, the record date shall be at the close of business on the day on which the Board of Directors adopts a resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. 11 Section 4. Lost, Stolen or Destroyed Certificates. In the event of the loss, theft or destruction of any certificate of stock, another may be issued in its place pursuant to such regulations as the Board of Directors may establish concerning proof of such loss, theft or destruction and concerning the giving of a satisfactory bond or bonds of indemnity. Section 5. Regulations. The issue, transfer, conversion and registration of certificates of stock shall be governed by such other regulations as the Board of Directors may establish. ARTICLE VI NOTICES Section 1. Notices. Except as otherwise specifically provided herein or required by law, all notices required to be given to any stockholder, director, officer, employee or agent shall be in writing and may in every instance be effectively given by hand delivery to the recipient thereof, by depositing such notice in the mail, postage paid, by sending such notice by prepaid telegram or mailgram or by sending such notice by facsimile machine or other electronic transmission. Any such notice shall be addressed to such stockholder, director, officer, employee or agent at his or her last known address as the same appears on the books of the Corporation. The time when such notice is received, if hand delivered, or dispatched, if delivered through the mail, by telegram or mailgram or by facsimile machine or other electronic transmission, shall be the time of the giving of the notice. Section 2. Waivers. A written waiver of any notice, signed by a stockholder, director, officer, employee or agent, whether before or after the time of the event for which notice is to be given, shall be deemed equivalent to the notice required to be given to such stockholder, director, officer, employee or agent. Neither the business nor the purpose of any meeting need be specified in such a waiver. 12 ARTICLE VII MISCELLANEOUS Section 1. Facsimile Signatures. In addition to the provisions for use of facsimile signatures elsewhere specifically authorized in these By-laws, facsimile signatures of any officer or officers of the Corporation may be used whenever and as authorized by the Board of Directors or a committee thereof. Section 2. Corporate Seal. The Board of Directors may provide a suitable seal, containing the name of the Corporation, which seal shall be in the charge of the Secretary. If and when so directed by the Board of Directors or a committee thereof, duplicates of the seal may be kept and used by the Treasurer or by an Assistant Secretary or Assistant Treasurer. Section 3. Reliance upon Books, Reports and Records. Each director, each member of any committee designated by the Board of Directors, and each officer of the Corporation shall, in the performance of his or her duties, be fully protected in relying in good faith upon the books of account or other records of the Corporation and upon such information, opinions, reports or statements presented to the Corporation by any of its officers or employees, or committees of the Board of Directors so designated, or by any other person as to matters which such director or committee member reasonably believes are within such other person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation. Section 4. Fiscal Year. The fiscal year of the Corporation shall be as fixed by the Board of Directors. Section 5. Time Periods. In applying any provision of these By-laws which requires that an act be done or not be done a specified number of days prior to an event or that an act be done during a period of a specified number of days prior to an event, calendar days shall be used, the day of the doing of the act shall be excluded and the day of the event shall be included. 13 ARTICLE VIII AMENDMENTS The By-laws of the Corporation may be adopted, amended or repealed as provided in Article SEVENTH of the Certificate of Incorporation of the Corporation. 14 EX-3 5 EXHIBIT 3.3 EXHIBIT 3.3 CHARTER OF ASSOCIATION IN STOCK FORM OF THE HOLDING COMPANY FEDERAL STOCK CHARTER WYMAN PARK FEDERAL SAVINGS & LOAN ASSOCIATION SECTION 1. Corporate title. The full corporate title of the association is "Wyman Park Federal Savings & Loan Association." SECTION 2. Office. The home office shall be located in the City of Lutherville, County of Baltimore, in the State of Maryland. SECTION 3. Duration. The duration of the association is perpetual. SECTION 4. Purpose and powers. The purpose of the association is to pursue any or all of the lawful objectives of a federal savings association chartered under SECTION 5 of the Home Owners' Loan Act 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 the capital stock that the association has the authority to issue is two million five hundred thousand (2,500,000), of which two million (2,000,000) shall be common stock of par value of $.01 per share, and of which five hundred thousand (500,000) shall be serial preferred stock of par value $.01 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 association. The consideration for the shares shall be cash, tangible or intangible property (to the extent direct investment in such property would be permitted to the association), labor, or services actually performed for the association, 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 association, 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 association 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 the association or in connection with the conversion of the association from the mutual to the stock form of capitalization, 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 of the association 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. 1 Nothing contained in this SECTION 5 (or in any supplementary sections hereto) shall entitle the holders of any class of a 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 that 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 which would require the holders of preferred stock, voting as a class or series, to approve the merger or consolidation of the association 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 association 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 association in a merger or consolidation for the association, shall not be considered to be such an adverse change. A description of the different classes and series (if any) of the association's capital stock and a statement of the designations, and the relative rights, preferences, and limitations of the shares of each class 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 the 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. 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. 2 In the event of any liquidation, dissolution, or winding up of the association, 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 association available for distribution remaining after: (i) Payment or provision for payment of the association's debts and liabilities; (ii) distributions or provision for distributions in settlement of its 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 association. 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 association 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 association; (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 association 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; 3 (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 association shall file with the Secretary to the Office a dated copy of that supplementary section of this charter established 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 association shall not be entitled to preemptive rights with respect to any shares of the association which may be issued. SECTION 7. Directors. The association shall be under the direction of a board of directors. The authorized number of directors, as stated in the association'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. Beneficial ownership limitation. Notwithstanding anything contained in the association's charter or bylaws to the contrary, for a period of five years from the effective date of this charter, no person other than First Robinson Financial Corporation, the parent holding company of the association shall directly or indirectly offer to acquire or acquire the beneficial ownership of more than 10% of any class of an equity security of the association. This limitation shall not apply to a transaction in which the association forms a holding company without change in the respective beneficial ownership interests of its stockholders other than pursuant to the exercise of any dissenter and appraisal rights, 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. 4 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 association. (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 towards a common goal whether or not pursuant to an express agreement, or (b) a combination or pooling of voting or other interests in the securities of an issuer for a common purpose pursuant to any contract, understanding, relationship, agreement or other arrangements, whether written or otherwise. SECTION 9. Cumulative voting limitation. Stockholders shall be permitted to cumulate their votes for election of directors. SECTION 10. Call for special meetings. Special meetings of stockholders relating to changes in control of the association or amendments to its charter shall be called only upon direction of the board of directors. SECTION 11. Priority of accounts. In any situation which the priority of the accounts of the association is in controversy, all such accounts shall, to the extent of their withdrawable value, be debts of the association having at least as high a priority as the claims of general creditors of the association not having priority (other than any priority arising or resulting from consensual subordination) over other general creditors of the association. SECTION 12. 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 first proposed by the board of directors of the association, approved by the shareholders 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. 5 WYMAN PARK FEDERAL SAVINGS & LOAN ASSOCIATION ATTEST:___________________________ By:________________________________ ________________, Secretary Ernest A. Moretti, President and Chief Executive Officer DIRECTOR OF THE OFFICE OF THRIFT SUPERVISION ATTEST:___________________________ By:________________________________ Secretary of the Office of Director of the Office of Thrift Thrift Supervision Supervision Declared effective this ____ day of ___________, 1997. 6 EX-3 6 EXHIBIT 3.4 EXHIBIT 3.4 BYLAWS OF THE ASSOCIATION IN STOCK FORM STOCK BYLAWS OF WYMAN PARK FEDERAL SAVINGS & LOAN ASSOCIATION Article I - Home Office The home office of the association shall be at 11 West Ridgely Road, City of Lutherville, County of Baltimore, in the State of Maryland. Article II - Shareholders Section 1. Place of Meetings. All annual and special meetings of shareholders shall be held at the home office of the association or at such other convenient place as the board of directors may determine. Section 2. Annual Meeting. A meeting of the shareholders of the association for the election of directors and for the transaction of any other business of the association shall be held annually within 150 days after the end of the association's fiscal year on the third Wednesday of each October if not a legal holiday, and if a legal holiday, then on the next day following which is not a legal holiday, at __________ a.m., or at such other 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 ("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 association 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 association 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 1 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 association 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 10 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 association 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 association 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 any 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 association 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 2 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 association to the contrary, at any meeting of the shareholders of the association 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 by 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 association 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 association 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 association, 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. 3 Section 12. Cumulative Voting. Every shareholder entitled to vote at an election for directors shall have the right to vote, in person or by proxy, the number of shares owned by the shareholder for as many persons as there are directors to be elected and for whose election the shareholder has a right to vote, or to cumulate the votes by giving one candidate as many votes as the number of such directors to be elected multiplied by the number of shares shall equal or by distributing such votes on the same principle among any number of candidates. Section 13. Inspectors of Election. In advance of any meeting of shareholders, the board of directors may appoint any person 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 14. 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 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 association. 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 association 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 association. 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 15. 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 association at least five days before the date 4 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 16. 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 association 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 nine 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 association unless the association 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 5 association'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 association 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 or 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 5 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 association 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 only until the next 6 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 association who is present at a meeting of the board of directors at which action on any association 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 association 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. If less than the entire board is to be removed, no one of the directors may be removed if the votes cast against the removal would be sufficient to elect a director if then cumulatively voted at an election of the class of directors of which such director is a part. If cumulative voting has been deleted, the preceding sentence should be deleted. 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. 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 association, 7 or recommending to the shareholders 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 association otherwise than in the usual and regular course of its business; a voluntary dissolution of the association; 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 president or secretary of the association. 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 proceeding and report the same to the board of directors for its information at the meeting held next after the proceedings shall have occurred. 8 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 association and may prescribe the duties, constitution, and procedures thereof. Article V - Officers Section 1. Positions. The officers of the association 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 or comptroller 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 association 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 association 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 association 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 association will be served thereby, but 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. 9 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 association to enter into any contract or execute and deliver any instrument in the name of and on behalf of the association. Such authority may be general or confined to specific instances. Section 2. Loans. No loans shall be contracted on behalf of the association 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 association shall be signed by one or more officers, employees or agents of the association in such manner as shall from time to time be determined by the board of directors. Section 4. Deposits. All funds of the association not otherwise employed shall be deposited from time to time to the credit of the association 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 association 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 association 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 association 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 association. All certificates surrendered to the association for transfer shall be cancelled and no new certificate shall be issued until the former certificate for a like number of shares has been surrendered and cancelled, except that in the case of a lost or destroyed certificate, a new certificate may be issued upon such terms and indemnity to the association as the board of directors may prescribe. Section 2. Transfer of Shares. Transfer of shares of capital stock of the association 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 or her attorney authorized by a duly executed power of attorney and filed with the association. 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 association shall be deemed by the association to be the owner for all purposes. 10 Article VIII - Fiscal Year The fiscal year of the association 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 association's charter and the regulations and orders of the Office, the board of directors may, from time to time, declare, and the association may pay, dividends on its outstanding shares of capital stock. Article X - Corporate Seal The board of directors shall provide an association seal which shall be two concentric circles between which shall be the name of the association. 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 association at any legal meeting, and (ii) receipt of any applicable regulatory approval. When an association 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. 11 EX-4 7 EXHIBIT 4 EXHIBIT 4 FORM OF STOCK CERTIFICATE OF THE HOLDING COMPANY NUMBER____________ COMMON STOCK CUSIP No._____ WYMAN PARK BANCORPORATION, INC. INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE This Certifies that is the owner of FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE OF WYMAN PARK BANCORPORATION, INC.(the "Corporation"), a Delaware corporation. The shares represented by this certificate are transferable only on the stock transfer books of the Corporation by the holder of record hereof, or by his duly authorized attorney or legal representative, upon the surrender of this certificate properly endorsed. This certificate is not valid until countersigned and registered by the Corporation's transfer agent and registrar. THIS SECURITY IS NOT A DEPOSIT OR ACCOUNT AND IS NOT FEDERALLY INSURED OR GUARANTEED. IN WITNESS WHEREOF, the Corporation has caused this certificate to be executed by the facsimile signatures of its duly authorized officers and has caused a facsimile of its corporate seal to be hereunto affixed. DATED___________________________________ ________________________________________ __________________________ Charmaine M. Snyder, Corporate Secretary Ernest A. Moretti President [Seal] Countersigned and Registered: [ Name ] _____________________________ Transfer Agent and Registrar WYMAN PARK BANCORPORATION, INC. The shares represented by this certificate are issued subject to all the provisions of the Certificate of Incorporation and Bylaws of Wyman Park Bancorporation, Inc. (the "Corporation") as from time to time amended (copies of which are on file at the principal executive offices of the Corporation). The Corporation's Certificate of Incorporation provides that no "person" (as defined in the Certificate of Incorporation) who "beneficially owns" (as defined in the Certificate of Incorporation) in excess of 10% of the outstanding shares of the Corporation shall be entitled to vote any shares held in excess of such limit. This provision of the Certificate of Incorporation shall not apply to an acquisition of securities of the Corporation by an employee stock purchase plan or other employee benefit plan of the Corporation or any of its subsidiaries. The Corporation's Certificate of Incorporation also includes a provision the general effect of which is to require the affirmative vote of the holders of 80% of the outstanding voting shares of the Corporation to approve certain "business combinations" (as defined in the Certificate of Incorporation) between the Corporation and a stockholder owning in excess of 10% of the outstanding shares of the Corporation. However, only the affirmative vote of a majority of the outstanding shares or such vote as is otherwise required by law (rather than the 80% voting requirement) is applicable to the particular transaction if it is approved by a majority of the "disinterested directors" (as defined in the Certificate of Incorporation) or, alternatively, the transaction satisfies certain minimum price and procedural requirements. The Corporation's Certificate of Incorporation also contains a provision which requires the affirmative vote of holders of at least 80% of the outstanding voting shares of the Corporation which are not beneficially owned by the "interested person" (as defined in the Certificate of Incorporation) to approve the direct or indirect purchase or other acquisition by the Corporation of any "equity security" (as defined in the Certificate of Incorporation) from such interested person. The Corporation will furnish to any stockholder upon request and without charge a full statement of the powers, designations, preferences and relative participating, optional or other special rights of each authorized class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights, to the extent that the same have been fixed, and of the authority of the board of directors to designate the same with respect to other series. Such request may be made to the Corporation or to its Transfer Agent and Registrar. 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 MIN ACT__________Custodian_________ (Cust) (Minor) TEN ENT - as tenants by the entirety Under Uniform Gift to Minors Act-____________ JT TEN - as joint tenants with UNIF TRANS MIN ACT_________Custodian_________ right of survivorship (Cust) (Minor) and not as tenants in common. Under Uniform Transfers to Minors Act-_______ (State) Additional abbreviations may also be used though not in the above list. For Value Received, ___________ hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE - ------------------------------ - ------------------------------ ________________________________________________________________________________ (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE) _______________Shares of Common Stock represented by the within certificate, and do hereby irrevocably constitute and appoint____________________________________ ___________Attorney to transfer the said shares on the books of the within named Corporation with full power of substitution in the premises. Dated__________________ _________________________________________________________ NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE I N EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. EX-5 8 EXHIBIT 5 EXHIBIT 5 OPINION OF SILVER, FREEDMAN & TAFF, L.L.P. WITH RESPECT TO LEGALITY OF STOCK September 22, 1997 The Board of Directors Wyman Park Bancorporation, Inc. 11 West Ridgely Road Lutherville, Maryland 21094 Re: Registration Statement Under the Securities Act of 1933 Gentlemen: This opinion is rendered in connection with the Registration Statement to be filed on Form S-1 with the Securities and Exchange Commission under the Securities Act of 1933 relating to the 925,750 shares of Common Stock of Wyman Park Bancorporation, Inc. (the "Company"), par value $.01 per share, to be issued. As counsel, we have reviewed the Certificate of Incorporation of the Company and such other documents as we have deemed appropriate for the purpose of this opinion. We are rendering this opinion as of the time the Registration Statement referred to above becomes effective. 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 sold, be validly issued, fully paid and non-assessable shares of Common Stock of the Company. Very truly yours, /s/ SILVER, FREEDMAN & TAFF,L.L.P. ---------------------------------- SILVER, FREEDMAN & TAFF, L.L.P. EX-8 9 EXHIBIT 8.1 EXHIBIT 8.1 OPINION OF SILVER, FREEDMAN & TAFF, L.L.P. WITH RESPECT TO FEDERAL INCOME TAX CONSEQUENCES OF THE CONVERSION Board of Directors September 19, 1997 Page 1 September 19, 1997 Board of Directors Wyman Park Federal Savings & Loan Association 11 West Ridgely Road Lutherville, Maryland 21093 RE: Federal Income Tax Opinion Relating To The Conversion of Wyman Park Federal Savings & Loan Association From A Federally-Chartered Mutual Savings and Loan Association To A Federally-Chartered Stock Savings and Loan Association Under Section 368(a)(1)(F) of the Internal Revenue Code of 1986, As Amended Gentlemen: In accordance with your request set forth hereinbelow is the opinion of this firm relating to the federal income tax consequences of the conversion of Wyman Park Federal Savings & Loan Association ("Mutual") from a federally-chartered mutual institution to a federally-chartered stock institution ("Stock Association") pursuant to the provisions of Section 368(a)(1)(F) of the Internal Revenue Code of 1986, as amended (the "Code"). Capitalized terms used herein which are not expressly defined herein shall have the meaning ascribed to them in the Plan of Conversion dated June 18, 1997 (the "Plan"). The following assumptions have been made in connection with our opinions hereinbelow: 1. The Conversion is implemented in accordance with the terms of the Plan and all conditions precedent contained in the Plan shall be performed or waived prior to the consummation of the Conversion. Board of Directors September 19, 1997 Page 2 2. No amount of the savings accounts and deposits of Mutual, as of the Eligibility Record Date or the Supplemental Eligibility Record Date, will be excluded from participating in the liquidation account of Stock Association. To the best of the knowledge of the management of Mutual there is not now, nor will there be at the time of the Conversion, any plan or intention, on the part of the depositors in Mutual to withdraw their deposits following the Conversion. Deposits withdrawn immediately prior to or immediately subsequent to the Conversion (other than maturing deposits) are considered in making these assumptions. 3. Holding Company and Stock Association each have no plan or intention to redeem or otherwise acquire any of the Holding Company Conversion Stock to be issued in the proposed transaction. 4. Immediately following the consummation of the proposed transaction, Stock Association will possess the same assets and liabilities as Mutual held immediately prior to the proposed transaction, plus substantially all of the net proceeds from the sale of its stock to Holding Company except for assets used to pay expenses of the Conversion. The liabilities transferred to Stock Association were incurred by Mutual in the ordinary course of business. 5. No cash or property will be given to deposit account holders in lieu of Subscription Rights or an interest in the liquidation account of Stock Association. 6. Following the Conversion, Stock Association will continue to engage in its business in substantially the same manner as Mutual engaged in business prior to the Conversion, and it has no plan or intention to sell or otherwise dispose of any of its assets, except in the ordinary course of business. 7. There is no plan or intention for Stock Association to be liquidated or merged with another corporation following the consummation of the Conversion. 8. The fair market value of each savings account plus an interest in the liquidation account of Stock Association will, in each instance, be approximately equal to the fair market value of each savings account of Mutual plus the interest in the residual equity of Mutual surrendered in exchange therefor. 9. Mutual, Stock Association and Holding Company are each corporations within the meaning of Section 7701(a)(3) of the Code. 10. Holding Company has no plan or intention to sell or otherwise dispose of the stock of Stock Association received by it in the proposed transaction. Board of Directors September 19, 1997 Page 3 11. Both Stock Association and Holding Company have no plan or intention, either currently or at the time of Conversion, to issue additional shares of common stock following the proposed transaction, other than shares that may be issued to employees and/or directors pursuant to certain stock option and stock incentive plans or that may be issued to employee benefit plans. 12. If all of the net proceeds from the sale of Holding Company Conversion Stock had been contributed by Holding Company to Stock Association in exchange for common stock of Stock Association in the transaction, as opposed to Holding Company retaining a portion of such net proceeds (the "retained proceeds"), and Stock Association immediately thereafter made a distribution of the retained proceeds to Holding Company, Stock Association would have sufficient current and accumulated earnings and profits for tax purposes such that the distribution would not result in the recapture of any portion of the bad debt reserves of Stock Association for federal income tax reporting. 13. Assets used to pay expenses of the Conversion and all distributions (except for regular, normal interest payments and other payments in the normal course of business made by Mutual immediately preceding the transaction) will in the aggregate constitute less than 1% of the net assets of Mutual and any such expenses and distributions will be paid by Stock Association from the proceeds of the sale of Holding Company Conversion Stock. 14. All distributions to deposit account holders in their capacity as deposit account holders (except for regular, normal interest payments made by Mutual), will, in the aggregate, constitute less than 1% of the fair market value of the net assets of Mutual. 15. At the time of the proposed transaction, the fair market value of the assets of Mutual on a going concern basis (including intangibles) will equal or exceed the amount of its liabilities plus the amount of liabilities to which such assets are subject. Mutual will have a positive regulatory net worth at the time of the Conversion. 