AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 18, 1998
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
DELAWARE (TO BE APPLIED
FOR)
(State or Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification
No.)
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COPIES TO:
ERIC LUSE, ESQ.
ROBERT B. POMERENK, ESQ.
LUSE LEHMAN GORMAN POMERENK & SCHICK, P.C.
5335 WISCONSIN AVENUE, N.W.
SUITE 400
WASHINGTON, D.C. 20015
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 shares for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: / /
If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier 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. / /
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 PER UNIT OFFERING PRICE (1) REGISTRATION FEE
Common Stock, $.10 par value shares per share.... 1,266,876 $10.00 $12,668,760 $3,750
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(1) Estimated solely for the purpose of calculating the registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION 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 SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
PROSPECTUS
UP TO 1,266,876 SHARES OF COMMON STOCK GREENE COUNTY BANCORP, INC.
425 MAIN & CHURCH STREETS
CATSKILL, NEW YORK 12414-1300
(518) 943-3700
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TERMS OF OFFERING
An independent appraiser has estimated the pro forma market value of the Company to be between $17.9 million and $24.3 million. Based on this estimate, the Company will issue between 1,829,370 and 2,475,030 shares of Common Stock. The Company is selling between 814,249 and 1,101,631 shares, to depositors and the public, and is issuing between 979,213 and 1,324,817 shares, to the Mutual Company. The Company may increase the shares it issues in the Reorganization to up to 2,846,285 shares and increase the shares sold in the Offering to up to 1,266,876 shares, subject to regulatory approvals. As part of the Reorganization, up to 42,183 shares, or 1.96% of the shares issued in the Reorganization at the mid-point of the estimated valuation range, are being issued to a Charitable Foundation. Consequently, following completion of the Reorganization and Offering, the Mutual Company will own 53.53% of the outstanding Common Stock, stockholders who purchase Common Stock in the Offering will own 44.51% of the Common Stock outstanding and the Charitable Foundation will own 1.96% of the outstanding Common Stock. Based on these estimates, the Company is making the following offering of shares of Common Stock.
MINIMUM MIDPOINT MAXIMUM ADJUSTED MAXIMUM
- Price per share............................... $10.00 $10.00 $10.00 $10.00
- Number of shares.............................. 814,249 957,940 1,101,631 1,266,876
- Reorganization expenses....................... $560,000 $560,000 $560,000 $560,000
- Net Proceeds.................................. $7,582,490 $9,019,400 $10,456,310 $12,108,760
- Net Proceeds per share........................ $9.31 $9.41 $9.49 $9.56
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PLEASE REFER TO RISK FACTORS BEGINNING ON PAGE OF THIS PROSPECTUS.
THESE SECURITIES ARE NOT DEPOSITS OR ACCOUNTS AND ARE NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION (THE "FDIC") OR ANY OTHER GOVERNMENT AGENCY.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION (THE "SEC"), THE NEW YORK STATE BANKING DEPARTMENT (THE "DEPARTMENT"), THE FDIC, NOR ANY STATE SECURITIES REGULATOR HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Friedman, Billings, Ramsey & Co., Inc. will use its best efforts to assist the Company in selling at least the minimum number of shares but does not guarantee that this number will be sold. All funds received from subscribers will be held in an interest bearing savings account at the Bank until the completion or termination of the Reorganization. The Company has received conditional approval to list the Common Stock on the Nasdaq SmallCap Market under the symbol " ."
For information on how to subscribe, call the Stock Center at (518) 943-7515.
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
PROSPECTUS DATED NOVEMBER , 1998
MAP
TABLE OF CONTENTS
PAGE
----
Summary and Overview...................................................... 4
Selected Financial Information............................................ 10
Risk Factors.............................................................. 12
Greene County Bancorp, Inc................................................ 17
Greene County Savings Bank................................................ 18
Market Area............................................................... 18
Regulatory Capital Compliance............................................. 19
Use of Proceeds........................................................... 19
Dividend Policy........................................................... 21
Market for Common Stock................................................... 21
Capitalization............................................................ 22
Pro Forma Data............................................................ 23
Comparison of Valuation and Pro Forma Information Without Foundation...... 27
Participation by Management............................................... 28
The Reorganization and Offering........................................... 29
Greene County Savings Bank Statements of Income........................... 46
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 47
Business of Greene County Bancorp, Inc.................................... 59
Business of the Bank...................................................... 60
Federal and State Taxation................................................ 76
Regulation................................................................ 78
Management of Greene County Bancorp, Inc.................................. 88
Management of the Bank.................................................... 89
Restrictions on Acquisition of the Company................................ 97
Description of Capital Stock of the Company............................... 98
Transfer Agent and Registrar.............................................. 99
Legal and Tax Matters..................................................... 99
Experts................................................................... 99
Additional Information.................................................... 100
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THIS DOCUMENT CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK FACTORS" BEGINNING ON PAGE OF THIS PROSPECTUS.
PLEASE SEE THE GLOSSARY BEGINNING ON PAGE G-L FOR THE MEANING OF CAPITALIZED
TERMS THAT ARE USED IN THIS PROSPECTUS.
QUESTIONS AND ANSWERS ABOUT THE STOCK OFFERING
Q: WHAT IS THE MUTUAL COMPANY?
A: Greene County Bancorp, MHC (the "Mutual Company") is a New York-chartered mutual corporation that is being established in connection with the mutual holding company reorganization (the "Reorganization") of Greene County Savings Bank (the "Bank"). The Mutual Company will be chartered under the laws of the State of New York and will be regulated by the New York Banking Department (the "Department") and the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"). The Mutual Company will own 53.53% of the outstanding Common Stock of Greene County Bancorp, Inc. (the "Company"), or 1,152,015 shares at the midpoint of the valuation range established by the independent appraisal. The remaining 46.47% of the Common Stock of the Company will be owned by persons who purchase Common Stock in the Offering, and The Bank of Greene County Charitable Foundation (the "Charitable Foundation").
Q: WHO WILL BE THE MINORITY STOCKHOLDERS OF THE COMPANY?
A: All persons who purchase Common Stock in the Offering, including the employee stock ownership plan ("ESOP") of the Bank as well as the Charitable Foundation, will be the minority stockholders (the "Minority Stockholders") of the Bank, and will own 46.47% of its Common Stock upon completion of the Offering. The Mutual Company will own 53.53% of the Common Stock of the Company, and will remain its majority stockholder as long as the Mutual Company remains in existence.
Q: WHAT IS THE PURPOSE OF THE REORGANIZATION AND OFFERING?
A: The primary purpose of the Reorganization and Offering is to raise additional equity capital to support the growth and expansion of the Bank. The increased capital also will be used to expand the Bank's lending and investment activities. The Reorganization will create a holding company and a stock charter, which is the corporate form used by all commercial banks and an increasing number of savings institutions. The holding company structure will expand the investment and operating authority currently available to the Bank. The Offering also will provide depositors with the opportunity to become stockholders of the Company. We are also establishing the Charitable Foundation that will be dedicated exclusively to supporting charitable causes and community development activities in our market area.
Q: WHY IS THE BANK CONDUCTING A MINORITY STOCK OFFERING INSTEAD OF UNDERGOING A FULL CONVERSION TO STOCK FORM?
A: At the present time, the Bank does not need all of the capital that would be raised in a full stock conversion. A savings institution that converts to stock form using the mutual holding company structure sells only a minority of its shares to the public. By doing so, the converting institution raises less than half the capital that would be raised in a full conversion. However, with the mutual holding company structure the Bank will have the flexibility to raise additional capital in the future. Moreover, the Bank's Board of Directors intends to maintain the independence and community control of the Bank. Because the Mutual Company will control a majority of the Company's Common Stock, the Reorganization will permit the Bank to achieve the benefits of being a stock company without the loss of control.
Q: HOW DO I ORDER THE COMMON STOCK?
A: You must complete and return the Stock Order Form and certification form (together, the "Order Form") to the Bank, together with your payment, before 12:00 noon New York time on or before
December , 1998. Please review the Order Form and Stock Order Form Instructions when filling out the Order Form and before sending any payment to the Bank.
Q: HOW MUCH STOCK MAY I ORDER?
A: The minimum order is 25 shares (or $250). The maximum order for any individual person or persons ordering through a single account is 10,000 shares (or $100,000). In certain instances, your order may be grouped together with orders by other persons who are associated with you (such as your spouse, child or relatives living in your home or corporations, partnership and trusts of which you are an officer, director or trustee), or with whom you are acting in concert, and, in that event, the aggregate order may not exceed 20,000 shares (or $200,000). The maximum purchase limitation may be decreased or increased without notifying you. However, if the maximum purchase limitation is increased, and you previously subscribed for the maximum number of shares, you will be notified of the increase, as well as the opportunity to subscribe for additional shares.
Q: WHO HAS SUBSCRIPTION RIGHTS AND WHAT ARE THE SUBSCRIPTION PRIORITIES?
A: Subscription orders to purchase Common Stock will be filled on a priority basis as follows:
- First, to persons who had one or more deposit accounts with the Bank aggregating at least $100 on June 30, 1997. (The Bank's tax-qualified employee benefit plans, including the Bank's ESOP will have priority over such persons if more than 1,101,631 shares are sold. Assuming that 1,266,876 (the adjusted maximum) shares of Common Stock are sold, the ESOP may purchase 105,820 shares, all of which would be purchased in the first priority.)
- Second, to the Bank's tax-qualified employee benefit plans, including the Bank's ESOP (which is expected to purchase up to 8% of the Minority Ownership Interest).
- Third, to persons who had one or more deposit accounts with the Bank aggregating at least $100 on September 30, 1998.
- Fourth, to employees, officers and trustees of the Bank.
Q: WHAT HAPPENS IF THERE ARE NOT ENOUGH SHARES TO FILL ALL ORDERS?
A: If the Offering is oversubscribed, shares will be allocated based upon a deposit formula set forth in the Plan of Reorganization. In recent periods a number of stock offerings by financial institutions have been oversubscribed. There can be no assurance that a subscriber in the Offering will have his or her subscription filled. If insufficient shares of Common Stock are available in the first category, the Bank will allocate shares in such a manner that will allow Eligible Account Holders to purchase the lesser of 100 shares or the amount subscribed for. Likewise, if insufficient shares of Common Stock are available in the third category, the Company will allocate shares in such a manner that will allow Supplemental Eligible Account Holders to purchase the lesser of 100 shares or the amount of stock subscribed for. All orders must be received by 12:00 noon, New York time on December , 1998.
Q: WILL SHARES BE OFFERED TO ANYONE OTHER THAN PERSONS WITH SUBSCRIPTION RIGHTS?
A: If persons with subscription rights do not subscribe for all of the shares offered, the remaining shares will be offered to certain members of the general public in a community offering, with a preference for natural persons residing in the Bank's community of Greene County, New York.
Q: WHAT PARTICULAR FACTORS SHOULD I CONSIDER WHEN DECIDING WHETHER OR NOT TO BUY COMMON STOCK?
A: Before you decide to purchase Common Stock, you should read this entire Prospectus, including the Risk Factors section on pages of this Prospectus.
Q: WHO CAN HELP ANSWER ANY OTHER QUESTIONS I MAY HAVE ABOUT THE OFFERING?
A: In order to make an informed investment decision, you should read this entire Prospectus. This question and answer section highlights selected information and may not contain all of the information that is important to you. In addition, you may contact:
STOCK CENTER
430 MAIN STREET
CATSKILL, NEW YORK 12414-1303
P.O. BOX 546
CATSKILL, NEW YORK 12414-0546
(518) 943-7515
SELLING OR ASSIGNING YOUR SUBSCRIPTION RIGHTS IS ILLEGAL. ALL PERSONS EXERCISING THEIR SUBSCRIPTION RIGHTS WILL BE REQUIRED TO CERTIFY THAT THEY ARE PURCHASING SHARES SOLELY FOR THEIR OWN ACCOUNT AND THAT THEY HAVE NO AGREEMENT OR UNDERSTANDING REGARDING THE SALE OR TRANSFER OF SUCH SHARES. THE BANK INTENDS TO PURSUE ANY AND ALL LEGAL AND EQUITABLE REMEDIES IN THE EVENT IT BECOMES AWARE OF THE TRANSFER OF SUBSCRIPTION RIGHTS. ORDERS KNOWN TO INVOLVE THE TRANSFER OF SUBSCRIPTION RIGHTS WILL NOT BE HONORED. IN ADDITION, PERSONS WHO VIOLATE THE PURCHASE LIMITATIONS MAY BE SUBJECT TO SANCTIONS AND PENALTIES IMPOSED BY THE NEW YORK BANKING DEPARTMENT AND/OR FEDERAL DEPOSIT INSURANCE CORPORATION.
SUMMARY AND OVERVIEW
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROSPECTUS AND DOES NOT CONTAIN ALL THE INFORMATION THAT YOU NEED TO KNOW BEFORE MAKING AN INFORMED INVESTMENT DECISION. TO UNDERSTAND THE OFFERING FULLY, YOU SHOULD READ THIS ENTIRE PROSPECTUS CAREFULLY, INCLUDING THE FINANCIAL STATEMENTS AND THE NOTES TO THE FINANCIAL STATEMENTS OF THE BANK. CERTAIN FINANCIAL INFORMATION CONTAINED IN THIS PROSPECTUS HAS BEEN DERIVED FROM THE AUDITED FINANCIAL STATEMENTS OF THE BANK.
YOU SHOULD NOTE AS YOU READ THIS PROSPECTUS THAT AT TIMES CAPITALIZED TERMS ARE USED. THESE CAPITALIZED TERMS ARE GENERALLY DEFINED IN THE GLOSSARY THAT IS AT THE END OF THIS PROSPECTUS. DEFINED TERMS ARE USED TO HELP YOU DIFFERENTIATE BETWEEN THE VARIOUS COMPONENTS OF THE TRANSACTION, TO SIMPLIFY THE DISCUSSION AND TO AVOID UNNECESSARY REPETITION BY NOT HAVING TO DEFINE OR DESCRIBE A TERM EACH TIME IT IS USED. FOR EXAMPLE, TO AVOID CONFUSION, ALL OF THE STEPS THAT ARE
PART OF THE TRANSACTIONS DESCRIBED IN THIS PROSPECTUS ARE REFERRED TO AS THE
"REORGANIZATION," AND THE OFFER AND SALE OF 44.51% OF THE COMPANY'S COMMON STOCK IS REFERRED TO AS THE OFFERING. REFERENCES TO THE "BANK" REFER TO GREENE COUNTY SAVINGS BANK, WHICH IS CHANGING ITS NAME TO "THE BANK OF GREENE COUNTY" CONCURRENTLY WITH THE REORGANIZATION AND THE OFFERING. REFERENCES TO "COMPANY" REFER TO GREENE COUNTY BANCORP, INC., AND REFERENCES TO THE "MUTUAL COMPANY" REFER TO GREENE COUNTY BANCORP, MHC. TO FURTHER ASSIST YOU IN READING THIS PROSPECTUS, IN ADDITION TO INCLUDING A GLOSSARY, EACH TERM DEFINED IN THE GLOSSARY IS ALSO DEFINED THE FIRST TIME THAT IT IS USED IN THIS PROSPECTUS.
THE COMPANY
Greene County Bancorp, Inc.
425 Main & Church Streets
Catskill, New York 12414-1317
(518) 943-3700
The Company is a Delaware corporation that was formed recently to become the holding company of the Bank. Accordingly, the Company has no results of operations. After the Reorganization, the Company will own all of the Bank's common stock. Purchasers in the Offering will own 44.51% of the Company's Common Stock, the Charitable Foundation will own 1.96% of the shares of the Company Common Stock, and the Mutual Company will own 53.53% of the shares of the Company Common Stock. Although these percentages may change in the future, the Mutual Company must always own a majority of the Company's Common Stock.
THE BANK
Greene County Savings Bank
425 Main & Church Streets
Catskill, New York 12414-1317
(518) 943-3700
The Bank was organized in 1889 as The Building and Loan Association of Catskill, a New York-chartered savings and loan association. In 1974, the Bank converted to a New York mutual savings bank under the name Greene County Savings Bank. In conjunction with the Reorganization and the Offering, the Bank is changing its name to The Bank of Greene County. At June 30, 1998, the Bank had total assets of $140.3 million, total deposits of $122.3 million, and retained earnings of $15.7 million. The Bank is a community- and customer-oriented bank that operates from its main office and three branch locations in Catskill, West Coxsackie, Cairo and Greenville, New York. Historically, the Bank has emphasized the origination of loans secured by real estate. At June 30, 1998, the Bank's loan portfolio consisted of $64.7 million, or 79.7%, of loans secured by one- to four-family residential mortgage loans, $9.4 million, or 11.6%, of consumer loans, $4.5 million, or 5.6% of commercial real estate loans and $1.3 million, or 1.7% of commercial business loans. The Bank also invests in investment securities-- mortgage-backed securities and asset-backed securities. At June 30, 1998, investment securities totaled
$36.3 million, mortgage-backed securities totaled $5.2 million, and asset-backed securities totaled $6.3 million. At June 30, 1998, such investments in the aggregate comprised 34.1% of total assets.
The following are highlights of the Bank's operating strategy:
- COMMUNITY BANKING. Since its establishment in 1889, the Bank has been committed to meeting the financial needs of the communities in which it operates and to providing quality service for its customers. This has enabled the Bank to maintain a high level of core deposits, which comprised 54.5% of total deposits at June 30, 1998 and generally represent lower-cost funds than certificates of deposits. Additional, the Bank intends to use the mutual holding company structure and the establishment of the Charitable Foundation to maintain the Bank as an independent community bank.
- EMPHASIS ON RESIDENTIAL REAL ESTATE LENDING. Historically, the Bank has emphasized the origination of one- to four-family residential loans, which typically are considered lower risk than other types of loans. At June 30, 1998 one- to four-family residential mortgage loans comprised 79.69% of the loan portfolio, substantially all of which were secured by real estate located in Greene County.
- MAINTAINING HIGH LEVELS OF LIQUID INVESTMENTS. In order to position the Bank to be able to deploy assets profitably in a rising rate environment, management has decided to invest a significant portion of its assets in short term U.S. Government and agency securities and other interest earning assets. At June 30, 1998, 26.8% of the Bank's total assets were U.S. Government and agency securities, municipal bonds due in five years of less, federal funds sold, and cash and due from banks.
- MAINTAINING ASSET QUALITY. The Bank's high asset quality results from its conservative underwriting and investing standards, the diligence of its loan personnel and the stability of the local economy. At June 30, 1998, the Banks' ratio of nonperforming assets to total assets was 0.72%.
THE REORGANIZATION
The Reorganization involves a number of steps, including the following:
- The Bank will establish the Company and the Mutual Company, neither of which will have any assets prior to the completion of the Reorganization.
- The Bank will convert from the mutual form of organization to the capital stock form of organization and issue 100% of its capital stock to the Company.
- The Company will issue between 1,829,370 and 2,475,030 shares of Common Stock in the Reorganization: 53.53% of these shares (or between 979,213 and 1,324,817 shares) will be issued to the Mutual Company, 44.51% (or between 814,249 and 1,101,631 shares) will be sold to depositors and the public, and 1.96% of these shares (or between 35,908 shares and 48,582) will be issued to a newly formed Charitable Foundation.
- Interests that depositors had in the Bank will become interests in the Mutual Company, which will own 53.53% of the shares of Common Stock of the Company and indirectly of the Bank.
THE MUTUAL HOLDING COMPANY STRUCTURE
The mutual holding company structure differs in significant respects from the bank holding company structure that is used in a standard mutual-to-stock conversion. A savings bank that converts to the stock form using the mutual holding company structure sells only a minority of its shares and raises less proceeds than would be raised in a standard mutual-to-stock conversion in which 100% of the shares are sold to depositors and the public. If additional capital is needed in the future, the shares that are issued to the
Mutual Company may be subsequently sold to depositors. See "Regulation--Holding Company Regulation--Mutual Holding Company Regulation." In addition, because the Mutual Company controls a majority of the Company's Common Stock, the structure will permit the Bank to achieve the benefits of a stock company without a loss of control that often follows a complete conversion from mutual to stock form.
In making business decisions, the Mutual Company's Board of Trustees will consider a variety of constituencies, including the depositors and employees of the Bank, and the communities in which the Bank operates. As the majority stockholder of the Company, the Mutual Company is also interested in the continued success and profitability of the Bank and the Company. Consequently, the Mutual Company will act in a manner which furthers the general interest of all of its constituencies, including, but not limited to, the interest of the stockholders of the Company. The Mutual Company believes that the interests of the stockholders of the Company, and those of the Mutual Company's other constituencies, are in many circumstances the same, such as the increased profitability of the Company and the Bank and continued service to the communities in which the Bank operates.
THE STOCK OFFERING
The Company is offering for sale between 814,249 and 1,101,631 shares of its Common Stock, for a price per share of $10.00. The Offering may be increased to up to 1,266,876 shares, without further notice to subscribers, if the Department approves the increase and the FDIC does not object.
STOCK PURCHASE PRIORITIES
The Common Stock is being offered for sale in the following order of priority in a Subscription Offering:
(i) the Bank's Eligible Account Holders (holders of deposit accounts totaling $100 or more as of June 30, 1997);
(ii) the Bank's tax-qualified employee benefit plans, including the Bank's ESOP (which is expected to purchase up to 8% of the Minority Ownership Interest);
(iii) the Bank's Eligible Account Holders as of September 30, 1998; and
(iv) employees, officers and trustees of the Bank.
Any shares not subscribed for will be offered to certain members of the general public in a community offering, with preference given first to natural persons residing in Greene County, New York. The Company has engaged Friedman, Billings, Ramsey & Co., Inc. to assist it on a best efforts basis in selling the Common Stock in the Offering. See pages to .
STOCK PRICING AND NUMBER OF SHARES TO BE ISSUED
The Company's Board of Directors has set the purchase price per share of Common Stock at $10.00, the price most commonly used in stock offerings involving mutual-to-stock conversions of mutual savings institutions. The number of shares of Common Stock issued in the Offering is based on the independent valuation prepared by FinPro, Inc. ("FinPro"), an appraisal firm experienced in appraisals of savings institutions. The independent valuation states that as of , 1998, the estimated pro forma market value of the Company ranged from a minimum of $17.9 million to a maximum of $24.3 million, with a midpoint of $21.1 million. Based on this valuation and the $10.00 per share price, the number of shares of Common Stock that the Company will issue will range from 1,829,370 to 2,475,030 shares. The Company and the Bank have decided to offer 44.51% of such shares, or between 814,249 shares and 1,101,631 shares, to depositors and the public. In addition, the Company will issue between 35,908 shares and 48,582 shares (together with $100,000 in cash) to the Charitable Foundation. The Board of Directors
determined to sell 44.51% of the Common Stock to depositors and the public in order to raise the maximum amount of proceeds while permitting the Company to issue additional shares to the Charitable Foundation and additional shares of Common Stock in the future pursuant to a stock award plan and stock option plan that the Company intends to adopt after the Reorganization and Offering. The 53.53% of the shares of the Common Stock that are not sold in the Offering or issued to the Charitable Foundation will be issued to the Mutual Company. The establishment of the Charitable Foundation had the effect of reducing the valuation of the Company. See "Comparison of Valuation and Pro Forma Information without the Charitable Foundation."
Changes in market and financial conditions and demand for the Common Stock may cause the estimated valuation range to increase by up to 15%, to up to $27.9 million. If this occurs, the maximum number of shares that can be sold to depositors and the public can increase to up to 1,266,876 shares, and the number of shares to be issued to the Charitable Foundation can increase to 55,869. The Company will not notify subscribers if the maximum number of shares to be sold increases by 15% or less. The Company will, however, notify subscribers if the estimated valuation range and the maximum number of shares to be sold is increased by more than 15% or if the minimum of the estimated valuation range is decreased. THE INDEPENDENT VALUATION IS NOT A RECOMMENDATION AS TO THE ADVISABILITY OF PURCHASING SHARES, AND YOU SHOULD NOT BUY COMMON STOCK BASED ON THE INDEPENDENT VALUATION.
DEADLINE OF THE OFFERING
The offering to depositors will end at 12:00 noon, New York time, on , 1998. The community offering may end on or after , 1998, but in any event, no later than , 1998, without regulatory approvals. If the Reorganization and Offering are not completed by , 1998, all subscribers will be notified and will be given the opportunity to cancel or modify their order.
BENEFITS TO MANAGEMENT FROM THE OFFERING
The Company intends to implement for the benefit of the employees, directors/trustees and officers of the Company and the Bank, the ESOP, a stock option plan ("Stock Option Plan") and a stock award plan ("Stock Award Plan"). These benefit plans would result in employees, officers and directors being eligible to receive in the aggregate up to 220,041 shares of Common Stock (at the midpoint of the Offering Range). Assuming that the Stock Option Plan and Stock Award Plan were funded from shares purchased in the open market, employees, directors and officers would own 22% of the outstanding Minority Ownership Interest, inclusive of ESOP shares but exclusive of other shares such persons may have acquired individually.
ESOP. Full-time employees of the Bank will participate in an ESOP, which is a form of retirement plan, that will purchase shares of Common Stock. The ESOP intends to purchase up to 8% of the Minority Ownership Interest. The estimated cost to fund the ESOP is $680,130 at the minimum of the Offering Range and $920,170 at the maximum of the Offering Range. A portion of the net proceeds of the Offering will be used to fund the purchase of shares for the ESOP. For further information, see "Executive Compensation and Related Transactions of the Bank--Employee Stock Ownership Plan and Trust."
STOCK OPTION PLAN. The Stock Option Plan will provide for the grant of options to purchase Common Stock equal to 10% of the Minority Ownership Interest. The exercise price of each option will be equal to the closing price of the Common Stock on the date the option is granted. No options will be granted until after stockholders approve the Stock Option Plan. For further information, see "Executive Compensation and Related Transactions of the Bank--Stock Option Plan." The Board of Directors has not yet determined how many options each individual officer, director or employee will receive.
STOCK AWARD PLAN. The Stock Award Plan will provide for the award of shares of Common Stock equal to 4% of the Minority Ownership Interest to officers, employees and directors of the Bank, if the Stock Award Plan is implemented within one year after the completion of the Offering. If the Stock Award Plan is implemented later than one year after the completion of the Offering, up to 5% of the Minority Ownership Interest may be granted, subject to stockholder approval. Shares of Common Stock awarded under the Stock Award Plan will be at no cost to the recipient, and in the aggregate will have a value of $340,063 at the minimum of the Offering Range and $460,085 at the maximum of the Offering Range, assuming a value of $10.00 per share and assuming a 4% plan. For further information, see "Executive Compensation and Related Transactions of the Bank--Stock Award Plan." The Board of Directors has not yet determined how many shares of Common Stock will be awarded to officers, directors or employees of the Bank.
The Stock Award Plan and Stock Option Plan may not be adopted until at least six months after the completion of the Reorganization, and are subject to shareholder approval. See pages to .
The following table presents the dollar value of the shares to be granted pursuant to the proposed stock benefit plans and the percentage of the Company's outstanding Common Stock which will be represented by these shares.
PERCENTAGE OF
VALUE OF OUTSTANDING
SHARES GRANTED(1) COMMON STOCK(3)
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BENEFIT PLAN:
ESOP.......................................... $ 800,148 3.72%
Stock Option Plan............................. --(2) 4.65
Stock Award Plan.............................. 400,074 1.86
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$ 1,200,222 10.23%
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(1) Assumes shares are granted at $10.00 per share and that shares are sold in the Offering at the midpoint of the Offering Range.
(2) Recipients of stock options realize value only in the event of an increase in the price of the Common Stock of the Company following the date of grant of the stock options. Options to purchase 100,019 shares at the midpoint of the Offering Range may be granted if the Stock Option Plan is approved by stockholders.
(3) Assumes shares for the Stock Award Plan and Stock Option Plan are funded by open-market repurchases, and not from authorized-but-unissued shares.
THE CHARITABLE FOUNDATION
To further its commitment to the local community, the Bank intends to establish the Charitable Foundation as part of the Reorganization. The Company will contribute to the Charitable Foundation 1.96% of the shares of Common Stock issued in the Reorganization plus $100,000 in cash. The Charitable Foundation will be dedicated exclusively to supporting charitable causes and community development activities in the Bank's market area. Due to the issuance of additional shares of Common Stock to the Charitable Foundation, the ownership and voting interests of all stockholders of the Company will be diluted by 1.96%. The Company will incur an expense equal to the full amount of the contribution to the Charitable Foundation, offset in part by a corresponding tax benefit, during the quarter in which the contribution is made. Such expense will reduce the Company's earnings. See "Risk Factors--The Expense and Dilutive Effect of the Contribution of Shares and Cash to the Charitable Foundation," "Pro Forma Data," and "The Reorganization and Offering--Establishment of the Charitable Foundation."
USE OF THE PROCEEDS RAISED FROM THE SALE OF COMMON STOCK
The Company will use the proceeds from the Offering as follows. The percentages we use are estimates:
- 50% will be used to buy all the capital stock of the Bank.
- 8% will be loaned to the ESOP to fund its purchase of Common Stock.
- 42% will be retained as a possible source of funds for the payment of dividends to stockholders, the repurchase of Common Stock, and for other general corporate purposes.
The proceeds to be received by the Bank will be available for general corporate purposes, the opening of new branches, renovation of existing facilities, branch or whole bank acquisitions, new loan originations, and the purchase of investment and mortgage related securities.
See pages to for a fuller description of the use of proceeds.
PROSPECTUS DELIVERY AND PROCEDURE FOR PURCHASING COMMON STOCK
To ensure proper identification of stock purchases priorities, Eligible Account Holders and Supplemental Eligible Account Holders must list all deposit accounts on their Order Form, giving all names on each deposit account and the account numbers at the applicable date. THE FAILURE TO PROVIDE ACCURATE AND COMPLETE ACCOUNT INFORMATION ON THE ORDER FORM, INCLUDING ADDING INDIVIDUALS WITH A LOWER, OR NO, STOCK PURCHASE PRIORITY AS SUBSCRIBERS ON AN ORDER FORM, MAY ELIMINATE YOUR ABILITY TO PURCHASE STOCK.
Full payment by check, cash (except by mail), money order, bank draft or withdrawal authorization (payment by wire transfer will not be accepted) must accompany an original Order Form. THE COMPANY IS NOT OBLIGATED TO ACCEPT AN ORDER SUBMITTED ON PHOTOCOPIED OR TELECOPIED ORDER FORMS. THE COMPANY WILL NOT ACCEPT ORDER FORMS IF THE CERTIFICATION APPEARING ON THE REVERSE SIDE OF THE ORDER FORM IS NOT EXECUTED. THE COMPANY IS NOT REQUIRED TO DELIVER A PROSPECTUS AND ORDER FORM BY ANY MEANS OTHER THAN THE U.S. POSTAL SERVICE.
See pages to for procedures for purchasing shares of common stock.
DIVIDENDS
The Company does not initially intend to pay a dividend, although it may consider the payment of such dividend in the future. Future decisions as to the declaration of dividends by the Company will depend upon a number of factors including investment opportunities available to the Company or the Bank and the Company's financial condition and results of operations. See pages and .
MARKET FOR THE COMMON STOCK
The Company has received conditional approval to have the Common Stock quoted on the Nasdaq SmallCap Market under the symbol " ." Friedman, Billings, Ramsey & Co., Inc. intends to make a market in the Common Stock, and the Company expects that additional market makers will be identified.
IMPORTANT RISKS IN PURCHASING AND OWNING THE COMPANY'S COMMON STOCK
Before deciding to purchase Common Stock in the Offering, please carefully read the Risk Factors section on pages to of this Prospectus, in addition to the other sections of this Prospectus.
The shares of Common Stock offered hereby:
- Are not deposit accounts;
- Are not insured or guaranteed by the FDIC, or any other government agency; and
- Are not guaranteed by the Company, the Mutual Company, or the Bank.
The Common Stock is subject to investment risk, including the possible loss of principal invested.
SELECTED FINANCIAL INFORMATION
The selected data presented below under the captions "Selected Financial Condition Data" and "Selected Operations Data" for, and as of the end of, each of the years in the two-year period ended June 30, 1998, are derived from the audited financial statements of the Bank. The financial statements as of June 30, 1998 and 1997 and for each of the years in the two-year period ended June 30, 1998 are included elsewhere in this Prospectus.
JUNE 30,
----------------------
1998 1997
---------- ----------
(IN THOUSANDS)
SELECTED FINANCIAL CONDITION DATA:
Total assets.............................................................................. $ 140,253 $ 132,506
Loans receivable, net..................................................................... 80,260 75,648
Mortgage-backed securities (all available for sale)....................................... 5,189 5,221
Investment securities (all available for sale)............................................ 36,265 37,581
Asset-backed securities (available for sale).............................................. 6,324 784
Deposits.................................................................................. 122,324 115,855
Total borrowings.......................................................................... -- --
Retained earnings-substantially restricted................................................ 15,730 14,406
|
YEARS ENDED JUNE 30,
----------------------
1998 1997
---------- ----------
(IN THOUSANDS)
SELECTED OPERATIONS DATA:
Total interest income..................................................................... $ 9,503 $ 9,297
Total interest expense.................................................................... 4,967 4,780
---------- ----------
Net interest income....................................................................... 4,536 4,517
Provision for loan losses................................................................. 120 125
---------- ----------
Net interest income after provision for loan losses....................................... 4,416 4,392
Total non-interest income................................................................. 436 520
Total non-interest expense................................................................ 3,149 2,773
---------- ----------
Income (loss) before taxes and extraordinary item......................................... 1,703 2,139
Income tax provision...................................................................... 553 692
---------- ----------
Net income (loss)......................................................................... $ 1,150 $ 1,447
---------- ----------
---------- ----------
|
AT OR FOR THE YEAR
ENDED JUNE 30,
----------------------
1998 1997
---------- ----------
SELECTED FINANCIAL RATIOS AND OTHER DATA:
PERFORMANCE RATIOS:
Return on average assets (ratio of net income to average total assets).................. .84% 1.09%
Return on average retained earnings (ratio of net income to average equity)............. 7.63% 10.59%
Ratio of operating expense to average total assets...................................... 2.31% 2.08%
Ratio of average interest-earning assets to average interest-bearing liabilities........ 109.58% 109.16%
Net interest rate spread(1)............................................................. 3.15% 3.26%
Net interest margin(2).................................................................. 3.52% 3.61%
Efficiency ratio(3)..................................................................... 64.90% 56.45%
ASSET QUALITY RATIOS:
Non-performing assets to total assets at end of period.................................. .72% .61%
Non-performing loans to total loans at end of period.................................... 1.10% .97%
Allowance for loan losses to non-performing loans....................................... 82.17% 90.04%
Allowance for loan losses to loans receivable, net...................................... 0.91% 0.96%
CAPITAL RATIOS:
Retained earnings to total assets at end of period...................................... 11.22% 10.87%
Average retained earnings to average assets............................................. 11.05% 10.27%
OTHER DATA:
Number of full-service offices.......................................................... 4 3
|
(1) The difference between the weighted average yield on average interest-earning assets and the weighted average cost of average interest-bearing liabilities.
(2) Net interest income as a percentage of average interest-earning assets.
(3) The ratio of non-interest expense dividend by the sum of net interest income and non-interest income.
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, YOU SHOULD CONSIDER CAREFULLY THE FOLLOWING RISK FACTORS IN EVALUATING AN INVESTMENT IN THE COMMON STOCK.
RECENT MARKET VOLATILITY
In recent months, stock markets in both the United States and worldwide have been volatile. The securities of individual companies have, in many instances, experienced significant fluctuations in price for reasons unrelated to the specific company's financial condition, results of operations or business prospects. In particular, the value of securities of financial institutions has been adversely affected by weakening economics worldwide, even though local community-based financial institutions may have no credit exposure outside the United States. An investor should understand that, in the short-term, the value of an investment in the Common Stock is subject to fluctuation, including loss, due to volatility in stock markets generally.
REDUCED RETURN ON EQUITY AFTER THE REORGANIZATION
Return on equity (net income for a given period divided by average equity during that period) is a ratio used by many investors to compare the performance of a particular financial institution to its peers. The Bank's equity as a percentage of assets will significantly increase as a result of the net proceeds received in the Offering. The Bank anticipates that it will take time to prudently reinvest the capital raised in the Offering. Consequently, the Company's post-Reorganization return on equity is expected to be less than the average return on equity for publicly traded savings institutions and their holding companies. See "Selected Financial Information" for numerical information regarding the Bank's historical return on equity and "Capitalization" for a discussion of the Company's estimated pro forma consolidated capitalization as a result of the Reorganization and Offering. In addition, the expenses associated with the ESOP and the Stock Award Plan (see "Pro Forma Data"), along with other ongoing post-Reorganization expenses, are expected to contribute initially to reduced earnings. In the short term, the Bank will have difficulty in improving its interest rate spread and thus the return on equity to stockholders. Consequently, for the foreseeable future, investors should not expect a return on equity that will meet or exceed the average return on equity for publicly traded financial institutions, and no assurances can be given that this goal can be attained.
POTENTIAL EFFECTS OF CHANGES IN INTEREST RATES AND THE CURRENT INTEREST RATE ENVIRONMENT
The Bank's financial condition and results of operations are significantly affected by changes in interest rates. The Bank's results of operations depend substantially on its net interest income, which is the difference between the interest income earned on interest-earning assets and the interest expense paid on interest-bearing liabilities. Based on certain repricing assumptions, the Bank's interest-bearing liabilities repricing or maturing within one year exceeded its interest-earning assets with similar characteristics by $10.5 million, or 7.78% of total interest-earning assets at June 30, 1998. Accordingly, an increase in interest rates generally would result in a decrease in the Bank's average interest rate spread and net interest income. The Bank has sought to reduce the exposure of its net interest income to increases in market interest rates by investing in readily marketable, liquid U.S. government and agency securities. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Market Risk--Management of Interest Rate Risk."
Changes in interest rates also affect the value of the Bank's interest-earning assets, and in particular the Bank's investment securities portfolio. Generally, the value of investment, mortgage-backed securities, and asset-backed securities portfolios fluctuates inversely with changes in interest rates. At June 30, 1998, the Bank's investment securities portfolio, mortgage-backed securities portfolio and asset-backed securities portfolio totaled $36.3 million, $5.2 million, and $6.3 million, respectively, all of which were classified as
available for sale. Unrealized gains and losses on securities available for sale are reported as a separate component of equity. Decreases in the fair value of securities available for sale, therefore, could have an adverse affect on stockholders' equity. See "Business of the Bank--Securities Investment Activities."
The Bank is also subject to reinvestment risk relating to changes in interest rates which can affect the average life of loans and mortgage related securities. Decreases in interest rates can result in increased prepayments of loans and mortgage related securities, as borrowers refinance to reduce borrowing costs. Under these circumstances, the Bank is subject to reinvestment risk to the extent that it is not able to reinvest such prepayments at rates that are comparable to the rates on the maturing loans or securities.
THE EXPENSE AND DILUTIVE EFFECT OF THE CONTRIBUTION OF SHARES AND CASH TO THE CHARITABLE FOUNDATION
The Bank intends to establish the Charitable Foundation in connection with the Reorganization. The Company will make a contribution to the Charitable Foundation in the form of shares of Common Stock equal to 1.96% of shares outstanding after the completion of the Offering, or 48,582 shares at the midpoint of the Offering Range, and $100,000 in cash. Due to the issuance of additional shares of Common Stock to the Charitable Foundation, persons purchasing shares in the Offering will have their ownership and voting interests in the Company diluted by 1.96%. The contribution of Common Stock to the Charitable Foundation will be dilutive to the interests of stockholders and the aggregate contribution will have an adverse impact on the reported earnings of the Company in the fiscal year in which the Charitable Foundation is established and the contribution is made. If the Charitable Foundation had been established and the contribution made at June 30, 1998, and assuming the sale of the Common Stock at the midpoint of the estimated valuation range, the Bank would have reported net income of $837,000 rather than reporting net income of $1,150,000 for the year ended June 30, 1998. In addition, the establishment and funding of a Charitable Foundation as part of a mutual holding company reorganization and stock offering have only recently occurred. There can be no assurance that challenges to the Charitable Foundation from regulators or others may not arise, the resolution of which may result in delay in the consummation of the Reorganization and the Offering. See "The Reorganization and Offering--Establishment of the Charitable Foundation."
MINORITY PUBLIC OWNERSHIP AND CERTAIN ANTI-TAKEOVER PROVISIONS
VOTING CONTROL OF THE MUTUAL COMPANY. Under New York law, the Bank's Plan of Reorganization from a Mutual Savings Bank to a Mutual Holding Company and Stock Issuance Plan (the "Plan of Reorganization"), and the Company's governing corporate instruments, at least 51% of the Company's voting shares must be owned by the Mutual Company. The Mutual Company will be controlled by its board of trustees, who will consist of persons who are members of the board of directors of the Company and the Bank. The Mutual Company will elect all members of the board of directors of the Company, and as a general matter, will control the outcome of all matters presented to the stockholders of the Company for resolution by vote, except for matters that require a vote greater than a majority. The Mutual Company, acting through its board of trustees, will be able to control the business and operations of the Company and the Bank and will be able to prevent any challenge to the ownership or control of the Company by stockholders other than the Mutual Company ("Minority Stockholders"). Accordingly, a change in control of the Company and the Bank cannot occur unless the Mutual Company first converts to the stock form of organization. Although New York law, applicable regulations and the Plan of Reorganization permit the Mutual Company to convert from the mutual to the capital stock form of organization, it is not anticipated that a conversion of the Mutual Company will occur in the foreseeable future and there can be no assurance when, if ever, such a conversion would occur.
PROVISIONS IN THE COMPANY'S AND THE BANK'S GOVERNING INSTRUMENTS. In addition, certain provisions of the Company's Certificate of Incorporation and Bylaws, particularly a provision limiting voting rights, as well as certain federal and state regulations, assist the Company in maintaining its status as an independent publicly owned corporation. These provisions provide for, among other things, supermajority voting,
staggered boards of directors, noncumulative voting for directors, limits on the calling of special meetings of stockholders, and limits on the ability of Minority Stockholders to vote Common Stock in excess of 10% of the issued and outstanding shares (inclusive of shares issued to the Mutual Company). The regulations of the New York State Banking Department (the "Department") prohibit, except with the prior approval of the Superintendent of Banks of the State of New York (the "Superintendent"), for a period of one year following the date of the Reorganization, offers to acquire or the acquisition of beneficial ownership of more than 10% of the equity securities of the Bank or the Company. The Bank's Restated Organization Certificate also prohibits, for three years, the acquisition, directly or indirectly, of the beneficial ownership of more than 10% of the Bank's or the Company's equity securities.
DIVIDEND WAIVERS BY THE MUTUAL COMPANY
It has been the policy of many mutual holding companies to waive the receipt of dividends declared by its subsidiary. In connection with its approval of the Reorganization, however, the Federal Reserve Board is expected to impose certain conditions on the waiver by the Mutual Company of dividends paid on the Common Stock. In particular, it is expected that the Mutual Company will be required to obtain prior Federal Reserve Board approval before it may waive any dividends. As of the date hereof, management does not believe that the Federal Reserve Board has given its approval to any waiver of dividends by any mutual holding company that has requested its approval. The cumulative amount of waived dividends, if any, must be maintained in a restricted capital account which would be added to any liquidation account of the Bank, and would not be available for distribution to Minority Stockholders. The Plan of Reorganization also provides that if the Mutual Company converts to stock form in the future, any waived dividends would reduce the percentage of the converted company's shares of Common Stock issued to Minority Stockholders in connection with any such transaction. See "Regulation--Holding Company Regulation-- Mutual Holding Company Regulation." It is not currently intended that the Mutual Company will waive dividends declared by the Company.
LENDING RISKS ASSOCIATED WITH CONSUMER, COMMERCIAL BUSINESS LENDING AND COMMERCIAL REAL ESTATE
At June 30, 1998, the Bank's consumer loans totaled $9.4 million, or 11.6% of total loans, commercial business loans totaled $1.3 million, or 1.7% of total loans and commercial real estate loans totaled $4.5 million, or 5.6% of total loans. Most industry experts believe that consumer, commercial business and commercial real estate loans expose a lender to a greater risk of loss than loans secured by one- to four-family real estate.
STRONG COMPETITION WITHIN THE BANK'S MARKET AREA
Competition in the banking and financial services industry is intense. The Bank competes with commercial banks, savings institutions, mortgage banking firms, credit unions, finance companies, mutual funds, insurance companies, and brokerage and investment banking firms operating locally and elsewhere. Many of these competitors have substantially greater resources and lending limits than the Bank and may offer certain services that the Bank does not or cannot provide. Trends toward the consolidation of the financial services industry, and the removal of restrictions on interstate branching and bank powers may make it more difficult for smaller institutions such as the Bank to compete effectively with large national and regional banking institutions. The Bank's profitability depends upon its continued ability to successfully compete in its market area.
INTENT TO REMAIN INDEPENDENT
The Bank operates as an independent community bank and intends to continue to do so following the Reorganization. The Bank and the Company will be controlled by the Mutual Company, and control of the Mutual Company may not be sold to a third party. Accordingly, persons should not subscribe for shares of
Common Stock with an expectation that a sale of control of the Bank or the Company is imminent. See "Business of the Bank."
REGULATORY OVERSIGHT AND LEGISLATION
The Bank is subject to extensive regulation, supervision and examination by the Department and by the FDIC. The Bank is also a member of the Federal Home Loan Bank System and is subject to certain limited regulations promulgated by the Federal Home Loan Bank of New York. As bank holding companies, the Company and the Mutual Company also will be subject to regulation and oversight by the Federal Reserve Board. Such regulation and supervision govern the activities in which an institution and its holding company may engage and are intended primarily for the protection of the insurance fund and depositors. Regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities which are intended to strengthen the financial condition of the banking industry, including the imposition of restrictions on the operation of an institution, the classification of assets and the adequacy of an institution's allowance for loan losses. Any change in such regulation and oversight whether in the form of regulatory policy, regulations, or legislation, could have a material impact on the Bank, the Company, and the Mutual Company. See "Regulation."
UNCERTAINTY AS TO FUTURE GROWTH OPPORTUNITIES
In an effort to fully deploy the capital raised in the Offering and to increase loan and deposit growth, the Bank may seek to acquire other financial institutions or branches in its market area. The Bank's ability to grow through selective acquisitions of other financial institutions or branches of such institutions will depend on successfully identifying, acquiring and integrating such institutions or branches. The Company and the Bank cannot assure prospective purchasers of Common Stock that they will be able to generate internal growth or identify attractive acquisition candidates, make acquisitions on favorable terms or successfully integrate any acquired institutions or branches into the Bank. The Bank currently has no specific plans, arrangements or understandings regarding any such expansions or acquisitions, nor has management established criteria to identify potential candidates for acquisition.
ABSENCE OF MARKET FOR COMMON STOCK
The Company, as a newly organized company, has never issued capital stock and, consequently, there is no established market for the Common Stock at this time. The Company has received conditional approval to have its Common Stock quoted on the Nasdaq SmallCap Market under the symbol " ." Freidman, Billings, Ramsey & Co., Inc. intends to make a market in the Common Stock but is under no obligation to do so, and the Company expects that additional market makers will be identified. A public trading market having the desirable characteristics of depth, liquidity and orderliness depends upon the existence of willing buyers and sellers at any given time, the presence of which is dependent upon the individual decisions of buyers and sellers over which neither the Company nor any market maker has control. Accordingly, there can be no assurance that an active and liquid trading market for the Common Stock will develop or that, if developed, will continue, nor is there any assurance that purchasers of the Common Stock will be able to sell their shares at or above the purchasers price. In the event a liquid market for the Common Stock does not develop or market makers for the Common Stock discontinue their activities, such occurrences may have an adverse impact on liquidity of the Common Stock and the market value of the Common Stock.
IRREVOCABILITY OF ORDERS; POTENTIAL DELAY IN COMPLETION OF OFFERINGS
Orders submitted in the Offering are irrevocable. Funds submitted in connection with any purchase of Common Stock in the Offering will be held by the Company until the completion or termination of the Reorganization, including any extension of the expiration date. Because completion of the Reorganization will be subject to an update of the independent appraisal prepared by FinPro, among other factors, there
may be one or more delays in the completion of the Reorganization. Subscribers will have no access to subscription funds and/or shares of Common Stock until the Reorganization is completed or terminated.
EXPENSES ASSOCIATED WITH THE ESOP AND STOCK AWARD PLAN
The Bank will recognize material employee compensation and benefit expenses assuming the ESOP and the Stock Award Plan are implemented. The actual aggregate amount of these new expenses cannot be predicted at the present time because applicable accounting practices require that such expenses be measured based on the fair market value of the shares of Common Stock. In the case of the ESOP, fair market value would be measured when shares are committed to be released for allocation to the ESOP participants; in the case of the Stock Award Plan, fair market value would be measured at the grant date and amortized over the award's vesting period. These expenses have been reflected in the pro forma financial information under "Pro Forma Data" assuming the Purchase Price ($10.00 per share) represents the fair market value for accounting purposes. Actual expenses, however, will be based on the fair market value of the Common Stock at future dates, which may be higher or lower than the Purchase Price. See "Management of the Bank--Benefits--Employee Stock Ownership Plan and Trust" and "--Benefits-- Stock Award Plan."
DILUTIVE EFFECT OF STOCK AWARD PLAN AND STOCK OPTION PLAN
If the Reorganization and Offering are completed and stockholders approve the Stock Award Plan and Stock Option Plan, the Company intends to issue shares of Common Stock to officers and directors of the Bank through these plans. If the shares for these plans are issued from the Company's authorized but unissued Common Stock, the book value and earnings per share of minority stockholders would be diluted, and the trading price of the Company's Common Stock may be reduced. It is expected that earnings per share would be reduced by approximately $.02 and stockholders' equity per share would be reduced by approximately $.20 as a result of the implementation of the Stock Award Plan. The issuance of authorized-but-unissued shares of common stock to fund the Stock Award Plan in an amount equal to 4% of the Minority Ownership Interest would dilute the voting interests of existing stockholders by approximately 1.86%. The issuance of authorized-but-unissued shares of common stock pursuant to the Stock Option Plan in an amount equal to 10% of the Minority Ownership Interest would dilute the voting interests of existing stockholders by approximately 4.81%. See "Pro Forma Data" and "Executive Compensation and Related Transactions of the Bank."
YEAR 2000 COMPLIANCE
Like many financial institutions, the Bank relies upon computers for the daily conduct of its business and for data processing generally. There is concern that on January 1, 2000 computers will be unable to "read" the new year and as a consequence, there may be widespread computer malfunctions. The Bank's loan portfolio primarily consists of loans secured by real estate. Consequently, the Bank does not believe that its lending operations are dependent on borrowers' compliance with the year 2000 issue. However, the Bank relies on independent third parties to provide data processing services associated with its deposit and loan activities. Moreover, in the event the Bank's significant suppliers do not successfully and timely achieve Year 2000 compliance, the Bank's business or operations could be adversely affected. The Bank is in the process of testing its computer applications and hardware to ensure that they will be able to read the year 2000, and intends to complete testing by the end of the first calendar quarter in 1999. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Capability of the Bank's Data Processing to Accommodate the Year 2000."
ROLE OF THE FINANCIAL ADVISORS/BEST EFFORTS OFFERING
The Bank and the Company have engaged Freidman, Billings, Ramsey & Co., Inc. as financial and marketing advisor, and this firm has agreed to use its best efforts to solicit subscriptions and purchase
orders for Common Stock in the Offering. The financial advisor has not prepared any report or opinion constituting a recommendation or advice to the Bank or the Company, nor has it prepared an opinion as to the fairness of the purchase price or the terms of the Offering. Freidman, Billings, Ramsey & Co., Inc. has not verified the accuracy or completeness of the information contained in this Prospectus. See "The Reorganization and Offering--Plan of Distribution and Selling Commissions."
POSSIBLE ADVERSE INCOME TAX CONSEQUENCES OF THE DISTRIBUTION OF SUBSCRIPTION RIGHTS
The Bank has received an opinion of FinPro that, pursuant to FinPro's valuation, subscription rights granted to Eligible Account Holders and Supplemental Eligible Account Holders have no value. However, such valuation is not binding on the IRS. If the subscription rights granted to Eligible Account Holders and Supplemental Eligible Account Holders are deemed to have an ascertainable value, receipt of such rights could result in taxable gain to those Eligible Account Holders and Supplemental Eligible Account Holders who receive and/or exercise the subscription rights in an amount equal to such value. Additionally, the Bank could recognize a gain for tax purposes on such distribution. Whether subscription rights are considered to have ascertainable value is an inherently factual determination. See "The Reorganization and Offering--Tax Aspects of Reorganization".
GREENE COUNTY BANCORP, INC.
The Company was organized for the purpose of acquiring all of the capital stock of the Bank upon completion of the Reorganization and the Offering. The Company has applied to the Federal Reserve Board to become a bank holding company and, upon completion of the Reorganization, will be subject to regulation by the Federal Reserve Board. See "The Reorganization and Offering--Description of and Reasons for the Reorganization" and "Regulation--Holding Company Regulation." Final approval from the Federal Reserve Board has not been received as of the date of this Prospectus. Upon completion of the Reorganization, the Company will have no significant assets other than the shares of the Bank's common stock and an amount equal to 50% of the net proceeds of the Offering, including the loan to the ESOP, and will have no significant liabilities. The Company intends to use a portion of the net proceeds that it retains to loan to the ESOP funds to enable the ESOP to purchase up to 8% of the Minority Ownership Interest. See "Use of Proceeds." The management of the Company is set forth under "Management of the Company." Initially, the Company will neither own nor lease any property, but will instead use the premises, equipment and furniture of the Bank. At the present time, the Company does not intend to employ any persons other than certain officers who are currently officers of the Bank and will utilize the support staff of the Bank from time to time. Additional employees will be hired as appropriate to the extent the Company expands its business in the future.
Management believes that the holding company structure will provide the Company additional flexibility to diversify its business activities through existing or newly formed subsidiaries, or through acquisitions of, or mergers with, other financial institutions and financial services related companies. There are no current arrangements, understandings or agreements regarding any such opportunities. However, subsequent to the Reorganization, the Company will be in a position, subject to regulatory limitations and the Company's financial position, to take advantage of any such acquisition and expansion opportunities that may arise. The initial activities of the Company are anticipated to be funded by the proceeds to be retained by the Company, income thereon and through dividends from the Bank.
The Company's executive office is located at the main office of the Bank, at 425 Main & Church Streets, Catskill, New York 12414-1317. The Company's telephone number is (518) 943-3700.
GREENE COUNTY SAVINGS BANK
The Bank was organized in 1889 as The Building and Loan Association of Catskill, a New York-chartered savings and loan association. In 1974, the Bank converted to a New York mutual savings bank under the name Greene County Savings Bank. In conjunction with the Reorganization and the Offering, the Bank is changing its name to The Bank of Greene County. The Bank's deposits are insured by the Bank Insurance Fund ("BIF"), as administered by the FDIC, up to the maximum amount permitted by law. The Bank is a community-oriented financial institution engaged primarily in the business of accepting deposits from customers through its main office and three full service branch offices, and using those deposits, together with funds generated from operations and borrowings, to make one- to four-family residential and commercial real estate loans, commercial business loans, consumer loans, and to invest and mortgage related securities.
At June 30, 1998, the Bank had total assets of $140.3 million, total deposits of $122.3 million and retained earnings of $15.7 million. At June 30, 1998, $70.4 million, or 86.7% of the Bank's loans were secured by real estate and $64.7 million, or 79.7%, of the Bank's loans were secured by one- to four-family residential real estate, $4.5 million, or 5.6%, of the Bank's loans at June 30, 1998 were commercial real estate loans. Consumer loans totaled $9.4 million, or 11.6% of the Bank's total loans, at June 30, 1998. The Bank also originates commercial business loans which totaled $1.3 million, or 1.7% of total loans. The Bank's investment securities, mortgage-backed securities and asset-backed securities portfolios totaled $36.3 million, $5.2 million and $6.3 million, respectively, at June 30, 1998.
The Bank's main office is located at 425 Main & Church Streets, Catskill, New York 12414-1317. The Bank's telephone number is (518) 943-3700.
MARKET AREA
The Bank is a community bank that offers a variety of financial products and services. The Bank's primary lending area is in Greene County, New York. Likewise, most of the Bank's deposit customers reside in Greene County, New York. The Bank's market area is characterized as rural.
REGULATORY CAPITAL COMPLIANCE
At June 30, 1998, the Bank exceeded each of its regulatory capital requirements. Set forth below is a summary of the Bank's compliance with the FDIC capital standards as of June 30, 1998, on a historical and pro forma basis assuming that the indicated number of shares were sold as of such date and the Bank received 50% of the net proceeds. For purposes of the table below, the amount expected to be borrowed by the ESOP and the cost of the shares expected to be acquired by the Stock Award Plan are deducted from pro forma regulatory capital. The Federal Reserve Board has adopted capital adequacy guidelines for bank holding companies (on a consolidated basis) substantially similar to the FDIC capital requirements for the Bank. On a pro forma consolidated basis after the Reorganization and Offering, the Company's pro forma stockholders' equity will exceed these requirements. See "Regulation--Holding Company Regulation."
PRO FORMA AT JUNE 30, 1998, BASED UPON THE SALE AT $10.00 PER SHARE
OF
-------------------------------------------------------------------
HISTORICAL AT 814,249 957,940 1,101,631
JUNE 30, 1998 SHARES SHARES SHARES
-------------------------- -------------------------- -------------------------- -----------
PERCENT OF PERCENT OF PERCENT OF
AMOUNT ASSETS(2) AMOUNT ASSETS(2) AMOUNT ASSETS(2) AMOUNT
----------- ------------- ----------- ------------- ----------- ------------- -----------
(DOLLARS IN THOUSANDS)
GAAP capital......... $ 15,730 11.22% $ 18,451 12.91% $ 18,989 13.23% $ 19,528
----------- ----- ----------- ----- ----------- ----- -----------
----------- ----- ----------- ----- ----------- ----- -----------
Leverage capital:
Capital level(3)... $ 15,488 11.09% $ 18,209 12.79% $ 18,747 13.11% $ 19,286
Requirement(4)..... 5,588 4.00 5,697 4.00 5,718 4.00 5,740
----------- ----- ----------- ----- ----------- ----- -----------
Excess........... $ 9,900 7.09% $ 12,512 8.79% $ 13,029 9.11% $ 13,546
----------- ----- ----------- ----- ----------- ----- -----------
----------- ----- ----------- ----- ----------- ----- -----------
Risk-based capital:
Tier 1 capital
level(3)(5)...... $ 15,488 20.32% $ 18,209 23.47% $ 18,747 24.08% $ 19,286
Requirement........ 3,049 4.00 3,103 4.00 3,114 4.00 3,125
----------- ----- ----------- ----- ----------- ----- -----------
Excess........... $ 12,439 16.32% $ 15,106 19.47% $ 15,633 20.08% $ 16,161
----------- ----- ----------- ----- ----------- ----- -----------
----------- ----- ----------- ----- ----------- ----- -----------
Total capital
level(3)(5)...... $ 16,216 21.27% $ 18,937 24.41% $ 19,475 25.01% $ 20,014
Requirement........ 6,098 8.00 6,207 8.00 6,228 8.00 6,250
----------- ----- ----------- ----- ----------- ----- -----------
Excess............. $ 10,118 13.27% $ 12,730 16.41% $ 13,247 17.01% $ 13,764
----------- ----- ----------- ----- ----------- ----- -----------
----------- ----- ----------- ----- ----------- ----- -----------
1,266,876
SHARES(1)
--------------------------
PERCENT OF PERCENT OF
ASSETS(2) AMOUNT ASSETS(2)
------------- ----------- -------------
GAAP capital......... 13.56% $ 20,147 13.93%
----- ----------- -----
----- ----------- -----
Leverage capital:
Capital level(3)... 13.44% $ 19,905 13.81%
Requirement(4)..... 4.00 5,765 4.00
----- ----------- -----
Excess........... 9.44% $ 14,140 9.81%
----- ----------- -----
----- ----------- -----
Risk-based capital:
Tier 1 capital
level(3)(5)...... 24.69% $ 19,905 25.38%
Requirement........ 4.00 3,137 4.00
----- ----------- -----
Excess........... 20.69% $ 16,768 21.38%
----- ----------- -----
----- ----------- -----
Total capital
level(3)(5)...... 25.62% $ 20,633 26.31%
Requirement........ 8.00 6,275 8.00
----- ----------- -----
Excess............. 17.62% $ 14,358 18.31%
----- ----------- -----
----- ----------- -----
|
(1) As adjusted to give effect to an increase in the number of shares which could occur due to an increase in the Estimated Valuation Range of up to 15% as a result of regulatory considerations, demand for the shares, or changes in market conditions or general financial and economic conditions following the commencement of the Offering.
(2) Leverage capital levels are shown as a percentage of average assets. Risk-based capital levels are calculated on the basis of a percentage of risk-weighted assets.
(3) Pro forma capital levels assume: funding by the Bank of the Stock Award Plan to enable the plan to acquire in the open market a number of shares equal to 4% of the Minority Ownership Interest; the purchase by the ESOP of 8% of the Minority Ownership Interest; and the capitalization of the Mutual Company by the Bank with $1,000. See "Management of the Bank--Benefit Plans" for a discussion of the Stock Award Plan and ESOP.
(4) The current leverage capital requirement is 3% of total adjusted assets for banks that receive the highest supervisory rating for safety and soundness and that are not experiencing or anticipating significant growth. The current leverage capital ratio applicable to all other banks is 4% to 5%. See "Regulation--Regulatory Capital Requirements.
(5) Assumes net proceeds are invested in assets that carry a risk-weighting equal to the average risk weighting of the Bank's risk-weighted assets as of June 30, 1998.
USE OF PROCEEDS
Although the actual net proceeds from the sale of the Common Stock cannot be determined until the Offering is completed, it is presently anticipated that the net proceeds from the sale of the Common Stock will be between $7.6 million and $10.5 million (or $12.1 million if the Estimated Valuation Range is
increased by 15%). See "Pro Forma Data" and "The Reorganization and Offering--Stock Pricing and Number of Shares to Be Issued" as to the assumptions used to arrive at such amounts. The Company will be unable to utilize any of the net proceeds of the Offering until the consummation of the Reorganization.
The Company will contribute 50% of the net proceeds of the Offering to the Bank, or $3.8 million to $6.1 million at the minimum and adjusted maximum of the Estimated Valuation Range, respectively. Such portion of net proceeds received by the Bank from the Company will be used by the Bank for general corporate purposes, including investments in short- and medium-term investment grade debt securities, and mortgage-related securities, and to increase the origination of mortgage, consumer and commercial business loans. The Bank may also use such funds to expand operations through acquisitions of other financial institutions, branch offices or other financial services companies. To the extent that the stock-based benefit programs which the Company intends to adopt subsequent to the Offering are not funded with authorized but unissued shares of Common Stock, the Company or Bank may use net proceeds from the Offering to fund the purchase of stock to be awarded under such stock benefit programs. See "Risk Factors--Possible Dilutive Effect of Issuance of Additional Shares" and "Management of the Bank-- Benefit Plans--Stock Option Plan" and "--Stock Award Plan."
The Company intends to use a portion of the net proceeds it retains to make a loan directly to the ESOP to enable the ESOP to purchase Common Stock equal to 8% of the Minority Ownership Interest. Based upon the sale of 814,249 shares or 1,101,631 shares at the minimum and maximum of the Estimated Valuation Range, the amount of the loan to the ESOP would be $680,130 or $920,170, respectively (or $1.06 million if the Estimated Valuation Range is increased by 15%). See "Management of the Bank-- Benefit Plans--Employee Stock Ownership Plan and Trust." The remaining net proceeds retained by the Company will initially be invested initially in U.S. government and agency securities, short- and medium-term debt obligations, mortgage related securities and other marketable securities.
The net proceeds retained by the Company may also be used to support the future expansion of operations through the acquisition of financial institutions or their assets, including those located within the Bank's market area, or diversification into other banking related businesses. However, the Company and the Bank have no current arrangements, understandings or agreements regarding any such transactions. Upon completion of the Reorganization, the Company will be a bank holding company, and will be permitted to engage only in those activities that are permissible for bank holding companies under the Bank Holding Company Act, as administered by the Federal Reserve Board. See "Regulation--Holding Company Regulation" for a description of certain regulations applicable to the Company.
Upon completion of the Reorganization, the board of directors of the Company will have the authority to adopt stock repurchase plans, subject to statutory and regulatory requirements. Pursuant to New York regulations, and without the prior approval of the Department, the Company may not repurchase any Common Stock, in the first year after the Reorganization, and during each of the next two following years, may not repurchase more than 5% of its shares outstanding. In addition, the FDIC prohibits an insured savings bank which has converted from the mutual to stock form of ownership from repurchasing its capital stock within one year following the date of completion of its stock offering, except that stock repurchases of no greater than 5% of a bank's outstanding capital stock may be repurchased during this one-year period where compelling and valid business reasons are established to the satisfaction of the FDIC. Based upon facts and circumstances following completion of the Reorganization and subject to applicable regulatory requirements, the board of directors may determine to repurchase stock in the future. Such facts and circumstances may include but not be limited to: (i) market and economic factors such as the price at which the stock is trading in the market, the volume of trading, the attractiveness of other investment alternatives in terms of the rate of return and risk involved in the investment, the ability to increase the book value and/or earnings per share of the remaining outstanding shares, and the opportunity to improve the Company's return on equity; (ii) the avoidance of dilution to stockholders by not having to issue additional shares to cover the exercise of stock options or to fund employee stock benefit plans; and (iii) any other circumstances in which repurchases would be in the best interests of the
Company and its stockholders. In the event the Company determines to repurchase stock, such repurchases may be made at market prices which may be in excess of the $10.00 per share purchase price in the Offering (the "Subscription Price"). Any stock repurchases will be subject to the determination of the Company's board of directors that both the Company and the Bank will be capitalized in excess of all applicable regulatory requirements after any repurchases and that such capital will be adequate, taking into account, among other things, the level of non-performing and other risk assets, the Company's and the Bank's current and projected results of operations and asset/liability structure, the economic environment, tax and other considerations.
DIVIDEND POLICY
The Company has no present plans to pay dividends on the Common Stock, although it may consider the payment of such dividend in the future. Dividends will be subject to determination and declaration by the Company's Board of Directors in its discretion, after taking into account the Company's consolidated financial condition, capital levels, general business practices and other factors.
Under Delaware law, the Company is permitted to pay cash dividends, provided that the amount of cash dividends paid may not exceed that amount by which the net assets of the Company (the amount by which total assets exceed total liabilities) exceeds its statutory capital, or if there is no such excess, the net profits for the current and/or immediately preceding fiscal year. The Company's source for the payment of cash dividends may in the future depend on the receipt of cash dividends from the Bank. The Bank will not be permitted to pay dividends on its Common Stock or repurchase shares of its Common Stock if its stockholders' equity would be reduced below the amount required for the liquidation account. See "The Reorganization and Offering--Liquidation Rights." Under New York Banking Law, dividends may be declared and paid only out of the net profits of the Bank. The approval of the Superintendent is required if the total of all dividends declared in any calendar year will exceed net profits for that year plus the retained net profits of the preceding two years, less any required transfer to surplus or a fund for the retirement of any preferred stock. In addition, no dividends may be declared, credited or paid if the effect thereof would cause the Bank's capital to be reduced below the amount required by the Superintendent or the FDIC. See "Regulation." Subsequent to the Offering, the availability of the Bank's funds for the payment of dividends may be limited by the liquidation account. See "The Reorganization and Offering--Liquidation Rights." Dividends in excess of the Bank's current and accumulated earnings could result in the realization by the Bank of taxable income. See "Federal and State Taxation--Federal Taxation."
MARKET FOR COMMON STOCK
The Company was recently formed and has never issued capital stock. The Bank, as a mutual institution, has never issued capital stock. The Company has received conditional approval to have its Common Stock quoted on the Nasdaq SmallCap Market under the symbol " " subject to the completion of the Offering and compliance with certain conditions including the presence of a minimum number of registered and active market makers, and a minimum number of record holders. Freidman, Billings, Ramsey & Co., Inc. intends to make a market in the Common Stock but is under no obligation to do so. The Company expects that additional market makers will be identified. If the Company is unable, for any reason, to list the Common Stock on the Nasdaq SmallCap Market, or to continue to be eligible for listing, the Common Stock will be listed on the over-the-counter market with quotations available on the OTC Bulletin Board (assuming the shares qualify under its listing conditions).
The existence of a public trading market will depend upon the presence in the market of both willing buyers and willing sellers at any given time. The presence of a sufficient number of buyers and sellers at any given time is a factor over which neither the Company nor any broker or dealer has control. The absence of an active and liquid trading market may make it difficult to sell the Common Stock and may have an adverse effect on the price of the Common Stock. Purchasers should consider the potentially illiquid and long-term nature of their investment in the Common Stock.
CAPITALIZATION
The following table presents the historical capitalization of the Bank at June 30, 1998, and the pro forma consolidated capitalization of the Company after giving effect to the Offering and the Reorganization, including the issuance of shares to the Charitable Foundation, based upon the sale of the number of shares indicated in the table and the other assumptions set forth under "Pro Forma Data."
COMPANY PRO FORMA BASED UPON THE SALE
AT $10 PER SHARE
----------------------------------------------------
1,266,876
814,249 957,940 1,101,631 SHARES
BANK SHARES SHARES SHARES (ADJUSTED
HISTORICAL (MINIMUM) (MIDPOINT) (MAXIMUM) MAXIMUM)(1)
---------- ----------- ----------- ----------- -------------
(IN THOUSANDS)
Deposits(2)..................................... $ 122,324 $ 122,324 $ 122,324 $ 122,324 $ 122,324
Other borrowings................................ -- -- -- -- --
---------- ----------- ----------- ----------- -------------
Total deposits and other borrowed funds......... $ 122,324 $ 122,324 $ 122,324 $ 122,324 $ 122,324
---------- ----------- ----------- ----------- -------------
---------- ----------- ----------- ----------- -------------
Stockholders' equity:
Common Stock, $.10 par value, 4,000,000 shares
authorized; shares to be issued as
reflected(3)................................ $ -- $ 187 $ 220 $ 253 $ 291
Additional paid-in capital(4)................. -- 7,295 8,699 10,103 11,718
Retained earnings(5).......................... 15,488 15,487 15,487 15,487 15,487
Less:
Expenses of contribution to Charitable
Foundation.................................. -- 459 522 586 659
Plus:
Tax benefit of contribution to Charitable
Foundation(6)............................... -- 275 313 352 395
Net unrealized gain on securities available
for sale, net of taxes...................... 242 242 242 242 242
Less:
Common Stock acquired by the ESOP(7).......... -- 680 800 920 1,058
Common Stock acquired by the Stock Award
Plan(8)..................................... -- 340 400 460 529
---------- ----------- ----------- ----------- -------------
Total stockholders' equity...................... $ 15,730 $ 22,375 $ 23,657 $ 24,939 $ 26,415
---------- ----------- ----------- ----------- -------------
---------- ----------- ----------- ----------- -------------
|
(1) As adjusted to give effect to an increase in the number of shares which could occur due to an increase in the Estimated Valuation Range of up to 15% as a result of regulatory considerations, demand for the shares, or changes in market or general financial and economic conditions following the commencement of the Offering.
(2) Does not reflect withdrawals from deposit accounts for the purchase of Common Stock, which would reduce pro forma deposits by the amount of such withdrawals.
(3) Includes shares to be issued to depositors and the public in the Offering, as indicated herein, and 1,015,121, 1,194,260, 1,373,399 and 1,579,408 shares to be issued to the Mutual Company and the Charitable Foundation at the minimum, midpoint, maximum and adjusted maximum of the Estimated Valuation Range, respectively.
(4) Reflects the sale of shares in the Offering. No effect has been given to the issuance of additional shares of Common Stock pursuant to the Stock Option Plan to be adopted by the Company and
presented for approval of stockholders following the Offering. The Stock Option Plan would provide for the grant of stock options to purchase a number of shares of Common Stock equal to 10% of the shares of Common Stock sold in the Offering. See "Management of the Bank--Benefit Plans."
(5) The retained earnings of the Bank will be substantially restricted after the Offering. See "The Reorganization and Offering--Liquidation Rights." Assumes that the Mutual Company will be capitalized by the Bank with $1,000.
(6) Represents the tax effect of the contribution to the Charitable Foundation based on a 40% tax rate. The realization of the deferred tax benefit is limited annually to 10% of the Company's annual taxable income, subject to the ability of the Company to carry forward any unused portion of the deduction for five years following the year in which the contribution is made.
(7) Assumes that 8% of the shares sold in the Offering will be purchased by the ESOP and that the funds used to acquire the ESOP shares will be borrowed from the Company. The Common Stock acquired by the ESOP is reflected as a reduction of stockholders' equity. See "Management of the Bank-- Benefit Plans--Employee Stock Ownership Plan and Trust."
(8) Assumes that, subsequent to the Offering, an amount equal to 4% of the Minority Ownership Interest is purchased by the Stock Award Plan through open market purchases. In the event the Stock Award Plan is implemented more than one year after the Reorganization an amount equal to 5% of the Minority Ownership Interest may be implemented. The actual purchase price per share may be more or less than $10.00. The Common Stock to be purchased by the restricted stock plan is reflected as a reduction to stockholders' equity. See "Risk Factors--Possible Dilutive Effect of Issuance of Additional Shares," footnote 3 to the tables under "Pro Forma Data," and "Management of the Bank-- Benefit Plans--Stock Award Plan."
PRO FORMA DATA
The actual net proceeds from the sale of the Common Stock cannot be determined until the Offering is completed. However, net proceeds are currently estimated to be between $7.5 million and $10.4 million (or up to $12.0 million) based upon the following assumptions: (i) Friedman, Billings, Ramsey & Co., Inc. will receive a fixed fee of $110,000; (ii) the Charitable Foundation will be funded with a total contribution equal to 1.96% of the shares of Common Stock issued in the Reorganization and $100,000 in cash; (iii) Reorganization expenses, excluding the fees payable to Friedman, Billings, Ramsey & Co., Inc., will be approximately $450,000; and (iv) the Mutual Company will be capitalized by the Bank with $1,000. Actual expenses may vary from those estimated.
Pro forma consolidated net income of the Company for the year ended June 30, 1998 have been calculated as if the Common Stock had been sold at the beginning of the period and the net proceeds had been invested at 5.41% (the one year U.S. Treasury bill rate as of June 30, 1998). The tables do not reflect the effect of withdrawals from deposit accounts for the purchase of Common Stock. The pro forma after-tax yield for the Company and the Bank is assumed to be 3.25% for the year ended June 30, 1998 (based on an assumed tax rate of 40%). Historical and pro forma per share amounts have been calculated by dividing historical and pro forma amounts by the indicated number of shares of Common Stock, as adjusted to give effect to the purchase of shares by the ESOP. No effect has been given in the pro forma stockholders' equity calculations for the assumed earnings on the net proceeds. As discussed under "Use of Proceeds," the Company will retain 50% of the net proceeds from the Offering.
The following pro forma information may not be representative of the financial effects of the foregoing transactions at the dates on which such transactions actually occur and should not be taken as indicative of future results of operations. Pro forma consolidated stockholders' equity represents the
difference between the stated amount of assets and liabilities of the Company. The pro forma stockholders' equity is not intended to represent the fair market value of the Common Stock and may be greater than amounts that would be available for distribution to stockholders in the event of liquidation.
AT OR FOR THE YEAR ENDED JUNE 30, 1998
------------------------------------------------------------------
1,266,876
814,249 957,940 1,101,631 SHARES SOLD AT
SHARES SOLD AT SHARES SOLD AT SHARES SOLD AT $10.00 PER
$10.00 PER $10.00 PER $10.00 PER SHARE
SHARE SHARE SHARE (ADJUSTED
(MINIMUM) (MIDPOINT) (MAXIMUM) MAXIMUM)(7)
--------------- --------------- --------------- ---------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Gross proceeds............................. $ 8,142 $ 9,579 $ 11,016 $ 12,669
Plus: Value issued to Charitable
Foundation............................. 359 422 486 559
--------------- --------------- --------------- ---------------
Pro forma market capitalization............ $ 8,501 $ 10,001 $ 11,502 $ 13,228
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Gross proceeds............................. 8,142 9,579 11,016 12,669
Less: Capital to MHC....................... 1 1 1 1
Less: Cash contribution to Charitable
Foundation............................... 100 100 100 100
Expenses.............................. 560 560 560 560
--------------- --------------- --------------- ---------------
Estimated net proceeds..................... 7,481 8,918 10,355 12,008
Less: Common Stock purchased by ESOP....... 680 800 920 1,058
Common Stock purchased by Stock Award
Plan................................ 340 400 460 529
--------------- --------------- --------------- ---------------
Estimated net proceeds, as adjusted........ $ 6,461 $ 7,718 $ 8,975 $ 10,421
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Net income(1):
Historical............................... 1,150 1,150 1,150 1,150
Pro forma income on net proceeds, as
adjusted............................... 210 251 291 338
Pro forma ESOP adjustment(2)............. 41 48 55 63
Pro forma Stock Award Plan
adjustment(3).......................... 41 48 55 63
--------------- --------------- --------------- ---------------
Pro forma net income(1).................... $ 1,278 $ 1,305 $ 1,331 $ 1,362
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Per share net income(1):
Historical............................... $ 0.65 $ 0.55 $ 0.48 $ 0.42
Pro forma income on net proceeds, as
adjusted................................. 0.12 0.12 0.12 0.12
Pro forma ESOP adjustment(2)............... (0.02) (0.02) (0.02) (0.02)
Pro forma Stock Award Plan adjustment(3)... (0.02) (0.02) (0.02) (0.02)
--------------- --------------- --------------- ---------------
Pro forma net income per share(1).......... $ 0.73 $ 0.63 $ 0.56 $ 0.50
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Number of shares used in calculating pro
forma net income per share............... 1,768,159 2,080,187 2,392,215 2,751,047
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Stockholders' equity:
Historical............................... 15,730 15,730 15,730 15,730
Estimated net proceeds................... 7,481 8,918 10,355 12,008
Plus: Value issued to Charitable
Foundation............................... 459 522 586 659
Less: After tax cost of Charitable
Foundation............................... (275) (313) (352) (395)
Less: Common Stock acquired by ESOP(2)... (680) (800) (920) (1,058)
Less: Common Stock acquired by Stock
Award Plan(3).......................... (340) (400) (460) (529)
--------------- --------------- --------------- ---------------
Pro forma stockholders' equity(3)(4)(5).... $ 22,375 $ 23,657 $ 24,939 $ 26,415
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
|
AT OR FOR THE YEAR ENDED JUNE 30, 1998
------------------------------------------------------------------
1,266,876
814,249 957,940 1,101,631 SHARES SOLD AT
SHARES SOLD AT SHARES SOLD AT SHARES SOLD AT $10.00 PER
$10.00 PER $10.00 PER $10.00 PER SHARE
SHARE SHARE SHARE (ADJUSTED
(MINIMUM) (MIDPOINT) (MAXIMUM) MAXIMUM)(7)
--------------- --------------- --------------- ---------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Stockholders' equity per share(6):
Historical............................... 8.60 7.31 6.36 5.53
Estimated net proceeds..................... 4.09 4.14 4.18 4.22
Capitalization of the Mutual Company
Plus: Shares issued to Charitable
Foundation............................. 0.25 0.24 0.24 0.23
Less: Contributions to Charitable
Foundation............................. (0.15) (0.15) (0.14) (0.14)
Plus: Tax benefit of contribution to
Charitable Foundation
Less: Common Stock acquired by ESOP(2)... (0.37) (0.37) (0.37) (0.37)
Common Stock acquired by Stock
Award Plan(3)..................... (0.19) (0.19) (0.19) (0.19)
--------------- --------------- --------------- ---------------
Pro forma stockholders' equity per
share(3)(4)(5)........................... $ 12.23 $ 10.98 $ 10.08 $ 9.28
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Number of shares used in calculating pro
forma stockholders' equity per share..... 1,829,370 2,152,200 2,475,030 2,846,285
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Offering price to pro forma net income per
share.................................... 13.70X 15.87X 17.86X 20.00X
Offering price as a percentage of pro forma
stockholders' equity per share(6)........ 87.77% 91.07% 99.21% 107.76%
|
(1) Does not give effect to the non-recurring expense that will be recognized in 1998 as a result of the establishment of the Charitable Foundation. The Company will recognize an after-tax expense for the amount of the contribution to the Charitable Foundation which is expected to be $275,000, $313,000, $352,000 and $395,000 at the minimum, midpoint, maximum and adjusted maximum of the Estimated Valuation Range, respectively. Assuming the contribution to the Charitable Foundation was incurred during the year ended June 30, 1998, pro forma net income per share would be $0.57, $0.48, $0.41 and $0.35 at the minimum, midpoint, maximum and adjusted maximum, respectively. Per share net income data is based on 1,768,159, 2,080,187, 2,392,215 and 2,751,047 shares outstanding, which represents shares issued in the Reorganization, shares contributed to the Charitable Foundation and shares to be allocated or distributed under the ESOP and Stock Award Plan for the period presented.
(2) It is assumed that 8% of the shares sold in the Offering will be purchased by the ESOP. The funds used to acquire such shares are assumed to have been borrowed by the ESOP from the Company. The amount to be borrowed is reflected as a reduction of stockholders' equity. The Bank intends to make annual contributions to the ESOP in an amount at least equal to the principal and interest requirement of the debt. The Bank's total annual payment of the ESOP debt is based upon ten equal annual installments of principal, with an assumed interest rate at 8.5%. The pro forma net income assumes: (i) that the Bank's contribution to the ESOP is equivalent to the debt service requirement for the year ended June 30, 1998, and was made at the end of the period; (ii) that 6,801, 8,001, 9,202 and 10,582 shares at the minimum, midpoint, maximum and adjusted maximum of the Estimated Valuation Range, respectively, were committed to be released during the year ended June 30, 1998, at an average fair value of $10.00 per share in accordance with Statement of Position ("SOP") 93-6; and (iii) only the ESOP shares committed to be released were considered outstanding for purposes of the net income per share calculations. See "Management of the Bank--Benefit Plans--Employee Stock Ownership Plan and Trust."
(3) Gives effect to the restricted stock plan expected to be adopted by the Company following the Offering. This plan intends to acquire a number of shares of Common Stock equal to 4% of the shares of Common Stock sold in the Offering, or 34,006, 40,007, 46,009 and 52,910 shares of Common Stock at the minimum, midpoint, maximum and adjusted maximum of the Estimated Valuation Range, respectively, either through open market purchases, if permissible, or from authorized but unissued shares of Common Stock or treasury stock of the Company, if any. Funds used by the restricted stock plan to purchase the shares will be contributed to the plan by the Bank. In calculating the pro forma effect of the restricted stock plan, it is assumed that the shares were acquired by the restricted stock plan at the beginning of the period presented in open market purchases at the Subscription Price and that 20% of the amount contributed was an amortized expense during such period. The issuance of authorized but unissued shares of Common Stock to the Stock Award Plan instead of open market purchases would dilute the voting interests of existing stockholders by approximately 1.86% and pro forma net income per share would be $0.72, $0.62, $0.55 and $0.49 at the minimum, midpoint, maximum and adjusted maximum of the Estimated Valuation Range, respectively, and pro forma stockholders' equity per share would be $12.01, $10.79, $9.89 and $9.11 at the minimum, midpoint, maximum and adjusted maximum of the Estimated Valuation Range, respectively. There can be no assurance that the actual purchase price of the shares
granted under the restricted stock plan will be equal to the Subscription Price. See "Management of the Bank--Benefit Plans-- Recognition and Retention Plan."