16. Mutual is not under the jurisdiction of a court in a Title 11 or similar case within the meaning of Section 368(a)(3)(A) of the Code. The proposed transaction does not involve a receivership, foreclosure, or similar proceeding before a federal or state agency involving a financial institution to which Section 585 of the Code applies. 17. Mutual's Eligible Account Holders and Supplemental Eligible Account Holders will pay expenses of the Conversion solely attributable to them, if any. Board of Directors September 19, 1997 Page 4 18. The liabilities of Mutual assumed by Stock Association plus the liabilities, if any, to which the transferred assets are subject were incurred by Mutual in the ordinary course of its business and are associated with the assets being transferred. 19. There will be no purchase price advantage for Mutual's deposit account holders who purchase Holding Company Conversion Stock. 20. Neither Mutual nor Stock Association is an investment company as defined in Sections 368(a)(2)(F)(iii) and (iv) of the Code. 21. None of the compensation to be received by any deposit account holder-employees of Mutual or Holding Company will be separate consideration for, or allocable to, any of their deposits in Mutual. No interest in the liquidation account of Stock Association will be received by any deposit account holder-employees as separate consideration for, or will otherwise be allocable to, any employment agreement, and the compensation paid to each deposit account holder-employee, during the twelve-month period preceding or subsequent to the Conversion, will be for services actually rendered and will be commensurate with amounts paid to the third parties bargaining at arm's-length for similar services. No shares of Holding Company Conversion Stock will be issued to or purchased by any deposit account holder-employee of Mutual or Holding Company at a discount or as compensation in the proposed transaction. 22. No creditors of Mutual or the depositors in their role as creditors, have taken any steps to enforce their claims against Mutual by instituting bankruptcy or other legal proceedings, in either a court or appropriate regulatory agency, that would eliminate the proprietary interests of the Members prior to the Conversion of Mutual including depositors as the equity holders of Mutual. 23. The proposed transaction does not involve the payment to Stock Association or Mutual of financial assistance from federal agencies within the meaning of Notice 89-102, 1989-40 C.B. 1. 24. On a per share basis, the purchase price of Holding Company Conversion Stock will be equal to the fair market value of such stock at the time of the completion of the proposed transaction. 25. Mutual has received or will receive an opinion from Ferguson and Co. ("Appraiser's Opinion"), which concludes that the Subscription Rights to be received by Eligible Account Holders, Supplemental Eligible Account Holders and other eligible subscribers do not have any ascertainable fair market value, since they are acquired by the recipients without cost, are non-transferable and of short duration, and afford the recipients a right only to purchase Holding Company Conversion Board of Directors September 19, 1997 Page 5 Stock at a price equal to its estimated fair market value, which will be the same price as the Public Offering Price for unsubscribed shares of Holding Company Conversion Stock. 26. Mutual will not have any net operating losses, capital loss carryovers or built-in losses at the time of the Conversion. OPINION Based solely on the assumptions set forth hereinabove and our analysis and examination of applicable federal income tax laws, rulings, regulations, judicial precedents and the Appraiser's Opinion, we are of the opinion that if the transaction is undertaken in accordance with the above assumptions: (1) The Conversion will constitute a reorganization within the meaning of Section 368(a)(1)(F) of the Code. Neither Mutual nor Stock Association will recognize any gain or loss as a result of the transaction (Rev. Rul. 80-105, 1980-1 C.B. 78). Mutual and Stock Association will each be a party to a reorganization within the meaning of Section 368(b) of the Code. (2) Stock Association will recognize no gain or loss upon the receipt of money and other property, if any, in the Conversion, in exchange for its shares. (Section 1032(a) of the Code.) (3) No gain or loss will be recognized by Holding Company upon the receipt of money for Holding Company Conversion Stock. (Section 1032(a) of the Code.) (4) The basis of Mutual's assets in the hands of Stock Association will be the same as the basis of those assets in the hands of Mutual immediately prior to the transaction. (Section 362(b) of the Code.) (5) Stock Association's holding period of the assets of Mutual will include the period during which such assets were held by Mutual prior to the Conversion. (Section 1223(2) of the Code.) (6) Stock Association, for purposes of Section 381 of the Code, will be treated as if there had been no reorganization. The tax attributes of Mutual enumerated in Section 381(a) of the Code will be taken into account by Stock Association as if there had been no reorganization. Accordingly, the tax year of Mutual will not end on the effective date of the Conversion. The part of the tax year of Mutual before the Conversion will be includible in the tax year of Stock Association after the Conversion. Therefore, Mutual will not have to file a federal income tax return for the portion of the tax year prior to the Conversion. (Rev. Rul. 57-276, 1957-1 C.B. 126.) Board of Directors September 19, 1997 Page 6 (7) Depositors will realize gain, if any, upon the constructive issuance to them of withdrawable deposit accounts of Stock Association, Subscription Rights and/or interests in the liquidation account of Stock Association. Any gain resulting therefrom will be recognized, but only in an amount not in excess of the fair market value of the liquidation accounts and/or Subscription Rights received. The liquidation accounts will have nominal, if any, fair market value. Based solely on the accuracy of the conclusion reached in the Appraiser's Opinion, and our reliance on such opinion, that the Subscription Rights have no value at the time of distribution or exercise, no gain or loss will be required to be recognized by depositors upon receipt or distribution of Subscription Rights. (Section 1001 of the Code.) See Paulsen v. Commissioner, 469 U.S. 131,139 (1985). Likewise, based solely on the accuracy of the aforesaid conclusion reached in the Appraiser's Opinion, and our reliance thereon, we give the following opinions: (a) no taxable income will be recognized by the borrowers, directors, officers and employees of Mutual upon the distribution to them of Subscription Rights or upon the exercise or lapse of the Subscription Rights to acquire Holding Company Conversion Stock at fair market value; (b) no taxable income will be realized by the depositors of Mutual as a result of the exercise or lapse of the Subscription Rights to purchase Holding Company Conversion Stock at fair market value. Rev. Rul. 56-572, 1956-2 C.B. 182; and (c) no taxable income will be realized by Mutual, Stock Association or Holding Company on the issuance or distribution of Subscription Rights to depositors of Mutual to purchase shares of Holding Company Conversion Stock at fair market value. (Section 311 of the Code.) Notwithstanding the Appraiser's Opinion, if the Subscription Rights are subsequently found to have a fair market value, income may be recognized by various recipients of the Subscription Rights (in certain cases, whether or not the rights are exercised) and Holding Company and/or Stock Association may be taxable on the distribution of the Subscription Rights. (Section 311 of the Code.) In this regard, the Subscription Rights may be taxed partially or entirely at ordinary income tax rates. (8) The creation of the liquidation account on the records of Stock Association will have no effect on Mutual's or Stock Association's taxable income, deductions or tax bad debt reserve. (9) A depositor's basis in the savings deposits of Stock Association will be the same as the basis of his savings deposits in Mutual. (Section 1012 of the Code.) Based upon the Appraiser's Opinion, the basis of the Subscription Rights will be zero. The basis of the interest in the liquidation account of Stock Association received by Eligible Account Holders and Supplemental Eligible Account Holders will be equal to the cost of such property, i.e., the fair market value of the proprietary interest in Mutual, which in this transaction we assume to be zero. (10) The basis of Holding Company Conversion Stock to its shareholders will be the purchase price thereof. (Section 1012 of the Code.) Board of Directors September 19, 1997 Page 7 (11) A shareholder's holding period for Holding Company Conversion Stock acquired through the exercise of the Subscription Rights shall begin on the date on which the Subscription Rights are exercised. (Section 1223(6) of the Code.) The holding period for the Holding Company Conversion Stock purchase pursuant to the direct community offering, public offering or under other purchase arrangements will commence on the date following the date on which such stock is purchased. (Rev. Rul. 70-598, 1970-2 C.B. 168). (12) Regardless of any book entries that are made for the establishment of a liquidation account, the reorganization will not diminish the accumulated earnings and profits of Mutual available for the subsequent distribution of dividends, within the meaning of Section 316 of the Code. Section 1.312-11(b) and (c) of the Regulations. Stock Association will succeed to and take into account the earnings and profits or deficit in earnings and profits, of Mutual as of the date of Conversion. The above opinions are effective to the extent that Mutual is solvent. No opinion is expressed about the tax treatment of the transaction if Mutual is insolvent. Whether or not Mutual is solvent will be determined at the end of the taxable year in which the transaction is consummated. No opinion is expressed as to the tax treatment of the transaction under the provisions of any of the other sections of the Code and Income Tax Regulations which may also be applicable thereto, or to the tax treatment of any conditions existing at the time of, or effects resulting from, the transaction which are not specifically covered by the opinions set forth above. Respectfully submitted, /s/ SILVER, FREEDMAN & TAFF, L.L.P ---------------------------------- SILVER, FREEDMAN & TAFF, L.L.P. EX-8 10 EXHIBIT 8.2 Exhibit 8.2 [WOODEN & BENSON LETTERHEAD] September 18, 1997 Board of Directors Wyman Park Federal Savings & Loan Association 11 West Ridgely Road Lutherville, Maryland 21093 Gentlemen: The firm of Silver, Freedman & Taff, LLP has provided an opinion concerning the various tax consequences resulting from the conversion of Wyman Park Federal Savings & Loan Association (the "Association") from a federally-chartered mutual institution to a federally-chartered stock institution pursuant to the provisions of Section 368(a)(1)(F) of the Internal Revenue Code of 1986, as amended, with the simultaneous formation of Wyman Park Bancorporation, Inc. (the "Holding Company") as the Association's parent corporation. Since Maryland tax law follows federal tax law for a transaction undertaken in accordance with the assumptions stated in the opinion of Silver, Freedman & Taff, LLP, it is our opinion that the Maryland tax consequences to the Association, in its mutual or stock form, the Holding Company, eligible account holders, parties receiving subscription rights, parties purchasing conversion stock, and other parties participating in the Conversion will be the same as the federal income tax consequences. Respectfully submitted, /s/ Wooden & Benson EX-10 11 EXHIBIT 10.1 EXHIBIT 10.1 FORM OF EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of this ___ day of __________, 199_, by and between Wyman Park Federal Savings & Loan Association (hereinafter referred to as the "Bank" whether in mutual or stock form), and Ernest A. Moretti (the "Employee"). WHEREAS, the Employee is currently serving as President and Chief Executive Officer of the Bank; and WHEREAS, the Bank has adopted a plan of conversion whereby the Bank will convert to capital stock form as the subsidiary of _____________________ (the "Holding Company"), subject to the approval of the Bank's members and the Office of Thrift Supervision (the "Conversion"); and WHEREAS, the board of directors of the Bank ("Board of Directors") recognizes that, as is the case with publicly held corporations generally, the possibility of a change in control of the Holding Company and/or the Bank may exist and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of key management personnel to the detriment of the Bank, the Holding Company and their respective stockholders; and WHEREAS, the Board of Directors believes it is in the best interests of the Bank to enter into this Agreement with the Employee in order to assure continuity of management of the Bank and to reinforce and encourage the continued attention and dedication of the Employee to the Employee's assigned duties without distraction in the face of potentially disruptive circumstances arising from the possibility of a change in control of the Holding Company or the Bank, although no such change is now contemplated; and WHEREAS, the Board of Directors has approved and authorized the execution of this Agreement with the Employee to take effect as stated in Section 2 hereof; NOW, THEREFORE, in consideration of the foregoing and of the respective covenants and agreements of the parties herein, it is AGREED as follows: 1. Definitions. (a) The term "Change in Control" means an event of a nature that (i) results in a change in control of the Bank or the Holding Company within the meaning of the Home Owners' Loan Act of 1933 and 12 C.F.R. Part 574 as in effect on the date hereof; or (ii) would be required to be reported in response to Item 1 of the current report on Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act"); (2) any person (as the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly of securities of the Bank or the Holding Company representing 20% or more of the Bank's or the 1 Holding Company's outstanding securities; (3) individuals who are members of the board of directors of the Bank or the Holding Company on the date hereof (the "Incumbent Board") cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to the date hereof whose election was approved by a vote of at least three-quarters of the directors comprising the Incumbent Board, or whose nomination for election by the Holding Company's stockholders was approved by the nominating committee serving under an Incumbent Board, shall be considered a member of the Incumbent Board; (4) a reorganization, merger, consolidation, sale of all or substantially all of the assets of the Bank or the Holding Company or a similar transaction in which the Bank or the Holding Company is not the resulting entity or the Bank or the Holding Company survives only as a subsidiary of another entity; or (5) a merger of another corporation into the Bank or Holding Company which survives if, as a result of such merger, less than 60% of the outstanding voting securities of the Bank or Holding Company shall be owned in the aggregate immediately after such merger by the owners of the voting shares of the Bank or Holding Company outstanding immediately prior. The term "Change in Control" shall not include an acquisition of securities by an employee benefit plan of the Bank or the Holding Company or the acquisition of securities of the Bank by the Holding Company in connection with the Conversion. In the application of 12 C.F.R. Part 574 to a determination of a Change in Control, determinations to be made by the OTS or its Director under such regulations shall be made by the Board of Directors. (b) The term "Commencement Date" means the date of completion of the initial public offering of the Holding Company's stock in connection with the Conversion. (c) The term "Date of Termination" means the later of (1) the date upon which the Bank gives notice to the Employee of the termination of the Employee's employment with the Bank or (2) the date upon which the Employee ceases to serve as an employee of the Bank. (d) The term "Involuntary Termination" means termination of the employment of Employee without the Employee's express written consent, and shall include a material diminution of or interference with the Employee's duties, responsibilities and benefits as President and Chief Executive Officer of the Bank, including (without limitation) any of the following actions unless consented to in writing by the Employee: (1) a change in the principal workplace of the Employee to a location outside of a 30 mile radius from the Bank's headquarters office as of the date hereof; (2) a material demotion of the Employee; (3) a material reduction in the number or seniority of other Bank personnel reporting to the Employee or a material reduction in the frequency with which, or in the nature of the matters with respect to which, such personnel are to report to the Employee, other than as part of a Bank- or Holding Company-wide reduction in staff; (4) a material adverse change in the Employee's salary, perquisites, benefits, contingent benefits or vacation, other than as part of an overall program applied uniformly and with equitable effect to all employees of the Bank or the Holding Company; and (5) a material permanent increase in the required hours of work or the workload of the Employee. The term "Involuntary Termination" does not include Termination for Cause or termination of employment due to retirement, death, disability or suspension or temporary 2 or permanent prohibition from participation in the conduct of the Bank's affairs under Section 8 of the Federal Deposit Insurance Act ("FDIA"). (e) The terms "Termination for Cause" and "Terminated for Cause" mean termination of the employment of the Employee because of the Employee's personal dishonesty, incompetence, willful misconduct, breach of a 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, material breach of any provision of this Agreement. No act or failure to act by the Employee shall be considered willful unless the Employee acted (or failed to act) with an absence of good faith and without a reasonable belief that his action or failure to act was reasonable and in the best interest of the Bank. Notwithstanding the prior sentence, it shall constitute a material breach of this Agreement should Employee, individually or acting in concert with a group, take any action leading to a change in control of the Bank or the Holding Company within the meaning of the Home Owners' Loan Act of 1933 and 12 C.F.R. Part 574 as in effect on the date hereof, that is opposed by a majority of the Board of Directors; provided, however, if Employee is acting in concert with one or more members of the Board of Directors in actions leading to a change in control of the Bank and the Employee reasonably believes such actions are in the best interest of the Bank, such directors shall not be a material breach of this Agreement even if a majority of the Board of Directors opposes any such change in control. The Employee shall not be deemed to have been Terminated for Cause unless and until there shall have been delivered to the Employee a copy of a resolution, duly adopted by the affirmative vote of not less than a majority of the entire membership of the Board of Directors at a meeting of the Board called and held for such purpose (after reasonable notice to the Employee and an opportunity for the Employee, together with the Employee's counsel, to be heard before the Board), stating that in the good faith opinion of the Board the Employee has engaged in conduct described in the preceding sentence and specifying the particulars thereof in detail. 2. Term. The term of this Agreement shall be a period of three years commencing on the Commencement Date, subject to earlier termination as provided herein. Beginning on the first anniversary of the Commencement Date, and on each anniversary thereafter, the term of this Agreement shall be extended for a period of one year in addition to the then-remaining term, provided that (1) the Bank has not given notice to the Employee in writing at least 120 days prior to such anniversary that the term of this Agreement shall not be extended further; and (2) prior to such anniversary, the Board of Directors of the Bank explicitly reviews and approves the extension. Reference herein to the term of this Agreement shall refer to both such initial term and such extended terms. 3. Employment. The Employee is employed as President and Chief Executive Officer of the Bank. As such, the Employee shall render administrative and management services as are customarily performed by persons situated in similar executive capacities, and shall have such other powers and duties of an officer of the Bank as the Board of Directors may prescribe from time to time. 3 4. Compensation. (a) Salary. The Bank agrees to pay the Employee during the term of this Agreement an annual salary not less than $115,000. The amount of the Employee's salary shall be reviewed by the Board of Directors, beginning not later than the first anniversary of the Commencement Date. Adjustments in salary or other compensation shall not limit or reduce any other obligation of the Bank under this Agreement. The Employee's salary in effect from time to time during the term of this Agreement shall not thereafter be reduced. (b) Bonuses. The Employee shall be entitled to participate in an equitable manner with all other executive officers of the Bank in discretionary bonuses as authorized and declared by the Board of Directors to its executive employees. No other compensation provided for in this Agreement shall be deemed a substitute for the Employee's right to participate in such bonuses when and as declared by the Board of Directors. In addition to salary provided in this section above, Employee shall be entitled to receive, as he has from November 1, 1989, a "first tier" and "second tier" bonus. A "first tier" bonus of $15,000 per year shall be paid to Employee based on satisfaction of two criteria: (1) the Bank must achieve an after tax return on assets equal to or better than .5%, and (2) the achievement of the objectives contained in the Bank's strategic plan respecting such factors as gap position, asset mix, liquidity, and IDC rating, it being also agreed that the strategic plan shall be regularly updated by the officers and approved by the Strategic Planning Committee. A "second tier" bonus shall be paid to Employee based on 5% of any additional after tax earnings which the Bank enjoys beyond the requirements of the first tier bonus. In the case of both the "first tier" and "second tier" bonuses, payment of such bonuses shall also be contingent on the Bank maintaining at all times a supervisory rating of not less than "3" and required levels of tangible, core and risk-weighted capital as set forth in the regulations of the OTS in effect as of the date of this Agreement. (c) Expenses. The Employee shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Employee in performing services under this Agreement in accordance with the policies and procedures applicable to the executive officers of the Bank, provided that the Employee accounts for such expenses as required under such policies and procedures. 5. Benefits. (a) Participation in Retirement and Employee Benefit Plans. The Employee shall be entitled to participate in all plans relating to pension, thrift, profit-sharing, group life insurance, medical and dental coverage, education, cash bonuses, and other retirement or employee benefits or combinations thereof, in which the Bank's executive officers participate. (b) Fringe Benefits. The Employee shall be eligible to participate in, and receive benefits under, any fringe benefit plans which are or may become applicable to the Bank's executive officers. 4 6. Vacations; Leave. The Employee shall be entitled to annual paid vacation of not less than four weeks per year and to voluntary leave of absence, with or without pay, from time to time at such times and upon such conditions as the Board of Directors may determine in its discretion. 7. Termination of Employment. (a) Involuntary Termination. The Board of Directors may terminate the Employee's employment at any time, but, except in the case of Termination for Cause, termination of employment shall not prejudice the Employee's right to compensation or other benefits under this Agreement. In the event of Involuntary Termination other than in connection with or within 12 months after a Change in Control, (1) the Bank shall pay to the Employee during the remaining term of this Agreement the Employee's salary at the rate in effect immediately prior to the Date of Termination, payable in such manner and at such times as such salary would have been payable to the Employee under Section 4(a) if the Employee had continued to be employed by the Bank, and (2) the Bank shall provide to the Employee during the remaining term of this Agreement health benefits as maintained by the Bank for the benefit of its executive officers from time to time during the remaining term of the Agreement or substantially the same health benefits as the Bank maintained for its executive officers immediately prior to the Date of Termination. (b) Termination for Cause. In the event of Termination for Cause, the Bank shall pay the Employee the Employee's salary through the Date of Termination, and the Bank shall have no further obligation to the Employee under this Agreement. (c) Voluntary Termination. The Employee's employment may be voluntarily terminated by the Employee at any time upon 90 days' written notice to the Bank or such shorter period as may be agreed upon between the Employee and the Board of Directors of the Bank. In the event of such voluntary termination, the Bank shall be obligated to continue to pay to the Employee the Employee's salary and benefits only through the Date of Termination, at the time such payments are due, and the Bank shall have no further obligation to the Employee under this Agreement. (d) Change in Control. In the event of Involuntary Termination in connection with or within 12 months after a Change in Control which occurs at any time while the Employee is employed under this Agreement, the Bank shall, subject to Section 8 of this Agreement, (1) pay to the Employee in a lump sum in cash within 25 business days after the Date of Termination an amount equal to 299% of the Employee's "base amount"1 as defined in Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"); and (2) provide to the Employee during the remaining term of this Agreement such health benefits as are maintained for executive officers of the Bank from time to time during the remaining term of this Agreement or substantially the same - ------------ 1 Note that "base amount" is not the same as base salary. "Base amount" is the employee's average annual compensation includable in his gross income for tax purposes during the most recent five full taxable years. 5 health benefits as the Bank maintained for its executive officers immediately prior to the Date of Termination. (e) Death; Disability. In the event of the death of the Employee while employed under this Agreement and prior to any termination of employment, the Employee's estate, or such person as the Employee may have previously designated in writing (the "Recipient"), shall be entitled to receive from the Bank in a lump sum the salary of the Employee for a period of six months following the date of death at the rate at which salary was payable to the Employee as of the date of death. If the Employee becomes disabled as defined in the Bank's then current disability plan, if any, or if the Employee is otherwise unable to serve as President and Chief Executive Officer, the Employee shall be entitled to receive group and other disability income benefits of the type, if any, then provided by the Bank for executive officers. (f) Temporary Suspension or Prohibition. If the Employee is suspended and/or temporarily prohibited from participating in the conduct of the Bank's affairs by a notice served under Section 8(e)(3) or (g)(1) of the FDIA, 12 U.S.C. ss. 1818(e)(3) and (g)(1), the Bank's obligations under this Agreement shall be suspended as of the date of service, unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the Bank may in its discretion (i) pay the Employee all or part of the compensation withheld while its obligations under this Agreement were suspended and (ii) reinstate in whole or in part any of its obligations which were suspended. (g) Permanent Suspension or Prohibition. If the Employee is removed and/or permanently prohibited from participating in the conduct of the Bank's affairs by an order issued under Section 8(e)(4) or (g)(1) of the FDIA, 12 U.S.C. ss. 1818(e)(4) and (g)(1), all obligations of the Bank under this Agreement shall terminate as of the effective date of the order, but vested rights of the contracting parties shall not be affected. (h) Default of the Bank. If the Bank is in default (as defined in Section 3(x)(1) of the FDIA), all obligations under this Agreement shall terminate as of the date of default, but this provision shall not affect any vested rights of the contracting parties. (i) Termination by Regulators. All obligations under this Agreement shall be terminated, except to the extent determined that continuation of this Agreement is necessary for the continued operation of the Bank: (1) by the Director of the Office of Thrift Supervision (the "Director") or his or her designee, at the time the Federal Deposit Insurance Corporation enters into an agreement to provide assistance to or on behalf of the Bank under the authority contained in Section 13(c) of the FDIA; or (2) by the Director or his or her designee, at the time the Director or his or her designee approves a supervisory merger to resolve problems related to operation of the Bank or when the Bank is determined by the Director to be in an unsafe or unsound condition. Any rights of the parties that have already vested, however, shall not be affected by any such action. 6 8. Certain Reduction of Payments by the Bank. (a) Notwithstanding any other provision of this Agreement, if the value and amounts of benefits under this Agreement, together with any other amounts and the value of benefits received or to be received by the Employee in connection with a Change in Control would cause any amount to be nondeductible by the Bank or the Holding Company for federal income tax purposes pursuant to Section 280G of the Code in effect as of the Commencement Date, then amounts and benefits under this Agreement shall be reduced (not less than zero) to the extent necessary so as to maximize amounts and the value of benefits to the Employee without causing any amount to become nondeductible by the Bank or the Holding Company pursuant to or by reason of such Section 280G in effect as of the Commencement Date and the Employee shall determine the allocation of such reduction among payments and benefits to the Employee. (b) Any payments made to the Employee pursuant to this Agreement, or otherwise, are subject to and conditioned upon their compliance with 12 U.S.C. 1828(k) and any regulations promulgated thereunder. 