(4) No effect has been given to the issuance of additional shares of Common Stock pursuant to the Stock Option Plan expected to be adopted by the Company following the Offering. Under the Stock Option Plan, an amount equal to 10% of the Common Stock sold in the Offering, or 85,016, 100,019, 115,021 and 132,275 shares at the minimum, midpoint, maximum and adjusted maximum of the Estimated Valuation Range, respectively, will be reserved for future issuance upon the exercise of options to be granted under the Stock Option Plan. The issuance of Common Stock pursuant to the exercise of options under the Stock Option Plan will result in the dilution of existing stockholders' interests. Assuming all options were exercised at the end of the period at an exercise price of $10.00 per share, the pro forma net income per share would be $0.69, $0.60, $0.53 and $0.47, respectively, and the pro forma stockholders' equity per share would be $12.13, $10.95, $10.07 and $9.31, respectively. See "Management of the Bank--Benefit Plans--Stock Option Plan."
(5) The retained earnings of the Bank will continue to be substantially restricted after the Offering. See "Dividend Policy," "The Reorganization and Offering--Liquidation Rights" and "Regulation--New York Bank Regulation."
(6) Stockholders' equity per share data is based upon 1,829,370, 2,152,200, 2,475,030 and 2,846,285 shares outstanding representing shares issued in the Reorganization, shares purchased by the ESOP and restricted stock plan, and shares contributed to the Charitable Foundation.
(7) As adjusted to give effect to an increase in the number of shares which could occur due to an increase in the Estimated Valuation Range of up to 15% as a result of regulatory considerations, demand for the shares, or changes in market or general financial and economic conditions following the commencement of the Offering.
COMPARISON OF VALUATION AND PRO FORMA INFORMATION WITHOUT FOUNDATION
In the event that the Charitable Foundation was not established as part of the Reorganization, FinPro has estimated that the pro forma aggregate market capitalization of the Company would be approximately $10.0 million at the midpoint, which is approximately $13,000 less than the pro forma aggregate market capitalization of the Company if the Charitable Foundation is included, and would result in an approximately $409,000 decrease in the amount of Common Stock offered for sale in the Reorganization. The pro forma price to book ratio and pro forma price to earnings ratio would be approximately the same under both the current appraisal and the estimate of the value of the Company without the Charitable Foundation. Further, assuming the midpoint of the Estimated Valuation Range, pro forma stockholders' equity per share and pro forma net income per share would be substantially the same at $10.94 and $10.90, respectively, and $0.63 and $0.63, respectively, with or without the Charitable Foundation. The pro forma price to book ratio and the pro forma price to earnings ratio are substantially the same with and without the Charitable Foundation at the midpoint at 91.07% and 91.74%, respectively, and 15.87X and 15.87X, respectively. There is no assurance that in the event the Charitable Foundation was not formed that the appraisal prepared at the time would have concluded that the pro forma market value of the Company would be the same as that estimated herein. Any appraisals prepared at that time would be based on the facts and circumstances existing at that time, including, among other things, market and economic conditions.
For comparative purposes only, set forth below are certain pricing ratios and financial data and ratios, at the minimum, midpoint, maximum and adjusted maximum of the Estimated Valuation Range, assuming the Reorganization was completed at June 30, 1998. The valuation amounts referred to in the table below relate to the value of the shares sold to the depositors and the public, excluding shares issued to the Mutual Company.
ADJUSTED
MINIMUM MIDPOINT MAXIMUM MAXIMUM
------------------------ ------------------------ ------------------------ -----------
WITH WITHOUT WITH WITHOUT WITH WITHOUT WITH
FOUNDATION FOUNDATION FOUNDATION FOUNDATION FOUNDATION FOUNDATION FOUNDATION
----------- ----------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Estimated offering amount............. $ 8,142 $ 8,490 $ 9,579 $ 9,988 $ 11,016 $ 11,486 $ 12,669
Pro forma market capitalization....... 8,501 8,490 10,001 9,988 11,502 11,486 13,228
Total assets.......................... 146,899 147,164 148,181 148,482 149,463 149,801 150,939
Total liabilities..................... 124,523 124,523 124,523 124,523 124,523 124,523 124,523
Pro forma stockholders' equity........ 22,375 22,640 23,657 23,958 24,939 25,277 26,415
Pro forma net income.................. 1,278 1,292 1,305 1,321 1,331 1,350 1,362
Pro forma stockholders' equity per
share............................... 12.23 12.11 10.98 10.90 10.08 10.00 9.28
Pro forma net income per share........ 0.73 0.72 0.63 0.63 0.56 0.56 0.50
PRO FORMA PRICING RATIOS:
Offering price as a percentage of pro
forma stockholders' equity per
share............................... 81.77% 82.58% 91.07% 91.74% 99.21% 100.00% 107.76%
Offering price to pro forma net income
per share(1)........................ 13.70 13.89 15.87 15.87 17.86 17.86 20.00
Pro forma market capitalization to
assets.............................. 12.45 12.71 14.52 14.82 16.56 16.89 18.86
PRO FORMA FINANCIAL RATIOS:
Return on assets...................... 0.87 0.88 0.88 0.89 0.89 0.90 0.90
Return on equity...................... 5.71 5.71 5.52 5.51 5.34 5.34 5.16
Equity to assets...................... 15.23 15.38 15.96 16.14 16.69 16.87 17.50
WITHOUT
FOUNDATION
-----------
Estimated offering amount............. $ 13,209
Pro forma market capitalization....... 13,209
Total assets.......................... 151,317
Total liabilities..................... 124,523
Pro forma stockholders' equity........ 26,793
Pro forma net income.................. 1,383
Pro forma stockholders' equity per
share............................... 9.22
Pro forma net income per share........ 0.50
PRO FORMA PRICING RATIOS:
Offering price as a percentage of pro
forma stockholders' equity per
share............................... 108.46%
Offering price to pro forma net income
per share(1)........................ 20.00
Pro forma market capitalization to
assets.............................. 19.23
PRO FORMA FINANCIAL RATIOS:
Return on assets...................... 0.91
Return on equity...................... 5.16
Equity to assets...................... 17.71
|
(1) If the contribution to the Charitable Foundation had been incurred during the year ended June 30, 1998, pro forma net income per share would have been $0.57, $0.48, $0.41 and $0.35, and the offering price to pro forma net income per share would have been 17.63X, 20.97X, 24.42X, and 28.46X at the minimum, midpoint, maximum and adjusted maximum, respectively.
PARTICIPATION BY MANAGEMENT
The following table sets forth information regarding intended Common Stock purchases by each of the trustees and executive officers of the Bank and their associates, and by all trustees and executive officers as a group. In the event the individual maximum purchase limitation is increased, persons subscribing for the maximum amount may increase their purchase order. This table excludes shares to be purchased by the ESOP, as well as any Stock Award Plan awards or Stock Option Plan grants that may be made no earlier than six months after the completion of the Offering. See "Management of the Bank-- Benefit Plans--Recognition and Retention Plan" and "--Stock Option Plan." The trustees and officers of the Bank have indicated their intention to purchase in the Offering an aggregate of $ of Common Stock, equal to %, %, %, and % of the number of shares to be issued in the Offering, at the minimum, midpoint, maximum and adjusted maximum of the Estimated Valuation Range, respectively.
PERCENT OF
AGGREGATE NUMBER SHARES SOLD
PURCHASE OF AT
NAME POSITION PRICE(1) SHARES(1) MIDPOINT
----------------------------------------- -------------------------------- ----------- ----------- -------------
Walter H. Ingalls........................ Chairman of the Board
J. Bruce Whittaker....................... President, Chief Executive
Officer and Director
Bruce P. Egger........................... Vice President and Secretary
Edmund L. Smith, Jr...................... Vice President and Treasurer
Daniel T. Sager.......................... Vice President--Lending
Richard J. Buck.......................... Trustee
Anthony Camera, Jr....................... Trustee
David H. Jenkins, DVM.................... Trustee
Raphael Klein............................ Trustee
Dennis R. O'Grady........................ Trustee
Paul Slutzky............................. Trustee
Martin C. Smith.......................... Trustee
----------- ----------- -------------
All trustees and executive officers
as a group (12 persons)................ $ %
----------- ----------- -------------
----------- ----------- -------------
|
* less than .1%
(1) Includes purchases by associates.
THE REORGANIZATION AND OFFERING
THE SUPERINTENDENT HAS APPROVED THE PLAN OF REORGANIZATION AND THE OFFERING OF THE COMMON STOCK SUBJECT TO THE APPROVAL OF THE BANK'S DEPOSITORS AND THE SATISFACTION OF CERTAIN CONDITIONS IMPOSED BY THE SUPERINTENDENT. HOWEVER, SUCH APPROVAL DOES NOT CONSTITUTE A RECOMMENDATION OR ENDORSEMENT OF THE OFFERING OR THE PLAN BY THE SUPERINTENDENT.
DESCRIPTION OF AND REASONS FOR THE REORGANIZATION
The Board of Trustees unanimously adopted the Plan of Reorganization and the Superintendent has approved the Plan of Reorganization. Pursuant to the Plan of Reorganization, the Bank will reorganize into a "two-tier" mutual holding company structure. The two-tier structure has two levels of holding companies--a "mid-tier" stock holding company and a "top-tier" mutual holding company. Under the terms of the Plan of Reorganization (i) the Bank will form the Company as a Delaware corporation; (ii) the Bank will form the Mutual Company as a New York mutual holding company; (iii) the Bank will reorganize into a capital stock form of organization and constructively issue its common stock to depositors who will contribute such common stock to the Mutual Company; (iv) the Mutual Company will contribute the common stock of the Bank to the Company; and (v) the Company will issue shares of Common Stock to the public and the Mutual Company. The number of shares of Common Stock sold to depositors and the public pursuant to this Prospectus will be equal to 44.51% of the shares issued in the Offering, and the number of shares issued to the Mutual Company will be equal to 53.53% of the shares issued in the Offering. In addition, the Company will issue 1.96% of the shares to be outstanding to a newly established Charitable Foundation. The two-tier mutual holding company structure is most easily understood by considering the following schematic:
[LOGO]
In adopting the Plan of Reorganization, the Board of Trustees determined that the Reorganization is in the best interest of the Bank. The primary purpose of the Reorganization is to establish a structure that will enable the Bank to compete and expand more effectively in the financial services marketplace, and that will enable the Bank's depositors, employees, management and trustees to obtain an equity ownership interest in the Bank. The new structure will permit the Company to issue capital stock, which is a source of
capital not available to a mutual savings bank. Since the Company is not offering all of its Common Stock for sale to depositors and the public in the Offering (but is issuing a majority of its stock to the Mutual Company), the Reorganization will result in less capital raised in comparison to a standard mutual-to-stock conversion. The Reorganization, however, will also offer the Bank the opportunity to raise additional capital since the stock held by the Mutual Company will be available for sale in the future in the event the Mutual Company converts to the capital stock form of organization or the Company undertakes an incremental stock offering. See "Regulation--Holding Company Regulation--Mutual Company Regulation." The Reorganization will also give the Company greater flexibility to structure and finance the expansion of its operations, including the potential acquisition of other financial institutions, and to diversify into other financial services. The holding company form of organization is expected to provide additional flexibility to diversify the Bank's business activities through existing or newly formed subsidiaries, or through acquisitions of or mergers with other financial institutions, as well as other companies. Although management has no current arrangements, understandings or agreements regarding any such opportunities, the Company will be in a position after the Reorganization, subject to regulatory limitations and the Company's financial position, to take advantage of any such opportunities that may arise. Lastly, the Reorganization will enable the Bank to better manage its capital by offering it broader investment opportunities through the holding company structure, and by enabling the Company to distribute capital to stockholders in the form of dividends. Because only a minority of the Common Stock will be offered for sale in the Offering, the Bank's current mutual form of ownership and its ability to remain an independent bank and to provide community-oriented financial services will be preserved through the mutual holding company structure.
The Board of Trustees believes that these advantages outweigh the potential disadvantages of the mutual holding company structure, which may include: (i) the inability of stockholders other than the Mutual Company to obtain majority ownership of the Company and the Bank, which may result in the perpetuation of the management and board of directors of the Bank and the Company; and (ii) that the mutual holding company structure is a relatively new form of corporate ownership, and new regulatory policies relating to the mutual interest in the Mutual Company that may be adopted from time-to-time may have an adverse impact on Minority Stockholders. A majority of the voting stock of the Company will be owned by the Mutual Company, which is a mutual institution that will be controlled by the existing Board of Trustees of the Bank. While this structure will better permit management to focus on the Company's and the Bank's long-term business strategy for growth and capital redeployment without short-term pressure from stockholders, it will also serve to perpetuate the existing management and trustees of the Bank. The Mutual Company will be able to elect all members of the board of directors of the Company, and will be able to control the outcome of all matters presented to the stockholders of the Company for resolution by vote, except for certain matters that must be approved by more than a majority of stockholders of the Company. No assurance can be given that the Company will not take action adverse to the interests of the Minority Stockholders. For example, the Company could revise the dividend policy or defeat a candidate for the board of directors of the Bank or other proposals put forth by the Minority Stockholders.
The Reorganization does not preclude the conversion of the Mutual Company from the mutual to stock form of organization which would be effected through a merger of the Mutual Company into the Company or the Bank and the concurrent sale of the shares held by the Mutual Company in a subscription offering. A conversion of the Mutual Company from the mutual to stock form of organization is not anticipated for the foreseeable future.
Following the completion of the Reorganization, all depositors who had liquidation rights with respect to the Bank as of the effective date of the Reorganization will continue to have such rights solely with respect to the Mutual Company so long as they continue to hold deposit accounts with the Bank. In addition, all persons who become depositors of the Bank subsequent to the Reorganization will have such liquidation rights with respect to the Mutual Company. Borrowers currently do not have ownership or
voting rights in the Bank and will not receive ownership or voting rights with respect to the Mutual Company.
All insured deposit accounts of the Bank will continue to be federally insured by the FDIC and the BIF up to the legal maximum limit in the same manner as deposit accounts existing in the Bank immediately prior to the Reorganization. Upon completion of the Reorganization, the Bank may exercise any and all powers, rights and privileges of, and shall be subject to all limitations applicable to, capital stock savings banks under New York law. As long as the Mutual Company is in existence, the Mutual Company will be required to own at least 51% of the voting stock of the Company, and the Company will own 100% of the voting stock of the Bank. The Bank and the Company may issue any amount of non-voting stock or debt to persons other than the Mutual Company.
THE OFFERING
The Company is offering shares of Common Stock to persons other than the Mutual Company. An offering of between 814,249 and 1,101,631 shares of the Common Stock (subject to adjustment to up to 1,266,876) pursuant to this Prospectus concurrently with the Reorganization. The shares of Common Stock that will be sold in the Offering will constitute no more than 44.51% of the shares that will be outstanding after the Offering. Following the Reorganization and the Offering, the Company also will be authorized to issue additional Common Stock or preferred stock to persons other than the Mutual Company, without prior approval of the holders of the Common Stock.
The shares of Common Stock are being offered for sale at a fixed Subscription Price of $10.00 per share in the subscription offering pursuant to subscription rights (the "Subscription Offering") in the following order of priority to: (i) holders of deposit accounts with a balance of $100 or more on June 30, 1997 ("Eligible Account Holders"); (ii) the Bank's tax-qualified employee plans, including the ESOP; (iii) depositors whose accounts in the Bank totaled $100 or more on September 30, 1998 ("Supplemental Eligible Account Holders"); and (iv) employees, officers and trustees of the Bank. 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 in the Community Offering at $10.00 per share to certain members of the general public, with a preference first given to natural persons residing in Greene County, New York (the "Community Offering"). Subscription rights will expire if not exercised by 12:00 noon, New York time, on , 1998 unless extended by the Bank and the Company.
STOCK PRICING AND NUMBER OF SHARES TO BE ISSUED
The Plan of Reorganization and federal and state regulations require that the aggregate purchase price of the Common Stock sold in the Offering must be based on the appraised pro forma market value of the Common Stock, as determined by an independent valuation (the "Independent Valuation"). The Bank has retained FinPro to make such valuation and FinPro will receive a fee of $25,000 for its services. The Bank and the Company have agreed to indemnify FinPro and its employees and affiliates against certain losses (including any losses in connection with claims under the federal securities laws) arising out of its services as appraiser, except where FinPro's liability results from its negligence or bad faith.
The Independent Valuation was prepared by FinPro in reliance upon the information contained in this Prospectus, including the Consolidated Financial Statements. FinPro also considered the following factors, among others: the present and projected operating results and financial condition of the Bank and the economic and demographic conditions in the Bank's existing market area; certain historical, financial and other information relating to the Bank; a comparative evaluation of the operating and financial statistics of the Bank with those of other publicly traded subsidiaries of mutual holding companies; the aggregate size of the Offering; the impact of the Reorganization on the Bank's stockholders' equity and earnings potential; the proposed dividend policy of the Company; and the trading market for securities of comparable institutions and general conditions in the market for such securities.
The Independent Valuation states that as of , 1998, the estimated pro forma market value of the Common Stock ranged from a minimum of $18.3 million to a maximum of $24.8 million, with a midpoint of $21.5 million (the "Estimated Valuation Range"). The board determined to offer the shares in the Offering at the Subscription Price of $10.00 per share, the price most commonly used in stock offerings involving mutual-to-stock conversions. Based on the Estimated Valuation Range and the Subscription Price of $10.00 per share, the number of shares of Common Stock that the Company will issue will range from 1,829,370 shares to 2,475,030 shares, with a midpoint of 2,152,200 shares. The board determined to offer 44.51% of such shares, or between 814,249 shares and 1,101,631 shares with a midpoint of 957,940 shares (the "Offering Range"), to depositors and the public pursuant to this Prospectus. In addition, up to 48,582 shares are being issued to the Charitable Foundation as part of the Reorganization, which will result in Minority Stockholders owning 46.47% of the shares of the Common Stock outstanding at the conclusion of the Reorganization. The 53.53% of the shares of the Company's Common Stock that are not sold in the Offering or contributed to the Charitable Foundation will be issued to the Mutual Company.
The board reviewed the Independent Valuation and, in particular, considered
(i) the Bank's financial condition and results of operations for the year ended
June 30, 1998, (ii) financial comparisons of the Bank in relation to other
financial institutions primarily including other publicly traded subsidiaries of
mutual holding companies, and (iii) stock market conditions generally and in
particular for financial institutions, all of which are set forth in the
Independent Valuation. The board also reviewed the methodology and the
assumptions used by FinPro in preparing the Independent Valuation. The Estimated
Valuation Range may be amended with the approval of the Superintendent and the
FDIC (if required), if necessitated by subsequent developments in the financial
condition of the Bank or market conditions generally.
Following commencement of the Subscription Offering, the maximum of the Estimated Valuation Range may be increased by up to 15%, to up to $28.5 million, which will result in a corresponding increase in the maximum of the Offering Range to up to 1,266,876 shares to reflect changes in market and financial conditions, without the resolicitation of subscribers (in which event up to 55,869 shares may be issued to the Charitable Foundation). The minimum of the Estimated Valuation Range and the minimum of the Offering Range may not be decreased without a resolicitation of subscribers. The Subscription Price of $10.00 per share will remain fixed. See "--Limitations upon Purchases of Common Stock" as to the method of distribution and allocation of additional shares that may be issued in the event of an increase in the Offering Range to fill unfilled orders in the Subscription and Community Offerings.
THE INDEPENDENT VALUATION, HOWEVER, IS NOT INTENDED, AND MUST NOT BE CONSTRUED, AS A RECOMMENDATION OF ANY KIND AS TO THE ADVISABILITY OF PURCHASING SHARES. FINPRO DID NOT INDEPENDENTLY VERIFY THE FINANCIAL STATEMENTS AND OTHER INFORMATION PROVIDED BY THE BANK, NOR DID FINPRO VALUE INDEPENDENTLY THE ASSETS OR LIABILITIES OF THE BANK. THE INDEPENDENT VALUATION CONSIDERS THE BANK AS A GOING CONCERN AND SHOULD NOT BE CONSIDERED AS AN INDICATION OF THE LIQUIDATION VALUE OF THE BANK. MOREOVER, BECAUSE SUCH VALUATION IS NECESSARILY BASED UPON ESTIMATES AND PROJECTIONS OF A NUMBER OF MATTERS, ALL OF WHICH ARE SUBJECT TO CHANGE FROM TIME TO TIME, NO ASSURANCE CAN BE GIVEN THAT PERSONS PURCHASING SHARES IN THE OFFERING WILL THEREAFTER BE ABLE TO SELL SUCH SHARES AT PRICES AT OR ABOVE THE SUBSCRIPTION PRICE.
The Independent Valuation will be updated at the time of the completion of the Offering. If the update to the Independent Valuation at the conclusion of the Offering results in an increase in the maximum of the Estimated Valuation Range to more than $28.5 million and a corresponding increase in the Offering Range to more than 1,266,876 shares, or a decrease in the minimum of the Estimated Valuation Range to less than $18.3 million and a corresponding decrease in the Offering Range to fewer than 814,249 shares, then the Company, after consulting with the Superintendent and the FDIC, may terminate the Plan of Reorganization and return all funds promptly, with interest on payments made by check, certified or teller's check, bank draft or money order, extend or hold a new Subscription Offering, Community Offering, or both, establish a new Offering Range, commence a resolicitation of subscribers or take such other actions as permitted by the Superintendent and the FDIC in order to complete the
Reorganization and the Offering. In the event that a resolicitation is commenced, unless an affirmative response is received within a reasonable period of time, all funds will be promptly returned to investors as described above. A resolicitation, if any, following the conclusion of the Subscription and Community Offerings would not exceed 45 days unless further extended by the Superintendent and the FDIC for periods of up to 90 days not to extend beyond 24 months following the special meeting of depositors, or , .
An increase in the Independent Valuation and the number of shares to be issued in the Offering would decrease both a subscriber's ownership interest and the Company's pro forma earnings and stockholders equity on a per share basis while increasing pro forma earnings and stockholder's equity on an aggregate basis. A decrease in the Independent Valuation and the number of shares to be issued in the Offering would increase both a subscriber's ownership interest and the Company's pro forma earnings and stockholder's equity on a per share basis while decreasing pro forma net income and stockholder's equity on an aggregate basis. For a presentation of the effects of such changes, see "Pro Forma Data."
Copies of the appraisal report of FinPro and the detailed memorandum of the appraiser setting forth the method and assumptions for such appraisal are available for inspection at each office of the Bank and the other locations specified under "Additional Information."
No sale of shares of Common Stock may be consummated unless, prior to such consummation, FinPro confirms to the Bank and the Superintendent that, to the best of its knowledge, nothing of a material nature has occurred that, taking into account all relevant factors, would cause FinPro to conclude that the Independent Valuation is incompatible with its estimate of the pro forma market value of the Common Stock of the Company at the conclusion of the Offering. Any change that would result in an aggregate purchase price that is below the minimum or above the maximum of the Estimated Valuation Range would be subject to Superintendent's approval. If such confirmation is not received, the Bank may extend the Offering, reopen or commence a new offering, establish a new Estimated Valuation Range and commence a resolicitation of all purchasers with the approval of the Superintendent or take such other actions as permitted by the Superintendent in order to complete the Offering.
PURCHASE PRIORITIES AND METHOD OF OFFERING SHARES
The Bank shall have the right, in its sole discretion, to determine whether prospective purchasers are "residents," "associates," or "acting in concert" as defined by the Plan of Reorganization and in interpreting any and all other provisions of the Plan of Reorganization. All such determinations are in the sole discretion of the Bank, and may be based on whatever evidence the Bank chooses to use in making any such determination.
Subject to the preceding paragraph and the limitations set forth in the "--Limitations Upon Purchases of Common Stock" section, the priorities for the purchase of shares are as follows:
PRIORITY 1: ELIGIBLE ACCOUNT HOLDERS. Each Eligible Account Holder shall be given the opportunity to purchase up to 10,000 shares, or $100,000, of Common Stock; PROVIDED that the Company may, in its sole discretion and without further notice to or solicitation of subscribers or other prospective purchasers, increase such maximum purchase limitation to up to 5% of the maximum number of shares issued in the Offering, subject to the overall purchase limitation set forth in the section herein titled "Limitations upon Purchases of Common Stock." If there are insufficient shares available to satisfy all subscriptions of Eligible Account Holders, shares will be allocated to Eligible Account Holders so as to permit each subscribing Eligible Account Holder to purchase a number of shares sufficient to make his total allocation equal to the lesser of 100 shares or the number of shares subscribed for. Thereafter, unallocated shares will be allocated pro rata to remaining subscribing Eligible Account Holders whose subscriptions remain unfilled in the same proportion that each subscriber's aggregate deposit account balances as of the Eligibility Record Date ("Qualifying Deposits") bears to the total amount of Qualifying Deposits of all subscribing Eligible Account Holders whose subscriptions remain unfilled. Subscription rights to purchase
Common Stock received by executive officers and trustees of the Bank, including associates of executive officers and trustees, based on their increased deposits in the Bank in the one year preceding the Eligibility Record Date, shall be subordinated to the subscription rights of other Eligible Account Holders. To ensure proper allocation of stock, each Eligible Account Holder must list on their subscription order form all deposit accounts in which they had an ownership interest as of the Eligibility Record Date.
PRIORITY 2: TAX-QUALIFIED EMPLOYEE PLANS. The Tax-Qualified Employee Plans shall be given the opportunity to purchase in the aggregate up to 10% of the Common Stock issued in the Offering. The ESOP intends to purchase up to 8% of the Minority Ownership Interest. In the event of an oversubscription in the Offering, subscriptions for shares by the Tax-Qualified Employee Plans may be satisfied, in whole or in part, through open market purchases by the Tax-Qualified Employee Plans subsequent to the closing of the Offering. If the final valuation exceeds the maximum of the Estimated Valuation Range, up to 10% of Common Stock issued in the Offering may be sold to the Tax Qualified Employee Plans notwithstanding any oversubscription by Eligible Account Holders, subject to FDIC approval, if necessary.
PRIORITY 3: SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS. To the extent there are sufficient shares remaining after satisfaction of subscriptions by Eligible Account Holders and the Tax-Qualified Employee Plans, each Supplemental Eligible Account Holder shall have the opportunity to purchase up to 10,000 shares, or $100,000, of Common Stock; PROVIDED that the Company may, in its sole discretion and without further notice to or solicitation of subscribers or other prospective purchasers, increase such maximum purchase limitation to up to 5% of the maximum number of shares issued in the Offering, subject to the overall purchase limitations set forth in the section herein titled "Limitations Upon Purchases of Common Stock." In the event Supplemental Eligible Account Holders subscribe for a number of shares which, when added to the shares subscribed for by Eligible Account Holders and the Tax-Qualified Employee Plans, exceed available shares, the shares of Common Stock will be allocated among subscribing Supplemental Eligible Account Holders so as to permit each subscribing Supplemental Eligible Account Holder to purchase a number of shares sufficient to make their total allocation equal to the lesser of 100 shares or the number of shares subscribed for. Thereafter, unallocated shares will be allocated to each subscribing Supplemental Eligible Account Holder whose subscription remains unfilled in the same proportion that such subscriber's aggregate deposit account balances as of the Supplemental Eligibility Record Date ("Supplemental Qualifying Deposits") bear to the total amount of Supplemental Qualifying Deposits of all subscribing Supplemental Eligible Account Holders whose subscriptions remain unfilled.
PRIORITY 4: EMPLOYEES, OFFICERS AND TRUSTEES. Employees, officers and trustees of the Bank will receive, without cost to them, nontransferable subscription rights to subscribe for up to 10,000 shares or $100,000 of the Common Stock; PROVIDED, that the Company may, in its sole discretion and without further notice to or solicitation of subscribers or other prospective purchasers, increase such purchase limitation to 5% of the maximum number of shares issued in the Offering, subject to the overall purchase limitations set forth in the section herein titled "Limitations upon Purchases of Stock." If sufficient shares are not available in this priority, shares will be allocated among trustees, officers and employees on a pro rata basis based on the size of each person's order.
COMMUNITY OFFERING
Any shares of Common Stock not subscribed for in the Subscription Offering will be offered for sale in a Community Offering. This will involve an offering of all unsubscribed shares directly to the general public. The Community Offering, if any, shall be for a period of not more than 45 days unless extended by the Company and the Bank, and will commence concurrently with, during or promptly after the Subscription Offering. The Common Stock will be offered and sold in the Community Offering, in accordance with FDIC and Department regulations, so as to achieve the widest distribution of the Common Stock. No person, by himself or herself, or with an associate or group of persons acting in concert, may subscribe for or purchase more than 10,000 shares of Common Stock offered in the Community Offering. Further, the
Company may limit total subscriptions so as to assure that the number of shares available for the public offering may be up to a specified percentage of the number of shares of Common Stock. Finally, the Company may reserve shares offered in the Community Offering for sales to institutional investors.
In the event of an oversubscription for shares in the Community Offering, shares will be allocated (to the extent shares remain available) first to natural persons residing in Greene County, New York (the "Community").
The terms "residence," "reside," "resided" or "residing" as used herein with respect to any person shall mean any person who occupied a dwelling within the Bank's Community, has an intent to remain within the Community for a period of time, and manifests the genuineness of that intent by establishing an ongoing physical presence within the Community together with an indication that such presence within the Community is something other than merely transitory in nature. The Bank may use deposit or loan records or such other evidence provided to it to make a determination as to whether a person is a resident. In all cases, however, such a determination shall be in the sole discretion of the Bank.
The Bank and the Company, in their sole discretion, may reject subscriptions, in whole or in part, received from any person in the Community Offering.
SYNDICATED COMMUNITY OFFERING
Any shares of Common Stock not sold in the Subscription Offering or in the Community Offering, if any, may be offered for sale to the general public by a selling group of broker-dealers in a Syndicated Community Offering, subject to terms, conditions and procedures as may be determined by the Bank and the Company in a manner that is intended to achieve the widest distribution of the Common Stock, subject to the rights of the Company to accept or reject in whole or in part any order in the Syndicated Community Offering. It is expected that the Syndicated Community Offering, if any, will begin as soon as practicable after termination of the Subscription Offering and the Community Offering, if any. The Syndicated Community Offering shall be completed within 45 days after the termination of the Subscription Offering, unless such period is extended as provided herein.
If for any reason a Syndicated Community Offering of unsubscribed shares of Common Stock cannot be effected and any shares remain unsold after the Subscription Offering and the Community Offering, if any, the boards of directors of the Company and the Bank will seek to make other arrangements for the sale of the remaining shares. Such other arrangements will be subject to the approval of the Department and the FDIC and to compliance with applicable state and federal securities laws.
RESTRICTIONS ON SALE OF STOCK BY TRUSTEES AND OFFICERS
All shares of the Common Stock purchased by trustees and officers of the Bank in the Offering will be subject to the restriction that such shares may not be sold or otherwise disposed of for value for a period of one year following the date of purchase, except for any disposition of such shares (i) following the death of the original purchaser or (ii) by reason of an exchange of securities in connection with a merger or acquisition approved by the applicable regulatory authorities. Sales of shares of the Common Stock by the Company's directors and officers will also be subject to certain insider trading and other transfer restrictions under the federal securities laws. See "Regulation--Federal Securities Laws."
Each certificate for restricted shares will bear a legend prominently stamped on its face giving notice of the restrictions on transfer, and instructions will be issued to the Company's transfer agent to the effect that any transfer within such time period of any certificate or record ownership of such shares other than as provided above is a violation of the restriction. Any shares of Common Stock issued pursuant to a stock dividend, stock split or otherwise with respect to restricted shares will be subject to the same restrictions on sale.
RESTRICTIONS ON AGREEMENTS OR UNDERSTANDINGS REGARDING TRANSFER OF COMMON STOCK TO BE PURCHASED IN THE OFFERING
Prior to the completion of the Offering, no depositor or borrower may transfer or enter into an agreement or understanding to transfer the legal or beneficial ownership of the shares of Common Stock to be purchased by such person in the Offering. Each depositor and borrower who submits an order form will be required to certify that the purchase of Common Stock by such person is solely for the purchaser's own account and there is no agreement or understanding regarding the sale or transfer of such shares. The Bank intends to pursue any and all legal and equitable remedies in the event it becomes aware of any such agreement or understanding, and will not honor orders reasonably believed by the Bank to involve such an agreement or understanding.
PROCEDURE FOR PURCHASING SHARES OF COMMON STOCK
To ensure that each purchaser receives a Prospectus at least 48 hours before the Expiration Date, Prospectuses may not be mailed any later than five days prior to such date or be hand delivered any later than two days prior to such date. Order forms may only be distributed with a Prospectus.
EXPIRATION DATE. The Offering will terminate at 12:00 noon, New York time on December , 1998, unless extended by the Bank for up to an additional 45 days or, if approved by the Superintendent, for an additional period after such 45-day extension (as so extended, the "Expiration Date"). The Bank is not required to give purchasers notice of any extension unless the Expiration Date is later than , 1998, in which event purchasers will be given the right to increase, decrease, confirm, or rescind their orders. If the minimum number of shares sold in the Offering (814,249 shares) is not sold by the Expiration Date, the Bank may terminate the Offering and promptly refund all orders for Common Stock. A reduction in the number of shares below the minimum of the Estimated Valuation Range will not require the approval of depositors or an amendment to the Independent Valuation. If the number of shares is reduced below the minimum of the Estimated Valuation Range, purchasers will be given an opportunity to increase, decrease, or rescind their orders.
USE OF ORDER FORMS. In order to purchase the Common Stock, each purchaser must complete an order form except for certain persons purchasing in the Syndicated Community Offering as more fully described below. Any person receiving an order form who desires to purchase Common Stock may do so by delivering (by mail or in person) to the Bank a properly executed and completed Order Form, together with full payment for the shares purchased. The order form must be received prior to 12:00 noon, New York time on December , 1998. ONCE TENDERED, AN ORDER FORM CANNOT BE MODIFIED OR REVOKED WITHOUT THE CONSENT OF THE BANK. Each person ordering shares is required to represent that they are purchasing such shares for their own account. The interpretation by the Bank of the terms and conditions of the Plan and of the acceptability of the order forms will be final. The Bank is not required to accept copies of order forms.
PAYMENT FOR SHARES. Payment for all shares will be required to accompany all completed order forms for the purchase to be valid. Payment for shares may be made by (i) check or money order, or (ii) authorization of withdrawal from a deposit account maintained with the Bank. Third party checks may not be accepted as payment for a subscriber's order. Appropriate means by which such withdrawals may be authorized are provided in the order forms. Once such a withdrawal amount has been authorized, a hold will be placed on such funds, making them unavailable to the depositor until the Offering has been completed or terminated. In the case of payments authorized to be made through withdrawal from deposit accounts, all funds authorized for withdrawal will continue to earn interest at the contract rate until the Offering is completed or terminated. Interest penalties for early withdrawal applicable to certificate of deposit accounts will not apply to withdrawals authorized for the purchase of shares; however, if a withdrawal results in a certificate of deposit account with a balance less than the applicable minimum balance requirement, the certificate of deposit shall be canceled at the time of withdrawal without penalty,
and the remaining balance will earn interest at the Bank's passbook rate subsequent to the withdrawal. Payments made by check or money order will be placed in a segregated escrow account and will be paid interest at the Bank's passbook rate of % (calculated using the simple interest method), from the date payment is received until the Offering is completed or terminated. Such interest will be paid by check, on all funds held, including funds accepted as payment for shares of Common Stock, promptly following completion or termination of the Offering. An executed order form, once received by the Bank, may not be modified, amended or rescinded without the consent of the Bank, unless the Offering is not completed by , 1998, in which event purchasers may be given the opportunity to increase, decrease, confirm or rescind their orders for a specified period of time.
Depending on market conditions, the Common Stock may be offered for sale to the general public on a best efforts basis in a Syndicated Community Offering by a selling group of broker-dealers to be managed by Friedman, Billings, Ramsey Co., Inc. In its discretion, Friedman, Billings, Ramsey & Co., Inc. will instruct selected broker-dealers as to the number of shares to be allocated to each selected broker-dealer. Only upon allocation of shares to selected broker-dealers may they take orders from their customers. Investors who desire to purchase shares in the Community Offering directly through a selected broker-dealer, which may include Friedman, Billings, Ramsey & Co., Inc., will be advised that the members of the selling group are required either (a) upon receipt of an executed order form or direction to execute an order form on behalf of an investor, to forward the appropriate purchase price to the Bank for deposit in a segregated account on or before twelve noon, prevailing time, of the business day next following such receipt or execution; or (b) upon receipt of confirmation by such member of the selling group of an investor's interest in purchasing shares, and following a mailing of an acknowledgment by such member to such investor on the business day next following receipt of confirmation, to debit the account of such investor on the fifth business day next following receipt of confirmation and to forward the appropriate purchase price to the Bank for deposit in the segregated account on or before twelve noon, prevailing time, of the business day next following such debiting. Payment for any shares purchased pursuant to alternative (a) above must be made by check in full payment of the purchase price. Payment for shares purchased pursuant to alternative (b) above may be made by wire transfer to the Bank.
A depositor interested in using his or her IRA funds to purchase Common Stock must do so through a self-directed IRA. Since the Bank does not offer such accounts, it will allow a depositor to make a trustee-to-trustee transfer of the IRA funds to a trustee offering a self-directed IRA program with the agreement that such funds will be used to purchase the Common Stock in the Offering. There will be no early withdrawal or IRS penalties for such transfers. The new trustee would hold the Common Stock in a self-directed account in the same manner as the Bank now holds the depositor's IRA funds. An annual administrative fee may be payable to the new trustee. Depositors interested in using funds in a Bank IRA to purchase Common Stock should contact the Stock Center as soon as possible so that the necessary forms may be forwarded for execution prior to the Expiration Date.
If the ESOP purchases shares of the Common Stock, such plan will not be required to pay for such shares until consummation of the Offering.
DELIVERY OF STOCK CERTIFICATES. Certificates representing Common Stock issued in the Offering will be mailed by the Bank to the persons entitled thereto at the registered address noted on the order form, as soon as practicable following consummation of the Offering. Any certificates returned as undeliverable will be held by the Bank until claimed by persons legally entitled thereto or otherwise disposed of in accordance with applicable law. Until certificates for the Common Stock are available and delivered to purchasers, purchasers may not be able to sell the shares of stock which they ordered.
PLAN OF DISTRIBUTION AND SELLING COMMISSIONS
To assist in the marketing of the Common Stock, the Bank has retained Friedman, Billings, Ramsey & Co., Inc., a broker-dealer registered with the National Association of Securities Dealers, Inc. ("NASD").
Friedman, Billings, Ramsey & Co., Inc. will assist the Bank in the Offering as follows: (i) in training and educating the Bank's employees regarding the mechanics and regulatory requirements of the Offering; (ii) in conducting informational meetings for employees, customers and the general public; (iii) in coordinating the selling efforts in the Bank's local communities; and (iv) in soliciting orders for Common Stock. For these services, Friedman, Billings, Ramsey & Co., Inc. will receive a fixed fee of $110,000. If there is a Syndicated Community Offering, the fixed fee will be a negotiated percentage of the value of the Common Stock sold by Friedman, Billings, Ramsey & Co., Inc. and other NASD member firms under selected broker-dealer agreements.
The Bank also will reimburse Friedman, Billings, Ramsey & Co., Inc. for its reasonable out-of-pocket expenses associated with its marketing effort, up to a maximum of $40,000 (including legal fees and expenses). The Bank has made an advance payment of $12,500 to Friedman, Billings, Ramsey & Co., Inc. If the Plan of Reorganization is terminated by the Bank, if the Offering is not completed by , 1999, or if Friedman, Billings, Ramsey & Co., Inc. terminates its agreement with the Bank in accordance with the provisions of the agreement, Friedman, Billings, Ramsey & Co., Inc. will only receive reimbursement of its reasonable out-of-pocket expenses. The Bank will indemnify Friedman, Billings, Ramsey & Co., Inc. against liabilities and expenses (including legal fees) incurred in connection with certain claims or litigation arising out of or based upon untrue statements or omissions contained in the offering material for the Common Stock, including liabilities under the Securities Act of 1933.
Trustees and executive officers of the Bank may participate in the solicitation of offers to purchase Common Stock. Other trained employees of the Bank may participate in the Offering in ministerial capacities, providing clerical work in effecting a sales transaction or answering questions of a ministerial nature. Other questions of prospective purchasers will be directed to executive officers or registered representatives. The Bank will rely on Rule 3a4-1 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), so as to permit officers, trustees, and employees to participate in the sale of the Common Stock. No officer, trustee, or employee of the Bank will be compensated for his participation by the payment of commissions or other remuneration based either directly or indirectly on the transactions in the Common Stock.
A Stock Center will be established at a location adjacent to the Bank's main office. Employees will inform prospective purchasers to direct their questions to the Stock Center and will provide such persons with the telephone number of the Center.
LIMITATIONS UPON PURCHASES OF COMMON STOCK
The following additional limitations have been imposed upon purchases of shares of Common Stock. Defined terms used in this section and not otherwise defined in this Prospectus shall have the meaning set forth in the Plan of Reorganization.
A. The aggregate amount of outstanding Common Stock of the Company owned or controlled by persons other than Mutual Company at the close of the Offering shall not exceed 49% of the Company's total outstanding Common Stock.
B. No person or group of persons acting in concert, together with their associates, may purchase more than 20,000 shares, or $200,000, of Common Stock in the Offering, except that: (i) the Company may, in its sole discretion and without further notice to or solicitation of subscribers or other prospective purchasers, increase such maximum purchase limitation to up to 5% of the number of shares sold in the Offering; (ii) Tax-Qualified Employee Plans may purchase up to 10% of the shares sold in the Offering; and (iii) for purposes of this paragraph shares to be held by any Tax-Qualified Employee Plan and attributable to a person shall not be aggregated with other shares purchased directly by or otherwise attributable to such person.
C. The aggregate amount of Common Stock acquired in the Offering by all management persons and their associates, exclusive of any stock acquired by such persons in the secondary market, shall not exceed 32% of the outstanding shares of Common Stock of the Company held by persons other than the Mutual Company at the close of the Offering. In calculating the number of shares held by management persons and their associates under this paragraph or under the provisions of paragraph C below, shares held by any Tax-Qualified Employee Benefit Plan or any Non-Tax-Qualified Employee Benefit Plan of the Bank that are attributable to such persons shall not be counted.
D. Notwithstanding any other provision of the Plan of Reorganization, no person shall be entitled to purchase any Common Stock to the extent such purchase would be illegal under any federal law or state law or regulation or would violate regulations or policies of the National Association of Securities Dealers, Inc., particularly those regarding free riding and withholding. The Company and/or its agents may ask for an acceptable legal opinion from any purchaser as to the legality of such purchase and may refuse to honor any purchase order if such opinion is not timely furnished.
E. The Board of Directors of the Company has the right in its sole discretion to reject any order submitted by a person whose representations the Board of Directors believes to be false or who it otherwise believes, either alone or acting in concert with others, is violating, circumventing, or intends to violate, evade or circumvent the terms and conditions of the Plan of Reorganization.
F. The Company will make reasonable efforts to comply with the securities laws of all states in the United States in which persons entitled to subscribe for Common Stock pursuant to the Plan of Reorganization reside. However, the Company and the Bank are not required to offer Common Stock to any person who resides in a foreign country.
ESTABLISHMENT OF THE CHARITABLE FOUNDATION
GENERAL. In furtherance of the Bank's commitment to the communities that it serves, the Bank intends to establish a Charitable Foundation in connection with the Reorganization. The Plan of Reorganization provides that the Bank and the Company may establish the Charitable Foundation, which will be incorporated under Delaware law as a non-stock corporation and will be funded with cash and shares of Common Stock contributed by the Company. The Bank will contribute to the Charitable Foundation 1.96% of the shares of Common Stock to be issued in the Reorganization or 35,908, 42,245, 48,582 and 55,869 shares at the minimum, midpoint, maximum and adjusted maximum of the Offering range and $100,000 in cash. The contribution of Common Stock to the Charitable Foundation will be dilutive to the interests of stockholders and will have an adverse impact on the reported earnings of the Company in the year in which the Charitable Foundation is established.
PURPOSE OF THE CHARITABLE FOUNDATION. The purpose of the Charitable Foundation is to provide funding to support charitable causes and community development activities. Historically, the Bank has emphasized community lending and development activities within the communities that it services, and the Charitable Foundation is being formed as a complement to the Bank's existing community activities. Management believes the establishment of a Charitable Foundation is consistent with the Bank's commitment to community service. Funding of the Charitable Foundation with Common Stock of the Company also may be a means of enabling the communities served by the Bank to share in the growth and success of the Company. The Charitable Foundation will also enable the Company and the Bank to develop a unified charitable donation strategy and will centralize the responsibility for administration and allocation of corporate charitable funds. Charitable foundations have been formed by other financial institutions for this purpose, among others. The contribution to the Charitable Foundation will not take the place of the Bank's traditional community lending activities.
STRUCTURE OF THE CHARITABLE FOUNDATION. The Charitable Foundation will be incorporated under Delaware law as a non-stock corporation. Pursuant to the Charitable Foundation's Bylaws, the Charitable Foundation's initial board of directors will consist of persons who are existing directors and officers of the
Company. Subsequent to the Reorganization, other individuals may be appointed to the Board. The members of the Charitable Foundation, who are comprised of its board members, will elect the directors at the annual meeting of the Charitable Foundation from those nominated by the nominating committee. Only persons serving as directors of the Charitable Foundation qualify as members of the Charitable Foundation, with voting authority. Directors will be divided into three classes with each class appointed for three-year terms. The certificate of incorporation of the Charitable Foundation provides that the corporation is organized exclusively for charitable purposes, including community development, as set forth in Section 501(c)(3) of the Internal Revenue Code of 1986 (the "Code"). The Charitable Foundation's certificate of incorporation further provides that no part of the net earnings of the Charitable Foundation will inure to the benefit of, or be distributable to, its directors, officers or members.
The authority for the affairs of the Charitable Foundation will be vested in its board of directors which will be responsible for establishing the policies of the Charitable Foundation with respect to grants or donations consistent with the purpose for which the Charitable Foundation was established. Although no formal policy governing Charitable Foundation grants exists at this time, the Charitable Foundation's board of directors will adopt such a policy upon establishment of the Charitable Foundation. As directors of a nonprofit corporation, directors of the Charitable Foundation will at all times be bound by their fiduciary duty to advance the Charitable Foundation's charitable goals, to protect the assets of the Charitable Foundation and to act in a manner consistent with the charitable purpose for which the Charitable Foundation is established. The directors of the Charitable Foundation also will be responsible for directing the activities and managing the assets of the Charitable Foundation. However, as a condition to receiving the non-objection of the Reorganization, the Charitable Foundation has been required to commit to the FDIC and the Department that all shares of Common Stock held by the Charitable Foundation will be voted in the same ratio as all other shares of the Company's Common Stock (other than shares held by the Mutual Company) on all proposals considered by stockholders of the Company; provided, however, that, consistent with such condition, the FDIC and the Department would waive this voting restriction under certain circumstances (and subject to certain additional conditions) if compliance with the voting restriction would: (i) cause a violation of the law of the State of Delaware; (ii) cause the Charitable Foundation to lose its tax-exempt status, or cause the Internal Revenue Service (the "IRS") to deny the Charitable Foundation's request for a determination that it is an exempt organization or otherwise have a material and adverse tax consequence on the Charitable Foundation; or (iii) cause the Charitable Foundation to be subject to an excise tax under Section 4941 of the Code. In order for the FDIC and the Department to waive such voting restriction, the Company's or the Charitable Foundation's legal counsel would be required to render an opinion satisfactory to the FDIC and the Department that compliance with the voting requirement would have the effect described in clauses (i), (ii) or (iii) above. Under those circumstances, the FDIC and the Department would grant waivers of the voting restriction upon submission of such legal opinion(s) by the Company or the Charitable Foundation that are satisfactory to the FDIC and the Department. In the event that the FDIC and the Department were to waive the voting requirement, the directors would direct the voting of the Common Stock held by the Charitable Foundation.
The Charitable Foundation's place of business will be located at the Bank's administrative offices and initially the Charitable Foundation is expected to have no employees but will utilize the members of the staff of the Company or the Bank. The board of directors of the Charitable Foundation will appoint such officers as may be necessary to manage the operation of the Charitable Foundation. In this regard, it is expected that the Bank will be required to provide the FDIC with a commitment that, to the extent applicable, the Bank will comply with the affiliate restrictions set forth in Sections 23A and 23B of the Federal Reserve Act with respect to any transactions between the Bank and the Charitable Foundation.
Under Section 501(c)(3) of the Code, the Charitable Foundation will be required to distribute annually in grants or donations, a minimum of 5% of the average fair market value of its net investment assets. One of the conditions imposed on the gift of Common Stock by the Company is that the amount of
Common Stock that may be sold by the Charitable Foundation in any one year shall not exceed 5% of the average market value of the assets held by the Charitable Foundation, except where the board of directors of the Charitable Foundation determines that the failure to sell an amount of Common Stock greater than such amount would result in a longer-term reduction of the value of the Charitable Foundation's assets and as such would jeopardize the Charitable Foundation's capacity to carry out its charitable purposes. Upon completion of the Reorganization and the contribution of shares to the Charitable Foundation, the Company would have 1,829,370, 2,152,200 and 2,475,030 shares issued and outstanding at the minimum, midpoint and maximum of the Estimated Valuation Range. Because the Company will have an increased number of shares outstanding, the voting and ownership interests of stockholders in the Company's Common Stock would be diluted by 1.96%, as compared to their interests in the Company if the Charitable Foundation was not established. For additional discussion of the dilutive effect, see "Pro Forma Data."
IMPACT ON EARNINGS. The contribution of cash and Common Stock to the Charitable Foundation will have an adverse impact on the Company's and the Bank's earnings in the year in which the contribution is made. The Company will recognize the full expense in the amount of the contribution of cash and Common Stock to the Charitable Foundation in the quarter in which it occurs, which is expected to be the quarter ending December 31, 1998. The aggregate amount of the contribution will range from $459,080 to $585,820, based on the minimum and maximum of the Estimated Valuation Range, respectively (or up to $658,690 at the adjusted maximum of the Estimated Valuation Range). The number of shares to be contributed to the Charitable Foundation will range from 35,908 to 48,582, and the amount of cash to be contributed will be fixed at $100,000. The contribution expense will be partially offset by the tax benefit related to the expense. The Company and the Bank have been advised by their independent tax advisors that the contribution to the Charitable Foundation will be tax deductible, subject to an annual limitation based on 10% of the Company's annual taxable income. Assuming an aggregate contribution of $585,820 (based on the maximum of the Estimated Valuation Range), the Company estimates a net tax effected expense of $351,600 (based upon a 40% tax rate). Management cannot predict earnings for the fiscal year ending June 30, 1999, but expects that the establishment and funding of the Charitable Foundation will have an adverse impact on the Company's earnings for the year. In addition to the contribution to the Charitable Foundation, the Bank or the Mutual Company may continue making grants and contributions to the community that would not be permitted for the Charitable Foundation.
TAX CONSIDERATIONS. The Company and the Bank have been advised by their
independent tax advisors that an organization created for the above purposes
would qualify as a Section 501(c)(3) exempt organization under the Code, and
would be classified as a private Charitable Foundation. The Charitable
Foundation will submit a request to the IRS to be recognized as an exempt
organization. The Company and the Bank have received an opinion of their
independent tax advisors that the Charitable Foundation would qualify as a
Section 501(c)(3) exempt organization under the Code, except that such opinion
does not consider the impact of the condition to be agreed to by the Charitable
Foundation that Common Stock issued to the Charitable Foundation be voted in the
same ratio as all other shares of the Company's Common Stock (other than shares
held by the Mutual Company) on all proposals considered by stockholders of the
Company. Consistent with this condition, in the event that the Company or the
Charitable Foundation receives an opinion of their legal counsel that compliance
with the voting restriction would have the effect of causing the Charitable
Foundation to lose its tax-exempt status, or otherwise have a material and
adverse tax consequence on the Charitable Foundation or subject the Charitable
Foundation to an excise tax under Section 4941 of the Code, the FDIC and the
Superintendent shall waive such voting restriction upon submission of a legal
opinion by the Company or the Charitable Foundation that is satisfactory to
them. The independent tax advisors' opinion further provides that there is
substantial authority for the position that the Company's contribution of its
own stock to the Charitable Foundation would not constitute an act of
self-dealing, and that the Company would be entitled to a deduction in the
amount of the fair market value of the stock at the time of the contribution
less the nominal par value that the Charitable Foundation is required to pay to
the Company for such stock, subject to an annual limitation based on 10% of the
Company's annual taxable income. The Company, however, would be able
to carry forward any unused portion of the deduction for five years following the contribution. Assuming the sale of Common Stock at the adjusted maximum of the Estimated Valuation Range, the Company estimates that all of the deduction should be deductible over the six-year period. Although the Company and the Bank have received an opinion of their independent tax advisors that the Company will be entitled to the deduction for the charitable contribution, there can be no assurances that the IRS will recognize the Charitable Foundation as a Section 501(c)(3) exempt organization or that the deduction will be permitted. In such event, the Company's tax benefit related to the Charitable Foundation would have to be fully expensed, resulting in a further reduction in earnings in the year in which the IRS makes such a determination.
As a private Charitable Foundation, earnings and gains, if any, from the sale of Common Stock or other assets are generally exempt from federal and state corporate income taxation. However, investment income, such as interest, dividends and capital gains, of a private Charitable Foundation will generally be subject to a federal excise tax of 2.0%. The Charitable Foundation will be required to make an annual filing with the IRS within four and one-half months after the close of the Charitable Foundation's fiscal year to maintain its tax-exempt status. The Charitable Foundation will be required to publish a notice that the annual information return will be available for public inspection for a period of 180 days after the date of such public notice. The information return for a private Charitable Foundation must include, among other things, an itemized list of all grants made or approved, showing the amount of each grant, the recipient, any relationship between a grant recipient and the Charitable Foundation's managers and a concise statement of the purpose of each grant. The Charitable Foundation will also be required to file an annual report with the Charities Bureau of the Office of the Attorney General of the State of New York.
COMPARISON OF VALUATION AND OTHER FACTORS ASSUMING THE CHARITABLE FOUNDATION IS NOT ESTABLISHED AS PART OF THE REORGANIZATION. The establishment of the Charitable Foundation was taken into account by FinPro in determining the estimated pro forma market value of the Common Stock of the Company. The aggregate price of the shares of Common Stock being offered in the Offering is based upon the independent appraisal conducted by FinPro of the estimated pro forma market value of the Common Stock of the Company. The pro forma aggregate price of the Common Stock being offered for sale in the Reorganization is currently estimated to be between $8.1 million and $11.0 million, with a midpoint of $9.6 million. The pro forma price to book ratio and the pro forma price to earnings ratio, at and for the year ended June 30, 1998, are 91.41% and 15.87x, respectively, at the midpoint of the Estimated Valuation Range. In the event that the Reorganization did not include the Charitable Foundation, FinPro has estimated that the estimated pro forma market value of the Common Stock being offered for sale in the Offering would be $10.0 million at the midpoint based on a pro forma price to book ratio and a pro forma price to earnings ratio of 91.74% and 15.87x, respectively. The amount of Common Stock being offered for sale in the Offering at the midpoint of the Estimated Valuation Range is 42,245 less than the estimated amount of Common Stock that would be sold in the Offering without the Charitable Foundation based on the estimate provided by FinPro. Accordingly, certain account holders of the Bank who subscribe to purchase Common Stock in the Subscription Offering would receive fewer shares depending on the size of a depositor's stock order and the amount of his or her qualifying deposits in the Bank and the overall level of subscriptions. See "Comparison of Valuation and Pro Forma Information Without Charitable Foundation." This estimate by FinPro was prepared solely for purposes of providing subscribers with information with which to make an informed decision on the Reorganization.
The decrease in the amount of Common Stock being offered as a result of the contribution of Common Stock to the Charitable Foundation will not have a significant effect on the Company or the Bank's capital position. The Bank's regulatory capital is significantly in excess of its regulatory capital requirements and will further exceed such requirements following the Reorganization. The Bank's leverage and risk-based capital ratios at June 30, 1998 were 11.09% and 20.32%, respectively. Assuming the sale of shares at the midpoint of the Estimated Valuation Range, the Bank's pro forma leverage and risk-based capital ratios at June 30, 1998 would be 13.11% and 24.08%, respectively. On a consolidated basis, the
Company's pro forma stockholders' equity would be $23.7 million, or approximately 16.0% of pro forma consolidated assets, assuming the sale of shares at the midpoint of the Offering Range. Pro forma stockholders' equity per share and pro forma net income per share would be $10.98 and $0.63, respectively. If the Charitable Foundation was not being established in the Reorganization, based on the FinPro estimate, the Company's pro forma stockholders' equity would be approximately $24.0 million, or approximately 16.1% of pro forma consolidated assets at the midpoint of the Estimated Valuation Range, and pro forma stockholder's equity per share and pro forma net income per share would be substantially similar with or without the Charitable Foundation. See "Comparison of Valuation and Pro Forma Information without Charitable Foundation."
REGULATORY CONDITIONS IMPOSED ON THE CHARITABLE FOUNDATION. Establishment
of the Charitable Foundation is subject to certain conditions agreed to by the
Charitable Foundation in writing as a condition to receiving the FDIC's
non-objection to and Superintendent's approval of the Reorganization, including
the following: (i) the Charitable Foundation will be subject to examination by
the FDIC and the Department; (ii) the Charitable Foundation must comply with
supervisory directives imposed by the FDIC and the Department; (iii) the
Charitable Foundation will operate in accordance with written policies adopted
by the board of directors, including a conflict of interest policy; and (iv) any
shares of Common Stock held by the Charitable Foundation must be voted in the
same ratio as all other outstanding shares of Common Stock (other than shares
held by the Mutual Company) on all proposals considered by stockholders of the
Company; provided, however, that, consistent with the condition, the FDIC and
the Department would waive this voting restriction under certain circumstances
(and subject to additional conditions) if compliance with the voting restriction
would: (a) cause a violation of the law of the State of Delaware; (b) would
cause the Charitable Foundation to lose its tax-exempt status or otherwise have
a material and adverse tax consequence on the Charitable Foundation; or (c)
would cause the Charitable Foundation to be subject to an excise tax under
Section 4941 of the Code. In order to obtain a waiver, the Charitable
Foundation's legal counsel would be required to render an opinion satisfactory
to the FDIC and the Department. There can be no assurances that a legal opinion
addressing these issues could be rendered, or if rendered, that the FDIC and the
Department would grant unconditional waivers of the voting restriction. In no
event would the voting restriction survive the sale of shares of the Common
Stock held by the Charitable Foundation.
POTENTIAL CHALLENGES. The establishment and funding of a Charitable Foundation as part of a conversion of a mutual savings institution to stock form has only recently occurred. As such, the Charitable Foundation, and the Superintendent's approval of the Reorganization and the FDIC's nonobjection to the Reorganization, may be subject to potential challenges notwithstanding that the board of directors of the Company and the board of trustees of the Bank have considered the various factors involved in the establishment of the Charitable Foundation in reaching their determination to establish the Charitable Foundation as part of the Reorganization. If challenges were to be instituted seeking to prevent the Bank from establishing the Charitable Foundation in connection with the Reorganization, no assurances could be made that the resolution of such challenges would not result in a delay in the consummation of the Reorganization or that any objecting persons would not be ultimately successful in obtaining such removal or other relief against the Company or the Bank. Additionally, if the Company and the Bank are forced to eliminate the Charitable Foundation, the Company may be required to resolicit subscribers in the Offering.
LIQUIDATION RIGHTS
In the unlikely event of a complete liquidation of the Bank in its present mutual form, each depositor would have a claim to receive his or her pro rata share of any assets of the Bank remaining after payment of claims of all creditors (including the claims of all depositors to the withdrawal value of their accounts). To the extent there are remaining assets, a depositor may have a claim to receive a pro rata share of the remaining assets in the same proportion as the value of such depositor's deposit accounts to the total value of all deposit accounts in the Bank at the time of liquidation, subject to the right of the State of New York
to garnish such assets. After the Reorganization, each depositor, in the event of a complete liquidation, would have a claim as a creditor of the Bank. However, except as described below, this claim would be solely in the amount of the balance in the deposit account plus accrued interest. A depositor would not have an interest in the value or assets of the Bank above that amount.
The Plan of Reorganization provides for the establishment, upon the completion of the Reorganization, of a special "liquidation account" for the benefit of Eligible Account Holders and Supplemental Eligible Account Holders in an amount equal to the surplus and reserves of the Bank as of the date of its latest balance sheet contained in the final Prospectus used in connection with the Reorganization. Each Eligible Account Holder and Supplemental Eligible Account Holder, who continues to maintain a deposit account at the Bank, would, on a complete liquidation of the Bank, have a claim to an interest in the liquidation account after payment of all creditors but prior to any payment to the stockholders of the Bank. Each Eligible Account Holder and Supplemental Eligible Account Holder would have an initial interest in such liquidation account for each deposit account, with a balance of $100 or more held in the Bank on June 30, 1997 and September 30, 1998, respectively ("Deposit Account"). Each Eligible Account Holder and Supplemental Eligible Account Holder will have a claim to a pro rata interest in the total liquidation account for each of his or her Deposit Accounts based on the proportion that the balance of each such Deposit Account on June 30, 1997 and September 30, 1998, respectively, bore to the balance of all Deposit Accounts in the Bank on such date.
If, however, on the last day of any fiscal year of the Bank commencing after the Eligibility Record Date or Supplemental Eligibility Record Date, as the case may be, the deposit balance in any Deposit Account of an Eligible Account Holder or Supplemental Eligible Account Holder is less than either (i) the amount of qualifying deposits of such Eligible Account Holder or Supplemental Eligible Account Holder on the Eligibility Record Date or Supplemental Eligibility Record Date, as the case may be, or (ii) the deposit balance in such Deposit Account at the close of business on the last day of any previous fiscal year of the Bank commencing after the Eligibility Record Date or the Supplemental Eligibility Record Date, then such Eligible Account Holder's or Supplemental Eligible Account Holder's account balance would be reduced in an amount equal to the reduction in such deposit balance, and such account balance will cease to exist if such Deposit Account is closed. In addition, no interest in the liquidation account would ever be increased despite any subsequent increase in the deposit balances of any Eligible Account Holder or Supplemental Eligible Account Holder. Any assets remaining after the above liquidation rights of Eligible Account Holders and Subsequent Eligible Account Holders are satisfied would be distributed to the stockholders of the Bank.
Neither the Bank nor the Company shall be required to set aside funds for the purpose of establishing the liquidation account, and the creation and maintenance of the account will not operate to restrict the use or application of any of the net worth accounts of the Bank, except that neither the Bank nor the Company shall declare or pay a cash dividend on, or repurchase any of, its capital stock if the effect would cause its net worth to be reduced below the amount required for the liquidation account.
FEDERAL AND STATE TAX CONSEQUENCES OF THE REORGANIZATION
The Bank intends to proceed with the Reorganization on the basis of an opinion from its special counsel, Luse Lehman Gorman Pomerenk & Schick, P.C., Washington, D.C., as to certain tax matters that are material to the Reorganization. The opinion is based, among other things, on certain factual representations made by the Bank, including the representation that the exercise price of the subscription rights to purchase the Common Stock will be approximately equal to the fair market value of the stock at the time of the completion of the Reorganization. With respect to the subscription rights, the Bank has received an opinion of FinPro which, based on certain assumptions, concludes that the subscription rights to be received by Eligible Account Holders, Supplemental Eligible Account Holders and Other Members do not have any economic value at the time of distribution or the time the subscription rights are exercised, whether or not a Community Offering takes place, and Luse Lehman Gorman Pomerenk & Schick, P.C.'s
opinion is given in reliance thereon. The opinion of Luse Lehman Gorman Pomerenk & Schick, P.C., provides substantially as follows:
1. The change in form from a mutual savings bank ("Mutual Bank") to a stock savings bank (the "Stock Bank") will qualify as a reorganization under Section 368(a)(1)(F) of the Internal Revenue Code of 1986, as amended (the "Code"), and no gain or loss will be recognized by the Bank in either its mutual form or stock form by reason of the Reorganization.
2. No gain or loss will be recognized by the Mutual Bank upon the transfer of the Mutual Bank's assets to the Stock Bank solely in exchange for shares of Stock Bank stock and the assumption by the Stock Bank of the liabilities of the Mutual Bank.
3. No gain or loss will be recognized by Stock Bank upon the receipt of the assets of the Mutual Bank in exchange for shares of Stock Bank common stock.
4. Stock Bank's holding period in the assets received from the Mutual Bank will include the period during which such assets were held by the Mutual Bank.
5. Stock Bank's basis in the assets of the Mutual Bank will be the same as the basis of such assets in the hands of the Mutual Bank immediately prior to the Reorganization.
6. The Stock Bank will succeed to and take into account the Mutual Bank earnings and profits or deficit in earnings and profits, as of the date of the Reorganization.
7. The Stock Bank depositors will recognize no gain or loss solely by reason of the Reorganization.
8. The Mutual Company and Minority Stockholders will recognize no gain or loss upon the transfer of Stock Bank stock and cash, respectively, to the Company in exchange for Common Stock.
9. The Company will recognize no gain or loss upon its receipt of Stock Bank stock and cash from the Mutual Company and Minority Stockholders, respectively, in exchange for Common Stock.
10. The basis of the Common Stock to Minority Stockholders will be the Subscription Price and a shareholder's holding period for Common Stock acquired through the exercise of subscription rights will begin on the date the rights are exercised.
The opinion of Luse Lehman Gorman Pomerenk & Schick, P.C., unlike a letter ruling issued by the Internal Revenue Service (the "IRS"), is not binding on the IRS and the conclusions expressed therein may be challenged at a future date. The IRS has issued favorable rulings for transactions substantially similar to the proposed Reorganization, but any such ruling may not be cited as precedent by any taxpayer other than the taxpayer to whom the ruling is addressed. The Bank does not plan to apply for a letter ruling concerning the Reorganization.
The Bank has also received an opinion from Pricewaterhouse Coopers, LLP, that the New York State franchise tax on banking corporations and New York State personal income tax consequences of the proposed transaction are consistent with the federal income tax consequences.
GREENE COUNTY SAVINGS BANK
STATEMENTS OF INCOME
The following Statements of Income of the Bank for each of the years in the two-year period ended June 30, 1998 have been audited by PricewaterhouseCoopers, LLP, independent certified public accountants, whose report thereon appears elsewhere in this Prospectus. These statements should be read in conjunction with the Financial Statements and Notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this Prospectus.
YEARS ENDED JUNE 30,
--------------------------
1998 1997
------------ ------------
INTEREST INCOME:
Interest on loans................................................................... $ 6,367,282 $ 6,175,215
Interest and dividends on investments:
U.S. Treasury..................................................................... 985,130 962,932
U.S. Government agencies.......................................................... 850,073 687,250
State and political subdivisions.................................................. 341,222 362,490
Corporation debt securities....................................................... 405,225 456,676
Mortgage-backed securities........................................................ 110,488 69,863
Other securities.................................................................. 17,724 23,441
Federal funds sold.................................................................. 393,310 536,826
Other interest income............................................................... 26,902 22,815
------------ ------------
Total interest income............................................................. 9,503,356 9,297,316
------------ ------------
INTEREST EXPENSE:
Interest on deposits................................................................ 4,967,487 4,779,678
Net interest income............................................................... 4,535,869 4,517,638
------------ ------------
Less: provision for loan losses....................................................... 120,000 125,000
------------ ------------
Net interest income after provision for loan losses................................... 4,415,869 4,392,638
NONINTEREST INCOME:
Service charges on deposit accounts................................................. 251,188 230,442
Other operating income.............................................................. 185,479 289,968
------------ ------------
Total other income................................................................ 436,667 520,410
------------ ------------
NONINTEREST EXPENSE:
Salaries and employee benefits...................................................... 1,571,650 1,491,651
Occupancy expense, net.............................................................. 208,381 157,190
Equipment and furniture expense..................................................... 185,476 163,845
Other............................................................................... 1,183,752 960,563
------------ ------------
Total other expenses.............................................................. 3,149,259 2,773,249
------------ ------------
Income before provision for taxes................................................. 1,703,277 2,139,799
PROVISION FOR INCOME TAXES
Current............................................................................. 565,609 720,287
Deferred............................................................................ (12,248) (28,625)
------------ ------------
Total provision for income taxes.................................................. 553,361 691,662
------------ ------------
Net income........................................................................ $ 1,149,916 $ 1,448,137
------------ ------------
------------ ------------
|
See notes to financial statements contained elsewhere herein.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company has been formed for the purpose of issuing the Common Stock and owning all of the capital stock of the Bank issued in the Reorganization. Consequently, the Company has no operating history. All information in this section should be read in conjunction with the financial statements and notes thereto included in this Prospectus.
The Bank's principal business has historically consisted of offering savings and other deposits to the general public and using the funds from such deposits to make loans secured by residential real estate, as well as commercial real estate, consumer and commercial business loans. The Bank also invests a significant portion of its assets in investment securities and mortgage-backed securities, both of which are classified as available for sale. The Bank's net income depends primarily upon its net interest income, which is the difference between interest income earned on interest-earning assets, such as loans and investments, and the interest expense paid on deposits. The Bank's net income is also affected to a lesser degree by noninterest income, such as banking service charges and fees. The Bank's net income is also affected by, among other things, provisions for loan losses and noninterest expenses. The Bank's principal operating expenses, aside from interest expense, consist of salaries and employee benefits, occupancy and equipment, data-processing expense, deposit insurance costs and other expenses such as professional fees and insurance premiums. The Bank's net income also is affected significantly by general economic and competitive conditions, particularly changes in market interest rates, government legislation and policies affecting fiscal affairs, housing and financial institutions, monetary policies of the Federal Reserve System, and the actions of bank regulatory authorities. Management intends to initially invest the net proceeds from the Offering in interest-earning assets and believes that the Company and the Bank will derive additional interest income from such sources.
The Bank's equity position (as well as its regulatory capital) will significantly increase as a result of the net proceeds received in the Offering, and management anticipates that it will take time to prudently deploy such capital. Although earnings are expected to increase as a result of the investment of the net proceeds, until the Bank has leveraged the capital in the Offering by increasing its interest-earning assets (and its interest-bearing liabilities) and thereby reducing its equity as a percentage of assets, its return on average equity is expected to be below historical levels and the industry average. Moreover, the Company's earnings will be adversely affected in the fiscal year in which the funding of the Charitable Foundation occurs.
OPERATING STRATEGY
In guiding the Bank's operations, management has implemented various strategies designed to maintain and improve profitability consistent with safety and soundness. These strategies include: (i) operating a community bank that provides quality service by monitoring the needs of its customers and offering customers personalized service; (ii) emphasizing one- to four-family residential real estate lending; (iii) maintaining high levels of liquidity; and (iv) maintaining asset quality. It is anticipated, subject to market conditions, that the strategies presently in place will be continued following completion of the Reorganization.
COMMUNITY BANKING. The Bank was established in 1889 and has been operating continuously since that time. Throughout its history, the Bank has been committed to meeting the financial needs of the communities in which it operates and is dedicated to providing quality service to its customers. This has enabled the Bank to maintain a high level of core deposits, which comprised 54.5% of total deposits at June 30, 1998, and generally represent, lower-cost funds then certificate accounts. Management believes that the Bank can be more effective than many of its competitors in serving its customers because of its ability to promptly and effectively provide senior management responses to customer needs and inquiries.
The Bank's ability to provide these services is enhanced by the stability of senior management which has an average tenure with the Bank of over 20 years and banking experience averaging 25 years. In addition, the Bank intends to use the mutual holding company structure to maintain its position as an independent community bank, and to establish the Charitable Foundation as a means of furthering the Bank's commitment to the communities in which it conducts business.
EMPHASIS ON RESIDENTIAL REAL ESTATE LENDING. Historically, the Bank has emphasized the origination and retention in portfolio of fixed-rate one- to four-family residential loans within Greene County. As of June 30, 1998, 85.5% of the loan portfolio consisted of one- to four-family residential mortgage loans and home equity loans, 92.5% of the loan portfolio consisted of loans secured by real estate, substantially all of which was located in Greene County. During the year ended June 30, 1998, the Bank originated $15.8 million of one- to four-family mortgage loans, 95.3% of which were originated with fixed rates. At June 30, 1998, 71.1% of the Bank's one- to four-family residential real estate loans were fixed rate.
MAINTAINING HIGH LEVELS OF LIQUID INVESTMENTS. To position the Bank to redeploy assets profitability in a rising interest rate environment, management has determined to invest a significant portion of its assets in short-term liquid investments. The Bank maintains a significant portion of its assets in short-term U.S. Government and agency securities and other interest earning assets (including federal funds sold, corporate debt securities and municipal bonds issued by political subdivisions of New York State). At June 30, 1998, U.S. Government and agency securities and municipal bonds due in five years or less totalled $25.9 million, and federal funds sold and cash and due from banks totalled $8.3 million, or, collectively, 24.4% of the Bank's total assets. See "Risk Factors--Potential Impact of Changes in Interest Rates and the Current Interest Rate Environment," "--Management of Market Risk--Interest Rate Risk" and "Business of the Bank--Investment Activities."
MAINTAINING ASSET QUALITY. The Bank's high asset quality is a result of its conservative underwriting standards, the diligence of its loan collection personnel and the stability of the local economy. The Bank also invests in investment securities, consisting primarily of U.S. Government securities, federal agency obligations and mortgage-backed securities issued by Freddie Mac and Fannie Mae and, to a lesser extent, private issuers. The Bank also purchases other investment securities, such as municipal bonds and corporate debt securities, which are generally rated A or higher by at least one nationally recognized rating agency or receive a rating of A of higher as a result of a guarantee by insurance companies. At June 30, 1998, the Bank's ratio of nonperforming assets to total assets was 0.72%. At June 30, 1998, the Bank's ratio of allowance of loan losses to non-performing loans was 82.17%.
MANAGEMENT OF INTEREST RATE RISK
While the Bank's loan portfolio, consisting primarily of mortgage loans secured by residential real property located in its market area, is subject to risks associated with the local economy, the Bank's most significant form of market risk is interest rate risk because the Bank's assets and liabilities are sensitive to changes in interest rates. The Bank's assets consist primarily of residential mortgage loans which have longer maturities than the Bank's liabilities which consist primarily of deposits. The Bank does not engage in any hedging transactions, such as interest rate swaps and caps. The Bank's interest rate risk management program focuses primarily on evaluating and managing the composition of the Bank's assets and liabilities in the context of various interest rate scenarios. Factors beyond management's control, such as market interest rates and competition, also have an impact on interest income and interest expense.
A principal part of the Bank's business strategy is to manage interest rate
risk and to minimize the Bank's exposure to changes in market interest rates. In
recent years, the Bank has followed the following strategies to manage interest
rate risk: (i) investing in short-term U.S. Government securities and federal
agency obligations; (ii) maintaining a high level of liquid interest earning
assets such as short-term federal funds sold; (iii) maintaining a high
concentration of less interest-rate sensitive and lower-costing "core deposits";
(iv) originating consumer installment loans that have up to 5 year terms but
that have
significantly shorter average lives due to early prepayments; and (v) where possible, matching the funding requirements for fixed rate residential mortgages with lower-costing core deposit accounts. By investing in short-term, liquid securities and originating consumer installment loans with shorter-average durations, the Bank believes it is better positioned to react to increases in market interest rates. However, investments in shorter-term securities generally bear lower yields than longer-term investments. Thus, these strategies may result in lower levels of interest income than would be obtained by investing in longer-term fixed-rate loans. See "Business of the Bank--Investment Activities."
GAP ANALYSIS. The matching of assets and liabilities may be analyzed by examining the extent to which such assets and liabilities are "interest rate sensitive" and by monitoring a bank's interest rate sensitivity "gap." An asset or liability is deemed to be interest rate sensitive within a specific time period if it will mature or reprice within that time period. The interest rate sensitivity gap is defined as the difference between the amount of interest-earning assets maturing or repricing within a specific time period and the amount of interest bearing-liabilities maturing or repricing within that same time period. At June 30, 1998, the Bank's cumulative one-year gap position, the difference between the amount of interest-earning assets maturing or repricing within one year and interest-bearing liabilities maturing or repricing within one year, was a negative 7.78%. A gap is considered positive when the amount of interest rate sensitive assets exceeds the amount of interest rate sensitive liabilities. A gap is considered negative when the amount of interest rate sensitive liabilities exceeds the amount of interest rate sensitive assets. Accordingly, during a period of rising interest rates, an institution with a negative gap position generally would not be in as favorable a position, compared to an institution with a positive gap, to invest in higher yielding assets. The resulting yield on the institution's assets generally would increase at a slower rate than the increase in its cost of interest-bearing liabilities. Conversely, during a period of falling interest rates, an institution with a negative gap would tend to experience a repricing of its assets at a slower rate than its interest-bearing liabilities which, consequently, would generally result in its net interest income growing at a faster rate than an institution with a positive gap position.
The following table sets forth the amounts of interest-earning assets and interest-bearing liabilities outstanding at June 30, 1998, which are anticipated by the Bank, based upon certain assumptions, to reprice or mature in each of the future time periods shown (the "GAP Table"). Except as stated below, the amount of assets and liabilities shown which reprice or mature during a particular period were determined in accordance with the earlier of term to repricing or the contractual maturity of the asset or liability. The table sets forth an approximation of the projected repricing of assets and liabilities at June 30, 1998, on the basis of contractual maturities, anticipated prepayments and scheduled rate adjustments within a three month period and subsequent selected time intervals. The loan amounts in the table reflect principal balances expected to be redeployed and/or repriced as a result of contractual amortization and anticipated prepayments of adjustable-rate and fixed-rate loans, and as a result of contractual rate adjustments on adjustable-rate loans. The annual prepayment rate for real estate-related assets are based on the particulars of coupon maturity of the real estate-related assets. See "Business of the Bank--Lending Activities," "--Investment Activities" and "--Sources of Funds."
AMOUNTS MATURING OR REPRICING AT JUNE 30, 1998
-----------------------------------------------------------------------------------------------
UP TO 90 3 MONTHS TO 6 MONTHS TO 1 TO 2 2 TO 3 3 TO 5 OVER 5
DAYS 6 MONTHS 1 YEAR YEARS YEARS YEARS YEARS TOTAL
-------- ----------- ----------- ---------- ---------- ---------- ------- --------
(DOLLARS IN THOUSANDS)
Interest-earning assets:(1)
Loans receivable(2)......... $ 7,105 $ 8,092 $ 14,138 $ 7,577 $ 6,588 $ 11,170 $26,317 $ 80,988
Investment securities....... 5,009 2,636 5,228 9,508 8,212 11,469 5,716 47,778
Federal funds sold.......... 5,796 -- -- -- -- -- -- 5,796
-------- ----------- ----------- ---------- ---------- ---------- ------- --------
-------- ----------- ----------- ---------- ---------- ---------- ------- --------
Total interest-earning
assets.................. $ 17,910 $10,728 $ 19,366 $ 17,085 $ 14,800 $ 22,639 $32,034 $134,562
Interest-bearing liabilities:
Savings deposits............ $ 1,671 $ 1,671 $ 3,341 $ 6,682 $ 6,682 $ 13,365 -- $ 33,412
NOW deposits................ 309 309 619 1,237 1,237 2,474 -- 6,186
MMDA accounts 2,129 2,129 2,907 3,111 3,111 6,222 -- 19,609
Certificate accounts........ 11,764 10,429 20,857 7,033 3,619 1,900 -- 55,602
Borrowings.................. -- -- -- -- -- -- -- --
Escrow deposits............. 84 84 169 337 337 675 -- 1,687
-------- ----------- ----------- ---------- ---------- ---------- ------- --------
Total interest-bearing
liabilities............. $ 15,957 $14,622 $ 27,893 $ 18,400 $ 14,987 $ 24,638 $ -- $116,497
Interest sensitivity gap...... 1,953 (3,894) (8,527) (1,315) (187) (1,999) 32,034
Cumulative interest
sensitivity gap............. 1,953 (1,941) (10,468) (11,783) (11,970) (13,969) 18,065
Cumulative interest
sensitivity gap as a
percentage of total
assets...................... 1.39% (1.38)% (7.46)% (8.40)% (8.53)% (9.96)% 12.88%
Cumulative interest
sensitivity gap as a
percentage of total
interest-earning assets..... 1.45% (1.44)% (7.78)% (8.76)% (8.90)% (10.38)% 13.43%
Cumulative interest-earning
assets as a percentage of
cumulative interest-bearing
liabilities................. 112.24% 93.65% 82.10% 84.67% 86.97% 88.01% 115.51%
|
(1) Interest-earning assets are included in the period in which the balances are expected to be redeployed and/or repriced as a result of anticipated prepayments, scheduled rate adjustments and contractual maturities.
(2) Calculated net of deferred loan fees, loan discounts and loans in process.
Certain shortcomings are inherent in the method of analysis presented in the GAP Table. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. Additionally, certain assets such as adjustable-rate loans, have features which restrict changes in interest rates both on a short-term basis and over the life of the asset. Further, in the event of changes in interest rates, prepayment and early withdrawal levels would likely deviate significantly from those assumed in calculating the table. Finally, the ability of many borrowers to service their adjustable-rate loans may decrease in the event of an interest rate increase.
ANALYSIS OF NET INTEREST INCOME
Net interest income represents the difference between income on interest-earning assets and expense on interest-bearing liabilities. Net interest income also depends on the relative amounts of interest-earning assets and interest-bearing liabilities and the interest rate earned or paid on them, respectively.
AVERAGE BALANCE SHEET. The following tables set forth certain information relating to the Bank at June 30, 1998 and for the years ended June 30, 1998 and 1997. 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, is expressed both in dollars and rates. No tax equivalent adjustments were made. All average balances are average monthly balances. Non-accruing loans have been excluded from the yield calculations in this table.
AT JUNE 30, 1998
-----------------------------
ACTUAL BALANCE YIELD/RATE
-------------- -------------
Interest-earning assets:
Loans receivable, net(1)............................................................ $ 80,260 7.93%
Investment securities............................................................... 47,078 5.80
Federal funds....................................................................... 5,796 5.75
FHLB stock.......................................................................... 700 --
-------------- ---
Total interest-earning assets(1).................................................. $ 133,834 7.10%
-------------- ---
-------------- ---
Interest-bearing liabilities:
Savings deposits.................................................................... $ 52,560 3.45%
Demand and NOW deposits............................................................. 14,162 1.31
Certificate accounts................................................................ 55,602 5.23
Borrowings.......................................................................... -- --
-------------- ---
Total interest-bearing liabilities................................................ $ 122,324 4.06%
-------------- ---
-------------- ---
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YEARS ENDED JUNE 30,
------------------------------------------------------------------------------------
1998 1997
----------------------------------------- -----------------------------------------
AVERAGE AVERAGE
OUTSTANDING INTEREST OUTSTANDING INTEREST
BALANCE EARNED/PAID YIELD/RATE BALANCE EARNED/PAID YIELD/RATE
----------- ------------- ------------- ----------- ------------- -------------
Interest-earning assets:
Loans receivable, net(1)......... 77,873 6,367 8.18% 74,477 6,175 8.29%
Investment securities(2)......... 44,280 2,743 6.19 41,166 2,585 6.28
Federal funds.................... 6,713 392 5.85 9,569 537 5.61
FHLB stock....................... 58 -- -- -- -- --
----------- ----- --- ----------- ----- ---
Total interest-earning
assets....................... 128,924 9,502 7.37% 125,212 9,297 7.43%
----------- ----- --- ----------- ----- ---
----------- ----- --- ----------- ----- ---
Interest-bearing liabilities:
Savings deposits................. 51,791 1,812 3.50% 53,860 1,886 3.50%
Demand and NOW deposits.......... 12,472 186 1.50 11,260 152 1.35
Certificate accounts............. 53,389 2,970 5.56 49,589 2,742 5.53
Borrowings....................... -- -- -- -- -- --
----------- ----- --- ----------- ----- ---
Total interest-bearing
liabilities.................. 117,652 4,968 4.22% 114,709 4,780 4.17%
----------- ----- --- ----------- ----- ---
----------- ----- --- ----------- ----- ---
Net interest income................ 4,534 4,517
----- -----
----- -----
Net interest rate spread........... 3.15% 3.26%
Net earning assets................. 11,272 10,503
Net yield on average
interest-earning assets.......... 3.52% 3.61%
Average interest-earning assets to
average interest-bearing
liabilities...................... 109.58% 109.16%
|
(1) Calculated net of deferred loan fees, loan discounts, loans in process and loss reserves.
(2) Includes mortgage-backed securities and asset-backed securities.
RATE/VOLUME ANALYSIS. The following table presents the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities have affected the Bank's interest income and interest expense during the periods indicated. Information is provided in each category with respect to: (i) changes attributable to changes in volume (changes in volume multiplied by prior rate); (ii) changes attributable to changes in rate (changes in rate multiplied by prior volume); and (iii) the net change. The changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate.
YEARS ENDED JUNE 30,
---------------------------------------------------------------
1998 VS. 1997 1997 VS. 1996
INCREASE/ (DECREASE) INCREASE/ (DECREASE)
DUE TO TOTAL DUE TO
---------------------- INCREASE/ ------------------------
VOLUME RATE (DECREASE) VOLUME RATE
----------- --------- ------------- ----------- -----------
(IN THOUSANDS)
Interest-earning assets:
Loans receivable, net.............................. $ 391 $ (199) $ 192 $ 140 $ 9
Investment securities(1)........................... 28 (9) (20) 184 125
Equity securities.................................. (5) (1) (6) 16 (1)
----- --------- ----- ----- -----
Total interest-earning assets.................... 415 (209) 206 340 133
Interest-bearing liabilities:
Savings deposits................................... (43) (31) (74) 168 --
Demand and NOW deposits............................ 196 (162) 34 (3) 141
Certificate accounts............................... 201 27 228 38 3
----- --------- ----- ----- -----
Total interest-bearing liabilities............... 354 (166) 188 203 144
----- --------- ----- ----- -----
Net interest income.................................. $ 61 $ (43) $ 18 $ 137 $ (11)
----- --------- ----- ----- -----
----- --------- ----- ----- -----
TOTAL
INCREASE/
(DECREASE)
-------------
Interest-earning assets:
Loans receivable, net.............................. $ 149
Investment securities(1)........................... 309
Equity securities.................................. 15
-----
Total interest-earning assets.................... 473
Interest-bearing liabilities:
Savings deposits................................... 168
Demand and NOW deposits............................ 138
Certificate accounts............................... 41
-----
Total interest-bearing liabilities............... 347
-----
Net interest income.................................. $ 126
-----
-----
|
(1) Includes mortgage-backed securities and asset-backed securities.
COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 1998 AND JUNE 30, 1997
ASSETS. Total assets increased to $140.3 million at June 30, 1998 from $132.5 million at June 30, 1997, an increase of $7.8 million, or 5.9%. This growth in total assets reflected an increase in loans receivable, net, which increased by 6.2% to $80.3 million at June 30, 1998 from $75.6 million at June 30, 1997, as well as an increase in investment securities of $4.8 million, or 11.1%, to $47.8 million at June 30, 1998 from $43.0 million at June 30, 1997. The increase in total assets also reflected an increase in premises and equipment of $900,000, to $2.6 million at June 30, 1998 from $1.7 million at June 30, 1997 due to the completion and opening of the Bank's new branch office in Greenville, New York in December 1997. The growth in total assets was funded by deposits, which increased by $6.4 million, or 5.5%, to $122.3 million at June 30, 1998 from $115.9 million at June 30, 1997.
Net loans receivable increased to $80.3 million at June 30, 1998 from $75.6 million at June 30, 1997. In the year ended June 30, 1998, one- to four-family residential mortgage loans increased by $3.7 million, or 6.1%, home equity loans increased $674,000, or 16.6%, consumer loans increased $414,000, or 11.0% and commercial business loans increased $304,000, or 29.5%. The increases in loans in these categories more than offset a decrease of $822,000, or 15.4%, in commercial real estate loans, and reflected the economic strength and loan demand in the Bank's primary lending area as well as consumer demand for the Bank's fixed-rate mortgage loan products in the current low market interest rate environment.
The Bank's investment securities portfolio increased by $4.8 million, or 11.2%, to $47.8 million at June 30, 1998 from $43.0 million at June 30, 1997. The Bank joined the FHLB in 1998. At June 30, 1998, the Bank held $700,000 of FHLB stock.
LIABILITIES. Total deposits increased by $6.4 million, or 5.5%, to $122.3 million at June 30, 1998 from $115.9 million at June 30, 1997. The growth in deposits reflected in part deposit inflows resulting from the expansion of the Bank's branch network with the opening of a new branch office in Greenville in December 1997. The Bank's certificate accounts increased to $55.6 million at June 30, 1998 from $51.2 million at June 30, 1997, while noncertificate accounts increased to $66.7 million at June 30, 1998 from $64.7 million at June 30, 1997. The increase in certificates of deposit was attributable primarily to the Greenville branch opening as well as the migration of some funds from savings and other demand accounts to higher-yielding certificate accounts in the lower interest rate environment. While the Bank has access to borrowings, at June 30, 1998, there were no borrowings outstanding.
RETAINED EARNINGS. Total retained earnings increased by $1.3 million, or 9.0%, to $15.7 million at June 30, 1998 from $14.4 million at June 30, 1997. The increase in total retained earnings resulted from after tax net income of $1.1 million in the year ended June 30, 1998 as well as an increase of $174,000 in net unrealized gain on securities available for sale. As market interest rates decreased in the year ended June 30, 1998, the market value of the Bank's securities was positively affected.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED JUNE 30, 1998 AND JUNE 30,
1997
GENERAL. The earnings of the Bank depend primarily on its level of net interest income, which is the difference between interest earned on the Bank's interest-earning assets, consisting primarily of residential and commercial real estate loans, consumer loans and securities available for sale, and the interest paid on interest-bearing liabilities, consisting primarily of deposits. Net interest income is a function of the Bank'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, as well as a function of the average balance of interest-earning assets as compared to interest-bearing liabilities. The Bank's earnings also are affected by its fees and service charges and gains on sale of loans and securities, as well as its level of operating and other expenses, including salaries and employee benefits, occupancy and equipment costs, data processing expense, marketing and advertising costs, and federal deposit insurance premiums.
Net income for the year ended June 30, 1998 was $1.1 million, a decrease of $298,000, or 20.6%, from net income of $1.4 million for the year ended June 30, 1997. The decrease in net income was due primarily to a decrease of $85,000, or 16.3%, in noninterest income and an increase of $376,000, or 13.6%, in noninterest expense. These items were partially offset by a decrease of $138,000 in tax expense for the year ended June 30, 1998.
INTEREST INCOME. Interest income increased by $206,000, or 2.2%, to $9.5 million for the year ended June 30, 1998 from $9.3 million for the year ended June 30, 1997. The increase was primarily due to a $192,000, or 3.1%, increase in interest income paid on loans and a $158,000, or 6.1%, increase in interest and dividends on investments for the year ended June 30, 1998 as compared to the year ended June 30, 1997. The increase in interest from loans was attributable to a $3.4 million, or 4.6%, increase in the average balance of loans receivable, partially offset by a 11 basis point decrease in the average yield on loans receivable to 8.18% for the year ended June 30, 1998 from 8.29% for the year ended June 30, 1997. The continued origination and portfolio growth of the Bank's one- to four-family residential mortgage loans was responsible for the substantial majority of the increase in loans receivable, reflecting growth in the Bank's primary market area as well as demand for the Bank's fixed-rate one- to four-family real estate loan product in the current low market interest rate environment. The increase in interest and dividends from investments was due to a $3.1 million, or 8.0%, increase in the average balance of investment securities to $44.3 million for the year ended June 30, 1998 as compared to $41.2 million for the year ended June 30, 1997. This increase more than offset a 9 basis point decrease in the average yield on investment securities to 6.19% from 6.28%. The increase in the average balance of investment securities reflected the temporary deployment of liquidity pending investment in higher-yielding mortgage loans, as well as management's desire to take advantage of the shorter weighted average lives of U.S. Treasury securities
and the relatively high yield available from such securities as compared to longer maturity securities given the relatively flat yield curve that prevailed during the period.
INTEREST EXPENSE. Interest expense increased by $188,000, or 3.9%, to $5.0 million for the year ended June 30, 1998 from $4.8 million for the year ended June 30, 1997. The increase was due to a $2.9 million, or 2.6%, increase in the average balance of interest-bearing liabilities as well as a 5 basis point increase in the average rate paid on such liabilities for the year ended June 30, 1998 as compared to the year ended June 30, 1997. In particular, the increase in interest expense resulted from an increase in interest expense on certificate accounts, which rose to $3.0 million for the year ended June 30, 1998 as compared to $2.7 million for the year ended June 30, 1997. This increase was due to an increase of $3.8 million, or 7.7%, in the average balance of such certificate accounts to $53.4 million for the year ended June 30, 1998 from $49.6 million for the year ended June 30, 1997. The increase in the average balance of such certificate accounts reflected the Bank's new branch opening in Greenville, New York in December 1997. The increase in interest expense attributable to certificate accounts was partially offset by a $74,000, or 3.9%, decrease in interest expense on savings deposits, reflecting a $2.1 million, or 3.8%, decrease in the average balance of savings deposits for the year ended June 30, 1998 as compared to the year ended June 30, 1997. The average cost of such deposits remained unchanged at 3.50%.
PROVISION FOR LOAN LOSSES. The Bank establishes provisions for loan losses, which are charged to operations, in order to maintain the allowance for loan losses at a level which is deemed appropriate to absorb future charge-offs and loans deemed uncollectible. In determining the appropriate level of the allowance for loan losses, management considers past and anticipated loss experience, collateral values, current and anticipated economic conditions volume and type of lending activities and the levels of non-performing and other classified loans. The allowance is based on estimates and the ultimate losses may vary from such estimates. Management of the Bank assesses the allowance for loan losses on a quarterly basis and makes provisions for loan losses in order to maintain the adequacy of the allowance.
The Bank's provision for loan losses decreased to $120,000 for the year ended June 30, 1998 from $125,000 for the year ended June 30, 1997. The higher provision for the year ended June 30, 1997 was due, in part, to exposure associated with loans made by the Bank to Bennett Funding Company, an equipment lease finance company, which subsequently declared bankruptcy. At June 30, 1998, the $104,000 remaining balance of Bennett Funding Company lease receivables had been fully reserved.
NONINTEREST INCOME. Noninterest income consists primarily of fee income for bank services and gains on the sale of loans and securities. Noninterest income decreased by $85,000, or 16.3%, for the year ended June 30, 1998 as from the year ended June 30, 1997. The decrease was due primarily to a decrease in other operating income to $185,000 for the year ended June 30, 1998 from $290,000 for the year ended June 30, 1997. The decrease in these items was partially offset by an increase of $21,000, or 9.1%, in services charges on deposit accounts reflecting the increased average balances of such deposit accounts for the year ended June 30, 1998 as compared to the year ended June 30, 1997.
NONINTEREST EXPENSE. Noninterest expense increased by $376,000, or 13.6%, to $3.1 million for the year ended June 30, 1998 compared to $2.8 million for the year ended June 30, 1997. The increase was due to an $80,000, or 5.4%, increase in salaries and employee benefits, an increase of $51,000, or 32.5%, in net occupancy expense and an increase of $22,000, or 13.2%, in equipment and furniture expense. Each of these increases was attributable in part to the Bank's opening of a new full service office in Greenville, New York in December 1997, which necessitated the hiring of an additional five full time equivalent employees, as well as depreciation of building, furniture and equipment of the new branch office. The increase in net occupancy expense also reflects expenses related to the Bank's continued upgrading of its technology, communications and information systems. In addition, other noninterest expense increased by $223,000, or 23.2%, for the year ended June 30, 1998, reflecting a $25,000, or 30.5%, increase in advertising expenses, a $25,000, or 33.3%, increase in office supply expenses, a $15,000, or 62.5%, increase
in mortgage recording fees, and a $36,000, or 12.2%, increase in servicing costs, relating in part to the Bank's larger total loan portfolio.
INCOME TAXES. Income tax expense was $553,361 for the year ended June 30, 1998 compared to $691,662 for the year ended June 30, 1997. The effective tax rate increased to 32.5% for the year ended June 30, 1998 from 32.3% for the year ended June 30, 1997 reflecting, in part, a reduction in non-taxable interest on municipal securities in the year ended June 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Bank's primary sources of funds are deposits, proceeds from principal and interest payments on loans, mortgage-related and debt securities, with two lines of credit available as needed. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit outflows, mortgage prepayments, and borrowings are greatly influenced by general interest rates, economic conditions and competition.
The Bank's primary investing activities are the origination of residential one- to four-family and commercial real estate loans, other consumer and commercial business loans, and the purchase of mortgage-related and debt securities. During the years ended June 30, 1998 and 1997, the Bank's loan originations totaled $25.0 million, and $20.7 million, respectively. Purchases of mortgage-backed securities and debt securities totaled $16.7 million, and $10.9 million for the years ended June 30, 1998 and 1997, respectively. These activities were funded primarily by deposit growth and principal payments on loans, mortgage-backed securities and debt and equity securities. Loan sales did not provide an additional source of liquidity during the years ended June 30, 1998 and 1997 as the Bank generally originates loans for retention in its portfolio.
The Bank experienced a net increase in total deposits of $6.5 million, and $1.7 million for the years ended June 30, 1998 and 1997, respectively. Deposit flows are affected by the level of interest rates, the interest rates and products offered by local competitors, and other factors.
The Bank monitors its liquidity position on a daily basis. Excess short-term liquidity is usually invested in overnight federal funds sold. In the event the Bank requires funds beyond its ability to generate them internally, additional sources of funds are available through the use of short-term FHLB advances and two credit facilities made available to the Bank by other financial institutions. There have been no borrowings outstanding during any of the periods presented.
Loan commitments totaled $2.4 million at June 30, 1998 and were comprised of $309,000 in commitments to originate adjustable rate loans and $2.1 million in commitments to originate fixed rate loans. The Bank anticipates that it will have sufficient funds available to meet current loan commitments. Certificates of deposit which are scheduled to mature in one year or less from June 30, 1998 totaled $43.1 million. Based upon the Bank's experience and its current pricing strategy, management believes that a significant portion of such deposits will remain with the Bank.
At June 30, 1998, the Bank exceeded all of its regulatory capital requirements. See "Regulatory Capital Compliance" and "Regulation--Regulatory Capital Requirements."
The Bank's most liquid assets are cash and interest-bearing demand accounts. The levels of these assets are dependent on the Bank's operating, financing, lending and investing activities during any given period. At June 30, 1998, cash and interest-bearing demand account totaled $2.5 million, or 1.8% of total assets. Also at June 30, 1998, U.S. Government and agency securities and municipal bonds due in less than one year totalled $7.7 million, or 5.5% of total assets, and the Bank's portfolio of such securities due in less than five years totalled $25.6 million, or 18.3% of total assets.
IMPACT OF NEW ACCOUNTING STANDARDS
FASB STATEMENT ON EARNINGS PER SHARE. In February 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 128. The Statement establishes standards for computing and presenting earnings per share and applies to entities with publicly held common stock or potential common stock. This Statement simplifies the prior accounting standards for computing earnings per share, as set forth in Accounting Principles Board ("APB") Opinion No. 15. SFAS No. 128 replaces the presentation of primary earnings per share ("EPS") with basic EPS and requires dual presentation of basic and diluted EPS on the face of the income statement for all entities with complex capital structures. Basic EPS excludes dilution and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock (such as stock options) were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. This Statement will apply to the Bank's earnings per share disclosures which will be made from the date of completion of the Reorganization and Offering.
FASB STATEMENT ON ACCOUNTING FOR STOCK-BASED COMPENSATION. In October 1995, the FASB issued SFAS No. 123 which addresses accounting for stock-based compensation arrangements such as the Stock Option Plan and Stock Award Plan which are expected to be implemented subsequent to the Reorganization. SFAS No. 123 defines a "fair-value-based method" of accounting whereby compensation cost is measured at the grant date of a stock-based compensation award based on the fair value of the award; such compensation cost is recognized as expense over the service (vesting) period. The FASB has encouraged all entities to adopt the fair-value-based method; however, SFAS No. 123 allows entities to continue the use of the "intrinsic-value-based method" prescribed by APB Opinion No. 25. Under the intrinsic-value-based method, compensation cost is measured based on the award's intrinsic value, or the excess (if any) of the market price of the stock at the grant date over the exercise price, i.e., the amount (if any) that the employee must pay to acquire the stock. However, most stock option grants have no intrinsic value at the grant date and, as such, no compensation cost is recognized under APB Opinion No. 25. Entities electing to continue to apply APB Opinion No. 25 must make certain pro forma disclosures of net income and earnings per share, as if the fair-value-based method had been applied to awards granted in fiscal years beginning after December 15, 1994. The Bank expects to adopt the "intrinsic-value-based method" as prescribed by APB Opinion No. 25. Accordingly, no compensation expense will be recognized for the Stock Option Plan since the exercise price of the options will equal the market price of the underlying stock at the grant date. The grant date fair value of shares awarded under the Recognition Plan will be recognized as expense on a straight-line basis over the vesting period. See "Pro Forma Data."
FASB STATEMENT ON TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES. In June 1996, the FASB issued SFAS No. 125 which provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities based on consistent application of a financial-components approach that focuses on control. SFAS No. 125 applies to transactions such as loan shares of loans with servicing retained, securitizations, repurchase agreements, securities lending, loan participations and in-substance defeasances of debt. SFAS No. 125 distinguishes transfers of financial assets that are sales from transfers that are secured borrowings. Under the financial-components approach, after a transfer of financial assets, an entity recognizes all financial and servicing assets it controls and liabilities it has incurred and derecognizes financial assets it no longer controls and liabilities that have been extinguished. If a transfer does not meet the criteria for a sale, the transaction is accounted for as a secured borrowing with a pledge of collateral. SFAS No. 125 applies prospectively to transactions occurring after January 1, 1997, although the effective date of certain provisions was January 1, 1998. SFAS No. 125 has not had, and is not expected to have, a material impact on the Bank's financial statements.
FASB STATEMENTS ON REPORTING COMPREHENSIVE INCOME. In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income," which establishes standards for the reporting and display of comprehensive income (and its components) in financial statements. The standard does not, however, specify
when to recognize or how to measure items that make up comprehensive income. Comprehensive income represents net income and certain amounts reported directly in equity, such as the net unrealized gain of loss on available-for-sale securities. While SFAS No. 130 does not require a specific reporting format it does require that an enterprise display in the financial statements an amount representing total comprehensive income for the period. SFAS No. 130 is effective for fiscal years beginning after December 15, 1997 and accordingly, will be adopted by the Bank in the fiscal year beginning July 1, 1998. Management does not anticipate that the adoption of this standard will significantly affect the Bank's financial reporting.
FASB STATEMENT ON SEGMENT DISCLOSURES AND RELATED INFORMATION. In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," which changes the way public companies report information about segments of their business and requires them to report selected segment information in their quarterly reports issued to shareholders. Among other things, SFAS No. 131 requires public companies to report (i) certain financial and descriptive information about its reportable operating segments (as defined), and (ii) certain enterprise-wide financial information about products and services, geographic areas and major customers. The required segment financial disclosures include a measure of profit or loss, certain specific revenue and expense items, and total assets. SFAS No. 131 is effective for reporting by public companies in fiscal years beginning after December 15, 1997 and, accordingly, would be adopted by the Bank upon completion of the Reorganization and Offering. SFAS No. 131 is not expected to have a significant impact on the Bank's financial reporting.
FASB STATEMENT ON EMPLOYER DISCLOSURES ABOUT PENSIONS AND OTHER POSTRETIREMENT BENEFITS. In February 1998, the FASB issued SFAS No. 132 which standardizes the disclosure requirements for pensions and other postretirement benefits; requires additional information on changes in the benefit obligations and fair values of plan assets; and eliminates certain present disclosure requirements. SFAS No. 132 does not change the recognition or measurement requirements for postretirement benefits. SFAS No. 132 is effective for fiscal years beginning after December 15, 1997 and, accordingly, will be adopted by the Bank in the fiscal year beginning July 1, 1998. Management does not anticipate that this standard will significantly affect the Bank's financial reporting.
FASB STATEMENT ON DERIVATIVES AND HEDGING ACTIVITIES. In June 1998, the
FASB issued SFAS No. 133 which establishes accounting and reporting standards
for derivative instruments and for hedging activities. SFAS No. 133 requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial condition at fair value. If certain conditions are met, a
derivative may be specifically designated as a fair value hedge, a cash flow
hedge, or a foreign currency hedge. A specific accounting treatment applies to
each type of hedge. Entities may reclassify securities from the held-to-maturity
category to the available-for-sale category at the time of adopting SFAS No.
133. The Bank has not yet determined whether it will reclassify securities
between categories. SFAS No. 133 is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999 and, accordingly, will be adopted by the
Bank in the fiscal year beginning on July 1, 1999. The Bank has not engaged in
derivatives and hedging activities covered by the new standard, and does not
expect to begin such activities. Accordingly, SFAS No. 133 is not expected to
have a material impact on the Bank's consolidated financial statements.
CAPABILITY OF THE BANK'S DATA PROCESSING TO ACCOMMODATE THE YEAR 2000
Like many financial institutions, the Bank relies upon computers for the daily conduct of its business and for data processing. There is concern that on January 1, 2000 computers will be unable to "read" the new year and as a consequence, there may be widespread computer malfunctions. The Bank uses an outside data processing servicer. Management has developed a formal written plan to resolve any concern about the year 2000 issue and the Bank is in the process of testing its computer applications and hardware to ensure that they will be able to read the year 2000. Based on the current timetable, testing is expected to be completed by the end of the first calendar quarter in 1999. The Bank has contacted each of its data processing vendors to ensure that they will be able to provide service in light of the year 2000 issue. Such vendors have represented to management that they are addressing the year 2000 issue and they expect to
be able to provide the services for which the Bank has contracted. Management will continue to monitor this issue and report to the Board of Trustees on a quarterly basis until full compliance is obtained from all vendors. Costs related to the year 2000 issue will be expensed as they are incurred, except for the costs, if any, for new hardware and software that is purchased, which will be capitalized. Management has budgeted $110,000 for updating its hardware and software systems to ensure compliance. Other than this budgeted expenditure, management does not expect additional material costs to be incurred in connection with the year 2000 issue.
The costs of the project are based on management's best estimates, which were derived using numerous assumptions of future events including the continued availability of certain resources, third party modification plans and other factors. However, there can be no guarantee that these estimates will be achieved, and actual results could differ materially from those plans. Specific factors that might cause such material differences include, but are not limited to, the availability and cost of personnel trained in this area, the ability to locate and correct all relevant computer codes and similar uncertainties. In addition, there can be no guarantee that the systems of other companies on which the Bank's systems rely will be timely converted, or that a failure to convert by another company, or a conversion that is incompatible with the Bank's systems, would not have a material adverse effect on the Bank.
BUSINESS OF GREENE COUNTY BANCORP, INC.
GENERAL
In July 1998, the Board of Trustees of the Bank adopted the Plan of Reorganization. Under the Plan of Reorganization, the Bank organized the Company. The Bank will be a wholly-owned subsidiary of the Company, the majority of whose shares will be held by the Mutual Company. See "Greene County Bancorp, Inc." and "Regulation--Holding Company Regulation."
The Company is currently not an operating company. Following the Reorganization, in addition to directing, planning and coordinating the business activities of the Bank, the Company will initially invest net proceeds it retains primarily in short and medium-term debt securities and marketable equity securities. The Company also intends to fund the loan to the ESOP to enable the ESOP to purchase 8% of the Minority Ownership Interest. In the future, the Company may acquire or organize other operating subsidiaries, including other financial institutions and financial services companies. See "Use of Proceeds." Presently, there are no agreements or understandings for an expansion of the Company's operations. Initially, the Company will neither own nor lease any property from any third party, but will instead use the premises, equipment and furniture of the Bank. At the present time, the Company does not intend to employ any persons other than certain officers of the Bank, who will not be separately provided cash compensation by the Company. The Company may utilize support staff of the Bank from time to time, if needed. Additional employees will be hired as appropriate to the extent the Company expands its business in the future.
BUSINESS OF THE BANK
GENERAL
The Bank's principal business consists of attracting retail deposits from the general public in the areas surrounding its branches and investing those deposits, together with funds generated from operations and borrowings, primarily in one- to four-family residential mortgage loans, commercial real estate loans, and home equity loans, consumer loans and commercial business loans. In addition, the Bank invests a significant portion of its assets in investment securities and mortgage-backed securities. The Bank's revenues are derived principally from the interest on its mortgage, consumer and commercial loans and securities, loan origination and servicing fees and service charges and fees collected on its deposit accounts. The Bank's primary sources of funds are deposits, and principal and interest payments on loans and investment and mortgage-backed securities. In recent years the Bank has not had any borrowings.
MARKET AREA
The Bank has been, and intends to continue to be, a community-oriented bank offering a variety of financial services to meet the needs of the communities it serves. The Bank currently operates four full service banking offices in Greene County, New York. The Bank's primary deposit gathering area is currently concentrated around the areas within Greene County where its full service banking offices are located, namely the towns of Catskill, Greenville, Cairo and Coxsackie. The Bank's primary lending area also has historically been concentrated in Greene County, New York.
As of the 1990 census, the County population was 44,700 persons. As of the 1990 census, Greene County had the fourth largest percentage of population growth in New York state in the ten year period ended in 1990. Greene County is primarily rural and the major industry consists of tourism associated with the several ski facilities and festivals located in the Catskill mountains. The County has no concentrations of manufacturing industry. Greene County is contiguous to the Albany-Schenectady-Troy metropolitan statistical area. The close proximity of Greene County to the city of Albany has made it a "bedroom" community for persons working in the Albany capital area. Greene County and the Coxsackie Correctional Facilities are the largest employers in the county. Other large employers include the Hunter Mountain and Ski Windham resort areas, the Catskill, Cairo-Durham, Greenville and Coxsackie-Athens Central School Districts and Stiefel Labs, Inc.
LENDING ACTIVITIES
GENERAL. The principal lending activity of the Bank is the origination, for retention in its portfolio, of fixed-rate and adjustable-rate mortgage loans collateralized by one- to four-family residential real estate located within its primary market area. To a lesser extent, the Bank also originates commercial real estate loans, home equity loans, consumer loans and commercial business loans.
In an effort to manage the interest rate risk associated with its predominantly fixed-rate loan portfolio, the Bank maintains high levels of liquidity, and, where possible, matches the funding of fixed-rate residential mortgages with lower-costing core savings accounts. In addition, in originating residential fixed-rate loans, the Bank has been successful in marketing and originating such loans with 15 year terms. Currently, the substantial majority of residential fixed-rate loans are being originated with 15 years terms. Finally, the Bank has attempted to market to its customers shorter term maturity features, such as fixed-rate residential mortgage loans with "bi-weekly" mortgage payments, where the borrower makes the equivalent of an extra monthly payment per year by paying half the monthly mortgage payment every two weeks. The accelerated principal amortization schedules of these loans have helped ameliorate the interest rate risk that is inherent in a community based bank's residential lending portfolio. The accelerated repayment schedule results in significant savings to the borrower and allows for a more rapid increase in home equity.
LOAN PORTFOLIO COMPOSITION. Set forth below is selected information concerning the composition of the Bank's loan portfolio in dollar amounts and in percentages (before deductions for deferred fees and costs, unearned discounts and allowances for losses) as of the dates indicated.
JUNE 30,
------------------------------------------
1998 1997
-------------------- --------------------
AMOUNT PERCENT AMOUNT PERCENT
--------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
REAL ESTATE LOANS:
One- to four-family................................................... $ 64,705 79.69% $ 61,008 79.66%
Commercial............................................................ 4,521 5.57 5,343 6.98
Construction and land................................................. 798 .98 497 .65
Multi-family........................................................ 388 .48 388 .51
--------- --------- --------- ---------
Total real estate loans............................................. 70,412 86.72 67,236 87.80
--------- --------- --------- ---------
CONSUMER LOANS:
Installment(1)........................................................ 4,172 5.14 3,758 4.90
Home equity........................................................... 4,727 5.82 4,053 5.29
Passbook.............................................................. 544 .67 507 .66
--------- --------- --------- ---------
Total consumer loans................................................ 9,443 11.63 8,318 10.85
Commercial Business Loans............................................... 1,336 1.65 1,032 1.35
--------- --------- --------- ---------
Total consumer and commercial business loans.......................... 10,779 13.28 9,350 12.20
--------- --------- --------- ---------
Total gross loans..................................................... 81,191 100.00% 76,586 100.00%
--------- --------- --------- ---------
--------- ---------
LESS:
Deferred fees and discounts........................................... (203) (216)
Allowance for losses.................................................. (728) (723)
--------- ---------
Total loans receivable, net......................................... $ 80,260 $ 75,647
--------- ---------
--------- ---------
|
(1) Includes direct automobile loans (on both new and used automobiles) and personal loans.
The following table shows the composition of the Bank's loan portfolios by fixed- and adjustable-rate at the dates indicated.
JUNE 30,
------------------------------------------
1998 1997
-------------------- --------------------
AMOUNT PERCENT AMOUNT PERCENT
--------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
FIXED-RATE LOANS:
Real Estate Loans:
One- to four-family................................................. $ 46,028 56.69% $ 36,581 47.78%
Commercial.......................................................... 1,436 1.77 1,744 2.28
Construction and land............................................... 760 .94 497 .64
Multi-family........................................................ 157 .19 135 .18
--------- --------- --------- ---------
Total real estate loans........................................... 48,381 59.59 38,957 50.88
--------- --------- --------- ---------
CONSUMER LOANS:
Installment(1)...................................................... 4,172 5.14 3,758 4.91
Home equity......................................................... 4,727 5.82 4,053 5.29
Passbook............................................................ 544 .67 507 .66
Commercial Business Loans............................................. 1,336 1.65 1,032 1.35
--------- --------- --------- ---------
Total fixed-rate loans.............................................. 59,160 72.87 48,307 63.09
--------- --------- --------- ---------
ADJUSTABLE-RATE LOANS:
Real estate loans:
One- to four-family................................................. 18,677 23.00 24,429 31.90
Multi-family........................................................ 231 .28 251 .31
Commercial real estate.............................................. 3,085 3.80 3,599 4.70
Construction and land............................................... 38 .05 -- --
--------- --------- --------- ---------
Total adjustable rate loans......................................... 22,031 27.13 28,279 36.91
--------- --------- --------- ---------
Total loans....................................................... 81,191 100.00% 76,586 100.00%
--------- --------- --------- ---------
--------- ---------
LESS:
Deferred fees and discounts........................................... (203) (216)
Allowance for loan losses............................................. (728) (723)
--------- ---------
Total loans receivable, net......................................... $ 80,260 $ 75,647
--------- ---------
--------- ---------
|
(1) Includes direct automobile loans (on both new and used automobiles) and personal loans.
ONE- TO FOUR-FAMILY RESIDENTIAL LOANS. The Bank's primary lending activity is the origination, for retention in the Bank's portfolio, of one- to four-family residential mortgage loans secured by property located in the Bank's primary lending area. Generally, one- to four-family residential mortgage loans are made in amounts up to 80% of the lesser of the appraised value or purchase price of the property. However, the Bank will originate one- to four-family residential mortgage loans with loan-to-value ratios of up to 95%, with private mortgage insurance required (except for qualifying first-time home buyers, for whom the Bank will originate loans with 90% loan-to-value ratios without private mortgage insurance). Generally, residential mortgage loans are originated for terms of up to 25 years, though in recent years the Bank has been successful in marketing and originating the substantial majority of such loans with 15 year terms. One- to four-family fixed rate loans are offered with both a monthly and bi-weekly payment feature. The Bank generally requires fire and casualty insurance, the establishment of a mortgage escrow account for the payment of real estate taxes, hazard and flood insurance, as well as title insurance on all properties securing real estate loans made by the Bank.
The Bank currently offers one- to four-family residential mortgage loans with fixed and adjustable interest rates. Originations of fixed-rate loans versus adjustable-rate loans are monitored on an ongoing basis and are affected significantly by the level of market interest rates, customer preference, the Bank's interest rate gap position, and loan products offered by the Bank's competitors. Particularly, in a relatively low interest rate environment, borrowers may prefer fixed-rate loans to adjustable-rate loans. Single family residential real estate loans often remain outstanding for significantly shorter periods than their contractual terms because borrowers may refinance or prepay loans at their option. The average length of time that the Bank's single family residential mortgage loans remain outstanding varies significantly depending upon trends in market interest rates and other factors.
The Bank's adjustable-rate mortgage ("ARM") loans currently provide for maximum rate adjustments of 150 basis points per year and 600 basis points over the term of the loan. The Bank offers ARM loans with initial interest rates that are below market, referred to as "teaser rates." However, in underwriting such loans, borrowers are qualified at the full index rate. The Bank's ARM loans adjust every year. After origination, the interest rate on such ARM loans is reset based upon a contractual spread or margin above the average yield on one-year United States Treasury securities, adjusted to a constant maturity (the "U.S. Treasury Constant Maturity Index"), as published weekly by the Federal Reserve Board.
ARM loans decrease the risk associated with changes in market interest rates by periodically repricing, but involve other risks because as interest rates increase, the underlying payments by the borrower increase, thus increasing the potential for default by the borrower. At the same time, the marketability of the underlying collateral may be adversely affected by higher interest rates. Upward adjustment of the contractual interest rate is also limited by the maximum periodic and lifetime interest rate adjustment permitted by the terms of the ARM loans, and, therefore, is potentially limited in effectiveness during periods of rapidly rising interest rates. At June 30, 1998, 23.0% of the Bank's loan portfolio consisted of one- to four-family residential loans with adjustable interest rates.
The Bank originates construction/permanent loans to homeowners for the purpose of construction of primary and secondary residences. The Bank issues a commitment and has one closing which encompasses both the construction phase and permanent financing. The construction phase is a maximum term of six months and the interest charged is the rate as stated in the commitment, with loan-to-value ratios of up to 80% (or up to 95% with private mortgage insurance), of the completed project. The Bank generally does not originate loans secured by raw land.
Construction lending generally involves a greater degree of risk than other one- to four-family mortgage lending. The repayment of the construction loan is, to a great degree, dependent upon the successful and timely completion of the construction of the subject property. Construction delays may further impair the borrower's ability to repay the loan.
The Bank's residential mortgage loan originations are generally obtained from the Bank's loan representatives operating in its branch offices through their contacts with existing or past loan customers, depositors of the Bank, referrals from attorneys and accountants who refer loan applications from the general public, and local realtors.
All one- to four-family residential mortgage loans originated by the Bank include "due-on-sale" clauses, which give the Bank the right to declare a loan immediately due and payable in the event that, among other things, the borrower sells or otherwise disposes of the real property subject to the mortgage and the loan is not repaid.
At June 30, 1998, $64.7 million, or 79.7% of the Bank's loan portfolio, consisted of one- to four-family residential mortgage loans. Approximately $666,000 of such loans (representing 16 loans) were included in nonperforming loans as of that date. See "Delinquencies and Classified Assets-Loans Past Due-- Nonperforming Assets."
COMMERCIAL REAL ESTATE AND MULTIFAMILY LOANS. At June 30, 1998, $4.5 million, or 5.6%, of the total loan portfolio consisted of commercial real estate loans. Commercial real estate loans are secured by office buildings, mixed-use properties and other commercial properties. The Bank originates fixed- and adjustable-rate commercial mortgage loans with maximum terms of up to 20 years. The maximum loan-to-value ratio of commercial real estate loans is generally 75%. At June 30, 1998, the largest commercial mortgage loan had a principal balance of $445,000 and was secured by a medical arts building.
In underwriting commercial real estate loans, the Bank reviews the expected net operating income generated by the real estate to ensure that it is generally at least 110% of the amount of the monthly debt service; the age and condition of the collateral; the financial resources and income level of the borrower; and the borrower's business experience. The Bank's policy is to require personal guarantees from all commercial real estate borrowers.
Loans secured by commercial real estate generally are larger than one- to four-family residential loans and involve a greater degree of risk. Commercial mortgage loans often involve large loan balances to single borrowers or groups of related borrowers. Payments on these loans depend to a large degree on the results of operations and management of the properties or underlying businesses, and may be affected to a greater extent by adverse conditions in the real estate market or the economy in general. Accordingly, the nature of commercial real estate loans makes them more difficult for Bank management to monitor and evaluate.
The Bank originates a limited number of multi-family loans, which totalled $338,000, or 0.48% of the Bank's total loans at June 30, 1998. Multi-family loans are generally secured by apartment buildings and condominiums located in the Bank's primary market area. The Bank's underwriting practices and the risks associated with multi-family loans do not differ substantially from that of commercial real estate loans.
CONSUMER LOANS. The Bank's consumer loans consist of direct loans on new and used automobiles, personal loans (either secured or unsecured), home equity loans, and other consumer loans (consisting of passbook loans, unsecured home improvement loans and recreational vehicle loans). At June 30, 1998, consumer loans totaled $9.4 million, or 11.6% of the total loan portfolio. Consumer loans (other than home equity loans) are originated at fixed rates with terms to maturity of one to five years.
Consumer loans generally have shorter terms and higher interest rates than one- to four-family mortgage loans. In addition, consumer loans expand the products and services offered by the Bank to better meet the financial services needs of its customers. Consumer loans generally involve greater credit risk than residential mortgage loans because of the difference in the underlying collateral. Repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance because of the greater likelihood of damage to loss of or depreciation in the underlying collateral. The remaining deficiency often does not warrant further substantial collection efforts against the borrower beyond obtaining a deficiency judgment. In addition, consumer loan collections depend on the borrower's personal financial stability. Furthermore, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount that can be recovered on such loans.
The Bank's underwriting procedures for consumer loans include an assessment of the applicant's credit history and the ability to meet existing and proposed debt obligations. Although the applicant's creditworthiness is the primary consideration, the underwriting process also includes a comparison of the value of the security, to the proposed loan amount. The Bank underwrites its consumer loans internally, which the Bank believes limits its exposure to credit risks associated with loans underwritten or purchased from brokers and other external sources.
The Bank offers fixed-rate home equity loans that are secured by the borrower's residence. Home equity loans are generally underwritten with terms not to exceed 15 years and under the same criteria that the Bank uses to underwrite one- to four-family fixed rate loans. Home equity loans may be underwritten with terms not to exceed 15 years and with a loan to value ratio of 80% when combined with the principal balance of the existing mortgage loan. The maximum amount of a home equity loan may not exceed
$50,000 unless approved by the Board of Trustees. The Bank appraises the property securing the loan at the time of the loan application (but not thereafter) in order to determine the value of the property securing the home equity loans. At June 30, 1998, the outstanding balance of home equity loans totaled $4.7 million, or 5.8% of the Bank's loan portfolio.
COMMERCIAL BUSINESS LOANS. The Bank also originates commercial business loans up to 10 years at fixed rates. The Bank attributes growth in this portfolio to its ability to offer borrowers senior management attention as well as timely and local decision-making on commercial loan applications. The decision to grant a commercial business loan depends primarily on the creditworthiness and cash flow of the borrower (and any guarantors) and secondarily on the value of and ability to liquidate the collateral which consists of receivables, inventory and equipment. The Bank generally requires annual financial statements and tax returns from its commercial business borrowers and personal guarantees from the commercial business borrowers. The Bank also generally requires an appraisal of any real estate that secures the loan. At June 30, 1998, the Bank had $1.3 million of commercial business loans which represented 1.7% of the total loan portfolio. On such date, the average balance of the Bank's commercial business loans was approximately $25,000. The largest commercial business lending relationship had a balance of $255,000 and represented a loan to a local fire protection district secured by a fire truck. At June 30, 1998, the Bank's commercial loan portfolio included seven loans secured by fire trucks.
Commercial business lending generally involves greater risk than residential mortgage lending and involves risks that are different from those associated with residential and commercial real estate lending. Real estate lending is generally considered to be collateral based, with loan amounts based on predetermined loan to collateral values and liquidation of the underlying real estate collateral is viewed as the primary source of repayment in the event of borrower default. Although commercial business loans may be collateralized by equipment or other business assets, the liquidation of collateral in the event of a borrower default is often an insufficient source of repayment because equipment and other business assets may be obsolete or of limited use, among other things. Accordingly, the repayment of a commercial business loan depends primarily on the creditworthiness of the borrower (and any guarantors), while liquidation of collateral is a secondary and often insufficient source of repayment.
LOAN MATURITY SCHEDULE. The following table sets forth certain information as of June 30, 1998, regarding the amount of loans maturing or repricing in the Bank's portfolio. Adjustable-rate loans are included in the period in which interest rates are next scheduled to adjust rather than the period in which they contractually mature, and fixed-rate loans are included in the period in which the final contractual repayment is due.
The following table illustrates the future maturities of such loans at June 30, 1998.
1 YEAR 3 YEARS 5 YEARS 10 YEARS
WITHIN THROUGH THROUGH THROUGH THROUGH BEYOND
1 YEAR 3 YEARS 5 YEARS 10 YEARS 20 YEARS 20 YEARS TOTAL
--------- ----------- ----------- --------- --------- --------- ---------
(IN THOUSANDS)
REAL ESTATE LOANS:
One- to four-family................... $ 18,706 $ 278 $ 651 $ 8,375 $ 28,473 $ 8,222 $ 64,705
Home equity........................... 40 345 1,173 1,921 1,248 -- 4,727
Multi-family.......................... 231 -- -- 128 29 -- 388
Commercial............................ 3,359 49 82 444 587 -- 4,521
Construction and land loans........... -- -- -- -- 358 440 798
--------- ----------- ----------- --------- --------- --------- ---------
Total real estate loans............. $ 22,336 $ 672 $ 1,906 $ 10,868 $ 30,695 $ 8,662 $ 75,139
--------- ----------- ----------- --------- --------- --------- ---------
--------- ----------- ----------- --------- --------- --------- ---------
Consumer loans........................ 802 2,022 1,765 83 44 -- 4,716
Commercial business loans............. 143 210 439 544 -- -- 1,336
--------- ----------- ----------- --------- --------- --------- ---------
Total loan portfolio.................... $ 23,281 $ 2,904 $ 4,110 $ 11,495 $ 30,739 $ 8,662 $ 81,191
--------- ----------- ----------- --------- --------- --------- ---------
--------- ----------- ----------- --------- --------- --------- ---------
|
The total amount of the above loans due after June 30, 1999 which have predetermined interest rates is $57,910, while the total amount of loans due after such dates which have adjustable interest rates is $0.
The following table sets forth the loan origination and repayment activities of the Bank for the periods indicated. The Bank did not purchase or sell any loans during the periods presented.
YEARS ENDED JUNE 30,
--------------------
1998 1997
--------- ---------
(IN THOUSANDS)
Originations by Type:
ADJUSTABLE RATE:
One- to four-family....................................................................... $ 742 $ 1,856
Commercial real estate.................................................................... 45 --
--------- ---------
Total adjustable rate................................................................. 787 1,856
--------- ---------
FIXED RATE:
One- to four-family....................................................................... 15,030 9,535
Commercial real estate.................................................................... 150 586
Construction and land..................................................................... 2,930 2,605
Home equity............................................................................... 2,064 1,996
Installment............................................................................... 3,194 3,785
Commercial business....................................................................... 350 568
Passbook.................................................................................. 492 373
--------- ---------
Total fixed-rate...................................................................... 24,210 19,448
--------- ---------
Total loans originated................................................................ $ 24,997 $ 21,304
--------- ---------
Repayments:
One- to four-family....................................................................... 12,075 9,268
Commercial real estate.................................................................... 1,017 5
Construction and land..................................................................... 2,629 3,101
Home equity............................................................................... 1,390 1,670
Installment............................................................................... 2,780 3,208
Commercial business....................................................................... 46 362
Passbook.................................................................................. 455 506
--------- ---------
Total principal repayments.............................................................. 20,392 18,120
--------- ---------
Net increase (decrease)................................................................... $ 4,605 $ 3,184
--------- ---------
--------- ---------
|
LOAN APPROVAL PROCEDURES AND AUTHORITY. The Board of Trustees establishes the lending policies and loan approval limits of the Bank. Loan officers generally have the authority to originate mortgage loans, consumer loans and commercial business loans up to amounts established for each lending officer. All residential loans over $200,000, however, must be approved by the Executive Committee or the full Board of Trustees.
The Board annually approves independent appraisers used by the Bank. For larger loans, the Bank may require an environmental site assessment to be performed by an independent professional for all non-residential mortgage loans. It is the Bank policy to require hazard insurance on all mortgage loans.
LOAN ORIGINATION FEES AND OTHER INCOME. In addition to interest earned on loans, the Bank receives loan origination fees. Such fees and costs vary with the volume and type of loans and commitments made and purchased, principal repayments, and competitive conditions in the mortgage markets, which in turn respond to the demand and availability of money.
In addition to loan origination fees, the Bank also receives other income that consists primarily of deposit transaction account service charges and late charges. The Bank also collects fees for originating savings bank life insurance on an agency basis and for referring student loan borrowers to Sallie Mae.
Finally, the Bank installs, maintains and services merchant bankcard equipment for local retailers and is paid a percentage of the transactions processed by such equipment.
LOANS-TO-ONE BORROWER. Savings banks are subject to the same loans-to-one borrower limits as those applicable to national banks, which under current regulations restrict loans to one borrower to an amount equal to 15% of unimpaired net worth on an unsecured basis, and an additional amount equal to 10% of unimpaired net worth if the loan is secured by readily marketable collateral (generally, financial instruments and bullion, but not real estate). The Bank's policy provides that loans to one borrower (or related borrowers) should not exceed 10% of the Bank's capital and reserves.
At June 30, 1998, the largest aggregate amount loaned by the Bank to one borrower consisted of $507,000, which consisted of a commercial real estate loan of $444,650 and a commercial business loan of $62,356. The loans comprising the lending relationship were performing in accordance with their terms.
DELINQUENCIES AND CLASSIFIED ASSETS
COLLECTION PROCEDURES. A computer generated late notice is sent and a 2% late charge is assessed when a payment is 15 days late. A second notice will be incorporated in the next month's billing notice, approximately 21 days after the first due payment. Accounts thirty days or more past due will be reviewed by the collection manager and receive individual attention as required, including collection letters and telephone calls. Accounts that have a history of consistent late or delinquent payments will be monitored closely by the collection manager to avoid further deterioration. Accounts two or more payments past due are reported to the Board of Trustees for consideration of foreclosure action. With respect to consumer loans, a late notice is sent and a late charge is assessed after 10 days (or, in the case of home equity loans, 15 days) after payment is due. A second notice is sent after 15 days (in the case of home equity loans, 25 days) thereafter. Loans 30 days or more past due are reviewed by the collection manager for individual attention, including collection letters and telephone calls. Accounts three or more payments past due are reported to the Board of Trustees and are subject to legal action and repossession of collateral.
LOANS PAST DUE AND NON-PERFORMING ASSETS. Loans are reviewed on a regular basis. Management determines that a loan is impaired when it is probable that at least a portion of the loan will not be collected due to an irreversible deterioration in the financial condition of the borrower or the value of the underlying collateral. When a loan is determined to be impaired, the measurement of the loan is based on present value of estimated future cash flows, except that all collateral-dependent loans are measured for impairment on the fair value of the collateral. Management places loans on nonaccrual status once the loans have become over 90 days delinquent. Nonaccrual is defined as a loan in which collectibility is questionable and therefore interest on the loan will no longer be recognized on an accrual basis. Instead, such interest is recognized on a cash basis until such time as the borrower has brought the loan to nondelinquent status. At June 30, 1998, the Bank had non-performing loans of $884,000, and a ratio of non-performing loans to total loans of 1.10%.
Real estate acquired as a result of foreclosure or by deed in lieu of foreclosure is classified as REO until such time as it is sold. When real estate is acquired through foreclosure or by deed in lieu of foreclosure, it is recorded at its fair value, less estimated costs of disposal. If the value of the property is less than the loan, less any related specific loan loss provisions, the difference is charged against the allowance for loan losses. Any subsequent write-down of REO is charged against earnings. At June 30, 1998, the Bank's REO totalled $124,000, and its ratio of non-preforming assets to total assets was 0.72%.
The following table sets forth delinquencies in the Bank's loan portfolio at June 30, 1998. When a loan is delinquent 90 days or more, the Bank fully reverses all accrued interest thereon and ceases to accrue
interest thereafter. For all the dates indicated, the Bank did not have any material restructured loans within the meaning of SFAS 114.
TOTAL
DELINQUENT
60-89 DAYS 90 DAYS AND OVER LOANS
--------------------------------------- --------------------------------------- -------------
PERCENT PERCENT
OF LOAN OF LOAN
NUMBER AMOUNT CATEGORY NUMBER AMOUNT CATEGORY NUMBER
------------- ----------- ----------- ------------- ----------- ----------- -------------
(DOLLARS IN THOUSANDS)
Real Estate:
One- to four-family........... 8 $ 387 75.88% 16 $ 666 75.34% 24
Multi-family.................. 1 123 24.12 -- -- -- 1
Commercial.................... -- -- -- 2 91 10.29 2
Construction and land loans... -- -- -- -- -- -- --
Consumer........................ -- -- -- 4 20 2.27 4
Commercial business............. -- -- -- 3 107 12.10 3
-- -- --
----- ----- ----- -----
Total..................... 9 $ 510 100% 25 $ 884 100% 34
-- -- --
-- -- --
----- ----- ----- -----
----- ----- ----- -----
PERCENT
OF LOAN
AMOUNT CATEGORY
----------- -----------
Real Estate:
One- to four-family........... $ 1,053 75.54%
Multi-family.................. 123 8.82
Commercial.................... 91 6.53
Construction and land loans... -- --
Consumer........................ 20 1.43
Commercial business............. 107 7.68
----------- -----
Total..................... $ 1,394 100%
----------- -----
----------- -----
|
NONACCRUAL LOANS AND NONPERFORMING ASSETS. The following table sets forth information regarding nonaccrual loans and other non-performing assets. The Bank had no accruing loans delinquent more than 90 days at June 30, 1998 or 1997.
JUNE 30,
--------------------
1998 1997
--------- ---------
(DOLLARS IN
THOUSANDS)
Nonaccruing loans:
One- to four-family....................................................................... $ 666 $ 293
Commercial real estate.................................................................... 91 296
Consumer.................................................................................. 20 5
Commercial business....................................................................... 107 139
--------- ---------
Total................................................................................... 884 733
--------- ---------
Foreclosed assets:
One- to four-family....................................................................... -- 32
Multi-family.............................................................................. -- 38
Nonfarm, nonresidential properties........................................................ 124 --
--------- ---------
Total................................................................................... $ 124 $ 70
--------- ---------
--------- ---------
Total non-performing assets............................................................... 1,008 803
Total as a percentage of total assets..................................................... .72% .61%
|
During the year ended June 30, 1998, gross interest income of $40,000 would have been recorded on nonaccruing loans under their original terms, if the loans had been current throughout the period. No interest income was recorded on nonaccruing loans or on accruing loans more than 90 days delinquent during the year ended June 30, 1998.
CLASSIFICATION OF ASSETS. Consistent with regulatory guidelines, the Bank provides for the classification of loans and other assets considered to be of lesser quality. Such ratings coincide with the "Substandard", "Doubtful" and "Loss" classifications used by federal regulators in their examination of financial institutions. Generally, an asset is considered Substandard if it is inadequately protected by the current net worth and paying capacity of the obligors and/or the collateral pledged. Substandard assets include those characterized by the distinct possibility that the insured financial institution will sustain some loss if the deficiencies are not corrected. Assets classified as Doubtful have all the weaknesses inherent in assets classified Substandard with the added characteristic that the weaknesses present make collection or
liquidation in full, on the basis of currently existing facts, highly questionable and improbable. Assets classified as Loss are those considered uncollectible and of such little value that their continuance as assets without the establishment of a specific loss reserve and/or charge-off is not warranted. Assets which do not currently expose the insured financial institution to sufficient risk to warrant classification in one of the aforementioned categories but otherwise possess weaknesses are designated "Special Mention."
When the Bank classifies problem assets as either Substandard or Doubtful, it establishes general valuation allowances or "loss reserves" in an amount deemed prudent by management. General allowances represent loss allowances that have been established to recognize the inherent risk associated with lending activities, but which, unlike specific allowances, have not been allocated to particular problem assets. When the Bank classifies problem assets as "Loss," it is required either to establish a specific allowance for losses equal to 100% of the amount of assets so classified, or to charge-off such amount. The Bank's determination as to the classification of its assets and the amount of its valuation allowance is subject to review by its regulatory agencies, which can order the establishment of additional general or specific loss allowances. The Bank reviews its portfolio monthly to determine whether any assets require classification in accordance with applicable regulations.
On the basis of management's review of its assets, at June 30, 1998, the Bank had classified a total of $113,000 of loans as follows:
AT JUNE 30, 1998
-----------------
(IN THOUSANDS)
Special mention.......................................... $ --
Substandard.............................................. 113
Doubtful assets.......................................... --
Loss assets.............................................. --
-----
Total.................................................. $ 113
-----
-----
General loss allowance................................... $ 511
-----
-----
Specific loss allowance.................................. $ 104
-----
-----
Charge-offs.............................................. $ 126
-----
-----
|
ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses is established through a provision for loan losses based on management's evaluation of the risk inherent in the loan portfolio, the composition of the loan portfolio, specific impaired loans and current economic conditions. Such evaluation, which includes a review of all loans on which full collectibility may not be reasonably assured, considers among other matters, the estimated net realizable value or the fair value of the underlying collateral, economic conditions, historical loan loss experience and other factors that warrant recognition in providing for an adequate loan loss allowance. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank's allowance for loan losses and valuation of REO. Such agencies may require the Bank to recognize additions to the allowance based on their judgment about information available to them at the time of their examination. The allowance for loan losses is increased by a provision for loan losses (which results in a charge to noninterest expense) and is reduced by net charge-offs. The Bank's provision for loan losses is described in "Management's Discussion and Analysis of Financial Condition and Results of Operations." At June 30, 1998, the total allowance was $728,000, which amounted to 0.91% of total loans and 82.17% of nonperforming loans. Management will continue to monitor and modify the level of the allowance for loan losses in order to maintain it at a level which management considers adequate to provide for potential loan losses. For the years ended June 30, 1998 and 1997, the Bank had charge-offs of $126,000 and $11,000, respectively, against this allowance.
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES. The following table sets forth the analysis of the allowance for loan losses for the periods indicated.
YEARS ENDED JUNE 30,
------------------------
1998 1997
----------- -----------
(IN THOUSANDS)
Balance at beginning of period.................................................................. $ 723 $ 597
----- -----
Charge-offs:
One- to four-family........................................................................... 18 --
Commercial real estate........................................................................ 70 --
Consumer...................................................................................... 28 11
Commercial business........................................................................... 10 --
----- -----
126 11
----- -----
Recoveries:
One- to four-family........................................................................... -- 12
Consumer...................................................................................... 11 --
----- -----
11 12
----- -----
Net charge-offs................................................................................. 115 (1)
Additions charged to operations................................................................. 120 125
----- -----
Balance at end of period........................................................................ $ 728 $ 723
----- -----
----- -----
Ratio of net charge-offs during the period to average loans outstanding during the period....... .15% .001%
----- -----
----- -----
Ratio of net charge-offs during the period to average non-performing assets..................... 12.74% .15%
----- -----
----- -----
|
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES. The following table sets forth the allocation of the allowance for loan losses by loan category for the periods indicated. The allowance is allocated to each loan category based on historical loss experience and economic conditions. The unallocated portions of the allowance represent general reserves for unused lines of credit and inherent risk associated with increased volume in lending transactions.
JUNE 30,
--------------------------------------------------------------------------
1998 1997
----------------------------------- -------------------------------------
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 ALLOWANCES CATEGORY LOANS
----------- --------- ----------- ------------- --------- -----------
(DOLLARS IN THOUSANDS)
One- to four-family............................ $ 318 $ 64,705 79.7% $ 293 $ 60,981 79.6%
Multi-family................................... 1 388 .5 1 195 .3
Commercial real estate......................... 78 4,521 5.6 88 5,343 7.0
Construction and land.......................... 2 798 1.0 1 497 .6
Consumer....................................... 59 4,064 5.0 52 3,619 4.7
Commercial business............................ 62 1,336 1.6 45 1,032 1.3
Home equity loans.............................. 14 4,727 5.8 12 4,053 5.3
Passbook loans................................. 5 544 .7 5 507 .7
Specific....................................... 104 108 .1 205 359 .5
Unallocated.................................... 85 21
----- --------- ----------- ----- --------- -----------
Total........................................ $ 728 $ 81,191 100.00% $ 723 $ 76,586 100.00%
----- --------- ----------- ----- --------- -----------
----- --------- ----------- ----- --------- -----------
|
SECURITIES INVESTMENT ACTIVITIES
Given the Bank's substantial portfolio of fixed-rate residential mortgage loans, the Bank maintains high balances of liquid investments for the purpose of reducing interest rate risk. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Management of Interest Rate Risk". The securities investment policy is established by the Board of Trustees. This policy dictates that investment decisions will be made based on the safety of the investment, liquidity requirements, potential returns, cash flow targets, and desired risk parameters. In pursuing these objectives, management considers the ability of an investment to provide earnings consistent with factors of quality, maturity, marketability and risk diversification.
The Bank's current policies generally limit securities investments to U.S.
Government and agency securities, federal funds sold, municipal bonds, corporate
debt obligations and mutual funds. The two mutual funds in which the Bank
invests have portfolios comprised primarily of adjustable-rate mortgage-backed
securities and were purchased by the Bank to provide interest earning liquid
funds and an adjustable interest rate. In addition, the Bank's policy permits
investments in mortgage-backed securities, including securities issued and
guaranteed by Fannie Mae, Freddie Mac, GNMA and collateralized mortgage
obligations ("CMOs"). The Bank's current securities investment strategy utilizes
a risk management approach of diversified investing between three categories:
short-, intermediate- and long-term. The emphasis of this approach is to
increase overall investment securities yields while managing interest rate risk.
The Bank will only invest in securities rated A or higher by at least one
nationally recognized rating agency (or securities attaining such rating as a
result of guarantees by insurance companies), with the exception of occasional
investments in smaller non-rated local bonds. The Bank does not engage in any
hedging transactions, such as interest rate swaps or caps.
At June 30, 1998, the Bank had $47.8 million in investment securities, or 34.1% of total assets. SFAS No. 115 requires the Bank to designate its securities as held to maturity, available for sale or trading, depending on the Bank's ability and intent regarding its investments. As of June 30, 1998, the entire investment securities portfolio was classified as available for sale. At June 30, 1998, the Bank's mortgage-backed securities portfolio totaled $5.2 million, or 3.7% of total assets and the Bank's asset-backed securities portfolio totalled $6.3 million, or 4.5% of total assets.
BOOK VALUE OF INVESTMENT SECURITIES. The following table sets forth certain information regarding the investment securities and other interest earning assets as of the dates indicated.
JUNE 30,
------------------------------------------
1998 1997
-------------------- --------------------
BOOK % OF BOOK % OF
VALUE TOTAL VALUE TOTAL
--------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
Investment securities available for sale:
U.S. government securities........................................ $ 12,969 27.4% $ 18,532 43.2%
Federal agency obligations........................................ 8,569 18.1 7,145 16.7
Corporate debt securities......................................... 3,736 7.8 3,079 7.3
Municipal bonds................................................... 7,390 15.6 6,312 14.7
Equity securities................................................. 81 .2 100 .2
Mortgage-backed securities........................................ 5,196 11.0 5,221 12.2
Asset-backed securities........................................... 6,305 13.2 784 1.8
Mutual funds...................................................... 2,353 5.0 1,644 3.8
Other............................................................. 75 .2 75 .1
Subtotal........................................................ 46,674 98.5% 42,892 100.00%
FHLB stock.......................................................... 700 1.5 -- --
--------- --------- --------- ---------
Total investment securities and FHLB stock........................ $ 47,374 100.00% $ 42,892 100.00%
--------- --------- --------- ---------
--------- --------- --------- ---------
|
INVESTMENT PORTFOLIO MATURITIES. The following table sets forth the scheduled maturities, book value, market value and weighted average yields for the Bank's investment portfolio at June 30, 1998.
AT JUNE 30, 1998
----------------------------------------------------------------------
LESS THAN 1 TO 5 5 TO 10 OVER TOTAL
1 YEAR YEAR YEARS 10 YEARS SECURITIES
BOOK BOOK BOOK BOOK BOOK MARKET
VALUE VALUE VALUE VALUE VALUE VALUE
----------- --------- --------- ----------- ----------- ---------
(DOLLARS IN THOUSANDS)
U.S. government securities...................... $ 5,731 $ 6,643 $ 595 $ -- $ 12,969 $ 13,190
Federal agency obligations...................... 1,001 7,568 -- -- 8,569 8,620
Mortgage-backed securities...................... 270 3,452 343 1,131 5,196 5,189
Asset-backed securities......................... -- 1,203 2,083 3,019 6,305 6,324
Corporate debt securities....................... 100 2,400 1,236 -- 3,736 3,799
Municipal bonds................................. 955 3,679 2,756 -- 7,390 7,479
Equity securities............................... 81 -- -- -- 81 81
Mutual funds.................................... 2,353 -- -- -- 2,353 2,321
FHLB stock...................................... 700 -- -- -- 700 700
Other........................................... 75 -- -- -- 75 75
----------- --------- --------- ----------- ----------- ---------
Total securities................................ $ 11,266 $ 24,945 $ 7,013 $ 4,150 $ 47,374 $ 47,778
----------- --------- --------- ----------- ----------- ---------
----------- --------- --------- ----------- ----------- ---------
Weighted average yield.......................... 6.36% 6.23% 5.65% 6.25% 6.12% --
----------- --------- --------- ----------- ----------- ---------
----------- --------- --------- ----------- ----------- ---------
|
MORTGAGE-BACKED SECURITIES. The Bank purchases mortgage-backed securities in order to: (i) generate positive interest rate spreads with minimal administrative expense; (ii) lower the Bank's credit risk as a result of the guarantees provided by Freddie Mac, Fannie Mae, and GNMA; and (iii) increase liquidity. At June 30, 1998, mortgage-backed securities (including CMOs) totaled $5.2 million or 3.7% of total assets, all of which were classified as available for sale. At June 30, 1998, all of the mortgage-backed securities were fixed rate. The mortgage-backed securities portfolio had coupon rates ranging from 5.25% to 7.15%, a weighted average yield of 6.13% and a weighted average life (including pre-payment assumptions) of 1.85 years at June 30, 1998. The estimated market value of the Bank's mortgage-backed securities at June 30, 1998 was $5.2 million which was $25,000 greater than the book value.
Mortgage-backed securities are created by the pooling of mortgages and the issuance of a security with an interest rate that is less than the interest rate on the underlying mortgages. Mortgage-backed securities typically represent a participation interest in a pool of single-family or multi-family mortgages, although the Bank focuses its investments on mortgage-backed securities backed by single-family mortgages. The issuers of such securities (generally U.S. Government agencies and government sponsored enterprises, including Fannie Mae, Freddie Mac and GNMA) pool and resell the participation interests in the form of securities to investors, such as the Bank, and guarantee the payment of principal and interest to these investors. Mortgage-backed securities generally yield less than the loans that underlie such securities because of the cost of payment guarantees and credit enhancements. In addition, mortgage-backed securities are usually more liquid than individual mortgage loans and may be used to collateralize certain liabilities and obligations of the Bank. Investments in mortgage-backed securities involve a risk that actual prepayments will be greater than estimated over the life of the security, which may require adjustments to the amortization of any premium or accretion of any discount relating to such instruments thereby altering the net yield on such securities. There is also reinvestment risk associated with the cash flows from such securities or in the event such securities are redeemed by the issuer. In addition, the market value of such securities may be adversely affected by changes in interest rates. Management reviews prepayment estimates periodically to ensure that prepayment assumptions are reasonable considering the underlying collateral for the securities at issue and current interest rates and to determine the yield and estimated maturity of the Bank's mortgage-backed securities portfolio. Of the Bank's $5.2 million mortgage-backed securities portfolio at June 30, 1998, $3.7 million with a weighted average yield of 6.20%
had contractual maturities within five years, $343,000 with a weighted average yield of 5.25% had contractual maturities of five to ten years and the remaining $1.1 million with a weighted average yield of 6.20% had contractual maturities more than 10 years. However, the actual maturity of a security may be less than its stated maturity due to prepayments of the underlying mortgages. Prepayments that are faster than anticipated may shorten the life of the security and may result in a loss of any premiums paid and thereby reduce the net yield on such securities. Although prepayments of underlying mortgages depend on many factors, the difference between the interest rates on the underlying mortgages and the prevailing mortgage interest rates generally is the most significant determinant of the rate of prepayments. During periods of declining mortgage interest rates, refinancing generally increases and accelerates the prepayment of the underlying mortgages and the related security. Under such circumstances, the Bank may be subject to reinvestment risk because, to the extent that the Bank's securities prepay faster than anticipated, the Bank may not be able to reinvest the proceeds of such repayments and prepayments at a comparable rate of return. Conversely, in a rising interest rate environment prepayments may decline, thereby extending the estimated life of the security and depriving the Bank of the ability to reinvest cash flows at the increased rates of interest.
At June 30, 1998, the Bank's portfolio of asset-backed securities totalled $6.3 million, or 4.5% of total assets, all of which were classified as available for sale. At June 30, 1998, all of the asset-backed securities were fixed rate. The portfolio had coupon rates ranging form 5.25% to 7.00%, a weighted average yield of 6.37% and a weighted average life (including pre-payment assumptions) of 1.75 years at June 30, 1998. The estimated market value of the Bank's asset-backed securities portfolio at June 30, 1998 was $6.3 million, which was $19,000 greater than the book value at such date.
Asset-backed securities are a type of debt security collateralized by various loans and assets including: automobile loans, equipment leases, credit card receivables, home equity and improvement loans, manufactured housing, student loans and other consumer loans. In the case of the Bank, its asset-backed securities are collateralized by automobile loans and second-mortgage loans. Issuance of asset-backed securities begins with creation of a special purpose bankruptcy-remote trust to hold collateral on behalf of investors and to administer the distribution of cash flows. The business of a bankruptcy-remote asset-backed securities trust is restricted to the purchase of loans and issuance of debt collateralized by those loans. Because consumer loans are amortizing, alternate principal cash flow structures can be created and tranched in a very similar manner as CMOs. There are several typical structures available to investors in the asset-backed securities market. They are excess spread, senior/subordinated, reserve funds and surety bond guaranteed. Excess spread is the first line of protection for most asset-backed securities and is the difference between interest cash flow from the underlying loans and the combined investor coupon, servicing fee, charge-offs and trust costs. Senior/subordinated structures are internal credit support designating one portion of the transaction as junior to the remaining portion. Obligations to the senior class are honored prior to junior class obligations in the event of a cash flow shortfall from the collateral. A reserve fund is, in effect, part of the subordinated piece retained, in a declining balance, by the trust so that a portion of the junior class may be rated investment grade. Surety bond or guarantee structures are guarantees by third party AAA-rated monoline insurance companies. Insurers generally guarantee (or wrap) the principal and interest payments of 100% of a transaction, not just the subordinated class. Asset-backed securitizations provide the Bank with a broad selection of fixed-income alternatives, most with higher credit ratings and less downgrade risk than corporate bonds and more stable cash flows than mortgage related securities. Prepayments and structure risk of asset-backed securities are less of a concern than CMO securities due to the shorter maturities of the underlying collateral promoting greater stability of payments.
Of the Bank's $6.3 million portfolio of asset-backed securities at June 30, 1998, $1.2 million with a weighted average yield of 5.70% had contractual maturities within 5 years, $2.1 million with a weighted average yield of 6.20% had contractual maturities of 5 to 10 years, and the remaining $3.7 million with a weighted average yield of 6.72% had contractual maturities of more than 10 years.
SOURCES OF FUNDS
GENERAL. Deposits, repayments and prepayments of loans and securities, proceeds from sales of securities, and proceeds from maturing securities and cash flows from operations are the primary sources of the Bank's funds for use in lending, investing and for other general purposes.
DEPOSITS. The Bank offers a variety of deposit accounts with a range of interest rates and terms. The Bank's deposit accounts consist of savings, NOW accounts, non-interest bearing checking accounts and money market accounts, and certificates of deposit. The Bank offers certificates of deposit with balances in excess of $100,000 but does not pay preferential rates on such certificates. The Bank also offers IRAs.
At June 30, 1998, deposits totaled $122.3 million. At June 30, 1998, the Bank had a total of $55.6 million in certificates of deposit, of which $43.1 million had maturities of one year or less. Although the Bank has a significant portion of its deposits in shorter term certificates of deposit, management monitors activity on these accounts and, based on historical experience and the Bank's current pricing strategy, believes it will retain a large portion of such accounts upon maturity.
The flow of deposits is influenced significantly by general economic conditions, changes in money market rates, prevailing interest rates and competition. Deposits are obtained predominantly from the areas in which the Bank's branch offices are located. The Bank relies primarily on competitive pricing of its deposit products and customer service and long-standing relationships with customers to attract and retain these deposits; however, market interest rates and rates offered by competing financial institutions significantly affect the Bank's ability to attract and retain deposits. The Bank uses traditional means of advertising its deposit products, including radio, television, and print media and it generally does not solicit deposits from outside its market area. While certificates of deposit in excess of $100,000 are accepted by the Bank, they are not subject to preferential rates. The Bank does not actively solicit such deposits as they are more difficult to retain than core deposits. Historically, the Bank has not used brokers to obtain deposits.
The following table sets forth the deposit activities of the Bank for the periods indicated.
YEARS ENDED
JUNE 30,
----------------------
1998 1997
---------- ----------
(IN THOUSANDS)
Opening balance....................................................... $ 115,855 $ 114,187
Deposits.............................................................. 228,799 200,355
Withdrawals........................................................... 227,002 203,188
Interest credited..................................................... 4,672 4,501
Ending balance........................................................ 122,324 115,855
Net increase (decrease)............................................... 6,469 1,668
Percent increase (decrease)........................................... 5.58% 1.47%
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The following table indicates the amount of the Bank's certificates of deposit by time remaining until maturity as of June 30, 1998.
OVER
3 MONTHS 4 TO 12 OVER
OR LESS MONTHS 12 MONTHS TOTAL
----------- --------- ----------- ---------
Certificates of deposit less than $100,000............................. 10,828 27,014 11,088 48,930
Certificates of deposit of $100,000 or more............................ 936 4,272 1,464 6,672
----------- --------- ----------- ---------
Total certificates of deposit.......................................... 11,764 31,286 12,552 55,602
----------- --------- ----------- ---------
----------- --------- ----------- ---------
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The following tables set forth information, by various rate categories, regarding the balance of deposits by types of deposit for the periods indicated.
JUNE 30,
----------------------------------------------
1998 1997
---------------------- ----------------------
AMOUNT PERCENT AMOUNT PERCENT
---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
Transactions and Savings Deposits:
Demand Accounts................................................ $ 7,514 6.14% $ 6,345 5.48%
Savings Accounts............................................... 33,412 27.31 32,480 28.04
NOW Accounts................................................... 6,187 5.06 5,341 4.61
Money Market Accounts.......................................... 19,609 16.03 20,439 17.64
---------- ---------- ---------- ----------
Total Non-Certificates........................................... 66,722 54.54 64,605 55.77
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Certificates:
0.00-3.99%..................................................... 612 .50 490 .42
4.00-5.99%..................................................... 46,733 38.20 41,974 36.23
6.00-7.99%..................................................... 8,257 6.76 8,786 7.58
8.00% and over................................................. -- -- -- --
---------- ---------- ---------- ----------
Total Certificates............................................... 55,602 45.46 51,250 44.23
---------- ---------- ---------- ----------
Total Deposits................................................... $ 122,324 100.00% $ 115,855 100.00%
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
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The following table sets forth the amount and remaining maturities of the Bank's certificates of deposit accounts at June 30, 1998.
0.00- 4.00- 6.00 OR PERCENT
3.99% 5.99% GREATER TOTAL OF TOTAL
----------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
Certificate accounts maturing in quarter ending:
30-Sep-98..................................................... $ 612 $ 11,152 $ -- $ 11,764 $ 21.16%
31-Dec-98..................................................... -- 11,518 463 11,981 21.55
31-Mar-99..................................................... -- 9,055 1,944 10,999 19.78
30-Jun-99..................................................... -- 7,101 1,204 8,305 14.94
30-Sep-99..................................................... -- 2,074 395 2,469 4.44
2,398
31-Dec-99..................................................... -- 2,169 229 4.31
31-Mar-00..................................................... -- 1,137 408 1,545 2.78
30-Jun-00..................................................... -- 781 367 1,148 2.06
30-Sep-00..................................................... -- 716 152 868 1.56
31-Dec-00..................................................... -- 685 397 1,082 1.95
31-Mar-01..................................................... -- 104 498 602 1.08
30-Jun-01..................................................... -- 224 316 540 .97
Thereafter.................................................... -- 17 1,884 1,901 3.42
----- --------- --------- --------- ---------
Total......................................................... $ 612 $ 46,733 $ 8,257 $ 55,602 100%
----- --------- --------- --------- ---------
----- --------- --------- --------- ---------
Percent of total.............................................. 1.00% 84.1% 14.9%
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BORROWED FUNDS. In the event that the Bank requires funds beyond its ability to generate them in internally, additional sources of funds are available through the use of short-term FHLB advances and two credit facilities made available to the Bank by other financial institutions. At June 30, 1998, the Bank had no borrowed funds.
PROPERTIES
The Bank currently conducts its business through four full service banking offices. The following table sets forth the Bank's offices as of June 30, 1998. The Bank's current facilities are considered by management to be adequate for the needs of the Bank in the foreseeable future.
ORIGINAL YEAR DATE OF LEASE
LOCATION LEASED OR OWNED LEASED OR ACQUIRED EXPIRATION
----------------------------------------- ---------------- --------------------- --------------- NET BOOK VALUE
OF PROPERTY OR
LEASEHOLD
IMPROVEMENTS AT
JUNE 30, 1998
-------------------
(IN THOUSANDS)
Main Office: (1)
Main & Church Streets Owned 1963 -- 209
Catskill, New York 12414
Full Service Branches:
Route 385 Owned 1974 -- 87
West Coxsackie, NY 12051
Main Street
Cairo, NY 12413 Owned 1988 -- 261
Route 32
Greenville, NY 12083 Owned 1997 -- 973
Operations Dept.:
429 Main Street Leased 1990 May 31, 2000 --
Catskill, NY 12414
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(1) Includes adjacent parking lot.
LEGAL PROCEEDINGS
The Bank is not involved in any pending legal proceedings other than routine legal proceedings occurring in the ordinary course of business which, in the aggregate, involve amounts which are believed by management to be immaterial to the financial condition or operations of the Bank.
PERSONNEL
As of June 30, 1998, the Bank had 53 full-time employees and three part-time employees. The employees are not represented by a collective bargaining unit and the Bank considers its relationship with its employees to be good. See "Management of the Bank--Benefit Plans" for a description of certain compensation and benefit programs offered to the Bank's employees.
FEDERAL AND STATE TAXATION
FEDERAL TAXATION
GENERAL. The Mutual Company, the Company and the Bank will be subject to federal income taxation in the same general manner as other corporations, with some exceptions discussed below. The following discussion of federal taxation is intended only to summarize certain pertinent federal income tax matters and is not a comprehensive description of the tax rules applicable to the Bank.
METHOD OF ACCOUNTING. For federal income tax purposes, the Bank currently reports its income and expenses on the accrual method of accounting and uses a tax year ending December 31 for filing its consolidated federal income tax returns. The Small Business Protection Act of 1996 (the "1996 Act") eliminated the use of the reserve method of accounting for bad debt reserves by savings institutions, effective for taxable years beginning after 1995.
BAD DEBT RESERVES. Prior to the 1996 Act, the Bank was permitted to establish a reserve for bad debts and to make annual additions to the reserve. These additions could, within specified formula limits, be deducted in arriving at the Bank's taxable income. As a result of the 1996 Act, the Bank must use the specific charge off method in computing its bad debt deduction beginning with its 1996 Federal tax return. In addition, the federal legislation requires the recapture (over a six year period) of the excess of tax bad debt reserves at December 31, 1995 over those established as of December 31, 1987. The amount of such reserve subject to recapture as of June 30, 1998, was approximately $379,000.
TAXABLE DISTRIBUTIONS AND RECAPTURE. Prior to the 1996 Act, bad debt reserves created prior to January 1, 1988 were subject to recapture into taxable income should the Bank fail to meet certain thrift asset and definitional tests. New federal legislation eliminated these thrift related recapture rules. However, under current law, pre-1988 reserves remain subject to recapture should the Bank make certain non-dividend distributions.
At June 30, 1998, the Bank's total federal pre-1988 reserve was approximately $379,000. This reserve reflects the cumulative effects of federal tax deductions by the Bank for which no Federal income tax provision has been made.
MINIMUM TAX. The Code imposes an alternative minimum tax ("AMT") at a rate of 20% on a base of regular taxable income plus certain tax preferences ("alternative minimum taxable income" or "AMTI"). The AMT is payable to the extent such AMTI is in excess of an exemption amount. Net operating losses can offset no more than 90% of AMTI. Certain payments of alternative minimum tax may be used as credits against regular tax liabilities in future years. The Bank has not been subject to the alternative minimum tax and has no such amounts available as credits for carryover.
NET OPERATING LOSS CARRYOVERS. A financial institution may carry back net operating losses to the preceding two taxable years and forward to the succeeding 20 taxable years. This provision applies to losses incurred in taxable years beginning after August 5, 1997. At June 30, 1998, the Bank had no net operating loss carryforwards for federal income tax purposes.
CORPORATE DIVIDENDS-RECEIVED DEDUCTION. The Company may exclude from its income 100% of dividends received from the Bank as a member of the same affiliated group of corporations. Following completion of the Reorganization and Offering, it is expected that the Mutual Company will own less than 80% of the outstanding Common Stock of the Company. As such, the Mutual Company will not be permitted to file a consolidated federal income tax return with the Company and the Bank. The corporate dividends-received deduction is 80% in the case of dividends received from corporations with which a corporate recipient does not file a consolidated return, and corporations which own less than 20% of the stock of a corporation distributing a dividend may deduct only 70% of dividends received or accrued on their behalf.
STATE TAXATION
NEW YORK STATE TAXATION. The Company and the Bank will report income on a combined calendar year basis to New York State. New York State Franchise Tax on corporations is imposed in an amount equal to the greater of (a) 9% of "entire net income" allocable to New York State (b) 3% of "alternative entire net income" allocable to New York State (c) 0.01% of the average value of assets allocable to New York State or (d) nominal minimum tax. Entire net income is based on federal taxable income, subject to certain modifications. Alternative entire net income is equal to entire net income without certain modifications.
DELAWARE STATE TAXATION. As a Delaware holding company not earning income in Delaware, the Company is exempt from Delaware corporate income tax but is required to file an annual report with and pay an annual franchise tax to the State of Delaware.
REGULATION
GENERAL
The Bank is a New York-chartered mutual savings bank and its deposit accounts are insured up to applicable limits by the FDIC through the BIF. The Bank is subject to extensive regulation by the Department, as its chartering agency; and by the FDIC, as its deposit insurer. The Bank is required to file reports with, and is periodically examined by, the FDIC and the Superintendent concerning its activities and financial condition and must obtain regulatory approvals prior to entering into certain transactions, including, but not limited to, mergers with or acquisitions of other banking institutions. The Bank is a member of the FHLB of New York and is subject to certain regulations by the Federal Home Loan Bank System. Both the Company and the Mutual Company, as bank holding companies, will be subject to regulation by the Federal Reserve Board and will be required to file reports with the Federal Reserve Board. Any change in such regulations, whether by the Department, the FDIC, or the Federal Reserve Board could have a material adverse impact on the Bank, the Company, or the Mutual Company.
Certain of the regulatory requirements applicable to the Bank, the Company and the Mutual Company are referred to below or elsewhere herein.
NEW YORK BANK REGULATION
The exercise by an FDIC-insured savings bank of the lending and investment powers under the New York State Banking Law is limited by FDIC regulations and other federal law and regulations. In particular, the applicable provisions of New York State Banking Law and regulations governing the investment authority and activities of an FDIC insured state-chartered savings bank have been substantially limited by the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") and the FDIC regulations issued pursuant thereto.
The Bank derives its lending, investment and other authority primarily from the applicable provisions of New York State Banking Law and the regulations of the Department, as limited by FDIC regulations. Under these laws and regulations, savings banks, including the Bank, may invest in real estate mortgages, consumer and commercial loans, certain types of debt securities, including certain corporate debt securities and obligations of federal, state and local governments and agencies, certain types of corporate equity securities and certain other assets. Under the statutory authority for investing in equity securities, a savings bank may invest up to 7.5% of its assets in corporate stock, with an overall limit of 5% of its assets invested in common stock. Investment in the stock of a single corporation is limited to the lesser of 2% of the outstanding stock of such corporation or 1% of the savings bank's assets, except as set forth below. Such equity securities must meet certain earnings ratios and other tests of financial performance. A savings bank's lending powers are not subject to percentage of assets limitations, although there are limits applicable to single borrowers. A savings bank may also, pursuant to the "leeway" power, make investments not otherwise permitted under the New York State Banking Law. This power permits investments in otherwise impermissible investments of up to 1% of assets in any single investment, subject to certain restrictions and to an aggregate limit for all such investments of up to 5% of assets. Additionally, in lieu of investing in such securities in accordance with and reliance upon the specific investment authority set forth in the New York State Banking Law, savings banks are authorized to elect to invest under a "prudent person" standard in a wider range of investment securities as compared to the types of investments permissible under such specific investment authority. However, in the event a savings bank elects to utilize the "prudent person" standard, it will be unable to avail itself of the other provisions of the New York State Banking Law and regulations which set forth specific investment authority. The Bank has not elected to conduct its investment activities under the "prudent person" standard. A savings bank may also exercise trust powers upon approval of the Department.