9. No Mitigation. The Employee shall not be required to mitigate the amount of any salary or other payment or benefit provided for in this Agreement by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for in this Agreement be reduced by any compensation earned by the Employee as the result of employment by another employer, by retirement benefits after the Date of Termination or otherwise. 10. Attorneys Fees. In the event the Bank exercises its right of Termination for Cause, but it is determined by a court of competent jurisdiction or by an arbitrator pursuant to Section 17 that cause did not exist for such termination, or if in any event it is determined by any such court or arbitrator that the Bank has failed to make timely payment of any amounts owed to the Employee under this Agreement, the Employee shall be entitled to reimbursement for all reasonable costs, including attorneys' fees, incurred in challenging such termination or collecting such amounts. Such reimbursement shall be in addition to all rights to which the Employee is otherwise entitled under this Agreement. 11. No Assignments. (a) This Agreement is personal to each of the parties hereto, and neither party may assign or delegate any of its rights or obligations hereunder without first obtaining the written consent of the other party; provided, however, that the Bank shall require any successor or assign (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Bank, by an assumption agreement in form and substance satisfactory to the Employee, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Bank would be required to perform it if no such succession or assignment had taken place. Failure of the Bank to obtain such an assumption agreement prior to the effectiveness of any such succession or assignment shall be a breach of this Agreement and 7 shall entitle the Employee to compensation from the Bank in the same amount and on the same terms as the compensation pursuant to Section 7(d) hereof. For purposes of implementing the provisions of this Section 11(a), the date on which any such succession becomes effective shall be deemed the Date of Termination. (b) This Agreement and all rights of the Employee hereunder shall inure to the benefit of and be enforceable by the Employee's personal and legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Employee should die while any amounts would still be payable to the Employee hereunder if the Employee had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Employee's devisee, legatee or other designee or if there is no such designee, to the Employee's estate. 12. Notice. For the purposes of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or sent by certified mail, return receipt requested, postage prepaid, to the Bank at its home office, to the attention of the Board of Directors with a copy to the Secretary of the Bank, or, if to the Employee, to such home or other address as the Employee has most recently provided in writing to the Bank. 13. Amendments. No amendments or additions to this Agreement shall be binding unless in writing and signed by both parties, except as herein otherwise provided. 14. Headings. The headings used in this Agreement are included solely for convenience and shall not affect, or be used in connection with, the interpretation of this Agreement. 15. 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. 16. Governing Law. This Agreement shall be governed by the laws of the United States to the extent applicable and otherwise by the laws of the State of Maryland. 17. Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction. 8 IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE ENFORCED BY THE PARTIES. Attest: Wyman Park Federal Savings & Loan Association - --------------------- --------------------------- Secretary By: Its: Employee ---------------------------- Ernest A. Moretti 9 EX-10 12 EXHIBIT 10.3 Exhibit 10.3 WYMAN PARK BANCORPORATION, INC. EMPLOYEE STOCK OWNERSHIP PLAN Effective as of July 1, 1997 WYMAN PARK BANCORPORATION, INC. EMPLOYEE STOCK OWNERSHIP PLAN TABLE OF CONTENTS PREAMBLE 1 ARTICLE I DEFINITION OF TERMS AND CONSTRUCTION 1.1 Definitions (a) "Act" 2 (b) "Administrator" 2 (c) "Annual Additions" 2 (d) "Authorized Leave of Absence" 2 (e) "Beneficiary" 2 (f) "Board of Directors" 2 (g) "Break" 3 (h) "Code" 3 (i) "Compensation" 3 (j) "Date of Hire" 3 (k) "Disability" 3 (l) "Disability Retirement Date" 3 (m) "Early Retirement Date" 4 (n) "Effective Date" 4 (o) "Eligibility Period" 4 (p) "Employee" 4 (q) "Employer" 4 (r) "Employer Securities" 4 (s) "Entry Date" 4 (t) "Exempt Loan" 4 (u) "Former Participant" 4 (v) "Fund" 4 (w) "Hour of Service" 5 (x) "Investment Adjustments" 5 (y) "Limitation Year" 5 (z) "Normal Retirement Date" 5 (aa) "Participant" 5 (bb) "Plan" 6 (cc) "Plan Year" 6 (dd) "Qualified Domestic Relations Order" 6 (ee) "Retirement" 6 (ff) "Service" 6 (gg) "Sponsor" 6 (hh) "Trust Agreement" 6 (ii) "Trustee" 7 (jj) "Valuation Date" 7 (kk) "Year of Service" 7 1.2 Plurals and Gender 7 1.3 Incorporation of Trust Agreement 7 1.4 Headings 8 1.5 Severability 8 1.6 References to Governmental Regulations 8 ARTICLE II PARTICIPATION 2.1 Commencement of Participation 9 2.2 Termination of Participation 9 2.3 Resumption of Participation 9 2.4 Determination of Eligibility 10 ARTICLE III CREDITED SERVICE 3.1 Service Counted for Eligibility Purposes 11 3.2 Service Counted for Vesting Purposes 11 3.3 Credit for Pre-Break Service 11 3.4 Service Credit During Authorized Leaves 11 3.5 Service Credit During Maternity or Paternity Leave 12 3.6 Ineligible Employees 12 ARTICLE IV CONTRIBUTIONS 4.1 Employee Stock Ownership Contributions 13 4.2 Time and Manner of Employee Stock Ownership Contributions 13 4.3 Records of Contributions 14 4.4 Erroneous Contributions 14 4.5 Re-employed Veterans 15 ARTICLE V ACCOUNTS, ALLOCATIONS AND INVESTMENTS 5.1 Establishment of Separate Participant Accounts 16 5.2 Establishment of Suspense Account 16 5.3 Allocation of Earnings, Losses and Expenses 17 5.4 Allocation of Forfeitures 17 5.5 Allocation of Annual Employee Stock Ownership Contributions 17 5.6 Limitation on Annual Additions 18 5.7 Erroneous Allocations 21 5.8 Value of Participant's Interest in Fund 21 5.9 Investment of Account Balances 21 ARTICLE VI RETIREMENT, DEATH AND DESIGNATION OF BENEFICIARY 6.1 Normal Retirement 22 6.2 Early Retirement 22 6.3 Disability Retirement 22 6.4 Death Benefits 22 6.5 Designation of Death Beneficiary and Manner of Payment 23 ARTICLE VII VESTING AND FORFEITURES 7.1 Vesting on Death, Disability, Normal Retirement 24 7.2 Vesting on Termination of Participation 24 7.3 Disposition of Forfeitures 24 ARTICLE VIII EMPLOYEE STOCK OWNERSHIP RULES 8.1 Right to Demand Employer Securities 26 8.2 Voting Rights 26 8.3 Nondiscrimination in Employee Stock Owner- ship Contributions 26 8.4 Dividends 27 8.5 Exempt Loans 27 8.6 Exempt Loan Payments 29 8.7 Put Option 30 8.8 Diversification Requirements 30 8.9 Independent Appraiser 31 ARTICLE IX PAYMENTS AND DISTRIBUTIONS 9.1 Payments on Termination of Service - In General 32 9.2 Commencement of Payments 32 9.3 Mandatory Commencement of Benefits 33 9.4 Required Beginning Dates 35 9.5 Form of Payment 35 9.6 Payments Upon Termination of Plan 36 9.7 Distribution Pursuant to Qualified Domestic Relations Orders 36 9.8 Cash-Out Distributions 36 9.9 ESOP Distribution Rules 37 9.10 Withholding 37 9.11 Waiver of 30-day Notice 38 9.12 Re-employed Veterans 38 ARTICLE X PROVISIONS RELATING TO TOP-HEAVY PLANS 10.1 Top-Heavy Rules to Control 39 10.2 Top-Heavy Plan Definitions 39 10.3 Calculation of Accrued Benefits 41 10.4 Determination of Top-Heavy Status 42 10.5 Determination of Super Top-Heavy Status 42 10.6 Minimum Contribution 43 10.7 Vesting 44 10.8 Maximum Benefit Limitation 44 ARTICLE XI ADMINISTRATION 11.1 Appointment of Administrator 45 11.2 Resignation or Removal of Administrator 45 11.3 Appointment of Successors: Terms of Office, Etc. 45 11.4 Powers and Duties of Administrator 45 11.5 Action by Administrator 47 11.6 Participation by Administrators 47 11.7 Agents 47 11.8 Allocation of Duties 47 11.9 Delegation of Duties 47 11.10 Administrator's Action Conclusive 48 11.11 Compensation and Expenses of Administrator 48 11.12 Records and Reports 48 11.13 Reports of Fund Open to Participants 48 11.14 Named Fiduciary 48 11.15 Information from Employer 49 11.16 Reservation of Rights by Employer 49 11.17 Liability and Indemnification 49 11.18 Service as Trustee and Administrator 49 ARTICLE XII CLAIMS PROCEDURE 12.1 Notice of Denial 50 12.2 Right to Reconsideration 50 12.3 Review of Documents 50 12.4 Decision by Administrator 50 12.5 Notice by Administrator 50 ARTICLE XIII AMENDMENTS, TERMINATION AND MERGER 13.1 Amendments 51 13.2 Consolidation, Merger or Other Transactions of Employer 51 13.3 Consolidation or Merger of Trust 52 13.4 Bankruptcy or Insolvency of Employer 52 13.5 Voluntary Termination 53 13.6 Partial Termination of Plan or Permanent Discontinuance of Contributions 53 ARTICLE XIV MISCELLANEOUS 14.1 No Diversion of Funds 54 14.2 Liability Limited 54 14.3 Incapacity 54 14.4 Spendthrift Clause 54 14.5 Benefits Limited to Fund 55 14.6 Cooperation of Parties 55 14.7 Payments Due Missing Persons 55 14.8 Governing Law 55 14.9 Nonguarantee of Employment 56 14.10 Counsel 56 WYMAN PARK BANCORPORATION, INC. EMPLOYEE STOCK OWNERSHIP PLAN PREAMBLE Effective as of July 1, 1997, Wyman Park Bancorporation, Inc., a Delaware corporation (the "Sponsor"), has adopted the Wyman Park Bancorporation, Inc. Employee Stock Ownership Plan in order to enable Participants to share in the growth and prosperity of the Sponsor and its wholly owned subsidiary, Wyman Park Federal Savings & Loan Association, and to provide Participants with an opportunity to accumulate capital for their future economic security by accumulating funds to provide retirement, death and disability benefits. The Plan is a stock bonus plan designed to meet the re quirements of an employee stock ownership plan as described at Section 4975(e)(7) of the Code and Section 407(d)(6) of ERISA. The primary purpose of the employee stock ownership plan is to invest in employer securities. The Sponsor intends that the Plan will qualify under Sections 401(a) and 501(a) of the Code and will comply with the provisions of ERISA. The Plan has been drafted to comply with the Tax Reform Act of 1986, the Omnibus Budget Reconciliation Act of 1986, the Omnibus Budget Reconciliation Act of 1987, the Technical and Miscellaneous Revenue Act of 1988, the Revenue Reconciliation Act of 1989, the Omnibus Budget Reconciliation Act of 1993, and the Small Business Job Protection Act of 1986. The terms of this Plan shall apply only with respect to Employees of the Employer on and after July 1, 1997. ARTICLE I DEFINITION OF TERMS AND CONSTRUCTION 1.1 Definitions. Unless a different meaning is plainly implied by the context, the following terms as used in this Plan shall have the following meanings: (a) "Act" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, or any successor statute. (b) "Administrator" shall mean the administrative committee provided for in Article XI. (c) "Annual Additions" shall mean, with respect to each Participant, the sum of those amounts allocated to the Participant's accounts under this Plan and under any other qualified defined contribution plan to which the Employer contributes for any Limitation Year, consisting of the follow ing: (1) Employer contributions; (2) Forfeitures; and (3) Voluntary contributions (if any). (d) "Authorized Leave of Absence" shall mean an absence from Service with respect to which the Employee may or may not be entitled to Compensation and which meets any one of the following requirements: (1) Service in any of the armed forces of the United States for up to 36 months, provided that the Employee resumes Service within 90 days after discharge, or such longer period of time during which such Employee's employment rights are protected by law; or (2) Any other absence or leave expressly approved and granted by the Employer which does not exceed 24 months, provided that the Employee resumes Service at or before the end of such approved leave period. In approving such leaves of absence, the Employer shall treat all Employees on a uniform and nondiscriminatory basis. (e) "Beneficiary" shall mean such persons as may be designated by the Participant to receive benefits after the death of the Participant, or such persons designated by the Administrator to receive benefits after the death of the Participant, all as provided in Section 6.5. (f) "Board of Directors" shall mean the Board of Directors of the Sponsor. -2- (g) "Break" shall mean a Plan Year during which an Employee fails to complete more than 500 Hours of Service. (h) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time, or any successor statute. (i) "Compensation" shall mean the amount of remuneration paid to an Employee by the Employer, after the date on which the Employee becomes a Participant, for services rendered to the Employer during a Plan Year, including base salary, bonuses, overtime and commissions, and any amount of compensation contributed pursuant to a salary reduction election under Code Section 401(k) and any amount of compensation contributed to a cafeteria plan described at Section 125 of the Code, but excluding amounts paid by the Employer or accrued with respect to this Plan or any other qualified or non-qualified unfunded plan of deferred compensation or other employee welfare plan to which the Employer contributes, payments for group insurance, medical benefits, reimburse ment for expenses, and other forms of extraordinary pay, and excluding amounts accrued for a prior year. Notwithstanding anything herein to the contrary, the annual Compensation of each Participant taken into account under the Plan for any Plan Year shall not exceed $160,000, as adjusted from time to time in accordance with Section 415(d) of the Code. (j) "Date of Hire" shall mean the date on which a person shall perform his first Hour of Service. Notwithstanding the foregoing, in the event a person incurs one or more consecutive Breaks after his initial Date of Hire which results in the forfeiture of his pre-Break Service pursuant to Section 3.3, his "Date of Hire" shall thereafter be the date on which he completes his first Hour of Service after such Break or Breaks. (k) "Disability" shall mean a physical or mental impairment which prohibits a Participant from engaging in any occupation for wages or profit and which has caused the Social Security Administration to classify the individual as "disabled" for purposes of Social Security. (l) "Disability Retirement Date" shall mean the first day of the month after which a Participant incurs a Disability. (m) "Early Retirement Date" shall mean the first day of the month coincident with or next following the date on which a Participant attains age 55 and completes 5 Years of Service. (n) "Effective Date" shall mean July 1, 1997. (o) "Eligibility Period" shall mean the period of 12 consecutive months commencing on an Employee's Date of Hire. Succeeding eligibility computation periods after the initial eligibility computation period shall be based on Plan Years which include the first anniversary of an Employee's Date of Hire. -3- (p) "Employee" shall mean any person employed by the Employer, including officers but excluding directors in their capacity as such; provided, however, that the term "Employee" shall not include leased employees, employees regularly employed outside the employer's own offices in connection with the operation and maintenance of buildings or other properties acquired through foreclosure or deed, and any employee included in a unit of employees covered by a collective-bargaining agreement with the Employer that does not expressly provide for participation of such employees in this Plan, where there has been good-faith bargaining between the Employer and employees' representatives on the subject of retirement benefits. (q) "Employer" shall mean Wyman Park Bancorporation, Inc., a Delaware corporation, and its wholly owned subsidiary, Wyman Park Federal Savings & Loan Association, or any successors to the aforesaid corporations by merger, consolidation or otherwise, which may agree to continue this Plan, or any affiliated or subsidiary corporation or business organization of any Employer which, with the consent of the Sponsor, shall agree to become a party to this Plan. (r) "Employer Securities" shall mean the common stock issued by Wyman Park Bancorporation, Inc., a Delaware corporation. (s) "Entry Date" shall mean each July 1 and January 1, so long as this Plan shall remain in effect. (t) "Exempt Loan" shall mean a loan described at Section 4975(d)(1) of the Code to the Trustee to purchase Employer Securities for the Plan, made or guaranteed by a disqualified person, as defined at Section 4975(e)(2) of the Code, including, but not limited to, a direct loan of cash, a purchase money transaction, an assumption of an obligation of the Trustee, an unsecured guarantee or the use of assets of such disqualified person as collateral for such a loan. (u) "Former Participant" shall mean any previous Participant whose participation has terminated but who has a vested interest in the Plan which has not been distributed in full. (v) "Fund" shall mean the Fund maintained by the Trustee pursuant to the Trust Agreement in order to provide for the payment of the benefits specified in the Plan. (w) "Hour of Service" shall mean each hour for which an Employee is directly or indirectly paid or entitled to payment by an Employer for the performance of duties or for reasons other than the performance of duties (such as vacation time, holidays, sickness, disability, paid lay-offs, jury duty and similar periods of paid nonworking time). To the extent not otherwise included, Hours of Service shall also include each hour for which back pay, irrespective of mitigation of damages, is either award ed or agreed to by the Employer. Hours of working time shall be credited on the basis of actual hours worked, even though compensated at a premium rate for overtime or other reasons. In computing and crediting Hours of Service for an Employee under this Plan, the rules set forth in Sections 2530.200b- 2(b) and (c) of the Department of Labor Regulations shall apply, said Sections being herein incorporated -4- by reference. Hours of Service shall be credited to the Plan Year or other relevant period during which the services were performed or the nonworking time occurred, regardless of the time when Compensation therefor may be paid. Any Employee for whom no hourly employment records are kept by the Employer shall be credited with 45 Hours of Service for each calendar week in which he would have been credited with a least one Hour or Service under the foregoing provisions, if hourly records were available. Effective January 1, 1985, for absences commencing on or after that date, solely for purposes of determining whether a Break for participation and vesting purposes has occurred in an Eligibility Period or Plan Year, an individual who is absent from work for maternity or paternity reasons shall receive credit for the Hours of Service which would otherwise have been credited to such individual but for such absence, or in any case in which such hours cannot be determined, 8 Hours of Service per day of such absence. For purposes of this Section 1.1(w), an absence from work for maternity or paternity reasons means an absence (1) by reason of the pregnancy of the individual, (2) by reason of a birth of a child of the individual, (3) by reason of the placement of a child with the individual in connection with the adoption of such child by such individual, or (4) for purposes of caring for such child for a period beginning immediately following such birth or placement. The Hours of Service credited under this provision shall be credited (1) in the computation period in which the absence begins if the crediting is necessary to prevent a Break in that period, or (2) in all other cases, in the following computation period. (x) "Investment Adjustments" shall mean the increases and/or decreases in the value of a Participant's accounts attributable to earnings, gains, losses and expenses of the Fund, as set forth in Section 5.3. (y) "Limitation Year" shall mean the Plan Year. (z) "Normal Retirement Date" shall mean the first day of the month coincident with or during which a Participant attains age 65 and completes the fifth anniversary of his participation in the Plan. (aa) "Participant" shall mean an Employee who has met all of the eligibility requirements of the Plan and who is currently included in the Plan as provided in Article II hereof. (bb) "Plan" shall mean the Wyman Park Bancorporation, Inc. Employee Stock Ownership Plan, as described herein or as hereafter amended from time to time. (cc) "Plan Year" shall mean any 12 consecutive month period commencing on July 1 and ending on June 30. (dd) "Qualified Domestic Relations Order" shall mean any judgment, decree or order (including approval of a property settlement agreement) that relates to the provision of child support, alimony, marital property rights to a spouse, former spouse, child or other dependent of the Participant (all such persons hereinafter termed "alternate payee") and is made pursuant to a State domestic -5- relations law (including community property law) and, further, that creates or recognizes the existence of an alternate payee's right to, or assigns to an alternate payee the right to receive all or a portion of the benefits payable with respect to a Participant and that clearly specifies the following: (1) the name and last known mailing address (if available) of the Participant and the name and mailing address of each alternate payee to which the order relates; (2) the amount or percentage of the Participant's benefits to be paid to an alternate payee or the manner in which the amount is to be determined; and (3) the number of payments or period for which payments are required. A domestic relations order is not a Qualified Domestic Relations Order if it: (1) requires the Plan to provide any type or form of benefit or any option not otherwise provided under the Plan; or, (2) requires the Plan to provide increased benefits, or (3) requires payment of benefits to an alternate payee that is required to be paid to another alternate payee under a previously existing Qualified Domestic Relations Order. (ee) "Retirement" shall mean termination of employment which qualifies as early, normal or Disability retirement as described in Article VI. (ff) "Service" shall mean employment with the Employer. (gg) "Sponsor" shall mean Wyman Park Bancorporation, Inc., a Delaware corporation. (hh) "Trust Agreement" shall mean the agreement, dated __________, 1997 by and between Wyman Park Bancorporation, Inc., a Delaware corporation, and _________________, of _________________, _________________. (ii) "Trustee" shall mean the Trustee or Trustees by whom the assets of the Plan are held, as provided in the Trust Agreement, or his or their successors. (jj) "Valuation Date" shall mean the last day of each Plan Year. The Trustee may make additional valuations, at the instruction of the Administrator, but in no event may the Administrator request additional valuations by the Trustee more frequently than quarterly. Whenever such date falls on a Saturday, Sunday or holiday, the preceding business day shall be the Valuation Date. -6- (kk) "Year of Service" shall mean any Plan Year during which an Employee has completed at least 1,000 Hours of Service, except as otherwise specified in Article III, in the determination of Years of Service for eligibility and vesting purposes under this Plan, the term "Year of Service" shall also mean any Plan Year during which an Employee has completed at least 1,000 Hours of Service with an entity that is: (1) a member of a controlled group including the Employer, while it is a member of such controlled group (within the meaning of Section 414(b) of the Code); (2) in a group of trades or businesses under common control with the Employer, while it is under common control (within the meaning of Section 414(c) of the Code); (3) a member of an affiliated service group including the Employer, while it is a member of such affiliated service group (within the meaning of Section 414(m) of the Code); or (4) a leasing organization, under the circumstances described in Section 414(n) of the Code. 1.2 Plurals and Gender. Where appearing in the Plan and the Trust Agreement, the masculine gender shall include the feminine and neuter genders, and the singular shall include the plural, and vice versa, unless the context clearly indicates a different meaning. 1.3 Incorporation of Trust Agreement. The Trust Agreement, as the same may be amended from time to time, is intended to be and hereby is incorporated by reference into this Plan and for all purposes shall be deemed a part of the Plan. 1.4 Headings. The headings and sub-headings in this Plan are inserted for the convenience of reference only and are to be ignored in any construction of the provisions hereof. 1.5 Severability. In case any provision of this Plan shall be held illegal or void, such illegality or invalidity shall not affect the remaining provisions of this Plan, but shall be fully severable, and the Plan shall be construed and enforced as if said illegal or invalid provisions had never been inserted herein. -7- 1.6 References to Governmental Regulations. References in this Plan to regulations issued by the Internal Revenue Service, the Department of Labor, or other governmental agencies shall include all regulations, rulings, procedures, releases and other position statements issued by any such agency. -8- ARTICLE II PARTICIPATION 2.1 Commencement of Participation. (a) Any Employee who completes at least 1,000 Hours of Service during his Eligibility Period or during any Plan Year beginning after his Date of Hire shall initially become a Participant on the Entry Date coincident with or next following the later of the following dates, provided he is employed by the Employer on that Entry Date: (1) The date which is 12 months after his Date of Hire; and (2) The date on which he attains age 21. (b) Any Employee who had satisfied the requirements set forth in Section 2.1(a) during the 12-month period prior to the Effective Date shall become a Participant on the Effective Date, provided he is still employed by the Employer on the Effective Date. 2.2 Termination of Participation. After commencement or resumption of his participation, an Employee shall remain a Participant during each consecutive Plan Year thereafter until the earliest of the following dates: (a) His actual Retirement date; (b) His date of death; or (c) The last day of a Plan Year during which he incurs a Break. 2.3 Resumption of Participation. (a) Any Participant whose employment terminates and who resumes Service before he incurs a Break shall resume participation immediately on the date he is reemployed. (b) Except as otherwise provided in Section 2.3(c), any Participant who incurs one or more Breaks and resumes Service shall resume participation retroactively as of the first day of the first Plan Year in which he completes a Year of Service after such Break(s). (c) Any Participant who incurs one or more Breaks and resumes Service, but whose pre-Break Service is not reinstated to his credit pursuant to Section 3.3, shall be treated as a new -9- Employee and shall again be required to satisfy the eligibility requirements contained in Section 2.1 before resuming participation on the appropriate Entry Date, as specified in Section 2.1. 2.4 Determination of Eligibility. The Administrator shall determine the eligibility of Employees in accordance with the provisions of this Article. For each Plan Year, the Employer shall furnish the Administrator a list of all Employees, indicating the original date of their reemployment with the Employer and any Breaks they may have incurred. -10- ARTICLE III CREDITED SERVICE 3.1 Service Counted for Eligibility Purposes. Except as provided in Section 3.3, all Years of Service completed by an Employee shall be counted in determining his eligibility to become a Participant on and after the Effective Date, whether such Service was completed before or after the Effective Date. 3.2 Service Counted for Vesting Purposes. All Years of Service completed by an Employee (including Years of Service completed prior to the Effective Date) shall be counted in determining his vested interest in this Plan, except the following: (a) Service which is disregarded under the provisions of Section 3.3; (b) Service prior to the Effective Date of this Plan if such Service would have been disregarded under the "break in service" rules (within the meaning of Section 1.411(a)-5(b)(6) of the Treasury Regulations). 3.3 Credit for Pre-Break Service. Upon his resumption of participation following one or a series of consecutive Breaks, an Employee's pre-Break Service shall be reinstated to his credit for all purposes of this Plan only if either: (a) He was vested in any portion of his accrued benefit at the time the Break(s) began; or (b) The number of his consecutive Breaks does not equal or exceed the greater of 5 or the number of his Years of Service credited to him before the Breaks began. Except as provided in the foregoing, none of an Employee's Service prior to one or a series of consecutive Breaks shall be counted for any purpose in connection with his participation in this Plan thereafter. 3.4 Service Credit During Authorized Leaves. An Employee shall receive no Service credit under Section 3.1 or 3.2 during any Authorized Leave of Absence. However, solely for the purpose of determining whether he has incurred a Break during any Plan Year in which he is absent from Service for one or more Authorized Leaves of -11- Absence, he shall be credited with 45 Hours of Service for each week during any such leave period. Notwithstanding the foregoing, if an Employee fails to return to Service on or before the end of a leave period, he shall be deemed to have terminated Service as of the first day of such leave period and his credit for Hours of Service, determined under this Section 3.4, shall be revoked. Notwithstanding anything contained herein to the contrary, an Employee who is absent by reason of military service as set forth in Section 1.1(d)(1) shall be given Service credit under this Plan for such military leave period to the extent, and for all purposes, required by law. 3.5 Service Credit During Maternity or Paternity Leave. Effective for absences beginning on or after January 1, 1985, for purposes of determining whether a Break has occurred for participation and vesting purposes, an individual who is on maternity or paternity leave as described in Section 1.1(w), shall be deemed to have completed Hours of Service during such period of absence, all in accordance with Section 1.1(w). Notwithstanding the foregoing, no credit shall be given for such Hours of Service unless the individual furnishes to the Administrator such timely information as the Administrator may reasonably require to determine: (a) that the absence from Service was attributable to one of the maternity or paternity reasons enumerated in Section 1.1(w); and (b) the number of days for which such absence lasted. In no event, however, shall any credit be given for such leave other than for determining whether a Break has occurred. 