New York State chartered savings banks may also invest in subsidiaries under their service corporation investment authority. A savings bank may use this power to invest in corporations that engage in various
activities authorized for savings banks, plus any additional activities which may be authorized by the Department. Investment by a savings bank in the stock, capital notes and debentures of its service corporations is limited to 3% of the bank's assets, and such investments, together with the bank's loans to its service corporations, may not exceed 10% of the savings bank's assets. Furthermore, New York banking regulations impose requirements on loans which a bank may make to its executive officers and directors and to certain corporations or partnerships in which such persons have equity interests. These requirements include, but are not limited to, requirements that (i) certain loans must be approved in advance by a majority of the entire board of trustees and the interested party must abstain from participating directly or indirectly in the voting on such loan, (ii) the loan must be on terms that are not more favorable than those offered to unaffiliated third parties, and (iii) the loan must not involve more than a normal risk of repayment or present other unfavorable features.
Under the New York State Banking Law, the Superintendent may issue an order to a New York State chartered banking institution to appear and explain an apparent violation of law, to discontinue unauthorized or unsafe practices and to keep prescribed books and accounts. Upon a finding by the Department that any director, trustee or officer of any banking organization has violated any law, or has continued unauthorized or unsafe practices in conducting the business of the banking organization after having been notified by the Superintendent to discontinue such practices, such director, trustee or officer may be removed from office after notice and an opportunity to be heard. The Bank does not know of any past or current practice, condition or violation that might lead to any proceeding by the Superintendent or the Department against the Bank or any of its trustees or officers.
INSURANCE OF ACCOUNTS AND REGULATION BY THE FDIC
The Bank is a member of the BIF, 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 U.S. 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 FDIC. The FDIC also has the authority to initiate enforcement actions against savings banks, after giving the Superintendent an opportunity to take such action, and may terminate the deposit insurance if it determines that the institution has engaged or is engaging in unsafe or unsound practices, or is in an unsafe or unsound condition.
In late 1995, the FDIC approved a final rule regarding deposit insurance premiums which, effective with respect to the semi-annual premium assessment beginning January 1, 1996, reduced deposit insurance premiums for BIF member institutions to zero basis points (subject to an annual minimum of $2,000) for institutions in the lowest risk category.
As a result of legislation passed in 1996, relating to the recapitalization of the Savings Association Insurance Fund ("SAIF"), from 1997 through 1999, FDIC-insured institutions will pay an insurance premium of approximately 1.3 basis points of their BIF-assessable deposits. Based upon assessable deposits at June 30, 1998, the Bank would expect to pay $3,600 in insurance premiums per quarter during 1998.
REGULATORY CAPITAL REQUIREMENTS
The FDIC has adopted risk-based capital guidelines to which the Bank is subject. The guidelines establish a systematic analytical framework that makes regulatory capital requirements more sensitive to differences in risk profiles among banking organizations. The Bank is required to maintain certain levels of regulatory capital in relation to regulatory risk-weighted assets. The ratio of such regulatory capital to regulatory risk-weighted assets is referred to as the Bank's "risk-based capital ratio." Risk-based capital ratios are determined by allocating assets and specified off-balance sheet items to four risk-weighted
categories ranging from 0% to 100%, with higher levels of capital being required for the categories perceived as representing greater risk.
These guidelines divide a savings bank's capital into two tiers. The first tier ("Tier I") includes common equity, retained earnings, certain non-cumulative perpetual preferred stock (excluding auction rate issues) and minority interests in equity accounts of consolidated subsidiaries, less goodwill and other intangible assets (except mortgage servicing rights and purchased credit card relationships subject to certain limitations). Supplementary ("Tier II") capital includes, among other items, cumulative perpetual and long-term limited-life preferred stock, mandatory convertible securities, certain hybrid capital instruments, term subordinated debt and the allowance for loan and lease losses, subject to certain limitations, less required deductions. Savings banks are required to maintain a total risk-based capital ratio of 8%, of which at least 4% must be Tier I capital.
In addition, the FDIC has established regulations prescribing a minimum Tier I leverage ratio (Tier I capital to adjusted total assets as specified in the regulations). These regulations provide for a minimum Tier I leverage ratio of 3% for banks that meet certain specified criteria, including that they have the highest examination rating and are not experiencing or anticipating significant growth. All other banks are required to maintain a Tier I leverage ratio of 3% plus an additional cushion of at least 100 to 200 basis points. The FDIC may, however, set higher leverage and risk-based capital requirements on individual institutions when particular circumstances warrant. Savings banks experiencing or anticipating significant growth are expected to maintain capital ratios, including tangible capital positions, well above the minimum levels.
STANDARDS FOR SAFETY AND SOUNDNESS
The federal banking agencies have adopted a final regulation and Interagency Guidelines Prescribing Standards for Safety and Soundness ("Guidelines") to implement the safety and soundness standards required under federal law. The Guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. The standards set forth in the Guidelines address internal controls and information systems; internal audit system; credit underwriting; loan documentation; interest rate risk exposure; asset growth; and compensation, fees and benefits. The agencies also adopted additions to the Guidelines which require institutions to examine asset quality and earnings standards. If the appropriate federal banking agency determines that an institution fails to meet any standard prescribed by the Guidelines, the agency may require the institution to submit to the agency an acceptable plan to achieve compliance with the standard, as required by federal law. The final regulations establish deadlines for the submission and review of such safety and soundness compliance plans.
LIMITATIONS ON DIVIDENDS AND OTHER CAPITAL DISTRIBUTIONS
The FDIC has the authority to use its enforcement powers to prohibit a savings bank from paying dividends if, in its opinion, the payment of dividends would constitute an unsafe or unsound practice. Federal law also prohibits the payment of dividends by a bank that will result in the bank failing to meet its applicable capital requirements on a pro forma basis. New York law also restricts the Bank from declaring a dividend which would reduce its capital below (i) the amount required to be maintained by state and federal law and regulations, or (ii) the amount of the Bank's liquidation account established in connection with the Reorganization.
PROMPT CORRECTIVE ACTION
The federal banking agencies have promulgated regulations to implement the system of prompt corrective action required by federal law. Under the regulations, a bank shall be deemed to be (i) "well capitalized" if it has total risk-based capital of 10.0% or more, has a Tier I risk-based capital ratio of 6.0% or more, has a Tier I leverage capital ratio of 5.0% or more and is not subject to any written capital order or directive; (ii) "adequately capitalized" if it has a total risk-based capital ratio of 8.0% or more, a Tier I risk-based capital ratio of 4.0% or more and a Tier I leverage capital ratio of 4.0% or more (3.0% under certain circumstances) and does not meet the definition of "well capitalized"; (iii) "undercapitalized" if it has a total risk-based capital ratio that is less than 8.0%, a Tier I risk-based capital ratio that is less than 4.0% or a Tier I leverage capital ratio that is less than 4.0% (3.0% under certain circumstances); (iv) "significantly undercapitalized" if it has a total risk-based capital ratio that is less than 6.0%, a Tier I risk-based capital ratio that is less than 3.0% or a Tier I leverage capital ratio that is less than 3.0%; and (v) "critically undercapitalized" if it has a ratio of tangible equity to total assets that is equal to or less than 2.0%. Federal law and regulations also specify circumstances under which a federal banking agency may reclassify a well capitalized institution as adequately capitalized and may require an adequately capitalized institution to comply with supervisory actions as if it were in the next lower category (except that the FDIC may not reclassify a significantly undercapitalized institution as critically undercapitalized).
Based on the foregoing, the Bank is currently classified as a "well capitalized" savings institution.
ACTIVITIES AND INVESTMENTS OF INSURED STATE-CHARTERED BANKS
Federal law generally limits the activities and equity investments of FDIC-insured, state-chartered banks to those that are permissible for national banks, notwithstanding state laws. Under regulations dealing with equity investments, an insured state bank generally may not, directly or indirectly, acquire or retain any equity investment of a type, or in an amount, that is not permissible for a national bank. An insured state bank is not prohibited from, among other things, (i) acquiring or retaining a majority interest in a subsidiary; (ii) investing as a limited partner in a partnership the sole purpose of which is the direct or indirect investment in the acquisition, rehabilitation, or new construction of a qualified housing project, provided that such limited partnership investments may not exceed 2% of the bank's total assets; (iii) acquiring up to 10% of the voting stock of a company that solely provides or reinsures directors', trustees', and officers' liability insurance coverage or bankers' blanket bond group insurance coverage for insured depository institutions; and (iv) acquiring or retaining the voting shares of a depository institution if certain requirements are met.
Federal law and FDIC regulations permit certain exceptions to the foregoing limitation. For example, certain state-chartered banks, such as the Bank, may continue to invest in common or preferred stock listed on a National Securities Exchange or the National Market System of NASDAQ, and in the shares of an investment company registered under the Investment Company Act of 1940, as amended. As of June 30, 1998, the Bank had no securities pursuant to this exception.
TRANSACTIONS WITH AFFILIATES
Under current federal law, transactions between depository institutions and their affiliates are governed by Sections 23A and 23B of the Federal Reserve Act. An affiliate of a savings bank is any company or entity that controls, is controlled by, or is under common control with the savings bank, other than a subsidiary. In a holding company context, at a minimum, the parent holding company of a savings bank and any companies which are controlled by such parent holding company are affiliates of the savings bank. Generally, Section 23A limits the extent to which the savings bank or its subsidiaries may engage in "covered transactions" with any one affiliate to an amount equal to 10% of such savings bank's capital stock and surplus, and contains an aggregate limit on all such transactions with all affiliates to an amount equal to 20% of such capital stock and surplus. The term "covered transaction" includes the making of
loans or other extensions of credit to an affiliate; the purchase of assets from
an affiliate, the purchase of, or an investment in, the securities of an
affiliate; the acceptance of securities of an affiliate as collateral for a loan
or extension of credit to any person; or issuance of a guarantee, acceptance, or
letter of credit on behalf of an affiliate. Section 23A also establishes
specific collateral requirements for loans or extensions of credit to, or
guarantees, acceptances on letters of credit issued on behalf of an affiliate.
Section 23B requires that covered transactions and a broad list of other
specified transactions be on terms substantially the same, or no less favorable,
to the savings bank or its subsidiary as similar transactions with
nonaffiliates.
Further, Section 22(h) of the Federal Reserve Act restricts a savings bank
with respect to loans to directors, executive officers, and principal
stockholders. Under Section 22(h), loans to directors, executive officers and
stockholders who control, directly or indirectly, 10% or more of voting
securities of a savings bank, and certain related interests of any of the
foregoing, may not exceed, together with all other outstanding loans to such
persons and affiliated entities, the savings bank's total capital and surplus.
Section 22(h) also prohibits loans above amounts prescribed by the appropriate
federal banking agency to directors, executive officers, and stockholders who
control 10% or more of voting securities of a stock savings bank, and their
respective related interests, unless such loan is approved in advance by a
majority of the board of directors of the savings bank. Any "interested"
director may not participate in the voting. The loan amount (which includes all
other outstanding loans to such person) as to which such prior board of director
approval is required, is the greater of $25,000 or 5% of capital and surplus or
any loans over $500,000. Further, pursuant to Section 22(h), loans to directors,
executive officers and principal stockholders must generally be made on terms
substantially the same as offered in comparable transactions to other persons.
Section 22(g) of the Federal Reserve Act places additional limitations on loans
to executive officers.
HOLDING COMPANY REGULATION
FEDERAL BANK HOLDING COMPANY REGULATION. Upon consummation of the Reorganization, the Company, as the sole shareholder of the Bank, and the Mutual Company, as indirect controlling shareholder of the Bank, will become bank holding companies. Bank holding companies are subject to comprehensive regulation and regular examinations by the Federal Reserve Board under the Bank Holding Company Act of 1956, as amended (the "BHCA"), and the regulations of the Federal Reserve Board. The Federal Reserve Board also has extensive enforcement authority over bank holding companies, including, among other things, the ability to assess civil money penalties, to issue cease and desist or removal orders and to require that a holding company divest subsidiaries (including its bank subsidiaries). In general, enforcement actions may be initiated for violations of law and regulations and unsafe or unsound practices.
After consummation of the Reorganization and Offering, the Company will be subject to capital adequacy guidelines for bank holding companies (on a consolidated basis) which are substantially similar to those of the FDIC for the Bank. On a pro forma consolidated basis after the Reorganization and Offering, the Company's pro forma stockholders' equity will exceed these requirements.
Under Federal Reserve Board policy, a bank holding company must serve as a source of strength for its subsidiary bank. Under this policy the Federal Reserve Board may require, and has required in the past, a holding company to contribute additional capital to an undercapitalized subsidiary bank.
Under the BHCA, a bank holding company must obtain Federal Reserve Board
approval before: (i) acquiring, directly or indirectly, ownership or control of
any voting shares of another bank or bank holding company if, after such
acquisition, it would own or control more than 5% of such shares (unless it
already owns or controls the majority of such shares); (ii) acquiring all or
substantially all of the assets of another bank or bank holding company; or
(iii) merging or consolidating with another bank holding company.
The BHCA also prohibits a bank holding company, with certain exceptions, from acquiring direct or indirect ownership or control of more than 5% of the voting shares of any company which is not a bank or bank holding company, or from engaging directly or indirectly in activities other than those of banking, managing or controlling banks, or providing services for its subsidiaries. The principal exceptions to these prohibitions involve certain non-bank activities which, by statute or by Federal Reserve Board regulation or order, have been identified as activities closely related to the business of banking or managing or controlling banks. The list of activities permitted by the Federal Reserve Board includes, among other things, operating a savings association, mortgage company, finance company, credit card company or factoring company; performing certain data processing operations; providing certain investment and financial advice; underwriting and acting as an insurance agent for certain types of credit-related insurance; leasing property on a full-payout, non-operating basis; selling money orders, travelers' checks and United States Savings Bonds; real estate and personal property appraising; providing tax planning and preparation services; and, subject to certain limitations, providing securities brokerage services for customers.
INTERSTATE BANKING AND BRANCHING. Federal law allows the Federal Reserve Board to approve an application of an adequately capitalized and adequately managed bank holding company to acquire control of, or acquire all or substantially all of the assets of, a bank located in a state other than such holding company's home state, without regard to whether the transaction is prohibited by the laws of any state. The Federal Reserve Board may not approve the acquisition of the bank that has not been in existence for the minimum time period (not exceeding five years) specified by the statutory law of the host state. The Federal Reserve Board is prohibited from approving an application if the applicant (and its depository institution affiliates) controls or would control more than 10% of the insured deposits in the United States or 30% or more of the deposits in the target bank's home state or in any state in which the target bank maintains a branch. Individual states continue to have authority to limit the percentage of total insured deposits in the state which may be held or controlled by a bank or bank holding company to the extent such limitation does not discriminate against out-of-state banks or bank holding companies. Individual states may also waive the 30% state-wide concentration limit referred to above.
Additionally, beginning on June 1, 1997, the federal banking agencies were authorized to approve interstate merger transactions without regard to whether such transaction is prohibited by the law of any state, unless the home state of one of the banks "opted out" by adopting a law which applies equally to all out-of-state banks and expressly prohibits merger transactions involving out-of-state banks. Interstate acquisitions of branches are permitted only if the law of the state in which the branch is located permits such acquisitions. In response to Riegle-Neal, the State of New York enacted laws allowing interstate mergers and branching on a reciprocal basis.
Federal law authorizes the FDIC to approve interstate branching de novo by national and state banks, respectively, only in states which specifically allow for such branching. The appropriate federal banking agencies are required to prescribe regulations which prohibit any out-of-state bank from using the interstate branching authority primarily for the purpose of deposit production. The FDIC and Federal Reserve Board have adopted such regulations. These regulations include guidelines to ensure that interstate branches operated by an out-of-state bank in a host state are reasonably helping to meet the credit needs of the communities which they serve. Should the FDIC determination that a bank interstate branch is not reasonably helping to meet the credit needs of the communities serviced by an interstate branch, the FDIC is authorized to close the interstate branch or not permit the bank to open a new branch in the state in which the bank previously opened an interstate branch.
DIVIDENDS. The Federal Reserve Board has issued a policy statement on the payment of cash dividends by bank holding companies, which expresses the Federal Reserve Board's view that a bank holding company should pay cash dividends only to the extent that the holding company's net income for the past year is sufficient to cover both the cash dividends and a rate of earning retention that is consistent with the holding company's capital needs, asset quality and overall financial condition. The Federal
Reserve Board also indicated that it would be inappropriate for a company experiencing serious financial problems to borrow funds to pay dividends. Furthermore, under the prompt corrective action regulations adopted by the Federal Reserve Board, the Federal Reserve Board may prohibit a bank holding company from paying any dividends if the holding company's bank subsidiary is classified as "undercapitalized."
Bank holding companies are required to give the Federal Reserve Board prior written notice of any purchase or redemption of its outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding 12 months, is equal to 10% or more of their consolidated net worth. The Federal Reserve Board may disapprove such a purchase or redemption if it determines that the proposal would constitute an unsafe or unsound practice or would violate any law, regulation, Federal Reserve Board order, or any condition imposed by, or written agreement with, the Federal Reserve Board. This notification requirement does not apply to any company that meets the well-capitalized standard for commercial banks, has a safety and soundness examination rating of at least a "2" and is not subject to any unresolved supervisory issues.
NEW YORK STATE BANK HOLDING COMPANY REGULATION. In addition to the federal bank holding company regulations, a bank holding company organized or doing business in New York State also may be subject to regulation under the New York State Banking Law. The term "bank holding company," for the purposes of the New York State Banking Law, is defined generally to include any person, company or trust that directly or indirectly either controls the election of a majority of the directors or owns, controls or holds with power to vote more than 10% of the voting stock of a bank holding company or, if the Company is a banking institution, another banking institution, or 10% or more of the voting stock of each of two or more banking institutions. In general, a bank holding company controlling, directly or indirectly, only one banking institution will not be deemed to be a bank holding company for the purposes of the New York State Banking Law. Under New York State Banking Law, the prior approval of the Banking Department is required before: (1) any action is taken that causes any company to become a bank holding company; (2) any action is taken that causes any banking institution to become or be merged or consolidated with a subsidiary of a bank holding company; (3) any bank holding company acquires direct or indirect ownership or control of more than 5% of the voting stock of a banking institution; (4) any bank holding company or subsidiary thereof acquires all or substantially all of the assets of a banking institution; or (5) any action is taken that causes any bank holding company to merge or consolidate with another bank holding company. Additionally, certain restrictions apply to New York State bank holding companies regarding the acquisition of banking institutions which have been chartered five years or less and are located in smaller communities. Officers, directors and employees of New York State bank holding companies are subject to limitations regarding their affiliation with securities underwriting or brokerage firms and other bank holding companies and limitations regarding loans obtained from its subsidiaries. Although the Company will not be a bank holding company for purposes of New York State law upon the Effective Date of the Reorganization, any future acquisition of ownership, control, or the power to vote 10% or more of the voting stock of another bank or bank holding company would cause it to become such.
MUTUAL HOLDING COMPANY REGULATION. Under New York law, the Mutual Company may exercise all powers and privileges of a New York chartered mutual savings bank, except for the power of accepting deposits. As a bank holding company, the Mutual Company is also authorized to exercise all powers and engage in all activities permitted to a bank holding company under the BHCA.
DIVIDEND WAIVERS BY THE MUTUAL HOLDING COMPANY. It has been the policy of many mutual holding companies to waive the receipt of dividends declared by any savings institution subsidiary. In connection with its approval of the Reorganization, however, it is expected that the Federal Reserve Board will impose certain conditions on the waiver by the Mutual Company of dividends paid on the Common Stock. In particular, the Mutual Company is expected to be required to obtain prior Federal Reserve Board approval before it may waive any dividends. As of the date hereof, management does not believe that the Federal
Reserve Board has given its approval to any waiver of dividends by any mutual holding company that has requested its approval.
The terms of the Federal Reserve Board approval of the Reorganization are also expected to require that the amount of any waived dividends will not be available for payment to Minority Stockholders and be excluded from capital for purposes of calculating dividends payable to Minority Stockholders. Moreover, the cumulative amount of waived dividends must be maintained in a restricted capital account which would be added to any liquidation account of the Bank, and would not be available for distribution to Minority Stockholders. The restricted capital account and liquidation account amounts would not be reflected in the Bank's financial statements or the notes thereto, but would be considered as a notational or memorandum account of the Bank, and would be maintained in accordance with the rules, regulations and policy of the Office of Thrift Supervision except that such rules would be administered by the Federal Reserve Board, and any other rules and regulations adopted by the Federal Reserve Board. The Plan of Reorganization also provides that if the Mutual Company converts to stock form in the future, any waived dividends would reduce the percentage of the converted company's shares of Common Stock issued to Minority Stockholders in connection with any such transaction. See "Conversion of the Mutual Company to Stock Form."
Management does not believe that the Mutual Company will initially waive
dividends declared by the Company. If the Mutual Company decides that it is in
its best interest to waive a particular dividend to be paid by the Company, and
the Federal Reserve Board approves such waiver, then the Company would pay such
dividend only to Minority Stockholders, and the amount of the dividend waived by
the Mutual Company would be treated in the manner described above. The Mutual
Company's decision as to whether or not to waive a particular dividend, if such
waiver is approved by the Federal Reserve Board, will depend on a number of
factors, including the Mutual Company's capital needs, the investment
alternatives available to the Mutual Company as compared to those available to
the Company, and regulatory approvals. There can be no assurance (i) that after
the Reorganization the Mutual Company will waive dividends paid by the Company,
(ii) that the Federal Reserve Board will approve any dividend waivers by the
Mutual Company or (iii) of the terms that may be imposed by the Federal Reserve
Board on any dividend waiver.
CONVERSION OF THE MUTUAL COMPANY TO STOCK FORM. New York law, regulations of the Department and the Plan of Reorganization permit the Mutual Company to convert from the mutual to the capital stock form of organization (a "Conversion Transaction"). There can be no assurance when, if ever, a Conversion Transaction will occur, and the board of trustees has no current intention or plan to undertake a Conversion Transaction. In a Conversion Transaction, the Mutual Company would merge with and into the Bank or the Company, with the Bank or the Company as the resulting entity, and certain depositors of the Bank would receive the right to subscribe for additional shares of the resulting entity. In a Conversion Transaction, each share of Common Stock outstanding immediately prior to the completion of the Conversion Transaction held by persons other than the Mutual Company would be automatically converted into and become the right to receive a number of shares of Common Stock of the resulting entity determined pursuant to an exchange ratio that ensures that after the Conversion Transaction, subject to the Dividend Waiver Adjustment described below and any adjustment to reflect the receipt of cash in lieu of fractional shares, the percentage of the to-be outstanding shares of the resulting entity issued to Minority Stockholders in exchange for their Common Stock would be equal to the percentage of the outstanding shares of Common Stock held by Minority Stockholders immediately prior to the Conversion Transaction. The total number of shares held by Minority Stockholders after the Conversion Transaction would also be affected by any purchases by such persons in the offering that would be conducted as part of the Conversion Transaction.
The Dividend Waiver Adjustment would adjust the percentage of the to-be outstanding shares of the resulting entity issued in exchange for minority shares to reflect (i) the aggregate amount of dividends waived by the Mutual Company and (ii) assets other than Common Stock held by the Mutual Company. Pursuant to the Dividend Waiver Adjustment, the percentage of the to-be outstanding shares of the
resulting entity issued to Minority Stockholders in exchange for their minority shares (the "Adjusted Minority Ownership Percentage") is equal to the percentage of the outstanding shares of Common Stock held by Minority Stockholders multiplied by the Dividend Waiver Fraction. The Dividend Waiver Fraction is equal to the product of (a) a fraction, of which the numerator is equal to the Company's stockholders' equity at the time of the Conversion Transaction less the aggregate amount of dividends waived by the Mutual Company and the denominator is equal to the Company's stockholders' equity at the time of the Conversion Transaction, and (b) a fraction, of which the numerator is equal to the appraised pro forma market value of the resulting entity minus the value of the Mutual Company's assets other than Common Stock and the denominator is equal to the pro forma market value of the resulting entity.
FEDERAL SECURITIES LAW
The Common Stock of the Company to be issued in the Offering will be registered with the SEC under the Exchange Act. the Company will be subject to the information, proxy solicitation, insider trading restrictions and other requirements of the SEC under the Exchange Act.
The Company Common Stock held by persons who are affiliates (generally officers, directors and principal stockholders) of the Company may not be resold without registration or unless sold in accordance with certain resale restrictions. If the Company meets specified current public information requirements, each affiliate of the Company is able to sell in the public market, without registration, a limited number of shares in any three-month period.
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, 1998, the Bank was in compliance with these reserve requirements.
COMMUNITY REINVESTMENT ACT
Under the Community Reinvestment Act, as amended (the "CRA"), as implemented by FDIC regulations, a savings bank has a continuing and affirmative obligation, consistent with its safe and sound operation, to help meet the credit needs of its entire community, including low and moderate income neighborhoods. The 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 FDIC, in connection with its examination of a savings institution, 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 by such institution. The CRA requires the FDIC to provide a written evaluation of an institution's CRA performance utilizing a four-tiered descriptive rating system. The Bank's latest CRA rating was "outstanding."
NEW YORK STATE REGULATION. The Bank is also subject to provisions of the New York State Banking Law which impose continuing and affirmative obligations upon banking institutions organized in New York State to serve the credit needs of its local community ("NYCRA") which are substantially similar to those imposed by the CRA. Pursuant to the NYCRA, a bank must file an annual NYCRA report and copies of all federal CRA reports with the Banking Department. The NYCRA requires the Banking Department to make an annual written assessment of a bank's compliance with the NYCRA, utilizing a four-tiered rating system, and make such assessment available to the public. The NYCRA also requires the Superintendent to consider a bank's NYCRA rating when reviewing a bank's application to engage in certain transactions, including mergers, asset purchases and the establishment of branch offices or automated teller machines, and provides that such assessment may serve as a basis for the denial of any such application.
The Bank's NYCRA rating as of its latest examination was "outstanding."
FEDERAL HOME LOAN BANK SYSTEM
The Bank is a member of the FHLB of New York, which is one of 12 regional FHLBs, that administers the home financing credit function of savings institutions. 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. These policies and procedures are subject to the regulation and 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, the Bank is required to purchase and maintain stock in the FHLB of New York. At June 30, 1998, the Bank had $700,000 of FHLB stock. The dividend yield from FHLB stock was 7.45% at June 30, 1998. No assurance can be given that such dividends will continue in the future at such levels.
Under federal law, the FHLBs are required to provide funds for the resolution of troubled savings institutions 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 the Bank's FHLB stock may result in a corresponding reduction in the Bank's capital.
MANAGEMENT OF GREENE COUNTY BANCORP, INC.
DIRECTORS OF THE COMPANY
The Board of Directors of the Company consists of nine members, each of whom is currently serving as a trustee of the Bank. Directors of the 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 class of directors whose term of office expires at the first annual meeting of stockholders following completion of the Reorganization consists of directors Whittaker, O'Grady and Smith. The class of directors whose term expires at the second annual meeting of stockholders following completion of the Reorganization consists of directors Buck, Klein and Camera. The class of directors whose term of office expires at the third annual meeting of stockholders following the completion of the Reorganization consists of directors Ingalls, Slutzky and Jenkins. The biographical information regarding these individuals is set forth under "Management of the Bank--Biographical Information."
EXECUTIVE OFFICERS OF THE COMPANY
The following individuals are executive officers of the Company and hold the offices set forth below opposite their names. The biographical information for each executive officer is set forth under "Management of the Bank--Biographical Information."
NAME AGE* POSITION ---------------------------------------------------- ----- ---------------------------------------------------- J. Bruce Whittaker.................................. 55 President and Chief Executive Officer Bruce P. Egger...................................... 49 Vice President and Secretary Edmund L. Smith, Jr................................. 55 Vice President and Treasurer Daniel T. Sager..................................... 44 Vice President |
* As of June 30, 1998
The executive officers of the Company are elected annually and hold office until their respective successors have been elected or until death, resignation, retirement or removal by the board.
Since the formation of the Company, none of the executive officers has received remuneration from the Company. It is not anticipated that the executive officers of the Company will initially receive any remuneration in his or her capacity as an executive officer. For information concerning compensation of executive officers of the Bank, see "Management of the Bank."
INDEMNIFICATION AND LIMITATION OF LIABILITY
The Certificate of Incorporation of the Company provides that a director or officer of the Company shall be indemnified by the Company to the fullest extent authorized by the Delaware General Corporation Law ("DGCL") against all expenses, liability and loss reasonably incurred or suffered by such person in connection with his or her 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 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 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 or her conduct was unlawful.
In addition, the Certificate of Incorporation and Delaware law also provide that the Company may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Company or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Company has the power to indemnify such person against such expense, liability or loss under the DGCL. The Company intends to obtain such insurance.
The Certificate of Incorporation also provides that directors of the Company
shall not be personally liable to the Company 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 Company 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 (which relates to unlawful dividends or stock
purchases or redemptions), or (iv) for any transaction from which the director
derived an improper personal benefit.
MANAGEMENT OF THE BANK
DIRECTORS OF THE BANK
Upon completion of the Reorganization, the initial directors of the Bank will consist of those persons who currently serve on the Board of Trustees of the Bank. The directors of the Bank will have three year terms which will be staggered to provide for the election of approximately one-third of the board members each year. Directors of the Bank will be elected by the Company as sole stockholder of the Bank. The proposed directors of the Bank are as follows:
DIRECTOR AGE* OCCUPATION DIRECTOR SINCE TERM EXPIRES
------------------------------ ----- --------------------------------------------- --------------- ---------------
Walter H. Ingalls............. 67 Retired Lumber Company President 1966 2001
J. Bruce Whittaker............ 55 President and Chief Executive Officer, Greene 1987 1999
County Savings Bank
Richard J. Buck............... 73 Retired Partner, Insurance Agency 1970 2000
Raphael Klein................. 71 Retired Movie Theater Owner 1986 2000
Paul Slutzky.................. 50 General Manager--Construction Company 1992 2001
Anthony Camera, Jr............ 72 Retired President and Chief Executive 1986 2000
Officer, Mutual Insurance Company
David H. Jenkins, DVM......... 44 Veterinarian/Owner--Catskill Animal Hospital 1996 2001
Dennis R. O'Grady............. 58 Pharmacist/Co-Owner--Mikhitarian Pharmacy 1981 1999
Martin C. Smith............... 53 Employee--Main Bros. Oil Co., Inc. 1993 1999
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* As of June 30, 1998
EXECUTIVE OFFICERS OF THE BANK
The following table sets forth certain information (as of June 30, 1998) regarding the executive officers of the Bank, all of whom currently serve in their indicated position as executive officers of the Bank.
NAME AGE POSITION ---------------------------------------------------- --- ---------------------------------------------------- J. Bruce Whittaker.................................. 55 President and Chief Executive Officer Bruce P. Egger...................................... 49 Vice President and Secretary Edmund L. Smith, Jr................................. 55 Vice President and Treasurer Daniel T. Sager..................................... 44 Vice President--Lending |
The executive officers of the Bank will be elected annually and will hold office until the next annual meeting of the board of directors of the Bank held immediately after the annual meeting of stockholders of the Bank, and until their successors are elected and qualified, or until death, resignation, retirement or removal by the board of directors.
BIOGRAPHICAL INFORMATION
TRUSTEES/DIRECTORS OF THE BANK
J. BRUCE WHITTAKER is President and Chief Executive Officer of the Bank, and has served in that position since 1987. Mr. Whittaker has been affiliated with the Bank in various capacities since 1972. Mr. Whittaker was appointed to the Board of Trustees in 1987.
WALTER H. INGALLS is the Chairman of the Board. Mr. Ingalls is retired. Prior to his retirement, Mr. Ingalls was the President of the GNH Lumber Co., a lumber company located in Norton Hill, New York.
RICHARD J. BUCK is retired. Prior to his retirement he was a partner with Grossman Agency, a general insurance agency in Catskill, New York
RAPHAEL KLEIN is retired. Prior to his retirement he was the co-owner of Klein Theaters, a movie theater chain in Hudson, New York.
PAUL SLUTZKY is the General Manager of I. & O. A. Slutzky Constr. Co., a construction company located in Hunter, New York.
ANTHONY CAMERA, JR. is retired. Prior to his retirement, he was President of Commercial Mutual Insurance Co., an insurance company in Catskill, New York.
DAVID H. JENKINS, DVM is a veterinarian and the owner of Catskill Animal Hospital, Catskill, New York.
DENNIS R. O'GRADY is a pharmacist and the co-owner of Mikhitarian Pharmacy located in Catskill, New York.
MARTIN C. SMITH is currently employed by Main Bros. Oil Co., Inc., and is the former owner of R.E. Smith Fuel Company, which was purchased by Main Bros. Oil Co., Inc., located in Albany, New York.
EXECUTIVE OFFICERS OF THE BANK WHO ARE NOT DIRECTORS
BRUCE P. EGGER has served as Vice President and Secretary of the Bank since 1987 and has been affiliated with the Bank in various capacities since 1977. Prior to that time, Mr. Egger worked in the retail trade.
EDMUND L. SMITH, JR., has served as Vice President and Treasurer of the Bank since 1988 and has been affiliated with the Bank in various capacities since 1975. Prior to that time, Mr. Smith was the bursar of Columbia-Greene Community College.
DANIEL T. SAGER has served as Vice President--Lending of the Bank since 1995 and has been affiliated with the Bank in various capacities since 1987. Prior to that time, Mr. Sager was employed as branch manager for a commercial bank.
MEETINGS AND COMMITTEES OF THE BANK'S BOARD
The Board of Trustees of the Bank meets monthly and may have additional special meetings as may be called by the Chairman or as otherwise provided by law. During the year ended June 30, 1998, the board held 13 meetings. No trustee attended fewer than 75% in the aggregate of the total number of meetings of the board or board committees on which such trustee served during 1997. The Board of Trustees of the Bank has the following standing committees: Audit Committee, Personnel Committee, Appraisal and Loan Committee, Re-Inspection Committee and Executive Committee.
BOARD OF DIRECTORS AND COMMITTEES OF THE COMPANY AFTER THE REORGANIZATION
Following the Reorganization, the board of directors of the Company is expected to meet monthly, or more often as may be necessary. The board of directors initially is expected to have a standing executive committee and an audit committee. The board of directors may, by resolution, designate one or more additional committees.
The executive committee initially will consist of the following six directors of the Company: Messrs. Buck, Ingalls, Klein, Slutzky, Whittaker and Smith. The executive committee is expected to meet as necessary when the board is not in session to exercise general control and supervision in all matters pertaining to the interests of the Company, subject at all times to the direction of the board of directors. The executive committee may also serve as the nominating committee for the purpose of identifying, evaluating and recommending potential candidates for election to the board.
The audit committee initially will consist of the following four directors of the Company: Messrs. Ingalls, Camera, Jenkins and O'Grady. The audit committee is expected to meet at least quarterly to examine and approve the audit report prepared by the independent auditors of the Bank, to review and recommend the independent auditors to be engaged by the Company, to review the internal audit function and internal accounting controls of the Company, and to review and approve audit policies.
COMPENSATION OF TRUSTEES AND DIRECTORS
Directors of the Bank will receive an annual retainer of $6,000 and a fee of $500 per meeting for attendance at Board and Committee meetings. Directors of the Bank and the Company who are also employees of the Bank and the Company are not eligible to receive Board fees. Initially, no separate compensation will be paid to directors for service on the Board of Directors or Board committees of the Company.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table sets forth for the year ended June 30, 1998, certain information as to the total remuneration paid by the Bank to the Chief Executive Officer of the Bank. No other executive officer of the Bank during the year ended June 30, 1998 received total annual compensation in excess of $100,000.
LONG-TERM COMPENSATION
-----------------------------------
AWARDS
ANNUAL COMPENSATION(1) ------------------------ PAYOUTS
---------------------------------------- RESTRICTED OPTIONS/ ---------
OTHER ANNUAL STOCK SARS LTIP ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(2) AWARDS(3) (#)(4) PAYOUTS COMPENSATION(5)
-------------------------------- ---------- --------- ----------------- ----------- ----------- --------- -----------------
J. Bruce Whittaker.............. $ 120,000 $ 2,300 -- -- -- -- $ 3,600
President and Chief Executive
Officer
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(1) In accordance with the rules on executive officer and director compensation disclosure adopted by the SEC, Summary Compensation information is excluded for the years ended June 30, 1997 and 1996, as the Bank was not a public company during such periods.
(2) The Bank also provides each qualifying employee, including Mr. Whittaker, life insurance equal to twice the employee's salary. The aggregate value of this benefit to Mr. Whittaker did not exceed the lesser of $50,000 or 10% of the total annual salary and bonus reported for such officer.
(3) Does not include awards pursuant to the Stock Award Plan, as such awards were not earned, vested or granted in 1998. For a discussion of the terms of the Stock Award Plan which are intended to be adopted by the Company, see "--Benefit Plans--Recognition and Retention Plan."
(4) No stock options or SARs were earned or granted in 1998. For a discussion of the Stock Option Plan which is intended to be adopted by the Company, see "--Benefit Plans--Stock Option Plan."
(5) Consists of the Bank's contribution to the Bank's 401(k) Plan on behalf of Mr. Whittaker.
REPORT OF INDEPENDENT COMPENSATION CONSULTANT
Pursuant to regulations of the Department applicable to the Reorganization, the Bank must obtain the opinion of an independent compensation consultant as to whether or not the total compensation for the executive officers and trustees/directors of the Bank, viewed as a whole and on an individual basis, is reasonable and proper in comparison to the compensation provided to executive officers and directors of similar publicly-traded financial institutions. The Bank has obtained an opinion from William M. Mercer, Incorporated, Rochester, New York, which indicates that, based upon published professional survey data of similarly situated publicly-traded financial institutions operating in the relevant markets as of with respect to the total cash compensation (base salary and annual incentive) for executive officers and total compensation for trustees of the Bank, such compensation, viewed as a whole and on an individual basis, is reasonable and proper in comparison to the compensation provided to similarly situated publicly-traded financial institutions, and that, with respect to the amount of shares of Common Stock expected to be reserved under the ESOP, the Stock Award Plan and Stock Option Plan as a whole, such amounts reserved for granting are reasonable in comparison to similar publicly-traded financial institutions.
COMPENSATION OF OFFICERS AND DIRECTORS THROUGH BENEFIT PLANS. The Bank's current tax-qualified employee pension benefit plans consist of a defined benefit pension plan and a defined contribution plan with a salary deferral feature under 401(k) of the Internal Revenue Code. As a result of the Reorganization, the Company and the Bank will be able to compensate employees with stock-based compensation pursuant to the ESOP, the Recognition and Retention Plan and the Stock Option Plan described below.
EMPLOYMENT AGREEMENT. The Bank intends to enter into an employment
agreement with its President and Chief Executive Officer, J. Bruce Whittaker.
The agreement will have a term of 36 months. On each anniversary date, the
agreement may be extended for an additional twelve months, so that the remaining
term shall be 36 months. If the agreement is not renewed, the agreement will
expire 36 months following the anniversary date. Under the agreement, the
current Base Salary for Mr. Whittaker (as defined in the agreement) is $125,000.
The Base Salary may be increased but not decreased. In addition to the Base
Salary, the agreement provides for, among other things, participation in
retirement plans and other employee and fringe benefits applicable to executive
personnel. In addition to the above, the Bank will provide Mr. Whittaker and his
dependents with continuing health care coverage upon Mr. Whittaker's retirement
or other termination of employment after attainment of age 55 with 25 years of
service, in substantially the same amount as provided to Mr. Whittaker and his
dependents prior to the termination of his employment. Such coverage, which
shall survive the termination or expiration of the agreement, shall cease upon
Mr. Whittaker's attainment of age 65. The agreement provides for termination by
the Bank for cause at any time. In the event the Bank terminates the executive's
employment for reasons other than disability, retirement, or for cause, or in
the event of the executive's resignation from the Bank (such resignation to
occur within the period or periods set forth in the employment agreement) upon
(i) failure to re-elect the executive to his current offices, (ii) a material
change in the executive's functions, duties or responsibilities, or relocation
of his principal place of employment by more than 30 miles, (iii) liquidation or
dissolution of the Bank or the Company, (iv) a breach of the agreement by the
Bank, or (v) following a change in control of the Bank or the Company, the
executive, or in the event of death, his beneficiary, would be entitled to
severance pay in an amount equal to three times the highest Base Salary and the
highest bonus paid during any of the last three years. Mr. Whittaker would
receive an aggregate of $375,000 pursuant to his employment agreement upon a
change in control of the Bank or the Company, based upon his current level of
compensation. The Bank would also continue the executive's life, dental and
disability coverage for 36 months from the date of termination, and would
continue his health
coverage until Mr. Whittaker attains age 65 (as discussed above). In the event the payments to the executive would include an "excess parachute payment" as defined by Code Section 280G (relating to payments made in connection with a change in control), the payments would be reduced in order to avoid having an excess parachute payment.
Under the agreement, the executive's employment may be terminated upon his retirement in accordance with any retirement policy established on behalf of the executive and with his consent. Upon the executive's retirement, he will be entitled to all benefits available to him under any retirement or other benefit plan maintained by the Bank. In the event of the executive's disability for a period of six months, the Bank may terminate the agreement provided that the Bank will be obligated to pay him his Base Salary for the remaining term of the agreement or one year, whichever is longer, reduced by any benefits paid to the executive pursuant to any disability insurance policy or similar arrangement maintained by the Bank. In the event of the executive's death, the Bank will pay his Base Salary to his named beneficiaries for one year following his death, and will also continue medical, dental, and other benefits to his family for one year. The employment agreement provides that, following his termination of employment, the executive will not compete with the Bank for a period of one year.
DEFINED CONTRIBUTION PLAN. Effective September 1, 1995, the Bank adopted the Financial Institutions Thrift Plan (the "Prior Plan"). In connection with the Reorganization, effective October 1, 1998, the Bank withdrew from the Prior Plan and adopted the Greene County Savings Bank Employees' Savings & Profit Sharing Plan and Trust (the "Plan") in order to permit the investment of Plan assets in Common Stock. Employees are eligible to join the Plan on the first of the month following completion of one year of continuous employment (during which 1,000 hours are completed). The first year eligibility period runs from the date of hire to the anniversary of such date. If an employee does not satisfy the eligibility requirements during such period then the next eligibility period shall be the calendar year. Employees are eligible to contribute, on a pre-tax basis, up to 15% of their eligible salary, in increments of 1%. The Bank shall make a matching contribution equal to 50% of a member's contributions on up to 6% of a member's compensation. In addition, the Bank may make an additional discretionary contribution allocated among members' accounts on the basis of compensation. All employee contributions and earnings thereon under the Plan are at all times fully 100% vested. A member vests in employer matching and discretionary contributions at the rate of 20% per year beginning in the second year of employment and continuing until the member is 100% vested after six years of employment. Employees are entitled to borrow, within tax law limits, from amounts allocated to their accounts.
Plan benefits will be paid to each member in a lump sum or in equal payments over a fixed period upon termination, disability or death. In addition, the Plan permits employees to withdraw salary reduction contributions prior to age 59 1/2 or termination in the event the employee suffers a financial hardship. In certain circumstances, the Plan permits employees to withdraw the Bank's matching contributions to their accounts. The Plan permits employees to direct the investment of their own accounts into various investment options.
At December 31, 1997, the market value of the Prior Plan trust fund equaled approximately $899,856. The total contribution (i.e, both the employee and Bank contributions) to the Prior Plan for the Prior Plan year ended December 31, 1997, was approximately $109,654.
DEFINED BENEFIT PENSION PLAN. The Bank maintains the Financial Institutions Retirement Fund, which is a qualified, tax-exempt defined benefit plan ("Retirement Plan"). All employees age 21 or older who have worked at the Bank for a period of one year in which they have 1,000 or more hours of service are eligible for membership in the Plan. Once eligible, an employee must have been credited with 1,000 or more hours of service with the Bank during the year in order to accrue benefits under the Retirement Plan. The Bank annually contributes an amount to the Retirement Plan necessary to satisfy the actuarially determined minimum funding requirements in accordance with the Employee Retirement Income Security Act ("ERISA").
The regular form of all retirement benefits (i.e., normal, early or disability) is a life annuity with a guaranteed term of 10 years. For a married participant, the normal form of benefit is a joint and survivor annuity where, upon the participant's death, the participant's spouse is entitled to receive a benefit equal to 50% of that paid during the participant's lifetime. An optional form of benefit may be selected instead of the normal form of benefits. These optional forms include various annuity forms as well as a lump sum payment after age 55. Benefits payable upon death may be made in a lump sum, installments over 10 years, or a lifetime annuity.
The normal retirement benefit payable at or after age 65, is an amount equal to 1.5% multiplied by years of benefit service (not to exceed 30) times average compensation based on the average of the five years providing the highest average. A reduced benefit is payable upon retirement at age 55 at or after completion of five years of service. A member is fully vested in his account upon completion of 5 or more years of employment or upon attaining normal retirement age.
The following table indicates the annual retirement benefit that would be payable under the Retirement Plan upon retirement at age 65 in calendar year 1998, expressed in the form of a single life annuity for the average salary and benefit service classifications specified below.
HIGHEST YEARS OF SERVICE AND
FIVE-YEAR BENEFIT PAYABLE AT RETIREMENT(1)
AVERAGE ------------------------------------------
COMPENSATION 15 20 25 30
---------------- --------- --------- --------- ---------
$ 50,000 .................. 11,250 15,000 18,750 22,500
$ 75,000 .................. 16,875 22,500 28,125 33,750
$ 100,000 .................. 22,500 30,000 37,500 45,000
$ 125,000 .................. 28,125 37,500 46,875 56,250
$ 150,000 .................. 33,750 45,000 56,250 67,500
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(1) No additional credit is received for years of service in excess of 30, however, increases in compensation after 30 years will generally cause an increase in benefits.
As of September 30, 1997, Mr. J. Bruce Whittaker had 25 years of credited service (I.E., benefit service), under the Retirement Plan.
EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST. The Bank intends to implement an employee stock ownership plan ("ESOP") in connection with the Reorganization. Employees with at least one year of employment with the Bank and who have attained age 21 are eligible to participate. As part of the Reorganization, the ESOP intends to borrow funds from the Company and use those funds to purchase a number of shares equal to up to 8% of Minority Ownership Interest. Collateral for the loan will be the Common Stock purchased by the ESOP. The loan will be repaid principally from the Bank's discretionary contributions to the ESOP over a period of up to ten years. It is anticipated that the interest rate for the loan will be a floating rate equal to the Prime Rate published in the WALL STREET JOURNAL at the time of the Offering. Shares purchased by the ESOP will be held in a suspense account for allocation among participants as the loan is repaid.
Contributions to the ESOP and shares released from the suspense account in an amount proportional to the repayment of the ESOP loan will be allocated among ESOP participants on the basis of compensation in the year of allocation. For this purpose, compensation is defined as wages reported on federal income tax form W-2 but not in excess of Code Section 401(a)(17) limit. Participants in the ESOP will receive credit for service prior to the effective date of the ESOP. A participant is 100% vested in his benefits after five years or upon normal retirement (as defined in the ESOP), early retirement, disability or death of the participant. A participant who terminates employment for reasons other than death, retirement, or disability prior to five years of credited service will forfeit his benefits under the ESOP. Benefits will be payable in the form of Common Stock and/or cash upon death, retirement, early
retirement, disability or separation from service. The Bank's contributions to the ESOP are discretionary, subject to the loan terms and tax law limits, and, therefore, benefits payable under the ESOP cannot be estimated. Pursuant to Statement of Position 93-6, (Employers' Accounting for Employee Stock Ownership Plans), the Bank is required to record compensation expense in an amount equal to the fair market value of the shares released from the suspense account.
In connection with the establishment of the ESOP, the Bank will establish a committee of nonemployee directors to administer the ESOP. The Bank will either appoint its non-employee directors or an independent financial institution to serve as trustee of the ESOP. The ESOP trustee, subject to its fiduciary duty, must vote all allocated shares held in the ESOP in accordance with the instructions of participating employees. Under the ESOP, nondirected shares, and shares held in the suspense account, will be voted in a manner calculated to most accurately reflect the instructions it has received from participants regarding the allocated stock so long as such vote is in accordance with the provisions of ERISA.
STOCK OPTION PLAN. At a meeting of the Company's stockholders to be held no earlier than six months after the completion of the Reorganization, the board of directors intends to submit for shareholder approval a Stock Option Plan for directors and officers of the Bank and of the Company. If approved by the stockholders, Common Stock in an aggregate amount equal to 10% of the Minority Ownership Interest would be reserved for issuance by the Company upon the exercise of the stock options granted under the Stock Option Plan. Ten percent of the shares issued in the Offering would amount to 81,425 shares, 95,794 shares, 110,163 shares and 126,688 shares at the minimum, midpoint, maximum and adjusted maximum of the Offering Range, respectively. If the plan is approved within one year of the completion of the Reorganization, no options would be granted under the Stock Option Plan until the date on which shareholder approval is received.
The exercise price of the options granted under the Stock Option Plan will be equal to the fair market value of the shares on the date of grant of the stock options. If the Stock Option Plan is adopted within one year following the Offering, options will become exercisable at a rate of 20% at the end of each twelve (12) months of service with the Bank after the date of grant, subject to early vesting in the event of death or disability. Options granted under the Stock Option Plan would be adjusted for capital changes such as stock splits and stock dividends. Notwithstanding the foregoing, awards will be 100% vested upon termination of employment due to death or disability, and if the Stock Option Plan is adopted more than 12 months after the Offering, awards would be 100% vested upon normal retirement or a change in control of the Bank or the Company. Under FDIC and Department rules, if the Stock Option Plan is adopted within the first 12 months after completion of the Offering, no individual officer can receive more than 25% of the awards under the plan, no outside director can receive more than 5% of the awards under the plan, and all outside directors as a group can receive no more than 30% of the awards under the plan in the aggregate. No determination has been made as to the specific terms of the plan or as to awards thereunder.
The Stock Option Plan would be administered by a committee of non-employee members of the Company's board of directors. Options granted under the Stock Option Plan to employees could be "incentive" stock options designed to result in beneficial tax treatment to the employee but no tax deduction to the Company. Non-qualified stock options could also be granted under the Stock Option Plan, and will be granted to the non-employee directors who receive grants of stock options. In the event an option recipient terminated his employment or service as an employee or director, the options would terminate during certain specified periods. The Stock Option Plan will terminate ten years following its adoption, unless earlier terminated by the Company.
STOCK AWARD PLAN. At a meeting of the Company's stockholders to be held no earlier than six months after the completion of the Reorganization, the board of directors also intends to submit the Stock Award Plan for shareholder approval. The Stock Award Plan will provide the Bank's directors and officers an ownership interest in the Company in a manner designed to encourage them to continue their service with
the Bank. The Bank will contribute funds to the restricted stock plan from time to time to enable it to acquire an aggregate amount of Common Stock equal to up to 4% of the shares of the Minority Ownership Interest in a larger percentage of the Common Stock issued in the Offering if the restricted stock plan is adopted more than a year after completion of the Offering. Four percent of the shares issued in the Offering would amount to 32,570 shares, 38,318 shares, 44,065 shares or 50,675 shares at the minimum, midpoint, maximum or adjusted maximum of the Offering Range, respectively. In the event that additional authorized but unissued shares would be acquired by the Stock Award Plan after the Offering, the interests of existing stockholders would be diluted. The executive officers and directors will be awarded Common Stock under the Stock Award Plan without having to pay cash for the shares. No awards under the Stock Award Plan will be made until the date the Stock Award Plan is approved by the Company's stockholders.
Awards under the Stock Award Plan would be nontransferable and nonassignable, and during the lifetime of the recipient could only be earned by the director or officer. If the Stock Award Plan is adopted within one year following completion of the Offering, the shares which are subject to an award would vest and be earned by the recipient at a rate of 20% of the shares awarded at the end of each full twelve (12) months of service with the Bank after the date of grant of the award. Awards would be adjusted for capital changes such as stock dividends and stock splits. Notwithstanding the foregoing, awards would be 100% vested upon termination of employment or service due to death or disability, and if the Stock Award Plan is adopted more than 12 months after completion of the Reorganization, awards would be 100% vested upon normal retirement or a change in control of the Bank or the Company. If employment or service were to terminate for other reasons, the award recipient would forfeit any nonvested award. If employment or service is terminated for cause (as would be defined in the Stock Award Plan), shares not already delivered under the Stock Award Plan would be forfeited. Under FDIC and Department rules, if the Stock Award Plan is adopted within the first 12 months after completion of the Reorganization and Offering, shares of Common Stock granted under the restricted stock plan may not exceed 4% of the Minority Ownership Interest, no individual officer can receive more than 25% of the awards under the plan, no outside director can receive more than 5% of the awards under the plan, and all outside directors as a group can receive no more than 30% of the awards under the plan in the aggregate. No determination has been made as to the specific terms of the plan or as to awards thereunder. The Stock Award Plan would be administered by a committee of non-employee members of the Company's board of directors. The Stock Award Plan will terminate fifteen years following its adoption, unless earlier terminated by the Company.
When shares become vested under the Stock Award Plan, the participant will recognize income equal to the fair market value of the Common Stock earned, determined as of the date of vesting, unless the recipient makes an election under Section83(b) of the Code to be taxed earlier. The amount of income recognized by the participant would be a deductible expense for tax purposes for the Company. If the Stock Award Plan is adopted within one year following completion of the Reorganization and Offering, dividends and other earnings will accrue and be payable to the award recipient when the shares vest. If the Stock Award Plan is adopted within one year following completion of the Reorganization and Offering, shares not yet vested under the Stock Award Plan will be voted by the trustee of the Stock Award Plan, taking into account the best interests of the recipients of the Stock Award Plan grants. If the Stock Award Plan is adopted more than one year following completion of the Reorganization and Offering, dividends declared on unvested shares will be distributed to the participant when paid, and the participant will be entitled to vote the unvested shares.
INDEBTEDNESS OF MANAGEMENT
Under New York Banking law, the Bank, as a mutual institution, cannot make a loan to a trustee or a person who is an "executive officer" for regulatory purposes, except for loans made to executive officers that are secured by a first mortgage on a primary residence or by a deposit account at the Bank. Any such loans that are outstanding have been made in the ordinary course of business on the same terms and
conditions as the Bank would make to any other customer and do not involve more than a normal risk of collectibility or present other unfavorable features. Following the Reorganization, the Bank will not be subject to this restriction in connection with loans to directors and executive officers.
RESTRICTIONS ON ACQUISITION OF THE COMPANY
THE MUTUAL HOLDING COMPANY STRUCTURE. Under New York law, the Plan of Reorganization, and the Company's governing corporate instruments, at least 51% of the Company's voting shares must be owned by the Mutual Company. The Mutual Company will be controlled by its board of trustees, who will consist of persons who also are members of the board of directors of the Company and the Bank. The Mutual Company will be able to elect all members of the board of directors of the Company, and as a general matter, will be able to control the outcome of all matters presented to the stockholders of the Company for resolution by vote, except for matters that require a vote greater than a majority. The Mutual Company, acting through its board of trustees, will be able to control the business and operations of the Company and the Bank, and will be able to prevent any challenge to the ownership or control of the Company by Minority Stockholders. Accordingly, a change in control of the Company and the Bank cannot occur unless the Mutual Company first converts to the stock form of organization. Although New York law, applicable regulations and the Plan of Reorganization permit the Mutual Company to convert from the mutual to the capital stock form of organization, it is not anticipated that a conversion of the Mutual Company will occur in the foreseeable future.
In addition to the anti-takeover aspects of the Mutual Company structure, the following is a general summary of certain provisions of the Company's Certificate of Incorporation and bylaws and certain other regulatory provisions which will restrict the ability of stockholders to influence management policies, and 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 Company's Certificate of Incorporation and bylaws and the Bank's proposed stock charter and bylaws, reference should be made in each case to the document in question, each of which is part of the Bank's application to the Superintendent and the Company's Registration Statement filed with the SEC. See "Additional Information." The following discussion does not reflect the powers and provisions of the Bank's charter.
PROVISIONS OF THE COMPANY'S CERTIFICATE OF INCORPORATION AND BYLAWS
RESTRICTIONS ON CALL OF SPECIAL MEETINGS. The Certificate of Incorporation provides that a special meeting of stockholders may be called by the Chairman of the Board of the Company or pursuant to a resolution adopted by a majority of the board of directors. Stockholders are not authorized to call a special meeting of stockholders.
ABSENCE OF CUMULATIVE VOTING. The Certificate of Incorporation provides that there shall be no cumulative voting rights in the election of directors.
LIMITATION ON VOTING RIGHTS. The Certificate of Incorporation provides that
(i) no person shall directly or indirectly offer to acquire or acquire the
beneficial ownership of more than 10% of any class of equity security of the
Company, inclusive of shares of such class held by the Mutual Company (provided
that such limitation shall not apply to the Mutual Company or any tax-qualified
employee stock benefit plans maintained by the Company); and that (ii) shares
beneficially owned in violation of the stock ownership restriction described
above shall not be entitled to vote and shall not be voted by any person or
counted as voting stock in connection with any matter submitted to a vote of
stockholders. For these purposes, a person (including management) who has
obtained the right to vote shares of the Common Stock pursuant to revocable
proxies shall not be deemed to be the "beneficial owner" of those shares if that
person is not otherwise deemed to be a beneficial owner of those shares.
AMENDMENTS TO CERTIFICATE OF INCORPORATION AND BYLAWS. Amendments to the Certificate of Incorporation must be approved by the Company's board of directors and also by a majority of the outstanding shares of the 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 relating to the call of special stockholder meetings, cumulative voting, limitation on voting rights and director liability).
The bylaws may be amended by the affirmative vote of the total number of directors of the Company or the affirmative vote of at least 80% of the total votes eligible to be voted at a duly constituted meeting of stockholders.
FEDERAL RESERVE BOARD REGULATIONS
The Change in Bank Control Act and the BHCA, together with the Federal
Reserve Board regulations under those acts, require that the consent of the
Federal Reserve Board be obtained prior to any person or company acquiring
"control" of a bank holding company. Control is conclusively presumed to exist
if an individual or company acquires more than 25% of any class of voting stock
of the bank holding company. Control is rebuttably presumed to exist if the
person acquires more than 10% of any class of voting stock of a bank holding
company if either (i) the holding company has registered securities under
Section 12 of the Exchange Act or (ii) no other person will own a greater
percentage of that class of voting securities immediately after the transaction.
The regulations provide a procedure to rebut the rebuttable control presumption.
Since the Company's Common Stock will be registered under Section 12 of the
Exchange Act, any acquisition of 10% or more of the Company's Common Stock will
give rise to a rebuttable presumption that the acquiror of such stock controls
the Company, requiring the acquiror, prior to acquiring such stock, to rebut the
presumption of control to the satisfaction of the Federal Reserve Board or
obtain Federal Reserve Board approval for the acquisition of control.
Restrictions applicable to the operations of bank holding companies may deter
companies from seeking to obtain control of the Company. See "Regulation."
NEW YORK BANKING LAW
In addition to federal law, the New York State Banking Law generally requires prior approval of the New York State Banking Board before any action is taken that causes any entity or person to acquire direct or indirect control of a banking institution which is organized in New York State. Control is presumed to exist if any company or person directly or indirectly owns, controls or holds with power to vote 10% or more of the voting stock of a banking institution or of any company or person that owns, controls or holds with power to vote 10% or more of the voting stock of a banking institution.
DESCRIPTION OF CAPITAL STOCK OF THE COMPANY
GENERAL
The Company is authorized to issue 4,000,000 shares of Common Stock having a par value of $.10 per share. The Company currently expects to issue between 1,829,370 and 2,475,030 shares, with an adjusted maximum of 2,846,284 shares, of Common Stock and no shares of Preferred Stock in the Reorganization. Each share of the Common Stock will have the same relative rights as, and will be identical in all respects with, each other share of the Common Stock. Upon payment of the purchase price for the Common Stock, in accordance with the Plan of Reorganization, all such stock will be duly authorized, fully paid, validly issued, and non-assessable.
THE COMMON STOCK OF THE COMPANY WILL REPRESENT NONWITHDRAWABLE CAPITAL, WILL
NOT BE AN ACCOUNT OF AN INSURABLE TYPE, AND WILL NOT BE INSURED BY THE FDIC.
COMMON STOCK
VOTING RIGHTS. Under Delaware law, the holders of the Common Stock will possess exclusive voting power in the Company. Each stockholder will be entitled to one vote for each share held on all matters voted upon by stockholders, except as discussed in "Restrictions on Acquisition of the Company-- Provisions of the Company's Certificate of Incorporation and Bylaws--Limitation on Voting Rights." There will be no right to cumulate votes in the election of directors. If the Company issues Preferred Stock, subsequent to the Reorganization, holders of the Preferred Stock may also possess voting rights.
DIVIDENDS. Upon consummation of the Reorganization, the Company's only asset will be the net proceeds, the ESOP loan and the Bank's common stock. The payment of dividends by the Company is subject to limitations which are imposed by law and applicable regulation. The Company's source for the payment of cash dividends may in the future depend on the receipt of dividends from the Bank. See "Dividend Policy." The holders of Common Stock will be entitled to receive and share equally in such dividends as may be declared by the board of directors of the Company out of funds legally available therefore. If the Company issues Preferred Stock, the holders thereof may have a priority over the holders of the Common Stock with respect to dividends.
LIQUIDATION OR DISSOLUTION. In the unlikely event of the liquidation or dissolution of the Company, the holders of the Common Stock will be entitled to receive--after payment or provision for payment of all debts and liabilities of the Company (including all deposits in the Bank and accrued interest thereon) and after distribution of the liquidation account established upon completion of the Offering for the benefit of Eligible Account Holders and Supplemental Eligible Account Holders who continue their deposit accounts at the Bank--all assets of the Company available for distribution, in cash or in kind. See "The Reorganization and Offering--Liquidation Rights." If Preferred Stock is issued subsequent to the Offering, 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 Company of the full purchase price therefor, each share of the Common Stock will be fully paid and nonassessable.
TRANSFER AGENT AND REGISTRAR
will act as the transfer agent and registrar for
the Common Stock.
LEGAL AND TAX MATTERS
The legality of the Common Stock and the federal income tax consequences of the Reorganization will be passed upon for the Bank and the Company by the firm of Luse Lehman Gorman Pomerenk & Schick, P.C., Washington, D.C., special counsel to the Company and the Bank. The New York income tax consequences of the Reorganization will be passed upon for the Company and the Bank by PricewaterhouseCoopers, LLP. The federal income tax consequences of certain matters relating to the establishment of the Charitable Foundation will be passed upon for the Company and the Bank by PricewaterhouseCoopers. Certain legal matters will be passed upon for Friedman Billings, Ramsey & Co., Inc. by Patton Boggs, LLC, Washington, D.C.
EXPERTS
The financial statements of Greene County Savings Bank as of June 30, 1998 and for each of the years in the two-year period ended June 30, 1998 have been included herein and in the registration statement in reliance upon the report of PricewaterhouseCoopers, LLP, independent certified public accountants, appearing elsewhere herein, and upon the authority of said firm as "Experts" in accounting and auditing.
FinPro has consented to the publication herein of the summary of its report to the Bank and the Company setting forth its belief as to the estimated pro forma market value of the Common Stock upon Reorganization and its valuation with respect to Subscription Rights.
ADDITIONAL INFORMATION
The Company has filed with the SEC a registration statement under the Securities Act 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, NW, Washington, D.C. 20549, and copies of such material can be obtained from the SEC at prescribed rates. The SEC maintains a web site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. The address of this web site is http://www.sec.gov. 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 and are not necessarily complete but do contain all material information regarding such documents; each such statement is qualified by reference to such contract or document.
The Bank has filed an Application with the Department with respect to the Reorganization. Pursuant to the rules and regulations of the Department, this Prospectus omits certain information contained in that Application. The Application may be examined at the office of the Department, 2 Rector Street, New York, New York, and at the Bank's main office at 425 Main & Church Streets, Catskill, New York, 12414-1300.
In connection with the Offering, the Company will register the Common Stock with the SEC under Section 12(g) of the Exchange Act; and, upon such registration, the 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 Company has undertaken that it will not terminate such registration for a period of at least three years following the Reorganization.
A copy of the Certificate of Incorporation and bylaws of the Company, as well as the Plan of Reorganization, are available without charge from the Bank by contacting the Secretary, 425 Main & Church Streets, Catskill, New York, 12414-1300; (518) 943-3700. Copies of the Independent Valuation are available for inspection at each of the Bank's offices.
GREENE COUNTY SAVINGS BANK
FINANCIAL STATEMENTS
(AND REPORT OF INDEPENDENT ACCOUNTANTS)
FOR THE YEARS ENDED JUNE 30, 1998 AND 1997
REPORT OF INDEPENDENT ACCOUNTANT
To the Board of Trustees
Greene County Savings Bank
In our opinion, the accompanying statement of financial condition and the related statements of income and changes in net worth and cash flows present fairly, in all material respects, the financial position of Greene County Savings Bank at June 30, 1998, and the results of their operations and their cash flows for each of the two years in the period ended June 30, 1998, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.
Pricewaterhouse LLP
Albany, New York
August 7, 1998
GREENE COUNTY SAVINGS BANK
STATEMENT OF FINANCIAL CONDITION
JUNE 30, 1998
ASSETS
Cash and due from banks....................................................... $ 2,476,032
Federal funds sold............................................................ 5,796,051
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Total cash and cash equivalents............................................. 8,272,083
Investment securities, at fair value.......................................... 47,778,335
Loans......................................................................... 81,191,211
Less: allowance for possible loan losses.................................... (728,478)
Unearned origination fees and costs, net.................................... (202,771)
-----------
Net loans receivable...................................................... 80,259,962
Premises and equipment........................................................ 2,584,281
Accrued interest receivable................................................... 1,091,120
Prepaid expenses and other assets............................................. 143,600
Other real estate............................................................. 123,548
-----------
Total assets................................................................ $140,252,929
-----------
-----------
LIABILITIES AND NET WORTH
Deposits:
Savings certificates, $100,000 and over..................................... $ 6,672,000
Other savings certificates.................................................. 48,930,036
Regular and day-to-day...................................................... 32,950,825
Money market accounts....................................................... 19,609,467
Checking accounts........................................................... 7,514,136
NOW accounts................................................................ 6,186,521
Christmas Club.............................................................. 460,774
-----------
122,323,759
Accrued interest and other liabilities........................................ 509,314
Accrued income taxes.......................................................... 2,101
Tax escrow funds.............................................................. 1,687,530
-----------
Total liabilities........................................................... 124,522,704
Net worth:
Surplus..................................................................... 2,706,456
Undivided profits........................................................... 12,781,368
Unrealized gain on securities available for sale, net of applicable deferred
income taxes.............................................................. 242,400
-----------
Total net worth........................................................... 16,730,225
-----------
Total liabilities and net worth........................................... $140,252,929
-----------
-----------
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The accompanying notes are an integral part of the financial statements.
GREENE COUNTY SAVINGS BANK
STATEMENTS OF INCOME
FOR THE YEARS ENDED JUNE 30, 1998 AND 1997
1998 1997
------------ ------------
INTEREST INCOME:
Interest on loans................................................................... $ 6,367,282 $ 6,175,215
Interest and dividends on investments:
US Treasury....................................................................... 985,130 962,932
US Government agencies............................................................ 856,073 687,256
State and political subdivisions.................................................. 341,222 362,490
Corporation debt securities....................................................... 405,225 456,678
Mortgage-backed securities........................................................ 110,488 69,863
Other securities.................................................................. 17,724 23,441
Federal funds sold.................................................................. 393,310 536,826
Other interest income............................................................... 26,902 22,615
------------ ------------
9,503,356 9,297,316
------------ ------------
INTEREST EXPENSE:
Interest on deposits................................................................ 4,967,487 4,779,678
------------ ------------
Net interest income............................................................. 4,535,869 4,517,638
------------ ------------
Less: provision for loan losses....................................................... 120,000 125,000
------------ ------------
Net interest income after provision for loan losses................................... 4,415,869 4,392,638
NON-INTEREST INCOME:
Service charges on deposit accounts................................................. 251,188 230,442
Other operating income.............................................................. 185,479 289,968
------------ ------------
Total other income................................................................ 436,667 520,410
------------ ------------
NON-INTEREST EXPENSES:
Salaries and employee benefits...................................................... 1,571,650 1,491,651
Occupancy expense, net.............................................................. 208,381 157,190
Equipment and furniture expense..................................................... 185,476 163,845
Other............................................................................... 1,183,752 960,563
------------ ------------
Total other expenses.............................................................. 3,149,259 2,773,249
------------ ------------
Income before provision for taxes............................................... 1,703,277 2,139,799
PROVISION FOR INCOME TAXES
Current............................................................................. 565,609 720,287
Deferred............................................................................ (12,248) (28,625)
------------ ------------
Total provision for income taxes.................................................. 553,361 691,662
------------ ------------
Net income...................................................................... $ 1,149,916 $ 1,448,137
------------ ------------
------------ ------------
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The accompanying notes are an integral part of the financial statements.
GREENE COUNTY SAVINGS BANK
STATEMENTS OF CHANGES IN NET WORTH
FOR THE YEARS ENDED JUNE 30, 1998 AND 1997
UNREALIZED
GAIN (LOSS)
ON
SECURITIES
AVAILABLE-
FOR-SALE,
NET TOTAL
UNDIVIDED OF DEFERRED NET
PROFITS SURPLUS INCOME TAXES WORTH
------------- ------------ ------------ -------------
Balances at June 30, 1996............................. $ 10,183,316 $ 2,706,456 $ (7,200) $ 12,882,572
Net income for year ended June 30, 1997............... 1,448,137 1,448,137
Change in unrealized gain on securities available for
sale, net of applicable deferred income taxes....... 75,200 75,200
------------- ------------ ------------ -------------
Balance at June 30, 1997.............................. 11,631,453 2,706,456 68,000 14,405,909
------------- ------------ ------------ -------------
Net income for year ended June 30, 1998............... 1,149,916 1,149,916
Change in unrealized gain on securities available for
sale, net of applicable deferred income taxes....... 174,400 174,400
------------- ------------ ------------ -------------
Balance at June 30, 1998.............................. $ 12,781,369 $ 2,706,456 $ 242,400 $ 15,730,225
------------- ------------ ------------ -------------
------------- ------------ ------------ -------------
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The accompanying notes are an integral part of the financial statements.
GREENE COUNTY SAVINGS BANK
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1998 AND 1997
1998 1997
-------------- --------------
Net income........................................................................ $ 1,149,916 $ 1,448,137
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation.................................................................... 147,128 110,400
Net accretion of security premiums and discounts................................ (161,533) (167,837)
Provision for loan losses....................................................... 120,000 125,000
Loss on sale of other real estate............................................... 2,793 12,009
Provision (credit) for deferred income taxes.................................... (12,248) (28,625)
Net change in unearned loan fees and costs...................................... (12,848) (57,951)
Net (increase) decrease in accrued interest receivable.......................... (48,580) 257,062
Net (increase) decrease in prepaids and other assets............................ 11,571 443,512
Net (decrease) increase in other liabilities.................................... (235,666) 47,460
-------------- --------------
Net cash provided by operating activities..................................... 960,533 2,189,167
-------------- --------------
Cash flows from investing activities:
Proceeds from maturities of available-for-sale securities....................... 7,686,731 7,500,000
Purchases of securities available-for-sale...................................... (12,651,981) (10,888,898)
Principal payments on securities available-for-sale............................. 2,423,055 744,667
Principal payments on mortgage-backed securities available-for-sale............... 1,923,198 1,338,993
Purchases of mortgage-backed securities available-for-sale...................... (4,024,423) --
Proceeds from maturities of mortgage-backed securities available-for-sale....... 325,809 --
Proceeds from sale of other real estate......................................... 179,699 68,378
Net increase in loans receivable................................................ (4,971,125) (2,730,620)
Purchases of premises and equipment............................................. (1,060,217) (409,778)
-------------- --------------
Net cash used by investing activities......................................... (10,169,254) (4,377,258)
-------------- --------------
Cash flows from financing activities
Net increase in deposits........................................................ 6,468,829 1,668,328
Net increase (decrease) in escrow payments...................................... 123,905 (25,143)
-------------- --------------
Net cash provided by financing activities..................................... 6,592,734 1,643,185
-------------- --------------
Net decrease in cash and cash equivalents......................................... (2,615,987) (544,906)
Cash and cash equivalents at beginning of period.................................. 10,888,070 11,432,976
-------------- --------------
Cash and cash equivalents at end of period........................................ $ 8,272,083 $ 10,888,070
-------------- --------------
-------------- --------------
Cash paid during the period for:
Interest........................................................................ $ 4,967,903 $ 4,779,770
-------------- --------------
Income taxes.................................................................... $ 833,551 $ 738,257
-------------- --------------
Non-cash investing activity:
Foreclosed loans transferred to other real estate............................... $ 252,007 $ 70,457
-------------- --------------
Net change in unrealized gain on available-for-sale securities.................. $ 174,400 $ 75,200
-------------- --------------
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The accompanying notes are an integral part of the financial statements.
GREENE COUNTY SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS:
Greene County Savings Bank (the "Bank" or "Company"), a New York State-charted mutual savings bank, has four full service offices located in its market area consisting of Greene County, New York. The Bank is primarily engaged in the business of attracting deposits from the general public in the Bank's market area, and investing such deposits, together with other sources of funds, in loans and investment securities.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS:
Cash and cash equivalents include cash on hand, amounts due from banks, interest-bearing deposits (with original maturity of three months or less) and federal funds sold. Generally, federal funds are sold for one-day periods. The carrying amounts reported in the balance sheet for cash and cash equivalents approximate those assets' fair values.
INVESTMENT SECURITIES:
The Company has classified its investments in debt and equity securities as available-for-sale. Available-for-sale securities are reported at fair value, with net unrealized gains and losses reflected as a separate component of net worth, net of applicable income taxes. None of the Company's investment securities have been classified as trading or held-to-maturity securities.
Realized gains or losses on investment security transactions are based on the specific identification method and are reported under other income. Fair values of investment securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. Premiums and discounts are amortized and accreted, respectively, using methods that approximate the effective yield method over the remaining contractual maturity, adjusted for anticipated prepayments.
LOANS:
Fair values for variable rate loans that reprice frequently, with no significant credit risk, are based on carrying values. Fair values for fixed rate loans are estimated using discounted cash flows and interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. The carrying amount of accrued interest approximates fair value.
Interest on loans is accrued and credited to income based upon the principal amount outstanding. Unearned discount on installment loans is recognized as income over the term of the loan, principally using a method that approximates the effective yield method. Nonrefundable loan fees and related direct
GREENE COUNTY SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) costs are deferred and amortized over the life of the loan as an adjustment to loan yield using the effective interest method.
ALLOWANCE FOR POSSIBLE LOAN LOSSES:
The allowance for loan losses is maintained at a level considered adequate to provide for potential loan losses. The allowance is increased by a provision for loan losses, charged to expense, and reduced by net charge-offs. The level of the allowance is based on management's evaluation of the collectibility of the loan portfolio, including the nature of the portfolio, credit concentrations, trends in historical loss experience, specific impaired loans, and economic conditions. The measurement of impaired loans is generally based on the present value of estimated future cash flows, except that all collateral dependent loans are measured for impairment based on the fair value of the collateral.
INCOME RECOGNITION ON IMPAIRED AND NON-ACCRUAL LOANS:
The Bank places a loan, including impaired loans, on nonaccrual status when it is specifically determined to be impaired or when principal and interest is delinquent for 90 days or more. Any unpaid interest previously accrued on these loans is reversed from income. When a loan is specifically determined to be impaired, collection of interest and principal are generally applied as a reduction to principal outstanding. Interest income on all other nonaccrual loans is recognized on a cash basis.
PREMISES AND EQUIPMENT:
Premises and equipment is stated at cost. Depreciation is computed using principally the straight-line method over the estimated useful lives of the related assets. Maintenance and repairs are charged to expense when incurred. Gains and losses from sales or other dispositions of depreciable property are included in current operations.
OTHER REAL ESTATE:
Properties acquired through foreclosure, or by deed in lieu of foreclosure, are carried at the lower of cost (fair value at the date of foreclosure) or fair value less estimated disposal costs.
DEPOSITS:
Fair values disclosed for demand and savings deposits are equal to the carrying amounts at the reporting date. The carrying amounts for variable rate money market and certificates of deposit approximate fair values at the reporting date. Fair values for fixed rate certificates of deposit are estimated using discounted cash flows and interest rates currently being offered on similar certificates. The carrying value of accrued interest approximates fair value.
RESTRICTIONS ON RETAINED EARNINGS:
Retained earnings of the Bank are subject to certain restrictions under New York State Banking regulations. As required under these regulations, if the net worth of the Bank is less than ten percent of the amount due depositors at the close of any accounting period, five percent of net earnings, before dividends paid to depositors and losses on sale of assets, for such period is credited to appropriated retained earnings.
GREENE COUNTY SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Unappropriated retained earnings represent accumulated undistributed net earnings of the Bank which have not been allocated to appropriated equity and are not restricted as to use under New York State banking regulations.
INCOME TAXES:
Provisions for income taxes are based on taxes currently payable or refundable and deferred income taxes on temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements. Deferred tax assets and liabilities are reported in the financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled.
2. INVESTMENT SECURITIES
Securities available-for-sale at June 30, 1998 consist of the following:
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------------- ----------- ----------- -------------
U.S. Treasury.......................... $ 12,969,356 $ 221,625 $ 1,216 $ 13,189,765
U.S. Government agencies............... 8,569,188 59,086 7,793 8,620,481
State and political subdivisions....... 7,389,943 101,296 11,652 7,479,587
Mortgage-backed securities............. 5,196,204 8,442 15,586 5,189,060
Asset-backed securities................ 6,304,752 20,227 1,296 6,323,683
Corporate debt securities.............. 3,735,833 64,429 1,466 3,798,796
Equity securities and other............ 81,454 81,454
Foreign obligations.................... 75,000 75,000
Federal Home Loan Bank stock........... 700,000 700,000
Mutual funds........................... 2,352,605 32,096 2,320,509
------------- ----------- ----------- -------------
$ 47,374,335 $ 475,105 $ 71,105 $ 47,778,335
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
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The amortized cost and estimated fair value of debt securities at June 30, 1998, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities, because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
ESTIMATED
AMORTIZED FAIR
COST VALUE
------------- -------------
Amounts maturing in:
One year or less................................................................. $ 7,787,368 $ 7,828,078
After one year through five years................................................ 20,290,540 20,563,884
After five years through ten years............................................... 4,586,412 4,696,667
Mortgage-backed securities....................................................... 5,196,204 5,189,060
Asset-backed securities.......................................................... 6,304,752 6,323,683
------------- -------------
$ 44,165,276 $ 44,601,372
------------- -------------
------------- -------------
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GREENE COUNTY SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENT SECURITIES (CONTINUED) The Bank participates in a securities lending program with the custodian of substantially all Bank securities. Under the terms of the agreement, the custodian acts as an agent for the Bank and loans available securities to borrowers. At June 30, 1998, $4,985,000 of securities were on loan under this program.
3. LOANS
Major classifications of loans at June 30, 1998 are summarized as follows
Real estate mortgages:
Residential.................................................. $64,705,332
Commercial................................................... 5,706,421
Home equity loans.............................................. 4,727,206
Commercial loans............................................... 1,336,229
Installment loans to individuals............................... 4,171,688
Passbook loans to individuals.................................. 544,335
----------
$81,191,211
----------
----------
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At June 30, 1998, loans to officers and trustees were not significant.
Changes in the allowance for possible loan losses for the periods ended June 30 were as follows:
1998 1997
---------- ----------
Balance, beginning of year............................................ $ 723,019 $ 596,924
Provision charged to expense.......................................... 120,000 125,000
Loans charged off..................................................... (126,224) (11,002)
Recoveries............................................................ 11,683 12,097
---------- ----------
$ 728,478 $ 723,019
---------- ----------
---------- ----------
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At June 30, 1998, the Bank's impaired loans for which specific valuation allowances were recorded were not significant.
4. PREMISES AND EQUIPMENT
A summary of premises and equipment at June 30, 1998 is as follows:
Land............................................................ 409,702
Buildings and improvements...................................... 2,156,500
Furniture and equipment......................................... 1,859,570
---------
4,425,772
Less: accumulated depreciation.................................. (1,841,491)
---------
$2,584,281
---------
---------
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GREENE COUNTY SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES
The provision for income taxes consists of the following:
1998 1997
---------- ----------
Current:
Federal income tax.................................................. $ 471,448 $ 573,013
State income tax.................................................... 94,161 147,274
---------- ----------
Total current..................................................... 565,609 720,287
Deferred income tax................................................. (12,248) (28,625)
---------- ----------
Total income tax expense.......................................... $ 553,361 $ 691,662
---------- ----------
---------- ----------
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The Bank's effective tax rate differs from the federal statutory rate as follows:
1998 1997
--------- ---------
Tax based on federal statutory rate............................................. 34% 34%
State income taxes, net of federal benefit...................................... 3.7 4.5
Tax exempt income............................................................... (5.7) (5.9)
Other, net...................................................................... .5 (.3)
--- ---
Total income tax expense.................................................... 32.5% 32.3%
--- ---
--- ---
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The components of the deferred tax assets and liabilities at June 30 were as follows:
1998 1997
---------- ----------
Deferred tax assets:
Allowance for loan losses........................................... $ 184,414 $ 145,257
Nonaccruing interest................................................ 34,739 17,583
Loan origination fee adjustments.................................... 24,281
---------- ----------
Total deferred tax assets......................................... $ 219,153 $ 187,121
---------- ----------
---------- ----------
Deferred tax liabilities:
Depreciation........................................................ 160,069 133,104
Investments......................................................... 219,403 97,590
---------- ----------
Total deferred tax liabilities.................................... $ 379,472 $ 230,694
---------- ----------
---------- ----------
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GREENE COUNTY SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. COMMITMENTS AND CONTINGENT LIABILITIES
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF CREDIT:
The Bank enters into financial agreements in the normal course of business that have off-balance sheet risk. These agreements include commitments to extend credit and involve, to varying degrees, elements of credit risk in excess of the amount recognized on the statement of financial condition.
The Bank uses the same credit policies in making commitments as it does for on-balance sheet instruments.
Contract amounts of financial instruments that represent credit risk at June 30, 1998 are as follows:
Commercial lines of credit...................................... $ 235,000
Commitments to extend credit.................................... 2,154,300
---------
$2,389,300
---------
---------
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Commitments to extend credit and commercial lines of credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being fully drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer's credit worthiness on a case-by-case basis.
The amount of collateral, if any, required by the Bank upon the extension of credit is based on management's credit evaluation of the customer. Commitments to extend credit are primarily secured by a first lien on real estate. Collateral on extensions of commercial lines of credit varies but may include accounts receivable, inventory, property, plant and equipment, and income producing commercial property.
7. EMPLOYEE BENEFIT PLANS
Substantially all Bank employees who have completed one year of service and attained the age of 21 are covered by a noncontributory, multi-employer, defined benefit pension plan. Under the plan, retirement benefits are primarily a function of both years of service and level of compensation. The Bank recognized pension expense in the amount of $102,000 and $151,000 in 1998 and 1997, respectively.
The Bank also participated in a multi-employer, defined contribution plan covering substantially all employees who have completed one year of service. The plan includes Section 401(k) and Thrift provisions as defined under the Internal Revenue Code. The provisions permit employees to contribute up to 15% of their total compensation on a pre-tax basis. The Bank matches 50% of the first 6% of employee contributions. Company contributions associated with the plan amounted to $56,000 and $36,000 in 1998 and 1997, respectively.
8. LINES-OF-CREDIT
At June 30, 1998, the Bank had available two lines-of-credit from other financial institutions for $2,000,000 and $1,000,000. These credit lines are collateralized by investment securities and carry interest based on the federal funds rate or other published rates. At June 30, 1998, there was no outstanding balances on these credit lines.
GREENE COUNTY SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. CONCENTRATIONS OF CREDIT RISK
The Bank grants residential, consumer and commercial loans to customers primarily located in Greene County, New York. Although the Bank has a diversified loan portfolio, a substantial portion of its debtors' ability to honor their contracts is dependent upon the employment and other economic factors of the County.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company determines fair values based on quoted market values, where available, or on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. Statement of Financial Accounting Standard No. 107, "Disclosures About Fair Value of Financial Instruments," excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company. The methods to determine fair value for each financial instrument are listed in Note 1. The carrying amounts and estimated fair values of financial instruments as of June 30, 1998 are as follows:
JUNE 30, 1998
----------------------
CARRYING FAIR
AMOUNT VALUE
---------- ----------
(IN)THOUSANDS
Cash and short-term investments....................................... $ 8,272 $ 8,272
Investment securities................................................. $ 47,374 $ 47,778
Net loans............................................................. $ 80,260 $ 81,453
Deposits.............................................................. $ 122,324 $ 122,427
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11. REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank'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 Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined). Management believes, as of June 30, 1998, that the Bank meets all capital adequacy requirements to which it is subject.
GREENE COUNTY SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
11. REGULATORY MATTERS (CONTINUED)
TO BE WELL
CAPITALIZED
UNDER PROMPT
CORRECTIVE
FOR CAPITAL ACTION
ACTUAL ADEQUACY PURPOSES PROVISIONS
------------------------ ------------------------- ------------
AMOUNT RATIO AMOUNT RATIO AMOUNT
------------- --------- ------------ ----- ------------
As of June 30, 1998:
Total capital
(to risk weighted assets)........................... $ 16,216,000 21% $ 6,098,000 8% $ 7,622,000
Tier I Capital
(to risk weighted assets)........................... $ 15,488,000 20% $ 3,049,000 4% $ 4,574,000
Tier I capital
(to average assets)................................. $ 15,488,000 11% $ 5,588,000 4% $ 6,985,000
RATIO
---------
As of June 30, 1998:
Total capital
(to risk weighted assets)........................... 10%
Tier I Capital
(to risk weighted assets)........................... 6%
Tier I capital
(to average assets)................................. 5%
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12. SUBSEQUENT EVENT
On July 1, 1998, the Board of Trustees of the Bank adopted a Plan of Conversion to convert from a state-chartered mutual savings bank to a state-chartered stock savings bank with the concurrent formation of a holding company. The holding company will be organized for the purpose of acquiring and holding all of the outstanding capital stock of the Bank to be issued in the conversion. The Conversion is expected to be accomplished through the adoption of a new state stock charter and bylaws for the Bank and the sale of the holding company's stock in an underwritten public offering.
At the time of the Conversion, the Bank will establish a liquidation account in an amount equal to its capital as of the date of the latest statement of financial condition appearing in the final prospectus. The liquidation account will be maintained for the benefit of eligible account holders who continue to maintain their accounts at the Bank after the Conversion. The liquidation account will be reduced annually to the extent that eligible account holders have reduced their qualifying deposits as of each anniversary date. Subsequent increases will not restore an eligible account holder's interest in the liquidation account. In the event of a complete liquidation, each eligible account holder will be entitled to receive a distribution from the liquidation account in an amount proportionate to the current adjusted qualifying balances for account then held.
Subsequent to the Conversion, the Bank may not declare or pay cash dividends on or repurchase any of its shares of common stock if the effect thereof would cause stockholders' equity to be reduced below applicable regulatory capital maintenance requirements or if such declaration and payment would otherwise violate regulatory requirements.
The registration statement on Form SB-2 is expected to be filed by the
proposed holding company of the Bank with the Securities and Exchange Commission
in the fall of 1998, at which point it will become effective in accordance with
Section 8(a) of the Securities Act of 1933.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE BANK. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
UNTIL 1998 OR 25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING, ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS 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.
PROSPECTUS
FRIEDMAN, BILLINGS RAMSEY & CO., INC.
NOVEMBER , 1998
THESE SECURITIES ARE NOT DEPOSITS OR ACCOUNTS
AND ARE NOT FEDERALLY INSURED OR GUARANTEED
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
INDEMNIFICATION OF DIRECTORS AND OFFICERS OF THE CORPORATION
Article 9 of the Certificate of Incorporation of Greene County Bancorp, Inc. (the "Corporation") sets forth circumstances under which directors, officers, employees and agents of the Corporation may be insured or indemnified against liability which they may incur in their capacities as such.
Article 9:
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, Officer, employee or agent of another corporation or of a 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, Officer, employee or agent or in any other capacity while serving as a Director, Officer, employee or agent, shall be indemnified and held harmless by the Corporation to 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 9
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
and "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, services 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 9 shall be contract
rights and such rights shall continue as to an indemnitee who has ceased to be a
Director, Officer, employee or agent 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 9 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 be entitled to be paid also the expenses 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
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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 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 9 or otherwise, shall be on the Corporation.
D. The rights to indemnification and to the advancement of expenses conferred in this Article 9 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, Bylaws, 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 the Board of 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 9 with respect to the indemnification and advancement of expenses of Directors and Officers of the Corporation.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
AMOUNT
----------
* Legal Fees and Expenses.......................................................................... $ 110,000
* Printing, Postage and Mailing.................................................................... 110,000
* Appraisal and Business Plan Fees and Expenses.................................................... 25,000
* Accounting Fees and Expenses..................................................................... 90,000
Blue Sky Filing Fees and Expenses
* (including counsel fees)......................................................................... 20,000
* Conversion Data Processing....................................................................... 7,500
** Underwriter's Fees and Expenses.................................................................. 150,000
* Filing Fees (NASD, New York State and SEC)....................................................... 23,500
* Other Expenses................................................................................... 24,000
----------
* Total............................................................................................ $ 560,000
----------
----------
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* Estimated
** Greene County Bancorp, Inc. has retained Friedman, Billings, Ramsey & Co., Inc. ("FBR") to assist in the sale of common stock on a best efforts basis in the Offering. FBR will receive fees of $110,000, exclusive of estimated expenses of $40,000.
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ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Not Applicable.
ITEM 27. EXHIBITS:
The exhibits filed as part of this registration statement are as follows:
(A) LIST OF EXHIBITS
1.1 Engagement Letter between Greene County Savings Bank and Friedman, Billings, Ramsey &
Co., Inc.
1.2 Agency Agreement among Greene County Bancorp, Inc., Greene County Savings Bank and
Friedman, Billings, Ramsey & Co., Inc. *
2 Plan of Reorganization from a Mutual Savings Bank to a Mutual Holding Company and
Stock Issuance Plan
3.1 Certificate of Incorporation of Greene County Bancorp, Inc.
3.2 Bylaws of Greene County Bancorp, Inc.
3.3 Proposed Charter of The Bank of Greene County
3.4 Proposed Bylaws of The Bank of Greene County
4 Form of Common Stock Certificate of Greene County Bancorp, Inc.
5 Opinion of Luse Lehman Gorman Pomerenk & Schick, P.C. regarding legality of securities
being registered
8.1 Form of Federal Tax Opinion of Luse Lehman Gorman Pomerenk & Schick, P.C.
8.2 Form of State Tax Opinion of PriceWaterhouseCoopers
8.3 Opinion of FinPro, Inc. with respect to Subscription Rights
10.1 Form of Employment Agreement
10.2 Form of Employee Stock Ownership Plan
21 Subsidiaries of the Registrant
23.1 Consent of Luse Lehman Gorman Pomerenk & Schick, P.C. (contained in Opinions included
on Exhibits 5 and 8.1)
23.2 Consent of PriceWaterhouseCoopers
23.3 Consent of FinPro, Inc.
24 Power of Attorney (set forth on signature page)
27.1 EDGAR Financial Data Schedule (in Electronic Filing Only)
99.1 Appraisal Agreement between Greene County Savings Bank and FinPro, Inc.*
99.2 Appraisal Report of FinPro, Inc. (separately filed)**
99.3 Proxy Statement
99.4 Marketing Materials*
|
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99.5 Order and Acknowledgment Form and Certification Form* |
* To be filed supplementally or by amendment.
** Paper copy of this Exhibit was filed supplementally pursuant to Rule 202 of Regulation ST.
ITEM 28. UNDERTAKINGS
The undersigned Registrant hereby undertakes to:
(1) File, during any period in which it offers or sells securities, a post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the Securities Act;
(ii) Reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; (iii) Include any additional or changed material information on the plan of distribution.
(2) For determining liability under the Securities Act, treat each post-effective amendment as a new registration statement of the securities offered, and the offering of the securities at that time to be the initial bona fide offering.
(3) File a post-effective amendment to remove from registration any of the securities that remain unsold at the end of the offering.
The small business issuer will provide to the underwriter at the closing specified in the Underwriting Agreement certificates in such documentation and registered in such names as required by the underwriter to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Act") may be permitted to directors, officers and controlling persons of the small business issuer pursuant to the foregoing provisions, or otherwise, the small business issuer 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 small business issuer of expenses incurred or paid by a director, officer or controlling person of the small business issuer 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 small business issuer will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the questions whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
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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 for filing on Form SB-2 and authorized this registration statement to be signed on its behalf by the undersigned, in the city of Catskill, State of New York on August 27, 1998.
GREENE COUNTY BANCORP, INC.
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POWER OF ATTORNEY
We, the undersigned directors and officers of Greene County Bancorp, Inc. (the "Company") hereby severally constitute and appoint J. Bruce Whittaker as our true and lawful attorney and agent, to do any and all things in our names in the capacities indicated below which said J. Bruce Whittaker may deem necessary or advisable to enable the Company to comply with the Securities Act of 1933, and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with the registration statement on Form SB-2 relating to the offering of the Company's Common Stock, including specifically, but not limited to, power and authority to sign for us in our names in the capacities indicated below the registration statement and any and all amendments (including post-effective amendments) thereto; and we hereby approve, ratify and confirm all that said J. Bruce Whittaker shall do or cause to be done by virtue thereof.
In accordance with the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and as of the dates stated.
SIGNATURE TITLE DATE
------------------------------ --------------------------- -------------------
President, Chief Executive
Officer and Director
------------------------------ (principal executive August 27, 1998
J. Bruce Whittaker officer)
Vice President and
Treasurer (principal
------------------------------ accounting and financial August 27, 1998
Edmund L. Smith, Jr. officer)
Chairman of the Board
------------------------------ August 27, 1998
Walter H. Ingalls
Director
------------------------------ August, 27, 1998
Richard J. Buck
Director
------------------------------ August 27, 1998
Anthony Camera, Jr.
Director
------------------------------ August 27, 1998
David H. Jenkins, Dvm
Director
------------------------------ August 27, 1998
Raphael Klein
Director
------------------------------ August 27, 1998
Dennis R. O'grady
Director
------------------------------ August 27, 1998
Paul Slutzky
Director
------------------------------ August 27, 1998
Martin C. Smith
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EXHIBIT INDEX
1.1 Engagement Letter between Greene County Savings Bank and Friedman, Billings, Ramsey &
Co., Inc.
1.2 Agency Agreement among Greene County Bancorp, Inc., Greene County Savings Bank and
Friedman, Billings, Ramsey & Co., Inc. *
2 Plan of Reorganization from a Mutual Savings Bank to a Mutual Holding Company and
Stock Issuance Plan
3.1 Certificate of Incorporation of Greene County Bancorp, Inc.
3.2 Bylaws of Greene County Bancorp, Inc.
3.3 Charter of The Bank of Greene County.
3.4 Bylaws of The Bank of Greene County.
4 Form of Common Stock Certificate of Greene County Bancorp, Inc.
5 Opinion of Luse Lehman Gorman Pomerenk & Schick, P.C. regarding legality of securities
being registered
8.1 Form of Federal Tax Opinion of Luse Lehman Gorman Pomerenk & Schick, P.C.
8.2 Form of State Tax Opinion of PriceWaterhouseCoopers
8.3 Opinion of FinPro, Inc. with respect to Subscription Rights
10.1 Form of Employment Agreement
10.2 Form of Employee Stock Ownership Plan
21 Subsidiaries of the Registrant
23.1 Consent of Luse Lehman Gorman Pomerenk & Schick, P.C. (contained in Opinions included
on Exhibits 5 and 8.1)
23.2 Consent of PriceWaterhouseCoopers
23.3 Consent of FinPro, Inc.
24 Power of Attorney (set forth on signature page)
27.1 EDGAR Financial Data Schedule (in Electronic Filing Only)
99.1 Appraisal Agreement between Greene County Savings Bank and FinPro, Inc.*
99.2 Appraisal Report of FinPro, Inc. (separately filed) **
99.3 Proxy Statement
99.4 Marketing Materials*
99.5 Order and Acknowledgment Form and Certification Form*
|
* To be filed supplementally or by amendment.
** Paper copy of this Exhibit was filed supplementally pursuant to Rule 202 of Regulation ST.
August 14, 1998
Board of Trustees
Attn: J. Bruce Whittaker
President & Chief Executive Officer
Greene County Savings Bank
425 Main & Church Street
Catskill, NY 12414
RE: Plan of Reorganization and Stock Issuance Marketing Services
Gentlemen:
This letter sets forth the terms of the proposed engagement between Friedman, Billings, Ramsey and Co., Inc. ("FBR") and Greene County Savings Bank ("Greene County") concerning our Investment Banking Services in connection with the proposed reorganization of Greene County from the mutual savings bank format into the mutual holding company structure and concurrent minority stock offering.
FBR is prepared to assist Greene County in connection with the offering of its shares of common stock during the Subscription Offering and Community Offering as such terms are defined in Greene County's Plan of Reorganization and Stock Issuance (the"Plan"). The specific terms of the services contemplated hereunder shall be set forth in a definitive sales agency agreement (the "Agreement") between FBR and Greene County to be executed prior to mailing of the Offering materials. The price of the shares during the Subscription Offering and Community Offering will be the price established by the Greene County Board of Trustees, based upon an independent appraisal as approved by the appropriate regulatory authorities, provided such price is mutually acceptable to FBR and Greene County.
In connection with the Subscription Offering and Community Offering, FBR will render the following services:
1. Act as the Financial Advisor to Greene County
2. Create marketing materials and formulate a marketing plan
3. Conduct training for all Directors and Employees concerning the
reorganization and stock offering
4. Manage Stock Center and staff with FBR personnel
5. Assist Greene County and Attorneys with listing on Nasdaq
6. Provide general advisory services including capital management strategies,
dividend policy and mergers and acquisitions strategies for a period of one
year following the completion of the Offering
After the Offering, FBR intends to become a Market Maker and continue coverage of Greene County through after market support and research.
At the appropriate time, FBR, in conjunction with its counsel, will conduct an examination of the relevant documents and records of Greene County as FBR deems necessary and appropriate. Greene County will make all documents, records and other information deemed necessary by FBR or its counsel available to them upon request.
For its services hereunder, FBR will receive the following compensation and reimbursement from Greene County:
Mr. J. Bruce Whittaker August 14, 1998
1. A management fee of $25,000 payable as follows; $12,500 upon the signing of this letter and $12,500 upon receiving regulatory approval of the Plan Application. Should the Plan be terminated for any reason not attributable to the action or inaction of FBR, FBR shall have earned and be entitled to be paid fees accruing through the stage at which point the termination occurred.
2. A fixed marketing fee of $110,000. The management fee of $25,000 will be subtracted from the marketing fee.
3. The balance of the foregoing commissions are to be payable to FBR at closing as defined in the agreement to be entered into between FBR and Greene County.
4. FBR shall be reimbursed for allocable expenses incurred by them, including legal fees, whether or not the Agreement is consummated. These reimbursable expenses including legal fees shall not exceed $40,000.
It is further understood that Greene County will pay all other expenses of the Plan including but not limited to its attorneys' fees, NASD filing fees, filing and registration fees and fees of either FBR's attorneys or the attorneys relating to any required state securities law filings, telephone charges, air freight, supplies, conversion agent charges, transfer agent charges, fees relating to auditing and accounting and costs of printing all documents necessary in connection with the foregoing.
For purpose of FBR's obligation to file certain documents and to make certain representations to the NASD in connection with the Plan, Greene County warrants that: (a) Greene County has not privately placed any securities within the last 18 months; (b) there have been no material dealings within the last 12 months between Greene County and any NASD member or any person related to or associated with any such member; (c) none of the officers or trustees of Greene County has any affiliation with the NASD; (d) except as contemplated by this engagement letter with FBR , Greene County has no financial or management consulting contracts outstanding with any other person; (e) Greene County has not granted FBR a right of first refusal with respect to the underwriting of any future offering of Greene County stock; and (f) there has been no intermediary between FBR and Greene County in connection with the public offering of Greene County shares, and no person is being compensated in any manner for providing such service.
Greene County agrees to indemnify FBR and its controlling persons, representatives and agents in accordance with the indemnification provisions (the "Indemnification Provisions") set forth in the Appendix, and agrees to the other provisions of the Appendix, which is incorporated herein by this reference, regardless of whether the proposed Offering is consummated.
This letter is merely a statement of intent and is not a binding legal agreement except as to the compensation and reimbursement paragraphs numbered 1-4 above and the indemnity described above. While FBR and Greene County agree in principle to the contents hereof and the purpose to proceed promptly, and in good faith, to work out the arrangements with respect to the proposed offering, any legal obligations between FBR and Greene County shall be only as set forth in a duly executed Agreement. The indemnification provision described above will be superseded by the indemnification provisions of the Agreement entered into by Greene County and FBR. Such Agreement shall be in the form and content satisfactory to, among other things, there being in FBR's opinion no material adverse change in the condition or operations of Greene County or no market conditions which might render the sale of the shares by Greene County hereby contemplated inadvisable.
The validity and interpretation of this Agreement shall be governed by, and construed and enforced in accordance with, the laws of the Commonwealth of Virginia (excluding the conflicts of laws rules).
Mr. J. Bruce Whittaker August 14, 1998
Please acknowledge your agreement to the foregoing by signing below and returning to FBR one copy of this letter along with a payment of $12,500. This proposal is open for your acceptance for a period of thirty (30) days from the date hereof.
Very truly yours,
By: Karen K. Edwards, CFA David H. Neiswander
Title: Managing Director Vice President
Date: August 14, 1998
Agreed and Accepted to this _________ day of ____________ , 1998.
Greene County Savings Bank
Mr. J. Bruce Whittaker August 14, 1998
APPENDIX
Greene County agrees to indemnify and hold harmless FBR and its affiliates (as defined in Rule 405 under the Securities Act of 1933, as amended) and their respective directors, officers, employees, agents and controlling persons (FBR and each person being an "Indemnified Party") from and against all losses, claims, damages and liabilities (or actions, including shareholder actions, in respect thereof), joint or several, to which such Indemnified Party may become subject under any applicable federal or state law, or otherwise, which are related to or result from the performance by FBR of the services contemplated by or the engagement of FBR pursuant to, this letter agreement and will promptly reimburse any Indemnified Party for all reasonable expenses (including reasonable counsel fees and expenses) as they are incurred in connection with the investigation of, preparation for or defense arising from any threatened or pending claim, whether or not such Indemnified Party is a party and whether or not such claim, action or proceeding is initiated or brought by Greene County. Greene County will not be liable to any Indemnified Party under the foregoing indemnification and reimbursement provisions, (i) for any settlement by an Indemnified Party effected without its prior written consent (not to be unreasonably withheld); or (ii) to the extent that any loss, claim, damage or liability is found in a final non-appealable judgment by a court of competent jurisdiction to have resulted primarily from FBR's willful misconduct or gross negligence. Greene County also agrees that no Indemnified Party shall have any liability (whether direct or indirect, in contract or tort or otherwise) to Greene County or its security holders or creditors related to or arising out of the engagement of FBR pursuant to, or the performance by FBR of the services contemplated by, this letter agreement except to the extent that any loss, claim, damage or liability is found in a final non-appealable judgment by a court of competent jurisdiction to have resulted primarily from FBR's willful misconduct or gross negligence.
Promptly after receipt by an Indemnified Party of notice of any intention or threat to commence an action, suit or proceeding or notice of the commencement of any action, suit or proceeding, such Indemnified Party will, if a claim in respect thereof is to be made against Greene County pursuant hereto, promptly notify Greene County in writing of the same. In case any such action is brought against any Indemnified Party and such Indemnified Party notifies Greene County of the commencement thereof, Greene County may elect to assume the defense thereof, with counsel reasonably satisfactory to such Indemnified Party, and an Indemnified Party may retain counsel to participate in the defense of any such action; provided, however, that in no event shall Greene County be required to pay fees and expenses for more than one firm of attorneys representing Indemnified Parties unless the defense of one Indemnified Party is unique or separate from that of another Indemnified Party subject to the same claim or condition. Any failure or delay by an Indemnified Party to give the notice referred to in this paragraph shall not affect such Indemnified Party's right to be indemnified hereunder, except to the extent that such failure or delay causes actual harm to Greene County, or prejudices its ability to defend such action, suit or proceeding on behalf of such Indemnified Party.
If the indemnification provided for in this letter agreement is for any reason held unenforceable by an Indemnified Party (other than as a result of a judicial determination as to FBR's willful misconduct or gross negligence), Greene County agrees to contribute to the losses, claims, damages and liabilities for which such indemnification is held unenforceable (i) in such proportion as is appropriate to reflect the relative benefits to Greene County, on the one hand, and FBR on the other hand, of the Offering as contemplated (whether or not the Offering is consummated) or, (ii) if (but only if) the allocation provided for in clause (i) is for any reason unenforceable, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) but also the relative fault of Greene County, on the one hand and FBR, on the other hand, as well as any other relevant equitable considerations. Greene County agrees that for the purposes of this paragraph the relative benefits to Greene County and FBR of the Transactions as contemplated shall be deemed to be in the same proportion that the total value received or contemplated to be received by Greene County or its shareholders, as the case may be, as a result of or in connection with the Transactions bear to the fees paid or to be paid to FBR under this letter agreement. Notwithstanding the foregoing, Greene County expressly agrees that FBR shall not be required to contribute any amount in excess of the amount by which fees owed FBR hereunder (excluding reimbursable expenses), exceeds the amount of any damages which FBR has otherwise been required to pay.
Mr. J. Bruce Whittaker August 14, 1998
Greene County agrees that without FBR's prior written consent, which shall not be unreasonably withheld, it will not settle, compromise or consent to the entry of any judgment in any pending or threatened claim, action or proceeding in respect of which this indemnification could be sought under the indemnification provisions of this letter agreement (in which FBR or any other indemnified Party is an actual or potential party to such claim, action or proceeding), unless such settlement, compromise or consent includes an unconditional release of each Indemnified Party from all liability arising out of such claim, action or proceeding.
In the event that an Indemnified Party is requested or required to appear as a witness in any action brought by or on behalf of or against Greene County in which such Indemnified Party is not named as a defendant, Greene County agrees to promptly reimburse FBR on a monthly basis for all expenses incurred by it in connection with such Indemnified Party's appearing and preparing to appear as such a witness, including, without limitation, the reasonable fees and disbursements of its legal counsel. In addition to any reimbursed fees, expenses or costs outlined hereunder, FBR shall also receive from Greene County cash compensation of $1,000.00 per person, per day, plus reasonable out-of-pocket expenses and costs should FBR be required to provide testimony in any formal or informal proceeding regarding the Offering.
If multiple claims are brought with respect to at least one of which indemnification is permitted under applicable law and provided for under this agreement, we agree that any judgment or arbitrated award shall be conclusively deemed to be based on claims as to which indemnification is permitted and provided for, except to the extent the judgment or arbitrated award expressly states that the award, or any portion thereof, is based solely on a claim as to which indemnification is not available.
In the event that Greene County does not promptly assume the defense of a claim or action, the Indemnified Party shall have the right to employ counsel reasonable satisfactory to Greene County, at Greene County's expense, to defend such pending or threatened action or claim.
Agreed and Accepted to this _________ day of ___________, 1998.
Greene County Savings Bank
GREENE COUNTY SAVINGS BANK
PLAN OF REORGANIZATION
FROM A MUTUAL SAVINGS BANK
TO A MUTUAL HOLDING COMPANY
AND STOCK ISSUANCE PLAN
TABLE OF CONTENTS
1. Introduction - Business Purpose..........................................................................1 2. Definitions..............................................................................................2 3. The Reorganization.......................................................................................7 4. Conditions to Implementation of the Reorganization......................................................10 5. Special Meeting and Vote Required to Approve the Plan...................................................11 6. Charters and Bylaws.....................................................................................12 7. Liquidation and Voting Rights...........................................................................12 8. Conversion of MHC to a Federal MHC......................................................................12 9. Conversion of MHC to Stock Form.........................................................................12 10. Timing of the Reorganization and Sale of Capital Stock..................................................13 11. Number of Shares to be Offered..........................................................................14 12. Independent Valuation and Purchase Price of Shares......................................................14 13. Method of Offering Shares and Rights to Purchase Stock..................................................15 14. Additional Limitations on Purchases of Common Stock.....................................................17 15. Payment for Stock.......................................................................................19 16. Manner of Exercising Subscription Rights Through Order Forms............................................20 17. Undelivered, Defective or Late Order Form; Insufficient Payment.........................................21 18. Completion of the Stock Offering........................................................................21 19. Market for Common Stock.................................................................................21 20. Stock Purchases by Management s After the Stock Offering................................................21 21. Resales of Stock by Management Persons..................................................................22 22. Stock Certificates......................................................................................22 23. Restriction on Financing Stock Purchases................................................................22 24. Stock Benefit Plans.....................................................................................22 25. Post-Reorganization Filing and Market Making............................................................23 26. Liquidation Account.....................................................................................23 27. Employment and Other Severance Agreements...............................................................24 28. Payment of Dividends and Repurchase of Stock............................................................24 29. Establishment of Charitable Foundation.................................................................25 30. Interpretation..........................................................................................25 31. Reorganization and Stock Offering Expenses..............................................................25 32. Amendment or Termination of the Plan....................................................................25 Exhibits -------- Exhibit A ....... Restated Organization Certificate and Bylaws of the Bank Exhibit B ....... Certificate of Incorporation and Bylaws of the Holding Company Exhibit C ....... Organization Certificate and Bylaws of the Mutual Holding Company |
1. Introduction - Business Purpose
The Board of Trustees of Greene County Savings Bank (the "Bank") has adopted this Plan of Reorganization from a Mutual Savings Bank to a Mutual Holding Company and Stock Issuance Plan (the "Plan") pursuant to which the Bank proposes to reorganize from a state-chartered mutual savings bank into the mutual holding company structure (the "Reorganization") under the laws of the State of New York and the regulations of the Banking Board and the FDIC, and other applicable Federal laws and regulations. As part of the Reorganization and the Plan, the Bank will convert to a New York-chartered stock savings bank (the "Stock Bank"), and will establish Greene County Bancorp, MHC (the "MHC") as a New York corporation and Greene County Bancorp (the "Holding Company") as a Delaware corporation. The Holding Company will be a majority-owned subsidiary of the MHC at all times so long as the MHC remains in existence, and the Stock Bank will become a wholly-owned subsidiary of the Holding Company. Concurrently with the Reorganization, the Holding Company intends to offer for sale up to 49.0% of its Common Stock in the Stock Offering on a priority basis to qualifying depositors and Tax-Qualified Employee Plans of the Bank, with any remaining shares offered to the public in a Community Offering. The Board of Trustees may, in its sole discretion, elect to form the MHC and Holding Company as federal corporations chartered and regulated by the Office of Thrift Supervision ("OTS") in which case all references to holding company applications to, and regulation by, the FRB or the Department, shall mean the OTS.
The primary purpose of the Reorganization is to establish a holding company and stock savings bank charter which will enable the Bank to compete and expand more effectively in the financial services marketplace. The Reorganization will permit the Holding Company to issue Capital Stock, which is a source of capital not available to mutual savings banks. Since the Holding Company will not be offering all of its common stock for sale to depositors and the public in the Stock Offering, the Reorganization will result in less capital raised in comparison to a standard mutual-to-stock conversion. The Reorganization also will offer the Bank more capital raising opportunities to effect future transactions, including the acquisition of banks and other financial services companies, since a majority of the Holding Company's common stock will be available for sale in the future. It will also provide the Bank with greater flexibility to structure and finance the expansion of its operations, including the potential acquisition of other financial institutions. Lastly, the Reorganization will enable the Bank to better manage its capital by providing broader investment opportunities through the holding company structure and by enabling the Bank to distribute excess capital to stockholders of the Holding Company. Although the Reorganization and Stock Offering will create a stock savings bank and stock holding company, only a minority of the Common Stock will be offered for sale in the Stock Offering. As a result, the Bank's mutual form of ownership and its ability to remain an independent savings bank and to provide community-oriented financial services will be preserved through the mutual holding company structure.
As part of the Reorganization, and consistent with the Bank's ongoing commitment to remain an independent community-oriented savings bank, the Bank may establish a charitable foundation. The charitable foundation would be intended to compliment the Bank's existing community reinvestment and charitable activities in a manner that would allow the local community to share in the growth and success of the Bank. The Holding Company may donate to the charitable foundation immediately following the Reorganization cash, securities or Common Stock in an amount equal to up to 5% of the Common Stock issued in the Stock Offering.
This Plan has been unanimously approved by the Board of Trustees of the Bank and must be approved by the affirmative vote of at least (i) a majority of the eligible votes of Voting Depositors, and (ii) 75% of the aggregate dollar amount of deposits of the Voting Depositors represented at the Special Meeting either in person or by valid proxy and entitled to vote thereat. Each Voting Depositor will be entitled to cast one vote for each $100 or fraction thereof of deposits in the Bank on the Voting Record Date. No Voting Depositor may cast more than 1,000 votes at the Special Meeting. By approving the Plan, the Voting Depositors will also be approving all steps necessary and incidental to the formation of the Stock Bank, the Holding Company and the MHC, including any merger necessary to consummate the Reorganization. The Reorganization is subject to the approval of the Superintendent, the Federal Reserve Board and the FDIC.
2. Definitions
As used in this Plan, the terms set forth below have the following meanings:
Acting in Concert: Means (i) knowing participation in a joint activity or interdependent conscious parallel action towards a common goal whether or not pursuant to an express agreement; (ii) a combination or pooling of votes or other interests in the securities of an issuer for a common purpose pursuant to any contract, understanding, relationship, agreement or other arrangement, whether written or otherwise; or (iii) a person or company which acts in concert with another persons or company ("other party") shall also be deemed to be acting in concert with any person or company who is also acting in concert with the other party, except that any Tax-Qualified Employee Benefit Plan or Non-Tax-Qualified Employee Benefit Plan will not be deemed to be acting in concert with any other Tax-Qualified Employee Benefit Plan or Non- Tax-Qualified Employee Benefit Plan or with its trustee or a person who serves in a similar capacity solely for the purpose of determining whether stock held by the trustee and stock held by the plan will be aggregated. The determination of whether a group is acting in concert shall be made solely by the Board of Trustees of the Bank or officers delegated by such Board, and may be based on any evidence upon which the Board or such delegatee chooses to rely.
Actual Subscription Price: The price per share, determined as provided in this Plan, at which the Common Stock will be sold in the Subscription Offering.
Affiliate: Any person that controls, is controlled by, or is under common control with another person.
Associate: The term "Associate," when used to indicate a relationship with any person, means: (i) any corporation or organization (other than the Bank, the Holding Company, the MHC or a majority-owned subsidiary of any thereof) of which such person is a director, officer or partner or is, directly or indirectly, the beneficial owner of 10% or more of any class of equity securities; (ii) any trust or other estate in which such person has a substantial beneficial interest or as to which such person serves as trustee or in a similar fiduciary capacity; (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 Bank, the MHC, the Stock Holding Company or any subsidiary of the MHC or the Holding Company or any affiliate thereof; and (iv) any person acting in concert with any of the persons or entities specified in clauses (i) through (iii) above; provided, however, that any Tax-Qualified or Non-Tax-Qualified Employee Plan shall not be deemed to be an associate of any trustee, director or officer of the MHC, the Holding Company or the Bank, to the
extent provided in Sections 11-13 hereof. When used to refer to a person other than an officer or director of the Bank, the Bank in its sole discretion may determine the persons that are Associates of other persons.
Bank: Greene County Savings Bank in its pre-Reorganization form and post-Reorganization stock form, as indicated by the context.
Banking Board: The Banking Board of the New York State Banking Department.
Banking Law: The Banking Law of the State of New York.
BHCA: The Bank Holding Company Act of 1956, as amended.
BIF: The Bank Insurance Fund.
BMA: The Bank Merger Act.
Capital Stock: Any and all authorized stock of the Bank or the Holding Company.
Charitable Foundation: The Charitable Foundation established in connection with the Reorganization pursuant to Section 29 of the Plan.
Common Stock: Common stock issuable by the Holding Company in connection with the Reorganization, including securities convertible into Common Stock, pursuant to its certificate of incorporation.
Community: Greene County, New York.
Community Offering: The offering to certain members of the general public of any unsubscribed shares in the Subscription Offering which may be effected pursuant to this Plan. The Community Offering may include a syndicated community offering or public offering.
Department: The State of New York Banking Department.
Deposit Account(s): All withdrawable deposits of the Bank as defined in
Section 9019 of the Banking Law, including, without limitation, savings, time,
demand, NOW accounts, money market, certificate and passbook accounts maintained
by the Bank.
Community Offering: The offering to certain members of the general public of any unsubscribed shares in the Subscription Offering which may be effected pursuant to this Plan. The Community Offering may include a syndicated community offering or public offering.
Effective Date: The date upon which all necessary approvals have been obtained to consummate the Reorganization, and the transfer of assets and liabilities of the Bank to the Stock Bank is completed.
Eligible Account Holder: Any person holding a Qualifying Deposit on the Eligibility Record Date.
Eligibility Record Date: June 30, 1997, the date for determining who qualifies as an Eligible Account Holder.
ESOP: The Bank's employee stock ownership plan.
Estimated Valuation Range: The range of the estimated pro forma market value of the total number of shares of Common Stock to be issued by the Holding Company to the MHC and to Minority Stockholders, as determined by the Independent Appraiser prior to the Subscription Offering and as it may be amended from time to time thereafter.
Exchange Act: The Securities Exchange Act of 1934, as amended.
FDIC: The Federal Deposit Insurance Corporation.
FRB: The Board of Governors of the Federal Reserve System.
Holding Company: Greene County Bancorp, the Delaware or federal corporation which will be majority-owned by the MHC and which will own 100% of the common stock of the Bank.
Holding Company Application: The holding company application to be submitted by the MHC and the Holding Company to the FRB to have the MHC and the Holding Company acquire direct and indirect control of the Bank.
Independent Appraiser: The appraiser retained by the Bank to prepare an appraisal of the pro forma market value of the Bank and the Holding Company.
Independent Valuation: The estimated pro forma market value of the Holding Company and the Bank as determined by the Independent Appraiser.
Liquidation Account: The liquidation account established pursuant to this Plan.
Management Person: Any Officer or Trustee of the Bank or any Affiliate of the Bank, and any person acting in concert with any such Officer or Trustee.
Marketing Agent: The broker-dealer responsible for organizing and managing the Stock Offering and sale of the Common Stock.
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 on request, and (ii) is ready, willing and able to effect transactions in reasonable quantities at the dealer's quoted prices with other brokers or dealers.
MHC: Greene County Bancorp, MHC, the mutual holding company resulting from the Reorganization.
Minority Ownership Interest: The shares of the Holding Company's Common Stock owned by persons other than the MHC, expressed as a percentage of the total shares of Holding Company Common Stock outstanding.
Minority Stockholder: Any owner of the Holding Company's Common Stock, other than the MHC.
Minority Stock Offering: One or more offerings of up to 49% in the aggregate of the outstanding Common Stock of the Holding Company to persons other than the MHC.
Non-Voting Stock: Any Capital Stock other than Voting Stock.
Notice: The Notice of Mutual Holding Company Reorganization to be submitted by the Bank to the FDIC and the Department to notify the FDIC and the Department of the Reorganization and the Stock Offering.
Offering Range: The aggregate purchase price of the Common Stock to be sold in the Stock Offering based on the Independent Valuation expressed as a range which may vary within 15% above or 15% below the midpoint of such range, with a possible adjustment by up to 15% above the maximum of such range. The Offering Range will be based on the Estimated Valuation Range, but will represent a Minority Ownership Interest equal to up to 49% of the Common Stock.
Officer: An executive officer of the Holding Company or the Bank, including the Chief Executive Officer, President, Executive Vice President, Senior Vice Presidents, Vice Presidents in charge of principal business functions, Secretary, Treasurer and any other employee participating in major policy making functions of the institution.
Person: An individual, corporation, partnership, association, joint-stock company, trust (including Individual Retirement Accounts and KEOGH Accounts), unincorporated organization, government entity or political subdivision thereof or any other entity.
Plan: This Plan of Reorganization from a Mutual Savings Bank to a Mutual Holding Company and Stock Issuance Plan.
Qualifying Deposit: The aggregate of one or more Deposit Accounts with an aggregate balance of $100 or more as of the close of business on the Eligibility Record Date or as of the close of business on the Supplemental Eligibility Record Date, as the case may be. Deposit Accounts with aggregate total deposit balances of less than $100 shall not constitute a Qualifying Deposit.
Regulations: The regulations of the Banking Board regarding mutual holding companies and conversion to stock form, and the regulations of the FDIC, but only to the extent the regulations of the FDIC conflict with Parts 86 and 111 of the General Regulations of the New York Banking Board.
Reorganization: The reorganization of the Bank into the mutual holding company structure including the organization of the MHC, the Holding Company and the Stock Bank pursuant to this Plan.
Resident: The terms "resident" "residence," "reside," or "residing" as used herein with respect to any person shall mean any person who occupies a dwelling within the Bank's Community, has an intent to remain with the Community for a period of time, and manifests the genuineness of that intent by
establishing an ongoing physical presence within the Community together with an indication that such presence within the Community is something other than merely transitory in nature. To the extent the person is a corporation or other business entity, the principal place of business or headquarters shall be in the Community. To the extent a person is a personal benefit plan, the circumstances of the beneficiary shall apply with respect to this definition. In the case of all other benefit plans, the circumstances of the trustee shall be examined for purposes of this definition. The Bank may utilize deposit or loan records or such other evidence provided to it to make a determination as to whether a person is a resident. In all cases, however, such a determination shall be in the sole discretion of the Bank.
SEC: The Securities and Exchange Commission.
Special Meeting: The Special Meeting of Depositors, and any adjournment thereof, called for the purpose of considering and voting on the Plan.
Stock Bank: The New York chartered stock savings bank resulting from the Reorganization in accordance with the Plan.
Stock Offering: The offering of Common Stock of the Holding Company to the Charitable Foundation (if adopted) and to persons other than the MHC, in the Subscription Offering and, to the extent shares remain available, in a Community Offering or Syndicated Community Offering.
Subscription Offering: The offering of Common Stock of the Holding Company to Eligible Account Holders, Tax-Qualified Employee Plans, Supplemental Eligible Account Holders, and trustees, Officers and Employees for subscription and purchase pursuant to this Plan.
Subsidiary: A company that is controlled by another company, either directly or indirectly through one or more subsidiaries.
Superintendent: The Superintendent of Banks of the State of New York.
Supplemental Eligible Account Holder: Any person holding a Qualifying Deposit on the Supplemental Eligibility Record Date, who is not an Eligible Account Holder, a Tax-Qualified Employee Plan or an Officer or Trustee of the Bank.
Supplemental Eligibility Record Date: The supplemental record date for determining who qualifies as a Supplemental Eligible Account Holder. The Supplemental Eligibility Record Date shall be the last day of the calendar quarter preceding the Superintendent's approval of the Reorganization.
Syndicated Community Offering: At the discretion of the Bank and the Holding Company, the offering of Common Stock following or contemporaneously with the Community Offering through a syndicate of broker-dealers.
Tax-Qualified Employee Plans: Any defined benefit plan or defined contribution plan (including any employee stock ownership plan, stock bonus plan, profit-sharing plan, or other plan) of the Bank, the Holding Company, the MHC or any of their affiliates, which, with its related trusts, meets the requirements to be qualified under Section 401 of the Internal Revenue Code. The term Non-Tax-Qualified Employee Plan means any defined benefit plan or defined contribution plan which is not so qualified.
Trustee: A trustee of the Bank on or before the Effective Date.
Voting Depositor: An Eligible Account Holder who continues to have a Deposit Account as of the Voting Record Date.
Voting Record Date: The date established by the Bank for determining eligibility to vote on the Plan at the Special Meeting.
Voting Stock:
(1) Voting Stock means common stock or preferred stock, or similar interests if the shares by statute, charter or in any manner, entitle the holder: (i) To vote for or to select directors of the Bank or the Holding Company; and (ii) To vote on or to direct the conduct of the operations or other significant policies of the Bank or the Holding Company.
(2) Notwithstanding paragraph (1) above, preferred stock is not "Voting Stock" if: (i) Voting rights associated with the preferred stock are limited solely to the type customarily provided by statute with regard to matters that would significantly and adversely affect the rights or preferences of the preferred stock, such as the issuance of additional amounts or classes of senior securities, the modification of the terms of the preferred stock, the dissolution of the Bank or the Holding Company, or the payment of dividends by the Bank or the Holding Company when preferred dividends are in arrears; (ii) The preferred stock represents an essentially passive investment or financing device and does not otherwise provide the holder with control over the issuer; and (iii) The preferred stock does not at the time entitle the holder, by statute, charter, or otherwise, to select or to vote for the selection of directors of the Bank or the Holding Company.
(3) Notwithstanding anything in paragraphs (1) and (2) above, "Voting Stock" shall be deemed to include preferred stock and other securities that, upon transfer or otherwise, are convertible into Voting Stock or exercisable to acquire Voting Stock where the holder of the stock, convertible security or right to acquire Voting Stock has the preponderant economic risk in the underlying Voting Stock. Securities immediately convertible into Voting Stock at the option of the holder without payment of additional consideration shall be deemed to constitute the Voting Stock into which they are convertible; other convertible securities and rights to acquire Voting Stock shall not be deemed to vest the holder with the preponderant economic risk in the underlying Voting Stock if the holder has paid less than 50% of the consideration required to directly acquire the Voting Stock and has no other economic interest in the underlying Voting Stock.
3. The Reorganization
A. Organization of the Holding Companies and the Bank
As part of the Reorganization, the Bank will convert to a New York stock savings bank and will establish the Holding Company as a Delaware corporation and the MHC as a New York corporation. The Reorganization will be effected as follows, or in any manner approved by the Superintendent that is consistent with the purposes of this Plan and applicable laws and regulations. As follows:
(i) the Bank will organize an interim stock savings bank as a wholly-owned subsidiary ("Interim One"); (ii) Interim One will organize an interim stock savings bank as a wholly-owned subsidiary ("Interim Two"); (iii) Interim One will organize the Holding Company as a wholly-owned subsidiary; (iv) the Bank will exchange its charter for a New York stock savings bank charter to
become the Stock Bank and Interim One will exchange its charter for a New York mutual holding company charter to become the MHC; (v) simultaneously with step (iv), Interim Two will merge with and into the Stock Bank with the Stock Bank as the resulting institution; (vi) all of the initially issued stock of the Stock Bank will be transferred to the MHC in exchange for membership interests in the MHC; and (vii) the MHC will contribute the capital stock of the Bank to the Holding Company, and the Stock Bank will become a wholly-owned subsidiary of the Holding Company.
Upon completion of the Reorganization and Stock Offering, the MHC, the Holding Company and the Stock Bank will be structured as follows:
The MHC Public
Stockholders
At least Up to
51% of 49% of
the the
Common Common
Stock Stock
The Holding Company
100% of the
Common Stock
The Stock Bank
|
Contemporaneously with the Reorganization, the Holding Company will offer for sale in the Stock Offering shares of Common Stock representing up to 49% of the pro forma market value of the Holding Company and the Bank. Upon consummation of the Reorganization, the legal existence of the Bank will not terminate, but the Stock Bank will be a continuation of the Bank, and all property of the Bank, including its right, title, and interest in and to all property of whatsoever kind and nature, will inure to the Stock Bank immediately by operation of law and without the necessity of any conveyance or transfer and without any further act or deed. The Stock Bank will have, hold, and enjoy the same in its right and fully and to the same extent as the same was possessed, held, and enjoyed by the Bank. The Stock Bank will continue to have, succeed to, and be responsible for all the rights, liabilities and obligations of the Bank and will maintain its headquarters and operations at the Bank's present locations.
Upon consummation of the Reorganization, substantially all of the assets and liabilities (including all savings accounts and demand deposit accounts) of the Bank shall be become the assets and liabilities of the Stock Bank, which will thereupon become an operating savings bank subsidiary of the Holding Company and of the MHC. The Holding Company expects to receive or retain (as the case may be) up to 50% of the net proceeds of the Stock Offering. The Stock Bank may distribute additional capital to the Holding Company following the Reorganization, subject to the applicable regulations governing capital distributions.
B. Effect on Deposit Accounts and Borrowings
Upon consummation of the Reorganization each deposit account in the Bank on the Effective Date will become a deposit account in the Stock Bank in the same amount and upon the same terms and conditions, and will continue to be federally insured up to the legal maximum by the FDIC in the same manner, as the deposit account existed in the Bank immediately prior to the Reorganization. Upon consummation of the Reorganization, all loans and other borrowings from the Bank shall retain the same status with the Stock Bank after the Reorganization as they had with the Bank immediately prior to the Reorganization.
C. The Bank
Upon completion of the Reorganization the Stock Bank will be authorized to exercise any and all powers, rights and privileges of, and will be subject to all limitations applicable to, capital stock savings banks under New York law. A copy of the proposed Restated Organization Certificate and Bylaws of the Stock Bank is attached as Exhibit A and is made a part of this Plan. The Reorganization will not result in any reduction of the amount of retained earnings (other than the assets of the Bank retained by or distributed to the Holding Company or the MHC), undivided profits, and general loss reserves that the Bank had prior to the Reorganization. Such retained earnings and general loss reserves will be accounted for by the MHC, the Holding Company and the Stock Bank on a consolidated basis in accordance with generally accepted accounting principles.
The initial members of the Board of Directors of the Stock Bank will be the members of the existing Board of Trustees of the Bank. The Stock Bank will be wholly-owned by the Holding Company. The Holding Company will be wholly-owned by its stockholders who will consist of the MHC and the persons who purchase Common Stock in the Stock Offering and any subsequent Minority Stock Offering. Upon the Effective Date of the Reorganization, any liquidation rights of depositors under New York law will be transferred to the MHC and/or the Stock Bank and the Holding Company, subject to the conditions specified below.
D. The Holding Company
The Holding Company will be a Delaware corporation and will be authorized to exercise any and all powers, rights and privileges, and will be subject to all limitations applicable to bank holding companies and savings bank holding companies under applicable federal and New York laws and regulations. The initial members of the Board of Directors of the Holding Company will be the members of the existing Board of Trustees of the Bank. Thereafter, the voting stockholders of the Holding Company will elect annually approximately one-third of the Holding Company's directors. A copy of the Certificate of Incorporation and Bylaws of the Holding Company is attached as Exhibit B and is made part of this Plan.
The Holding Company will have the power to issue shares of Capital Stock to persons other than the MHC. However, so long as the MHC is in existence, the MHC will be required to own at least 51% of the Voting Stock of the Holding Company. The Holding Company may issue any amount of Non-Voting Stock to persons other than the MHC. The Holding Company will be authorized to undertake one or more Minority Stock Offerings of up to 49% in the aggregate of the total outstanding Common
Stock of the Holding Company, and the Holding Company intends to offer for sale up to 49% of its Common Stock in the Stock Offering.
E. The Mutual Holding Company
As a mutual corporation, the MHC will have no stockholders. The trustees of the MHC will have exclusive voting authority as to all matters relating to the MHC other than any conversion of the MHC to stock form. Any liquidation rights of depositors that existed under New York law prior to the Reorganization shall continue in the MHC following the Reorganization. The rights and powers of the MHC will be defined by the MHC's Organization Certificate and Bylaws (a copy of which is attached as Exhibit C and made a part of this Plan) and by applicable statutory and regulatory provisions of Federal and New York law. The MHC will be regulated by the FRB as a bank holding company. In the future, the MHC may elect to be regulated by the Office of Thrift Supervision as a savings and loan holding company, in which case it would be subject to the limitations and restrictions imposed on savings and loan holding companies by Section 10(o)(5) of the Home Owners' Loan Act.
The New York Banking Law requires that the Board of Directors of a subsidiary savings bank of a mutual holding company include at least one director who is not an officer, employee or director of the mutual holding company or an officer or employee of the stock subsidiary bank, who will represent the interests of minority stockholders of the subsidiary stock bank. Accordingly, the initial members of the Board of Trustees of the MHC will consist of all but one member of the existing Board of Trustees of the Bank. Thereafter, approximately one-third of the trustees of the MHC will be elected annually by the members of the Board of Trustees of the MHC.
4. Conditions to Implementation of the Reorganization
Consummation of the Reorganization is conditioned upon the following:
A. Approval of the Plan by a majority of the Board of Trustees of the Bank.
B. Approval of the Plan by the affirmative vote of at least (i) a majority of the total eligible votes of the Voting Depositors, and (ii) 75% of the aggregate dollar amount of deposits of Voting Depositors represented at the Special Meeting either in person or by valid proxy and entitled to vote at the Special Meeting.
C. Approval by the Superintendent of the Plan, the Restated Organization Certificate and Bylaws of the Stock Bank and the MHC, and the Banking Board's approval of the Organization Certificate of the MHC, and all other transactions contemplated by the Plan for which approval is required by the Superintendent and the Banking Board.
D. Submission of the Notice to the FDIC, and the Bank either (i)
receives a notice of intent not to object from the FDIC, or
(ii) 60 days (subject to extension for an additional 60 days)
have passed following the acceptance of a complete Notice by
the FDIC.
E. Approval by the FRB pursuant to the BHCA for the MHC and the Holding Company to become bank holding companies by owning or acquiring, directly or indirectly, the
majority of the Stock Bank's common stock to be issued in connection with the Reorganization.
F. Approval by the FDIC pursuant to the BMA of any merger or transfer of assets and liabilities involving the Bank or an interim savings bank in connection with the Reorganization.
G. Receipt by the Bank of either a private letter ruling from the Internal Revenue Service or an opinion of the Bank's counsel as to the federal income tax consequences of the Reorganization to the MHC, the Holding Company and the Bank.
H. Receipt by the Bank of either a private letter ruling of the New York State Department of Revenue or an opinion of counsel or of the Bank's independent public accountants as to the New York income tax consequences of the Reorganization to the MHC, the Holding Company and the Bank.
5. Special Meeting and Vote Required to Approve the Plan
Subsequent to the approval of the Plan by the Superintendent, the
Special Meeting shall be scheduled in accordance with the Bank's Bylaws.
Promptly after receipt of approval and at least 20 days but not more than 45
days prior to the Special Meeting, the Bank shall distribute proxy solicitation
materials to all Voting Depositors. The proxy solicitation materials shall
include a proxy card and proxy statement and other documents authorized for use
by the regulatory authorities. A copy of the Plan will be made available to all
Voting Depositors upon request. Pursuant to the Regulations, an affirmative vote
of at least (i) a majority of the total eligible votes of Voting Depositors, and
(ii) 75% of the aggregate dollar amount of deposits of the Voting Depositors
represented at the Special Meeting either in person or by valid proxy and
entitled to vote thereat shall be required for approval of the Plan. The Board
of Trustees shall appoint an independent custodian and tabulator to receive and
hold the proxy cards and to count the votes cast in favor of and in opposition
to the Plan. Within five days after the Special Meeting, the President and
Secretary of the Bank will certify to the Superintendent the result of the vote
taken at the Special Meeting. Each Voting Depositor shall be entitled to cast
one vote for each $100 or fraction thereof of deposits in the Bank on the Voting
Record Date. No Voting Depositor may cast more than 1,000 votes at the Special
Meeting.
6. Charters and Bylaws
Copies of the proposed Restated Organization Certificate and Bylaws of the Stock Bank, the proposed Certificate of Incorporation and Bylaws of the Holding Company and the proposed Charter and Bylaws of the MHC are attached hereto as Exhibits A, B and C, respectively, and are made a part of this Plan. By their approval of this Plan, the Voting Depositors shall have approved and adopted the Charter and Bylaws of the Bank, the Holding Company and the MHC.
The total shares of Common Stock authorized under the Holding Company Charter will exceed the shares of Common Stock to be issued to the MHC and the minority stockholders in the Reorganization. In addition, the Certificate of Incorporation of the Holding Company will include provisions that: (i) eliminate cumulative voting for the election of directors; (ii) prohibit any person or group acting in concert
(other than the MHC) from voting shares in excess of 10% of the Common Stock of the Holding Company; and (iii) prohibit persons other than the Board of Directors of the Stock Bank or committees of the Board of Directors of the Stock Bank from calling special meetings of the stockholders of the Stock Bank.
7. Liquidation and Voting Rights
Following the Reorganization, each Eligible Account Holder and each Supplemental Eligible Account Holder will have an interest in the Liquidation Account established pursuant to this Plan so long as such person remains a depositor of the Stock Bank after the Reorganization. In addition, following the Reorganization, all depositors who had liquidation rights with respect to the Bank as of the date of the Reorganization will continue to have such rights solely with respect to the MHC for so long as they remain depositors of the Stock Bank. In addition, all persons who become depositors of the Stock Bank subsequent to the Reorganization also will have liquidation rights with respect to the MHC. In each case, no person who ceases to be the holder of a Deposit Account with the Bank after the Reorganization shall have any liquidation rights with respect to the MHC.
8. Conversion of MHC to a Federal MHC
Upon completion of the Reorganization, the MHC will be chartered under New York law. The MHC, however, may elect to convert its charter to a federal mutual holding company charter in the future, in which case the MHC would be regulated by the Office of Thrift Supervision ("OTS") or any successor thereto. Such a charter conversion would be subject to the approval of the Board of Trustees of the MHC, the OTS and applicable regulatory authority.
9. Conversion of MHC to Stock Form
Following the completion of the Reorganization, the MHC may elect to convert to stock form in accordance with applicable law (a "Conversion Transaction"). There can be no assurance when, if ever, a Conversion Transaction will occur, and the Board of Trustees has no intent or plan to undertake a Conversion Transaction. If the Conversion Transaction does not occur, the MHC will always own a majority of the Common Stock of the Holding Company.
In a Conversion Transaction, the MHC would merge with and into the Stock Bank or the Holding Company (at the discretion of the MHC), and certain depositors of the Stock Bank would receive the right to subscribe for a number of shares of common stock of the Holding Company, as determined by the formula set forth in the following paragraphs. The additional shares of Common stock of the Holding Company issued in the Conversion Transaction would be sold at their aggregate pro forma market value.
Any Conversion Transaction shall be fair and equitable to Minority
Stockholders. In any Conversion Transaction, Minority Stockholders, if any, will
be entitled to maintain the same percentage ownership interest in the Holding
Company after the Conversion Transaction as their percentage ownership interest
in the Holding Company immediately prior to the Conversion Transaction (i.e.,
the Minority Ownership Interest), subject only to the following adjustments (if
required by federal or state law, regulation, or regulatory policy) to reflect:
(i) the cumulative effect of the aggregate amount of dividends waived by the
MHC; and (ii) the market value of assets of the MHC (other than common stock of
the Holding Company).
The adjustment referred to in clause (i) of the preceding paragraph above would require that the Minority Ownership Interest (expressed as a percentage) be adjusted by multiplying the Minority Ownership Interest by the following fraction:
(Holding Company stockholders' equity immediately preceding the Conversion Transaction) - (aggregate amount of dividends waived by MHC) Holding Company stockholders' equity immediately preceding the Conversion Transaction
The Minority Ownership Interest (expressed as a percentage) shall also be adjusted to reflect any assets of the MHC other than the Common Stock of the Holding Company by multiplying the result obtained in the preceding paragraph by the following fraction:
(pro forma market value of Holding Company) - (market value of assets of MHC other than Holding Company common stock) pro forma market value of Holding Company
At the sole discretion of the Board of Trustees of the MHC and the Board of Directors of the Holding Company, a Conversion Transaction may be effected in any other manner necessary to qualify the Conversion Transaction as a tax-free reorganization under applicable federal and state tax laws, provided such Conversion Transaction does not diminish the rights and ownership interest of Minority Stockholders as set forth in the preceding paragraphs. If a Conversion Transaction does not occur, the MHC will always own a majority of the Voting Stock of the Holding Company.
A Conversion Transaction would require the approval of applicable federal and state bank regulators, and would be presented to a vote of the depositors of the Stock Bank and the stockholders of the Holding Company as of a voting record date prior to the completion of the Conversion Transaction. Federal and state regulatory policy requires that in any Conversion Transaction the depositors of the MHC will be accorded the same stock purchase priorities as if the MHC were a mutual savings bank converting to stock form.
10. Timing of the Reorganization and Sale of Capital Stock
The Bank intends to consummate the Reorganization as soon as feasible following the receipt of all approvals referred to in Section 4 of the Plan. Subject to the approval of the FDIC, the FRB and the Superintendent, the Holding Company intends to commence the Stock Offering concurrently with the proxy solicitation of Voting Depositors. Subject to regulatory approval, the Holding Company may close the Stock Offering before the Special Meeting, provided that the offer and sale of the Common Stock shall be conditioned upon approval of the Plan by the Voting Depositors at the Special Meeting. The Bank's proxy solicitation materials may permit certain Voting Depositors to return to the Bank by a reasonable date certain a postage paid card or other written communication requesting receipt of the prospectus if the prospectus is not mailed concurrently with the proxy solicitation materials. The Stock Offering shall be conducted in compliance with the securities offering regulations of the FDIC, the SEC and the Banking Board. The Bank will not finance or loan funds to any person to purchase Common Stock.
11. Number of Shares to be Offered
A. The total number of shares (or range thereof) of Common Stock to be issued and offered for sale pursuant to the Plan shall be determined initially by the Board of Trustees of the Bank and the Board of Directors of the Holding Company in conjunction with the determination of the Independent
Appraiser. The number of shares to be offered may be adjusted prior to completion of the Stock Offering. The total number of shares of Common Stock that may be issued to persons other than the MHC at the close of the Stock Offering must be no greater than 49.0% of the issued and outstanding shares of Common Stock of the Holding Company.
B. For a period of 30 days following the completion of the Reorganization, the Boards of Directors of the Holding Company and the MHC, in their sole discretion, may determine to issue or allocate shares of Common Stock ("Contingent Shares") (a) to subscribers to fill orders resulting from (i) any allocation oversights in the event of an oversubscription, (ii) lost or damaged stock order forms which the Company's Board determines should have been filled in the Offering, or (iii) orders initially rejected but later found to be legitimate, or (b) in the event of an issuance described in (a), to the MHC in order to maintain a Minority Ownership Interest at a percentage desired by the Boards of Directors of the MHC and the Holding Company. Contingent Shares may be authorized but unissued shares or shares issued to the MHC in the Reorganization, and shall include no more than a number of shares equal to 2% of the shares issued in the Offering. Contingent Shares will not be included in the total number of shares for purposes of determining any individual or maximum purchase limitation or the number of shares of stock to be purchased by Tax-Qualified Employee Plans. In the event of an oversubscription in the Offering, Contingent Shares will be allocated to a subscriber based upon the allocation of shares to persons who had the same or similar deposit account balance as that subscriber.
12. Independent Valuation and Purchase Price of Shares
The total number of shares (and a range thereof) (the "Offering Range") of Common Stock to be issued and offered for sale in the Stock Offering will be determined jointly by the Board of Trustees of the Bank and the Board of Directors of the Holding Company immediately prior to the commencement of the Subscription and Community Offerings, subject to adjustment thereafter if necessitated by market or financial conditions, with the approval of the FDIC and the Superintendent, if necessary. In particular, the total number of shares may be increased by up to 15% of the number of shares offered in the Subscription and Community Offerings if the Estimated Valuation Range is increased subsequent to the commencement of the Subscription and Community Offerings to reflect changes in market and financial conditions.
All shares sold in the Stock Offering will be sold at a uniform price per share referred to in this Plan as the Actual Subscription Price. The aggregate purchase price for all shares of Common Stock will not be inconsistent with the estimated consolidated pro forma market value of the Holding Company and the Bank. The estimated consolidated pro forma market value of the Holding Company and the Bank will be determined for such purpose by the Independent Appraiser. Prior to the commencement of the Subscription and Community Offerings, an Estimated Valuation Range will be established, which range will vary within 15% above to 15% below the midpoint of such range. The shares of Common Stock being sold in the Stock Offering will represent a minority ownership interest in the outstanding Common Stock of the Holding Company equal to up to 49% of the estimated pro forma market value of the Common Stock based upon the Independent Valuation. The percentage of Common Stock offered for sale in the Stock Offering and the Offering Range shall be determined by the Board of Directors of the Holding Company and the Board of Trustees of the Bank prior to commencement of the Subscription and Community Offerings, and will be confirmed upon completion of the Stock Offering based on the final or updated Independent Valuation submitted by the Independent Appraiser.
The number of shares of Common Stock to be issued in the Stock Offering and the purchase price per share may be increased or decreased by the Holding Company. In the event that the aggregate purchase price of the Common Stock is below the minimum of the Estimated Valuation Range, or materially above the maximum of the Estimated Valuation Range, resolicitation of purchasers may be required, provided that up to a 15% increase above the maximum of the Estimated Valuation Range will not be deemed material so as to require a resolicitation. Any such resolicitation shall be effected in such manner and within such time as the Bank shall establish, with the approval of the FDIC and the Superintendent, if required. Based upon the Independent Valuation as updated prior to the commencement of the Subscription and Community Offerings, the Board of Directors of the Holding Company will fix the Actual Subscription Price. If there is a Syndicated Community Offering of shares of Common Stock not subscribed for in the Subscription and Community Offerings, the price per share at which the Common Stock is sold in such Syndicated Community Offering shall be equal to the Actual Subscription Price.
Notwithstanding the foregoing, no sale of Common Stock may be consummated unless, prior to such consummation, the Independent Appraiser confirms to the Holding Company, the Bank and to the FDIC and the Department that, to the best knowledge of the Independent Appraiser, nothing of a material nature has occurred which, taking into account all relevant factors, would cause the Independent Appraiser to conclude that the aggregate value of the Common Stock at the purchase price per share is incompatible with its estimate of the aggregate consolidated pro forma market value of the Holding Company and the Bank. An increase in the aggregate value of the Common Stock by up to 15% would not be deemed to be material. If such confirmation is not received, the Holding Company may cancel the Stock Offering, extend the Stock Offering and establish a new Actual Subscription Price and/or Estimated Valuation Range, extend, reopen or hold a new Stock Offering or take such other action as the FDIC and the Department may permit. The estimated market value of the Holding Company and the Bank shall be determined for such purpose by an Independent Appraiser on the basis of such appropriate factors as are not inconsistent with FDIC and Department regulations. The Common Stock to be issued in the Stock Offering shall be fully paid and nonassessable.
13. Method of Offering Shares and Rights to Purchase Stock
In descending order of priority, the opportunity to purchase Common Stock shall be given in the Subscription Offering to: (1) Eligible Account Holders; (2) Tax-Qualified Employee Plans; (3) Supplemental Eligible Account Holders; and (4) employees, officers, and trustees. Any shares of Common Stock that are not subscribed for in the Subscription Offering may be offered for sale in a Community Offering and/or Syndicated Community Offering. The minimum purchase by any person shall be 25 shares. The Bank may use its discretion in determining whether prospective purchasers are "residents," "associates," or "acting in concert", and in interpreting any and all other provisions of the Plan. All such determinations are in the sole discretion of the Bank, and may be based on whatever evidence the Bank chooses to use in making any such determination.
In addition to the priorities set forth below, the Board of Directors may establish other priorities for the purchase of Common Stock, subject to the approval of the Banking Board and the FDIC, and may change the order of priorities set forth below if required by the FDIC or the Department. The priorities for the purchase of shares in the Stock Offering are as follows:
A. Subscription Offering
Priority 1: Eligible Account Holders. Each Eligible Account Holder shall receive non- transferrable subscription rights to subscribe for shares of Common Stock offered in the Stock Offering in an amount equal to the greater of $100,000, or one-tenth of one percent (.10%) of the total shares offered in the Stock Offering. If there are insufficient shares available to satisfy all subscriptions of Eligible Account Holders, shares will be allocated to Eligible Account Holders so as to permit each such subscribing Eligible Account Holder to purchase a number of shares sufficient to make his total allocation equal to the lesser of 100 shares or the number of shares subscribed for. Thereafter, unallocated shares will be allocated pro rata to remaining subscribing Eligible Account Holders whose subscriptions remain unfilled in the same proportion that each such subscriber's Qualifying Deposit bears to the total amount of Qualifying Deposits of all subscribing Eligible Account Holders whose subscriptions remain unfilled; provided that the Bank may, in its sole discretion, and without further notice to or solicitation of subscribers or other prospective purchasers, increase such maximum purchase limitation to 5% of the maximum number of shares offered in the Stock Offering, subject to the overall purchase limitations set forth in the Section 14. Subscription rights to purchase Common Stock received by Officers and trustees of the Bank including associates of Officers and trustees, based on their increased deposits in the Bank in the one year preceding the Eligibility Record Date, shall be subordinated to the subscription rights of other Eligible Account Holders. To ensure proper allocation of stock, each Eligible Account Holder must list on his or her subscription order form all Deposit Accounts in which he had an ownership interest as of the Eligibility Record Date.
Priority 2: Tax-Qualified Employee Plans. The Tax-Qualified Employee Plans shall be given the opportunity to purchase in the aggregate up to 10% of the Common Stock issued in the Stock Offering. In the event of an oversubscription in the Stock Offering, subscriptions for shares by the Tax-Qualified Employee Plans may be satisfied, in whole or in part, out of authorized but unissued shares of the Holding Company (subject to FDIC approval) subject to the maximum purchase limitations applicable to such plans and set forth in Section 13, or may be satisfied, in whole or in part, through open market purchases by the Tax-Qualified Employee Plans subsequent to the closing of the Stock Offering. If the final valuation exceeds the maximum of the Offering Range, up to 10% of Common Stock issued in the Stock Offering may be sold to the Tax Qualified Employee Plans notwithstanding any oversubscription by Eligible Account Holders, subject to FDIC approval.
Priority 3: Supplemental Eligible Account Holders. To the extent there are sufficient shares remaining after satisfaction of subscriptions by Eligible Account Holders and the Tax-Qualified Employee Plans, each Supplemental Eligible Account Holder shall receive non-transferable subscription rights to subscribe for shares of Common Stock offered in the Stock Offering in an amount equal to the greater of $100,000, or one-tenth of one percent (.10%) of the total shares offered in the Stock Offering. In the event Supplemental Eligible Account Holders subscribe for a number of shares which, when added to the shares subscribed for by Eligible Account Holders and the Tax-Qualified Employee Plans, exceed available shares, the shares of Common Stock will be allocated among subscribing Supplemental Eligible Account Holders so as to permit each subscribing Supplemental Eligible Account Holder to purchase a number of shares sufficient to make his total allocation equal to the lesser of 100 shares or the number of shares subscribed for. Thereafter, unallocated shares will be allocated to each subscribing Supplemental Eligible Account Holder whose subscription remains unfilled in the same proportion that such subscriber's Qualifying Deposits on the Supplemental Eligibility Record Date bear to the total amount of Qualifying Deposits of all subscribing Supplemental Eligible Account Holders whose subscriptions remain unfilled;
provided that the Bank may, in its sole discretion, and without further notice to or solicitation of subscribers or other prospective purchasers, increase such maximum purchase limitation to 5% of the maximum number of shares offered in the Stock Offering, subject to the overall purchase limitations set forth in Section 14.
Priority 4: Employees, Officers and Trustees. To the extent that shares remain available for purchase after satisfaction of all subscriptions of the Eligible Account Holders, Tax-Qualified Employee Plans and Supplemental Eligible Account Holders, each employee, officer and trustee of the Bank shall have the opportunity to purchase up to $100,000 of the Common Stock offered in the Stock Offering; provided that the Bank may, in its sole discretion, and without further notice to or solicitation of subscribers or other prospective purchasers, increase such maximum purchase limitation to 5% of the maximum number of shares offered in the Stock Offering, subject to the overall purchase limitations set forth in Section 14. In the event that trustees, officers and employees subscribe for a number of shares, which, when added to the shares subscribed for by Eligible Account Holders, Tax-Qualified Employee Plans and Supplemental Eligible Account Holders is in excess of the total shares offered in the Stock Offering, the subscriptions of such persons will be allocated among trustees, officers and employees on a pro rata basis based on the size of each person's orders.
B. Community Offering/Public Offering
Any shares of Common Stock not subscribed for in the Subscription Offering may be offered for sale in a Community Offering. This will involve an offering of all unsubscribed shares directly to the general public with a preference given to those natural persons who are residents of the Community. The Community Offering, if any, shall be for a period of not more than 45 days unless extended by the Holding Company and the Bank, and shall commence concurrently with, during or promptly after the Subscription Offering. The Holding Company and the Bank may use an investment banking firm or firms on a best efforts basis to sell the unsubscribed shares in the Subscription and Community Offering. The Holding Company and the Bank may pay a commission or other fee to such investment banking firm or firms as to the shares sold by such firm or firms in the Subscription and Community Offering and may also reimburse such firm or firms for expenses incurred in connection with the sale. The Community Offering may include a Syndicated Community Offering managed by such investment banking firm or firms. The Common Stock will be offered and sold in the Community Offering, in accordance with FDIC and Banking Board regulations, so as to achieve the widest distribution of the Common Stock. No person, individually, or with an Associate or group of persons acting in concert, may subscribe for or purchase more than $100,000 of Common Stock offered in the Community Offering. Further, the Holding Company may limit total subscriptions under this Section 13(B) so as to assure that the number of shares available for the public offering may be up to a specified percentage of the number of shares of Common Stock. Finally, the Holding Company may reserve shares offered in the Community Offering for sales to institutional investors.
In the event of an oversubscription for shares in the Community Offering, shares may be allocated (to the extent shares remain available) first to cover any reservation of shares for a public offering or institutional orders, next to cover orders of natural persons who are residents of the Community, 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.
The Bank and the Holding Company, in their sole discretion, may reject subscriptions, in whole or in part, received from any person under this Section 13(B).
Any shares of Common Stock not sold in the Subscription Offering or in the Community Offering, if any, shall then be sold to the underwriters for resale to the general public in a Syndicated Community Offering. It is expected that the Syndicated Community Offering will commence as soon as practicable after termination of the Subscription Offering and the Community Offering, if any. The Syndicated Community Offering shall be completed within 45 days after the termination of the Subscription Offering, unless such period is extended as provided herein. The Syndicated Community Offering price and the underwriting discount shall be determined by an underwriting agreement between the Holding Company, the Bank and the underwriters. Such underwriting agreement shall be filed with the FDIC, the Department and the SEC.
If for any reason a Syndicated Community Offering of unsubscribed shares of Common Stock cannot be effected and any shares remain unsold after the Subscription Offering and the Community Offering, if any, the Board of Directors of the Holding Company and the Board of Trustees of the Bank will seek to make other arrangements for the sale of the remaining shares. Such other arrangements will be subject to the approval of the Superintendent and the FDIC and to compliance with applicable securities laws.
Depending upon market and financial conditions, the Board of Directors of the Holding Company and the Board of Trustees of the Bank, with the approval of the Department and FDIC, may increase or decrease any of the purchase limitations set forth in this Section 13.
14. Additional Limitations on Purchases of Common Stock
Purchases of Common Stock in the Stock Offering will be subject to the following additional purchase limitations:
A. The aggregate amount of outstanding Common Stock of the Holding Company owned or controlled by persons other than MHC at the close of the Stock Offering shall not exceed 49% of the Holding Company's total outstanding Common Stock.
B. No person, Associate thereof, or group of persons acting in concert, may purchase more than $200,000 of Common Stock in the Stock Offering, except that: (i) the Holding Company may, in its sole discretion and without further notice to or solicitation of subscribers or other prospective purchasers, increase such maximum purchase limitation up to 5% of the number of shares offered in the Stock Offering; (ii) Tax-Qualified Employee Plans may purchase up to 10% of the shares offered in the Stock Offering; and (iii) for purposes of this subsection 14(B) shares to be held by any Tax-Qualified Employee Plan and attributable to a person shall not be aggregated with other shares purchased directly by or otherwise attributable to such person.
C. The aggregate amount of Common Stock acquired in the Stock Offering by all Management Persons and their Associates, exclusive of any stock acquired by such persons in the secondary market, shall not exceed 32% of the outstanding shares of
Common Stock of the Holding Company held by persons other than the MHC at the close of the Stock Offering. In calculating the number of shares held by Management Persons and their Associates under this paragraph or under the provisions of paragraph D of this section, shares held by any Tax-Qualified Employee Benefit Plans of the Bank that are attributable to such persons shall not be counted.
D. Notwithstanding any other provision of this Plan, no person shall be entitled to purchase any Common Stock to the extent such purchase would be illegal under any federal law or state law or regulation or would violate regulations or policies of the National Association of Securities Dealers, Inc., particularly those regarding free riding and withholding. The Holding Company and/or its agents may ask for an acceptable legal opinion from any purchaser as to the legality of such purchase and may refuse to honor any purchase order if such opinion is not timely furnished.
E. The Board of Directors of the Holding Company has the right in its sole discretion to reject any order submitted by a person whose representations the Board of Directors believes to be false or who it otherwise believes, either alone or acting in concert with others, is violating, circumventing, or intends to violate, evade or circumvent the terms and conditions of this Plan.
F. The Holding Company will make reasonable efforts to comply with the securities laws of all states in the United States in which persons entitled to subscribe for Common Stock pursuant to the Plan reside. However, the Holding Company and the Bank are not required to offer Common Stock to any person who resides in a foreign country.
Prior to the consummation of the Stock Offering, no person shall offer to transfer, or enter into any agreement or understanding to transfer the legal or beneficial ownership of any subscription rights or shares of Common Stock, except pursuant to this Plan.
EACH PERSON PURCHASING COMMON STOCK IN THE STOCK OFFERING WILL BE DEEMED TO CONFIRM THAT SUCH PURCHASE DOES NOT CONFLICT WITH THE PURCHASE LIMITATIONS IN THIS PLAN. ALL QUESTIONS CONCERNING WHETHER ANY PERSONS ARE ASSOCIATES OR A GROUP ACTING IN CONCERT OR WHETHER ANY PURCHASE CONFLICTS WITH THE PURCHASE LIMITATIONS IN THIS PLAN OR OTHERWISE VIOLATES ANY PROVISION OF THIS PLAN SHALL BE DETERMINED BY THE BANK IN ITS SOLE DISCRETION. SUCH DETERMINATION SHALL BE CONCLUSIVE, FINAL AND BINDING ON ALL PERSONS AND THE BANK MAY TAKE ANY REMEDIAL ACTION, INCLUDING WITHOUT LIMITATION REJECTING THE PURCHASE OR REFERRING THE MATTER TO THE DEPARTMENT FOR ACTION, AS IN ITS SOLE DISCRETION THE BANK MAY DEEM APPROPRIATE.
15. Payment for Stock
All payments for Common Stock subscribed for or ordered in the Stock Offering must be delivered in full to the Bank, together with a properly completed and executed order form, or purchase order in the case of the Syndicated Community Offering, on or prior to the expiration date specified on the order form or purchase order, as the case may be, unless such date is extended by the Bank; provided, that if the
Employee Plans subscribe for shares during the Subscription Offering, such plans will not be required to pay for the shares at the time they subscribe but rather may pay for such shares of Common Stock subscribed for by such plans at the Actual Subscription Price upon consummation of the Stock Offering. The Holding Company or the Bank may make scheduled discretionary contributions to an Employee Plan provided such contributions from the Bank, if any, do not cause the Bank to fail to meet its regulatory capital requirement.
Payment for Common Stock shall be made either by check or money order, or if a purchaser has a Deposit Account in the Bank, such purchaser may pay for the shares subscribed for by authorizing the Bank to make a withdrawal from the purchaser's passbook, money market or certificate account at the Bank in an amount equal to the purchase price of such shares. Such authorized withdrawal, whether from a savings passbook or certificate account, shall be without penalty as to premature withdrawal. If the authorized withdrawal is from a certificate account, and the remaining balance does not meet the applicable minimum balance requirements, the certificate shall be canceled at the time of withdrawal, without penalty, and the remaining balance will earn interest at the passbook rate. Funds for which a withdrawal is authorized will remain in the purchaser's Deposit Account but may not be used by the purchaser until the Common Stock has been sold or the 45-day period (or such longer period as may be approved by the Commissioner) following the Stock Offering has expired, whichever occurs first. Thereafter, the withdrawal will be given effect only to the extent necessary to satisfy the subscription (to the extent it can be filled) at the purchase price per share. Interest will continue to be earned on any amounts authorized for withdrawal until such withdrawal is given effect. Interest will be paid by the Bank at a rate, not less than the Bank's passbook rate, established by the Bank on payment for Common Stock received by check or money order. Such interest will be paid from the date payment is received by the Bank until consummation or termination of the Stock Offering. If for any reason the Stock Offering is not consummated, all payments made by subscribers in the Stock Offering will be refunded to them with interest. In case of amounts authorized for withdrawal from Deposit Accounts, refunds will be made by canceling the authorization for withdrawal.
16. Manner of Exercising Subscription Rights Through Order Forms
As soon as practicable after the prospectus prepared by the Holding Company and the Bank has been declared effective by the Department and the SEC, copies of the prospectus and order forms will be distributed to all Eligible Account Holders and Supplemental Eligible Account Holders at their last known addresses appearing on the records of the Bank for the purpose of subscribing for shares of Common Stock in the Subscription Offering and will be made available for use by those persons entitled to purchase in the Direct Community Offering.
Each order form will be preceded or accompanied by the prospectus describing the Holding Company, the Bank, the Common Stock and the Subscription and Community Offerings. Each order form will contain, among other things, the following:
A. A specified date by which all order forms must be received by the Bank, which date shall be not less than 20, nor more than 45 days, following the date on which the order forms are mailed by the Bank, and which date will constitute the termination of the Subscription Offering;
B. The purchase price per share for shares of Common Stock to be sold in the Subscription and Community Offerings;
C. A description of the minimum and maximum number of shares of Common Stock that may be subscribed for pursuant to the exercise of subscription rights or otherwise purchased in the Community Offering;
D. Instructions as to how the recipient of the order form is to indicate thereon the number of shares of Common Stock for which such person elects to subscribe and the available alternative methods of payment therefor;
E. An acknowledgment that the recipient of the order form has received a final copy of the prospectus prior to execution of the order form;
F. A statement indicating the consequences of failing to properly complete and return the order form, including a statement to the effect that all subscription rights are nontransferable, will be void at the end of the Subscription Offering, and can only be exercised by delivering to the Bank within the subscription period such properly completed and executed order form, together with cash (if delivered in person), check or money order in the full amount of the purchase price as specified in the order form for the shares of Common Stock for which the recipient elects to subscribe in the Subscription Offering (or by authorizing on the order form that the Bank withdraw said amount from the subscriber's Deposit Account at the Bank); and
G. A statement to the effect that the executed order form, once received by the Bank, may not be modified or amended by the subscriber without the consent of the Bank.
Notwithstanding the above, the Bank and the Holding Company reserve the right in their sole discretion to accept or reject orders received on photocopied or facsimilied order forms.
17. Undelivered, Defective or Late Order Form; Insufficient Payment
In the event order forms (a) are not delivered and are returned to the Bank by the United States Postal Service or the Bank is unable to locate the addressee, (b) are not received back by the Bank or are received by the Bank after the expiration date specified thereon, (c) are defectively filled out or executed, (d) are not accompanied by the full required payment for the shares of Common Stock subscribed for (including cases in which Deposit Accounts from which withdrawals are authorized are insufficient to cover the amount of the required payment), or (e) are not mailed pursuant to a "no mail" order placed in effect by the account holder, the subscription rights of the person to whom such rights have been granted will lapse as though such person failed to return the order form within the time period specified thereon; provided, that the Bank may, but will not be required to, waive any immaterial irregularity on any order form or require the submission of corrected order forms or the remittance of full payment for subscribed shares by such date as the Bank may specify. The interpretation by the Bank of terms and conditions of this Plan and of the order forms will be final, subject to the authority of the Department and the FDIC.
18. Completion of the Stock Offering
The Stock Offering will be terminated if not completed within 90 days from the date of approval by the Superintendent, unless an extension is approved by the Superintendent.
19. Market for Common Stock
If at the close of the Stock Offering the Holding Company has more than 100 shareholders of any class of stock, the Holding Company shall use its best efforts to:
(i) encourage and assist a market maker to establish and maintain a market for that class of stock; and
(ii) list that class of stock on a national or regional securities exchange, or on the Nasdaq system.
20. Stock Purchases by Management Persons After the Stock Offering
For a period of three years after the proposed Stock Offering, no Management Person or his or her Associates may purchase or acquire direct or indirect beneficial ownership, without the prior written approval of the Superintendent, and, if applicable, the FDIC, any Common Stock of the Holding Company, except from a broker-dealer registered with the SEC. The foregoing shall not apply to purchases of stock made by and held by any Tax-Qualified or Non-Tax Qualified Employee Plan of the Stock Bank or the Holding Company even if such stock is attributable to Management Persons or their Associates.
21. Resales of Stock by Management Persons
Common Stock purchased by Management Persons and their Associates in the Stock Offering may not be resold for a period of at least one year following the date of purchase, except in the case of death of the Management Person or Associate.