3.6 Ineligible Employees. Notwithstanding any provisions of this Plan to the contrary, any person who is employed by the Employer, but who is ineligible to participate in this Plan, either because of his failure (a) To meet the eligibility requirements contained in Article II; or (b) To be an Employee, as defined in Section 1.1(p), shall, nevertheless, earn Years of Service for eligibility and vesting purposes pursuant to the rules contained in this Article III. However, such a person shall not be entitled to receive any contributions hereunder unless and until he becomes a Participant in this Plan, and then, only during his period of participation. -12- ARTICLE IV CONTRIBUTIONS 4.1 Employee Stock Ownership Contributions. (a) Subject to all of the provisions of this Article IV, for each Plan Year commencing on or after the Effective Date, the Employer shall make an Employee Stock Ownership contribution to the Fund, in such amount as may be determined by the Board of Directors in its discretion. Such contribution shall be in the form of cash or Employer Securities. In determining the value of Employer Securities transferred to the Fund as an Employee Stock Ownership contribution, the Administrator may determine the average of closing prices of such securities for a period of up to 90 consecutive days immediately preceding the date on which the securities are contributed to the Fund. In the event that the Employer Securities are not readily tradable on an established securities market, the value of the Employer Securities transferred to the Fund shall be determined by an independent appraiser in accordance with Section 8.9. (b) In no event shall such contribution by the Employer exceed for any Plan Year the maximum amount that may be deducted by the Employer under Section 404 of the Code, nor shall such contribution cause the Employer to violate its regulatory capital requirements. Each Employee Stock Ownership contribution by the Employer shall be deemed to be made on the express condition that the Plan, as then in effect, shall be qualified under Sections 401 and 501 of the Code and that the amount of such contribution shall be deductible from the Employer's income under Section 404 of the Code. 4.2 Time and Manner of Employee Stock Ownership Contributions. (a) The Employee Stock Ownership contribution (if any) for each Plan Year shall be paid to the Trustee in one lump sum or installments at any time on or before the expiration of the time prescribed by law (including any extensions) for filing of the Employer's federal income tax return for its fiscal year ending concurrent with or during such Plan Year. Any portion of the Employee Stock Ownership contribution for each Plan Year that may be made prior to the last day of the Plan Year shall be maintained by the Trustee in the Employee Stock Ownership suspense account described in Section 5.2 until the last day of such Plan Year. (b) If an Employee Stock Ownership contribution for a Plan Year is paid after the close of the Employer's fiscal year which ends concurrent with or during such Plan Year but on or prior to the due date (including any extensions) for filing of the Employer's federal income tax return for such fiscal year, it shall be considered, for allocation purposes, as an Employee Stock Ownership contribution to the Fund for the Plan Year for which it was computed and accrued, unless such -13- contribution is accompanied by a statement to the Trustee, signed by a representative of the Employer, which specifies that the Employee Stock Ownership contribution is made with respect to the Plan Year in which it is received by the Trustee. Any Employee Stock Ownership contribution paid by the Employer during any Plan Year but after the due date (including any extensions) for filing of its federal income tax return for the fiscal year of the Employer ending on or before the last day of the preceding Plan Year shall be treated, for allocation purposes, as an Employee Stock Ownership contribution to the Fund for the Plan Year in which the contribution is paid to the Trustee. (c) Notwithstanding anything contained herein to the contrary, no Employee Stock Ownership contribution shall be made for any year during which a "limitations account" created pursuant to Section 5.6(c)(2) is in existence until the balance of such limitations account has been reallocated in accordance with Section 5.6(c)(2). 4.3 Records of Contributions. The Employer shall deliver at least annually to the Trustee, with respect to the contributions contemplated in Section 4.1, a certificate of the Administrator, in such form as the Trustee shall approve, setting forth: (a) The aggregate amount of contributions, if any, to the Fund for such Plan Year; (b) The names, Internal Revenue Service identifying numbers and current residential addresses of all Participants in the Plan; (c) The amount and category of contributions to be allocated to each such Participant; and (d) Any other information reasonably required for the proper operation of the Plan. 4.4 Erroneous Contributions. (a) Notwithstanding anything herein to the contrary, upon the Employer's request, a contribution which was made by a mistake of fact, or conditioned upon the initial qualification of the Plan, under Code Section 401, or upon the deductibility of the contribution under Section 404 of the Code, shall be returned to the Employer by the Trustee within one year after the payment of the contribution, the denial of the qualification or the disallowance of the deduction (to the extent disallowed), whichever is applicable; provided, however, that in the case of denial of the initial qualification of the Plan, a contribution shall not be returned unless an Application for Determination has been timely filed with the Internal Revenue Service. Any portion of a contribution returned pursuant to this Section 4.4 shall be adjusted to reflect its proportionate share of the losses of the fund, but shall not be adjusted to reflect any earnings or gains. Notwithstanding any provisions of this Plan to the contrary, the right or claim of any Participant or Beneficiary to any asset of the Fund or any benefit under this Plan shall be subject to and limited by this Section 4.4. -14- (b) In no event shall voluntary Employee contributions be accepted. Any such voluntary Employee contributions (and any earnings attributable thereto) mistakenly received by the Trustee shall promptly be returned to the Participant. 4.5 Re-employed Veterans. Notwithstanding anything to the contrary set forth in the Plan, if an Employee has been rehired by the Employer and is eligible for the benefits provided by the Uniformed Services Employment and Reemployment Rights Act by virtue of his prior military service and by virtue of his having met all the requirements of that Act for being accorded the benefits provided thereunder, he shall not be deemed to have incurred a Break because of his period of military service. The Employee's military service shall be treated as Service hereunder for eligibility, vesting and benefit accrual purposes. Such Employee shall be entitled to all Employer contributions to which he otherwise would have been entitled had he been employed by the Employer during the period of his military service. In computing contribution amounts dependent upon or limited by the amount of Compensation the Employee earned or would have earned, the Employee shall be treated as receiving Compensation from the Employer during the period of military service equal to the Compensation that Employee otherwise would have received from the Employer during that period, or, if the Compensation the Employee otherwise would have received is not reasonably certain, the Employee's average Compensation from the Employer during the period immediately preceding the period of military service. Such Employee shall not, however, be credited with any earnings on any such additional Employer or Employee contributions described in this Section before the contribution is actually made. Furthermore, no forfeitures shall be allocated to such Employee's Accounts hereunder for the period of military service. The rules governing the limitations on all such contributions that may be required hereunder the Employer shall be governed by Section 414(u) of the Code and any regulations promulgated thereunder. -15- ARTICLE V ACCOUNTS, ALLOCATIONS AND INVESTMENTS 5.1 Establishment of Separate Participant Accounts. The Administrator shall establish and maintain separate individual accounts for Participants in the Plan and for each Former Participant in accordance with the provisions of this Article V. Such separate accounts shall be for accounting purposes only and shall not require a segregation of the Fund, and no Participant, Former Participant or Beneficiary shall acquire any right to or interest in any specific assets of the Fund as a result of the allocations provided for under this Plan, except where segregation is expressly provided for in this Plan. (a) Employee Stock Ownership Accounts. The Administrator shall establish a separate Employee Stock Ownership Account in the Fund for each Participant. The account shall be credited as of the last day of each Plan Year with the amounts allocated to the Participant under Sections 5.4 and 5.5. The Administrator may establish subaccounts hereunder, an Employer Stock Account reflecting a Participant's interest in Employer Securities held by the Trust and an Other Investments Account reflecting the Participant's interest in his Employee Stock Ownership Account other than Employer Securities. (b) Distribution Accounts. In any case where distribution of a terminated Participant's vested interest in the Plan is to be deferred, the Administrator shall establish a separate, nonforfeitable account in the Fund to which the balance in his Employee Stock Ownership Account in the Plan shall be transferred after such Participant incurs a Break. Unless the Former Participant's distribution accounts are segregated for investment purposes pursuant to section 9.4, they shall share in Investment Adjustments. (c) Other Accounts. The Administrator shall establish such other separate accounts for each Participant as may be necessary or desirable for the convenient administration of the Fund. 5.2 Establishment of Suspense Accounts. The Administrator shall establish separate accounts to be known as "suspense accounts." There shall be credited to such appropriate suspense accounts any Employee Stock Ownership contributions that may be made prior to the last day of the Plan Year, as provided in Section 4.2. The suspense accounts shall share proportionately as to time and amount in any Investment Adjustments. As of the last day of each Plan Year, the balance of the Employee Stock Ownership suspense account -16- shall be added to the Employee Stock Ownership contribution and allocated to the Employee Stock Ownership Accounts of Participants as provided in Section 5.5, except as provided herein. In the event that the Plan takes an Exempt Loan, the Employer Securities purchased thereby shall be allocat ed to a separate Exempt Loan Suspense Account, from which allocations shall be made in accordance with Section 8.5. 5.3 Allocation of Earnings, Losses and Expenses. As of each Valuation Date, any increase or decrease in the net worth of the aggregate Employee Stock Ownership Accounts held in the Fund attributable to earnings, losses, expenses and unrealized appreciation or depreciation in each such aggregate Account, as determined by the Trustee pursuant to the Trust Agreement, shall be credited to or deducted from the appropriate suspense accounts and all Participants' Employee Stock Ownership Accounts (except segregated distribution accounts described in Section 5.1(b) and the "limitations account" described in Section 5.6(c)(4)) in the proportion that the value of each such Account (determined immediately prior to such allocation and before crediting any Employee Stock Ownership contributions and forfeitures for the current Plan Year but after adjustment for any transfer to or from such Accounts and for the time such funds were in such Accounts) bears to the value of all Employee Stock Ownership Accounts. 5.4 Allocation of Forfeitures. As of the last day of each Plan Year, all forfeitures attributable to the Employee Stock Ownership Accounts which are then available for reallocation shall be, as appropriate, added to the Employee Stock Ownership contribution (if any) for such year and allocated among the Participants' Employee Stock Ownership Accounts, as appropriate, in the manner provided in Sections 5.5 and 5.6. 5.5 Allocation of Annual Employee Stock Ownership Contributions. As of the last day of each Plan Year for which the Employer shall make an Employee Stock Ownership contribution, the Administrator shall allocate the Employee Stock Ownership contribution (including reallocable forfeitures) for such Plan Year to the Employee Stock Ownership account of each Participant who completed at least 1,000 Hours of Service during that Plan Year, provided that he is still employed by the Employer on the last day of the Plan Year. Such allocation shall be made in the same proportion that each such Participant's Compensation for such Plan Year bears to the total Compensation of all such Participants for such Plan Year, subject to Section 5.6. Notwithstanding the foregoing, if a Participant attains his Normal Retirement Date and terminates Service prior to the last day of the Plan Year but after completing 1,000 Hours of Service, he shall be entitled to an allocation based on his Compensation earned prior to his termination and during the Plan Year. Furthermore, if a Participant completes 1,000 Hours of Service and is on a Leave of Absence on the last day of the Plan Year because of pregnancy or other medical reason, such a Participant shall be entitled to an allocation based on his Compensation earned during such Plan Year. -17- 5.6 Limitation on Annual Additions. (a) Notwithstanding any provisions of this Plan to the contrary, the total Annual Additions credited to a Participant's accounts under this Plan (and under any other defined contribution plan to which the Employer contributes) for any Limitation Year shall not exceed the lesser of: (1) 25% of the Participant's compensation for such Limitation Year; or (2) $30,000 (or, if greater, one-fourth of the defined benefit dollar limitation set forth in Section 415(b)(1)(A) of the Code). Whenever otherwise allowed by law, the maximum amount of $30,000 shall be automatically adjusted annually for cost-of-living increases in accordance with Section 415(d) of the Code and the highest such increase effective at any time during the Limitation Year shall be effective for the entire Limitation Year, without any amendment to this Plan. (b) Solely for the purpose of this Section 5.6, the term "compensation" is defined as wages, salaries, and fees for professional services and other amounts received (without regard to whether or not an amount is paid in cash) for personal services actually rendered in the course of employment with the Employer maintaining the Plan to the extent that the amounts are includable in gross income (including, but not limited to, commissions paid to salesmen, compensation for services on the basis of a percentage of profits, commissions on insurance premiums, tips, bonuses, fringe benefits, and reimbursements or other expense allowances under a nonaccountable plan (as described in Treas. Regs. Section 1.62-2(c)), and excluding the following: (1) Employer contributions to a plan of deferred compensation which are not includible in the Employee's gross income for the taxable year in which contributed, or Employer contributions under a simplified employee pension plan to the extent such contributions are deductible by the Employee, or any distributions from a plan of deferred compensation; (2) Amounts realized from the exercise of a non-qualified stock option, or when restricted stock (or property) held by the employee either becomes freely transferable or is no longer subject to a substantial risk of forfeiture; (3) Amounts realized from the sale, exchange or other disposition of stock acquired under a qualified stock option; and (4) Other amounts which received special tax benefits, or contributions made by the employer (whether or not under a salary reduction agreement) towards the purchase of an annuity contract described in section 403(b) of the Code (whether or not the contributions are actually excludable from the gross income of the Employee). -18- (c) In the event that the limitations on Annual Additions described in this Section 5.6(a) above are exceeded with respect to any Participant in any Limitation Year, then the contributions allocable to the Participant for such year shall be reduced to the minimum extent required by such limitations in the following order of priority: (1) If any further reductions in Annual Additions are necessary, then the Employee Stock Ownership contributions and forfeitures allocated during such Limitation Year to the Participant's Employee Stock Ownership Account shall be reduced. The amount of any such reductions in the Employee Stock Ownership contributions and forfeitures shall be reallocated to all other Participants in the same manner as set forth under Sections 5.4 and 5.5. (2) Any amounts which cannot be reallocated to other Participants in a current Limitation Year in accordance with Section 5.6(c)(1) above because of the limitations contained in Sections 5.6(a) and (d) shall be credited to an account designated as the "limitations account" and carried forward to the next and subsequent Limitation Years until it can be reallocated to all Participants as set forth in Sections 5.4, and 5.5, as appropriate. No Investment Adjustments shall be allocated to this limitations account. In the next and subsequent Limitation Years, all amounts in the limitations account must be allocated in the manner described in Sections 5.4 and 5.5, as appropriate, before any Employee Stock Ownership contributions may be made to this Plan for that Limitation Year. (3) The Administrator shall determine to what extent the Annual Additions to any Participant's Employee Stock Ownership Account must be reduced in each Limitation Year. The Administrator shall reduce the Annual Additions to all other qualified, tax-exempt retirement plans maintained by the Employer in accordance with the terms contained therein for required reductions or reallocations mandated by Section 415 of the Code before reducing any Annual Additions in this Plan. (4) In the event this Plan is voluntarily terminated by the Employer under Section 13.5, any amounts credited to the limitations account described in Section 5.6(c)(2) above which have not be reallocated as set forth herein shall be distributed to the Participants who are still employed by the Employer on the date of termination, in the proportion that each Participant's Compensation bears to the Compensation of all Participants. (d) The Annual Additions credited to a Participant's accounts for each Limitation Year are further limited so that in the case of an Employee who is a Participant in both this Plan and any qualified defined benefit plan (hereinafter referred to as a "pension plan") of the Employer, the sum of (1) and (2) below will not exceed 1.0: (1) (A) The projected annual normal retirement benefit of a Participant under the pension plan, divided by -19- (B) The lesser of: (i) The product of 1.25 multiplied by the dollar limitation in effect under Section 415(b)(1)(A) of the Code for such Limitation Year, or (ii) The product of 1.4 multiplied by the amount of compensation which may be taken into account under Section 415(b)(1)(B) of the Code for the Participant for such Limitation Year; plus (2) (A) The sum of Annual Additions credited to the Participant under this Plan for all Limitation Years, divided by: (B) The sum of the lesser of the following amounts determined for such Limitation Year and for each prior year of service with the Employer: (i) The product of 1.25 multiplied by the dollar limitation in effect under Section 415(b)(1)(A) of the Code for such Limitation Year, or (ii) The product of 1.4 multiplied by the amount of compensation which may be taken into account under Section 415(b)(1)(B) of the Code for the Participant for such Limitation Year. The Administrator may, in calculating the defined contribution plan fraction described in Section 5.6(d)(2), elect to use the transitional rule pursuant to Section 415(e)(6) of the Code, if applicable. If the sum of the fractions produced above will exceed 1.0, even after the use of the "fresh start" rule contained in Section 235 of the Tax Equity and Fiscal Responsibility Act of 1982 ("TEFRA"), if applicable, then the same provisions as stated in Section 5.6(c) above shall apply. If, even after the reductions provided for in Section 5.6(c), the sum of the fractions still exceed 1.0, then the benefits of the Participant provided under the pension plan shall be reduced to the extent neces sary, in accordance with Treasury Regulations issued under the Code. Solely for the purposes of this Section 5.6(d), the term "years of service" shall mean all years of service defined by Treasury Regulations issued under Section 415 of the Code. (e) In the event that the Employer is a member of (1) a controlled group of corporations or a group of trades or businesses under common control (as described in Section 414(b) or (c) of the Code, as modified by Section 415(h) thereof), or (2) an affiliated service group (as described in Section 414(m) of the Code), the Annual Additions credited to any Participant's accounts in any such Limitation Year shall be further limited by reason of the existence of all other qualified retirement plans maintained by such affiliated corporations, other entities under common control or other members of the affiliated service group, to the extent such reduction is required by Section 415 of the Code and the regulations promulgated thereunder. The Administrator shall determine if any such -20- reduction in the Annual Additions to a Participant's accounts is required for this reason, and if so, the same provisions as stated in 5.6(c) and (d) above shall apply. (f) Annual Additions shall not include any Employer contributions which are used by the Trust to pay interest on an Exempt Loan nor any forfeitures of Employer Securities purchased with the proceeds of an Exempt Loan, provided that not more than one-third of the Employer contributions are allocated to Participants who are among the group of employees deemed "highly compensated employees" within the meaning of Code Section 414(q). 5.7 Erroneous Allocations. No Participant shall be entitled to any Annual Additions or other allocations to his accounts in excess of those permitted under Sections 5.3, 5.4, 5.5, and 5.6. If it is determined at anytime that the Administrator and/or Trustees have erred in accepting and allocating any contributions or forfeitures under this Plan, or in allocating Investment Adjustments, or in excluding or including any person as a Participant, then the Administrator, in a uniform and nondiscriminatory manner, shall determine the manner in which such error shall be corrected and shall promptly advise the Trustee in writing of such error and of the method for correcting such error. The accounts of any or all Participants may be revised, if necessary, in order to correct such error. 5.8 Value of Participant's Interest in Fund. At any time, the value of a Participant's interest in the Fund shall consist of the aggregate value of his Employee Stock Ownership Account and his distribution account, if any, determined as of the next-preceding Valuation Date. The Administrator shall maintain adequate records of the cost basis of Employer Securities allocated to each Participant's Employer Stock Ownership Account. 5.9 Investment of Account Balances. The Employee Stock Ownership Accounts shall be invested primarily in Employer Securities. Employer Securities shall constitute at least 51% of the assets of all Employee Stock Ownership Accounts. All sales of Employer Securities by the Trustee attributable to the Employee Stock Ownership Accounts of all Participants shall be charged pro rata to the Employee Stock Ownership Accounts of all Participants. -21- ARTICLE VI RETIREMENT, DEATH AND DESIGNATION OF BENEFICIARY 6.1 Normal Retirement. A Participant who reaches his Normal Retirement Date and who shall retire at that time shall thereupon be entitled to retirement benefits based on the value of his interest in the Fund, payable pursuant to the provisions of Section 9.1. A Participant who remains in Service after his Normal Retirement Date shall not be entitled to any retirement benefits until his actual termination of Service thereafter (except as provided in Section 9.3(g)) and he shall meanwhile continue to participate in this Plan. 6.2 Early Retirement. A Participant who reaches his Early Retirement Date may retire at such time (or, at his election, as of the first day of any month thereafter prior to his Normal Retirement Date) and shall thereupon be entitled to retirement benefits based on the value of his interest in the Fund, payable pursuant to the provisions of Section 9.1. 6.3 Disability Retirement. In the event a Participant incurs a Disability, he may retire on his Disability Retirement Date and shall thereupon be entitled to retirement benefits based on the value of his interest in the Fund, payable pursuant to the provisions of Section 9.1. 6.4 Death Benefits. (a) Upon the death of a Participant before his Retirement or other termination of Service, the value of his interest in the Fund shall be payable pursuant to the provisions of Section 9.1. The Administrator shall direct the Trustee to distribute his interest in the Fund to any surviving Beneficiary designated by the Participant or, if none, to such persons designated by the Administrator pursuant to Section 6.5. (b) Upon the death of a Former Participant, the Administrator shall direct the Trustee to distribute any undistributed balance of his interest in the Fund to any surviving Beneficiary designated by him or, if none, to such persons designated by the Administrator pursuant to Section 6.5. (c) The Administrator may require such proper proof of death and such evidence of the right of any person to receive the interest in the Fund of a deceased Participant or Former Partici pant as the Administrator may deem desirable. The Administrator's determination of death and of -22- the right of any person to receive payment shall be conclusive. 6.5 Designation of Death Beneficiary and Manner of Payment. (a) Each Participant shall have the right to designate a Beneficiary or Beneficiaries to receive the sum or sums to which he may be entitled upon his death. The Participant may also designate the manner in which any death benefits under this Plan shall be payable to his Beneficiary, provided that such designation is in accordance with Section 9.4. Such designation of Beneficiary and manner of payment shall be in writing and delivered to the Administrator, and shall be effective when received by the Administrator. The Participant shall have the right to change such designation by notice in writing to the Administrator. Such change of Beneficiary or the manner of payment shall become effective upon its receipt by the Administrator. Any such change shall be deemed to revoke all prior designations. (b) If a Participant shall fail to designate validly a Beneficiary or if no designated Beneficiary survives the Participant, his interest in the Fund shall be paid to the person or persons in the first of the following classes of successive preference Beneficiaries surviving at the death of the Participant: the Participant's (1) widow or widower, (2) children, (3) parents, and (4) estate. The Administrator shall decide what Beneficiaries, if any, shall have been validly designated, and its decision shall be binding and conclusive on all persons. (c) Notwithstanding the foregoing, if a Participant has been married throughout the 12 month period preceding the date of his death, the sum or sums to which he may be entitled under this Plan upon his death shall be paid to his spouse, unless the Participant's spouse shall have consented to the election of another Beneficiary. Such a spousal consent shall be in writing and shall be witnessed either by a representative of the Plan or a notary public. If it is established to the satisfaction of the Administrator that such spousal consent cannot be obtained because there is no spouse, because the spouse cannot be located, or other reasons prescribed by governmental regulations, the consent of the spouse may be waived, and the Participant may designate a Beneficiary or Beneficiaries other than his spouse. -23- ARTICLE VII VESTING AND FORFEITURES 7.1 Vesting on Death, Disability and Normal Retirement. Unless his participation in this Plan shall have terminated prior thereto, upon a Participant's death, Disability or upon his attainment of Normal Retirement Date (whether or not he actually retires at that time) while he is still employed by the Employer, the Participant's entire interest in the Fund shall be fully vested and nonforfeitable. 7.2 Vesting on Termination of Participation. Upon termination of his participation in this Plan for any reason other than death, Disability, or Normal Retirement, a Participant shall be vested in a percentage of his Employee Stock Ownership Account, such vested percentages to be determined under the following table, based on the Years of Service (including Years of Service prior to the Effective Date) credited to him for vesting purposes at the time of his termination of participation: Years of Service Completed Percentage Vested -------------------------- ----------------- Less than 2 0% 2 but less than 3 20% 3 but less than 4 40% 4 but less than 5 60% 5 but less than 6 80% 6 or more 100% Any portion of the Participant's Employee Stock Ownership Account which is not vested at the time he incurs a Break shall thereupon be forfeited and disposed of pursuant to Section 7.3. Distribution of the vested portion of a terminated Participant's interest in the Plan may be authorized by the Administrator in any manner permitted under Section 9.1. 