22. Stock Certificates
Each stock certificate shall bear a legend giving appropriate notice of the restrictions set forth in Sections 20 and 21 above. Appropriate instructions shall be issued to the Holding Company's transfer agent with respect to applicable restrictions on transfers of such stock. Any shares of stock issued as a stock dividend, stock split or otherwise with respect to such restricted stock, shall be subject to the same restrictions as apply to the restricted stock.
23. Restriction on Financing Stock Purchases
The Holding Company will not knowingly offer or sell any of the Common Stock proposed to be issued to any person whose purchase would be financed by funds loaned to the person by the Holding Company, the Bank or any of their Affiliates.
24. Stock Benefit Plans
The Board of Directors of the Stock Bank and/or the Holding Company intend to adopt for the benefit of employees, officers and directors of the Stock Bank, one or more stock benefit plans, including an ESOP, stock award plans and stock option plans, which will be authorized to purchase Common Stock and grant options for Common Stock. However, only the Tax-Qualified Employee Plans will be permitted to purchase Common Stock in the Stock Offering on a priority basis as set forth in this Plan. Subject to the approval of the Superintendent and the FDIC, the Board of Directors of the Bank intends to establish the ESOP and authorize the ESOP and any other Tax-Qualified Employee Plans to purchase in the aggregate up to 10% of the Common Stock issued in the Stock Offering. The Stock Bank or the Holding Company may make scheduled discretionary contributions to one or more Tax-Qualified Employee Plans to purchase Common Stock issued in the Stock Offering or to purchase issued and outstanding shares of Common Stock or authorized but unissued shares of Common Stock subsequent to the completion of the Stock Offering, provided such contributions do not cause the Stock Bank to fail to meet any of its regulatory capital requirements. This Plan shall specifically authorize the grant and issuance by the Holding Company of (i) awards of Common Stock after the Stock Offering pursuant to one or more stock recognition and award plans (the "Recognition Plans") in an amount equal to up to 4% of the number of shares of Common Stock issued in the Stock Offering (and in an amount equal to up to 5% of the number of shares of Common Stock issued in the Stock Offering if the Recognition Plans are adopted more than one year after the completion of the Stock Offering), (ii) options to purchase a number of shares of Common Stock in an amount equal to up to 10% of the number of shares of Common Stock issued in the Stock Offering and shares of Common Stock issuable upon exercise of such options, and (iii) Common Stock to one or more Tax Qualified Employee Plans, including the ESOP, at the closing of the Stock Offering or at any time thereafter, in an amount equal to up to 10% of the number of shares of Common Stock issued in the Stock Offering. Shares awarded to the Tax Qualified Employee Plans or pursuant to the Recognition Plans, and shares issued upon exercise of options may be authorized but unissued shares of the Holding Company's Common Stock, or shares of Common Stock purchased by the Holding Company or such plans in the open market. Any Recognition Plan or stock option plan will be subject to stockholder approval.
25. Post-Reorganization Filing and Market Making
It is likely that there will be a limited market for the Common Stock sold in the Stock Offering, and purchasers must be prepared to hold the Common Stock for an indefinite period of time. If the Holding Company has more than 35 stockholders of any class of stock, the Holding Company shall register its Common Stock with the SEC pursuant to the Exchange Act, and shall undertake not to deregister such Common Stock for a period of three years thereafter.
26. Liquidation Account
The Stock Bank or the Holding Company shall establish at the completion of the Reorganization a Liquidation Account in an amount equal to the Bank's net worth (determined in accordance with generally accepted accounting principles) as set forth in the latest statement of financial condition contained in the proxy statement used in connection with obtaining approval of the Reorganization. The Liquidation Account will be maintained by the Stock Bank and/or the Stock Holding Company for the benefit of the Eligible Account Holders and Supplemental Eligible Account Holders who continue to maintain Deposit
Accounts with the Stock Bank following the Reorganization. Each Eligible Account Holder and Supplemental Eligible Account Holder shall, with respect to each Deposit Account, hold a related inchoate interest in a portion of the Liquidation Account balance, in relation to each Deposit Account balance at the Eligibility Record Date or Supplemental Eligibility Record Date, as the case may be, or to such balance as it may be subsequently reduced, as hereinafter provided. The initial Liquidation Account balance shall not be increased, and shall be subject to downward adjustment to the extent of any downward adjustment of any subaccount balance of any Eligible Account Holder or Supplemental Eligible Account Holder in accordance with Section 86.4(g)(5) of the Regulations.
In the unlikely event of a complete liquidation of the Stock Bank and the Holding Company (and only in such event), following all liquidation payments to creditors (including those to depositors to the extent of their Deposit Accounts) each Eligible Account Holder and Supplemental Eligible Account Holder shall be entitled to receive a liquidating distribution from the Liquidation Account, in the amount of the then-adjusted subaccount balance for his Deposit Account then held, before any liquidation distribution may be made to any holders of the Stock Bank's capital stock. No Conversion Transaction and no merger, consolidation, purchase of bulk assets with assumption of Deposit Accounts and other liabilities, or similar transactions with an FDIC-insured institution, in which the Stock Bank or the Holding Company is not the surviving institution, shall be deemed to be a complete liquidation for this purpose. In such transactions, the Liquidation Account shall be assumed by the surviving institution.
The initial subaccount balance for 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, the numerator of which is the amount of such Eligible Account Holder's or Supplemental Eligible Account Holder's Qualifying Deposit and the denominator of which is the total amount of all Qualifying Deposits of all Eligible Account Holders and Supplemental Eligible Account Holders in the Stock Bank. Such initial subaccount balance shall not be increased, but shall be subject to downward adjustment as described below.
If, at the close of business on the last day of any period for which the Stock Bank or the Holding Company, as the case may be, has prepared audited financial statements subsequent to the effective date of the Reorganization, the deposit balance in the Deposit Account of an Eligible Account Holder or Supplemental Eligible Account Holder is less than the lesser of (i) the balance in the Deposit Account at the close of business on the last day of any period for which the Stock Bank or the Holding Company, as the case may be, has prepared audited financial statements subsequent to the Eligibility Record Date or Supplemental Eligibility Record Date, or (ii) the amount in such Deposit Account as of the Eligibility Record Date or Supplemental Eligibility Record Date, the subaccount balance for such Deposit Account shall be adjusted by reducing such subaccount balance in an amount proportionate to the reduction in such deposit balance. In the event of such downward adjustment, the subaccount balance shall not be subsequently increased, notwithstanding any subsequent increase in the deposit balance of the related Deposit Account. If any such Deposit Account is closed, the related subaccount shall be reduced to zero. For purposes of this Section and Section 86.4(f)(5) of the Regulations, a time account shall be deemed to be closed upon its maturity date regardless of any renewal thereof. A distribution of each subaccount balance may be made only in the event of a complete liquidation of the Stock Bank and the Holding Company subsequent to the Reorganization and only out of funds available for such purpose after payment of all creditors.
Neither the Stock Bank nor the Holding Company shall be required to set aside funds for the purpose of establishing the Liquidation Account, and the creation and maintenance of the Liquidation Account shall not operate to restrict the use or application of any of the net worth accounts of the Stock Bank or the Stock Holding Company, except that neither the Stock Bank nor the Holding Company shall declare or pay a cash dividend on, or repurchase any of, its capital stock if the effect thereof would cause its net worth to be reduced below the amount required for the Liquidation Account.
27. Employment and Other Severance Agreements
Following or contemporaneously with the Reorganization, the Stock Bank and/or the Holding Company may enter into employment and/or severance arrangements with one or more executive officers of the Stock Bank and/or the Holding Company. It is anticipated that any employment contracts entered into by the Stock Bank and/or the Holding Company will be for terms not exceeding three years and that such contracts will provide for annual renewals of the term of the contracts, subject to approval by the Board of Directors. The Stock Bank and/or the Holding Company also may enter into severance arrangements with one or more executive officers which provide for the payment of severance compensation in the event of a change in control of the Stock Bank and/or the Holding Company. The terms of such employment and severance arrangements have not been determined as of this time, but will be described in any prospectus circulated in connection with the Stock Offering and will be subject to and comply with all regulations of the Banking Board.
28. Payment of Dividends and Repurchase of Stock
The Holding Company may not declare or pay a cash dividend on, or repurchase any of, its Common Stock if the effect thereof would cause its regulatory capital or the regulatory capital of the Bank to be reduced below the amount required (i) to maintain the Liquidation Account or (ii) under FDIC rules and regulations. Otherwise, the Holding Company may declare dividends or make other capital distributions in accordance with applicable laws and regulations. Subject to any applicable regulatory approvals the MHC may waive its right to receive dividends declared by the Holding Company.
29. Establishment and Funding of Charitable Foundation
As part of the Reorganization, the Holding Company and the Bank may establish a charitable foundation that will qualify as an exempt organization under Section 501(c)(3) of the Internal Revenue Code (the "Charitable Foundation"), and donate to the Charitable Foundation cash, securities, or Common Stock in an amount up to 5% of the number of shares of Common Stock sold in the Stock Offering. The Charitable Foundation would be formed in connection with the Reorganization in order to complement the Bank's existing community reinvestment activities and to share with the Bank's local community a part of the Bank's financial success as a locally headquartered, community-oriented, financial services institution. The Charitable Foundation would be dedicated to the promotion of charitable purposes including community development, not-for-profit community groups and other types of organizations or civic-minded projects. It is expected that the Charitable Foundation would annually distribute total grants to assist charitable organizations or to fund projects within its local community of not less than 5% of the average fair value of Charitable Foundation assets each year. In order to serve the purposes for which it was formed and maintain its Section 501(c)(3) qualification, the Charitable Foundation may sell, on an annual basis, a limited portion of any securities contributed to it by the Holding Company.
The board of directors of the Charitable Foundation would be comprised of individuals who are officers or trustees of the Bank. The board of directors of the Charitable Foundation would be responsible for establishing the policies of the Charitable Foundation with respect to grants or donations, consistent with the stated purposes of the Charitable Foundation, respectively. The establishment and funding of the Charitable Foundation as part of the Reorganization is subject to the approval of the Superintendent and, if applicable, the FDIC. The decision to proceed with the formation of the Charitable Foundation, including the amount of the grant to the Foundation, shall be at the sole discretion of the Board of Trustees.
30. Interpretation
All interpretations of this Plan and application of its provisions to particular circumstances by a majority of the Board of Trustees of the Bank shall be final, subject to the authority of the Superintendent.
31. Reorganization and Stock Offering Expenses
The Regulations require that the expenses of any Stock Offering must be reasonable. The Bank will use its best efforts to assure that the expenses incurred by the Bank and the Holding Company in effecting the Reorganization and the Stock Offering will be reasonable.
32. Amendment or Termination of the Plan
If necessary or desirable, the terms of the Plan may be substantially amended by a majority vote of the Bank's Board of Trustees as a result of comments from regulatory authorities or otherwise, at any time prior to submission of the Plan and proxy materials to the Voting Depositors. At any time after submission of the Plan and proxy materials to the Voting Depositors, the terms of the Plan that relate to the Reorganization may be amended by a majority vote of the Board of Trustees only with the concurrence of the Superintendent, and, if applicable, the FDIC. Terms of the Plan relating to the Stock Offering including, without limitation, Sections 10 through 30, may be amended by a majority vote of the Bank's Board of Trustees as a result of comments from regulatory authorities or otherwise at any time prior to the approval of the Plan by the Superintendent and at any time thereafter with the concurrence of the Superintendent. The Plan may be terminated by a majority vote of the Board of Trustees at any time prior to the earlier of approval of the Plan by the Superintendent and the date of the Special Meeting, and may be terminated by a majority vote of the Board of Trustees at any time thereafter with the concurrence of the Superintendent. In its discretion, the Board of Trustees may modify or terminate the Plan upon the order of the regulatory authorities without a resolicitation of proxies or another meeting of the Voting Depositors; however, any material amendment of the terms of the Plan that relate to the Reorganization which occur after the Special Meeting shall require a resolicitation of Voting Depositors.
The Plan shall be terminated if the Reorganization is not completed within 24 months from the date upon which the Voting Depositors of the Bank approve the Plan, and may not be extended by the Bank or the Superintendent.
Dated: July 1, 1998.
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
GREENE COUNTY BANCORP, INC.
Article 1. Corporate Title. The name of the Corporation is Greene County Bancorp, Inc. (hereinafter referred to as the "Corporation").
Article 2. Registered Office. 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.
Article 3. Purpose 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.
Article 4. Capital Stock.
A. The total number of shares of all classes of stock which the Corporation shall have authority to issue is four million (4,000,000) consisting of four million (4,000,000) shares of Common Stock, par value one cent ($.10) per share (the "Common Stock").
B. 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 5% 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, except that such restriction and all restrictions set forth in this subsection "B" shall not apply to Greene County Bancorp, MHC (the "Mutual Holding Company"), or any tax qualified employee stock benefit plan established by the Corporation, which shall be able to vote in respect to 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 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 which are both 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.
2. The following definitions shall apply to this Section B of this Article 4:
(a) "Affiliate" shall have the meaning ascribed to it in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on the date of filing of this Certificate of Incorporation.
(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 the date of filing of this Certificate of Incorporation; 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 clauses of Section A of Article 8) 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 another such Director or Officer (or any affiliate thereof), and (2) neither any employee stock ownership plan or similar plan of this Corporation or any
subsidiary of this Corporation, nor any trustee with respect thereto or 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 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 include an individual, firm, 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 or any other entity.
3. 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 (i) the number of shares of Common Stock beneficially owned by any person, (ii) whether a person is an affiliate of another, (iii) whether a person has an agreement, arrangement, or understanding with another as to the matters referred to in the definition of beneficial ownership, (iv) the application of any other definition or operative provision of the section to the given facts, or (v) any other matter relating to the applicability or effect of this section.
4. 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) supply the Corporation with complete information as to (i) the record owner(s) of all shares beneficially owned by such person who is reasonably believed to own shares in excess of the Limit, (ii) any other factual matter relating to the applicability or effect of this section as may reasonably be requested of such person.
5. Except as otherwise provided by law or expressly provided in this section, 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 a majority 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, after giving effect to the provisions of this section.
6. 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.
7. In the event that any provision (or portion thereof) of this section 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 such remaining provision (or portion thereof) of this section 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.
Article 5. Management of Corporation. 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 Bylaws 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 Bylaws so provide.
C. 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 be effected by the unanimous consent in writing by such stockholders.
D. 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 the Corporation would have if there were no vacancies on the Board of Directors (the "Whole Board") or as otherwise provided in the Bylaws.
Article 6. Directors
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 shall be divided into three classes, with the term of office of the first class to expire at the first annual meeting of stockholders, the term of office of the second class to expire at the annual meeting of stockholders one year thereafter, and the term of office of the third class to expire at the annual meeting of stockholders two years thereafter. 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.
B. 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 chosen expires. 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 Bylaws of the Corporation.
D. Any Director, 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 4 of this Certificate of Incorporation ("Article 4")), voting together as a single class.
Article 7. Bylaws. The Board of Directors is expressly empowered to adopt, amend or repeal the Bylaws of the Corporation. Any adoption, amendment or repeal of the Bylaws 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 Bylaws of the Corporation; provided, however, that, in addition to any vote of the holders of any class or series of stock of the 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 4), voting together as a single class, shall be required to adopt, amend or repeal any provisions of the Bylaws of the Corporation.
Article 8. Evaluation of Offers. The Board of Directors of the Corporation, when evaluating any offer of another Person (as defined in Article 4 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; 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 savings bank holding company; and on the ability of its subsidiary savings bank to fulfill the objectives of a stock savings bank under applicable statutes and regulations.
Article 9. Indemnification.
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, Officer, employee or agent of another corporation or of a 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, Officer, employee or agent or in any other capacity while serving as a Director, Officer, employee or agent, shall be indemnified and held harmless by the Corporation to 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 9 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, if required under the Delaware General Corporation Law, that an advancement of expenses incurred by an indemnitee in his or her capacity as a Director of 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 9 shall be contract rights and such rights shall continue as to an indemnitee who has ceased to be a Director, Officer, employee or agent 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 9 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 be
entitled to be paid also 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 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 9 or otherwise, shall be on the Corporation.
D. The rights to indemnification and to the advancement of expenses conferred in this Article 9 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, Bylaws, 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 the Board of 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 9 with respect to the indemnification and advancement of expenses of Directors and Officers of the Corporation.
Article 10. Limitation of Liability. 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 amended to authorize corporate action further
eliminating or limiting 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.
Article 11. Mutual Holding Company. At all times so long as the Mutual Holding Company shall be in existence, the Mutual Holding Company shall own at least a majority of the Voting Stock of the Corporation and the Corporation shall not be authorized to issue any shares of Voting Stock or take any action while the Mutual Holding Company is in existence if after such issuance or action the Mutual Holding Company shall own less than the majority of the Corporation's Voting Stock. For these purposes, "Voting Stock" means common stock or preferred stock, or similar interests if the shares by statute, charter or in any manner, entitle the holder: (i) to vote for or to select Directors of the Corporation; and (ii) to vote on or to direct the conduct of the operations or other significant policies of the Corporation. Notwithstanding anything in the preceding sentence, preferred stock is not "Voting Stock" if: (i) voting rights associated with the preferred stock are limited solely to the type customarily provided by statute with regard to matters that would significantly and adversely affect the rights or preferences of the preferred stock, such as the issuance of additional amounts or classes of senior securities, the modification of the terms of the preferred stock, the dissolution of the Corporation, or the payment of dividends by the Corporation when preferred dividends are in arrears; (ii) the preferred stock represents an essentially passive investment or financing device and does not otherwise provide the holder with control over the Corporation; and (iii) the preferred stock does not at the time entitle the holder, by statute, charter, or otherwise, to select or to vote for the selection of Directors of the Corporation. Notwithstanding anything in the preceding two sentences, "Voting Stock" shall be deemed to include preferred stock and other securities that, upon transfer or otherwise, are convertible into Voting Stock or exercisable to acquire Voting Stock where the holder of the stock, convertible security or right to acquire Voting Stock has the preponderant economic risk in the underlying Voting Stock. Securities immediately convertible into Voting Stock at the option of the holder without payment
of additional consideration shall be deemed to constitute the Voting Stock into which they are convertible; other convertible securities and rights to acquire Voting Stock shall not be deemed to vest the holder with the preponderant economic risk in the underlying Voting Stock if the holder has paid less than 50% of the consideration required to directly acquire the Voting Stock and has no other economic interest in the underlying Voting Stock.
Article 12. Conversion of Mutual Holding Company. The Mutual Holding Company may elect to convert to stock form (a "Conversion Transaction") in accordance with The Greene County Savings Bank Plan of Reorganization from a Mutual Savings Bank to a Mutual Holding Company and Stock Issuance Plan, dated July 1, 1998 (the "Plan"), and applicable law and regulation to the extent such applicable law and regulation does not diminish the ownership rights of Minority Stockholders (as hereinafter defined). In a Conversion Transaction, the Mutual Holding Company will merge with and into Greene County Savings Bank (the "Bank") or the Corporation (or an affiliate or successor corporation of either), with the Bank or the Corporation, respectively, as the resulting entity, and the depositors of the Bank will receive the right to subscribe for a number of shares of common stock of the Corporation, as determined by the formula set forth in the following paragraphs and in the Plan. The additional shares of Common Stock of the Corporation issued in the Conversion Transaction shall be sold at their aggregate pro forma market value. In the event that the Mutual Holding Company merges into the Corporation, a liquidation account may be established and maintained in the Corporation.
In any Conversion Transaction, stockholders of the Corporation other than the Mutual Holding Company ("Minority Stockholders"), if any, will be entitled to maintain the same percentage ownership interest in the Corporation after the Conversion Transaction as their ownership interest in the Corporation immediately prior to the Conversion Transaction (i.e., the "Minority Ownership Interest"), subject only to adjustment as set forth in the Plan (if required by federal or state law, regulation, or regulatory policy) to reflect (i) the cumulative effect of the aggregate amount of dividends waived by the Mutual Holding Company, and (ii) the market value of assets of the Mutual Holding Company (other than Common Stock of the Corporation).
The adjustment referred to in clause (i) above would require that the Minority Ownership Interest (expressed as a percentage) be adjusted by multiplying the Minority Ownership Interest by a fraction, the numerator of which is equal to the Corporation's stockholders' equity at the time of the Conversion Transaction less the aggregate dollar amount of dividends waived by the Mutual Holding Company, and the denominator of which is equal to the Corporation's stockholders' equity at the time of the Conversion Transaction.
The adjusted Minority Ownership Interest (expressed as a percentage) resulting from the immediately preceding paragraph would be further adjusted pursuant to clause (ii) above by multiplying it by a fraction, the numerator of which is equal to the pro forma market value of the Corporation less the market value of assets of the Mutual Holding Company other than Corporation Common Stock, and the denominator of which is equal to the pro forma market value of the Corporation.
At the sole discretion of the Board of Directors of the Mutual Holding Company and the Corporation, a Conversion Transaction may be effected in any other manner necessary to qualify the Conversion Transaction as a tax-free reorganization under applicable federal and state tax laws, provided such Conversion Transaction does not diminish the rights and ownership interest of Minority Stockholders as set forth in the preceding paragraphs of this Section. If a Conversion Transaction does not occur, the Mutual Holding Company will always own a majority of the Voting Stock of the Corporation.
Article 13. Amendments. 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 the 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 4), voting together as a single class, shall be required to amend or repeal this Article 13, Section C of Article 4, Sections C or D of Article 5, Article 6, Article 7, Article 8 or Article 10.
Article 14. Sole Incorporator The name and mailing address of the sole incorporator are as follows:
Name Mailing Address
---- ---------------
Robert B. Pomerenk 5335 Wisconsin Avenue, N.W.
Suite 400
Washington, D.C. 20015
|
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 _____ day of September, 1998.
BYLAWS
OF
GREENE COUNTY BANCORP, INC.
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, which date shall be within thirteen (13) months subsequent to the later of the date of incorporation or the last annual meeting of stockholders.
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 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 a majority of all of the shares of the stock entitled to vote at the meeting, present in person or by proxy (after giving effect to the Article 4 of the Corporation's Certificate of Incorporation), shall constitute a quorum for all purposes, unless or except to the extent that the presence of a larger number may be 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 Chairman of the Board of the Corporation or, in his or her absence, the Chief Executive Officer 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. The date and time of the opening and closing of the polls for each matter upon which the stockholders will vote at the meeting shall be announced at the meeting.
(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 business must
relate to a proper subject matter for stockholder action and 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 office of the Corporation not less than ninety
(90) days prior to the date of the annual meeting; provided, however, that in
the event that less than one hundred (100) days' notice or prior public
disclosure 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 or such public disclosure was made. 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 stockholder proposing 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
Bylaws 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 or she should so determine, he or she 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.
(c) Only persons who are nominated in accordance with the procedures set forth in these Bylaws 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 office of the Corporation not less than ninety (90) days prior to the date of the meeting; provided, however, that in the event that less than one hundred (100) days' notice or prior disclosure 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 or such public disclosure was made. 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 the election of Directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934 (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 notice of nomination (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 and, if he or she should so determine, he or she shall 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 by a transmission permitted by law filed in accordance with the procedure established for the meeting. Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission
created pursuant to this paragraph may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used, provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission.
All voting, including on the election of Directors but excepting where otherwise required by law or by the governing documents of the Corporation, may be by a voice vote; provided, however, that upon demand therefor by a stockholder entitled to vote or by his or her proxy, a stock vote shall be taken. Every stock vote shall be taken by ballots, 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. The Corporation shall, in advance of any meeting of stockholders, appoint one or more inspectors to act at the meeting and make a written report thereof. The Corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of stockholders, the person presiding at the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his or her ability.
All elections shall be determined by a plurality of the votes cast, and except as otherwise required by the Certificate of Incorporation or by law, all other matters shall be determined by a majority of the votes present and cast at a properly called meeting of stockholders.
Section 8. Stock List. A complete list of stockholders entitled to vote at any meeting of stockholders, arranged in alphabetical order for each class of stock and showing the address of each such stockholder and the number of shares registered in his or her name, shall be open to the examination of any such stockholder, for any purpose germane to the meeting, during ordinary business hours for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or if not so specified, at the place where the meeting is to be held.
The stock list shall also be kept at the place of the meeting during the whole time thereof and shall be open to the examination of any such stockholder who is present. This list shall presumptively determine the identity of the stockholders entitled to vote at the meeting and the number of shares held by each of them.
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 an annual or special meeting of stockholders of the Corporation and may not be effected by any consent in writing by such stockholders.
ARTICLE II - BOARD OF DIRECTORS
Section 1. General Powers, Number and Term of Office. The business and affairs of the Corporation shall be under the direction of its Board of Directors. The number of Directors who shall constitute the Whole Board shall be such number as the Board of Directors shall from time-to-time by resolution so designate. The Board of Directors shall annually elect a Chairman of the Board from among its members who shall, when present, 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, with respect to the time for which they severally hold office, into three classes, with the term of office of the first class to expire at the first annual meeting of stockholders, the term of office of the second class to expire at the annual meeting of stockholders one year thereafter and the term of office of the third class to expire at 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 then 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. Chairman of the Board. The Chairman of the Board shall, subject to the provisions of these Bylaws and to the direction of the Board of Directors, serve in a general executive capacity and, when present, shall preside at all meetings of the Board of Directors or the stockholders of the Corporation. The Chairman of the Board shall perform all duties and have all powers which are commonly incident to the office of Chairman of the Board or which are delegated to him or her by the Board of Directors. He or she shall have power to sign all stock certificates, contracts and other instruments of the Corporation which are authorized.
Section 3. Vacancies and Newly Created Directorships. Subject to the rights of the holders of any class or series of preferred stock, and unless the Board of Directors otherwise determines, 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.
Section 4. Regular Meetings. Each regular meetings of the Board of Directors shall be held at such place, on such date, and at such time 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 5. Special Meetings. Special meetings of the Board of Directors may be called by the President of the Bank. If the President is absent or disabled, any two Vice Presidents may call a special meeting If the President and all the Vice President are absent or disabled, the Secretary may call a special meeting if he or she is requested to do so by two or more Directors. 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 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 6. Quorum. At any meeting of the Board of Directors, a majority of the Whole 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 7. 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 8. 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.
Section 9. 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;
(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 Bylaws, for the management of the Corporation's business and affairs.
Section 10. 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.
Section 11. Directors' Age Limitation and Directors Emeriti. No person shall be eligible for initial election as a Director who is seventy (70) years of age or more, except for any director who was a director of Greene County Savings Bank on the date of adoption of these bylaws. The office of a director shall become vacant on the day of the annual meeting of the Board of Directors following such director's seventieth (70th) birthday.
The Board may elect annually Emeriti Members of the Board consisting of former Board Members who have been forced to retire upon reaching the mandatory age of seventy (70) years. No Emeriti Member may be elected or serve after their seventy-fifth (75th) birthday. Directors Emeriti must have previously served as members of the Board of Directors. Emeriti Members are entitled to receive notice of all Board Meetings. They may attend Board Meetings but shall not have the right to vote nor shall such position carry with it any of the responsibilities, powers and privileges of the regular members of the Board.
ARTICLE III - COMMITTEES
Section 1. Committee of the Board of Directors. The Board of Directors, by a vote of a majority of the Whole Board, 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 the Delaware General Corporation Law if the resolution which designates 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. Executive Committee. There will be an Executive Committee consisting of at least five members, all of whom shall be Board Members. At the annual Board meeting the Directors will elect the members to the Executive Committee and the Chairman of the Committee. These elected members will serve until the next annual meeting or until their successors are elected. Except as otherwise limited by law, the Executive Committee will have power to decide all bank matters which need to be decided between regular Board meetings. The President will call Executive Committee meetings. If the President is absent or disabled, any two Vice Presidents may do so. If both the President and all the Vice Presidents are absent or disabled, any two committee members may do so. In order to conduct an Executive Committee meeting, at least four members must be present (called a "Quorum"). The Executive Committee will keep a record of all business transacted at its meetings and will report all such business to the Board of Directors at the first regular meeting following each Executive Committee meeting. If a vacancy occurs among the Executive Committee members between annual Board meetings, the Board upon nomination by the President, will elect a replacement.
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 and Chief Executive Officer, one or more Vice Presidents, and a Secretary and from time to time may choose such other Officers as it may deem proper. 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 (without prejudice to any contract rights that an Officer may have).
(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 and Chief Executive Officer. The President and Chief Executive Officer (the "President") shall have general responsibility for the management and control of the business and affairs of the Corporation and shall perform all duties and have all powers which are commonly incident to the offices of President and Chief Executive Officer or which are delegated to him or her by the Board of Directors. The President , if present, shall preside at all meetings of the Executive Committee of the Board. Subject to the direction of the Board of Directors, the President shall have power to sign all stock certificates, contracts and other instruments of the Corporation which are authorized and shall have general supervision of all of the other Officers, employees and agents of the Corporation.
Section 3. Vice President. The Vice President or Vice Presidents shall perform the duties of the President in his or her 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 by the Board of Directors, the Chairman of the Board or the President. A Vice President or Vice Presidents may be designated as Executive Vice President or Senior Vice 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. Assistant Secretaries and Other Officers. The Board of Directors may appoint one or more Assistant Secretaries and such other Officers who shall have such powers and shall perform such duties as are provided in these Bylaws or as may be assigned to them by the Board of Directors, the Chairman of the Board or the President.
Section 6. 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 the Corporation may hold securities and otherwise to exercise any and all rights and powers which the Corporation may possess by reason of its ownership of securities in such other corporation.
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 Chairman of the Board or the President, and by the Secretary or an Assistant Secretary, or any Treasurer or 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 Bylaws, an outstanding certificate for the number of shares involved shall be surrendered for cancellation before a new certificate is issued therefor.
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.
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 U.S. mails, postage prepaid, or by sending such notice by facsimile transmission or by courier. 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 mails or by facsimile transmission or other courier, 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.
ARTICLE VII - MISCELLANEOUS
Section 1. Facsimile Signatures. In addition to the provisions for use of facsimile signatures elsewhere specifically authorized in these Bylaws, 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 Chief Financial Officer or by an Assistant Secretary or an assistant to the Chief Financial Officer.
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 Bylaws 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.
ARTICLE VIII - AMENDMENT
The Board of Directors may amend, alter or repeal these Bylaws at any meeting of the Board, provided notice of the proposed change is given not less than two days prior to the meeting. The stockholders shall also have power to amend, alter or repeal these Bylaws at any meeting of stockholders, provided notice of the proposed change was given in the Notice of the Meeting; provided, however, that, notwithstanding any other provisions of these Bylaws or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any particular class or series of the Voting Stock Designation or these Bylaws, the affirmative votes of the holders of at least 80% of the voting power of all the then-outstanding shares of the Voting Stock, voting together as a single class, shall be required to alter, amend or repeal any provisions of these Bylaws.
Exhibit 3.3
RESTATED ORGANIZATION CERTIFICATE
OF
THE BANK OF GREENE COUNTY
We, Walter H. Ingalls, being the Chairman of the Board, J. Bruce Whittaker, being the President and Chief Executive Officer, and Bruce P. Egger, being the Secretary, of Greene County Savings Bank, do hereby certify as follows:
FIRST, the name of the Corporation is Greene County Savings Bank.
SECOND, the Corporation was created by an act of the New York legislature in 1889.
THIRD, the text of the Organization Certificate of Greene County Savings Bank is hereby amended and restated in its entirety to read as follows:
Section 1. Corporate Title. The full corporate title of the institution is The Bank of Greene County ("Savings Bank").
Section 2. Office. The principal office of the Savings Bank shall be located in the County of Greene, City of Catskill, State of New York.
Section 3. Duration. The duration of the Savings Bank is perpetual.
Section 4. Purpose and Powers. The purpose of the Savings Bank is to pursue any or all of the lawful objectives of a New York chartered capital stock savings bank and to exercise all the express, implied, and incidental powers conferred thereby and by all acts amendatory thereof and supplemental thereto, subject to the Constitution and laws of New York and 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 New York State Banking Department ("NYSBD").
Section 5. Capital Stock. The total number of shares of all classes of the capital stock which the Savings Bank has authority to issue is one million two hundred thousand (1,200,000), of which one million (1,000,000) shall be common stock, par value $.01 per share, and of which two hundred thousand (200,000) shall be preferred stock, 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 or other obligations for future payment, nor future services shall constitute payment or part payment for the issuance of shares of the Savings Bank. The consideration for the shares shall be
cash, tangible or intangible property (to the extent direct investment in such property would be permitted), labor or services actually performed for the Savings Bank, 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 Savings Bank, 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 surplus of the Savings Bank which is transferred to stated capital upon the issuance of shares as a share dividend shall be deemed to be the consideration for their issuance.
Except for shares issuable in connection with the conversion of the Savings Bank 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 Savings Bank other than as part of a general public offering or as qualifying shares to a director, unless their issuance or the plan under which they would be issued has been approved by a majority of the total votes eligible to be cast at a legal meeting.
Nothing contained in this Section 5 (or in any supplementary sections hereto) shall entitle the holders of any class or series of capital stock to vote as a separate class or series or to more than one vote per share, provided that this restriction on voting separately by class or series shall not apply:
(i) To any provision which would authorize the holders of preferred stock, voting as a class or series, to elect some members of the Board of Directors, less than a majority thereof, in the event of default in the payment of dividends on any class or series of preferred stock;
(ii) To any provision which would require the holders of preferred stock, voting as a class or series, to approve the merger or consolidation of the Savings Bank 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 Savings Bank 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 NYSBD 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 institution in a merger or consolidation for the Savings Bank, shall not be considered to be such an adverse change.
A description of the different classes and series (if any) of the Savings Bank's capital stock and a statement of the designations, and the relative rights, preferences, and limitations of the shares of each class of and series (if any) of capital stock are as follows:
A. Common Stock. Except as provided in this Section 5 (or in any supplementary sections hereto), 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. Stockholders shall not be entitled to cumulate their votes for election of directors.
Whenever there shall have been paid, or declared and set aside for payment to the holders of the outstanding shares of any class of stock having preference over the common stock as to the payment of dividends, the full amount of dividends and of sinking fund, or retirement fund, or other retirement payments, if any, to which such holders are respectively entitled in preference to the common stock, then dividends may be paid on the common stock and on any class or series of stock entitled to participate therewith as to dividends out of any assets legally available for the payment of dividends.
In the event of any liquidation, dissolution, or winding up of the Savings Bank, 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 Savings Bank available for distribution remaining after: (i) payment or provision for payment of the Savings Bank's debts and liabilities; (ii) distributions or provision for distributions in settlement of its liquidation account; and (iii) distributions or provision 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 Savings Bank. Each share of common stock shall have the same relative rights as and be identical in all respects with all of the other shares of common stock.
B. Preferred Stock. The Savings Bank may provide in supplementary sections to its Restated Organization Certificate 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 Restated Organization Certificate. 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 the 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 Savings Bank;
(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 Savings Bank and, if so, the conversion price(s) or the rate(s) of exchange, and the adjustments thereof, if any, at which such conversion or exchange may be made, and any other terms and conditions of such conversion or exchange;
(h) The price or other consideration for which the shares of such series shall be issued; and
(i) Whether the shares of such series which are redeemed or converted shall have the status of authorized but unissued shares of serial preferred stock and whether such shares may be reissued as shares of the same or any other series of serial preferred stock.
Each share of each series of serial preferred stock shall have the same relative rights as and be identical in all respects with all of the other shares of the same series.
The Board of Directors shall have authority to divide, by the adoption of supplementary Restated Organization Certificate sections, any authorized class of preferred stock into series, and, within the limitations set forth in this section and the remainder of this Restated Organization Certificate, 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 Restated Organization Certificate section adopted by the Board of Directors, the Savings Bank shall file with the Superintendent of Banks of the State of New York a dated copy of that supplementary
section of this Restated Organization Certificate establishing and designating the series and fixing and determining the relative rights and preferences thereof.
Section 6. Preemptive Rights. Holders of the capital stock of the Savings Bank shall not be entitled to preemptive rights with respect to any shares of the Savings Bank which may be issued.
Section 7. Liquidation Account. Pursuant to the requirements of the NYSBD's regulations, the Savings Bank shall establish and maintain a liquidation account for the benefit of its deposit account holders as of June 30, 1997 and September 30, 1998 ("eligible depositors"). In the event of a complete liquidation of the Savings Bank, it shall comply with such regulations with respect to the amount and the priorities on liquidation of each of the Savings Bank's eligible depositor's inchoate interest in the liquidation account, to the extent it is still in existence; provided that an eligible depositor's inchoate interest in the liquidation account shall not entitle such eligible depositor to any voting rights at meetings of the Savings Bank's stockholders.
Section 8. Purchase Limitation Applicable for Three Years. Notwithstanding anything contained in the Savings Bank's Restated Organization Certificate or Bylaws to the contrary, for a period of three years from the date of consummation of the mutual holding company reorganization by the Savings Bank's mutual predecessor, no person (other than the Savings Bank's parent stock holding company and its mutual holding company) shall directly or indirectly acquire the beneficial ownership of more than 10% of any class of any equity security of the Savings Bank.
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 matter submitted to the stockholders for a vote; provided, however, that a person shall not be deemed to be the beneficial owner of shares represented by proxies held by such person unless such shares are otherwise deemed beneficially owned by such person.
For the purposes of this Section 8, the following definitions apply:
(i) The term "person" includes an individual, a firm, a group acting in concert, a corporation, a partnership, an association, a joint venture, a pool, a joint stock company, a trust, any 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 Savings Bank or any other entity.
(ii) The term "acquire" includes every type of acquisition, whether effected by purchase, exchange, operation of law or otherwise.
(iii) 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 arrangement, whether written or otherwise.
Section 9. Call for Special Meetings. Special meetings of the stockholders for any purpose or purposes, unless otherwise prescribed by the regulations of the NYSBD, may be called at any time by the Chairman of the Board of Directors or the majority of the Whole Board of Directors (the term "Whole Board of Directors" shall mean the total number of directors the Savings Bank would have if there were no vacancies).
Section 10. Directors. The Savings Bank shall be under the direction of
a Board of Directors. The authorized number of directors, as stated in the
Savings Bank's Bylaws, shall not be less than seven (7) nor more than twenty
(20) except when a greater number is approved by the NYSBD or its delegatees.
Each of the following persons shall be a director of the Savings Bank upon the effectiveness of this Restated Organization Certificate, for the terms indicated or until his successor is elected and qualified, and they shall constitute the initial Board of Directors of the Savings Bank:
Class I with terms to expire at the first annual meeting of stockholders:
J. Bruce Whittaker
Dennis R. O'Grady
Martin C. Smith
Class II with terms to expire at the annual meeting of stockholders one year thereafter:
Richard J. Buck
Raphael Klein
Anthony Camera, Jr.
Class III with terms to expire at the annual meeting of stockholders two years thereafter:
Walter H. Ingalls
Paul Slutzky
David H. Jenkins, DVM
Section 11. Amendment of Charter. Except as provided in Section 5, no amendment, addition, alteration, change, or repeal of this Restated Organization Certificate shall be made, unless such is first proposed by a majority of the Whole Board of Directors of the Savings Bank, then preliminarily approved by the NYSBD, which preliminary approval may be granted by the NYSBD pursuant to regulations specifying preapproved organization certificate amendments, and thereafter approved by the affirmative vote of the holders of at least 80% of the total votes eligible to be cast at a legal meeting. Any amendment, addition, alteration, change or repeal so acted upon shall be
effective upon filing with the NYSBD in accordance with the regulatory procedures or on such other date as the NYSBD may specify in its preliminary approval.
Section 12. Amendment of Bylaws. No amendment, addition, alteration, change or repeal of the Bylaws of the Savings Bank shall be made, unless made in a manner consistent with the Regulations of the NYSBD and approved by a majority of the Whole Board of Directors or by the affirmative vote of at least 80% of the votes eligible to be cast by the stockholders of the Savings Bank at any legal meeting.
Section 13. Indemnification. (a) Scope of Indemnification. Except to the extent expressly prohibited by the New York Banking Law, the Savings Bank shall indemnify each person made, or threatened to be made, a party to any action or proceeding, whether criminal or civil, by reason of the fact that such person or such person's testator or intestate is or was a director or officer of the Savings Bank, or is or was serving, in any capacity, at the request of the Savings Bank, any other corporation, or any partnership, joint venture, trust, employee benefit plan or other enterprise, against judgments, fines, penalties, amounts paid in settlement and reasonable expenses, including attorneys' fees and expenses reasonably incurred in enforcing such person's right to indemnification, incurred in connection with such action or proceeding, or any appeal therein, provided that no such indemnification shall be made if a judgment or other final adjudication adverse to such person establishes that such person's acts were committed in bad faith or were the result of active and deliberate dishonesty and were material to the cause of action so adjudicated, or that such person personally gained in fact a financial profit or other advantage to which such person was not legally entitled, and provided that no such indemnification shall be required with respect to any settlement or other nonadjudicated disposition of any threatened or pending action or proceeding unless the Savings Bank has given its prior consent to such settlement or other disposition.
(b) Reimbursement of Expenses. The Savings Bank shall advance or promptly reimburse upon request any person entitled to indemnification hereunder for all reasonable expenses, including attorneys' fees and expenses, reasonably incurred in defending any action or proceeding in advance of the final disposition thereof upon receipt of an undertaking by or on behalf of such person to repay such amount if such person is ultimately found not to be entitled to indemnification or, where indemnification is granted, to the extent the expenses so advanced or reimbursed exceed the amount to which such person is entitled; provided, however, that such person shall cooperate in good faith with any request by the Savings Bank that common counsel be used by the parties to any action or proceeding who are similarly situated unless to do so would be inappropriate due to actual or potential differing interests between or among parties.
(c) Additional Rights. Nothing herein shall limit or affect any right of any director, officer, or other corporate personnel otherwise than hereunder to indemnification or expenses, including attorneys' fees and expenses, under any statute, rule, regulation, certificate of incorporation, Bylaws, insurance policy, contract, or otherwise. Without affecting or limiting the rights of any director, officer or other corporate personnel pursuant to this Section 13, the Savings Bank is authorized to enter into agreements with any of its directors, officers or other corporate
personnel extending rights to indemnification and advancement of expenses to the fullest extent permitted by applicable law
(d) Notice of Amendments or Elimination. Anything in this Restated
Organization Certificate to the contrary notwithstanding, no elimination or
amendment of this Section 13 adversely affecting the right of any person to
indemnification or advancement of expenses hereunder shall be effective until
the 60th day following notice to such person of such action, and no elimination
of or amendment to this Section 13 shall deprive any such person's rights
hereunder arising out of alleged or actual occurrences, act or failures to act
prior to such 60th day. Any amendments or eliminations made pursuant to this
Section 13 are only effective with regard to acts occurring after such date.
(e) Amendment or Elimination. The Savings Bank shall not, except by elimination or amendment of this Section 13 in a manner consistent with the preceding subsection (d), take any corporate action or enter into any agreement which prohibits or otherwise limits the rights of any person to indemnification in accordance with the provisions of this Section 13. The indemnification of any person provided by this Section 13 shall continue after such person has ceased to be a director or officer of the Savings Bank and shall inure to the benefit of such person's heirs, executors, administrators and legal representatives.
(f) Severability of Provision. In case any provision in this Section 13 shall be determined at any time to be unenforceable in any respect, the other provisions of this Section 13 shall not in any way be affected or impaired thereby, and the affected provision shall be given the fullest possible enforcement in the circumstances, it being the intention of the Savings Bank to afford indemnification and advancement of expenses to its directors or officers, acting in such capacities or in the other capacities mentioned herein, to the fullest extent permitted by law.
IN WITNESS WHEREOF, we have made, signed and acknowledged this Certificate in duplicate, this____day of _____________, 1998.
Walter H. Ingalls Chairman of the Board
STATE OF NEW YORK )
) ss:
COUNTY OF GREENE )
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On this ___ day of ________, 1998, there personally appeared before me Walter H. Ingalls, J. Bruce Whittaker and Bruce P. Egger to me known to be the individuals described in and who executed the foregoing certificate, and severally acknowledged to me that they executed the same and that the contents thereof are true.
Notary Public
BYLAWS OF
THE BANK OF GREENE COUNTY
ARTICLE I. PRINCIPAL OFFICE
The principal office of The Bank of Greene County ("Savings Bank") is 425 Main & Church Streets, Catskill, New York 12414.
ARTICLE II. SHAREHOLDERS
Section 1. Place of Meetings. All annual and special meetings of shareholders shall be held at the principal office of the Savings Bank or at such other place in the State of New York in which the principal place of business of the Savings Bank is located as the Board of Directors may determine.
Section 2. Annual Meeting. A meeting of the shareholders of the Savings Bank for the election of Directors and for the transaction of any other business of the Savings Bank shall be held annually [within the last four months of each calendar year.]
Section 3. Special Meetings. Special meetings of the shareholders for any purpose or purposes, unless otherwise prescribed by the New York Banking Law and the regulations of the New York State Banking Department ("NYSBD") or other applicable law, may be called at any time by the Chairman of the Board of Directors (as set forth in Article V, Section 2, hereinafter referred to as the "Chairman of the Board") or by a majority of the Whole Board of Directors. The term "Whole Board of Directors" shall mean the total number of Directors which the Savings Bank would have if there were no vacancies.
Section 4. Conduct of Meetings. The Chairman of the Board shall preside at all meetings and in his or her absence, the President or a person designated by a majority of the Board shall preside at all meetings. The chairman of any meeting of stockholders shall determine the order of business and the procedures at the meeting, including such regulations of the manner of voting and the conduct of discussion.
Section 5. Notice of Meetings. Written notice stating the place, day
and hour of the meeting and in the case of a special meeting, the purpose(s) for
which the meeting is called and the person by or at whose direction the meeting
is being called, shall be delivered not fewer than ten (10) nor more than fifty
(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 Secretary, or the Board of
Directors calling the meeting, to each shareholder of record entitled to vote at
such meeting. If mailed, such notice shall be deemed to be delivered when
deposited in the mail, addressed to the shareholder at the address as it appears
on the stock transfer books or records of the Savings Bank as of the record date
for the meeting with postage prepaid. When any shareholders' meeting, either
annual or special, is adjourned for thirty
(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 thirty (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. Notice of any annual or special meeting of shareholders may be waived by unanimous consent of all shareholders.
Section 6. Quorum. A majority of the outstanding shares of the Savings Bank entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of shareholders. 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 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 existence of a quorum at any meeting, or the existence of a duly organized meeting at which enough shareholders have withdrawn from such meeting to constitute less than a quorum, however, shall not serve to amend, alter or modify any provisions in the Savings Bank's Restated Organization Certificate or these Bylaws which require the vote of more than a majority of the outstanding shares entitled to vote at a duly organized meeting.
Section 7. 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 solicited on behalf of management shall be voted as directed by the shareholder or, in the absence of such direction, as determined by a majority of the Whole Board of Directors. No proxy shall be valid more than eleven months from the date of its execution except as otherwise provided herein.
Section 8. 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 Savings Bank to the contrary, at any meeting of the shareholders of the Savings Bank 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 9. 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 such person, 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 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 Savings Bank 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 Savings Bank, shall be voted at any meeting or counted in determining the total number of outstanding shares at any given time for purposes of any meeting.
Section 10. Cumulative Voting. Shareholders shall not be entitled to cumulate their votes for election of Directors.
Section 11. Written Consent of Shareholders. Any action required or permitted to be taken at an annual or special meeting of shareholders, or any other action which may be taken at a meeting of the 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 entire management and control of the affairs of the Savings Bank shall be vested in the Board of Directors. No person shall be eligible for initial election as a Director who is seventy (70) years of age or more (except for any director who was a director of the Savings Bank as of the date of the effectiveness of the conversion of the Savings Bank from the mutual to the stock form of organization and the reorganization of the Savings Bank into the mutual holding company structure). The office of a director shall become vacant on the last day of the month in which such director reaches his or her seventieth fifth (75th) birthday. As used in these Bylaws, the phrase "all of the Directors" shall mean the total number of Directors the Savings Bank would have if there were no vacancies on the Board of Directors.
Section 2. Number and Term. The number of Directors constituting the entire Board shall not be less than seven (7) nor more than twenty (20), as determined from time to time by resolution of the Board. The Board of Directors shall be divided into three classes as nearly equal in number as is 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. Chairman of the Board. At its annual meeting the Board of Directors shall elect from among its members a Chairman of the Board. The Chairman of the Board shall preside at all
meetings of the Board of Directors and shall perform all such other duties as the Board of Directors may from time to time prescribe.
Section 4. Regular Meetings. Regular Board meetings will be held on the third Tuesday of each month. If any third Tuesday falls on a legal holiday, that month's meeting will be held on the next business day after the holiday. The Board may decide to hold any monthly meeting on a day other than the third Tuesday of the month. The annual Board meeting will be held each year on the third Tuesday in October unless another time is set by the Board.
Section 5. Special Meetings. The President of the Bank may call a special meeting. If the President is absent or disabled, any two Vice Presidents may do so. If the President and all the Vice President are absent or disabled, the Secretary may call a special meeting if he or she is requested to do so by two or more Directors.
Section 6. Participation in Meetings by Directors. Members of the Board of Directors, or any committee thereof, may participate in a meeting of such Board or a committee by means of conference telephone, or by means of similar communications equipment by means of which all persons participating in the meeting can speak and hear each other at the same time and such participation shall constitute presence in person at such meeting.
Section 7. Notice. Any regular meeting of the Board of Directors may be held without notice, if the date, hour and place of such meeting have been fixed by the Board of Directors. Except as provided in the preceding sentence, notice of each regular or special meeting of the Board of Directors, stating the date, hour and place thereof, shall be given by the Secretary to each Director (a) not less than seventy-two (72) hours before the meeting by depositing the notice in the United States mail, with first-class postage thereon prepaid, directed to each Director at the address designated by him or her for such purpose (or, if none is designated, at his or her last known address) or (b) not less than twenty-four (24) hours before the meeting by (i) delivering the same to each Director personally, (ii) sending the same by facsimile or other electronic transmission to the address designated by him or her for such purpose (or, if none is designated, to his or her last known address) or (iii) delivering the notice to the address designated by him or her for such purpose (or, if none is designated, to his or her last known address). Notice of a meeting need not be given to any Director who submits a signed waiver of notice whether before or after the meeting or who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to him or her. The notice of any regular meeting of the Board of Directors need not specify the purpose or purposes for which the meeting is called, except as provided in Section 5 of this Article I and as provided in these Bylaws.
Section 8. Quorum. At least five members must be present in order to conduct a Board meeting. This minimum number constitutes a "quorum" but less than a quorum shall have the power to adjourn from time to time until the next regular meeting.
Section 9. 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 applicable law, the Restated Organization Certificate or by these Bylaws.
Section 10. 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 11. Vacancies. All vacancies in the office of Director, including newly created Directorships resulting from an increase in the number 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, or by a majority vote of the stockholders. A Director elected to fill a vacancy shall be elected to serve for the balance of the unexpired term and a Director elected to fill a vacancy to be filled by reason of an increase in the number of Directors shall be elected to serve for the balance of the unexpired term of the class to which such Director is elected.
Section 12. Compensation. Directors, as such, may receive compensation for their services, including a stated retainer. By resolution of the Board of Directors, a reasonable fixed sum, and reasonable expenses of attendance, if any, may be allowed for actual attendance at each regular or special meeting of the Board of Directors. Members of standing, special or temporary committees, as such, may receive compensation for their services, including a stated retainer, as the Board of Directors may determine. By resolution of the Board of Directors, a reasonable fixed sum, and reasonable expenses of attendance, if any, may be allowed for actual attendance at each regular or special meeting of committees.
Section 13. Presumption of Assent. A Director of the Savings Bank who is present at a meeting of the Board of Directors at which action on any Savings Bank 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 Savings Bank within five days after the date on which 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. Emergency Authority. In the event there shall occur an acute emergency resulting from a hostile attack, as defined in Article 7 of the New York State Defense Emergency Act, which shall be of such severity as to prevent the conduct and management of the affairs and business of the Savings Bank by its Directors and officers as otherwise provided in these Bylaws, any three or more available members of the then-incumbent Executive Committee shall constitute an emergency Board of Directors which shall have the power, subject to limitations prescribed in Article 7 of the New York State Defense Emergency Act, by a majority of such persons present, to take any and every action which may be necessary to meet the exigencies of the acute emergency and to enable the Savings Bank to conduct its business during such period, including the relocation
elsewhere of any office of the Savings Bank which shall be unable to function because of the acute emergency. If during the period of acute emergency there shall be no Executive Committee, or a minimum of three members of the then incumbent Executive Committee shall not be available, then and in that event such other available Directors as may be needed to obtain the minimum of three members shall serve on the emergency Board of Directors.
During a period of acute emergency resulting from a hostile attack, the emergency management of the Savings Bank shall be in accordance with the powers and limitations contained in the existing provisions of Article 7 of the New York State Defense Emergency Act, and such provisions shall suspend or modify these Bylaws to the extent of any conflict.
Section 15. Directors Emeriti. The Board may elect annually Emeriti Members of the Board consisting of former Board Members who have been forced to retire upon reaching the mandatory age of seventy (70) years. No Emeriti Member may be elected or serve after their seventy-fifth (75th) birthday. Directors Emeriti must have previously served as members of the Board of Directors. Emeriti Members are entitled to receive notice of all Board Meetings. They may attend Board Meetings but shall not have the right to vote nor shall such position carry with it any of the responsibilities, powers and privileges of the regular members of the Board.
ARTICLE IV. COMMITTEES
Section 1. Majority Vote. The Members of the Committees described in this Article will be designated by a majority vote of the entire Board. Where the President nominates committee members, such nominees shall be approved and elected by a majority vote of the entire Board.
Section 2. Executive Committee. There will be an Executive Committee consisting of at least five members, all of whom shall be Board Members. At the annual Board meeting the Directors will elect the members to the Executive Committee and the Chairman of the Committee. These elected members will serve until the next annual meeting or until their successors are elected. Except as otherwise limited by law, the Executive Committee will have power to decide all bank matters which need to be decided between regular Board meetings. Their duties also include ensuring that management implements the policies and objectives of the Board. The President will call Executive Committee meetings. If the President is absent or disabled, any two Vice Presidents may do so. If both the President and all the Vice Presidents may do so. If both the President and all the Vice Presidents are absent or disabled, any two committee members may do so. In order to conduct an Executive Committee meeting, at least five members must be present (called a "Quorum"). Any member of the Executive Committee may participate in a meeting of that Committee by means of a conference telephone or similar communications equipment which allows all persons participating in the meeting to hear each other at the same time. A committee member who participates in a meeting by such means will be regarded as present person at the meeting. The Executive Committee will keep a record of all business transacted at its meetings and will report all such business to the Board of Directors at the first regular meeting following each Executive Committee meeting. If a vacancy occurs among the Executive Committee members between annual
Board meetings, the Board upon nomination by the President, upon nomination by the President will elect a replacement.
Section 3. The Appraisal and Loan Committee. The Board of Directors may establish an Appraisal and Loan Committee which will consist of nine members. The President may from time to time designate two or more committee members to serve as a sub-committee for the purpose of appraising, inspecting, or reappraising any real estate in which the Bank has or may have some business interest. A Director Emeriti shall be eligible to be an appraiser for the bank as well as any active member of the Board. Members of this Committee may be removed at any time by the Board with or without good cause. The Committee will have the authority to approve and make real estate mortgage loans, home modernization loans, home equipment loans, over-draft loans and checking accounts, all other loans which by law the Bank can make. The Committee will report its actions at the first regular meeting of the Board after any action is taken. The ultimate responsibility of asset quality rests with the Appraisal and Loan Committee. Their duty is to maximize the return on investments without sacrificing the quality of the Bank's loan portfolio. The Committee ensures that credit is extended in the communities serviced by the bank in compliance with the Community Reinvestments Act and Fair Housing Laws. The Committee will provide guidelines to management regarding the types of credit products offered, lending authority and limits for management and will oversee appraisal by outside vendors. The Committee will review collection procedures, foreclosing and charge-off determinations and collateral requirements.
Section 4. Investment Committee. The Board of Directors may establish an Investment Committee consisting of the President, ______ Board members and Executive Vice President, if there is an elected Executive Vice President, who may be removed from the committee by the Board with or without good cause. This committee will have authority to buy and sell securities for the Bank. It will report its actions at the first regular meeting of the Board after any action is taken.
Section 5. Audit Committee. The Board of Directors will establish an Audit Committee consisting of not less than four Directors elected by the Board at the annual meeting. The Board of Directors will also from this Committee elect a Chairman whose term of office will be at least one year. Once in every calendar year, this Committee will examine the records and affairs of the Bank to determine the Bank's true financial condition. The Committee will make this examination in keeping with the provisions of the banking law regarding such examinations. The Audit Committee has a duty to ensure that the audit function is in place, is performing adequately and is meeting the objectives of the Bank. They have a duty to verify the reliability of information presented by management an to ensure compliance with regulations. Their purpose is to safeguard the assets of the Bank and to ensure the prudent use of the Bank's resources. They are responsible for determining if goals have been accomplished and to control the budgetary process. Through interaction with the Bank's independent auditors their duty is to detect material errors or irregularities that exist in the Bank and to oversee their correction.
Section 6. Personnel Committee. Personnel Committee shall consist of seven members. At the annual meeting in each year it shall present to the Board its recommendations as to the salaries of the officers, employees, directors fees and committee fees for the ensuing year. The committee shall also review personnel and serve as a search committee for new officers. The duty of the Personnel Committee is the recruitment and retention of competent staff and management to ensure that the Bank operates in a safe and sound matter. The Committee will provide for management succession and will set levels of compensation and benefits and establish codes of conduct for bank employees.
Section 7. The Re-Inspection Committee. It is the responsibility of the Re-inspection Committee to monitor the collateral of the Bank's mortgage portfolio to prevent potential losses to limit credit risk. The Committee will inspect the collateral securing problem loans or loans with a high loan to value ratio in times of declining market values. The Committee will make recommendations to the Board for the establishment of specific reserves if they feel there may be the possibility of a loss to the Bank due to a deterioration in the collateral.
Section 8. Special Committees. From time to time the Board may establish special committees to serve whatever purposes the President or the Board may consider necessary and shall further have the right to eliminate or add any other general committees.
Section 9. Advisory Boards. The Board may establish Advisory Boards to the Board of Directors. Such Advisory Boards will generally be representatives of a particular geographical area. Membership on such Advisory Boards will be at the discretion of the Board of Directors and each such Advisory Board Member will be elected to such a position on an annual basis. Such advisory boards may elect a Chairman with the approval of the Board of Directors. Such Boards will have the powers and duties as assigned by the Board of Directors.
ARTICLE V. OFFICERS
Section 1. Terms of Office. The Board of Directors at its annual meeting shall elect a President, two or more Vice Presidents, a Secretary, a Treasurer and an Auditor. The Board of Directors may from time to time elect such additional officers as it may determine. The Board may establish a ranking order and alternative titles for these elected officers. Each officer is elected for one year or until a successor is elected and qualifies. Any officer may be elected to more than one office except that no one person may be President and Secretary at the same time. If any officer mentioned in this section is not elected at the Annual Meeting, the Board may elect a person to fill that office at any regular meeting during the year or at a special meeting called for the purpose. The Board will elect officers to fill any vacancies which may occur between the annual meetings.
Section 2. The President. The President is the Chief Executive Officer of the Bank and has general charge and supervision of the Bank's affairs, officers, and employees, subject to the direction of the Board of Trustees and the Executive Committee. The President, if present, shall preside at all meetings of the Executive Committee. The President, if present, shall preside at all meetings of
the Executive Committee. He or she shall have the power to execute and deliver all documents requiring the official seal of the Bank. When necessary, the President may change the duties of any of the officers and employees of the Bank.
Section 3. Vice Presidents. The Vice President(s) will have the powers and duties set forth in these By-Laws or assigned to them by the Board or the President.
Section 4. Attorney. The Bank's Attorney will have the powers and duties set forth in these By-Laws or assigned to him or her by the Board or the President.
Section 5. Secretary. The Secretary will have the powers and duties set forth in these By- Laws or assigned to him or her by the Board or the President.
Section 6. Treasurer. The Treasurer will have the powers and duties set forth in these By- Laws or assigned to him or her by the Board or the President.
Section 7. Auditor. The Auditor will examine the accounts, records and transactions of the Bank as required by the Board or the Boards' Audit Committee. The Auditor will also perform any other duties prescribed in an audit program approved by the Board. The Auditor is free to examine any department or section of the Bank without previously consulting any officer in that department or section. The Auditor must keep a record of the dates of audits and a summary of audit findings and must make periodic comprehensive reports to the Board or to the Audit Committee. These reports may include suggestions and recommendations which seem appropriate to the Auditor.
Section 8. Other Officers. All other officers will have the powers and duties set forth in these By-Laws or assigned to them by the Board or the President.
Section 9. Officers Holding Two or More Offices. Any two or more offices may be held by the same individual, except that neither the Chairman of the Board nor the President may also hold the office of Secretary, and the Auditor may not hold any other office.
Section 10. Duties of Officers May be Delegated. In case of the absence or disability of any officer of the Savings Bank or in case of a vacancy in any office or for any other reason that the Board of Directors may deem sufficient, the Board of Directors, except as otherwise provided by applicable law or these Bylaws, may temporarily delegate the powers or duties of any officer to any other officer or to any Director.
Section 10. Other Officers. All other officers will have the powers and duties set forth in these By-Laws or assigned to them by the Board or the President.
ARTICLE VI. SIGNATURE ON CHECKS,
DOCUMENTS AND DRAFTS
Section 1. Withdrawals from Depositors. Bank monies or securities deposited with any designated depository may be withdrawn only by checks, drafts or other orders signed by officers or employees of the Bank who are specifically authorized to do so by the Board.
Section 2. Mortgages and Real Estate. The President, and one or more other officers whom the Board authorizes may execute and deliver, in the regular course of the Bank's business, all instruments relating to mortgages or real estate in which the Bank has an interest or relating to other matters as authorized by the Board.
ARTICLE VII. CERTIFICATES FOR SHARES
AND THEIR TRANSFER
Section 1. Certificates for Shares. Certificates representing shares of capital stock of the Savings Bank shall be in such form as shall be determined by the Board of Directors and approved by the NYSBD. Such certificates shall be signed by the Chairman of the Board, the President or a Vice President and 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 Savings Bank 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 Savings Bank. All certificates surrendered to the Savings Bank for transfer shall be canceled and no new certificate shall be issued until the former certificate for a like number of shares has been surrendered and canceled, except that in the case of a lost or destroyed certificate, a new certificate may be issued upon such terms and indemnity to the Savings Bank as the Board of Directors may prescribe.
Section 2. Transfer of Shares. Transfer of shares of capital stock of the Savings Bank 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 Savings Bank. 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 Savings Bank shall be deemed by the Savings Bank to be the owner for all purposes.
ARTICLE IX. FISCAL YEAR; ANNUAL AUDIT
The fiscal year of the Savings Bank shall be as fixed by the Board of Directors. The Savings Bank shall be subject to an annual audit as of the end of its fiscal year by independent public accountants appointed by and responsible to the Board of Directors. The appointment of such accountants shall be subject to annual ratification by the shareholders.
ARTICLE X. DIVIDENDS
Subject to the terms of the Savings Bank's Restated Organization Certificate, the New York Banking Law, the regulations of the NYSBD and other applicable law, the Board of Directors may, from time to time, declare, and the Savings Bank may pay, dividends on its outstanding shares of capital stock.
ARTICLE XI. CORPORATE SEAL
The Board of Directors shall provide a Savings Bank seal, which shall be two concentric circles between which shall be the name of the Savings Bank. The year of incorporation or an emblem may appear in the center.
ARTICLE XII. RULES AND REGULATIONS
Section 1. Banking Hours. The Board or officers authorized by the Board will determine what days and hours the Bank will be open for business.
Section 2. Rules and Regulations. The Board may make other appropriate rules and regulations provided they are not contrary to federal or state law or these By-Laws.
Section 3. Loss of Passbook. If a bank book is lost or cannot otherwise be produced by the depositor, the Bank may issue a new bank book. Before doing so, the Bank may require the depositor to provide evidence of the loss or reasons for the unavailability and require the depositor to furnish security or identification to the Bank. The kind of evidence and security may be determined by an officer or branch manager.
Section 4. Withdrawals. Money can be drawn by depositors as a matter of right only on sixty days' notice to an officer of their intention to withdraw it. The Bank may, however, allow money to be withdrawn without such notice, and shall not by doing so be deemed to have waived its rights to such notice and time of payment in all subsequent cases.
ARTICLE XIII - INDEMNIFICATION OF DIRECTORS,
OFFICERS AND EMPLOYEES
Section 1. The Bank will indemnify any present or former Director (including a former Trustee), officer or employee to the extent permitted or required by law. The right to be indemnified will extend to the beneficiaries and legal representatives of each person entitled to be indemnified. The right to be indemnified shall apply regardless of any other rights to which the Director (including a former Trustee), officer or employee or his or her beneficiaries or legal representatives may be entitled. This provision establishes a contract right which may be enforced by any person covered.
ARTICLE XIV. AMENDMENTS
These Bylaws may be amended in a manner consistent with the New York Banking Law, the regulations of the NYSBD and other applicable law at any time by a majority vote of the Whole Board of Directors, or by the affirmative vote of at least 80% of the votes eligible to be cast by the shareholders of the Savings Bank at any legal meeting.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
GREENE COUNTY BANCORP, INC.
CATSKILL, NEW YORK
$.10 par value common stock--fully paid and non-assessable
This certifies that _____________________________ is the owner of __________ shares of the common stock of GREENE COUNTY BANCORP, INC. (the "Corporation"), a Delaware corporation.
The shares evidenced by this certificate are transferable only on the stock transfer books of the Corporation by the holder of record hereof, in person or by his duly authorized attorney or legal representative, upon surrender of this certificate properly endorsed. This Certificate in 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 its seal to be affixed hereto.
The shares evidenced by this Certificate are subject to a limitation contained in the Certificate of Incorporation to the effect 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 5% of the outstanding shares of Common Stock (the "Limit") be entitled or permitted to any vote in respect of shares held in excess of the Limit, except that such restriction shall not apply to Greene County Bancorp, MHC.
The Board of Directors of the Corporation is authorized by resolution or resolutions, from time to time adopted, to provide for the issuance of serial preferred stock in series and to fix and state the voting powers, designations, preferences, limitations and restrictions thereof. The Corporation will furnish to any shareholder upon request and without charge a full description of each class of stock and any series thereof.
The shares represented by this Certificate may not be cumulatively voted on any matter. The Certificate of Incorporation requires the affirmative vote of the holders of at least 80% of the voting stock of the Corporation, voting together as a single class, to approve certain business combinations and other transactions and to amend certain provisions of the Certificate of Incorporation.
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 entireties
Under Uniform Gifts to Minors Act
JT TEN - as joint tenants with right
of survivorship and not as ----------------------------
tenants in common(State) (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 NUMBER OR OTHER IDENTIFYING NUMBER
(please print or typewrite name and address including postal zip code of assignee)
In the presence of Signature:
NOTE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME OF THE STOCKHOLDER(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
[Letterhead]
WRITERS DIRECT DIAL NUMBER
(202) 274-2000
September 18, 1998
The Board of Trustees
Greene County Savings Bank
425 Main and Church Streets
Catskill, New York 12414
Re: Greene County Savings Bank - Application for Mutual Holding Company Reorganization and Minority Stock Issuance
Gentlemen:
You have requested the opinion of this firm as to certain matters in connection with the application of Greene County Savings Bank (the "Bank") for permission to convert from the mutual to the stock form of ownership as part of its reorganization (the "Reorganization") into the mutual holding company form of ownership (the "Application"). As part of the Reorganization, the Bank will become the wholly-owned subsidiary of Greene County Bancorp, Inc. (the "Stock Holding Company"), and the Stock Holding Company will become the majority-owned subsidiary of Greene County Bancorp, MHC (the "Mutual Holding Company"). We have reviewed the Application, as well as the applicable statutes and regulations governing the Bank and the Application.
We are of the opinion as follows:
(a) That the proposed stock certificates and order forms proposed to be used by the Bank and or the Stock Holding Company will be, when issued, legally sufficient and in compliance with all applicable laws and regulations.
(b) That subject to the receipt of each waiver of the Superintendent of the New York Banking Department requested in connection with the Bank's Application, the Plan of Reorganization from a Mutual Savings Bank to a Mutual Holding Company and Stock Issuance Plan will conform in all manner with the Banking Law, and any rules and regulations promulgated thereunder, of the State of New York.
The Board of Trustees
Greene County Savings Bank
September 18, 1998
(c) That the proposed Bylaws under which the Bank will operate immediately after its reorganization conform to the requirements of the Banking Law and the rules and regulations promulgated thereunder of the State of New York.
(d) Each share of common stock issued by the Stock Holding Company and the Bank in connection with the Reorganization will be entitled to one vote and the common stock shall initially possess exclusive voting power over the affairs of the Stock Holding Company and the Bank, respectively. For a period of three years from the date of the completion of the reorganization no person other than the Stock Holding Company and the Mutual Holding Company may directly or indirectly acquire beneficial ownership of more than 10% of any class of equity security of the Bank.
(e) The common stock of the Stock Holding Company and the Bank, when issued, will be validly authorized and issued and nonassessable.
This opinion has been prepared solely for the use of the Stock Holding Company and the Bank in connection with the Application, and should not be used for any other purpose nor relied upon by any other person (except for the New York State Banking Department in connection with its processing of the Application), without the prior written consent of this firm.
In addition, we hereby consent to the use of our firm's name in the Form 86-AC and to the references to our firm in the Prospectus under the captions "The Conversion--Principal Effects of Conversion--Tax Effects" and "Legal And Tax Matters".
Very truly yours,
LUSE LEHMAN GORMAN POMERENK & SCHICK
A Professional Corporation
By: /s/ Robert B. Pomerenk
---------------------------------
Robert B. Pomerenk
|
Exhibit 8.1
[Letterhead]
WRITER'S DIRECT DIAL NUMBER
(202) 274-2000
September 18, 1998
Board of Trustees
Greene County Savings Bank
425 Main and Church Streets
Catskill, New York 12414-1317 182
Re: Mutual Holding Company Formation and Stock Issuance
Ladies and Gentlemen:
We have been requested as special counsel to Greene County Savings Bank to express our opinion concerning certain Federal income tax matters relating to the proposed Reorganization (as defined below) of Greene County Savings Bank, a New York-chartered mutual savings bank ("Bank") into the MHC structure. As part of the Reorganization, the Bank will convert to a New York-chartered stock savings bank (the "Stock Bank"), and Greene County Bancorp, MHC, a New York-chartered mutual holding company ("MHC ") will be formed to own a majority of the common stock of Greene County Bancorp, Inc., a Delaware chartered corporation ("Holding Company"), which will own 100% of the common stock of the Stock Bank.
In connection therewith, we have examined the Plan of Reorganization From a Mutual Savings Bank to a Mutual Holding Company and Stock Issuance Plan, which was adopted by the Board of Trustees of the Bank on July 1, 1998 (the "Plan of Reorganization"), and certain other documents relating to the Reorganization, some of which are described or referred to in the Plan of Reorganization and which we have deemed necessary to examine in order to issue the opinions set forth below. Unless otherwise defined, all terms used herein have the meanings given to such terms in the Plan of Reorganization.
In our examination, we have assumed the authenticity of original documents, the accuracy of copies and the genuineness of signatures. We have further assumed the absence of adverse facts not apparent from the face of the instruments and documents we examined.
In issuing our opinions, we have assumed that the Plan of Reorganization has been duly and validly authorized and has been approved and adopted by the Board of Trustees of the Bank at a meeting duly called and held; that the Bank will comply with the terms and conditions of the Plan of Reorganization, and that the various representations and warranties which are provided to us are accurate, complete, true and correct. Accordingly, we express no opinion concerning
Board of Trustees
Greene County Savings Bank
September 18, 1998
the effect, if any, of variations from the foregoing. We specifically express no opinion concerning tax matters relating to the Plan of Reorganization under state and local tax laws and under Federal income tax laws except on the basis of the documents and assumptions described above.
For purposes of this opinion, we are relying on the representations provided to us by the Bank, which are incorporated herein by reference.
In issuing the opinions set forth below, we have referred solely to existing provisions of the Internal Revenue Code of 1986, as amended (the "Code"), existing and proposed Treasury Regulations thereunder, current administrative rulings, notices and procedures and court decisions. Such laws, regulations, administrative rulings, notices and procedures and court decisions are subject to change at any time. Any such change could affect the continuing validity of the opinions set forth below. This opinion is as of the date hereof, and we disclaim any obligation to advise you of any change in any matter considered herein after the date hereof.
We emphasize that the outcome of litigation cannot be predicted with certainty and, although we have attempted in good faith to opine as to the probable outcome of the merits of each tax issue with respect to which an opinion was requested, there can be no assurance that our conclusions are correct or that they would be adopted by the IRS or a court.
SUMMARY OF OPINIONS
Based on the facts, representations and assumptions set forth herein, we are of the opinion that:
With Respect to the Exchange of the Bank's Charter for a Stock Charter ("Bank Conversion"):
1. The Bank's exchange of its New York mutual savings bank charter for a New York stock savings bank charter is a mere change in identity and form and therefore qualifies as a reorganization within the meaning of Section 368(a)(1)(F) of the Internal Revenue Code ("Code")
2. No gain or loss will be recognized by Bank upon the transfer of its assets to Stock Bank solely in exchange for shares of Stock Bank stock and the assumption by Stock Bank of the liabilities of Bank. (Code Sections 361(a) and 357(a)).
3. No gain or loss will be recognized by Stock Bank upon the receipt of
the assets of Bank in exchange for shares of Stock Bank common stock. (Code
Section 1032(a)).
Board of Trustees
Greene County Savings Bank
September 18, 1998
4. Stock Bank's holding period in the assets received from Bank will include the period during which such assets were held by the Bank. (Code Section 1223(2)).
5. Stock Bank's basis in the assets of Bank will be the same as the basis of such assets in the hands of Bank immediately prior to the Bank Conversion. (Code Section 362(b)).
6. Bank depositors will recognize no gain or loss upon the constructive receipt of Stock Bank common stock solely in exchange for their ownership interests in Bank. (Code Section 354(a)(1)).
7. The basis of the Stock Bank common stock to be constructively received by the Bank's depositors (which basis is -0-) will be the same as their basis in their ownership interests in the Bank surrendered in exchange therefor. (Code Section 358(a)(1)).
8. The holding period of the Stock Bank common stock constructively received by the depositors of the Bank will include the period during which the Bank depositors held their ownership interests, provided that the ownership interests were held as capital assets on the date of the exchange. (Code Section 1223(1)).
9. The Stock bank will succeed to and take into account the Bank's earnings and profits or deficit in earnings and profits, as of the date of the proposed transaction. (Code Section 381).
With Respect to the Transfer of Stock Bank Stock to MHC for Ownership Interests (the "351 Transaction"):
10. The exchange of Stock Bank stock by the Stock Bank depositors in exchange for ownership interests in the MHC will constitute a tax-free exchange of property solely for voting "stock" pursuant to Section 351 of the Internal Revenue Code.
11. Stock Bank's depositors will recognize no gain or loss upon the transfer of the Stock Bank stock they constructively received in the Stock Bank in exchange for ownership interests in the MHC . (Code Section 351).
12. Stock Bank depositor's basis in the MHC ownership interests received in the 351 Transaction (which basis is -0-) will be the same as the basis of the property transferred in exchange therefor, reduced by the sum of the liabilities assumed by MHC or to which assets transferred are taken subject. (Code Section 358(a)(1)).
Board of Trustees
Greene County Savings Bank
September 18, 1998
13. Stock Bank depositor's holding period for the ownership interests in MHC received in the transaction will include the period during which the property exchanged was held by Stock Bank depositors, provided that such property was a capital asset on the date of the exchange. (Code Section 1223(1)).
14. MHC will recognize no gain or loss upon the receipt of property from Stock Bank depositors in exchange for ownership interests in the MHC . (Code Section 1032(a)).
15. Mutual Holding Company's basis in the property received from Stock Bank depositors (which basis is -0-) will be the same as the basis of such property in the hands of Stock Bank depositors immediately prior to the transaction. (Code Section 362(a)).
16. Mutual Holding Company's holding period for the property received from Stock Bank's depositors will include the period during which such property was held by Stock Bank depositors. (Code Section 1223(2)).
With respect to the transfers to the Holding Company in exchange for Common Stock in the Holding Company: (the "Secondary 351 Transaction"):
17. The MHC and the persons who purchased Common Stock of the Holding Company in the Subscription and Community Offering ("Minority Stockholders") will recognize no gain or loss upon the transfer of Stock Bank stock and cash, respectively, to the Holding Company in exchange for stock in the Holding Company. Code Sections 351(a) and 357(a).
18. Holding Company will recognize no gain or loss on its receipt of Stock Bank stock and cash in exchange for Holding Company Stock. (Code Section 1032(a)).
19. The basis of the Holding Company Common Stock to the Minority Stockholders will be the actual purchase price thereof, and a shareholder's holding period for Common Stock acquired through the exercise of subscription rights will begin on the date the rights are exercised.
PROPOSED TRANSACTION
On July 1, 1998, the Board of Trustees of the Bank adopted the Plan of Reorganization. For what are represented to be valid business purposes, the Bank's Board of Trustees has decided to convert to a MHC structure pursuant to certain federal and state laws and regulations. The following steps are proposed:
Board of Trustees
Greene County Savings Bank
September 18, 1998
(i) The Bank will organize an interim New York-chartered stock savings bank (Interim One) as its wholly-owned subsidiary;
(ii) Interim One will organize a Delaware mid-tier holding company as its wholly-owned subsidiary (Holding Company); and
(iii) Interim One will also organize another interim New York-chartered stock savings bank as its wholly-owned subsidiary (Interim Two).
The following transactions will occur simultaneously:
(iv) The Bank will exchange its charter for a New York stock savings bank charter and will become a stock savings bank that will constructively issue its common stock to depositors of the Bank;
(v) Interim One will cancel its outstanding stock and exchange its charter for a New York MHC charter and thereby become the MHC;
(vi) Interim Two will merge with and into the Bank with the Bank as the surviving entity, the former depositors of the Bank who constructively hold stock in the Bank will exchange their stock in the Bank for membership interests in the MHC ;
(vii) The MHC will contribute the Bank's stock to the Holding Company, a wholly-owned subsidiary of the MHC , for additional shares of Holding Company; and
(viii) Contemporaneously, with the contribution set forth in "(vii)" the Stock Holding Company will offer to sell 44.51% of its Common Stock in the Subscription Offering and, if applicable, the Community Offering. In addition, the Bank intends to establish a charitable foundation (the "Charitable Foundation") to which the Holding Company will contribute shares of Common Stock equal to 1.96% of the shares of Common Stock outstanding.
These transactions are referred to herein collectively as the "Reorganization."
Those persons who, as of the date of the Bank Conversion (the "Effective Date"), hold depository rights with respect to the Bank will thereafter have such rights solely with respect to the Stock Bank. Each deposit account with the Bank at the time of the exchange will become a deposit account in the Stock Bank in the same amount and upon the same terms and conditions.
Board of Trustees
Greene County Savings Bank
September 18, 1998
Following the completion of the Reorganization, all depositors who had liquidation rights with respect to the Bank immediately prior to the Reorganization will continue to have such rights solely with respect to the MHC so long as they continue to hold deposit accounts with the Stock Bank. All new depositors of the Stock Bank after the completion of the Reorganization will have liquidation rights solely with respect to the MHC so long as they continue to hold deposit accounts with the Stock Bank.
The shares of Interim Two common stock owned by the MHC prior to the Reorganization shall be converted into and become shares of common stock of the Stock Bank on the Effective Date. The shares of Stock Bank common stock constructively received by the Stock Bank stockholders (formerly the depositors holding liquidation rights of the Bank) will be transferred to the MHC by such persons in exchange for liquidation rights in the MHC .
The Holding Company will have the power to issue shares of capital stock (including common and preferred stock) to persons other than the MHC . So long as the MHC is in existence, however, it must own a majority of the voting stock of Holding Company. Holding Company may issue any amount of non-voting stock to persons other than MHC . No such non-voting stock will be issued as of the date of the Reorganization.
* * *
The opinions set forth above represent our conclusions as to the application of existing Federal income tax law to the facts of the instant transaction, and we can give no assurance that changes in such law, or in the interpretation thereof, will not affect the opinions expressed by us. Moreover, there can be no assurance that contrary positions may not be taken by the IRS, or that a court considering the issues would not hold contrary to such opinions.
All of the opinions set forth above are qualified to the extent that the validity of any provision of any agreement may be subject to or affected by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the rights of creditors generally. We do not express any opinion as to the availability of any equitable or specific remedy upon any breach of any of the covenants, warranties or other provisions contained in any agreement. We have not examined, and we express no opinion with respect to the applicability of, or liability under, any Federal, state or local law, ordinance, or regulation governing or pertaining to environmental matters, hazardous wastes, toxic substances, asbestos, or the like.
Board of Trustees
Greene County Savings Bank
September 18, 1998
It is expressly understood that the opinions set forth above represent our conclusions based upon the documents reviewed by us and the facts presented to us. Any material amendments to such documents or changes in any significant fact would affect the opinions expressed herein.
We have not been asked to, and we do not, render any opinion with respect to any matters other than those expressly set forth above.
We hereby consent to the filing of the opinion as an exhibit to the Bank's Form 86-AC Application for Approval of a Mutual Savings Bank Holding Company Reorganization and Minority Stock Issuance as filed with the New York State Banking Department and to the Holding Company's Registration Statement on Form SB-2 as filed with the SEC. We also consent to the references to our firm in the Prospectus contained in the Forms 86-AC and SB-2 under the captions "The Reorganization and Offering - Federal and State Tax Consequences of the Reorganization" and "Legal and Tax Matters," and to the summarization of our opinion in such Prospectus.
Very truly yours,
LUSE LEHMAN GORMAN POMERENK & SCHICK
A Professional Corporation
Exhibit 8.2
September 17, 1998
Board of Trustees
Greene County Savings Bank
425 Main and Church Street
Catskill, New York 12414-1317
Re: Mutual Holding Company Formation
Ladies and Gentlemen:
We have been requested to express our opinion with respect to the New York State Franchise Tax on Banking Corporations and the New York State Personal Income Tax consequences associated with the proposed reorganization of Greene County Savings Bank (the "Bank"), a New York-chartered mutual savings bank, into a mutual holding company structure. As part of the reorganization, we understand that the Bank will convert to a New York-chartered stock savings bank ("the Stock Bank"), and Greene County Bancorp, MHC ("Greene County"), a New York-chartered mutual holding company ("MHC") will be formed to own a majority of the common stock of Greene County Bancorp, Inc. a Delaware chartered corporation ("Holding Company"), which will own 100% of the common stock of the Stock Bank
In connection therewith, we have examined the Plan of Reorganization From a Mutual Savings Bank to a Mutual Holding Company and Stock Issuance Plan, which was adopted by the Board of Trustees of the Bank on July 1, 1998 (the "Plan of Reorganization"), and the opinion on federal income tax matters dated September 17, 1998 (the "federal opinion letter") which was issued by Luse Lehman Gorman Pomerenk & Schick.