7.3 Disposition of Forfeitures. (a) In the event a Participant incurs a Break and subsequently resumes both his Service and his participation in the Plan prior to incurring at least 5 Breaks, the forfeitable portion of his Employee Stock Ownership Account shall be reinstated to the credit of the Participant as of the date he resumes participation. (b) In the event a Participant terminates Service and subsequently incurs a Break and receives a distribution, or in the event a Participant does not terminate Service, but incurs at least 5 -24- Breaks, or in the event that a Participant terminates Service and incurs at least 5 Breaks but has not received a distribution, then the forfeitable portion of his Employer Account, including Investment Adjustments, shall be reallocated to other Participants, pursuant to Section 5.4 as of the date the Participant incurs such Break or Breaks, as the case may be. (c) In the event a former Participant who had received a distribution from the Plan is rehired, he shall repay the amount of his distribution before the earlier of 5 years after the date of his rehire by the Employer, or the close of the first period of 5 consecutive Breaks commencing after the withdrawal in order for any forfeited amounts to be restored to him. -25- ARTICLE VIII EMPLOYEE STOCK OWNERSHIP PROVISIONS 8.1 Right to Demand Employer Securities. A Participant entitled to a distribution from his Employee Stock Ownership Account shall be entitled to demand that his interest in the Account be distributed to him in the form of Em ployer Securities, all subject to Section 9.9. In the event that the Employer Securities are not readily tradable on an established market, the Participant shall be entitled to require that the Employer repurchase the Employer Securities under a fair valuation formula, as provided by governmental regulations. The Participant or Beneficiary shall be entitled to exercise the put option described in the preceding sentence for a period of not more than 60 days following the date of distribution of Employer Securities to him. If the put option is not exercised within such 60-day period, the Participant or Beneficiary may exercise the put option during an additional period of not more than 60 days after the beginning of the first day of the first Plan Year following the Plan Year in which the first put option period occurred, all as provided in regulations promulgated by the Secretary of the Treasury. 8.2 Voting Rights. Each Participant with an Employee Stock Ownership Account shall be entitled to direct the Trustee as to the manner in which the Employer Securities in such Account are to be voted. Employer Securities held in the Employee Stock Ownership Suspense Account or the Exempt Loan Suspense Account shall be voted by the Trustee on each issue with respect to which shareholders are entitled to vote in the manner directed by the majority of the Participants who directed the Trustee as to the manner of voting their shares in the Employee Stock Ownership Accounts with respect to such issue. Prior to the initial allocation of shares, the Trustee shall be entitled to vote the shares in the Suspense Account without prior direction from the Participants or the Administrator. In the event that a Participant fails to give timely voting instructions to the Trustee with respect to the voting of his allocated Employer Securities, the Trustee shall be entitled to vote such shares in its discretion. 8.3 Nondiscrimination in Employee Stock Ownership Contributions. In the event that the amount of the Employee Stock Ownership contributions that would be required in any Plan Year to make the scheduled payments on an Exempt Loan would exceed the amount that would otherwise be deductible by the Employer for such Plan Year under Code Section 404, then no more than one-third of the Employee Stock Ownership contributions for the Plan Year, which is also the Employer's taxable year, shall be allocated to the group of Employees who, during the Plan Year or the preceding Plan Year: -26- (a) Was at any time a 5 percent owner of the Employer; (b) Received compensation from the Employer in excess of $75,000, as adjusted under Code Section 414(q); (c) Received compensation from the Employer in excess of $50,000, as adjusted under Code Section 414(q), and was in the "top-paid group" of employees (as defined below) for such year; or (d) Was at any time an officer and received compensation greater than 50 percent of the amount in effect under Code Section 415(b)(1)(A), as adjusted for cost-of-living increases permitted under Code Section 415(d)(1), but without regard to any adjustment under Code Section 415(c)(6)(A). An Employee shall be deemed a member of the "top-paid group" of employees for a given Plan Year if such Employee is in the group of the top 20% of the employees of the Employer when ranked on the basis of compensation. 8.4 Dividends. Dividends paid with respect to Employer Securities credited to a Participant's Employee Stock Ownership account as of the record date for the dividend payment may be paid in cash to the Participants, pursuant to the directions of the Board of Directors of the Sponsor. If the Board of Directors shall direct that the aforesaid dividends shall be paid directly to Participants, the quarterly dividends paid with respect to such Employer Securities shall be paid to the Plan, from which dividend distributions in cash shall be made to the Participants with respect to the Employer Securities in their Employee Stock Ownership Accounts within 90 days of the close of the Plan Year in which the dividends were paid. Dividends on Employer Securities obtained pursuant to an Exempt Loan and still held in the Suspense Account may be used to make payments on an Exempt Loan, as described in Section 8.5. 8.5 Exempt Loans. (a) The Sponsor may direct the Trustee to obtain Exempt Loans. The Exempt Loan may take the form of (i) a loan from a bank or other commercial lender to purchase Employer Securities (ii) a loan from the Employer to the Plan; or (iii) an installment sale of Employer Securities to the Plan. The proceeds of any such Exempt Loan shall be used, within a reasonable time after the Ex empt Loan is obtained, only to purchase Employer Securities, repay the Exempt Loan, or repay any prior Exempt Loan. Any such Exempt Loan shall provide for no more than a reasonable rate of interest and shall be without recourse against the Plan. The number of years to maturity under the Exempt Loan must be definitely ascertainable at all times. The only assets of the Plan that may be given as collateral for an Exempt Loan are Employer Securities acquired with the proceeds -27- of the Exempt Loan and Employer Securities that were used as collateral for a prior Exempt Loan repaid with the proceeds of the current Exempt Loan. Such Employer Securities so pledged shall be placed in an Exempt Loan Suspense Account. No person or institution entitled to payment under an Exempt Loan shall have recourse against Trust assets other than the aforesaid collateral, Employer Stock Ownership contributions (other than contributions of Employer Securities) that are available under the Plan to meet obligations under the Exempt Loan and earnings attributable to such collateral and the investment of such contributions. All Employee Stock Ownership contributions paid during the Plan Year in which an Exempt Loan is made (whether before or after the date the proceeds of the Exempt Loan are received), all Employee Stock Ownership contribu tions paid thereafter until the Exempt Loan has been repaid in full, and all earnings from investment of such Employee Stock Ownership contributions, without regard to whether any such Employee Stock Ownership contributions and earnings have been allocated to Participants' Employee Stock Ownership Accounts, shall be available to meet obligations under the Exempt Loan as such obligations accrue, or prior to the time such obligations accrue, unless otherwise provided by the Employer at the time any such contribution is made. Any pledge of Employer Securities shall provide for the release of shares so pledged upon the payment of any portion of the Exempt Loan. (b) For each Plan Year during the duration of the Exempt Loan, the number of shares of Employer Securities released from such pledge shall equal the number of encumbered shares held immediately before release for the current Plan Year multiplied by a fraction. The numerator of the fraction is the sum of principal and interest paid in such Plan Year. The denominator of the fraction is the sum of the numerator plus the principal and interest to be paid for all future years. Such years will be determined without taking into account any possible extension or renewal periods. If interest on any Exempt Loan is variable, the interest to be paid in future years under the Exempt Loan shall be computed by using the interest rate applicable as of the end of the Plan Year. (c) Notwithstanding the foregoing, the Trustee may obtain an Exempt Loan pursuant to the terms of which the number of Employer Securities to be released from encumbrance shall be determined solely with reference to principal payments. In the event that such an Exempt Loan is obtained, annual payments of principal and interest shall be at a cumulative rate that is not less rapid at any time than level payments of such amounts for not more than 10 years. The amount of interest in any such annual loan repayment shall be disregarded only to the extent that it would be determined to be interest under standard loan amortization tables. The requirement set forth in the preceding sentence shall not be applicable from the time that, by reason of a renewal, extension, or refinancing, the sum of the expired duration of the Exempt Loan, the renewal period, the extension period, and the duration of a new Exempt Loan exceeds 10 years. -28- 8.6 Exempt Loan Payments. (a) Payments of principal and interest on any Exempt Loan during a Plan Year shall be made by the Trustee (as directed by the Administrator) only from (1) Employee Stock Ownership contributions to the Trust made to meet the Plan's obligation under an Exempt Loan (other than contributions of Employer Securities) and from any earnings attributable to Employer Securities held as collateral for an Exempt Loan and investments of such contributions (both received during or prior to the Plan Year); (2) the proceeds of a subsequent Exempt Loan made to repay a prior Exempt Loan; and (3) the proceeds of the sale of any Employer Securities held as collateral for an Exempt Loan. Such contribution and earnings shall be accounted for separately by the Plan until the Exempt Loan is repaid. (b) Employer Securities released by reason of the payment of principal or interest on an Exempt Loan from amounts allocated to Participants' Employee Stock Ownership Accounts shall immediately upon payment be allocated as set forth in Section 5.5. (c) The Employer shall contribute to the Trust sufficient amounts to enable the Trust to pay principal and interest on any such Exempt Loans as they are due, provided however that no such contribution shall exceed the limitations in Section 5.6. In the event that such contributions by reason of the limitations in Section 5.6 are insufficient to enable the Trust to pay principal and interest on such Exempt Loan as it is due, then upon the Trustee's request the Employer shall: (1) Make an Exempt Loan to the Trust in sufficient amounts to meet such principal and interest payments. Such new Exempt Loan shall be subordinated to the prior Exempt Loan. Securities released from the pledge of the prior Exempt Loan shall be pledged as collateral to secure the new Exempt Loan. Such Employer Securities will be released from this new pledge and allocated to the Employee Stock Ownership Accounts of the Partici pants in accordance with applicable provisions of the Plan; (2) Purchase any Employer Securities pledged as collateral in an amount necessary to provide the Trustee with sufficient funds to meet the principal and interest repayments. Any such sale by the Plan shall meet the requirements of Section 408(e) of ERISA; or (3) Any combination of the foregoing. However, the Employer shall not, pursuant to the provisions of this subsection, do, fail to do or cause to be done any act or thing which would result in a disqualification of the Plan as an Employee Stock Ownership Plan under the Code. (d) Except as provided in Section 8.1 above and notwithstanding any amendment to or termination of the Plan which causes it to cease to qualify as an Employee Stock Ownership plan within the meaning of Section 4975(e)(7) of the Code, or any repayment of an Exempt Loan, no -29- shares of Employer Securities acquired with the proceeds of an Exempt Loan obtained by the Trust to purchase Employer Securities may be subject to a put, call or other option, or buy-sell or similar arrangement while such shares are held by the Plan or when such Shares are distributed from the Plan. 8.7 Put Option. If a Participant exercises a put option (as set forth in Section 8.1) with respect to Employer Securities that were distributed as part of a total distribution pursuant to which a Participant's Employee Stock Ownership Account is distributed to him in a single taxable year, the Employer or the Plan may elect to pay the purchase price of the Employer Securities over a period not to exceed 5 years. Such payments shall be made in substantially equal installments not less frequently than annually over a period beginning not later than 30 days after the exercise of the put option. Reasonable interest shall be paid to the Participant with respect to the unpaid balance of the purchase price and adequate security shall be provided with respect thereto. In the event that a Participant exercises a put option with respect to Employer Securities that are distributed as part of an installment distribution, the amount to be paid for such securities shall be paid not later than 30 days after the exercise of the put option. 8.8 Diversification Requirements Each Participant who has completed at least 10 years of participation in the Plan and has attained age 55 may elect within 90 days after the close of each Plan Year during his "qualified election period" to direct the Plan as to the investment of at least 25 percent of his Employee Stock Ownership Account (to the extent such percentage exceeds the amount to which a prior election under this Section 8.8 had been made). For purposes of this Section 8.8, the term "qualified election period" shall mean the 5-Plan-Year period beginning with the Plan Year after the Plan Year in which the Participant attains age 55 (or, if later, beginning with the Plan Year after the first Plan Year in which the Employee first completes at least 10 years of participation in the Plan). In the case of the Employee who has attained age 60 and completed 10 years of participation in the prior Plan Year and in the case of the election year in which any other Participant who has met the minimum age and service requirements for diversification can make his last election hereunder, he shall be entitled to direct the Plan as to the investment of at least 50 percent of his Employee Stock Ownership Account (to the extent such percentage exceeds the amount to which a prior election under this Section 8.8 had been made). The Plan shall make available at least 3 investment options (not inconsistent with regulations prescribed by the Department of Treasury) to each Participant making an election hereunder. The Plan shall be deemed to have met the requirements of this Section if the portion of the Participant's Employee Stock Ownership Account covered by the election hereunder is distributed to the Participant or his designated Beneficiary within 90 days after the period during which the election may be made. In the absence of such a distribution, the Trustee shall implement the Participant's election within 90 days following the expiration of the qualified election period. -30- 8.9 Independent Appraiser. An independent appraiser meeting the requirements of Code Section 170(a)(1) shall value the Employer Securities in those Plan Years when such securities are not readily tradable on an established securities market. -31- ARTICLE IX PAYMENTS AND DISTRIBUTIONS 9.1 Payments on Termination of Service - In General. All benefits provided under this Plan shall be funded by the value of a Participant's vested interest in the Fund. As soon as practicable after a Participant's Retirement, death or termination of Service, the Administrator shall ascertain the value of his vested interest in the Fund, as provided in Article V, and the Administrator shall hold or dispose of the same in accordance with the following provisions of this Article IX. 9.2 Commencement of Payments. (a) Distributions upon Retirement or Death. Upon a Participant's Retirement or Death, payment of benefits under this Plan shall, unless the Participant otherwise elects (in accordance with Section 9.3), commence no later than 6 months after the close of the Plan Year in which occurs the date of the Participant's Retirement or death. (b) Distribution following Termination of Service. Unless a Participant elects otherwise, if a Participant terminates Service prior to Retirement or death, he shall be accorded an opportunity to commence receipt of distributions from his Accounts within six (6) months after the Valuation Date next following the date of his termination of service. A Participant who terminates Service with a deferred vested benefit shall be entitled to receive from the Administrator a statement of his benefits. In the event that a Participant elects not to commence receipt of distributions from his Accounts in accordance with this Section 9.2(b), after the Participant incurs a Break, the Administrator shall transfer his deferred vested interest to a distribution account. If a Participant's vested Employer Account does not exceed (or at the time of any prior distribution did not exceed) $3,500, the Plan Administrator may distribute the vested portion of his Employer Account as soon as administratively feasible without the consent of the Participant or his spouse. (c) Distribution of Accounts Greater Than $3,500. If the value of a Participant's vested Account balance exceeds (or at the time of any prior distribution exceeded) $3,500, and the Account balance is immediately distributable, the Participant must consent to any distribution of such Account balance. The Plan Administrator shall notify the Participant of the right to defer any distribution until the Participant's Account balance is no longer immediately distributable. The consent of the Participant shall not be required to the extent that a distribution is required to satisfy Code ss.401(a)(9) or Code ss.415. -32- 9.3 Mandatory Commencement of Benefits. (a) Unless a Participant elects otherwise, in writing, distribution of benefits will begin no later than the 60th day after the latest of the close of the Plan Year in which (i) the Participant attains age 65, (ii) occurs the tenth anniversary of the year in which the Participant commenced participation in the Plan Year, or (iii) the Participant terminates Service with the Employer. (b) In the event that the Plan shall be subsequently amended to provide for a form of distribution other than a lump sum, as of the first distribution calendar year, distributions, if not made in a lump sum, may be made only over one of the following periods (or a combination thereof): (i) the life of the Participant, (ii) the life of the Participant and the designated beneficiary, (iii) a period certain not extending beyond the life expectancy of the Participant, or (iv) a period certain not extending beyond the joint and last survivor expectancy of the Participant and a designated beneficiary. (c) In the event that the Plan shall be subsequently amended to provide for a form of distribution other than a lump sum, if the participant's interest is to be distributed in other than a lump sum, the following minimum distribution rules shall apply on or after the required beginning date: (i) If a Participant's benefit is to be distributed over (1) a period not extending beyond the life expectancy of the Participant or the joint life and last survivor expectancy of the Participant and the Participant's designated beneficiary or (2) a period not extending beyond the life expectancy of the designated beneficiary, the amount required to be distributed for each calendar year, beginning with distributions for the first distribution calendar year, must at least equal the quotient obtained by dividing the Participant's benefit by the applicable life expectancy. (ii) For calendar years beginning after December 31, 1988, the amount to be distributed each year, beginning with distributions for the first distribution calendar year shall not be less than the quotient obtained by dividing the Participant's benefit by the lesser of (1) the applicable life expectancy or (2) if the Participant's spouse is not the designated beneficiary, the applicable divisor determined from the table set forth in Q&A-4 of section 1.401(a)(9)-2 of the Proposed Regulations. Distributions after the death of the participant shall be distributed using the applicable life expectancy in sub-section (iii) above as the relevant divisor without regard to Proposed Regulations 1.401(a)(9)-2. -33- (iii) The minimum distribution required for the Participant's first distribution calendar year must be made on or before the Participant's required beginning date. The minimum distribution for other calendar years, including the minimum distribution for the distribution calendar year in which the employee's required beginning date occurs, must be made on or before December 31 of the distribution calendar year. (d) If a Participant dies after a distribution has commenced in accordance with Section 8.3(b) but before his entire interest has been distributed to him, the remaining portion of such interest shall be distributed to his Beneficiary at least as rapidly as under the method of distribution in effect as of the date of his death. (e) If a Participant shall die before the distribution of his interest in the Plan has begun, the entire interest of the Participant shall be distributed by December 31 of the calendar year containing the fifth anniversary of the death of the Participant, except in the following events: (i) If any portion of the Participant's interest is payable to (or for the benefit of) a designated beneficiary over a period not extending beyond the life expectancy of such beneficiary and such distributions begin not later than December 31 of the calendar year immediately following the calendar year in which the Participant died. (ii) If any portion of the Participant's interest is payable to (or for the benefit of) the Participant's spouse over a period not extending beyond the life expectancy of such spouse and such distributions begin no later than December 31 of the calendar year in which the Participant would have attained age 70-1/2. If the Participant has not made a distribution election by the time of his death, the Participant's designated beneficiary shall elect the method of distribution no later than the earlier of (1) December 31 of the calendar year in which distributions would be required to begin under this Article or (2) December 31 of the calendar year which contains the fifth anniversary of the date of death of the Participant. If the Participant has no designated beneficiary, or if the designated beneficiary does not elect a method of distribution, distribution of the Participant's entire interest shall be completed by December 31 of the calendar year containing the fifth anniversary of the Participant's death. (f) For purposes of this Article, the life expectancy of a Participant and his spouse may be redetermined but not more frequently than annually. The life expectancy (or joint and last survivor expectancy) shall be calculated using the attained age of the Participant (or designated beneficiary) as of the Participant's (or designated beneficiary's) birthday in the applicable calendar year reduced by one for each calendar year which has elapsed since the date life expectancy was first calculated. If life expectancy is being recalculated, the applicable life expectancy shall be the life expectancy as so recalculated. The applicable calendar year shall be the first distribution calendar year, and if life expectancy is being recalculated, such succeeding calendar year. Unless -34- otherwise elected by the Participant (or his spouse, if applicable) by the time distributions are required to begin, life expectancies shall be recalculated annually. Any such election not to recalculate shall be irrevocable and shall apply to all subsequent years. The life expectancy of a nonspouse beneficiary may not be recalculated. (g) For purposes of Section 9.3(b) and 9.3(e), any amount paid to a child shall be treated as if it had been paid to a surviving spouse if such amount will become payable to the surviving spouse upon such child reaching majority (or other designated event permitted under regulations). (h) For distributions beginning before the Participant's death, the first distribution calendar year is the calendar year immediately preceding the calendar year which contains the Participant's required beginning date. For distributions beginning after the Participant's death, the first distribution calendar year is the calendar year in which distributions are required to begin pursuant to this Article. 9.4 Required Beginning Dates. (a) General Rule. The required beginning date of a Participant is the first day of April of the calendar year following the calendar year in which the participant attains age 70-1/2, provided that such Participant is a 5-percent owner. (b) 5-percent owner. A Participant is treated as a 5-percent owner for purposes of this section if such Participant is a 5-percent owner as defined in section 416(i) of the Code (determined in accordance with section 416 but without regard to whether the plan is top-heavy) at any time during the Plan Year ending with or within the calendar year in which such owner attains age 66-1/2 or any subsequent Plan Year. Once distributions have begun to a 5-percent owner under this section, they must continue to be distributed, even if the Participant ceases to be a 5- percent owner in a subsequent year. 9.5 Form of Payment. Each Participant's vested interest shall be distributed in a lump sum payment. Notwithstanding the preceding sentence, but subject to Section 9.3, the Administrator may not distribute a lump sum when the present value of a Participant's total Account balances is in excess of $3,500 without the Participant's consent. This form of payment shall be the normal form of distribution. Furthermore, however, in the event that the Administrator must commence distributions, pursuant to Section 9.4, with respect to an Employee who has attained age 70-1/2 and is still employed by the Employer, if the Employee does not elect a lump sum distribution, payments shall be made in installments in such amounts as shall satisfy the minimum distribution rules of Section 9.3. -35- 9.6 Payments Upon Termination of Plan. Upon termination of this Plan pursuant to Sections 13.2, 13.4, 13.5 or 13.6, the Administrator shall continue to perform its duties and the Trustee shall make all payments upon the following terms, conditions and provisions: All interests of Participants shall immediately become fully vested; the value of the interests of all Participants shall be determined within 60 days after such termination, and the Administrator shall have the same powers to direct the Trustee in making payments as contained in Sections 9.1 and 13.5. 9.7 Distributions Pursuant to Qualified Domestic Relations Orders. Upon receipt of a domestic relations order, the Administrator shall notify promptly the Participant and any alternate payee of receipt of the order and the Plan's procedure for determining whether the order is a Qualified Domestic Relations Order. While the issue of whether a domestic relations order is a Qualified Domestic Relations Order is being determined, if the benefits would otherwise be paid, the Administrator shall segregate in a separate account in the Plan the amounts that would be payable to the alternate payee during such period if the order were a Qualified Do mestic Relations Order. If within 18 months the order is determined to be a Qualified Domestic Relations Order, the amounts so segregated, along with the interest or investment earnings attributable thereto shall be paid to the alternate payee. Alternatively, if within 18 months, it is determined that the order is not a Qualified Domestic Relations Order or if the issue is still unresolved, the amounts segregated under this Section 9.6, with the earnings attributable thereto, shall be paid to the Participant or Beneficiary who would have been entitled to such amounts if there had been no order. The determination as to whether the order is qualified shall be applied prospectively. Thus, if the Administrator determines that the order is a Qualified Domestic Relations Order after the 18-month period, the Plan shall not be liable for payments to the alternative payee for the period before the order is determined to be a Qualified Domestic Relations Order. 9.8 Cash-Out Distributions If a Participant receives a distribution of the entire present value of his vested Account balances under this Plan because of the termination of his participation in the Plan, the Plan shall disregard a Participant's Service with respect to which such cash-out distribution shall have been made, in computing his accrued benefit under the Plan in the event that a Former Participant shall again become an Employee and become eligible to participate in the Plan. Such a distribution shall be deemed to be made on termination of participation in the Plan if it is made not later than the close of the second Plan Year following the Plan Year in which such termination occurs. The forfeitable portion of a Participant's accrued benefit shall be restored upon repayment to the Plan by such former Participant of the full amount of the cash-out distribution, provided that the former Participant again becomes an Employee. Such repayment must be made by the Employee not later than the end of the 5-year period beginning with the date of the distribution. Forfeitures required -36- to be restored by virtue of such repayment shall be restored from the following sources in the following order of preference: (i) current forfeitures; (ii) additional employee stock ownership contributions, as appropriate and as subject to Section 5.6; and (iii) investment earnings of the Fund. In the event that a Participant's interest in the Plan is totally forfeitable, a Participant shall be deemed to have received a distribution of zero upon his termination of Service. In the event of a return to Service within 5 years of the date of his deemed distribution, the Participant shall be deemed to have repaid his distribution in accordance with the rules of this Section 9.8. 