The New York State Franchise Tax and the New York State personal income tax consequences of the reorganization are consistent with those described in the federal opinion letter. Both taxes adopt federal definitions of taxable income, and contain no express modification which would treat the subject transaction differently for state purposes. Accordingly, there is complete conformity between the federal income tax results of the reorganization stated in the federal opinion letter and the corresponding New York State tax treatment.
The Stock Bank will be subject to the New York State Franchise Tax on Banking Corporations in an annual amount equal to the greater of (i) 9% of "entire net income" allocable to New York State during the taxable year or (ii) the applicable "alternative minimum tax". The alternative minimum tax is generally the greater of (a) 0.01% of the value of assets allocable to New York State, (b) 3% of "alternative entire net income" allocable to New York State, or (c) $250. Entire net income is similar to federal taxable income, subject to certain modifications. The modifications include net operating losses ("NOLs") incurred in taxable years ending before January 1, 2001 (which cannot be carried back or forward), and bad debt reserve additions.
NOLs incurred in taxable years beginning on or after January 1, 2001 can be carried forward to the succeeding 20 taxable years.
For federal income tax purposes, the Stock Bank will be required to use the
specific charge-off method. However, New York State tax law allows thrift
institutions such as the Stock Bank to maintain two reserves for losses on
loans--the Reserve for Losses on Nonqualifying Loans (the "NY NQL Reserve") and
the Reserve for Losses on Qualifying Real Property Loans (the "NY QRPL
Reserve"). The annual addition to the NY NQL Reserve must be determined under
the "experience" method, while the annual addition to the NY QRPL reserve may be
determined under either the experience method or the "percentage of taxable
income" method (the "PTI method"). Under the PTI method, the Stock Bank's
addition to the NY QRPL Reserve is equal to the excess, if any, of (i) 32% of
entire net income (before the addition to the NY NQL and NY QRPL Reserves) over
(ii) the amount of the addition to the NY NQL Reserve (as determined under the
experience method). Further, the addition to the NY QRPL Reserve cannot exceed
the amount necessary to increase the balance of the NY QRPL Reserve to 6% of the
balance of Qualifying Real Property Loans ("QRPL") outstanding at the end of the
taxable year.
For New York State franchise tax purposes, the Stock Bank will not be required to include in entire net income the federal recapture income for the excess of the federal bad debt reserve at December 31, 1995 over the balances existing at December 31, 1987.
The reserve method of accounting is allowed for New York State franchise tax purposes only if (i) the Stock Bank qualifies as a thrift institution, and (ii) at least 60% of the Stock Bank's assets consists of "Qualifying Assets" (including, but not limited to, cash, U.S. Government bonds, certain mortgage loans issued to individuals, home improvement loans, and certain fixed assets). For the calendar year 1997, 74% of the Bank's assets were Qualifying Assets. We understand that, after the reorganization, the Stock Bank intends to continue to qualify as a thrift institution, as defined in the New York State Tax law, and also intends to continue to meet the 60% Qualifying Asset test.
If the Stock Bank ceases to qualify as a thrift institution or fails the 60% Qualifying Asset test, it will no longer be entitled to use the reserve method and must recapture into entire net income a portion of its bad debt reserves. The portion subject to recapture is the excess of the NY QRPL Reserve over the greater of (1) the federal QRPL Reserve as of the last day such reserve is maintained for federal income tax purposes or (2) the balance of the NY QRPL reserve which would be allowable to the taxpayer for the last taxable year the taxpayer qualifies as a thrift institution if the taxpayer computed its reserve balance under the experience method.
The amount of the Stock Bank's NY QRPL reserve balance subject to recapture is approximately $1.8 million. In the year of recapture, the Stock Bank's New York State franchise tax liability would be increased by approximately $162,000 ($1.8 million of recapture income X 9% New York State tax rate). Since it is the Stock Bank's intent to continue qualifying as a thrift institution and meet the Qualifying Asset test, a deferred tax liability for this item has not been established.
Alternative entire net income is equal to entire net income, but without the allowance of certain deductions which are allowable in the computation of entire net income.
Both Greene County and the Holding Company will be bank holding companies subject to the New York State Franchise Tax on Banking Corporations. Holding Company and its wholly-owned subsidiary, the Stock Bank, will be required to file a combined New York State Franchise Tax on Banking Corporations return. However, Greene County will not own the requisite percentage of stock in the Holding Company (generally 80% or more) to be included in the New York combined return of Holding Company and the Stock Bank. Consequently, Greene County will file a separate New York State franchise tax return.
Entities filing on a combined basis are able to exclude from entire net income 100% of intercorporate dividends. Thus, any dividends paid by the Stock Bank to Holding Company will not be subject to New York State franchise tax. However, corporations filing on a separate return basis are able to exclude only 60% of dividends received from a more than 50% owned subsidiary. Accordingly, Greene County will be able to exclude only 60% of dividends received from Holding Company. The remaining 40% of dividends received by Greene County from Holding Company will be subject to the 9% franchise tax. If Greene County's ownership in Holding Company's common stock is 50% or less, no dividend-received deduction will be allowed.
As a Delaware holding company not earning income in Delaware, Holding Company will be exempt from Delaware corporate income tax, but will be required to file an annual report with, and pay an annual franchise tax to, the State of Delaware.
Our opinion concerning the New York State tax consequences of the reorganization is based upon facts set forth in the Plan of Reorganization and the federal opinion letter. Our analysis is limited to the New York State Franchise Tax on Banking Corporations and the New York State Personal Income Tax consequences of the reorganization, and we express no opinion regarding any other state and local, federal or foreign taxes associated with the transaction.
If you have any questions, please call John B. Rice at (212)259-2576 or Len DiMeglio at (973)829-9368.
Very truly yours,
/s/ PricewaterhouseCoopers LLP ------------------------------ PricewaterhouseCoopers |
Greene County Savings Bank Draft of State Tax Consequences of the Reorganization Section of Prospectus
(To be Included after Federal Tax Opinion of Page 40 of Prospectus)
The Bank has received an opinion from PricewaterhouseCoopers LLP to the effect that, for New York State tax purposes, the New York State Franchise Tax and the New York State personal Income Tax consequences of the reorganization are consistent with those described in the federal opinion letter. Both taxes adopt federal definitions of taxable income, and contain no express modification which would treat the subject transaction differently for state purposes. Accordingly, there is complete conformity between the federal income tax results of the reorganization stated in the federal opinion letter and the corresponding New York State tax treatment.
Greene County Savings Bank Draft of State Taxation Section of Prospectus
(In Place of State Tax Section on Page 71 of Prospectus)
State Taxation
New York State Taxation - General. The Company and the Bank will report income on a combined calendar year basis to New York State. New York State franchise tax on banking corporations is imposed in an amount equal to the greater of (a) 9% of "entire net income" allocable to New York State, (b) 3% of "alternative entire net income" allocable to New York State, (c) 0.01% of the average value of assets allocable to New York State, or (d) $250. Entire net income is based on federal taxable income subject to certain modifications. Alternative entire net income is equal to entire net income without certain modifications. The Mutual Company will file a separate New York State franchise tax return.
Bad Debt Reserves. The Bank is allowed to utilize the reserve method of accounting for New York State franchise tax purposes and is required to maintain two reserve accounts--the "Reserve for Losses on Nonqualifying Loans (the "NY NQL Reserve") and the Reserve for Losses on Qualifying Real Property Loans (the "NY QRPL Reserve"). The addition to the NY NQL Reserve must be computed under the "experience method". The addition to the NY QRPL Reserve may be computed under either the experience method or the "percentage of taxable income method" (the "PTI method"). The deduction under the PTI method is equal to 32% of entire net income (before the deduction for the bad debt reserve addition), which must first be allocated to the NY NQL Reserve. The balance, if any, is the allowable addition to the NY QRPL Reserve, subject to a limitation based upon 6% of Qualifying Real Property Loans ("QRPL"). As of December 31, 1997, the Bank's NY QRPL Reserve was subject to this limitation.
The Bank will not be subject to the six-year recapture of the excess federal bad debt reserve at December 31, 1995.
Recapture of New York State bad debt reserves. If the Bank ceases to qualify as a "thrift institution" (as defined in the New York State tax law), or fails to hold at least 60% of its assets in "Qualifying Assets", it will no longer be entitled to use the reserve method and must recapture into entire net income a portion of its NY QRPL Reserve. The amount subject to recapture is generally equal to the excess of the NY QRPL Reserve over the federal QRPL Reserve as of December 31, 1995. The amount of the Bank's NY QRPL Reserve subject to recapture is approximately $1.8 million. Since it is the Bank's intention to continue to qualify as a thrift institution and to meet the 60% Qualifying Asset test, a deferred tax liability has not been established for the $162,000 New York State tax which would result from such failure.
Net Operating Loss Deductions. For New York State franchise tax purposes, the Bank is not entitled to carry back or forward net operating losses ("NOLs") incurred in taxable years ending before January 1, 2001. NOLs incurred in taxable years beginning on or after January 1, 2001 can be carried forward to the succeeding 20 taxable years. No carryback of NOLs will be permitted.
Corporate Dividends-Received Deduction. Similar to the federal rules, the Company and the Bank will file a combined New York State franchise tax report and intercompany dividends will be eliminated. However, the Mutual Company will not own the requisite percentage (generally 80% or more) of the common stock of the Company necessary to file on a combined basis with the Company. As long as the Mutual Company owns more than 50% of the common stock of the Company, it will be eligible for a 60% dividends-received deduction. The Mutual Company will not be entitled to any dividends-received deduction if it owns 50% or less of the common stock of the Company.
Delaware State Taxes. As a Delaware holding company not earning income in Delaware, the Company will be exempt from Delaware corporate income tax, but will be required to file an annual report with, and pay an annual franchise tax to, the State of Delaware.
September 17, 1998
Board of Directors
Greene County Bancorp, Inc.
Greene County Savings Bank
425 Main and Church Streets
Catskill, New York 12414
Dear Board Members:
All capitalized terms not otherwise defined in this letter have the meanings given such terms in the Plan of Conversion adopted by the Board of Directors of Greene County Savings Bank (the "Bank"), whereby the Bank will convert from a federally chartered mutual savings bank to a federally chartered stock savings bank and issue all of the Bank's stock to Greene County Bancorp, Inc. (the "Holding Company"). Simultaneously, the Holding Company will issue shares of common stock.
We understand that in accordance with the Plan of Conversion, Subscription
Rights to purchase shares of the Bank's Common Stock in the Holding Company are
to be issued to (i) Eligible Account Holders, (ii) Tax-Qualified Employee Plans,
(iii) Supplemental Eligible Account Holders, and (iv) employees, officers, and
trustees. Based solely on our observation that the Subscription Rights will be
available to such Recipients without cost, will be legally non-transferable and
of short duration, and will afford such parties the right only to purchase
shares of Common Stock at the same price as will be paid by members of the
general public in the Community Offering, but without undertaking any
independent investigation of state or federal law or the position of the
Internal Revenue Service with respect to this issue, we are of the opinion that:
(1) the Subscription Rights will have no ascertainable market value; and
(2) the price at which the Subscription Rights are excercisable will not be more or less than the pro forma market value of the shares upon issuance.
Changes in the local and national economy, the legislative and regulatory environment, the stock market, interest rates, and other external forces (such as natural disasters or significant world events) may occur from time to time, often with great unpredictability and may materially impact the value of thrift stocks as a whole or the Bank's value alone. Accordingly, no assurance can be given that persons who subscribe to shares of Common Stock in the Conversion will thereafter be able to buy or sell suc shares at the same price paid in the Subscription Offering.
Very Truly Yours, FinPro, Inc.
/s/ Donald J. Musso --------------------------- Donald J. Musso Director |
Exhibit 10.1
THE BANK OF GREENE COUNTY
EMPLOYMENT AGREEMENT
This Agreement is made effective as of the ____ day of _____________, 1998 by and between The Bank of Greene County (the "Bank"), a New York-chartered stock savings bank, with its principal administrative office at 425 Main & Church Streets, Catskill, NY 12414-1317 182 and J. Bruce Whittaker (the "Executive"). Any reference to "Company" herein shall mean Greene County Bancorp, Inc., a Delaware stock corporation or any successor thereto. The Company is a signatory hereto for the sole purpose of guaranteeing the Bank's performance hereunder.
WHEREAS, the Bank wishes to assure itself of the continued services of Executive for the period provided in this Agreement; and
WHEREAS, Executive is willing to continue to serve in the employ of the Bank on a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein contained, and upon the other terms and conditions hereinafter provided, the parties hereby agree as follows:
1. POSITION AND RESPONSIBILITIES
During the period of his employment hereunder, Executive agrees to serve as President and Chief Executive Officer of the Bank and the Company. During said period, Executive also agrees to serve, if elected, as an officer and director of any subsidiary or affiliate of the Bank. Failure to reelect Executive as President and Chief Executive Officer without the consent of the Executive during the term of this Agreement shall constitute a breach of this Agreement.
2. TERMS AND DUTIES
(a) The period of Executive's employment under this Agreement shall
begin as of the date first above written and shall continue for a period of
thirty-six (36) full calendar months thereafter. Commencing on the first
anniversary date of this Agreement, and continuing at each anniversary date
thereafter, the Agreement shall renew for an additional year such that the
remaining term shall be three (3) years unless written notice is provided to
Executive at least ten (10) days and not more than sixty (60) days prior to any
such anniversary date, that his employment shall cease at the end of thirty-six
(36) months following such anniversary date. Prior to each notice period for
non-renewal, the disinterested members of the Board of Directors ("Board") of
the Bank will conduct a comprehensive performance evaluation and review of the
Executive for purposes of determining whether to extend the Agreement, and the
results thereof shall be included in the minutes of the Board's meeting. The
"disinterested" members of the Board of Directors shall be all directors other
than the director who is the "Executive" under this Agreement.
(b) During the period of his employment hereunder, except for periods of absence occasioned by illness, reasonable vacation periods, and reasonable leaves of absence, Executive shall
faithfully perform his duties hereunder including activities and services related to the organization, operation and management of the Bank.
3. COMPENSATION AND REIMBURSEMENT
(a) The compensation specified under this Agreement shall constitute the salary and benefits paid for the duties described in Section 2(b). The Bank shall pay Executive as compensation a salary of not less than $125,000 per year ("Base Salary"). Such Base Salary shall be payable monthly. During the period of this Agreement, Executive's Base Salary shall be reviewed at least annually; the first such review will be made no later than ______________, 1999. Such review shall be conducted by a Committee designated by the Board, and the Board may increase, but not decrease, Executive's Base Salary (any increase in Base Salary shall become the "Base Salary" for purposes of this Agreement). In addition to the Base Salary provided in this Section 3(a), the Bank shall provide Executive at no cost to Executive with all such other benefits as are provided uniformly to permanent full-time employees of the Bank.
(b) The Bank will provide Executive with employee benefit plans, arrangements and perquisites substantially equivalent to those in which Executive was participating or otherwise deriving benefit from immediately prior to the beginning of the term of this Agreement, and the Bank will not, without Executive's prior written consent, make any changes in such plans, arrangements or perquisites which would adversely affect Executive's rights or benefits thereunder. Without limiting the generality of the foregoing provisions of this Subsection (b), Executive will be entitled to participate in or receive benefits under any employee benefit plans including but not limited to, retirement plans, supplemental retirement plans, pension plans, profit-sharing plans, health-and-accident plans, medical coverage or any other employee benefit plan or arrangement made available by the Bank in the future to its senior executives and key management employees, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and arrangements. Executive will be entitled to incentive compensation and bonuses as provided in any plan of the Bank in which Executive is eligible to participate (and he shall be entitled to a pro rata distribution under any incentive compensation or bonus plan as to any year in which a termination of employment occurs, other than termination for Cause). Nothing paid to the Executive under any such plan or arrangement will be deemed to be in lieu of other compensation to which the Executive is entitled under this Agreement.
(c) In addition to the benefits provided under sub-paragraph (b) of this Section, the Executive and his dependents covered under the Bank's health insurance plan, shall be entitled to continuing health care coverage upon the Executive's retirement or termination of employment with the Bank, on or after attainment of age fifty-five (55) with twenty-five years of service for the Bank, in substantially the same amount as provided to the Executive and his dependents prior to the Executive's termination of employment. Such retiree health care coverage shall survive the termination of, or expiration of, this Agreement. The Executive's retiree health care coverage shall cease upon his attainment of age sixty-five (65).
(d) In addition to the Base Salary provided for by paragraph (a) of this Section 3, the Bank shall pay or reimburse Executive for all reasonable travel and other reasonable expenses incurred by Executive performing his obligations under this Agreement and may provide such additional compensation in such form and such amounts as the Board may from time to time determine.
(e) Compensation and reimbursement to be paid pursuant to paragraphs
(a), (b), (c) and (d) of this Section 3 shall be paid by the Bank and the
Company, respectively, on a pro rata basis, based upon the amount of service the
Executive devotes to the Bank and Company, respectively.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION
The provisions of this Section shall in all respects be subject to the terms and conditions stated in Sections 7 and 14.
(a) The provisions of this Section shall apply upon the occurrence of an Event of Termination (as herein defined) during the Executive's term of employment under this Agreement. As used in this Agreement, an "Event of Termination" shall mean and include any one or more of the following:
(i) the termination by the Bank or the Company of Executive's full-time employment hereunder for any reason other than (A) Disability or Retirement, as defined in Section 5 below, or (B) Termination for Cause as defined in Section 6 hereof; or
(ii) Executive's resignation from the Bank's employ, upon any
(A) failure to elect or reelect or to appoint or reappoint Executive as President and Chief Executive Officer of the Bank,
(B) material change in Executive's function, duties, or
responsibilities, which change would cause Executive's
position to become one of lesser responsibility, importance,
or scope from the position and attributes thereof described in
Section 1, above,
(C) a relocation of Executive's principal place of employment by more than 30 miles from its location at the effective date of this Agreement, or a material reduction in the benefits and perquisites to the Executive from those being provided as of the effective date of this Agreement,
(D) liquidation or dissolution of the Bank or Company other than liquidations or dissolutions that are caused by reorganizations that do not affect the status of Executive, or
(E) breach of this Agreement by the Bank.
Upon the occurrence of any event described in clauses (ii) (A), (B), (C), (D) or (E), above, Executive shall have the right to elect to terminate his employment under this Agreement by resignation upon sixty (60) days prior written notice given within a reasonable period of time not to exceed four calendar months after the initial event giving rise to said right to elect. Notwithstanding the preceding sentence, in the event of a continuing breach of this Agreement by the Bank, the Executive, after giving due notice within the prescribed time frame of an initial event specified above, shall not waive any of his rights solely under this Agreement and this Section 4 by virtue of the fact that Executive has submitted his resignation but has remained in the employment of the Bank and is engaged in good faith discussions to resolve any occurrence of an event described in clauses (A), (B), (C), (D) and (E) above.
(iii) Executive's voluntary resignation from the Bank's employ on the effective date of, or at any time following a Change in Control during the term of this Agreement. For these purposes, a Change in Control of the Bank or the Company shall mean a change in control of a nature that: (i) would be required to be reported in response to Item 1(a) of the current report on Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act"); or (ii) results in a Change in Control of the Bank or the Company within the meaning of the Bank Holding Company Act of 1956, as amended and the rules and regulations promulgated thereunder, as in effect on the date hereof ("BHCA"); or (iii) without limitation such a Change in Control shall be deemed to have occurred at such time as (a) any "Person" (as the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Bank or the Company representing 25% or more of the Bank's or the Company's outstanding securities except for any securities of the Bank purchased by the Company in connection with the conversion of the Bank to the stock form and any securities purchased by the Bank's employee stock ownership plan and trust; or (b) individuals who constitute the Board on the date hereof (the "Incumbent Board") cease for any reason to constitute at least a majority thereof, provided, however, that this sub-section (b) shall not apply if the Incumbent Board is replaced by the appointment by a Federal banking agency of a conservator or receiver for the Bank and, provided further that any person becoming a director subsequent to the date hereof whose election was approved by a vote of at least two-thirds of the directors comprising the Incumbent Board or whose nomination for election by the Company's stockholders was approved by the same Nominating Committee serving under an Incumbent Board, shall be, for purposes of this clause (b), considered as though he were a member of the Incumbent Board; or (c) a plan of reorganization, merger, consolidation, sale of all or substantially all the assets of the Bank or the Company; or (d) a proxy statement soliciting proxies from stockholders of the Company, by someone other than the current management of the Company, seeking stockholder approval of a plan of reorganization, merger or consolidation of the Company or Bank or similar transaction with one or more corporations as a result of which the outstanding shares of the class of securities then subject to such plan or transaction are exchanged for or converted into cash or property or securities not issued by the Bank or the Company shall be distributed and the requisite number of proxies approving such plan of reorganization, merger or
consolidation of the Company or Bank are received and voted in favor of such transactions; or (e) a tender offer is made for 25% or more of the outstanding securities of the Bank or Company and shareholders owning beneficially or of record 25% or more of the outstanding securities of the Bank or Company have tendered or offered to sell their shares pursuant to such tender offer and such tendered shares have been accepted by the tender offeror.
(b) Upon the occurrence of an Event of Termination, on the Date of Termination, as defined in Section 7, the Bank shall pay Executive, or, in the event of his subsequent death, his beneficiary or beneficiaries, or his estate, as the case may be, as severance pay or liquidated damages, or both, a sum equal to three (3) times the sum of (i) Base Salary and (ii) the highest rate of bonus awarded to the Executive during the prior three years. At the election of the Executive, which election is to be made on an annual basis during the month of January, and which election is irrevocable for the year in which made and upon the occurrence of an Event of Termination, any payments shall be made in a lump sum or paid monthly during the remaining term of this Agreement following the Executive's termination. In the event that no election is made, payment to the Executive will be made on a monthly basis during the remaining term of this Agreement. Such payments shall not be reduced in the event the Executive obtains other employment following termination of employment.
(c) Upon the occurrence of an Event of Termination, the Bank will cause to be continued life, medical, dental and disability coverage substantially identical to the coverage maintained by the Bank for Executive prior to his termination. Such coverage shall continue for 36 months from the Date of Termination.
(d) Upon the occurrence of an Event of Termination, the Bank will honor the provisions of Section 3(c) of this Agreement.
(e) Notwithstanding the preceding paragraphs of this Section 4, in the event that:
(i) the aggregate payments or benefits to be made or afforded to Executive under said paragraphs (the "Termination Benefits") would be deemed to include an "excess parachute payment" under Section 280G of the Code or any successor thereto, and
(ii) if such Termination Benefits were reduced to an
amount (the "Non-Triggering Amount"), the value of
which is one dollar ($1.00) less than an amount equal
to the total amount of payments permissible under
Section 280G of the Code or any successor thereto,
then the Termination Benefits to be paid to Executive shall be so reduced so as to be a Non-Triggering Amount.
5. TERMINATION UPON RETIREMENT, DISABILITY OR DEATH
Termination by the Bank of the Executive based on "Retirement" shall mean termination in accordance with the Bank's retirement policy or in accordance with any retirement arrangement established with Executive's consent with respect to him. Upon termination of Executive upon Retirement, Executive shall be entitled to all benefits under any retirement plan of the Bank and other plans to which Executive is a party.
In the event Executive is unable to perform his duties under this Agreement on a full-time basis for a period of six (6) consecutive months by reason of illness or other physical or mental disability, the Employer may terminate this Agreement, provided that the Employer shall continue to be obligated to pay the Executive his Base Salary for the remaining term of the Agreement, or one year, whichever is the longer period of time, and provided further that any amounts actually paid to Executive pursuant to any disability insurance or other similar such program which the Employer has provided or may provide on behalf of its employees or pursuant to any workman's or social security disability program shall reduce the compensation to be paid to the Executive pursuant to this paragraph.
In the event of Executive's death during the term of the Agreement, his estate, legal representatives or named beneficiaries (as directed by Executive in writing) shall be paid Executive's Base Salary as defined in Paragraph 3(a) at the rate in effect at the time Executive's death for a period of one (1) year from the date of the Executive's death, and the Employers will continue to provide medical, dental, family and other benefits normally provided for an Executive's family for one (1) year after the Executive's death.
6. TERMINATION FOR CAUSE
The term "Termination for Cause" shall mean termination because of the Executive's personal dishonesty, willful misconduct, any breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule, or regulation (other than traffic violations or similar offenses) or final cease-and-desist order, or material breach of any provision of this Agreement. In determining incompetence, the acts or omissions shall be measured against standards generally prevailing in the savings institutions industry. For purposes of this para graph, no act or failure to act on the part of Executive shall be considered "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Execu tive's action or omission was in the best interest of the Bank. Notwithstanding the foregoing, Executive shall not be deemed to have been Terminated for Cause unless and until there shall have been delivered to him a copy of a resolution duly adopted by the affirmative vote of not less than three-fourths of the members of the Board at a meeting of the Board called and held for that purpose (after reasonable notice to Executive and an opportunity for him, together with counsel, to be heard before the Board), finding that in the good faith opinion of the Board, Executive was guilty of conduct justifying Termination for Cause and specifying the particulars thereof in detail. The Executive shall not have the right to receive compensation or other benefits for any period after
Termination for Cause. Any stock options granted to Executive under any stock option plan of the Bank, the Company or any subsidiary or affiliate thereof, shall become null and void effective upon Executive's receipt of Notice of Termination for Cause pursuant to Section 7 hereof, and shall not be exercisable by Executive at any time subsequent to such Termination for Cause.
7. NOTICE
(a) Any purported termination by the Bank or by Executive shall be communicated by Notice of Termination to the other party hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a written notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive's employment under the provision so indicated.
(b) "Date of Termination" shall mean (A) if Executive's employment is terminated for Disability, thirty (30) days after a Notice of Termination is given (provided that he shall not have returned to the performance of his duties on a full-time basis during such thirty (30) day period), and (B) if his employment is terminated for any other reason, the date specified in the Notice of Termination (which, in the case of a Termination for Cause, shall not be less than thirty (30) days from the date such Notice of Termination is given).
(c) If, within thirty (30) days after any Notice of Termination is given, the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, except upon the voluntary termination by the Executive in which case the Date of Termination shall be the date specified in the Notice, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, by a binding arbitration award, or by a final judgment, order or decree of a court of competent jurisdiction (the time for appeal having expired and no appeal having been perfected) and provided further that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. Notwithstanding the pendency of any such dispute, the Bank will continue to pay Executive his full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, Base Salary) and continue Executive as a participant in all compensation, benefit and insurance plans in which he was participating when the notice of dispute was given, until the dispute is finally resolved in accordance with this Agreement, provided such dispute is resolved within the term of this Agreement. If such dispute is not resolved within the term of the Agreement, the Bank shall not be obligated, upon final resolution of such dispute, to pay Executive compensation and other payments accruing beyond the term of the Agreement. Amounts paid under this Section shall be offset against or reduce any other amounts due under this Agreement.
8. POST-TERMINATION OBLIGATIONS
(a) All payments and benefits to Executive under this Agreement shall be subject to Executive's compliance with paragraph (b) of this Section 8 during the term of this Agreement and for one (1) full year after the expiration or termination hereof.
(b) Executive shall, upon reasonable notice, furnish such information and assistance to the Bank as may reasonably be required by the Bank in connection with any litigation in which it or any of its subsidiaries or affiliates is, or may become, a party.
9. NON-COMPETITION
(a) Upon any termination of Executive's employment hereunder as a result of which the Bank is paying Executive benefits under Section 4 of this Agreement, other than a termination coincident to or following a Change in Control, Executive agrees not to compete with the Bank and/or the Company for a period of one (1) year following such termination in any city, town or county in which the Bank and/or the Company has an office or has filed an application for regulatory approval to establish an office, determined as of the effective date of such termination, except as agreed to pursuant to a resolution duly adopted by the Board. Executive agrees that during such period and within said cities, towns and counties, Executive shall not work for or advise, consult or otherwise serve with, directly or indirectly, any entity whose business materially competes with the depository, lending or other business activities of the Bank and/or the Company. The parties hereto, recognizing that irreparable injury will result to the Bank and/or the Company, its business and property in the event of Executive's breach of this Subsection 9(a) agree that in the event of any such breach by Executive, the Bank and/or the Company will be entitled, in addition to any other remedies and damages available, to an injunction to restrain the violation hereof by Executive, Executive's partners, agents, servants, employers, employees and all persons acting for or with Executive. Executive represents and admits that Executive's experience and capabilities are such that Executive can obtain employment in a business engaged in other lines and/or of a different nature than the Bank and/or the Company, and that the enforcement of a remedy by way of injunction will not prevent Executive from earning a livelihood. Nothing herein will be construed as prohibiting the Bank and/or the Company from pursuing any other remedies available to the Bank and/or the Company for such breach or threatened breach, including the recovery of damages from Executive.
(b) Executive recognizes and acknowledges that the knowledge of the business activities and plans for business activities of the Bank and affiliates thereof, as it may exist from time to time, is a valuable, special and unique asset of the business of the Bank. Executive will not, during or after the term of his employment, disclose any knowledge of the past, present, planned or considered business activities of the Bank or affiliates thereof to any person, firm, corporation, or other entity for any reason or purpose whatsoever (except for such disclosure as may be required to be provided to any federal banking agency with jurisdiction over the Bank or Executive). Notwithstanding the
foregoing, Executive may disclose any knowledge of banking, financial and/or economic principles, concepts or ideas which are not solely and exclusively derived from the business plans and activities of the Bank, and Executive may disclose any information regarding the Bank or the Company which is otherwise publicly available. In the event of a breach or threatened breach by the Executive of the provisions of this Section 9, the Bank will be entitled to an injunction restraining Executive from disclosing, in whole or in part, the knowledge of the past, present, planned or considered business activities of the Bank or affiliates thereof, or from rendering any services to any person, firm, corporation, other entity to whom such knowledge, in whole or in part, has been disclosed or is threatened to be disclosed. Nothing herein will be construed as prohibiting the Bank from pursuing any other remedies available to the Bank for such breach or threatened breach, including the recovery of damages from Executive.
10. SOURCE OF PAYMENTS
All payments provided in this Agreement shall be timely paid in cash or check from the general funds of the Bank. The Company, however, guarantees payment and provision of all amounts and benefits due hereunder to Executive and, if such amounts and benefits due from the Bank are not timely paid or provided by the Bank, such amounts and benefits shall be paid or provided by the Company.
11. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS
This Agreement contains the entire understanding between the parties hereto and supersedes any prior employment agreement between the Bank or any predecessor of the Bank and Executive, except that this Agreement shall not affect or operate to reduce any benefit or compensation inuring to the Executive of a kind elsewhere provided. No provision of this Agreement shall be interpreted to mean that Executive is subject to receiving fewer benefits than those available to him without reference to this Agreement.
12. NO ATTACHMENT
(a) Except as required by law, no right to receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation, or to execution, attachment, levy, or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to affect any such action shall be null, void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of, Executive and the Bank and their respective successors and assigns.
13. MODIFICATION AND WAIVER
(a) This Agreement may not be modified or amended except by an instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been waived, nor shall there be any estoppel against the enforcement of any provision of this Agreement, except by written instrument of the party charged with such waiver or estoppel. No such written waiver shall be deemed a continuing waiver unless specifically stated therein, and each such waiver shall operate only as to the specific term or condition waived and shall not constitute a waiver of such term or condition for the future as to any act other than that specifically waived.
14. SEVERABILITY
If, for any reason, any provision of this Agreement, or any part of any provision, is held invalid, such invalidity shall not affect any other provision of this Agreement or any part of such provision not held so invalid, and each such other provision and part thereof shall to the full extent consistent with law continue in full force and effect.
15. HEADINGS FOR REFERENCE ONLY
The headings of sections and paragraphs herein are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement.
16. GOVERNING LAW
This Agreement shall be governed by the laws of the State of New York but only to the extent not superseded by federal law.
17. ARBITRATION
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by the employee within fifty
(50) miles from the location of the Bank, in accordance with the rules of the
American Arbitration Bank then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; provided, however, that
Executive shall be entitled to seek specific performance of his right to be paid
until the Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
18. PAYMENT OF LEGAL FEES
All reasonable legal fees paid or incurred by Executive pursuant to any dispute or question of interpretation relating to this Agreement shall be paid or reimbursed by the Bank, provided that the dispute or interpretation has been settled by Executive and the Bank or resolved in the Executive's favor.
19. INDEMNIFICATION
The Bank shall provide Executive (including his heirs, executors and administrators) with coverage under a standard directors' and officers' liability insurance policy at its expense, and shall indemnify Executive (and his heirs, executors and administrators) to the fullest extent permitted under federal law against all expenses and liabilities reasonably incurred by him in connection with or arising out of any action, suit or proceeding in which he may be involved by reason of his having been a trustee, director or officer of the Bank (whether or not he continues to be a trustee, director or officer at the time of incurring such expenses or liabilities), such expenses and liabilities to include, but not be limited to, judgments, court costs and attorneys' fees and the cost of reasonable settlements (such settlements must be approved by the Bank's Board). If such action, suit or proceeding is brought against Executive in his capacity as an officer, trustee, or director of the Bank, however, such indemnification shall not extend to matters as to which Executive is finally adjudged to be liable for willful misconduct in the performance of his duties.
20. SUCCESSOR TO THE BANK
The Bank shall require any successor or assignee, whether direct or indirect, by purchase, merger, consolidation or otherwise, to all or substantially all the business or assets of the Bank or the Company, expressly and unconditionally to assume and agree to perform the Bank's obligations under this Agreement, in the same manner and to the same extent that the Bank would be required to perform if no such succession or assignment had taken place.
SIGNATURES
IN WITNESS WHEREOF, the Bank and the Company have caused this Agreement to be executed and their seals to be affixed hereunto by their duly authorized officers, and the Executive has signed this Agreement, on the day and date first above written.
ATTEST: THE BANK OF GREENE COUNTY
By:
---------------------- ---------------------------------
Secretary Name:
---------------------------
Title:
--------------------------
ATTEST: GREENE COUNTY BANCORP, INC.
By:
---------------------- ---------------------------------
Secretary Name:
---------------------------
Title:
--------------------------
WITNESS: EXECUTIVE:
By:
---------------------- ---------------------------------
|
Exhibit 10.2
THE BANK OF GREENE COUNTY
EMPLOYEE STOCK OWNERSHIP PLAN
(adopted effective January 1, 1998)
THE BANK OF GREENE COUNTY
EMPLOYEE STOCK OWNERSHIP PLAN
This Employee Stock Ownership Plan, executed on the ____ day of _____________, 1998, by Greene County Savings Bank, a New York chartered savings bank (the "Bank"),
W I T N E S S E T H T H A T
WHEREAS, the board of directors of the Bank has resolved to adopt an employee stock ownership plan for eligible employees in accordance with the terms and conditions presented to the directors;
NOW, THEREFORE, the Bank hereby adopts the following Plan setting forth the terms and conditions pertaining to contributions by the Employer and the payment of benefits to Participants and Beneficiaries.
IN WITNESS WHEREOF, the Bank has adopted this Plan and caused this instrument to be executed by its duly authorized officers as of the above date.
ATTEST:
By:
------------------------------------ ---------------------------------
Secretary President
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C 0 N T E N T S
Page No.
Section 1. Plan Identity................................................................................ -1-
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1.1 Name......................................................................................... -1-
----
1.2 Purpose...................................................................................... -1-
-------
1.3 Effective Date............................................................................... -1-
--------------
1.4 Fiscal Period................................................................................ -1-
-------------
1.5 Single Plan for All Employers................................................................ -1-
-----------------------------
1.6 Interpretation of Provisions................................................................. -1-
----------------------------
Section 2. Definitions.................................................................................. -1-
Section 3. Eligibility for Participation................................................................ -7-
-----------------------------
3.1 Initial Eligibility.......................................................................... -7-
-------------------
3.2 Definition of Eligibility Year............................................................... -7-
------------------------------
3.3 Terminated Employees......................................................................... -7-
--------------------
3.4 Certain Employees Ineligible................................................................. -7-
----------------------------
3.5 Participation and Reparticipation............................................................ -8-
---------------------------------
3.6 Omission of Eligible Employee................................................................ -8-
-----------------------------
3.7 Inclusion of Ineligible Employee............................................................. -8-
--------------------------------
Section 4. Contributions and Credits.................................................................... -8-
-------------------------
4.1 Discretionary Contributions.................................................................. -8-
---------------------------
4.2 Contributions for Stock Obligations.......................................................... -8-
-----------------------------------
4.3 Definitions Related to Contributions......................................................... -9-
------------------------------------
4.4 Conditions as to Contributions............................................................... -9-
------------------------------
4.5 Transfers.................................................................................... -9-
---------
Section 5. Limitations on Contributions and Allocations.................................................-10-
--------------------------------------------
5.1 Limitation on Annual Additions...............................................................-10-
------------------------------
5.2 Coordinated Limitation With Other Plans......................................................-11-
---------------------------------------
5.3 Effect of Limitations........................................................................-12-
---------------------
5.4 Limitations as to Certain Participants.......................................................-12-
--------------------------------------
Section 6. Trust Fund and Its Investment................................................................-13-
-----------------------------
6.1 Creation of Trust Fund.......................................................................-13-
----------------------
6.2 Stock Fund and Investment Fund...............................................................-13-
------------------------------
6.3 Acquisition of Stock.........................................................................-13-
--------------------
6.4 Participants' Option to Diversify............................................................-14-
---------------------------------
Section 7. Voting Rights and Dividends on Stock.........................................................-15-
------------------------------------
7.1 Voting and Tendering of Stock................................................................-15-
-----------------------------
7.2 Dividends on Stock...........................................................................-15-
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Page No.
Section 8. Adjustments to Accounts......................................................................-16-
-----------------------
8.1 Adjustments for Transactions.................................................................-16-
----------------------------
8.2 Valuation of Investment Fund.................................................................-16-
----------------------------
8.3 Adjustments for Investment Experience........................................................-16-
-------------------------------------
Section 9. Vesting of Participants' Interests...........................................................-16-
----------------------------------
9.1 Deferred Vesting in Accounts.................................................................-16-
----------------------------
9.2 Computation of Vesting Years.................................................................-17-
----------------------------
9.3 Full Vesting Upon Certain Events.............................................................-18-
--------------------------------
9.4 Full Vesting Upon Plan Termination...........................................................-18-
----------------------------------
9.5 Forfeiture, Repayment, and Restoral..........................................................-19-
-----------------------------------
9.6 Accounting for Forfeitures...................................................................-19-
--------------------------
9.7 Vesting and Nonforfeitability................................................................-19-
-----------------------------
Section 10. Payment of Benefits..........................................................................-19-
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10.1 Benefits for Participants....................................................................-19-
-------------------------
10.2 Time for Distribution........................................................................-20-
---------------------
10.3 Marital Status...............................................................................-20-
--------------
10.4 Delay in Benefit Determination...............................................................-21-
------------------------------
10.5 Accounting for Benefit Payments..............................................................-21-
-------------------------------
10.6 Options to Receive and Sell Stock............................................................-21-
---------------------------------
10.7 Restrictions on Disposition of Stock.........................................................-22-
------------------------------------
10.8 Continuing Loan Provisions; Creations of Protections and Rights..............................-22-
---------------------------------------------------------------
10.9 Direct Rollover of Eligible Distribution.....................................................-22-
----------------------------------------
10.10 Waiver of 30 Day Period After Notice of Distribution..........................................-23-
----------------------------------------------------
Section 11. Rules Governing Benefit Claims and Review of Appeals.........................................-23-
----------------------------------------------------
11.1 Claim for Benefits...........................................................................-23-
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11.2 Notification by Committee....................................................................-23-
-------------------------
11.3 Claims Review Procedure......................................................................-24-
-----------------------
Section 12. The Committee and Its Functions..............................................................-24-
-------------------------------
12.1 Authority of Committee.......................................................................-24-
----------------------
12.2 Identity of Committee........................................................................-24-
---------------------
12.3 Duties of Committee..........................................................................-24-
-------------------
12.4 Valuation of Stock...........................................................................-25-
------------------
12.5 Compliance with ERISA........................................................................-25-
---------------------
12.6 Action by Committee..........................................................................-25-
-------------------
12.7 Execution of Documents.......................................................................-25-
----------------------
12.8 Adoption of Rules............................................................................-25-
-----------------
12.9 Responsibilities to Participants.............................................................-25-
--------------------------------
12.10 Alternative Payees in Event of Incapacity....................................................-26-
-----------------------------------------
12.11 Indemnification by Employers.................................................................-26-
----------------------------
12.12 Nonparticipation by Interested Member........................................................-26-
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Page No.
Section 13. Adoption, Amendment, or Termination of the Plan..............................................-26-
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13.1 Adoption of Plan by Other Employers..........................................................-26-
-----------------------------------
13.2 Adoption of Plan by Successor................................................................-26-
-----------------------------
13.3 Plan Adoption Subject to Qualification.......................................................-26-
--------------------------------------
13.4 Right to Amend or Terminate..................................................................-27-
---------------------------
Section 14. Miscellaneous Provisions.....................................................................-27-
------------------------
14.1 Plan Creates No Employment Rights............................................................-27-
---------------------------------
14.2 Nonassignability of Benefits.................................................................-27-
----------------------------
14.3 Limit of Employer Liability..................................................................-28-
---------------------------
14.4 Treatment of Expenses........................................................................-28-
---------------------
14.5 Number and Gender............................................................................-28-
-----------------
14.6 Nondiversion of Assets.......................................................................-28-
----------------------
14.7 Separability of Provisions...................................................................-28-
--------------------------
14.8 Service of Process...........................................................................-28-
------------------
14.9 Governing State Law..........................................................................-28-
-------------------
14.10 Employer Contributions Conditioned on Deductibility..........................................-28-
---------------------------------------------------
14.11 Unclaimed Accounts...........................................................................-28-
------------------
14.12 Qualified Domestic Relations Order...........................................................-29-
----------------------------------
Section 15. Top-Heavy Provisions.........................................................................-30-
--------------------
15.1 Top-Heavy Plan...............................................................................-30-
--------------
15.2 Super Top-Heavy Plan.........................................................................-30-
--------------------
15.3 Definitions..................................................................................-30-
-----------
15.4 Top-Heavy Rules of Application...............................................................-31-
------------------------------
15.5 Top-Heavy Ratio..............................................................................-32-
---------------
15.6 Minimum Contributions........................................................................-33-
---------------------
15.7 Minimum Vesting..............................................................................-33-
---------------
15.8 Top-Heavy Provisions Control in Top-Heavy Plan...............................................-34-
----------------------------------------------
|
THE BANK OF GREENE COUNTY
EMPLOYEE STOCK OWNERSHIP PLAN
1.1 Name. The name of this Plan is "The Bank of Greene County Employee Stock Ownership Plan."
1.2 Purpose. The purpose of this Plan is to describe the terms and conditions under which contributions made pursuant to the Plan will be credited and paid to the Participants and their Beneficiaries.
1.3 Effective Date. The Effective Date of this Plan is January 1, 1998.
1.4 Fiscal Period. This Plan shall be operated on the basis of a January 1 to December 31 fiscal year for the purpose of keeping the Plan's books and records and distributing or filing any reports or returns required by law.
1.5 Single Plan for All Employers. This Plan shall be treated as a single plan with respect to all participating Employers for the purpose of crediting contributions and forfeitures and distributing benefits, determining whether there has been any termination of Service, and applying the limitations set forth in Section 5.
1.6 Interpretation of Provisions. The Employers intend this Plan and the Trust to be a qualified stock bonus plan under Section 401(a) of the Code and an employee stock ownership plan within the meaning of Section 407(d)(6) of ERISA and Section 4975(e)(7) of the Code. The Plan is intended to have its assets invested primarily in qualifying employer securities of one or more Employers within the meaning of Section 407(d)(3) of ERISA, and to satisfy any requirement under ERISA or the Code applicable to such a plan.
Accordingly, the Plan and Trust Agreement shall be interpreted and applied in a manner consistent with this intent and shall be administered at all times and in all respects in a nondiscriminatory manner.
The following capitalized words and phrases shall have the meanings specified when used in this Plan and in the Trust Agreement, unless the context clearly indicates otherwise:
"Account" means a Participant's interest in the assets accumulated under this Plan as expressed in terms of a separate account balance which is periodically adjusted to reflect his Employer's contributions, the Plan's investment experience, and distributions and forfeitures.
"Active Participant" means any Employee who has satisfied the eligibility requirements of Section 3 and who qualifies as an Active Participant for a particular Plan Year under Section 4.3.
"Bank" means Greene County Savings Bank and any entity which succeeds to the business of Greene County Savings Bank and adopts this Plan as its own pursuant to Section 14.2.
"Beneficiary" means the person or persons who are designated by a Participant to receive benefits payable under the Plan on the Participant's death. In the absence of any designation or if all the designated Beneficiaries shall die before the Participant dies or shall die before all benefits have been paid, the Participant's Beneficiary shall be his surviving Spouse, if any, or his estate if he is not survived by a Spouse. The Committee may rely upon the advice of the Participant's executor or administrator as to the identity of the Participant's Spouse.
"Break in Service" means any Plan Year, or, for the initial eligibility computation period under Section 3.2, the 12-consecutive month period beginning on the first day on which an Employee has 500 or fewer Hours of Service, in which an Employee has 500 or fewer Hours of Service. Solely for this purpose, an Employee shall be considered employed for his normal hours of paid employment during a Recognized Absence (said Employee shall not be credited with more than 501 Hours of Service to avoid a Break in Service), unless he does not resume his Service at the end of the Recognized Absence. Further, if an Employee is absent for any period beginning on or after January 1, 1985, (i) by reason of the Employee's pregnancy, (ii) by reason of the birth of the Employee's child, (iii) by reason of the placement of a child with the Employee in connection with the Employee's adoption of the child, or (iv) for purposes of caring for such child for a period beginning immediately after such birth or placement, the Employee shall be credited with the Hours of Service which would normally have been credited but for such absence, up to a maximum of 501 Hours of Service.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means the committee responsible for the administration of this Plan in accordance with Section 12.
"Company" means Greene County Bancorp, Inc., the stock holding company of the Bank.
"Disability" means only a disability which renders the Participant totally unable, as a result of bodily or mental disease or injury, to perform any duties for an Employer for which he is reasonably fitted, which disability is expected to be permanent or of long and indefinite duration. However, this term shall not include any disability directly or indirectly resulting from or related to habitual drunkenness or addiction to narcotics, a criminal act or attempt, service in the armed forces of any country, an act of war, declared or undeclared, any injury or disease occurring while compensation to the Participant is suspended, or any injury which is intentionally self-inflicted. Further, this term shall apply only if (i) the Participant is sufficiently disabled to qualify for the payment of disability benefits under the federal Social Security Act or Veterans Disability Act, or (ii) the Participant's disability is certified by a physician selected by the Committee. Unless the Participant is sufficiently disabled to qualify for disability benefits under the federal Social Security Act or Veterans Disability Act, the Committee may require the Participant to be appropriately examined from time to time by one or more physicians chosen by the Committee, and no Participant who refuses to be examined shall be treated as having a Disability. In any event, the Committee's good faith decision as to whether a Participant's Service has been terminated by Disability shall be final and conclusive.
"Early Retirement" means retirement on or after a Participant's attainment of age 55 and the completion of ten years of Service for an Employer. If the Participant separates from Service before satisfying the age requirement, but has satisfied the Service requirement, the Participant will be entitled to elect early retirement upon satisfaction of the age requirement.
"Effective Date" means January 1, 1998.
"Employee" means any individual who is or has been employed or self-employed by an Employer. "Employee" also means an individual employed by a leasing organization who, pursuant to an agreement between an Employer and the leasing organization, has performed services for the Employer and any related persons (within the meaning of Section 414(n)(6) of the Code) on a substantially full-time basis for more than one year, if such services are performed under the primary direction or control of the Employer. However, such a "leased employee" shall not be considered an Employee if (i) he participates in a money purchase pension plan sponsored by the leasing organization which provides for immediate participation, immediate full vesting, and an annual contribution of at least 10 percent of the Employee's 415 Compensation, and (ii) leased employees do not constitute more than 20 percent of the Employer's total work force (including leased employees, but excluding Highly Paid Employees and any other employees who have not performed services for the Employer on a substantially full-time basis for at least one year).
"Employer" means the Bank or any affiliate within the purview of section 414(b), (c) or (m) and 415(h) of the Code, any other corporation, partnership, or proprietorship which adopts this Plan with the Bank's consent pursuant to Section 13.1, and any entity which succeeds to the business of any Employer and adopts the Plan pursuant to Section 13.2.
"Entry Date" means the Effective Date of the Plan and each January 1 and July 1 of each Plan Year after the Effective Date.
"ERISA" means the Employee Retirement Income Security Act of 1974 (P.L. 93-406, as amended).
"415 Compensation"
(a) shall mean wages, as defined in Code Section 3401(a) for purposes of income tax withholding at the source.
(b) For Plan Years beginning after December 31, 1997, any elective deferral as defined in Code Section 402(g)(3) (any Employer contributions made on behalf of a Participant to the extent not includible in gross income and any Employer contributions to purchase an annuity contract under Code Section 403(b) under a salary reduction agreement) and any amount which is contributed or deferred by the Employer at the election of the Participant and which is not includible in gross income of the Participant by reason of Code Section 125 (Cafeteria Plan) shall also be included in the definition of 415 Compensation.
(c) 415 Compensation in excess of $160,000 (as indexed) shall be disregarded for all Participants. For purposes of this sub-section, the $160,000 limit shall be referred to as the "applicable limit" for the Plan Year in question. The $160,000 limit shall be adjusted for increases in the cost of living in accordance with Section 401(a)(17)(B) of the Code, effective for the Plan Year which begins within the applicable calendar year. For purposes of the applicable limit, 415 Compensation shall be prorated over short Plan Years.
"Highly Paid Employee" for any Plan Year means an Employee who, during either of that or the immediately preceding Plan Year was at any time a five percent owner of the Employer (as defined in Code Section 416(i)(1)) or had 415 Compensation exceeding $80,000 and was among the most highly compensated one-fifth of all Employees. For this purpose:
(a) "415 Compensation" shall include any amount which is excludable from the Employee's gross income for tax purposes pursuant to Sections 125, 402(a)(8), 402(h)(1)(B), or 403(b) of the Code.
(b) The number of Employees in "the most highly compensated one-fifth of all Employees" shall be determined by taking into account all individuals working for all related Employer entities described in the definition of "Service", but excluding any individual who has not completed six months of Service, who normally works fewer than 17-1/2 hours per week or in fewer than six months per year, who has not reached age 21, whose employment is covered by a collective bargaining agreement, or who is a nonresident alien who receives no earned income from United States sources.
"Hours of Service" means hours to be credited to an Employee under the following rules:
(a) Each hour for which an Employee is paid or is entitled to be paid for services to an Employer is an Hour of Service.
(b) Each hour for which an Employee is directly or indirectly paid or is entitled to be paid for a period of vacation, holidays, illness, disability, lay-off, jury duty, temporary military duty, or leave of absence is an Hour of Service. However, except as otherwise specifically provided, no more than 501 Hours of Service shall be credited for any single continuous period which an Employee performs no duties. No more than 501 Hours of Service will be credited under this paragraph for any single continuous period (whether or not such period occurs in a single computation period). Further, no Hours of Service shall be credited on account of payments made solely under a plan maintained to comply with worker's compensation, unemployment compensation, or disability insurance laws, or to reimburse an Employee for medical expenses.
(c) Each hour for which back pay (ignoring any mitigation of damages) is either awarded or agreed to by an Employer is an Hour of Service. However, no more than 501 Hours of Service shall be credited for any single continuous period during which an Employee would not have performed any duties. The same Hours of Service will not be credited both under paragraph (a) or (b) as the case may be, and under this paragraph (c). These hours will be credited to the
employee for the computation period or periods to which the award or agreement pertains rather than the computation period in which the award agreement or payment is made.
(d) Hours of Service shall be credited in any one period only under one of the foregoing paragraphs (a), (b) and (c); an Employee may not get double credit for the same period.
(e) If an Employer finds it impractical to count the actual Hours of Service for any class or group of non-hourly Employees, each Employee in that class or group shall be credited with 45 Hours of Service for each weekly pay period in which he has at least one Hour of Service. However, an Employee shall be credited only for his normal working hours during a paid absence.
(f) Hours of Service to be credited on account of a payment to an Employee (including back pay) shall be recorded in the period of Service for which the payment was made. If the period overlaps two or more Plan Years, the Hours of Service credit shall be allocated in proportion to the respective portions of the period included in the several Plan Years. However, in the case of periods of 31 days or less, the Administrator may apply a uniform policy of crediting the Hours of Service to either the first Plan Year or the second.
(g) In all respects an Employee's Hours of Service shall be counted as required by Section 2530.200b-2(b) and (c) of the Department of Labor's regulations under Title I of ERISA.
"Investment Fund" means that portion of the Trust Fund consisting of assets other than Stock. Notwithstanding the above, assets from the Investment Fund may be used to purchase Stock in the open market or otherwise, or used to pay on the Stock Obligation, and shares so purchased will be allocated to a Participant's Stock Fund.
"Normal Retirement" means retirement on or after the later of a Participant's 65th birthday or fifth year of Service.
"Normal Retirement Date" means the later of the date on which a Participant attains age 65 or completes five years of Service.
"Participant" means any Employee who is participating in the Plan, or who has previously participated in the Plan and still has a balance credited to his Account.
"Plan Year" means the twelve month period commencing January 1 and ending December 31, 1998 and each period of 12 consecutive months beginning on January 1 of each succeeding year.
"Recognized Absence" means a period for which --
(a) an Employer grants an Employee a leave of absence for a limited period, but only if an Employer grants such leave on a nondiscriminatory basis; or
(b) an Employee is temporarily laid off by an Employer because of a change in business conditions; or
(c) an Employee is on active military duty, but only to the extent that his employment rights are protected by the Military Selective Service Act of 1967 (38 U.S.C. Sec. 2021).
"Service" means an Employee's period(s) of employment or
self-employment with an Employer, excluding for initial eligibility purposes any
period in which the individual was a nonresident alien and did not receive from
an Employer any earned income which constituted income from sources within the
United States. An Employee's Service shall include any service which constitutes
service with a predecessor employer within the meaning of Section 414(a) of the
Code. An Employee's Service shall also include any service with an entity which
is not an Employer, but only either (i) for a period after 1975 in which the
other entity is a member of a controlled group of corporations or is under
common control with other trades and businesses within the meaning of Section
414(b) or 414(c) of the Code, and a member of the controlled group or one of the
trades and businesses is an Employer, (ii) for a period after 1979 in which the
other entity is a member of an affiliated service group within the meaning of
Section 414(m) of the Code, and a member of the affiliated service group is an
Employer, or (iii) all employers aggregated with the Employer under Section
414(o) of the Code (but not until the Proposed Regulations under Section 414(o)
become effective).
"Spouse" means the individual, if any, to whom a Participant is lawfully married on the date benefit payments to the Participant are to begin, or on the date of the Participant's death, if earlier. A former spouse shall be treated as the Spouse or surviving Spouse to the extent provided under a qualified domestic relations order as described in section 414(p) of the Code.
"Stock" means shares of the Company's voting common stock or preferred stock meeting the requirements of Section 409(e)(3) of the Code issued by an Employer which is a member of the same controlled group of corporations within the meaning of Code Section 414(b).
"Stock Fund" means that portion of the Trust Fund consisting of Stock.
"Stock Obligation" means an indebtedness arising from any extension of
credit to the Plan or the Trust which satisfies the requirements set forth in
Section 6.3 and which was obtained for any or all of the following purposes:
(i) to acquire qualifying employer securities as defined in Treasury Regulations ss. 54.4975-12
(ii) to repay such Stock Obligation; or
(iii) to repay a prior exempt loan.
"Trust" or "Trust Fund" means the trust fund created under this Plan.
"Trust Agreement" means the agreement between the Bank and the Trustee concerning the Trust Fund. If any assets of the Trust Fund are held in a co-mingled trust fund with assets of other qualified retirement plans, "Trust Agreement" shall be deemed to include the trust agreement governing that co-mingled trust fund. With respect to the allocation of investment responsibility for the assets of the Trust Fund, the provisions of Article II of the Trust Agreement are incorporated herein by reference.
"Trustee" means one or more corporate persons or individuals selected from time to time by the Bank to serve as trustee or co-trustees of the Trust Fund.
"Unallocated Stock Fund" means that portion of the Stock Fund consisting of the Plan's holding of Stock which have been acquired in exchange for one or more Stock obligations and which have not yet been allocated to the Participant's Accounts in accordance with Section 4.2
"Valuation Date" means the last day of the Plan Year and each other date as of which the Committee shall determine the investment experience of the Investment Fund and adjust the Participants' Accounts accordingly.
"Valuation Period" means the period following a Valuation Date and ending with the next Valuation Date.
"Vesting Year" means a unit of Service credited to a Participant pursuant to Section 9.2 for purposes of determining his vested interest in his Account.
3.1 Initial Eligibility. An Employee shall enter the Plan as of the Entry Date coincident with or next following the later of the following dates:
(a) the last day of the Employee's first Eligibility Year, and
(b) the Employee's 21st birthday. However, if an Employee is not in active Service with an Employer on the date he would otherwise first enter the Plan, his entry shall be deferred until the next day he is in Service.
3.2 Definition of Eligibility Year. An "Eligibility Year" means an applicable eligibility period (as defined below) in which the Employee has completed 1,000 Hours of Service for the Employer. For this purpose:
(a) an Employee's first "eligibility period" is the 12-consecutive month period beginning on the first day on which he has an Hour of Service, and
(b) his subsequent eligibility periods will be 12-consecutive month periods beginning on each January 1 after that first day of Service.
3.3 Terminated Employees. No Employee shall have any interest or rights under this Plan if he is never in active Service with an Employer on or after the Effective Date.
3.4 Certain Employees Ineligible. No Employee shall participate in the Plan while his Service is covered by a collective bargaining agreement between an Employer and the Employee's collective bargaining representative if (i) retirement benefits have been the subject of good faith bargaining between the Employer and the representative and (ii) the collective bargaining agreement does not provide for the Employee's participation in the Plan.
3.5 Participation and Reparticipation. Subject to the satisfaction of the foregoing requirements, an Employee shall participate in the Plan during each period of his Service from the date on which he first becomes eligible until his termination. For this purpose, an Employee who returns before five (5) consecutive Breaks in Service who previously satisfied the initial eligibility requirements or who returns after 5 consecutive one year Breaks in Service with a vested Account balance in the Plan shall re-enter the Plan as of the date of his return to Service with an Employer.
3.6 Omission of Eligible Employee. If, in any Plan Year, any Employee who should be included as a Participant in the Plan is erroneously omitted and discovery of such omission is not made until after a contribution by his Employer for the year has been made, the Employer shall make a subsequent contribution with respect to the omitted Employee in the amount which the said Employer would have contributed shall be made regardless of whether or not it is deductible in whole or in part in any taxable year under applicable provisions of the Code.
3.7 Inclusion of Ineligible Employee. If, in any Plan Year, any person who should not have been included as a Participant in the Plan is erroneously included and discovery of such incorrect inclusion is not made until after a contribution for the year has been made, the Employer shall not be entitled to recover the contribution made with respect to the ineligible person regardless of whether or not a deduction is allowable with respect to the ineligible person shall constitute a forfeiture for the Plan Year in which the discovery is made.
4.1 Discretionary Contributions. The Employer shall from time to time contribute, with respect to a Plan Year, such amounts as it may determine from time to time. The Employer shall have no obligation to contribute any amount under this Plan except as so determined in its sole discretion. The Employer's contributions and available forfeitures for a Plan Year shall be credited as of the last day of the year to the Accounts of the Active Participants in proportion to their amounts of Cash Compensation.
4.2 Contributions for Stock Obligations. If the Trustee, upon instructions from the Committee, incurs any Stock Obligation upon the purchase of Stock, the Employer may contribute for each Plan Year an amount sufficient to cover all payments of principal and interest as they come due under the terms of the Stock Obligation. If there is more than one Stock Obligation, the Employer shall designate the one to which any contribution is to be applied. Investment earnings realized on Employer contributions and any dividends paid by the Employer on Stock held in the Unallocated Stock Account, shall be applied to the Stock Obligation related to that Stock, subject to Section 7.2.
In each Plan Year in which Employer contributions, earnings on contributions, or dividends on unallocated Stock are used as payments under a Stock Obligation, a certain number of shares of the Stock acquired with that Stock Obligation which is then held in the Unallocated Stock Fund shall be released for allocation among the Participants. The number of shares released shall bear the same ratio to the total number of those shares then held in the Unallocated Stock Fund (prior to the release) as (i) the principal and interest payments made on the Stock Obligation in the current Plan Year bears to (ii) the sum of (i) above, and the remaining principal and interest payments required (or projected to be required on the basis of the interest rate in effect at the end of the Plan Year) to satisfy the Stock Obligation.
At the direction of the Committee, the current and projected payments of interest under a Stock Obligation may be ignored in calculating the number of shares to be released in each year if (i) the Stock Obligation provides for annual payments of principal and interest at a cumulative rate that is not less rapid at any time than level annual payments of such amounts for 10 years, (ii) the interest included in any payment is ignored only to the extent that it would be determined to be interest under standard loan amortization tables, and (iii) the term of the Stock Obligation, by reason of renewal, extension, or refinancing, has not exceeded 10 years from the original acquisition of the Stock.
For these purposes, each Stock Obligation, the Stock purchased with it, and any dividends on such Stock, shall be considered separately. The Stock released from the Unallocated Stock Fund in any Plan Year shall be credited as of the last day of the year to the Accounts of the Active Participants in proportion to their amounts of Cash Compensation.
4.3 Definitions Related to Contributions. For the purposes of this Plan, the following terms have the meanings specified:
"Active Participant" means a Participant who has satisfied the eligibility requirements under Section 3 and who has at least 1000 Hours of Service during the current Plan Year. However, a Participant shall not qualify as an Active Participant unless (i) he is in active Service with an Employer as of the last day of the Plan Year, or (ii) he is on a Recognized Absence as of that date, or (iii) his Service terminated during the Plan Year by reason of Disability, death, Early or Normal Retirement.
"Cash Compensation" means a Participant's 415 Compensation as defined in Section 2 of the Plan and shall also include amounts contributed under a salary reduction agreement pursuant to Section 401(k) or Section 125 of the Code.
In the event a Plan Year is a period of less than 12 months for any reason, then Cash Compensation for the short period shall not exceed the pro rata portion of this limit created by multiplying a fraction which is the number of months in the short period divided by twelve times the annual compensation limit.
4.4 Conditions as to Contributions. Employers' contributions shall in all events be subject to the limitations set forth in Section 5. Contributions may be made in the form of cash, or securities and other property to the extent permissible under ERISA, including Stock, and shall be held by the Trustee in accordance with the Trust Agreement. In addition to the provisions of Section 13.3 for the return of an Employer's contributions in connection with a failure of the Plan to qualify initially under the Code, any amount contributed by an Employer due to a good faith mistake of fact, or based upon a good faith but erroneous determination of its deductibility under Section 404 of the Code, shall be returned to the Employer within one year after the date on which the contribution was originally made, or within one year after its nondeductibility has been finally determined. However, the amount to be returned shall be reduced to take account of any adverse investment experience within the Trust Fund in order that the balance credited to each Participant's Account is not less that it would have been if the contribution had never been made.
4.5 Transfers. This Plan does not accept direct and indirect transfers, including roll-over contributions from other tax-qualified plans.
5.1 Limitation on Annual Additions. Notwithstanding anything herein to the contrary, allocation of Employer contributions for any Plan Year shall be subject to the following:
5.1-1 If allocation of Employer contributions in accordance with Section 4.1 will result in an allocation of more than one-third the total contributions for a Plan Year to the Accounts of Highly Paid Employees, then allocation of such amount shall be adjusted so that such excess will not occur.
5.1-2 After adjustment, if any, required by the preceding
paragraph, the annual additions during any Plan Year to any
Participant's Account under this and any other defined contribution
plans maintained by the Employer or an affiliate (within the purview of
Section 414(b), (c) and (m) and Section 415(h) of the Code, which
affiliate shall be deemed the Employer for this purpose) shall not
exceed the lesser of $30,000 (or such other dollar amount which results
from cost-of-living adjustments under Section 415(d) of the Code) or
"25 percent of the Participant's 415 Compensation for such limitation
year." In the event that annual additions exceed the aforesaid
limitations, they shall be reduced in the following priority:
(i) If the Participant is covered by the Plan at the end of the Plan Year, any excess amount at the end of the Plan Year that cannot be allocated to the Participant's Account shall be used to reduce the Employer contribution for such Participant in the next limitation year and any succeeding limitation years if necessary.
(ii) If the Participant is not covered by the Plan at the end of the Plan Year, the excess amount will be held unallocated in a suspense account. The suspense account will be applied to reduce future Employer contributions for all remaining Participants in the next limitation year and each succeeding limitation year if necessary.
(iii) If a suspense account is in existence at any time during a limitation year, it will not participate in any allocation of investment gains and losses. All amounts held in suspense accounts must be allocated to Participant's Accounts before any contributions may be made to the Plan for the limitation year.
(iv) If a suspense account exists at the time of Plan termination, amounts held in the suspense account that cannot be allocated shall revert to the Employer.
5.1-3 For purposes of this Section 5.1 and the following
Section 5.2, the "annual addition" to a Participant's accounts means
the sum of (i) Employer contributions, (ii) Employee contributions, if
any, and (iii) forfeitures. Annual additions to a defined contribution
plan also include amounts allocated, after March 31, 1984, to an
individual medical account, as defined in Section 415(l)(2) of the
Internal Revenue Code, which is part of a pension or annuity plan
maintained by the Employer, amounts derived from contributions paid or
accrued after December 31, 1985, in taxable years ending after such
date, which are attributable to post-retirement medical benefits
allocated to the separate account of a Key Employee under a welfare
benefit fund, as defined in Section 419A(d) of the Internal Revenue
Code, maintained by the Employer. For these purposes, annual additions
to a defined contribution plan shall not include
the allocation of the excess amounts remaining in the Unallocated Stock Fund subsequent to a sale of stock from such fund in accordance with a transaction described in Section 8.1 of the Plan. The $30,000 limitations referred to shall, for each limitation year ending after 1988, be automatically adjusted to the new dollar limitations determined by the Commissioner of Internal Revenue for the calendar year beginning in that limitation year.
5.1-4 Notwithstanding the foregoing, if no more than one-third of the Employer contributions to the Plan for a year which are deductible under Section 404(a)(9) of the Code are allocated to Highly Paid Employees (within the meaning of Section 414(q) of the Internal Revenue Code), the limitations imposed herein shall not apply to:
(i) forfeitures of Employer securities (within the meaning of
Section 409 of the Code) under the Plan if such securities were
acquired with the proceeds of a loan described in Section 404(a)(9)(A)
of the Code), or
(ii) Employer contributions to the Plan which are deductible under Section 404(a)(9)(B) and charged against a Participant's Account.
5.1-5 If the Employer contributes amounts, on behalf of Employees covered by this Plan, to other "defined contribution plans" as defined in Section 3(34) of ERISA, the limitation on annual additions provided in this Section shall be applied to annual additions in the aggregate to this Plan and to such other plans. Reduction of annual additions, where required, shall be accomplished first by reductions under such other plan pursuant to the directions of the named fiduciary for administration of such other plans or under priorities, if any, established under the terms of such other plans and then by allocating any remaining excess for this Plan in the manner and priority set out above with respect to this Plan.
5.1-6 A limitation year shall mean each 12 consecutive month period beginning each January 1.
5.2 Coordinated Limitation With Other Plans. Aside from the limitation prescribed by Section 5.1 with respect to the annual addition to a Participant's Accounts for any single limitation year, if a Participant has ever participated in one or more defined benefit plans maintained by an Employer or an affiliate, then the accrued benefit shall be limited so that the sum of his defined plan fraction and his defined contribution plan fraction does not exceed one. For this purpose:
5.2-1 A Participant's defined contribution plan fraction with respect to a Plan Year shall be a fraction, (i) the numerator of which is the sum of the annual additions to his Accounts through the current year, and (ii) the denominator of which is the sum of the lesser of the following amounts -A- and -B- determined for the current limitation year and each prior limitation year of Service with an Employer: -A- is 1.25 times the dollar limit in effect for the year under Section 415(c)(1)(A) of the Code, or 1.0 times such dollar limitation if the Plan is super top-heavy, and -B- is 35 percent of the Participant's 415 Compensation for such year. Further, if the Participant participated in any related defined contribution plan in any years beginning before 1976, any excess of the sum of the actual annual additions to the Participant's Accounts for those years over the maximum annual additions which could have been made in accordance with Section 5.1 shall be ignored, and voluntary contributions by the Participant during those years shall be taken into
account as to each such year only to the extent that his average annual voluntary contribution in those years exceeded 10 percent of his average annual 415 Compensation in those years.
5.2-2 A Participant's defined benefit plan fraction with respect to a limitation year shall be a fraction, (i) the numerator of which is his projected annual benefit payable at normal retirement under the Employers' defined benefit plans, and (ii) the denominator of which is the lesser of (a) 1.25 times $90,000, or 1.0 times such dollar limitation if the Plan is super top-heavy, and (b) 1.4 times the Participant's average 415 Compensation during his highest-paid three consecutive limitation years.
5.3 Effect of Limitations. The Committee shall take whatever action may be necessary from time to time to assure compliance with the limitations set forth in Section 5.1 and 5.2. Specifically, the Committee shall see that each Employer restrict its contributions for any Plan Year to an amount which, taking into account the amount of available forfeitures, may be completely allocated to the Participants consistent with those limitations. Where the limitations would otherwise be exceeded by any Participant, further allocations to the Participant shall be curtailed to the extent necessary to satisfy the limitations. Where an excessive amount is contributed on account of a mistake as to one or more Participants' compensation, or there is an amount of forfeitures which may not be credited in the Plan Year in which it becomes available, the amount shall be corrected in accordance with Section 5.1-2 of the Plan.
5.4 Limitations as to Certain Participants. Aside from the limitations
set forth in Section 5.1 and 5.2, if the Plan acquires any Stock in a
transaction as to which a selling shareholder or the estate of a deceased
shareholder is claiming the benefit of Section 1042 of the Code, the Committee
shall see that none of such Stock, and no other assets in lieu of such Stock,
are allocated to the Accounts of certain Participants in order to comply with
Section 409(n) of the Code.
This restriction shall apply at all times to a Participant who owns (taking into account the attribution rules under Section 318(a) of the Code, without regard to the exception for employee plan trusts in Section 318(a)(2)(B)(i) more than 25 percent of any class of stock of a corporation which issued the Stock acquired by the Plan, or another corporation within the same controlled group, as defined in Section 409(l)(4) of the Code (any such class of stock hereafter called a "Related Class"). For this purpose, a Participant who owns more than 25 percent of any Related Class at any time within the one year preceding the Plan's purchase of the Stock shall be subject to the restriction as to all allocations of the Stock, but any other Participant shall be subject to the restriction only as to allocations which occur at a time when he owns more than 25 percent of any Related Class.
Further, this restriction shall apply to the selling shareholder claiming the benefit of Section 1042 and any other Participant who is related to such a shareholder within the meaning of Section 267(b) of the Code, during the period beginning on the date of sale and ending on the later of (1) the date that is ten years after the date of sale, or (2) the date of the Plan allocation attributable to the final payment of acquisition indebtedness incurred in connection with the sale.
This restriction shall not apply to any Participant who is a lineal descendant of a selling shareholder if the aggregate amounts allocated under the Plan for the benefit of all such descendants do not exceed five percent of the Stock acquired from the shareholder.
6.1 Creation of Trust Fund. All amounts received under the Plan from Employers and investments shall be held as the Trust Fund pursuant to the terms of this Plan and of the Trust Agreement between the Bank and the Trustee. The benefits described in this Plan shall be payable only from the assets of the Trust Fund, and none of the Bank, any other Employer, its board of directors or trustees, its stockholders, its officers, its employees, the Committee, and the Trustee shall be liable for payment of any benefit under this Plan except from the Trust Fund.
6.2 Stock Fund and Investment Fund. The Trust Fund held by the Trustee shall be divided into the Stock Fund, consisting entirely of Stock, and the Investment Fund, consisting of all assets of the Trust other than Stock. The Trustee shall have no investment responsibility for the Stock Fund, but shall accept any Employer contributions made in the form of Stock, and shall acquire, sell, exchange, distribute, and otherwise deal with and dispose of Stock in accordance with the instructions of the Committee. The Trustee shall have full responsibility for the investment of the Investment Fund, except to the extent such responsibility may be delegated from time to time to one or more investment managers pursuant to Section 2.2 of the Trust Agreement, or to the extent the Committee directs the Trustee to purchase Stock with the assets in the Investment Fund.
6.3 Acquisition of Stock. From time to time the Committee may, in its sole discretion, direct the Trustee to acquire Stock from the issuing Employer or from shareholders, including shareholders who are or have been Employees, Participants, or fiduciaries with respect to the Plan. The Trustee shall pay for such Stock no more than its fair market value, which shall be determined conclusively by the Committee pursuant to Section 12.4. The Committee may direct the Trustee to finance the acquisition of Stock by incurring or assuming indebtedness to the seller or another party which indebtedness shall be called a "Stock Obligation". The term "Stock Obligation" shall refer to a loan made to the Plan by a disqualified person within the meaning of Section 4975(e)(2) of the Code, or a loan to the Plan which is guaranteed by a disqualified person. A Stock Obligation includes a direct loan of cash, a purchase-money transaction, and an assumption of an obligation of a tax-qualified employee stock ownership plan under Section 4975(e)(7) of the Code ("ESOP"). For these purposes, the term "guarantee" shall include an unsecured guarantee and the use of assets of a disqualified person as collateral for a loan, even though the use of assets may not be a guarantee under applicable state law. An amendment of a Stock Obligation in order to qualify as an "exempt loan" is not a refinancing of the Stock Obligation or the making of another Stock Obligation. The term "exempt loan" refers to a loan that satisfies the provisions of this paragraph. A "non-exempt loan" fails to satisfy this paragraph. Any Stock Obligation shall be subject to the following conditions and limitations:
6.3-1 A Stock Obligation shall be for a specific term, shall not be payable on demand except in the event of default, and shall bear a reasonable rate of interest.
6.3-2 A Stock Obligation may, but need not, be secured by a collateral pledge of either the Stock acquired in exchange for the Stock Obligation, or the Stock previously pledged in connection with a prior Stock Obligation which is being repaid with the proceeds of the current Stock Obligation. No other assets of the Plan and Trust may be used as collateral for a Stock Obligation, and no creditor under a Stock Obligation shall have any right or recourse to any Plan and Trust assets other than Stock remaining subject to a collateral pledge.
6.3-3 Any pledge of Stock to secure a Stock Obligation must provide for the release of pledged Stock in connection with payments on the Stock obligations in the ratio prescribed in Section 4.2.
6.3-4 Repayments of principal and interest on any Stock Obligation shall be made by the Trustee only from Employer cash contributions designated for such payments, from earnings on such contributions, and from cash dividends received on Stock, in the last case, however, subject to the further requirements of Section 7.2.
6.3-5 In the event of default of a Stock Obligation, the value of Plan assets transferred in satisfaction of the Stock Obligation must not exceed the amount of the default. If the lender is a disqualified person within the meaning of Section 4975 of the Code, a Stock Obligation must provide for a transfer of Plan assets upon default only upon and to the extent of the failure of the Plan to meet the payment schedule of said Stock Obligation. For purposes of this paragraph, the making of a guarantee does not make a person a lender.
6.4 Participants' Option to Diversify. The Committee shall provide for a procedure under which each Participant may, during the qualified election period, elect to "diversify" a portion of the Employer Stock allocated to his Account, as provided in Section 401(a)(28)(B) of the Code. An election to diversity must be made on the prescribed form and filed with the Committee within the period specified herein. For each of the first five (5) Plan years in the qualified election period, the Participant may elect to diversify an amount which does not exceed 25% of the number of shares allocated to his Account since the inception of the Plan, less all shares with respect to which an election under this Section has already been made. For the last year of the qualified election period, the Participant may elect to have up to 50 percent of the value of his Account committed to other investments, less all shares with respect to which an election under this Section has already been made. The term "qualified election period" shall mean the six (6) Plan Year period beginning with the first Plan Year in which a Participant has both attained age 55 and completed 10 years of participation in the Plan. A Participant's election to diversify his Account may be made within each year of the qualified election period and shall continue for the 90-day period immediately following the last day of each year in the qualified election period. Once a Participant makes such election, the Plan must complete diversification in accordance with such election within 90 days after the end of the period during which the election could be made for the Plan Year. In the discretion of the Committee, the Plan may satisfy the diversification requirement by any of the following methods:
6.4-1 The Plan may distribute all or part of the amount subject to the diversification election.
6.4-2 The Plan may offer the Participant at least three other
distinct investment options, if available under the Plan. The other
investment options shall satisfy the requirements of Regulations under
Section 404(c) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA").
6.4-3 The Plan may transfer the portion of the Participant's
Account subject to the diversification election to another qualified
defined contribution plan of the Employer that offers at least three
investment options satisfying the requirements of the Regulations under
Section 404(c) of ERISA.
7.1 Voting and Tendering of Stock. The Trustee generally shall vote all shares of Stock held under the Plan in accordance with the written instructions of the Committee. However, if any Employer has registration-type class of securities within the meaning of Section 409(e)(4) of the Code, or if a matter submitted to the holders of the Stock involves a merger, consolidation, recapitalization, reclassification, liquidation, dissolution, or sale of substantially all assets of an entity, then (i) the shares of Stock which have been allocated to Participants' Accounts shall be voted by the Trustee in accordance with the Participants' written instructions, and (ii) the Trustee shall vote any unallocated Stock and allocated Stock for which it has received no voting instructions in the same proportions as it votes the allocated Stock for which it has received instructions from Participants; provided, however, that if an exempt loan, as defined in Section 4975(d) of the Code, is outstanding and the Plan is in default on such exempt loan, as default is defined in the loan documents, then to the extent that such loan documents require the lender to exercise voting rights with respect to the unallocated shares, the loan documents will prevail. In the event no shares of Stock have been allocated to Participants' Accounts at the time Stock is to be voted and any exempt loan which may be outstanding is not in default, each Participant shall be deemed to have one share of Stock allocated to his or her Account for the sole purpose of providing the Trustee with voting instructions.
Notwithstanding any provision hereunder to the contrary, all unallocated shares of Stock must be voted by the Trustee in a manner determined by the Trustee to be for the exclusive benefit of the Participants and Beneficiaries. Whenever such voting rights are to be exercised, the Employers shall provide the Trustee, in a timely manner, with the same notices and other materials as are provided to other holders of the Stock, which the Trustee shall distribute to the Participants. The Participants shall be provided with adequate opportunity to deliver their instructions to the Trustee regarding the voting of Stock allocated to their Accounts. The instructions of the Participants' with respect to the voting of allocated shares hereunder shall be confidential.
7.1-1 In the event of a tender offer, Stock shall be tendered by the Trustee in the same manner as set forth above with respect to the voting of Stock. Notwithstanding any provision hereunder to the contrary, Stock must be tendered by the Trustee in a manner determined by the Trustee to be for the exclusive benefit of the Participants and Beneficiaries.
7.2 Dividends on Stock. Dividends on Stock which are received by the Trustee in the form of additional Stock shall be retained in the Stock Fund, and shall be allocated among the Participant's Accounts and the Unallocated Stock Fund in accordance with their holdings of the Stock on which the dividends have been paid. Dividends on Stock credited to Participants' Accounts which are received by the Trustee in the form of cash shall, at the direction of the Employer paying the dividends, either (i) be credited to the Accounts in accordance with Section 8.3 and invested as part of the Investment Fund, (ii) be distributed immediately to the Participants in proportion with the Participants' Stock Fund Account balance (iii) be distributed to the Participants within 90 days of the close of the Plan Year in which paid in proportion with the Participants' Stock Fund Account balance or (iv) be used to make payments on the Stock Obligation. If dividends on Stock allocated to a Participant's Account are used to repay the Stock Obligation, Stock with a fair market value equal to the dividends so used must be allocated to such Participant's Account in lieu of the dividends. Dividends on Stock held in the Unallocated Stock Fund which are received by the Trustee in the form of cash shall be allocated to Participants' Investment Fund Accounts (pro rata based on the Participant's Account balance in relation to all Participants' Account
balances) and shall be applied as soon as practicable to payments of principal and interest under the Stock Obligation incurred with the purchase of the Stock.
8.1 Adjustments for Transactions. An Employer contribution pursuant to
Section 4.1 shall be credited to the Participants' Accounts as of the last day
of the Plan Year for which it is contributed, in accordance with Section 4.1.
Stock released from the Unallocated Stock Fund upon the Trust's repayment of a
Stock Obligation pursuant to Section 4.2 shall be credited to the Participants'
Accounts as of the last day of the Plan Year in which the repayment occurred,
pro rata based on the cash applied from such Participant's Account relative to
the cash applied from all Participants' Accounts. Any excess amounts remaining
from the use of proceeds of a sale of Stock from the Unallocated Stock Fund to
repay a Stock Obligation shall be allocated as earnings of the Plan as of the
last day of the Plan Year in which the repayment occurred among the
Participants' Accounts in proportion to the opening balance in each Account. Any
benefit which is paid to a Participant or Beneficiary pursuant to Section 10
shall be charged to the Participant's Account as of the first day of the
Valuation Period in which it is paid. Any forfeiture or restoral shall be
charged or credited to the Participant's Account as of the first day of the
Valuation Period in which the forfeiture or restoral occurs pursuant to Section
9.6.
8.2 Valuation of Investment Fund. As of each Valuation Date, the Trustee shall prepare a balance sheet of the Investment Fund, recording each asset (including any contribution receivable from an Employer) and liability at its fair market value. Any liability with respect to short positions or options and any item of accrued income or expense and unrealized appreciation or depreciation shall be included; provided, however, that such an item may be estimated or excluded if it is not readily ascertainable unless estimating or excluding it would result in a material distortion. The Committee shall then determine the net gain or loss of the Investment Fund since the preceding Valuation Date, which shall mean the entire income of the Investment Fund, including realized and unrealized capital gains and losses, net of any expenses to be charged to the general Investment Fund and excluding any contributions by the Employer. The determination of gain or loss shall be consistent with the balance sheets of the Investment Fund for the current and preceding Valuation Dates.
8.3 Adjustments for Investment Experience. Any net gain or loss of the Investment Fund during a Valuation Period, as determined pursuant to Section 8.2, shall be allocated as of the last day of the Valuation Period among the Participants' Accounts in proportion to the opening balance in each Account, as adjusted for benefit payments and forfeitures during the Valuation Period, without regard to whatever Stock may be credited to an Account. Any cash dividends received on Stock credited to Participant's Accounts shall be allocated as of the last day of the Valuation Period among the Participants' Accounts based on the opening balance in each Participant's Stock Fund Account.