9.9 ESOP Distribution Rules. Notwithstanding any provision of this Article IX to the contrary, the distribution of a Participant's Employee Stock Ownership Account (unless the Participant elects otherwise in writing), shall commence as soon as administratively feasible as of the first Valuation Date coincident with or next following his death, disability or termination of Service, but not later than 1 year after the close of the Plan Year in which the Participant separates from Service by reason of the attainment of his Normal Retirement Date, disability, death or separation from Service. In addition, all distributions hereunder shall, to the extent that the Participant's Account is invested in Employer Securities, be made in the form of Employer Securities. Fractional shares, however, may be distributed in the form of cash. 9.10 Withholding. (a) Notwithstanding any provision of the Plan to the contrary that would otherwise limit a distributee's election under this Article IX, a distributee may elect, at the time and in the manner prescribed by the Plan Administrator, to have any portion of an "eligible rollover distribution" paid directly to an "eligible retirement plan" specified by the distributee in a "direct rollover." (b) For purposes of this Section 9.10, an "eligible rollover distribution" is any distribution of all or any portion of the balance to the credit of the distributee, except that an "eligible rollover distribution" does not include: any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the distributee or the joint lives (or joint life expectancies) of the distributee and the distributee's designated beneficiary, or for a specified period of ten years or more; any distribution to the extent such distribution is required under section 401(a)(9) of the Code; and the portion of any distribution that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to Employer Securities). (c) For purposes of this Section 9.10, an "eligible retirement plan" is an individual retirement account described in section 408(a) of the Code, an individual retirement annuity described in section 408(b) of the Code, an annuity plan described in section 403(a) of the Code, or a qualified trust described in section 401(a) of the Code, that accepts the distributee's eligible -37- rollover distribution. However, in the case of an "eligible rollover distribution" to the surviving spouse, an "eligible retirement plan" is an individual retirement account or individual retirement annuity. (d) For purposes of this Section 9.10, a distributee includes a Participant or former Participant. In addition, the Participant's or former Participant's surviving spouse and the Participant's or former Participant's spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in section 414(p) of the Code, are "distributees" with regard to the interest of the spouse or former spouse. (e) For purposes of this Section 9.10, a "direct rollover" is a payment by the Plan to the "eligible retirement plan" specified by the distributee. 9.11 Waiver of 30-day Notice. If a distribution is one to which sections 401(a)(11) and 417 of the Code do not apply, such distribution may commence less than 30 days after the notice required under section 1.411(a)- 11(c) of the Income Tax Regulations is given, provided that: (1) the Plan Administrator clearly informs the Participant that the Participant has a right to a period of at least 30 days after receiving the notice to consider the decision of whether or not to elect a distribution (and, if applicable, a particular distribution option), and (2) the Participant, after receiving the notice, affirmatively elects a distribution. 9.12 Re-employed Veterans. Notwithstanding anything to the contrary set forth in the Plan, if an Employee has been rehired by the Employer and is eligible for the benefits provided by the Uniformed Services Employment and Reemployment Rights Act by virtue of his prior military service and by virtue of his having met all the requirements of that Act for being accorded the benefits provided thereunder, he shall not be deemed to have incurred a Break because of his period of military service. The Employee's military service shall be treated as Service hereunder for eligibility, vesting and benefit accrual purposes. Such Employee shall be entitled to all Employer contributions to which he otherwise would have been entitled had he been employed by the Employer during the period of his military service. In computing contribution amounts dependent upon or limited by the amount of Compensation the Employee earned or would have earned, the Employee shall be treated as receiving Compensation from the Employer during the period of military service equal to the Compensation that Employee otherwise would have received from the Employer during that period, or, if the Compensation the Employee otherwise would have received is not reasonably certain, the Employee's average Compensation from the Employer during the period immediately preceding the period of military service. Such Employee shall not, however, be credited with any earnings on any such additional Employer or Employee contributions described in this Section before the contribution is actually made. -38- Furthermore, no forfeitures shall be allocated to such Employee's Accounts hereunder for the period of military service. The rules governing the limitations on all such contributions that may be required hereunder the Employer shall be governed by Section 414(u) of the Code and any regulations promulgated thereunder. -39- ARTICLE X PROVISIONS RELATING TO TOP-HEAVY PLANS 10.1 Top-Heavy Rules to Control. Anything contained in this Plan to the contrary notwithstanding, if for any Plan Year the Plan is a top-heavy plan, as determined pursuant to Section 416 of the Code, then the Plan must meet the requirements of this Article X for such Plan Year. 10.2 Top-Heavy Plan Definitions. Unless a different meaning is plainly implied by the context, the following terms as used in this Article X shall have the following meanings: (a) "Accrued Benefit" shall mean the account balances or accrued benefits of an Employee, calculated pursuant to Section 10.3. (b) "Determination Date" shall mean, with respect to any particular Plan Year of this Plan, the last day of the preceding Plan Year (or, in the case of the first Plan Year of the Plan, the last day of the first Plan Year). In addition, the term "Determination Date" shall mean, with respect to any particular plan year of any plan (other than this Plan) in a Required Aggregation Group or a Permissive Aggregation Group, the last day of the plan year of such plan which falls within the same calendar year as the Determination Date for this Plan. (c) "Employer" shall mean the Employer (as defined in Section 1.1(q)) and any entity which is (1) a member of a controlled group including such Employer, while it is a member of such controlled group (within the meaning of Section 414(b) of the Code), (2) in a group of trades or businesses under common control with such Employer, while it is under common control (within the meaning of Section 414(c) of the Code), and (3) a member of an affiliated service group including such Employer, while it is a member of such affiliated service group (within the meaning of Section 414(m) of the Code). (d) "Key Employee" shall mean any Employee or former Employee (or any Beneficiary of such Employee or former Employee, as the case may be) who, at any time during the Plan Year or during the 4 immediately preceding Plan Years is one of the following: (1) An officer of the Employer who has compensation greater than 50% of the amount in effect under Code 415(b)(1)(A) for the Plan Year; provided, however, that no more than 50 Employees (or, if lesser, the greater of 3 or 10% of the Employees) shall be deemed officers; -40- (2) One of the 10 Employees having annual compensation (as defined in Section 415 of the Code) in excess of the limitation in effect under Section 415(c)(1)(A) of the Code, and owning (or considered as owning, within the meaning of Section 318 of the Code) the largest interests in the Employer; (3) Any Employee owning (or considered as owning, within the meaning of Section 318 of the Code) more than 5% of the outstanding stock of the Employer or stock possessing more than 5% of the total combined voting power of all stock of the Employer; or (4) Any Employee having annual compensation (as defined in Section 415 of the Code) of more than $150,000 and who would be described in Section 10.2(d)(3) if "1%" were substituted for "5%" wherever the latter percentage appears. For purposes of applying Section 318 of the Code to the provisions of this Section 10.2(d), Section 318(a)(2)(C) of the Code shall be applied by substituting "5%" for "50%" wherever the latter percentage appears. In addition, for purposes of this Section 10.2(d), the provisions of Section 414(b), (c) and (m) shall not apply in determining ownership interests in the Employer. However, for purposes of determining whether an individual has compensation in excess of $150,000, or whether an individual is a Key Employee under Section 10.2(d)(1) and (2), compensation from each entity required to be aggregated under Sections 414(b), (c) and (m) of the Code shall be taken into account. Notwithstanding anything contained herein to the contrary, all determinations as to whether a person is or is not a Key Employee shall be resolved by reference to Section 416 of the Code and any rules and regulations promulgated thereunder. (e) "Non-Key Employee" shall mean any Employee or former Employee (or any Beneficiary of such Employee or former Employee, as the case may be) who is not considered to be a Key Employee with respect to this Plan. (f) "Permissive Aggregation Group" shall mean all plans in the Required Aggregation Group and any other plans maintained by the Employer which satisfy Sections 401(a)(4) and 410 of the Code when considered together with the Required Aggregation Group. (g) "Required Aggregation Group" shall mean each plan (including any terminated plan) of the Employer in which a Key Employee is (or in the case of a terminated plan, had been) a Participant in the Plan Year containing the Determination Date or any of the 4 preceding Plan Years, and each other plan of the Employer which enables any plan of the Employer in which a Key Employee is a Participant to meet the requirement of Sections 401(a)(4) and 410 of the Code. -41- 10.3 Calculation of Accrued Benefits. (a) An Employee's Accrued Benefit shall be equal to: (1) With respect to this Plan or any other defined contribution plan (other than a defined contribution pension plan) in a Required Aggregation Group or a Permissive Aggregation Group, the Employee's account balances under the respective plan, determined as of the most recent plan valuation date within a 12-month period ending on the Determination Date, including contributions actually made after the valuation date but before the Determination Date (and, in the first plan year of a plan, also including any contributions made after the Determination Date which are allocated as of a date in the first plan year). (2) With respect to any defined contribution pension plan in a Required Aggregation Group or a Permissive Aggregation Group, the Employee's account balances under the plan, determined as of the most recent plan valuation date within a 12-month period ending on the Determination Date, including contributions which have not actually been made, but which are due to be made as of the Determination Date. (3) With respect to any defined benefit plan in a Required Aggregation Group or a Permissive Aggregation Group, the present value of the Employee's accrued benefits under the plan, determined as of the most recent plan valuation date within a 12-month period ending on the Determination Date, pursuant to the actuarial assumptions used by such plan, and calculated as if the Employee terminated Service under such plan as of the valuation date (except that, in the first plan year of a plan, a current Participant's estimated Accrued Benefit Plan as of the Determination Date shall be taken into account). (4) If any individual has not performed services for the Employer maintaining the Plan at any time during the 5-year period ending on the Determination Date, any Accrued Benefit for such individual shall not be taken into account. (b) The Accrued Benefit of any Employee shall be further adjusted as follows: (1) The Accrued Benefit shall be calculated to include all amounts attributable to both Employer and Employee contributions, but shall exclude amounts attributable to voluntary deductible Employee contributions, if any. (2) The Accrued Benefit shall be increased by the aggregate distributions made with respect to an Employee under the plan or plans, as the case may be, during the 5-year period ending on the Determination Date. -42- (3) Rollover and direct plan-to-plan transfers shall be taken into account as follows: (A) If the transfer is initiated by the Employee and made from a plan maintained by one employer to a plan maintained by another unrelated employer, the transferring plan shall continue to count the amount transferred; the receiving plan shall not count the amount transferred. (B) If the transfer is not initiated by the Employee or is made between plans maintained by related employers, the transferring plan shall no longer count the amount transferred; the receiving plan shall count the amount transferred. (c) If any individual has not performed services for the Employer at any time during the 5- year period ending on the Determination Date, any accrued benefit for such individual (and the account of such individual) shall not be taken into account. 10.4 Determination of Top-Heavy Status. This Plan shall be considered to be a top-heavy plan for any Plan Year if, as of the Determination Date, the value of the Accrued Benefits of Key Employees exceeds 60% of the value of the Accrued Benefits of all eligible Employees under the Plan. Notwithstanding the foregoing, if the Employer maintains any other qualified plan, the determination of whether this Plan is top-heavy shall be made after aggregating all other plans of the Employer in the Required Aggregation Group and, if desired by the Employer as a means of avoiding top-heavy status, after aggregating any other plan of the Employer in the Permissive Aggregation Group. If the required Aggregation Group is top-heavy, then each plan contained in such group shall be deemed to be top-heavy, notwithstanding that any particular plan in such group would not otherwise be deemed to be top-heavy. Conversely, if the Permissive Aggregation Group is not top-heavy, then no plan contained in such group shall be deemed to be top-heavy, notwithstanding that any particular plan in such group would otherwise be deemed to be top-heavy. In no event shall a plan included in a top-heavy Permissive Aggregation Group be deemed a top-heavy plan unless such plan is also included in a top-heavy Required Aggregation Group. 10.5 Determination of Super Top-Heavy Status. The Plan shall be considered to be a super top-heavy plan if, as of the Determination Date, the Plan would meet the test specified in Section 10.4 above for classification as a top-heavy plan, except that "90%" shall be substituted for "60%" whenever the latter percentage appears. -43- 10.6 Minimum Contribution. (a) For any year in which the Plan is top-heavy, each Non-Key Employee who has met the age and service requirements, if any, contained in the Plan, shall be entitled to a minimum con tribution (which may include forfeitures otherwise allocable) equal to a percentage of such Non-Key Employee's compensation (as defined in Section 415 of the Code) as follows: (1) If the Non-Key Employee is not covered by a defined benefit plan maintained by the Employer, then the minimum contribution under this Plan shall be 3% of such Non-Key Employee's compensation. (2) If the Non-Key Employee is covered by a defined benefit plan maintained by the Employer, then the minimum contribution under this Plan shall be 5% of such Non-Key Employee's compensation. (b) Notwithstanding the foregoing, the minimum contribution otherwise allocable to a Non-Key Employee under this Plan shall be reduced in the following circumstances: (1) The percentage minimum contribution required under this Plan shall in no event exceed the percentage contribution made for the Key Employee for whom such percentage is the highest for the Plan Year after taking into account contributions under other defined contribution plans in this Plan's Required Aggregation Group; provided, however, that this Section 10.7(b)(1) shall not apply if this Plan is included in a Required Aggregation Group and this Plan enables a defined benefit plan in such Required Ag gregation Group to meet the requirements of Section 401(a)(4) or 410 of the Code. (2) No minimum contribution shall be required (or the minimum contribution shall be reduced, as the case may be) for a Non-Key Employee under this Plan for any Plan Year if the Employer maintains another qualified plan under which a minimum benefit or contribution is being accrued or made on account of such Plan Year, in whole or in part, on behalf of the Non-Key Employee, in accordance with Section 416(c) of the Code. (c) For purposes of this Section 10.6, there shall be disregarded (1) any Employer contributions attributable to a salary reduction or similar arrangement, or (2) any Employer contri butions to or any benefits under Chapter 21 of the Code (relating to the Federal Insurance Contributions Act), Title II of the Social Security Act, or any other federal or state law. (d) For purposes of this Section 10.6, minimum contributions shall be required to be made on behalf of only those Non-Key Employees, as described in Section 10.7(a), who have not terminated Service as of the last day of the Plan Year. If a Non-Key Employee is otherwise entitled to receive a minimum contribution pursuant to this Section 10.6(d), the fact that such Non-Key Employee failed to complete 1,000 Hours of Service or failed to make any mandatory or -44- elective contributions under this Plan, if any are so required, shall not preclude him from receiving such minimum contribution. 10.7 Vesting. (a) For any Plan Year in which the Plan is a top-heavy plan, a Participant's Employer account shall continue to vest according to the following schedule: Years of Service Completed Percentage Vested -------------------------- ----------------- Less than 2 0% 2 but less than 3 20% 3 but less than 4 40% 4 but less than 5 60% 5 but less than 6 80% 6 or more 100% (b) For purposes of Section 10.7(a), the term "year of service" shall have the same meaning as set forth in Section 1.1(kk), as modified by Section 3.2 (c) If for any Plan Year the Plan becomes top-heavy and the vesting schedule set forth in Section 10.7(a) becomes effective, then, even if the Plan ceases to be top-heavy in any subse quent Plan Year, the vesting schedule set forth in Section 10.7(a) shall remain applicable with respect to any Participant who has completed 3 Years of Service. 10.8 Maximum Benefit Limitation. For any Plan Year in which the Plan is a top-heavy plan, Section 5.6(d)(1)(B)(i) and Section 5.6(d)(2)(B)(i)shall be read by substituting "1.0" for "1.25" wherever the latter figure appears; provided, however, that such substitution shall not have the effect of reducing any benefit accrued under a defined benefit plan prior to the first day of the plan year in which this Section 10.8 becomes applicable. -45- ARTICLE XI ADMINISTRATION 11.1 Appointment of Administrator. This Plan shall be administered by a committee consisting of up to 5 persons, whether or not Employees or Participants, who shall be appointed from time to time by the Board of Directors to serve at its pleasure. The Sponsor may require that each person appointed as an Administrator shall signify his acceptance by filing an acceptance with the Sponsor. The term "Administrator" as used in this Plan shall refer to the members of the committee, either individually or collectively, as appropriate. In the event that the Sponsor shall elect not to appoint any individuals to constitute a committee to administer the Plan, the Sponsor shall serve as the Administrator hereunder. 11.2 Resignation or Removal of Administrator. An Administrator shall have the right to resign at any time by giving notice in writing, mailed or delivered to the Employer and to the Trustee. Any Administrator who was an employee of the Employer at the time of his appointment shall be deemed to have resigned as an Administrator upon his termination of Service. The Board of Directors may, in its discretion, remove any Administrator with or without cause, by giving notice in writing, mailed or delivered to the Administrator and to the Trustee. 11.3 Appointment of Successors: Terms of Office, Etc. Upon the death, resignation or removal of an Administrator, the Employer may appoint, by Board of Directors' resolution, a successor or successors. Notice of termination of an Adminis trator and notice of appointment of a successor shall be made by the Employer in writing, with copies mailed or delivered to the Trustee, and the successor shall have all the rights and privileges and all of the duties and obligations of the predecessor. 11.4 Powers and Duties of Administrator. The Administrator shall have the following duties and responsibilities in connection with the administration of this Plan: (a) To promulgate and enforce such rules, regulations and procedures as shall be proper for the efficient administration of the Plan, such rules, regulations and procedures to apply uniformly to all Employees, Participants and Beneficiaries; -46- (b) To determine, in its sole and absolute discretion, all questions arising in the administration, interpretation and application of the Plan, including questions of eligibility and of the status and rights of Participants, Beneficiaries and any other persons hereunder; (c) To decide any dispute arising hereunder strictly in accordance with the terms of the Plan; provided, however, that no Administrator shall participate in any matter involving any questions relating solely to his own participation or benefits under this Plan; (d) To advise the Employer and the Trustee regarding the known future needs for funds to be available for distribution in order that the Trustee may establish investments accordingly; (e) To correct defects, supply omissions and reconcile inconsistencies to the extent necessary to effectuate the Plan; (f) To advise the Employer of the maximum deductible contribution to the Plan for each fiscal year; (g) To direct the Trustee concerning all payments which shall be made out of the Fund pursuant to the provisions of this Plan; (h) To advise the Trustee on all terminations of Service by Participants, unless the Employer has so notified the Trustee; (i) To confer with the Trustee on the settling of any claims against the Fund; (j) To make recommendations to the Board of Directors with respect to proposed amendments to the Plan and the Trust Agreement; (k) To file all reports with government agencies, Employees and other parties as may be required by law, whether such reports are initially the obligation of the Employer, the Plan or the Trustee; and (l) To have all such other powers as may be necessary to discharge its duties hereunder. Discretion is granted to the Administrator to affect the benefits, rights and privileges of Participants, Beneficiaries or other persons affected by this Plan. The Administrator shall exercise its discretion under the terms of this Plan and shall administer the Plan in accordance with its terms, such administration to be exercised uniformly so that all persons similarly situated shall be similarly treated. -47- 11.5 Action by Administrator. The Administrator may elect a Chairman and Secretary from among its members and may adopt rules for the conduct of its business. A majority of the members then serving shall consti tute a quorum for the transaction of business. All resolutions or other action taken by the Administrator shall be by vote of a majority of those present at such meeting and entitled to vote. Resolutions may be adopted or other action taken without a meeting upon written consent signed by at least a majority of the members. All documents, instruments, orders, requests, directions, instructions and other papers shall be executed on behalf of the Administrator by either the Chairman or the Secretary of the Administrator, if any, or by any member or agent of the Ad ministrator duly authorized to act on the Administrator's behalf. 11.6 Participation by Administrators. No Administrator shall be precluded from becoming a Participant in the Plan if he would be otherwise eligible, but he shall not be entitled to vote or act upon matters or to sign any documents relating specifically to his own participation under the Plan, except when such matters or documents relate to benefits generally. If this disqualification results in the lack of a quorum, then the Board of Directors shall appoint a sufficient number of temporary Administrators who shall serve for the sole purpose of determining such a question. 11.7 Agents. The Administrator may employ agents and provide for such clerical, legal, actuarial, accounting, medical, advisory or other services as it deems necessary to perform its duties under this Plan. The cost of such services and all other expenses incurred by the Administrator in connection with the administration of the Plan shall be paid from the Fund, unless paid by the Em ployer. 11.8 Allocation of Duties. The duties, powers and responsibilities reserved to the Administrator may be allocated among its members so long as such allocation is pursuant to written procedures adopted by the Administrator, in which case, except as may be required by the Act, no Administrator shall have any liability, with respect to any duties, powers or responsibilities not allocated to him, for the acts of omissions of any other Administrator. 11.9 Delegation of Duties. The Administrator may delegate any of its duties to other employees of the Employer, to the Trustee with its consent, or to any other person or firm, provided that the Administrator shall prudently choose such agents and rely in good faith on their actions. -48- 11.10 Administrator's Action Conclusive. Any action on matters within the authority of the Administrator shall be final and conclusive except as provided in Article XII. 11.11 Compensation and Expenses of Administrator. No Administrator who is receiving compensation from the Employer as a full-time employee, as a director or agent, shall be entitled to receive any compensation or fee for his services hereunder. Any other Administrator shall be entitled to receive such reasonable compensation for his services as an Administrator hereunder as may be mutually agreed upon between the Employer and such Administrator. Any such compensation shall be paid from the Fund, unless paid by the Employer. Each Administrator shall be entitled to reimbursement by the Employer for any reasonable and necessary expenditures incurred in the discharge of his duties. 11.12 Records and Reports. The Administrator shall maintain adequate records of its actions and proceedings in administering this Plan and shall file all reports and take all other actions as it deems appropriate in order to comply with the Act, the Code and governmental regulations issued thereunder. 11.13 Reports of Fund Open to Participants. The Administrator shall keep on file, in such form as it shall deem convenient and proper, all annual reports of the Fund received by the Administrator from the Trustee, and a statement of each Participant's interest in the Fund as from time to time determined. The annual reports of the Fund and the statement of his own interest in the Fund, as well as a complete copy of the Plan and the Trust Agreement and copies of annual reports to the Internal Revenue Service, shall be made available by the Administrator to the Employer for examination by each Participant during reasonable hours at the office of the Employer, provided, however, that the statement of a Participant's interest shall not be made available for examination by any other Participant. 11.14 Named Fiduciary. The Administrator is the named fiduciary for purposes of the Act and shall be the designated agent for receipt of service of process on behalf of the Plan. It shall use ordinary care and diligence in the performance of its duties under this Plan. Nothing in this Plan shall preclude the Employer from indemnifying the Administrator for all actions under this Plan, or from purchasing liability insurance to protect it with respect to its duties under this Plan. -49- 11.15 Information from Employer. The Employer shall promptly furnish all necessary information to the Administrator to permit it to perform its duties under this Plan. The Administrator shall be entitled to rely upon the accuracy and completeness of all information furnished to it by the Employer, unless it knows or should have known that such information is erroneous. 11.16 Reservation of Rights by Employer. Where rights are reserved in this Plan to the Employer, such rights shall be exercised only by action of the Board of Directors, except where the Board of Directors, by written resolution, delegates any such rights to one or more officers of the Employer or to the Administrator. Subject to the rights reserved to the Board of Directors acting on behalf of the Employer as set forth in this Plan, no member of the Board of Directors shall have any duties or responsibilities under this Plan, except to the extent he shall be acting in the capacity of an Administrator or Trustee. 11.17 Liability and Indemnification. (a) The Administrator shall perform all duties required of it under this Plan in a prudent manner. To the extent not prohibited by the Act, the Administrator shall not be respon sible in any way for any action or omission of the Employer, the Trustee or any other fiduciaries in the performance of their duties and obligations set forth in this Plan and in the Trust Agreement. To the extent not prohibited by the Act, the Administrator shall also not be responsible for any act or omission of any of its agents, or with respect to reliance upon advice of its counsel (whether or not such counsel is also counsel to the Employer or the Trustee), provided that such agents or counsel were prudently chosen by the Administrator and that the Administrator relied in good faith upon the action of such agent or the advice of such counsel. (b) The Administrator shall not be relieved from responsibility or liability for any responsibility, obligation or duty imposed upon it under this Plan or under the Act. Except for its own gross negligence, willful misconduct or willful breach of the terms of this Plan, the Administrator shall be indemnified and held harmless by the Employer against liability or losses occurring by reason of any act or omission of the Administrator to the extent that such indemnification does not violate the Act or any other federal or state laws. 11.18 Service as Trustee and Administrator. Nothing in this Plan shall prevent one or more Trustees from serving as Administrator under this Plan. -50- ARTICLE XII CLAIMS PROCEDURE 12.1 Notice of Denial. If a Participant or his Beneficiary is denied any benefits under this Plan, either in whole or in part, the Administrator shall advise the claimant in writing of the amount of his benefit, if any, and the specific reasons for the denial. The Administrator shall also furnish the claimant at that time with a written notice containing: (a) A specific reference to pertinent Plan provisions; (b) A description of any additional material or information necessary for the claimant to perfect his claim, if possible, and an explanation of why such material or information is needed; and (c) An explanation of the Plan's claim review procedure. 12.2 Right to Reconsideration. Within 60 days of receipt of the information described in 12.1 above, the claimant shall, if he desires further review, file a written request for reconsideration with the Administrator. 12.3 Review of Documents. So long as the claimant's request for review is pending (including the 60-day period described in Section 12.2 above), the claimant or his duly authorized representative may review pertinent Plan documents and the Trust Agreement (and any pertinent related documents) and may submit issues and comments in writing to the Administrator. 12.4 Decision by Administrator. A final and binding decision shall be made by the Administrator within 60 days of the filing by the claimant of his request for reconsideration; provided, however, that if the Admin istrator feels that a hearing with the claimant or his representative present is necessary or desirable, this period shall be extended an additional 60 days. 12.5 Notice by Administrator. The Administrator's decision shall be conveyed to the claimant in writing and shall include specific reasons for the decision, written in a manner calculated to be understood by the claimant, with specific references to the pertinent Plan provisions on which the decision is based. -51- ARTICLE XIII AMENDMENTS, TERMINATION AND MERGER 13.1 Amendments. The Employer reserves the right at any time and from time to time, and retroactively if deemed necessary or appropriate by it, to the extent permissible under law, to conform with governmental regulations or other policies, to amend in whole or in part any or all of the provisions of this Plan, provided that: (a) No amendment shall make it possible for any part of the Fund to be used for, or diverted to, purposes other than for the exclusive benefit of Participants or their Beneficiaries un der the Trust Agreement, except to the extent provided in Section 4.4; (b) No amendment may, directly or indirectly, reduce the vested portion of any Participant's interest as of the effective date of the amendment or change the vesting schedule with respect to the future accrual of Employer contributions for any Participants unless each Participant with 3 or more Years of Service with the Employer is permitted to elect to have the vesting schedule in effect before the amendment used to determine his vested benefit; and (c) No amendment may eliminate an optional form of benefit. (d) No amendment may increase the duties of the Trustee without its consent. Amendments may be made in the form of Board of Directors' resolutions or separate written document. Copies of all amendments shall be delivered to the Trustee. 13.2 Consolidation, Merger or Other Transactions of Employer. Nothing in this Plan shall prevent the consolidation, merger, reorganization or liquidation of the Employer, or prevent the sale by Employer of any or all of its property. Any successor corporation or other entity formed and resulting from any such transaction shall have the right to become a party to this Plan by adopting the same by resolution and by appointing a new Trustee as though the Trustee had resigned in accordance with the Trust Agreement, and by executing a proper supplemental agreement with the Trustee. If, within 180 days from the effective date of such transaction, such new entity does not become a party to this Plan as above provided, this Plan shall automatically be terminated and the Trustee shall make payments to the persons entitled thereto in accordance with Section 9.5. -52- 13.3 Consolidation or Merger of Trust. In the event of any merger or consolidation of the Fund with, or transfer in whole or in part of the assets and liabilities of the Fund to, another trust fund held under any other plan of deferred compensation maintained or to be established for the benefit of all or some of the Participants of this Plan, the assets of the Fund applicable to such Participants shall be transferred to the other trust fund only if: (a) Each Participant would receive a benefit under such successor trust fund immediately after the merger, consolidation or transfer which is equal to or greater than the benefit he would have been entitled to receive immediately before the merger, consolidation or transfer (determined as if this Plan and such transferee trust fund had then terminated); (b) Resolutions of the Board of Directors under this Plan, or of any new or successor employer of the affected Participants, shall authorize such transfer of assets, and, in the case of the new or successor employer of the affected Participants, its resolutions shall include an assumption of liabilities with respect to such Participants' inclusion in the new employer's plan; and (c) Such other plan and trust are qualified under Sections 401(a) and 501(a) of the Code. 13.4 Bankruptcy or Insolvency of Employer. In the event of (a) the Employer's legal dissolution or liquidation by any procedure other than a consolidation or merger, (b) the Employer's receivership, insolvency, or cessation of its business as a going concern, or (c) the commencement of any proceeding by or against the Employer under the federal bankruptcy laws, and similar federal or state statute, or any federal or state statute or rule providing for the relief of debtors, compensation of creditors, arrangement, receivership, liquidation or any similar event which is not dismissed within 30 days, this Plan shall terminate automatically on such date (provided, however, that if a proceeding is brought against the Employer for reorganization under Chapter 11 of the United States Bankruptcy Code or any similar federal or state statute, then this Plan shall terminate automatically if and when said proceeding results in a liquidation of the Employer, or the approval of any Plan providing therefor, or the proceeding is converted to a case under Chapter 7 of the Bankruptcy Code or any similar conversion to a liquidation proceeding under federal or state law including, but not limited to, a receivership proceeding). In the event of any such termination as provided in the foregoing sentence, the Trustee shall make payments to the persons entitled thereto in accordance with Section 9.5 hereof. -53- 13.5 Voluntary Termination. The Board of Directors reserves the right to terminate this Plan at any time by giving to the Trustee and the Administrator notice in writing of such desire to terminate. The Plan shall terminate upon the date of receipt of such notice, the interests of all Participants shall become fully vested, and the Trustee shall make payments to each Participant or Beneficiary in accordance with Section 9.5. Alternatively, the Employer, in its discretion, may determine to continue the Trust Agreement and to continue the maintenance of the Fund, in which event distributions shall be made upon the contingencies and in all the circumstances which would have been entitled such distributions on a fully vested basis, had there been no termination of the Plan. 13.6 Partial Termination of Plan or Permanent Discontinuance of Contributions. In the event that a partial termination of the Plan shall be deemed to have occurred, or if the Employer shall discontinue completely its contributions hereunder, the right of each affected Participant to his interest in the Fund shall be fully vested. The Employer, in its discretion, shall decide whether to direct the Trustee to make immediate distribution of such portion of the Fund assets to the persons entitled thereto or to make distribution in the circumstances and contingencies which would have controlled such distributions if there had been no partial termina tion or discontinuance of contributions. -54- ARTICLE XIV MISCELLANEOUS 14.1 No Diversion of Funds. It is the intention of the Employer that it shall be impossible for any part of the corpus or income of the Fund to be used for, or diverted to, purposes other than for the exclusive benefit of the Participants or their Beneficiaries, except to extent that a return of the Employer's contribution is permitted under Section 4.4. 14.2 Liability Limited. Neither the Employer nor the Administrator, nor any agents, employees, officers, directors or shareholders of any of them, nor the Trustee, nor any other person shall have any liability or responsibility with respect to this Plan, except as expressly provided herein. 14.3 Incapacity. If the Administrator shall receive evidence satisfactory to it that a Participant or Beneficiary entitled to receive any benefit under the Plan is, at the time when such benefit becomes payable, a minor, or is physically or mentally incompetent to receive such benefit and to give a valid release therefor, and that another person or an institution is then maintaining or has custody of such Participant or Beneficiary, and that no guardian, committee or other representative of the estate of such Participant or Beneficiary shall have been duly appointed, the Administrator may direct the Trustee to make payment of such benefit otherwise payable to such Participant or Beneficiary, to such other person or institution, including a custodian under a Uniform Gifts to Minor Act, or corresponding legislation (who shall be an adult, a guardian of the minor or a trust company), and the release of such other person or institution shall be a valid and complete discharge for the payment of such benefit. 14.4 Spendthrift Clause. Except as permitted by the Act or the Code, no benefits or other amounts payable under the Plan shall be subject in any manner to anticipation, sale, transfer, assignment, pledge, encum brance, charge or alienation. If the Administrator determines that any person entitled to any payments under the Plan has become insolvent or bankrupt or has attempted to anticipate, sell, transfer, assign, pledge, encumber, charge or otherwise in any manner alienate any benefit or other amount payable to him under the Plan or that there is any danger of any levy or attachment or other court process or encumbrance on the part of any creditor of such person entitled to payments under the Plan against any benefit or other accounts payable to such person, the Administrator may, at any time, in its discretion, direct the Trustee to withhold any or all payments to such -55- person under the Plan and apply the same for the benefit of such person, in such manner and in such proportion as the Administrator may deem proper. 14.5 Benefits Limited to Fund. All contributions by the Employer to the Fund shall be voluntary, and the Employer shall be under no legal liability to make any such contributions. The benefits of this Plan shall be only as can be provided by the assets of the Fund, and no liability for the payment of benefits under the Plan or for any loss of assets due to any action or inaction of the Trustee shall be imposed upon the Employer. 14.6 Cooperation of Parties. All parties to this Plan and any party claiming interest hereunder agree to perform any and all acts and execute any and all documents and papers which are necessary and desirable for carrying out this Plan or any of its provisions. 14.7 Payments Due Missing Persons. The Administrator shall direct the Trustee to make a reasonable effort to locate all persons entitled to benefits under the Plan; however, notwithstanding any provision in the Plan to the contrary, if, after a period of 5 years from the date such benefit shall be due, any such persons entitled to benefits have not been located, their rights under the Plan shall stand suspended. Before this provision becomes operative, the Trustee shall send a certified letter to all such persons at their last known address advising them that their interest in benefits under the Plan shall be suspended. Any such suspended amounts shall be held by the Trustee for a period of 3 additional years (or a total of 8 years from the time the benefits first became payable), and thereafter such amounts shall be reallocated among current Participants in the same manner that a current contribution would be allocated. However, if a person subsequently makes a valid claim with respect to such reallocated amounts and any earnings thereon, the Plan earnings or the Employer's contribution to be allocated for the year in which the claim shall be paid shall be reduced by the amount of such payment. Any such suspended amounts shall be handled in a manner not inconsistent with regulations issued by the Internal Revenue Service and Department of Labor. 14.8 Governing Law. This Plan has been executed in the State of Maryland and all questions pertaining to its validity, construction and administration shall be determined in accordance with the laws of that State, except to the extent superseded by the Act. -56- 14.9 Nonguarantee of Employment. Nothing contained in this Plan shall be construed as a contract of employment between the Employer and any Employee, or as a right of any Employee to be continued in the employment of the Employer, or as a limitation of the right of the Employer to discharge any of its Employees, with or without cause. 14.10 Counsel. The Trustee and the Administrator may consult with legal counsel, who may be counsel for the Employer and for the Administrator or the Trustee (as the case may be), with respect to the meaning or construction of this Plan and the Trust Agreement, their respective obligations or duties hereunder or with respect to any action or proceeding or any question of law, and they shall be fully protected with respect to any action taken or omitted by them in good faith pursuant to the advice of legal counsel. IN WITNESS WHEREOF, the Sponsor has caused these presents to be executed by its duly authorized officers and its corporate seal to be affixed on this ____ day of September, 1997. WYMAN PARK BANCORPORATION, INC. ATTEST: ____________________________ By________________________ Charmaine M. Snyder, Ernest A. Moretti, Secretary President [Corporate Seal] -57- EX-22 13 EXHIBIT 22 EXHIBIT 22 SUBSIDIARIES SUBSIDIARIES OF THE REGISTRANT (Upon the completion of Transaction) State of Percentage Incorporation of or Parent Subsidiary Ownership Organization - ------ ---------- ---------- ------------- Wyman Park Bancorporation Wyman Park Federal 100% Federal Savings & Loan Association Wyman Park Federal WP Financial Corporation 100% Maryland Savings & Loan Association It is contemplated that the financial statements of the Registrant will be consolidated with Wyman Park Federal Savings & Loan Association. EX-24 14 EXHIBIT 24.1 EXHIBIT 24.1 CONSENT OF SILVER, FREEDMAN & TAFF, L.L.P. CONSENT OF COUNSEL We consent to the use of our opinion, to the incorporation by reference of such opinion as an exhibit to the Form SB-2 and to the reference to our firm under the headings "The Conversion - Income Tax Consequences" and "Legal and Tax Matters" in the Prospectus and proxy statement included in this Form S-1. In giving this consent, we do not admit that we are within the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended, or the rules and regulations of the Securities and Exchange Commission thereunder. /s/ SILVER, FREEDMAN & TAFF, L.L.P. SILVER, FREEDMAN & TAFF, L.L.P. Washington, D.C. September 22, 1997 EX-24 15 EXHIBIT 24.2 Exhibit 24.2 Consent of Independent Auditors We hereby consent to the use in the OTS Application to Convert on Form AC and in the SEC Registration Statement on Form SB-2 of our report dated July 18, 1997, relating to the consolidated financial statements of Wyman Park Federal Savings and Loan Association for the two years ended June 30, 1997, and the use of our name under the caption "Experts" in the Prospectus, which is part of the OTS Application and the SEC Registration Statement. /s/ Wooden & Benson September 18, 1997 Baltimore, Maryland EX-24 16 EXHIBIT 24.3 [FERGUSON & COMPANY LETTERHEAD] September 19, 1997 Board of Directors Wyman Park Federal Savings and Loan Association 11 West Ridgely Road Lutherville, Maryland Directors: We hereby consent to the use of our firm's name in the Form AC Application for Conversion of Wyman Park Federal Savings and Loan Association, Lutherville, Maryland, and any amendments thereto, in the Form SB-2 Registration Statement of Wyman Park Bancorporation, Inc. and any amendments thereto, and in the Application H-(e)1-s for Wyman Park Bancorporation, Inc. We also hereby consent to the inclusion of, summary of, and references to our Appraisal Report and our opinion concerning subscription rights in such filings including the Prospectus of Wyman Park Bancorporation, Inc. Sincerely, /s/ Charles M. Herbert Charles M. Hebert Principal EX-99 17 EXHIBIT 99.2 EXHIBIT 99.2 PROXY STATEMENT AND FORM OF PROXY TO BE FURNISHED TO THE ASSOCIATION'S ACCOUNT HOLDERS FORM OF PROXY REVOCABLE PROXY WYMAN PARK FEDERAL SAVINGS & LOAN ASSOCIATION THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF WYMAN PARK FEDERAL SAVINGS & LOAN ASSOCIATION The undersigned member of Wyman Park Federal Savings & Loan Association (the "Association") hereby appoints the Board of Directors of the Association as proxies to cast all votes which the undersigned member is entitled to cast at a Special Meeting of Members to be held at the main office of the Association, located at 11 West Ridgely Road, Lutherville, Maryland, at the hour and date stated in the Proxy Statement, and at any and all adjournments and postponements thereof, and to act with respect to all votes that the undersigned would be entitled to cast, if then personally present, in accordance with the instructions on the reverse side hereof: to vote FOR or AGAINST the adoption of the Plan of Conversion providing for the conversion of the Association from a federally chartered mutual savings association to a federally chartered stock savings association as a wholly owned subsidiary of Wyman Park Bancorporation, Inc., a newly organized Delaware corporation formed by the Association for the purpose of becoming the holding company for the Association, and the related transactions provided for in such Plan of Conversion, including the adoption of an amended Federal Stock Charter and Bylaws for the Association, pursuant to the laws of the United States and the Rules and Regulations administered by the Office of Thrift Supervision. This proxy will be voted as directed by the undersigned member. UNLESS CONTRARY DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR ADOPTION OF THE PLAN OF CONVERSION. In addition, this proxy will be voted at the discretion of the Board of Directors upon any other matter as may properly come before the Special Meeting. The undersigned member may revoke this proxy at any time before it is voted by delivering to the Secretary of the Association either by a written revocation of the proxy or a duly executed proxy bearing a later date, or by appearing at the Special Meeting and voting in person. The undersigned member hereby acknowledges receipt of the Notice of Special Meeting and Proxy Statement. (IMPORTANT: PLEASE VOTE, DATE AND SIGN ON REVERSE SIDE) WYMAN PARK FEDERAL SAVINGS & LOAN ASSOCIATION Please Mark Votes Below Approval of the Plan of Conversion ___ ___ FOR |___| AGAINST |___| DATE _______________________, 1997 X ________________________________ X ________________________________ IMPORTANT: Please sign your name name exactly as it appears on this proxy. Joint accounts need only one signature. When signing as an attorney, administrator, agent, corporation, officer, executor, trustee or guardian, etc., please add your full title to your signature. NOTE: IF YOU RECEIVE MORE THAN ONE PROXY CARD, PLEASE SIGN AND RETURN ALL CARDS IN THE ACCOMPANYING ENVELOPE. WYMAN PARK FEDERAL SAVINGS & LOAN ASSOCIATION 11 West Ridgely Road Lutherville, Maryland 21903-5172 (410) 252-6450 NOTICE OF SPECIAL MEETING OF MEMBERS Notice is hereby given that a Special Meeting of Members (the "Special Meeting") of Wyman Park Federal Savings & Loan Association, ("Wyman Park" or the "Association"), will be held at the main office of the Association located at 11 West Ridgely Road, Lutherville, Maryland 21903-5172 on December __, 1997 at __:__ _a.m., Lutherville, Maryland time. The purpose of this Special Meeting is to consider and vote upon: A plan to convert the Association from a federally chartered mutual savings association to a federally chartered stock savings association, including the adoption of a federal stock charter and bylaws, with the concurrent sale of all the Association's common stock to Wyman Park Bancorporation, Inc., a Delaware corporation (the "Holding Company"), and sale by the Holding Company of shares of its common stock; and such other business as may properly come before the Special Meeting or any adjournment thereof. Management is not aware of any such other business. The members who shall be entitled to notice of and to vote at the Special Meeting and any adjournment thereof are depositors of the Association at the close of business on _____ __, 1997 who continue to be depositors as of the date of the Special Meeting. In the event there are not sufficient votes for approval of the Plan of Conversion at the time of the Special Meeting, the Special Meeting may be adjourned from time to time in order to permit further solicitation of proxies. BY ORDER OF THE BOARD OF DIRECTORS Allan B. Heaver Chairman of the Board Lutherville, Maryland November __, 1997 YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE PLAN OF CONVERSION BY COMPLETING THE ENCLOSED PROXY CARD AND RETURNING IT IN THE ENCLOSED POSTAGE-PAID ENVELOPE AS SOON AS POSSIBLE. YOUR VOTE IS VERY IMPORTANT. ---------------------------- SUMMARY OF PROPOSED CONVERSION This summary does not purport to be complete and is qualified in its entirety by the more detailed information contained in the remainder of this Proxy Statement and the accompanying Prospectus. Under its present "mutual" form of organization, Wyman Park has no stockholders. Its deposit account holders and certain borrowers are members of the Association and have voting rights in that capacity. In the unlikely event of liquidation, the Association's deposit account holders would have the sole right to receive any assets of the Association remaining after payment of its liabilities (including the claims of all deposit account holders to the withdrawal value of their deposits). Under the Plan of Conversion (the "Plan of Conversion") to be voted on at the Special Meeting, the Association would be converted into a federally chartered savings association organized in stock form, and all of the Association's common stock would be sold concurrently to the Holding Company (the "Conversion"). The Holding Company will offer and sell its common stock (the "Common Stock") in an offering to, in order of priority, (i) Wyman Park's depositors as of March 31, 1996 ("Eligible Account Holders"), (ii) tax-qualified employee plans of Wyman Park and the Holding Company ("Tax-Qualified Employee Plans") including the Holding Company's Employee Stock Ownership Plan (the "ESOP"), provided, however, that the Tax-Qualified Employee Plans shall have first priority Subscription Rights to the extent that the total number of shares of Common Stock sold in the Conversion exceeds the maximum of the Estimated Valuation Range as defined below, (iii) Wyman Park's depositors as of September 30, 1997 ("Supplemental Eligible Account Holders"), (iv) depositors and certain borrowers as of both October 17, 1990 and as of ________, 1997 ("Other Members"), and (v) its employees, officers and directors (the "Subscription Offering"). Concurrent with the Subscription Offering, to the extent the Common Stock is not all sold to the persons in the foregoing categories, the Holding Company will offer Common Stock to members of the general public to whom a prospectus (the "Prospectus") has been delivered, with first preference to natural persons residing in Baltimore and Anne Arundel Counties, Maryland ("the Community Offering"). The Subscription Offering and the Community Offering are referred to collectively as the "Subscription and Community Offerings." Voting and liquidation rights with respect to the Association would thereafter be held by the Holding Company, except to the limited extent of the liquidation account (the "Liquidation Account") that will be established for the benefit of Eligible and Supplemental Eligible Account Holders of the Association and voting and liquidation rights in the Holding Company would be held only by those persons who become stockholders of the Holding Company through purchase of shares of its Common Stock. See "Description of the Plan of Conversion - Principal Effects of Conversion - Liquidation Rights of Depositor Members." THE CONVERSION WILL NOT AFFECT THE BALANCE, INTEREST RATE OR FEDERAL INSURANCE PROTECTION OF ANY SAVINGS DEPOSIT, AND NO PERSON WILL BE OBLIGATED TO PURCHASE ANY STOCK IN THE CONVERSION. Business Purposes for Conversion Net Conversion proceeds are expected to increase the capital of Wyman Park, which will support the expansion of its financial services to the public. The conversion to stock form and the use of a holding company structure are also expected to enhance its ability to expand through possible mergers and acquisitions (although no such transactions are contemplated at this time) and will facilitate its future access to the capital markets. The Association will continue to be subject to comprehensive regulation and examination by the Office of Thrift Supervision, Department of Treasury ("OTS") and the Federal Deposit Insurance Corporation ("FDIC"). Subscription Offering As part of the Conversion, Common Stock is being offered for sale in the Subscription Offering, in the priorities summarized below, to the Association's (i) Eligible Account Holders, (ii) Tax-Qualified Employee Plans, (iii) Supplemental Eligible Account Holders, (iv) Other Members, and (v) its employees, officers and directors. i Subscription Rights of Eligible Account Holders Each Eligible Account Holder has been given non-transferable rights to subscribe for an amount equal to the greater of $100,000 of Common Stock, one-tenth of one percent of the total number of shares offered in the Subscription Offering or 15 times the product (rounded down to the next whole number) obtained by multiplying the total number of shares to be issued by a fraction of which the numerator is the amount of qualifying deposits of such subscriber and the denominator is the total qualifying deposits of all account holders in this category on the qualifying date. Subscription Rights of Tax-Qualified Employee Plans The Association's Tax-Qualified Employee Plans have been given non-transferable rights to subscribe, individually and in the aggregate, for up to 10% of the total number of shares sold in the Conversion after satisfaction of subscriptions of Eligible Account Holders. Notwithstanding the foregoing, to the extent orders for shares exceed the maximum of the appraisal range, Tax-Qualified Employee Plans shall be afforded a first priority to purchase shares sold above the maximum of the appraisal range. It is anticipated that Tax-Qualified Employee Plans will purchase 8% of the Common Stock sold in the Conversion. Subscription Rights of Supplemental Eligible Account Holders After satisfaction of subscriptions of Eligible Account Holders and Tax- Qualified Employee Plans, each Supplemental Eligible Account Holder (other than directors and officers of the Association) has been given non-transferable rights to subscribe for an amount equal to the greater of $100,000 of Common Stock, one-tenth of one percent of the total number of shares offered in the Conversion or 15 times the product (rounded down to the whole next number) obtained by multiplying the total number of shares to be issued by a fraction of which the numerator is the amount of qualifying deposits of such subscriber and the denominator is the total qualifying deposits of all account holders in this category on the qualifying date. The subscription rights of each Supplemental Eligible Account Holder shall be reduced to the extent of such person's subscription rights as an Eligible Account Holder. Subscription Rights of Other Members Each Other Member has been given non-transferable rights to subscribe for an amount equal to the greater of $100,000 of Common Stock or one-tenth of one percent of the total number of shares offered in the Conversion after satisfaction of the subscriptions of the Association's Eligible Account Holders, Tax-Qualified Employee Plans and Supplemental Eligible Account Holders. Subscription Rights of Association Personnel Each individual employee, officer and director of the Association has been given the right to purchase up to $100,000 of Common Stock after satisfaction of the subscriptions of Eligible Account Holders, Tax-Qualified Employee Plans, Supplemental Eligible Account Holders and Other Members. Total shares subscribed for by the employees, officers and directors in this category may not exceed 24% of the total shares offered in the Conversion. Purchase Limitations No person (other than a Tax-Qualified Employee Plan) by himself or herself or with an associate, and no group of persons acting in concert, may subscribe for or purchase more than $100,000 of Common Stock offered in the Conversion. Officers and directors and their associates may not purchase, in the aggregate, more than 34% of the shares to be sold in the Conversion. For purposes of the Plan, the members of the Board of ii Directors are not deemed to be acting in concert solely by reason of their Board membership. Expiration Date of the Subscription Offering All subscriptions for Common Stock must be received by _:00 _.m., Lutherville, Maryland time on ________ __, 1997. How to Subscribe for Shares For information on how to subscribe for Common Stock being offered in the Conversion, please read the Prospectus and the order form and instructions accompanying this Proxy Statement. Subscriptions will not become effective until the Plan of Conversion has been approved by the Association's members and all of the Common Stock offered in the Conversion has been subscribed for or sold in the Subscription and Community Offerings or through such other means as may be approved by the OTS. Price of Common Stock All sales of Common Stock in the Offering will be made at the same price per share which is currently expected to be $10.00 per share on the basis of an independent appraisal of the pro forma market value of the Association and the Holding Company upon Conversion. On the basis of a preliminary appraisal by Ferguson & Company, Inc. ("Ferguson"), which has been reviewed by the OTS, a minimum of _________ and a maximum of _________ shares will be offered in the Conversion. See "The Conversion - Stock Pricing and Number of Shares to be Issued" in the Prospectus. Tax Consequences The Association has received an opinion from its special counsel, Silver, Freedman & Taff, L.L.P., stating that the Conversion is a nontaxable reorganization under Section 368(a)(1)(F) of the Internal Revenue Code. The Association has also received an opinion from Wooden & Benson, Chartered stating that the Conversion will not be a taxable transaction for Maryland income tax purposes. Required Vote Approval of the Plan of Conversion will require the affirmative vote of a majority of all votes eligible to be cast at the Special Meeting. YOUR BOARD OF DIRECTORS URGES YOU TO VOTE FOR THE PLAN OF CONVERSION iii WYMAN PARK FEDERAL SAVINGS & LOAN ASSOCIATION PROXY STATEMENT SPECIAL MEETING OF MEMBERS TO BE HELD ON ________ __, 1997 PURPOSE OF MEETING This Proxy Statement is being furnished to you in connection with the solicitation on behalf of the Board of Directors of Wyman Park Federal Savings & Loan Association ("Wyman Park Federal" or the "Association") of the proxies to be voted at the Special Meeting of Members (the "Special Meeting") of the Association to be held at the Association's main office located at 11 West Ridgely Road, Lutherville, Maryland, on ________ __, 1997 at __:__ _.m., Lutherville, Maryland time, and at any adjournments thereof. The Special Meeting is being held for the purpose of considering and voting upon a Plan of Conversion under which the Association would be converted (the "Conversion") from a federally chartered mutual savings association into a federally chartered stock savings association, the concurrent sale of all the common stock of the stock savings association to Wyman Park Bancorporation, Inc. (the "Holding Company"), a Delaware corporation, and the sale by the Holding Company of shares of its common stock (the "Common Stock") and such other business as may properly come before the meeting and any adjournment thereof. RECOMMENDATION OF THE BOARD OF DIRECTORS THE BOARD OF DIRECTORS OF THE ASSOCIATION RECOMMENDS THAT YOU VOTE TO APPROVE THE PLAN OF CONVERSION. The Association is currently organized in "mutual" rather than "stock" form, meaning that it has no stockholders and no authority under its federal mutual charter to issue capital stock. The Association's Board of Directors has adopted the Plan of Conversion providing for the Conversion. The sale of Common Stock of the Holding Company, which was recently formed to become the holding company of the Association, will substantially increase the Association's net worth. The Holding Company will exchange approximately 50% of the net proceeds from the sale of the Common Stock for the common stock of the Association to be issued upon Conversion. The Holding Company expects to retain the balance of the net proceeds as its initial capitalization, a portion of which the Holding Company intends to lend to its Employee Stock Ownership Plan to fund its purchase of Common Stock. This increased capital will support the expansion of the Association's financial services to the public. The Board of Directors of the Association also believes that the conversion to stock form and the use of a holding company structure will enhance the Association's ability to expand through possible mergers and acquisitions (although no such transactions are contemplated at this time) and will facilitate its future access to the capital markets. The Board of Directors of the Association believes that the Conversion will further benefit the Association by enabling it to attract and retain key personnel through prudent use of stock-related incentive compensation and benefit plans. Voting in favor of the Plan of Conversion will not obligate any person to purchase any Common Stock. THE OFFICE OF THRIFT SUPERVISION ("OTS") HAS APPROVED THE PLAN OF CONVERSION SUBJECT TO THE APPROVAL OF THE ASSOCIATION'S MEMBERS AND THE SATISFACTION OF CERTAIN OTHER CONDITIONS. HOWEVER, SUCH APPROVAL DOES NOT CONSTITUTE A RECOMMENDATION OR ENDORSEMENT OF THE PLAN OF CONVERSION BY THE OTS. INFORMATION RELATING TO VOTING AT THE SPECIAL MEETING The Board of Directors of the Association has fixed__________ __, 1997 as the voting record date ("Voting Record Date") for the determination of members entitled to notice of the Special Meeting. All Association depositors and certain borrowers are members of the Association under its current charter. All Association members of record as 1 of the close of business on the Voting Record Date who continue to be members as of the date of the Special Meeting will be entitled to vote at the Special Meeting or any adjournment thereof. Each depositor member (including IRA and Keogh account beneficiaries) will be entitled at the Special Meeting to cast one vote for each $100, or fraction thereof, of the aggregate withdrawal value of all of such depositor's accounts in the Association as of the Voting Record Date, up to a maximum of 1,000 votes. In general, accounts held in different ownership capacities will be treated as separate memberships for purposes of applying the 1,000 vote limitation. For example, if two persons hold a $100,000 account in their joint names and each of the persons also holds a separate account for $100,000 in his own name, each person would be entitled to 1,000 votes for each separate account and they would together be entitled to cast 1,000 votes on the basis of the joint account. Where no proxies are received from IRA and Keogh account beneficiaries, after due notification, the Association, as trustee of these accounts, is entitled to vote these accounts in favor of the Plan of Conversion. Each borrower member of the Association as of both October 17, 1990 and the Voting Record Date, who continues to be a borrowers as of the date of the Special Meeting will be entitled to cast one vote as a borrower members, in addition to any vote be or she may be entitled to cast as a depositor. Approval of the Plan of Conversion requires the affirmative vote of a majority of the total outstanding votes of the Association's members eligible to be cast at the Special Meeting. As of________ __, 1997, the Association had approximately _______ members who were entitled to cast a total of approximately _______ votes at the Special Meeting. Association members may vote at the Special Meeting or any adjournment thereof in person or by proxy. Any member giving a proxy will have the right to revoke the proxy at any time before it is voted by giving written notice to the Secretary of the Association, provided that such written notice is received by the Secretary prior to the Special Meeting or any adjournment thereof, or upon request if the member is present and chooses to vote in person. All properly executed proxies received by the Board of Directors of the Association will be voted in accordance with the instructions indicated thereon by the members giving such proxies. If no instructions are given, such proxies will be voted in favor of the Plan of Conversion. If any other matters are properly presented at the Special Meeting and may properly be voted on, the proxies solicited hereby will be voted on such matters in accordance with the best judgment of the proxy holders named thereon. Management is not aware of any other business to be presented at the Special Meeting. If a proxy is not executed and is returned or the member does not vote in person, the Association is prohibited by OTS regulations from using a previously executed proxy to vote for the Conversion. As a result, failure to vote may have the same effect as a vote against the Plan of Conversion. To the extent necessary to permit approval of the Plan of Conversion, proxies may be solicited by officers, directors or regular employees of the Association, in person, by telephone or through other forms of communication and, if necessary, the Special Meeting may be adjourned to a later date. In addition, Trident Securities, Inc. will assist the Association in the solicitation of proxies. Such persons will be reimbursed by the Association for their expenses incurred in connection with such solicitation. The Association will bear all costs of this solicitation. The proxies solicited hereby will be used only at the Special Meeting and at any adjournment thereof. DESCRIPTION OF THE PLAN OF CONVERSION The Plan of Conversion to be presented for approval at the Special Meeting provides for the Conversion to be accomplished through adoption of amended charter and bylaws for the Association to authorize the issuance of capital stock along with the concurrent formation of a holding company. As part of the Conversion, the Plan of Conversion provides for the subscription offering (the "Subscription Offering") of the Common Stock to the Association's (i) Eligible Account Holders (deposit account holders as of March 31, 1996); (ii) Tax-Qualified Employee Plans, (iii) Supplemental Eligible Account Holders (deposit account holders as of September 30, 1997); (iv) Other Members (deposit account holders and certain borrowers eligible to vote at the Special Meeting who are not as Eligible Account Holders or Supplemental Eligible Account Holders); and (v) the Association's employees, officers and directors. Notwithstanding the foregoing, to the extent orders for shares exceed the maximum of the appraisal range, 2 Tax-Qualified Employee Plans shall be afforded a first priority to purchase shares sold above the maximum of the appraisal range. It is anticipated that Tax-Qualified Employee Plans will purchase 8% of the Common Stock sold in the Conversion. In addition, in the Community Offering, concurrent with the Subscription Offering, members of the general public, with a first preference to natural persons residing in Baltimore and Anne Arundel Counties, Maryland, will be afforded the opportunity to purchase the Common Stock not subscribed for in the Subscription Offering. THE SUBSCRIPTION OFFERING HAS COMMENCED AS OF THE DATE OF MAILING OF THIS PROXY STATEMENT. A PROSPECTUS EXPLAINING THE TERMS OF THE SUBSCRIPTION OFFERING, INCLUDING HOW TO ORDER AND PAY FOR SHARES AND DESCRIBING THE BUSINESS OF THE ASSOCIATION AND THE HOLDING COMPANY; ACCOMPANIES THIS PROXY STATEMENT AND SHOULD BE READ BY ALL PERSONS WHO WISH TO CONSIDER SUBSCRIBING FOR COMMON STOCK. THE SUBSCRIPTION OFFERING EXPIRES AT _:00 _.M., LUTHERVILLE, MARYLAND TIME ON ________ __, 1997 UNLESS EXTENDED BY THE ASSOCIATION AND THE HOLDING COMPANY. The federal conversion regulations require that all stock offered in a conversion must be sold in order for the conversion to become effective. The conversion regulations require that the offering be completed within 45 days after completion of the Subscription Offering period unless extended by the Association and the Holding Company with the approval of the OTS. This 45-day period expires ________ __, 1997 unless the Subscription Offering is extended. If this is not possible, an occurrence that is currently not anticipated, the Board of Directors of the Association and the Holding Company will consult with the OTS to determine an appropriate alternative method of selling all unsubscribed shares offered in the Conversion. The Plan of Conversion provides that the Conversion must be completed within 24 months after the date of the Special Meeting. The Subscription and Community Offerings or any other sale of the unsubscribed shares will be made as soon as practicable after the date of the Special Meeting. No sales of shares may be completed, either in the Subscription and Community Offerings or otherwise, unless the Plan of Conversion is approved by the members of the Bank. The commencement and completion of the Subscription and Community Offerings, however, is subject to market conditions and other factors beyond the Association's control. Due to adverse conditions in the stock market in the past, a number of converting thrift institutions encountered significant delays in completing their stock offerings or were not able to complete them at all. No assurance can be given as to the length of time after approval of the Plan of Conversion at the Special Meeting that will be required to complete the Subscription and Community Offerings or other sale of the Common Stock to be offered in the Conversion. If delays are experienced, significant changes may occur in the estimated pro forma market value of the Holding Company's Common Stock, together with corresponding changes in the offering price and the net proceeds realized by the Association and the Holding Company from the sale of the Common Stock. The Association and the Holding Company may also incur substantial additional printing, legal, accounting and other expenses in completing the Conversion. The following is a brief summary of the Conversion and is qualified in its entirety by reference to the Plan of Conversion, a complete copy of which is attached hereto. The Association's federal stock charter and bylaws that will become effective upon completion of the Conversion are available from the Association upon request. A copy of the Holding Company's articles of incorporation and bylaws are also available from the Association upon request. Principal Effects of Conversion Depositors. The Conversion will not change the amount, interest rate, withdrawal rights or federal insurance protection of deposit accounts, or affect deposit accounts in any way other than with respect to voting and liquidation rights as discussed below. Borrowers. The rights and obligations of borrowers under their loan agreements with the Association will remain unchanged by the Conversion. The principal amount, interest rate and maturity date of loans will remain as they were contractually fixed prior to the Conversion. Voting Rights of Members. Under the Association's current federal mutual charter, depositors and certain borrowers have voting rights as members of the Association with respect to the election of directors and certain other affairs of the Association. After the Conversion, exclusive voting rights with respect to all such matters will be vested 3 in the Holding Company as the sole stockholder of the Association. Depositors and certain borrowers will no longer have any voting rights, except to the extent that they become stockholders of the Holding Company through the purchase of its Common Stock. Voting rights in the Holding Company will be held exclusively by its stockholders. Liquidation Rights of Depositor Members. Currently, in the unlikely event of liquidation of the Association, any assets remaining after satisfaction of all creditors' claims in full (including the claims of all depositors to the withdrawal value of their accounts) would be distributed pro rata among the depositors of the Association, with the pro rata share of each being the same proportion of all such remaining assets as the withdrawal value of each depositor's account is of the total withdrawal value of all accounts in the Association at the time of liquidation. After the Conversion, the assets of the Association would first be applied, in the event of liquidation, against the claims of all creditors (including the claims of all depositors to the withdrawal value of their accounts). Any remaining assets would then be distributed to the persons who qualified as Eligible Account Holders or Supplemental Eligible Account Holders under the Plan of Conversion to the extent of their interests in a "Liquidation Account" that will be established at the time of the completion of the Conversion and then to the Holding Company as the sole stockholder of the Association's outstanding common stock. The Association's depositors who did not qualify as Eligible Account Holders or Supplemental Eligible Account Holders would have no right to share in any residual net worth of the Association in the event of liquidation after the Conversion, but would continue to have the right as creditors of the Association to receive the full withdrawal value of their deposits prior to any distribution to the Holding Company as the Association's sole stockholder. In addition, the Association's deposit accounts will continue to be insured by the FDIC to the maximum extent permitted by law, currently up to $100,000 per insured account. The Liquidation Account will initially be established in an amount equal to the net worth of the Association as of the date of the Association's latest statement of financial condition contained in the final prospectus used in connection with the Conversion. Each Eligible Account Holder and/or Supplemental Eligible Account Holder will receive an initial interest in the Liquidation Account in the same proportion as the balance in all of his qualifying deposit accounts was of the aggregate balance in all qualifying deposit accounts of all Eligible Account Holders and Supplemental Eligible Account Holders on March 31, 1996 or September 30, 1997, respectively. For accounts in existence on both dates, separate subaccounts shall be determined on the basis of the qualifying deposits in such accounts on the record dates. However, if the amount in the qualifying deposit account on any annual closing date of the Association is less than the lowest amount in such deposit account on the Eligibility Record Date and/or Supplemental Eligibility Record Date, and any subsequent annual closing date, this interest in the Liquidation Account will be reduced by an amount proportionate to such reduction in the related deposit account and will not thereafter be increased despite any subsequent increase in the related deposit account. The Association. Under federal law, the stock savings association resulting from the Conversion will be deemed to be a continuation of the mutual savings association rather than a new entity and will continue to have all of the rights, privileges, properties, assets and liabilities of the Association prior to the Conversion. The Conversion will enable the Association to issue capital stock, but will not change the general objectives, purposes or types of business currently conducted by the Association, and no assets of the Association will be distributed in order to effect the Conversion, other than to pay the expenses incident thereto. After the Conversion, the Association will remain subject to examination and regulation by the OTS and will continue to be a member of the Federal Home Loan Bank System. The Conversion will not cause any change in the executive officers or directors of the Association. Tax Consequences. Consummation of the Conversion is expressly conditioned upon prior receipt of either a ruling of the United States Internal Revenue Service ("IRS") or an opinion letter of the Association's counsel with respect to federal taxation, and either a ruling of the Maryland taxation authorities or an opinion letter from the Association's accountants with respect to Maryland taxation, to the effect that the Conversion will not be a taxable transaction to the Holding Company, the Association or the Association's deposit account holders receiving subscription rights. The Association has received an opinion of its special counsel, Silver, Freedman & Taff, L.L.P., to the effect that (i) the Conversion will qualify as a reorganization under Section 368(a)(1)(F) of the Internal Revenue Code of 1986, as amended, and no gain or loss will be recognized to the Association in either its mutual form or its stock form by reason of the proposed Conversion, (ii) no gain or loss will be recognized to the Association in its stock form upon the receipt of money and other property, if any, from the Holding Company for the stock of the Association; and no gain or loss will be recognized to the Holding Company upon the receipt of money for Common Stock of the Holding Company; (iii) the assets of the Association in either its mutual or its stock form will have the same basis before and after the Conversion; (iv) the holding period of the assets of the Association in its stock form will include the period 4 during which the assets were held by the Association in its mutual form prior to Conversion; (v) gain, if any, will be realized by the depositors of the Association upon the constructive issuance to them of withdrawable deposit accounts of the Association in its stock form, nontransferable subscription rights to purchase Holding Company Common Stock and/or interests in the Liquidation Account (any such gain will be recognized by such depositors, but only in an amount not in excess of the fair market value of the subscription rights and Liquidation Account interests received); (vi) the basis of the account holder's savings accounts in the Association after the Conversion will be the same as the basis of his or her savings accounts in the Association prior to the Conversion; (vii) the basis of each account holder's interest in the Liquidation Account is assumed to be zero; (viii) based on the Ferguson Letter, as hereinafter defined, the basis of the subscription rights will be zero; (ix) the basis of the Holding Company Common Stock to its stockholders will be the purchase price thereof; (x) a stockholder's holding period for Holding Company Common Stock acquired through the exercise of subscription rights shall begin on the date on which the subscription rights are exercised and the holding period for the Conversion Stock purchased in the Subscription and Community Offering will commence on the date following the date on which such stock is purchased; (xi) the Association in its stock form will succeed to and take into account the earnings and profits or deficit in earnings and profits, of the Association, in its mutual form, as of the date of Conversion; (xii) the Association, immediately after Conversion, will succeed to and take into account the bad debt reserve accounts of the Association, in mutual form, and the bad debt reserves will have the same character in the hands of the Association after Conversion as if no Conversion had occurred; and (xiii) the creation of the Liquidation Account will have no effect on the Association's taxable income, deductions or addition to reserve for bad debts either in its mutual or stock form. The opinion from Silver, Freedman & Taff, L.L.P. is based, among other things, on certain assumptions, including the assumptions that the exercise price of the Subscription Rights to purchase Holding Company Common Stock will be approximately equal to the fair market value of that stock at the time of the completion of the proposed Conversion. With respect to the Subscription Rights, the Association will receive a letter from Ferguson & Company, Inc. (the "Ferguson Letter") which, based on certain assumptions, will conclude that the Subscription Rights to be received by Eligible Account Holders, Supplemental Eligible Account Holders and other eligible subscribers do not have any economic value at the time of distribution or at the time the Subscription Rights are exercised, whether or not a Public Offering takes place. The Association has also received an opinion of Silver, Freedman & Taff, L.L.P. to the effect that, based in part on the Ferguson Letter: (i) no taxable income will be realized by depositors as a result of the exercise of non-transferable Subscription Rights to purchase shares of Holding Company Common Stock at fair market value; (ii) no taxable income will be recognized by borrowers, directors, officers and employees of the Association on the receipt or exercise of Subscription Rights to purchase shares of Holding Company Common Stock at fair market value; and (iii) no taxable income will be realized by the Association or Holding Company on the issuance of Subscription Rights to eligible subscribers to purchase shares of Holding Company Common Stock at fair market value. Notwithstanding the Ferguson Letter, if the Subscription Rights are subsequently found to have a fair market value and are deemed a distribution of property, it is Silver, Freedman & Taff, L.L.P.'s opinion that gain or income will be recognized by various recipients of the Subscription Rights (in certain cases, whether or not the rights are exercised) and the Association and/or the Holding Company may be taxable on the distribution of the Subscription Rights. In any event, all recipients are encouraged to consult with their own tax advisors as to the tax consequences which may result. With respect to Maryland taxation, the Association has received an opinion from Wooden & Benson, Chartered to the effect that the Maryland tax consequences to the Association, in its mutual or stock form, the Holding Company, eligible account holders, parties receiving subscription rights, parties purchasing conversion stock, and other parties participating in the Conversion will be the same as the federal income tax consequences described above. Unlike a private letter ruling, the opinions of Silver, Freedman & Taff, L.L.P. and Wooden & Benson, Chartered, as well as the Ferguson Letter, 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 Maryland State tax authorities. 5 Approval, Interpretation, Amendment and Termination Under the Plan of Conversion, the letter from the OTS giving approval thereto, and applicable regulations, consummation of the Conversion is subject to the satisfaction of the following conditions: (a) approval of the Plan of Conversion by members of the Association casting at least a majority of the votes eligible to be cast at the Special Meeting; (b) sale of all of the Common Stock to be offered in the Conversion; and (c) receipt of favorable rulings or opinions as to the federal and Maryland tax consequences of the Conversion. The Plan of Conversion may be substantively amended by the Boards of Directors of the Association and the Holding Company with the concurrence of the OTS. If the Plan of Conversion is amended, proxies which have been received prior to such amendment will not be resolicited unless otherwise required by the OTS. Also, as required by the federal regulations, the Plan of Conversion provides that the transactions contemplated thereby may be terminated by the Board of Directors of the Association alone at any time prior to the Special Meeting and may be terminated by the Board of Directors of the Association at any time thereafter with the concurrence of the OTS, notwithstanding approval of the Plan of Conversion by the members of the Association at the Special Meeting. All interpretations by the Association and the Holding Company of the Plan of Conversion and of the order forms and related materials for the Subscription Offering will be final, except as regards or affects the OTS. Judicial Review Section 5(i)(2)(B) of the Home Owners' Loan Act, as amended, 12 U.S.C. ss.1464(i)(2)(B) and Section 563b.8(u) of the Rules and Regulations promulgated thereunder (12 C.F.R. Section 563b.8(u)) provide: (i) that persons aggrieved by a final action of the OTS which approves, with or without conditions, or disapproves a plan of conversion, may obtain review of such final action only by filing a written petition in the United States Court of Appeals for the circuit in which the principal office or residence of such person is located, or in the United States Court of Appeals for the District of Columbia, requesting that the final action of the OTS be modified, terminated or set aside, and (ii) that such petition must be filed within 30 days after publication of notice of such final action in the Federal Register, or 30 days after the date of mailing of the notice and proxy statement for the meeting of the converting institution's members at which the conversion is to be voted on, whichever is later. The notice of the Special Meeting of the Association's members to vote on the Plan of Conversion described herein is included at the beginning of this Proxy Statement. The statute and regulation referred to above should be consulted for further information. ADDITIONAL INFORMATION The information contained in the accompanying Prospectus, including a more detailed description of the Plan of Conversion, consolidated financial statements of the Association and a description of the capitalization and business of the Association and the Holding Company, including the Association's directors and executive officers and their compensation, the anticipated use of the net proceeds from the sale of the Common Stock and a description of the Common Stock, is intended to help you evaluate the Conversion and is incorporated by this reference. YOUR VOTE IS VERY IMPORTANT TO US. PLEASE TAKE A MOMENT NOW TO COMPLETE AND RETURN YOUR PROXY CARD IN THE POSTAGE-PAID ENVELOPE PROVIDED. YOU MAY STILL ATTEND THE SPECIAL MEETING AND VOTE IN PERSON EVEN THOUGH YOU HAVE VOTED YOUR PROXY. FAILURE TO SUBMIT A PROXY WILL HAVE THE SAME EFFECT AS VOTING AGAINST THE CONVERSION. If you have any questions, please call our Stock Information Center at (___) ___-____. IMPORTANT: YOU MAY BE ENTITLED TO VOTE IN MORE THAN ONE CAPACITY. PLEASE SIGN, DATE AND PROMPTLY RETURN EACH PROXY CARD YOU RECEIVE. ---------------------- THIS PROXY STATEMENT IS NOT AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY STOCK. THE OFFER WILL BE MADE ONLY BY THE PROSPECTUS. THE COMMON STOCK IS NOT A DEPOSIT OR ACCOUNT AND IS NOT FEDERALLY INSURED OR GUARANTEED. 6 EX-99.4 18 CERTIFICATION CERTIFICATION I ACKNOWLEDGE THAT THIS SECURITY IS NOT A DEPOSIT OR ACCOUNT AND IS NOT FEDERALLY INSURED, AND IS NOT GUARANTEED BY WYMAN PARK FEDERAL SAVINGS & LOAN ASSOCIATION, OR BY THE FEDERAL GOVERNMENT. If anyone asserts that this security is federally insured or guaranteed, or is as safe as an insured deposit, I should call the Office of Thrift Supervision, Central Regional Director, John Ryan (404) 888-0771. I further certify that, before purchasing the common stock par value $0.01 of Wyman Park Bancorporation, Inc., the proposed holding company for Wyman Park Federal Savings & Loan Association (the "Association"), I received a prospectus dated ___________, 1997 (the "Prospectus"). The Prospectus that I received contains disclosure concerning the nature of the security being offered and describes the risks involved in the investment, including, but not limited to: vulnerability to changes in interest rates; competition; geographical concentration of loans; certain anti-takeover provisions; voting control of shares by the board, management and employee plans; low return of equity and low net interest margin; ESOP compensation expense; absence of active market for common stock; proposed federal legislation; risk of delayed offering. For a more detailed description of the risks involved in the offering, see "Risk Factors" at pages __ through __ of the Prospectus. In addition, the certificate of incorporation of the Company requires a vote of 80% of stockholders to remove directors, to approve certain business combinations or to amend the certificate of incorporation, which may have the effect of discouraging a future takeover attempt of the Company. For additional information, see pages ___ through ___ of the Prospectus. NOTE: If the stock is to be held jointly, both parties must sign. Signature: Signature: Date: -----END PRIVACY-ENHANCED MESSAGE-----