9.1 Deferred Vesting in Accounts. A Participant's vested interest in his Account shall be based on his Vesting Years in accordance with the following Table, subject to the balance of this Section 9:
Vesting Percentage of Years Interest Vested ------- --------------- Fewer than 5................................... 0% 5.............................................. 100% |
9.2-1 A Participant's Vesting Years shall not include any Service prior to the date on which an Employee attains age 18.
9.2-2 A Participant's vested interest in his Account accumulated before five (5) consecutive Breaks in Service shall be determined without regard to any Service after such five consecutive Breaks in Service. Further, if a Participant has five (5) consecutive Breaks in Service before his interest in his Account has become vested to some extent, pre-Break years of Service shall not be required to be taken into account for purposes of determining his post-Break vested percentage.
9.2-3 In the case of a Participant who has 5 or more consecutive 1-year Breaks in Service, the Participant's pre-break Service will count in vesting of the Employer-derived post- break accrued benefit only if either:
(i) such Participant has any nonforfeitable interest in the accrued benefit attributable to Employer contributions at the time of separation from Service, or
(ii) upon returning to Service the number of consecutive 1-year Breaks in Service is less than the number of years of Service.
9.2-4 Unless otherwise specifically excluded, a Participant's Vesting Years shall include any period of active military duty to the extent required by the Military Selective Service Act of 1967 (38 U.S.C. Section 2021).
9.2-5 If any amendment changes the vesting schedule, including an automatic change to or from a top-heavy vesting schedule, any Participant with three (3) or more Vesting Years may, by filing a written request with the Employer, elect to have his vested percentage computed under the vesting schedule in effect prior to the amendment. The election period must begin not later than the later of sixty (60) days after the amendment is adopted, the amendment becomes effective, or the Participant is issued written notice of the amendment by the Employer or the Committee.
9.3 Full Vesting Upon Certain Events.
9.3-1 Notwithstanding Section 9.1, a Participant's interest in his Account shall fully vest on the Participant's Normal Retirement Date. The Participant's interest shall also fully vest in the event that his Service is terminated by Early Retirement, Disability or by death.
9.3-2 The Participant's interest in his Account shall also fully vest
in the event of a "Change in Control" of the Bank, or the Company. For these
purposes, "Change in Control" shall mean a change in control of a nature that:
(i) would be required to be reported in response to Item 1(a) of the current
report on Form 8-K, as in effect on the date hereof, pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934 (the "Exchange Act"); or (ii)
results in a Change in Control of the Bank or the Company within the meaning of
the Bank Holding Company Act, as amended ("BHCA"), and applicable rules and
regulations promulgated thereunder, as in effect at the time of the Change in
Control; or (iii) without limitation such a Change in Control shall be deemed to
have occurred at such time as (a) any "person" (as the term is used in Sections
13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner"(as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 25% or more of the combined voting power
of Company's outstanding securities except for any securities purchased by the
Bank's employee stock ownership plan or trust; or (b) individuals who constitute
the Board 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 Company's stockholders was approved by the
same Nominating Committee serving under an Incumbent Board, shall be, for
purposes of this clause (b), considered as though he were a member of the
Incumbent Board; or (c) a plan of reorganization, merger, consolidation, sale of
all or substantially all the assets of the Bank or the Company or similar
transaction in which the Bank or Company is not the surviving institution
occurs; or (d) a proxy statement soliciting proxies from stockholders of the
Company, by someone other than the current management of the Company, seeking
stockholder approval of a plan of reorganization, merger or consolidation of the
Company or similar transaction with one or more corporations as a result of
which the outstanding shares of the class of securities then subject to the Plan
are to be exchanged for or converted into cash or property or securities not
issued by the Company; or (e) a tender offer is made for 25% or more of the
voting securities of the Company and the shareholders owning beneficially or of
record 25% or more of the outstanding securities of the Company have tendered or
offered to sell their shares pursuant to such tender offer and such tendered
shares have been accepted by the tender offeror.
9.3-3 Upon a Change in Control described in Section 9.3-2, the Plan shall be terminated and the Plan Administrator shall direct the Trustee to sell a sufficient amount of Stock from the Unallocated Stock Fund to repay any outstanding Stock Obligation in full. The proceeds of such sale shall be used to repay such Stock Obligation. After repayment of the Stock Obligation, all remaining shares in the Unallocated Stock Fund (or the proceeds thereof, if applicable) shall be treated as earnings and shall be allocated in accordance with the requirements of Section 8.1.
9.4 Full Vesting Upon Plan Termination. Notwithstanding Section 9.1, a Participant's interest in his Account shall fully vest if he is in active Service upon termination of this Plan or upon the permanent and complete discontinuance of contributions by his Employer. In the event of a partial
termination, the interest of each affected Participant who is in Service shall fully vest with respect to that part of the Plan which is terminated.
9.5 Forfeiture, Repayment, and Restoral. If a Participant's Service terminates before his interest in his Account is fully vested, that portion which has not vested shall be forfeited if he either (i) receives a distribution of his entire vested interest pursuant to Section 10.1, or (ii) incurs five (5) consecutive one year Breaks In Service. If a Participant's Service terminates prior to having any portion of his Account become vested, such Participant shall be deemed to have a received a distribution of his vested interest as of the Valuation Date next following his termination of Service.
If a Participant who has received his entire vested interest returns to Service before he has five (5) consecutive Breaks in Service, he may repay to the Trustee an amount equal to the distribution. The Participant may repay such amount at any time within five years after he has returned to Service. The amount shall be credited to his Account at the time it is repaid; an additional amount equal to that portion of his Account which was previously forfeited shall be restored to his Account at the same time from other Employees' forfeitures and, if such forfeitures are insufficient, from a special contribution by his Employer for that year. A Participant who was deemed to have received a distribution of his vested interest in the Plan shall have his Account restored as of the first day on which he performs an Hour of Service after his return.
9.6 Accounting for Forfeitures. If a portion of a Participant's Account
is forfeited, Stock allocated to said Participant's Account shall be forfeited
only after other assets are forfeited. If interests in more than one class of
Stock have been allocated to a Participant's account, the Participant must be
treated as forfeiting the same proportion of each class of Stock. A forfeiture
shall be charged to the Participant's Account as of the first day of the first
Valuation Period in which the forfeiture becomes certain pursuant to Section
9.5. Except as otherwise provided in that Section, a forfeiture shall be added
to the contributions of the terminated Participant's Employer which are to be
credited to other Participants pursuant to Section 4.1 as of the last day of the
Plan Year in which the forfeiture becomes certain.
9.7 Vesting and Nonforfeitability. A Participant's interest in his Account which has become vested shall be nonforfeitable for any reason.
10.1 Benefits for Participants. For a Participant whose Service ends for any reason, distribution will be made to or for the benefit of the Participant or, in the case of the Participant's death, his Beneficiary, by payment in a lump sum, in accordance with Section 10.2.
Notwithstanding the foregoing, if the balance credited to his Account
exceeds $5,000, his benefits shall not be paid before the latest of his 65th
birthday or the tenth anniversary of the year in which he commenced
participation in the Plan unless he elects an early payment date in a written
election filed with the Committee. A Participant may modify such an election at
any time, provided any new benefit payment date is at least 30 days after a
modified election is delivered to the Committee, subject to the provisions of
Section 10.11 hereof.
10.2 Time for Distribution.
10.2.1 Distribution of the balance of a Participant's Account generally shall commence as soon as practicable after the last day of the Plan Year next following his termination of Service for any reason, but no later than one year after the close of the Plan Year:
(i) in which the Participant separates from Service by reason of Normal Retirement, Disability, or death; or
(ii) which is the fifth Plan Year following the year in which the Participant resigns or is dismissed, unless he is reemployed before such date.
10.2.2 Unless the Participant elects otherwise, the distribution of the balance of a Participant's Account shall commence not later than the 60th day after the latest of the close of the Plan Year in which -
(i) the Participant attains the age of 65;
(ii) occurs the tenth anniversary of the year in which the Participant commenced participation in the Plan; or
(iii) the Participant terminates his Service with the Employer.
10.2.3 Notwithstanding anything to the contrary, (1) with respect to a 5-percent owner (as defined in Code Section 416), distribution of a Participant's Account shall commence (whether or not he remains in the employ of the Employer) not later than the April 1 of the calendar year next following the calendar year in which the Participant attains age 70- 1/2, and (2) with respect to all other Participants, payment of a Participant's benefit will commence not later than April 1 of the calendar year following the calendar year in which the Participant attains age 70-1/2, or, if later, the year in which the Participant retires. A Participant's benefit from that portion of his Account committed to the Investment Fund shall be calculated on the basis of the most recent Valuation Date before the date of payment.
10.2.4 Distribution of a Participant's Account balance after his death shall comply with the following requirements:
(i) If a Participant dies before his distributions have commenced, distribution of his Account to his Beneficiary shall commence not later than one year after the end of the Plan Year in which the Participant died, however, if the Participant's Beneficiary is his surviving Spouse, distributions may commence on the date on which the Participant would have attained age 70-1/2.
(ii) If a married Participant dies before his benefit payments begin, then unless he has specifically elected otherwise the Committee shall cause the balance in his Account to be paid to his Spouse. No election by a married Participant of a different Beneficiary shall be valid unless the election is accompanied by the Spouse's written consent, which
(i) must acknowledge the effect of the election, (ii) must explicitly provide either that the designated Beneficiary may not subsequently be changed by the Participant without the Spouse's further consent, or that it may be changed without such consent, and (iii) must be witnessed by the Committee, its representative, or a notary public. (This requirement shall not apply if the Participant establishes to the Committee's satisfaction that the Spouse may not be located.)
10.3 Marital Status. The Committee shall from time to time take whatever steps it deems appropriate to keep informed of each Participant's marital status. Each Employer shall provide the Committee with the most reliable information in the Employer's possession regarding its Participants' marital status, and the Committee may, in its discretion, require a notarized affidavit from any Participant as to his marital status. The Committee, the Plan, the Trustee, and the Employers shall be fully protected and discharged from any liability to the extent of any benefit payments made as a result of the Committee's good faith and reasonable reliance upon information obtained from a Participant and his Employer as to his marital status.
10.4 Delay in Benefit Determination. If the Committee is unable to determine the benefits payable to a Participant or Beneficiary on or before the latest date prescribed for payment pursuant to Section 10.1 or 10.2, the benefits shall in any event be paid within 60 days after they can first be determined, with whatever makeup payments may be appropriate in view of the delay.
10.5 Accounting for Benefit Payments. Any benefit payment shall be charged to the Participant's Account as of the first day of the Valuation Period in which the payment is made.
10.6 Options to Receive and Sell Stock. Unless ownership of virtually all Stock is restricted to active Employees and qualified retirement plans for the benefit of Employees pursuant to the certificates of incorporation or by-laws of the Employers issuing Stock, a terminated Participant or the Beneficiary of a deceased Participant may instruct the Committee to distribute the Participant's entire vested interest in his Account in the form of Stock. In that event, the Committee shall apply the Participant's vested interest in the Investment Fund to purchase sufficient Stock from the Stock Fund or from any owner of Stock to make the required distribution. Alternatively, a terminated Participant or the Beneficiary of a deceased Participant may instruct the Committee to distribute the Participant's entire vested interest in his Account in cash. In all other cases, the Participant's vested interest in the Stock Fund shall be distributed in shares of Stock, and his vested interest in the Investment Fund shall be distributed in cash.
Any Participant who receives Stock pursuant to Section 10.1, and any
person who has received Stock from the Plan or from such a Participant by reason
of the Participant's death or incompetency, by reason of divorce or separation
from the Participant, or by reason of a rollover contribution described in
Section 402(a)(5) of the Code, shall have the right to require the Employer
which issued the Stock to purchase the Stock for its current fair market value
(hereinafter referred to as the "put right"). The put right shall be exercisable
by written notice to the Committee during the first 60 days after the Stock is
distributed by the Plan, and, if not exercised in that period, during the first
60 days in the following Plan Year after the Committee has communicated to the
Participant its determination as to the Stock's current fair market value.
However, the put right shall not apply to the extent that the Stock, at the time
the put right would otherwise be exercisable, may be sold on an established
market in accordance with federal and state securities laws and regulations.
Similarly, the put option shall not apply with respect to the portion of a
Participant's Account which the Employee elected to have reinvested under Code
Section
401(a)(28)(B). If the put right is exercised, the Trustee may, if so directed by the Committee in its sole discretion, assume the Employer's rights and obligations with respect to purchasing the Stock. Notwithstanding anything herein to the contrary, in the case of a plan established by a Bank (as defined in Code Section 581), the put option shall not apply if prohibited by a federal or state law and Participants are entitled to elect their benefits be distributed in cash.
The Employer or the Trustee, as the case may be, may elect to pay for the Stock in equal periodic installments, not less frequently than annually, over a period not longer than five years from the day after the put right is exercised, with adequate security and interest at a reasonable rate on the unpaid balance, all such terms to be set forth in a promissory note delivered to the seller with normal terms as to acceleration upon any uncured default.
Nothing contained herein shall be deemed to obligate any Employer to register any Stock under any federal or state securities law or to create or maintain a public market to facilitate the transfer or disposition of any Stock. The put right described herein may only be exercised by a person described in the second preceding paragraph, and may not be transferred with any Stock to any other person. As to all Stock purchased by the Plan in exchange for any Stock Obligation, the put right shall be nonterminable. The put right for Stock acquired through a Stock Obligation shall continue with respect to such Stock after the Stock Obligation is repaid or the Plan ceases to be an employee stock ownership plan.
10.7 Restrictions on Disposition of Stock. Except in the case of Stock which is traded on an established market, a Participant who receives Stock pursuant to Section 10.1, and any person who has received Stock from the Plan or from such a Participant by reason of the Participant's death or incompetency, by reason of divorce or separation from the Participant, or by reason of a rollover contribution described in Section 402(a)(5) of the Code, shall, prior to any sale or other transfer of the Stock to any other person, first offer the Stock to the issuing Employer and to the Plan at the greater of (i) its current fair market value, or (ii) the purchase price offered in good faith by an independent third party purchaser. This restriction shall apply to any transfer, whether voluntary, involuntary, or by operation of law, and whether for consideration or gratuitous. Either the Employer or the Trustee may accept the offer within 14 days after it is delivered. Any Stock distributed by the Plan shall bear a conspicuous legend describing the right of first refusal under this Section 10.7, as well as any other restrictions upon the transfer of the Stock imposed by federal and state securities laws and regulations.
10.8 Continuing Loan Provisions; Creations of Protections and Rights.
Except as otherwise provided in Sections 10.6 and 10.7 and this Section, no
shares of Employer Stock held or distributed by the Trustee may be subject to a
put, call or other option, or buy-sell arrangement. The provisions of this
Section shall continue to by applicable to such Stock even if the Plan ceases to
be an employee stock ownership plan under Section 4975(e)(7) of the Code.
10.9 Direct Rollover of Eligible Distribution. A Participant or distributee may elect, at the time and in the manner prescribed by the Trustee or the Committee, to have any portion of an eligible rollover distribution paid directly to an eligible retirement plan specified by the Participant or distributee in a direct rollover.
10.9-1 An "eligible rollover" is any distribution that 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
Participant and the Participant's Beneficiary, or for a specified period of ten years or more; any distribution to the extent such distribution is required under Code Section 401(a)(9); and the portion of any distribution that is not included in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities).
10.9-2 An "eligible retirement plan" is an individual retirement account described in Code Section 401(a), an individual retirement annuity described in Code Section 408(b), an annuity plan described in Code Section 403(a), or a qualified trust described in Code Section 401(a), that accepts the distributee's eligible rollover distribution. However, in the case of an eligible rollover distribution to the surviving Spouse, an eligible retirement plan is an individual retirement account or individual retirement annuity.
10.9-3 A "direct rollover" is a payment by the Plan to the eligible retirement plan specified by the distributee.
10.9-4 The term "distributee" shall refer to a deceased Participant's Spouse or a Participant's former Spouse who is the alternate payee under a qualified domestic relations order, as defined in Code Section 414(p).
10.10 Waiver of 30 Day Period After Notice of Distribution. 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:
(i) the Trustee or Administrative Committee, as applicable, 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 option), and
(ii) the Participant, after receiving the notice, affirmatively elects a distribution.
11.1 Claim for Benefits. Any Participant or Beneficiary who qualifies for the payment of benefits shall file a claim for his benefits with the Committee on a form provided by the Committee. The claim, including any election of an alternative benefit form, shall be filed at least 30 days before the date on which the benefits are to begin. If a Participant or Beneficiary fails to file a claim by the day before the date on which benefits become payable, he shall be presumed to have filed a claim for payment for the Participant's benefits in the standard form prescribed by Sections 10.1 or 10.2
11.2 Notification by Committee. Within 90 days after receiving a claim for benefits (or within 180 days, if special circumstances require an extension of time and written notice of the extension is given to the Participant or Beneficiary within 90 days after receiving the claim for benefits), the Committee shall notify the Participant or Beneficiary whether the claim has been approved or denied. If the Committee denies a claim in any respect, the Committee shall set forth in a written notice to the Participant or Beneficiary:
(i) each specific reason for the denial;
(ii) specific references to the pertinent Plan provisions on which the denial is based;
(iii) a description of any additional material or information which could be submitted by the Participant or Beneficiary to support his claim, with an explanation of the relevance of such information; and
(iv) an explanation of the claims review procedures set forth in Section 11.3.
11.3 Claims Review Procedure. Within 60 days after a Participant or Beneficiary receives notice from the Committee that his claim for benefits has been denied in any respect, he may file with the Committee a written notice of appeal setting forth his reasons for disputing the Committee's determination. In connection with his appeal the Participant or Beneficiary or his representative may inspect or purchase copies of pertinent documents and records to the extent not inconsistent with other Participants' and Beneficiaries' rights of privacy. Within 60 days after receiving a notice of appeal from a prior determination (or within 120 days, if special circumstances require an extension of time and written notice of the extension is given to the Participant or Beneficiary and his representative within 60 days after receiving the notice of appeal), the Committee shall furnish to the Participant or Beneficiary and his representative, if any, a written statement of the Committee's final decision with respect to his claim, including the reasons for such decision and the particular Plan provisions upon which it is based.
12.1 Authority of Committee. The Committee shall be the "plan administrator" within the meaning of ERISA and shall have exclusive responsibility and authority to control and manage the operation and administration of the Plan, including the interpretation and application of its provisions, except to the extent such responsibility and authority are otherwise specifically (i) allocated to the Bank, the Employers, or the Trustee under the Plan and Trust Agreement, (ii) delegated in writing to other persons by the Bank, the Employers, the Committee, or the Trustee, or (iii) allocated to other parties by operation of law. The Committee shall have exclusive responsibility regarding decisions concerning the payment of benefits under the Plan. The Committee shall have no investment responsibility with respect to the Investment Fund except to the extent, if any, specifically provided in the Trust Agreement. In the discharge of its duties, the Committee may employ accountants, actuaries, legal counsel, and other agents (who also may be employed by an Employer or the Trustee in the same or some other capacity) and may pay their reasonable expenses and compensation.
12.2 Identity of Committee. The Committee shall consists of three or more individuals selected by the Bank. Any individual, including a director, trustee, shareholder, officer, or Employee of an Employer, shall be eligible to serve as a member of the Committee. The Bank shall have the power to remove any individual serving on the Committee at any time without cause upon 10 days written notice, and any individual may resign from the Committee at any time upon 10 days written notice to the Bank. The Bank shall notify the Trustee of any change in membership of the Committee.
12.3 Duties of Committee. The Committee shall keep whatever records may be necessary to implement the Plan and shall furnish whatever reports may be required from time to time by the Bank. The Committee shall furnish to the Trustee whatever information may be necessary to properly administer
the Trust. The Committee shall see to the filing with the appropriate government agencies of all reports and returns required of the Plan Committee under ERISA and other laws.
Further, the Committee shall have exclusive responsibility and authority with respect to the Plan's holdings of Stock and shall direct the Trustee in all respects regarding the purchase, retention, sale, exchange, and pledge of Stock and the creation and satisfaction of Stock Obligations. The Committee shall at all times act consistently with the Bank's long-term intention that the Plan, as an employee stock ownership plan, be invested primarily in Stock. Subject to the direction of the Board as to the application of Employer contributions to Stock Obligations, and subject to the provisions of Sections 6.4 and 10.6 as to Participants' rights under certain circumstances to have their Accounts invested in Stock or in assets other than Stock, the Committee shall determine in its sole discretion the extent to which assets of the Trust shall be used to repay Stock Obligations, to purchase Stock, or to invest in other assets to be selected by the Trustee or an investment manager. No provision of the Plan relating to the allocation or vesting of any interests in the Stock Fund or the Investment Fund shall restrict the Committee from changing any holdings of the Trust, whether the changes involve an increase or a decrease in the Stock or other assets credited to Participants' Accounts. In determining the proper extent of the Trust's investment in Stock, the Committee shall be authorized to employ investment counsel, legal counsel, appraisers, and other agents to pay their reasonable expenses and compensation.
12.4 Valuation of Stock. If the valuation of any Stock is not established by reported trading on a generally recognized public market, the valuation of such Stock shall be determined by an independent appraiser. For purposes of the preceding sentence, the term "independent appraiser" means any appraiser meeting requirements similar to the requirements of the regulations prescribed under Section 170(a)(1) of the Code.
12.5 Compliance with ERISA. The Committee shall perform all acts necessary to comply with ERISA. Each individual member or employee of the Committee shall discharge his duties in good faith and in accordance with the applicable requirements of ERISA.
12.6 Action by Committee. All actions of the Committee shall be governed by the affirmative vote of a number of members which is a majority of the total number of members currently appointed, including vacancies. The members of the Committee may meet informally and may take any action without meeting as a group.
12.7 Execution of Documents. Any instrument executed by the Committee shall be signed by any member or employee of the Committee.
12.8 Adoption of Rules. The Committee shall adopt such rules and regulations of uniform applicability as it deems necessary or appropriate for the proper administration and interpretation of the Plan.
12.9 Responsibilities to Participants. The Committee shall determine which Employees qualify to enter the Plan. The Committee shall furnish to each eligible Employee whatever summary plan descriptions, summary annual reports, and other notices and information may be required under ERISA. The Committee also shall determine when a Participant or his Beneficiary qualifies for the payment of benefits under the Plan. The Committee shall furnish to each such Participant or Beneficiary whatever information is required under ERISA (or is otherwise appropriate) to enable the Participant or Beneficiary
to make whatever elections may be available pursuant to Sections 6 and 10, and the Committee shall provide for the payment of benefits in the proper form and amount from the assets of the Trust Fund. The Committee may decide in its sole discretion to permit modifications of elections and to defer or accelerate benefits to the extent consistent with applicable law and the best interests of the individuals concerned.
12.10 Alternative Payees in Event of Incapacity. If the Committee finds at any time that an individual qualifying for benefits under this Plan is a minor or is incompetent, the Committee may direct the benefits to be paid, in the case of a minor, to his parents, his legal guardian, or a custodian for him under the Uniform Gifts to Minors Act, or, in the case of an incompetent, to his spouse, or his legal guardian, the payments to be used for the individual's benefit. The Committee and the Trustee shall not be obligated to inquire as to the actual use of the funds by the person receiving them under this Section 12.10, and any such payment shall completely discharge the obligations of the Plan, the Trustee, the Committee, and the Employers to the extent of the payment.
12.11 Indemnification by Employers. Except as separately agreed in writing, the Committee, and any member or employee of the Committee, shall be indemnified and held harmless by the Employer, jointly and severally, to the fullest extent permitted by law against any and all costs, damages, expenses, and liabilities reasonably incurred by or imposed upon it or him in connection with any claim made against it or him or in which it or he may be involved by reason of its or his being, or having been, the Committee, or a member or employee of the Committee, to the extent such amounts are not paid by insurance.
12.12 Nonparticipation by Interested Member. Any member of the Committee who also is a Participant in the Plan shall take no part in any determination specifically relating to his own participation or benefits, unless his abstention would leave the Committee incapable of acting on the matter.
13.1 Adoption of Plan by Other Employers. With the consent of the Bank, any entity may become a participating Employer under the Plan by (i) taking such action as shall be necessary to adopt the Plan, (ii) becoming a party to the Trust Agreement establishing the Trust Fund, and (iii) executing and delivering such instruments and taking such other action as may be necessary or desirable to put the Plan into effect with respect to the entity's Employees.
13.2 Adoption of Plan by Successor. In the event that any Employer shall be reorganized by way of merger, consolidation, transfer of assets or otherwise, so that an entity other than an Employer shall succeed to all or substantially all of the Employer's business, the successor entity may be substituted for the Employer under the Plan by adopting the Plan and becoming a party to the Trust Agreement. Contributions by the Employer shall be automatically suspended from the effective date of any such reorganization until the date upon which the substitution of the successor entity for the Employer under the Plan becomes effective. If, within 90 days following the effective date of any such reorganization, the successor entity shall not have elected to become a party to the Plan, or if the Employer shall adopt a plan of complete liquidation other than in connection with a reorganization, the Plan shall be automatically terminated with respect to Employees of the Employer as of the close of business on the 90th day following the effective date of the reorganization, or as of the close of business on the date of adoption of a plan of complete liquidation, as the case may be.
13.3 Plan Adoption Subject to Qualification. Notwithstanding any other provision of the Plan, the adoption of the Plan and the execution of the Trust Agreement are conditioned upon their being determined initially by the Internal Revenue Service to meet the qualification requirements of Section 401(a) of the Code, so that the Employers may deduct currently for federal income tax purposes their contributions to the Trust and so that the Participants may exclude the contributions from their gross income and recognize income only when they receive benefits. In the event that this Plan is held by the Internal Revenue Service not to qualify initially under Section 401(a), the Plan may be amended retroactively to the earliest date permitted by U.S. Treasury Regulations in order to secure qualification under Section 401(a). If this Plan is held by the Internal Revenue Service not to qualify initially under Section 401(a) either as originally adopted or as amended, each Employer's contributions to the Trust under this Plan (including any earnings thereon) shall be returned to it and this Plan shall be terminated. In the event that this Plan is amended after its initial qualification and the Plan as amended is held by the Internal Revenue Service not to qualify under Section 401(a), the amendment may be modified retroactively to the earliest date permitted by U.S. Treasury Regulations in order to secure approval of the amendment under Section 401(a).
13.4 Right to Amend or Terminate. The Bank intends to continue this Plan as a permanent program. However, each participating Employer separately reserves the right to suspend, supersede, or terminate the Plan at any time and for any reason, as it applies to that Employer's Employees, and the Bank reserves the right to amend, suspend, supersede, merge, consolidate, or terminate the Plan at any time and for any reason, as it applies to the Employees of each Employer. No amendment, suspension, supersession, merger, consolidation, or termination of the Plan shall (i) reduce any Participant's or Beneficiary's proportionate interest in the Trust Fund, (ii) reduce or restrict, either directly or indirectly, the benefit provided any Participant prior to the amendment, or (iii) divert any portion of the Trust Fund to purposes other than the exclusive benefit of the Participants and their Beneficiaries prior to the satisfaction of all liabilities under the Plan. Moreover, there shall not be any transfer of assets to a successor plan or merger or consolidation with another plan unless, in the event of the termination of the successor plan or the surviving plan immediately following such transfer, merger, or consolidation, each participant or beneficiary would be entitled to a benefit equal to or greater than the benefit he would have been entitled to if the plan in which he was previously a participant or beneficiary had terminated immediately prior to such transfer, merger, or consolidation. Following a termination of this Plan by the Bank, the Trustee shall continue to administer the Trust and pay benefits in accordance with the Plan as amended from time to time and the Committee's instructions.
14.1 Plan Creates No Employment Rights. Nothing in this Plan shall be interpreted as giving any Employee the right to be retained as an Employee by an Employer, or as limiting or affecting the rights of an Employer to control its Employees or to terminate the Service of any Employee at any time and for any reason, subject to any applicable employment or collective bargaining agreements.
14.2 Nonassignability of Benefits. No assignment, pledge, or other anticipation of benefits from the Plan will be permitted or recognized by the Employer, the Committee, or the Trustee. Moreover, benefits from the Plan shall not be subject to attachment, garnishment, or other legal process for debts or liabilities of any Participant or Beneficiary, to the extent permitted by law. This prohibition on assignment or alienation shall apply to any judgment, decree, or order (including approval of a property settlement agreement) which relates to the provision of child support, alimony, or property rights to a present or
former spouse, child or other dependent of a Participant pursuant to a State
domestic relations or community property law, unless the judgment, decree, or
order is determined by the Committee to be a qualified domestic relations order
within the meaning of Section 414(p) of the Code, as more fully set forth in
Section 14.12 hereof.
14.3 Limit of Employer Liability. The liability of the Employer with respect to Participants under this Plan shall be limited to making contributions to the Trust from time to time, in accordance with Section 4.
14.4 Treatment of Expenses. All expenses incurred by the Committee and the Trustee in connection with administering this Plan and Trust Fund shall be paid by the Trustee from the Trust Fund to the extent the expenses have not been paid or assumed by the Employer or by the Trustee.
14.5 Number and Gender. Any use of the singular shall be interpreted to include the plural, and the plural the singular. Any use of the masculine, feminine, or neuter shall be interpreted to include the masculine, feminine, or neuter, as the context shall require.
14.6 Nondiversion of Assets. Except as provided in Sections 5.3 and 13.3, under no circumstances shall any portion of the Trust Fund be diverted to or used for any purpose other than the exclusive benefit of the Participants and their Beneficiaries prior to the satisfaction of all liabilities under the Plan.
14.7 Separability of Provisions. If any provision of this Plan is held to be invalid or unenforceable, the other provisions of the Plan shall not be affected but shall be applied as if the invalid or unenforceable provision had not been included in the Plan.
14.8 Service of Process. The agent for the service of process upon the Plan shall be the president of the Bank, or such other person as may be designated from time to time by the Bank.
14.9 Governing State Law. This Plan shall be interpreted in accordance with the laws of the State of New York to the extent those laws are applicable under the provisions of ERISA.
14.10 Employer Contributions Conditioned on Deductibility. Employer
Contributions to the Plan are conditioned on deductibility under Code Section
404. In the event that the Internal Revenue Service shall determine that all or
any portion of an Employer Contribution is not deductible under that Section,
the nondeductible portion shall be returned to the Employer within one year of
the disallowance of the deduction.
14.11 Unclaimed Accounts. Neither the Employer nor the Trustees shall
be under any obligation to search for, or ascertain the whereabouts of, any
Participant or Beneficiary. The Employer or the Trustees, by certified or
registered mail addressed to his last known address of record with the Employer,
shall notify any Participant or Beneficiary that he is entitled to a
distribution under this Plan, and the notice shall quote the provisions of this
Section. If the Participant or Beneficiary fails to claim his benefits or make
his whereabouts known in writing to the Employer or the Trustees within seven
(7) calendar years after the date of notification, the benefits of the
Participant or Beneficiary under the Plan will be disposed of as follows:
(a) If the whereabouts of the Participant is unknown but the whereabouts of the Participant's Beneficiary is known to the Trustees, distribution will be made to the Beneficiary.
(b) If the whereabouts of the Participant and his Beneficiary are unknown to the Trustees, the Plan will forfeit the benefit, provided that the benefit is subject to a claim for reinstatement if the Participant or Beneficiary make a claim for the forfeited benefit.
Any payment made pursuant to the power herein conferred upon the Trustees shall operate as a complete discharge of all obligations of the Trustees, to the extent of the distributions so made.
14.12 Qualified Domestic Relations Order. Section 14.2 shall not apply to a "qualified domestic relations order" defined in Code Section 414(p), and such other domestic relations orders permitted to be so treated by Administrator under the provisions of the Retirement Equity Act of 1984. Further, to the extent provided under a "qualified domestic relations order", a former Spouse of a Participant shall be treated as the Spouse or surviving Spouse for all purposes under the Plan.
In the case of any domestic relations order received by the Plan:
(a) The Employer or the Plan Committee shall promptly notify the Participant and any other alternate payee of the receipt of such order and the Plan's procedures for determining the qualified status of domestic relations orders, and
(b) Within a reasonable period after receipt of such order, the Employer or the Plan Committee shall determine whether such order is a qualified domestic relations order and notify the Participant and each alternate payee of such determination. The Employer or the Plan Committee shall establish reasonable procedures to determine the qualified status of domestic relations orders and to administer distributions under such qualified orders.
During any period in which the issue of whether a domestic relations
order is a qualified domestic relations order is being determined (by the
Employer or Plan Committee, by a court of competent jurisdiction, or otherwise),
the Employer or the Plan Committee shall segregate in a separate account in the
Plan or in an escrow account the amounts which would have been payable to the
alternate payee during such period if the order had been determined to be a
qualified domestic relations order. If within eighteen (18) months the order (or
modification thereof) is determined to be a qualified domestic relations order,
the Employer or the Plan Committee shall pay the segregated amounts (plus any
interest thereon) to the person or persons entitled thereto. If within eighteen
(18) months it is determined that the order is not a qualified domestic
relations order, or the issue as to whether such order is a qualified domestic
relations order is not resolved, then the Employer or the Plan Committee shall
pay the segregated amounts (plus any interest thereon) to the person or persons
who would have been entitled to such amounts if there had been no order. Any
determination that an order is a qualified domestic relations order which is
made after the close of the eighteen (18) month period shall be applied
prospectively only. The term "alternate payee" means any Spouse, former Spouse,
child or other dependent of a Participant who is recognized by a domestic
relations order as having a right to receive all, or a portion of, the benefit
payable under a Plan with respect to such Participant.
15.1 Top-Heavy Plan. For any Plan Year beginning after December 31, 1983, this Plan is top-heavy if any of the following conditions exist:
(a) If the top-heavy ratio for this Plan exceeds sixty percent (60%) and this Plan is not part of any required aggregation group or permissive aggregation group;
(b) If this Plan is a part of a required aggregation group (but is not part of a permissive aggregation group) and the aggregate top-heavy ratio for the group of Plans exceeds sixty percent (60%); or
(c) If this Plan is a part of a required aggregation group and part of a permissive aggregation group and the aggregate top-heavy ratio for the permissive aggregation group exceeds sixty percent (60%).
15.2 Super Top-Heavy Plan For any Plan Year beginning after December 31, 1983, this Plan will be a super top-heavy Plan if any of the following conditions exist:
(a) If the top-heavy ratio for this Plan exceeds ninety percent (90%) and this Plan is not part of any required aggregation group or permissive aggregation group.
(b) If this Plan is a part of a required aggregation group (but is not part of a permissive aggregation group) and the aggregate top-heavy ratio for the group of Plans exceeds ninety percent (90%), or
(c) If this Plan is a part of a required aggregation group and part of a permissive aggregation group and the aggregate top-heavy ratio for the permissive aggregation group exceeds ninety percent (90%).
15.3 Definitions.
In making this determination, the Committee shall use the following definitions and principles:
15.3-1 The "Determination Date", with respect to the first Plan Year of any plan, means the last day of that Plan Year, and with respect to each subsequent Plan Year, means the last day of the preceding Plan Year. If any other plan has a Determination Date which differs from this Plan's Determination Date, the top-heaviness of this Plan shall be determined on the basis of the other plan's Determination Date falling within the same calendar years as this Plan's Determination Date.
15.3-2 A "Key Employee", with respect to a Plan Year, means an
Employee who at any time during the five years ending on the top-heavy
Determination Date for the Plan Year has received compensation from an
Employer and has been (i) an officer of the Employer having 415
Compensation greater than 50 percent of the limit then in effect under
Section 415(b)(1)(A) of the Code, (ii) one of the 10 Employees owning
the largest interests in the Employer having 415 Compensation greater
than the limit then in effect under Section 415(c)(1)(A), (iii) an
owner of
more than five percent of the outstanding equity interest or the
outstanding voting interest in any Employer, or (iv) an owner of more
than one percent of the outstanding equity interest or the outstanding
voting interest in an Employer whose annual compensation exceeds
$150,000. For purposes of determining whether an Employee is a Key
Employee, annual compensation means compensation as defined in Section
415(c)(3) of the Code, but including amounts contributed by the
Employee pursuant to a salary reduction agreement which are excludable
from the Employee's gross income under Section 125, Section 402(e)(3),
Section 402(H)(1)(B) or Section 403(b) of the Code. The Beneficiary of
a Key Employee shall also be considered a Key Employee.
15.3-3 A "Non-key Employee" means an Employee who at any time during the five years ending on the top-heavy Determination Date for the Plan Year has received compensation from an Employer and who has never been a Key Employee, and the Beneficiary of any such Employee.
15.3-4 A "required aggregation group" includes (a) each qualified Plan of the Employer in which at least one Key Employee participates in the Plan Year containing the Determination Date and any of the four (4) preceding Plan Years, and (b) any other qualified Plan of the Employer which enables a Plan described in (a) to meet the requirements of Code Sections 401(a)(4) and 410. For purposes of the preceding sentence, a qualified Plan of the Employer includes a terminated Plan maintained by the Employer within the five (5) year period ending on the Determination Date. In the case of a required aggregation group, each Plan in the group will be considered a top-heavy Plan if the required aggregation group is a top-heavy group. No Plan in the required aggregation group will be considered a top-heavy Plan if the required aggregation group is not a top-heavy group. All Employers aggregated under Code Sections 414(b), (c) or (m) or (o) (but only after the Code Section 414(o) regulations become effective) are considered a single Employer.
15.3-5 A "permissive aggregation group" includes the required aggregation group of Plans plus any other qualified Plan(s) of the Employer that are not required to be aggregated but which, when considered as a group with the required aggregation group, satisfy the requirements of Code Sections 401(a)(4) and 410 and are comparable to the Plans in the required aggregation group. No Plan in the permissive aggregation group will be considered a top-heavy Plan if the permissive aggregation group is not a top-heavy group. Only a Plan that is part of the required aggregation group will be considered a top-heavy Plan if the permissive aggregation group is top-heavy.
15.4 Top-Heavy Rules of Application.
For purposes of determining the value of Account balances and the present value of accrued benefits the following provisions shall apply:
15.4-1 The value of Account balances and the present value of accrued benefits will be determined as of the most recent Valuation Date that falls within or ends with the twelve (12) month period ending on the Determination Date.
15.4-2 For purposes of testing whether this Plan is top-heavy, the present value of an individual's accrued benefits and an individual's Account balances is counted only once each year.
15.4-3 The Account balances and accrued benefits of a Participant who is not presently a Key Employee but who was a Key Employee in a Plan Year beginning on or after January 1, 1984 will be disregarded.
15.4-4 Employer contributions attributable to a salary reduction or similar arrangement will be taken into account.
15.4-5 When aggregating Plans, the value of Account balances and accrued benefits will be calculated with reference to the Determination Dates that fall within the same calendar year.
15.4-6 The present value of the accrued benefits or the amount of the Account balances of an Employee shall be increased by the aggregate distributions made to such Employee from a Plan of the Employer. No distribution, however, made from the Plan to an individual (other than the beneficiary of a deceased Employee who was an Employee within the five (5) year period ending on the Determination Date) who has not been an Employee at any time during the five (5) year period ending on the Determination Date shall be taken into account in determining whether the Plan is top-heavy. Also, any amounts recontributed by an Employee upon becoming a Participant in the Plan shall no longer be counted as a distribution under this paragraph.
15.4-7 The present value of the accrued benefits or the amount of the Account balances of an Employee shall be increased by the aggregate distributions made to such Employee from a terminated Plan of the Employer, provided that such Plan (if not terminated) would have been required to be included in the aggregation group.
15.4-8 Accrued benefits and Account balances of an individual shall not be taken into account for purposes of determining the top-heavy ratios if the individual has performed no services for the Employer during the five (5) year period ending on the applicable Determination Date. Compensation for purposes of this subparagraph shall not include any payments made to an individual by the Employer pursuant to a qualified or non-qualified deferred compensation plan.
15.4-9 The present value of the accrued benefits or the amount of the Account balances of any Employee participating in this Plan shall not include any rollover contributions or other transfers voluntarily initiated by the Employee except as described below. If a rollover was received by this Plan after December 31, 1983, the rollover or transfer voluntarily initiated by the Employee was received prior to January 1, 1984, then the rollover or transfer shall be considered as part of the accrued benefit by the Plan receiving such rollover or transfer. If this Plan transfers or rolls over funds to another Plan in a transaction voluntarily initiated by the Employee after December 31, 1983, then this Plan shall count the distribution for purposes of determining Account balances or the present value of accrued benefits. A transfer incident to a merger or consolidation of two or more Plans of the Employer (including Plans of related Employers treated as a single Employer under Code Section 414), or a transfer or rollover between Plans of the Employer, shall not be considered as voluntarily initiated by the Employee.
15.5 Top-Heavy Ratio.
If the Employer maintains one (1) or more defined contribution plans (including any simplified Employee pension plan) and the Employer has never maintained any defined benefit plans which have
covered or could cover a Participant in this Plan, the top-heavy ratio is a fraction, the numerator of which is the sum of the Account balances of all Key Employees as of the Determination Date, and the denominator of which is the sum of the Account balances of all Employees as of the Determination Date. Both the numerator and denominator of the top-heavy ratio shall be increased to reflect any contribution which is due but unpaid as of the Determination Date.
If the Employer maintains one (1) or more defined contribution plans (including any simplified Employee pension plan) and the Employer maintains or has maintained one (1) or more defined benefit plans which have covered or could cover a Participant in this Plan, the top-heavy ratio is a fraction, the numerator of which is the sum of Account balances under the defined contribution plans for all Key Employees and the present value of accrued benefits under the defined benefit plans for all Key Employees, and the denominator of which is the sum of the Account balances under the defined contribution plans for all Employees and the present value of accrued benefits under the defined benefit plans for all Employees.
15.6 Minimum Contributions. For any Top-Heavy Year, each Employer shall make a special contribution on behalf of each Participant to the extent that the total allocations to his Account pursuant to Section 4 is less than the lesser of:
(i) three percent of his 415 Compensation for that year, or
(ii) the highest ratio of such allocation to 415 Compensation received by any Key Employee for that year. For purposes of the special contribution of this Section 15.2, a Key Employee's 415 Compensation shall include amounts the Key Employee elected to defer under a qualified 401(k) arrangement. Such a special contribution shall be made on behalf of each Participant who is employed by an Employer on the last day of the Plan Year, regardless of the number of his Hours of Service, and shall be allocated to his Account.
For any Plan Year when (1) the Plan is top-heavy and (2) a Non-key Employee is a Participant in both this Plan and a defined benefit plan included in the plan aggregation group which is top heavy, the sum of the Employer contributions and forfeitures allocated to the Account of each such Non-key Employee shall be equal to at least five percent (5%) of such Non-key Employee's 415 Compensation for that year.
15.7 Minimum Vesting. If a Participant's vested interest in his Account is to be determined in a Top-Heavy Year, it shall be based on the following "top-heavy table":
Vesting Percentage of Years Interest Vested ------- --------------- Fewer than 2.................................. 0% 2............................................. 20% 3............................................. 40% 4............................................. 60% 5............................................. 80% 6............................................. 100% |
15.8 Top-Heavy Provisions Control in Top-Heavy Plan. In the event this Plan becomes top-heavy and a conflict arises between the top-heavy provisions herein set forth and the remaining provisions set forth in this Plan, the top-heavy provisions shall control.
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
The following is a subsidiary of Greene County Bancorp, Inc. following the Reorganization:
Name State of Incorporation ---- ---------------------- The Bank of Greene County New York |
Exhibit 23.2
[LETTERHEAD]
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form SB-2 of our report dated August 7, 1998, except for Note 13 as to which the date is September 15, 1998, on our audits of the financial statements of Greene County Savings Bank. We also consent to the reference to our firm under the caption "EXPERTS".
/s/ PricewaterhouseCoopers LLP ------------------------------ PricewaterhouseCoopers Syracuse, New York September 17, 1998 |
Board of Directors
Greene County Bancorp, Inc.
Greene County Savings Bank
425 Main & Church Streets
Catskill, New York 12414
Dear Board Members:
We hereby consent to the use of our firm's name, FinPro, Inc. ("FinPro") in the Form SB-2 Registration Statement, and amendments thereto, of Greene County Bancorp, Inc. to be filed with the Securities and Exchange Commission, the combined Form 86-AC Application for Approval of a Mutual Savings Bank Holding Company Reorganization and Minority Stock Issuance ("MHC Application") filed by Greene County Savings Bank and any amendments thereto filed with the New York Banking Department and the Conversion Valuation Appraisal Report ("Report") regarding the valuation of the Bank provided by FinPro, and our opinion regarding subscription rights filed as exhibits to the form SB-2. We also consent to the use of our firm's name and the inclusion of, summary of, and references to our Report and Opinion in the Prospectus included in the form SB-2 and the MHC Application, and any amendments thereto.
Very Truly Yours,
/s/ Donald J. Musso
--------------------------
Donald J. Musso
Liberty Corner, New Jersey
September 17, 1998
|
| ARTICLE 9 |
| MULTIPLIER: 1,000 |
| PERIOD TYPE | YEAR |
| FISCAL YEAR END | JUN 30 1998 |
| PERIOD END | JUN 30 1998 |
| CASH | 1,265 |
| INT BEARING DEPOSITS | 1,211 |
| FED FUNDS SOLD | 5,796 |
| TRADING ASSETS | 0 |
| INVESTMENTS HELD FOR SALE | 0 |
| INVESTMENTS CARRYING | 0 |
| INVESTMENTS MARKET | 0 |
| LOANS | 81,191 |
| ALLOWANCE | 728 |
| TOTAL ASSETS | 140,253 |
| DEPOSITS | 122,324 |
| SHORT TERM | 0 |
| LIABILITIES OTHER | 2,199 |
| LONG TERM | 0 |
| PREFERRED MANDATORY | 0 |
| PREFERRED | 0 |
| COMMON | 0 |
| OTHER SE | 15,730 |
| TOTAL LIABILITIES AND EQUITY | 140,253 |
| INTEREST LOAN | 6,367 |
| INTEREST INVEST | 3,109 |
| INTEREST OTHER | 27 |
| INTEREST TOTAL | 9,503 |
| INTEREST DEPOSIT | 4,967 |
| INTEREST EXPENSE | 4,967 |
| INTEREST INCOME NET | 4,536 |
| LOAN LOSSES | 120 |
| SECURITIES GAINS | 0 |
| EXPENSE OTHER | 3,149 |
| INCOME PRETAX | 1,703 |
| INCOME PRE EXTRAORDINARY | 1,703 |
| EXTRAORDINARY | 0 |
| CHANGES | 0 |
| NET INCOME | 1,150 |
| EPS PRIMARY | 0 |
| EPS DILUTED | 0 |
| YIELD ACTUAL | 3.15 |
| LOANS NON | 884 |
| LOANS PAST | 0 |
| LOANS TROUBLED | 0 |
| LOANS PROBLEM | 105 |
| ALLOWANCE OPEN | 723 |
| CHARGE OFFS | 126 |
| RECOVERIES | 12 |
| ALLOWANCE CLOSE | 728 |
| ALLOWANCE DOMESTIC | 643 |
| ALLOWANCE FOREIGN | 0 |
| ALLOWANCE UNALLOCATED | 85 |
Exhibit 99.3
Greene County Savings Bank
425 Main and Church Streets
Catskill, New York 12414
(518) 943-3700
__________, 1998
Dear Depositor:
On behalf of the Board of Trustees and management of Greene County Savings Bank (the "Bank"), I cordially invite you to a Special Meeting of Depositors to vote on the Greene County Savings Bank Plan of Reorganization from a Mutual Savings Bank to a Mutual Holding Company and Stock Issuance Plan (the "Plan"). The Board of Trustees of the Bank believes that the Plan is in the best interests of the Bank and its depositors, and urges you to vote FOR the proposal. For a discussion of the reasons why the Board of Trustees recommends that you vote FOR the proposal, please refer to the enclosed Proxy Statement and Prospectus.
Pursuant to the Plan, we will reorganize into what we call a "two-tier" mutual holding company structure. We call it a two-tier structure because we will have two levels of holding companies--a "mid-tier" stock holding company and a "top-tier" mutual holding company. Under the terms of the Plan (i) we will form Greene County Bancorp, Inc. as a Delaware corporation (the "Company"); (ii) we will form Greene County Bancorp, MHC, as a New York mutual holding company (the "Mutual Company"); (iii) we will reorganize the Bank into a capital stock bank (the "Stock Bank") and issue 100% of our to-be outstanding common stock to the Company; and (iv) the Company will issue shares of Common Stock to depositors and the public and the Mutual Company. The Mutual Company will be regulated by the New York State Banking Department and the Board of Governors of the Federal Reserve System. After the consummation of the Reorganization, the Stock Bank will be named The Bank of Greene County.
The Reorganization will not affect any deposit accounts or borrower relationships that you may have with the Bank. As part of the Plan, all deposit accounts in the Bank will become deposit accounts in the Stock Bank and will continue to be insured by the Federal Deposit Insurance Corporation ("FDIC") on the same terms up to the applicable limits of insurance coverage. All loans of the Bank will become loans held by the Stock Bank, and will retain the same status after the mutual holding company reorganization as they had prior to the Reorganization.
Each depositor of the Bank, as of the close of business on September 30, 1998, is entitled to cast one vote for each $100, or fraction thereof, of deposits in the Bank on that date, up to a maximum of 1,000 votes per depositor.
The principal purpose of the Reorganization is to establish a structure that will enable us to compete and expand more effectively in the financial services marketplace, and that will enable our depositors, employees, management and Trustees to obtain an equity ownership interest in the Bank. Our new structure will permit the Company to issue capital stock, which is a source of capital not available to a mutual savings bank. In this regard, the Company will issue between 1,829,370 and 2,475,030 shares of Common Stock in the Reorganization. The Company intends to sell 44.51% of such shares, or between 814,249 and 1,101,631 shares, to depositors and the public pursuant to the Prospectus, and issue 53.53% of such shares, or between 979,213 and 1,324,817 shares, to the Mutual Company. In addition, shares are being issued to a charitable foundation as part of the Reorganization, which will result in stockholders other than the Mutual Company owning 46.47% of the shares of the Common Stock outstanding at the conclusion of the Reorganization. Subject to the approval of the New York State Banking Department and the nonobjection of the Federal Deposit Insurance Corporation, an additional 15% above the maximum number of shares, or a total of 2,846,285 shares, may be issued in the Reorganization, and up to 1,266,876 shares may be sold in the Offering pursuant to the Prospectus, in the event of an increase in the estimated pro forma market value of the Common Stock of the Company.
The enclosed Proxy Statement and Prospectus contain a more detailed analysis of the matters discussed briefly in this letter, and we urge you to read them carefully.
Your Board of Trustees unanimously recommends that you vote FOR the Plan by completing the enclosed proxy card and returning it in the enclosed envelope as soon as possible. Your vote is very important.
Sincerely,
J. Bruce Whittaker President and Chief Executive Officer
THE SUPERINTENDENT OF BANKS OF THE STATE OF NEW YORK HAS APPROVED THE PLAN SUBJECT TO THE APPROVAL OF THE BANK'S DEPOSITORS AND THE SATISFACTION OF CERTAIN OTHER CONDITIONS. IN ADDITION, THE FDIC HAS ISSUED A LETTER OF INTENT TO ISSUE A NOTICE OF NONOBJECTION TO THE PLAN, SUBJECT TO THE SATISFACTION OF CERTAIN CONDITIONS. HOWEVER, SUCH APPROVAL AND THE INTENT TO ISSUE A NOTICE OF NONOBJECTION DO NOT CONSTITUTE A RECOMMENDATION OF THE PLAN.
YOUR BOARD OF TRUSTEES RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE PLAN BY COMPLETING THE ENCLOSED PROXY CARD AND RETURNING IT IN THE ENCLOSED POSTAGE- PAID ENVELOPE AS SOON AS POSSIBLE. YOUR VOTE IS VERY IMPORTANT.
Greene County Savings Bank 425 Main and Church Streets Catskill, New York 12414 (518) 943-3700
NOTICE OF SPECIAL MEETING OF DEPOSITORS
To Be Held On ________, 1998
A Special Meeting of the Depositors (the "Meeting") of Greene County Savings Bank (the "Bank"), will be held at _______________________________________, New York on ______, ________, 1998, at _:__ p.m., New York Time.
A Proxy Card and a Proxy Statement for the Meeting are enclosed.
The Meeting is for the purpose of considering and acting upon:
1. The approval of a Plan of Reorganization from a Mutual Savings Bank to a Mutual Holding Company and Stock Issuance Plan (the "Plan") whereby (i) we will form Greene County Bancorp, Inc. as a Delaware corporation (the " Company"); (ii) we will form Greene County Bancorp, MHC, as a New York mutual holding company (the "Mutual Company"); (iii) we will reorganize the Bank into a capital stock savings bank to be named The Bank of Greene County (the "Stock Bank") and issue 100% of our to-be outstanding common stock to the Company; and (iv) the Company will issue shares of Common Stock to depositors, the public and the Mutual Company.
2. Such other matters as may properly come before the Meeting or any adjournment thereof. The Board of Trustees is not aware of any other matters to come before the Meeting.
Any action may be taken on the foregoing proposal at the Meeting on the date specified above or on any date or dates to which, by original or later adjournment, the Meeting may be adjourned. Each depositor of the Bank, as of the close of business on September 30, 1998 (the "Record Date"), is entitled to cast one vote for each $100, or fraction thereof, of deposits in the Bank on that date, up to a maximum of 1,000 votes per depositor.
Your Board of Trustees unanimously recommends that you vote FOR approval of the Plan by completing the enclosed proxy card and returning it in the enclosed postage-paid envelope as soon as possible. The proxy will not be used if you attend and vote at the Meeting in person. Your vote is very important.
BY ORDER OF THE BOARD OF TRUSTEES
Secretary
Catskill, New York
______________, 1998
This Proxy Statement is neither an offer to sell nor a solicitation of an offer to buy Common Stock. The offer is made only through the Prospectus to certain individuals. The shares of Common Stock are not savings accounts or savings deposits and are not insured by the Federal Deposit Insurance Corporation or any other government agency.
Greene County Savings Bank 425 Main and Church Streets Catskill, New York 12414 (518) 943-3700
PROXY STATEMENT
SPECIAL MEETING OF DEPOSITORS
_____________, 1998
INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation of proxies by the Board of Trustees of Greene County Savings Bank (the "Bank") to be used at the Special Meeting of Depositors (the "Meeting") to be held at the ____________________________________, New York, on ________, _________, 1998, at _:__ p.m., New York Time, and of any adjournments thereof. The accompanying Notice of Meeting and this Proxy Statement are first being mailed to depositors on or about __________, 1998. The meeting is being held for the purpose of considering and voting upon a Plan of Reorganization from a Mutual Savings Bank to a Mutual Holding Company and Stock Issuance Plan (the "Plan"), pursuant to which we will reorganize the Bank into a "two-tier" mutual holding company structure. Under the terms of the Plan (i) we will form Greene County Bancorp, Inc. as a Delaware corporation (the " Company"); (ii) we will form Greene County Bancorp, MHC, as a New York mutual holding company (the "Mutual Company"); (iii) we will reorganize the Bank into a capital stock savings bank to be named The Bank of Greene County (the "Stock Bank") and issue 100% of our to-be outstanding common stock to the Company; and (iv) the Company will issue shares of Common Stock to depositors, the public and the Mutual Company. Certain depositors as of June 30, 1997and September, 30, 1998 will receive subscription rights to purchase Common Stock of the Company on a priority basis. See "The Mutual Holding Company Reorganization--The Offering." Capitalized terms that are not defined in this Proxy Statement shall have the meaning set forth in the "Glossary" to the enclosed Prospectus.
REVOCABILITY OF PROXIES
Depositors who execute proxies for the Meeting retain the right to revoke them at any time. Proxies may be revoked by sending written notice of revocation to the Secretary of the Bank at the address of the Bank shown above or sending a later dated proxy which is received no later than _________, 1998. The presence at the Meeting of any depositor who has given a proxy shall not revoke such proxy unless the member delivers his or her ballot in person at the Meeting or delivers a written revocation to the Secretary of the Bank prior to the voting of such proxy. Proxies solicited and received by the Board of Trustees of the Bank will be voted in accordance with the directions given therein. Where no instructions are indicated, proxies will be voted FOR the proposal set forth in this Proxy Statement. If any other matters are properly presented at the Meeting, proxies will be voted on such matters in accordance with the directions of a majority of the Board of Trustees. Management is not aware of any other matters to be presented at the Meeting.
It is important that you review these materials to inform yourself fully and adequately as to the matters to be considered and acted upon at the Meeting. After you have reviewed the enclosed materials, you should then consider carefully and act upon the matter proposed. If you wish to vote by proxy you may do so by signing the enclosed proxy
and returning it to the Bank. Remember that the proxy we are soliciting is valid only for the Meeting, and any adjournment thereof, and will not be used for any other meeting.
VOTING RIGHTS AND VOTE REQUIRED FOR APPROVAL
All persons who were holders of authorized deposit accounts ("Depositors") on September 30, 1998 (the "Record Date") will be eligible to vote on the Plan at the Meeting. Each Depositor will be entitled to cast one vote for each $100, or fraction thereof, of deposits in the Bank on the Record Date. No depositor may cast more than ______ votes. Voting may be in person or by proxy.
A savings, demand or other authorized account shall create a single membership for voting purposes, even though more than one person has an interest in such account. An affirmative vote (i) 75% of the total deposits present in person or by proxy at the Meeting, and (ii) more than 50% of the total votes eligible to be cast by Depositors at the Meeting, is required to approve the Plan. Any questions as to the eligibility of a Depositor to vote or as to any matters relating to voting, will be resolved by the Secretary of the Bank at the time of the Meeting, and the records of the Bank will be determinative in resolving such questions. According to the records of the Bank, as of the Record Date there were approximately ____________ votes entitled to be cast at the Meeting, of which ____________ votes represents a majority.
The cost of solicitation of proxies will be borne by the Bank. Management may use the services of its Trustees, officers and other employees to solicit proxies personally, or by telephone, telegraph or mail, without additional compensation. Proxies may also be solicited by representatives of Friedman, Billings, Ramsey & Co., Inc., who will be compensated by the Bank in connection with their services as financial advisors in the Offering. See the Prospectus,
"The Mutual Holding Company Reorganization--The Offering."
THE BOARD OF TRUSTEES OF THE BANK UNANIMOUSLY RECOMMENDS THAT YOU VOTE TO
APPROVE THE PLAN.
THE MUTUAL HOLDING COMPANY REORGANIZATION
The Superintendent has approved the Plan and the offering of the Common Stock subject to the approval of the Bank's Depositors and the satisfaction of certain conditions imposed by the Superintendent. The FDIC has issued a letter of intent to issue a notice of nonobjection to the Plan and the Offering, subject to the satisfaction of certain conditions. However, such regulatory approval and the intent to issue a letter of nonobjection do not constitute a recommendation or endorsement of the Plan or the Offering.
Description of and Reasons for the Reorganization
Our Board of Trustees unanimously adopted the Plan and the
Superintendent has approved the Plan. Pursuant to our Plan, we will reorganize
into what we call a "two-tier" mutual holding company structure. We call it a
two-tier structure because we will have two levels of holding companies--a
"mid-tier" stock holding company and a "top-tier" mutual holding company. Under
the terms of the Plan (i) we will form the Company as a Delaware corporation;
(ii) we will form the Mutual Company as a New York mutual holding company; (iii)
we will reorganize the Bank into a capital stock form of organization and issue
100% of our to-be outstanding common stock to the Company; and (iv) the Company
will issue shares of Common Stock to the depositors, public and the Mutual
Company. The number of shares of Common Stock sold to depositors and the public
pursuant to the Prospectus will be equal to 44.51% of the shares
issued in the Reorganization and the number of shares issued to the Mutual Company will be equal to 53.53% of the shares issued in the Reorganization. In addition, we will issue 1.96% of the shares of Common Stock to be outstanding to a newly established charitable foundation. We refer to all of these steps that are part of this transaction as the "Reorganization," and we refer to the issuance of 44.51% of the Company's Common Stock pursuant to the Prospectus as the "Offering." The two-tier mutual holding company structure is most easily understood by considering the following diagram:
-------------------- -----------------
The Mutual Company Public
(a New York mutual Stockholders
holding company) (including the
foundation)
-------------------- -----------------
53.53% of 46.47% of
the the
Common Common
Stock Stock
--------------------------------------
the Company (a Delaware corporation)
--------------------------------------
100% of the
Common Stock
--------------------------------------
The Bank
(a New York stock savings bank)
--------------------------------------
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In adopting the Plan, our Board of Trustees determined that the Reorganization is in the best interest of the Bank. The primary purpose of the Reorganization is to establish a structure that will enable us to compete and expand more effectively in the financial services marketplace, and that will enable our depositors, employees, management and Trustees to obtain an equity ownership interest in the Bank. Our new structure will permit the Company to issue capital stock, which is a source of capital not available to a mutual savings bank, and we will take advantage of this new ability by issuing Common Stock in the Offering. Since the Company is not offering all of its Common Stock for sale to depositors and the public in the Offering (but is issuing a majority of its stock to the Mutual Company), the Reorganization will result in less capital raised in comparison to a standard mutual-to-stock conversion. The Reorganization, however, will also offer the Bank the opportunity to raise additional capital since the stock held by the Mutual Company will be available for sale in the future in the event the Mutual Company decides to convert to the capital stock form of organization. See the Prospectus, "Regulation--Holding Company Regulation--Mutual Holding Company Regulation." The Reorganization will also give us greater flexibility to structure and finance the expansion of our operations, including the potential acquisition of other financial institutions, and to diversify into other financial services. The holding company form of organization is expected to provide additional flexibility to diversify the Bank's business activities through existing or newly formed subsidiaries, or through acquisitions of or mergers with other financial institutions, as well as other companies. Although we have no current arrangements, understandings or agreements regarding any such opportunities, the Company will be in a position after the Reorganization, subject to regulatory limitations and the Company's financial position, to take advantage of any such opportunities that may arise. Lastly, the Reorganization will enable us to better manage our capital by giving us broader investment opportunities through the holding company structure, and enable us to distribute capital to stockholders of the Company in the form of dividends and stock repurchases. Because only a minority of the Common Stock will be offered for sale in the Offering, our current mutual form of ownership and our ability to remain an independent savings bank and to provide community-oriented financial services will be preserved through the mutual holding company structure.
The Board of Trustees believes that these advantages outweigh the potential disadvantages of the mutual holding company structure, which may include: (i) the inability of stockholders other than the Mutual Company to obtain majority ownership of the Company and the Bank, which may result in the perpetuation of the management and Board of Trustees/Directors of the Bank and the Company; and (ii) that the mutual holding company structure is a relatively new form of corporate ownership, and new regulatory policies relating to the mutual interest in the Mutual Company that may be adopted from time-to-time may have an adverse impact on minority stockholders. A majority of the voting stock of the Company will be owned by the Mutual Company, which is a mutual institution that will be controlled by the existing Board of Trustees of the Bank. While this structure will permit management to focus on the Company's and the Bank's long-term business strategy for growth and capital redeployment without undue pressure from stockholders, it will also serve to perpetuate the existing management and trustees of the Bank. The Mutual Company will be able to elect all members of the Board of Directors of the Company, and will be able to control the outcome of all matters presented to the stockholders of the Company for resolution by vote except for certain matters that must be approved by more than a majority of stockholders of the Company. No assurance can be given that the Mutual Company will not take action adverse to the interests of the minority stockholders. For example, the Mutual Company could defeat a candidate for the Board of Trustees of the Bank or other proposals put forth by the minority stockholders.
The Reorganization does not preclude the conversion of the Mutual Company from the mutual to stock form of organization which would be effected through a merger of the Mutual Company into the Company or the Bank and the concurrent sale of the shares held by the Mutual Company in a subscription offering. A conversion of the Mutual Company from the mutual to stock form of organization is not anticipated for the foreseeable future.
Following the completion of the Reorganization, all depositors who had liquidation rights with respect to the Bank as of the effective date of the Reorganization will continue to have such rights solely with respect to the Mutual Company so long as they continue to hold deposit accounts with the Bank. In addition, all persons who become depositors of the Bank subsequent to the Reorganization will have such liquidation rights with respect to the Mutual Company. Borrowers currently do not have ownership or voting rights in the Bank and will not receive ownership or voting rights with respect to the Mutual Company.
All insured deposit accounts of the Bank will continue to be federally insured by the FDIC, through the BIF, up to the legal maximum limit in the same manner as deposit accounts existing in the Bank immediately prior to the Reorganization. Upon completion of the Reorganization, the Bank may exercise any and all powers, rights and privileges of, and shall be subject to all limitations applicable to, capital stock savings banks under New York law. As long as the Mutual Company is in existence, the Mutual Company will be required to own at least 51% of the voting stock of the Company, and the Company will own 100% of the voting stock of the Bank. The Bank and the Company may issue any amount of non-voting stock or debt to persons other than the Mutual Company.
The Plan may be substantially amended by a majority vote of the Bank's board of trustees prior to submission of the Plan and proxy materials to the voting Depositors. At any time after submission of the proxy materials to the Depositors, the terms of the Plan that relate to the Reorganization may be amended by a majority vote of the Board of Trustees only with the concurrence of the Superintendent, and, if applicable, the FDIC.
Interests of Management and the Board of Directors
The Company intends to establish a stock option plan for employees, officers and directors that may grant options for a number of shares equal to 10% of the Minority Ownership Interest (or for 126,688 shares at the adjusted maximum of the Offering Range). The stock option plan will be subject to stockholder approval, and cannot be implemented sooner than six months after the completion of the Offering. The exercise price for any options granted will be the fair market value of the underlying Common Stock at the date of grant. The shares of Common Stock issued to cover the grant of stock options may be from the Company's authorized but unissued shares or shares purchased in the open market.
In addition, the Company intends to establish a restricted stock plan that would award a number of shares equal to 4% of the Minority Ownership Interest, or up to 50,675 shares at the adjusted maximum of the Offering Range, to officers and directors. The restricted stock plan would also be subject to stockholder approval and cannot be implemented sooner than six months after the completion of the Offering. The shares of Common Stock used to satisfy grants under the restricted stock plan may be from the Company's authorized but unissued shares or shares purchased in the open market. See the Prospectus, "Management of the Bank--Report of Independent Compensation Consultant."
In addition, the Company intends to establish an employee stock ownership plan ("ESOP"), which will purchase a number of shares equal to 8% of the Minority Ownership Interest. If the ESOP cannot acquire 8% of the Minority Ownership Interest because of an oversubscription by Eligible Account Holders, then the ESOP will be permitted to acquire the shares in the open market.
The Bank intends to enter into employment agreements with certain executive officers following completion of the Reorganization. See the Prospectus, "Management of the Bank--Report of Independent Compensation Consultant." Directors and officers also intend to purchase shares of Common Stock in the Offering in their capacities as depositors of the Bank. See the Prospectus, "Participation by Management."
The Offering
The Company is offering shares of Common Stock to persons other than the Mutual Company. An offering of between 814,249 and 1,101,631 shares of the Common Stock (subject to adjustment to up to 1,266,876) pursuant to this Prospectus concurrently with the Reorganization. The shares of Common Stock that will be sold in the Offering will constitute no more than 44.51% of the shares that will be outstanding after the Offering. Following the Reorganization and the Offering, the Company also will be authorized to issue additional Common Stock or preferred stock to persons other than the Mutual Company, without prior approval of the holders of the Common Stock.
The shares of Common Stock are being offered for sale at a fixed Subscription Price of $10.00 per share in the subscription offering pursuant to subscription rights (the "Subscription Offering") in the following order of priority to: (i) holders of deposit accounts with a balance of $100 or more on June 30, 1997 ("Eligible Account Holders"); (ii) the Bank's tax-qualified employee plans, including the ESOP; (iii) depositors whose accounts in the Bank totaled $100 or more on September 30, 1998 ("Supplemental Eligible Account Holders"); and (iv) employees, officers and trustees of the Bank. 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 in the Community Offering at $10.00 per share to certain members of the general public, with a preference first given to natural persons residing in Greene County, New York (the "Community Offering"). Subscription rights will expire if not exercised by 12:00 noon, New York time, on _________ , 1998 unless extended by the Bank and the Company.
Stock Pricing and Number of Shares to be Issued
The Plan of Reorganization and federal and state regulations require that the aggregate purchase price of the Common Stock sold in the Offering must be based on the appraised pro forma market value of the Common Stock, as determined by an independent valuation (the "Independent Valuation"). The Bank has retained FinPro to make such valuation and FinPro will receive a fee of $25,000 for its services. The Bank and the Company have agreed to indemnify FinPro and its employees and affiliates against certain losses (including any losses in connection with claims under the federal securities laws) arising out of its services as appraiser, except where FinPro's liability results from its negligence or bad faith.
The Independent Valuation was prepared by FinPro in reliance upon the information contained in this Prospectus, including the Consolidated Financial Statements. FinPro also considered the following factors, among others: the present and projected operating results and financial condition of the Bank and the economic and demographic conditions in the Bank's existing market area; certain historical, financial and other information relating to the Bank; a comparative evaluation of the operating and financial statistics of the Bank with those of other publicly traded subsidiaries of mutual holding companies; the aggregate size of the Offering; the impact of the Reorganization
on the Bank's stockholders' equity and earnings potential; the proposed dividend policy of the Company; and the trading market for securities of comparable institutions and general conditions in the market for such securities.
The Independent Valuation states that as of __________, 1998, the estimated pro forma market value of the Common Stock ranged from a minimum of $17.9 million to a maximum of $24.3 million, with a midpoint of $21.1 million (the "Estimated Valuation Range"). The board determined to offer the shares in the Offering at the Subscription Price of $10.00 per share, the price most commonly used in stock offerings involving mutual-to-stock conversions. Based on the Estimated Valuation Range and the Subscription Price of $10.00 per share, the number of shares of Common Stock that the Company will issue will range from 1,829,370 shares to 2,475,030 shares, with a midpoint of 2,152,200 shares. The board determined to offer 44.51% of such shares, or between 814,249 shares and 1,101,631 shares with a midpoint of 957,940 shares (the "Offering Range"), to depositors and the public pursuant to this Prospectus. In addition, up to 48,582 shares are being issued to the Charitable Foundation as part of the Reorganization, which will result in Minority Stockholders owning 46.47% of the shares of the Common Stock outstanding at the conclusion of the Reorganization. The 53.53% of the shares of the Company's Common Stock that are not sold in the Offering or contributed to the Charitable Foundation will be issued to the Mutual Company.
The board reviewed the Independent Valuation and, in particular, considered (i) the Bank's financial condition and results of operations for the year ended June 30, 1998, (ii) financial comparisons of the Bank in relation to other financial institutions primarily including other publicly traded subsidiaries of mutual holding companies, and (iii) stock market conditions generally and in particular for financial institutions, all of which are set forth in the Independent Valuation. The board also reviewed the methodology and the assumptions used by FinPro in preparing the Independent Valuation. The Estimated Valuation Range may be amended with the approval of the Superintendent and the FDIC (if required), if necessitated by subsequent developments in the financial condition of the Bank or market conditions generally.
Following commencement of the Subscription Offering, the maximum of the Estimated Valuation Range may be increased by up to 15%, to up to $27.9 million, which will result in a corresponding increase in the maximum of the Offering Range to up to 1,266,876 shares to reflect changes in market and financial conditions, without the resolicitation of subscribers (in which event up to 55,869 shares may be issued to the Charitable Foundation). The minimum of the Estimated Valuation Range and the minimum of the Offering Range may not be decreased without a resolicitation of subscribers. The Subscription Price of $10.00 per share will remain fixed. See "--Limitations upon Purchases of Common Stock" as to the method of distribution and allocation of additional shares that may be issued in the event of an increase in the Offering Range to fill unfilled orders in the Subscription and Community Offerings.
The Independent Valuation, however, is not intended, and must not be construed, as a recommendation of any kind as to the advisability of purchasing shares. FinPro did not independently verify the Financial Statements and other information provided by the Bank, nor did FinPro value independently the assets or liabilities of the Bank. The Independent Valuation considers the Bank as a going concern and should not be considered as an indication of the liquidation value of the Bank. Moreover, because such valuation is necessarily based upon estimates and projections of a number of matters, all of which are subject to change from time to time, no assurance can be given that persons purchasing shares in the Offering will thereafter be able to sell such shares at prices at or above the Subscription Price.
The Independent Valuation will be updated at the time of the completion of the Offering. If the update to the Independent Valuation at the conclusion of the Offering results in an increase in the maximum of the Estimated Valuation Range to more than $27.9 million and a corresponding increase in the Offering Range to more than 1,266,876 shares, or a decrease in the minimum of the Estimated Valuation Range to less than $17.9 million and a corresponding decrease in the Offering Range to fewer than 814,249 shares, then the Company, after consulting with the Superintendent and the FDIC, may terminate the Plan of Reorganization and return all funds promptly, with interest on payments made by check, certified or teller's check, bank draft or money order, extend or hold a new Subscription Offering, Community Offering, or both, establish a new Offering Range, commence a resolicitation of subscribers or take such other actions as permitted by the Superintendent and the FDIC in order to complete the Reorganization and the Offering. In the event that a resolicitation is commenced, unless an affirmative response is received within a reasonable period of time, all funds will be promptly returned to investors as described above. A resolicitation, if any,
following the conclusion of the Subscription and Community Offerings would not exceed 45 days unless further extended by the Superintendent and the FDIC for periods of up to 90 days not to extend beyond 24 months following the special meeting of depositors, or __________, ______.
An increase in the Independent Valuation and the number of shares to be issued in the Offering would decrease both a subscriber's ownership interest and the Company's pro forma earnings and stockholders equity on a per share basis while increasing pro forma earnings and stockholder's equity on an aggregate basis. A decrease in the Independent Valuation and the number of shares to be issued in the Offering would increase both a subscriber's ownership interest and the Company's pro forma earnings and stockholder's equity on a per share basis while decreasing pro forma net income and stockholder's equity on an aggregate basis. For a presentation of the effects of such changes, see "Pro Forma Data."
Copies of the appraisal report of FinPro and the detailed memorandum of the appraiser setting forth the method and assumptions for such appraisal are available for inspection at each office of the Bank and the other locations specified under "Additional Information."
No sale of shares of Common Stock may be consummated unless, prior to such consummation, FinPro confirms to the Bank and the Superintendent that, to the best of its knowledge, nothing of a material nature has occurred that, taking into account all relevant factors, would cause FinPro to conclude that the Independent Valuation is incompatible with its estimate of the pro forma market value of the Common Stock of the Company at the conclusion of the Offering. Any change that would result in an aggregate purchase price that is below the minimum or above the maximum of the Estimated Valuation Range would be subject to Superintendent's approval. If such confirmation is not received, the Bank may extend the Offering, reopen or commence a new offering, establish a new Estimated Valuation Range and commence a resolicitation of all purchasers with the approval of the Superintendent or take such other actions as permitted by the Superintendent in order to complete the Offering.
Purchase Priorities and Method of Offering Shares
The Bank shall have the right, in its sole discretion, to determine whether prospective purchasers are "residents," "associates," or "acting in concert" as defined by the Plan of Reorganization and in interpreting any and all other provisions of the Plan of Reorganization. All such determinations are in the sole discretion of the Bank, and may be based on whatever evidence the Bank chooses to use in making any such determination.
Subject to the preceding paragraph and the limitations set forth in the "--Limitations Upon Purchases of Common Stock" section, the priorities for the purchase of shares are as follows:
Priority 1: Eligible Account Holders. Each Eligible Account Holder shall be given the opportunity to purchase up to 10,000 shares, or $100,000, of Common Stock; provided that the Company may, in its sole discretion and without further notice to or solicitation of subscribers or other prospective purchasers, increase such maximum purchase limitation to up to 5% of the maximum number of shares issued in the Offering, subject to the overall purchase limitation set forth in the section herein titled "Limitations upon Purchases of Common Stock." If there are insufficient shares available to satisfy all subscriptions of Eligible Account Holders, shares will be allocated to Eligible Account Holders so as to permit each subscribing Eligible Account Holder to purchase a number of shares sufficient to make his total allocation equal to the lesser of 100 shares or the number of shares subscribed for. Thereafter, unallocated shares will be allocated pro rata to remaining subscribing Eligible Account Holders whose subscriptions remain unfilled in the same proportion that each subscriber's aggregate deposit account balances as of the Eligibility Record Date ("Qualifying Deposits") bears to the total amount of Qualifying Deposits of all subscribing Eligible Account Holders whose subscriptions remain unfilled. Subscription rights to purchase Common Stock received by executive officers and trustees of the Bank, including associates of executive officers and trustees, based on their increased deposits in the Bank in the one year preceding the Eligibility Record Date, shall be subordinated to the subscription rights of other Eligible Account Holders. To ensure proper allocation of stock, each Eligible Account Holder must list on their subscription order form all deposit accounts in which they had an ownership interest as of the Eligibility Record Date.
Priority 2: Tax-Qualified Employee Plans. The Tax-Qualified Employee Plans shall be given the opportunity to purchase in the aggregate up to 10% of the Common Stock issued in the Offering. The ESOP intends to purchase up to 8% of the Minority Ownership Interest. In the event of an oversubscription in the Offering, subscriptions for shares by the Tax-Qualified Employee Plans may be satisfied, in whole or in part, through open market purchases by the Tax-Qualified Employee Plans subsequent to the closing of the Offering. If the final valuation exceeds the maximum of the Estimated Valuation Range, up to 10% of Common Stock issued in the Offering may be sold to the Tax Qualified Employee Plans notwithstanding any oversubscription by Eligible Account Holders, subject to FDIC approval, if necessary.
Priority 3: Supplemental Eligible Account Holders. To the extent there are sufficient shares remaining after satisfaction of subscriptions by Eligible Account Holders and the Tax-Qualified Employee Plans, each Supplemental Eligible Account Holder shall have the opportunity to purchase up to 10,000 shares, or $100,000, of Common Stock; provided that the Company may, in its sole discretion and without further notice to or solicitation of subscribers or other prospective purchasers, increase such maximum purchase limitation to up to 5% of the maximum number of shares issued in the Offering, subject to the overall purchase limitations set forth in the section herein titled "Limitations Upon Purchases of Common Stock." In the event Supplemental Eligible Account Holders subscribe for a number of shares which, when added to the shares subscribed for by Eligible Account Holders and the Tax-Qualified Employee Plans, exceed available shares, the shares of Common Stock will be allocated among subscribing Supplemental Eligible Account Holders so as to permit each subscribing Supplemental Eligible Account Holder to purchase a number of shares sufficient to make their total allocation equal to the lesser of 100 shares or the number of shares subscribed for. Thereafter, unallocated shares will be allocated to each subscribing Supplemental Eligible Account Holder whose subscription remains unfilled in the same proportion that such subscriber's aggregate deposit account balances as of the Supplemental Eligibility Record Date ("Supplemental Qualifying Deposits") bear to the total amount of Supplemental Qualifying Deposits of all subscribing Supplemental Eligible Account Holders whose subscriptions remain unfilled.
Priority 4: Employees, Officers and Trustees. Employees, officers and trustees of the Bank will receive, without cost to them, nontransferable subscription rights to subscribe for up to 10,000 shares or $100,000 of the Common Stock; provided, that the Company may, in its sole discretion and without further notice to or solicitation of subscribers or other prospective purchasers, increase such purchase limitation to 5% of the maximum number of shares issued in the Offering, subject to the overall purchase limitations set forth in the section herein titled "Limitations upon Purchases of Stock." If sufficient shares are not available in this priority, shares will be allocated among trustees, officers and employees on a pro rata basis based on the size of each person's order.
Community Offering
Any shares of Common Stock not subscribed for in the Subscription Offering will be offered for sale in a Community Offering. This will involve an offering of all unsubscribed shares directly to the general public. The Community Offering, if any, shall be for a period of not more than 45 days unless extended by the Company and the Bank, and will commence concurrently with, during or promptly after the Subscription Offering. The Common Stock will be offered and sold in the Community Offering, in accordance with FDIC and Department regulations, so as to achieve the widest distribution of the Common Stock. No person, by himself or herself, or with an associate or group of persons acting in concert, may subscribe for or purchase more than 10,000 shares of Common Stock offered in the Community Offering. Further, the Company may limit total subscriptions so as to assure that the number of shares available for the public offering may be up to a specified percentage of the number of shares of Common Stock. Finally, the Company may reserve shares offered in the Community Offering for sales to institutional investors.
In the event of an oversubscription for shares in the Community Offering, shares will be allocated (to the extent shares remain available) first to natural persons residing in Greene County, New York (the "Community").
The terms "residence," "reside," "resided" or "residing" as used herein with respect to any person shall mean any person who occupied a dwelling within the Bank's Community, has an intent to remain within the Community for a period of time, and manifests the genuineness of that intent by establishing an ongoing physical presence within the Community together with an indication that such presence within the Community is something other than merely transitory in nature. The Bank may use deposit or loan records or such other evidence provided to it to make a
determination as to whether a person is a resident. In all cases, however, such a determination shall be in the sole discretion of the Bank.
The Bank and the Company, in their sole discretion, may reject subscriptions, in whole or in part, received from any person in the Community Offering.
Syndicated Community Offering
Any shares of Common Stock not sold in the Subscription Offering or in the Community Offering, if any, may be offered for sale to the general public by a selling group of broker-dealers in a Syndicated Community Offering, subject to terms, conditions and procedures as may be determined by the Bank and the Company in a manner that is intended to achieve the widest distribution of the Common Stock, subject to the rights of the Company to accept or reject in whole or in part any order in the Syndicated Community Offering. It is expected that the Syndicated Community Offering, if any, will begin as soon as practicable after termination of the Subscription Offering and the Community Offering, if any. The Syndicated Community Offering shall be completed within 45 days after the termination of the Subscription Offering, unless such period is extended as provided herein.
If for any reason a Syndicated Community Offering of unsubscribed shares of Common Stock cannot be effected and any shares remain unsold after the Subscription Offering and the Community Offering, if any, the boards of directors of the Company and the Bank will seek to make other arrangements for the sale of the remaining shares. Such other arrangements will be subject to the approval of the Department and the FDIC and to compliance with applicable state and federal securities laws.
Restrictions on Sale of Stock by Trustees and Officers
All shares of the Common Stock purchased by trustees and officers of the Bank in the Offering will be subject to the restriction that such shares may not be sold or otherwise disposed of for value for a period of one year following the date of purchase, except for any disposition of such shares (i) following the death of the original purchaser or (ii) by reason of an exchange of securities in connection with a merger or acquisition approved by the applicable regulatory authorities. Sales of shares of the Common Stock by the Company's directors and officers will also be subject to certain insider trading and other transfer restrictions under the federal securities laws. See "Regulation--Federal Securities Laws."
Each certificate for restricted shares will bear a legend prominently stamped on its face giving notice of the restrictions on transfer, and instructions will be issued to the Company's transfer agent to the effect that any transfer within such time period of any certificate or record ownership of such shares other than as provided above is a violation of the restriction. Any shares of Common Stock issued pursuant to a stock dividend, stock split or otherwise with respect to restricted shares will be subject to the same restrictions on sale.
Restrictions on Agreements or Understandings Regarding Transfer of Common Stock to be Purchased in the Offering
Prior to the completion of the Offering, no depositor or borrower may transfer or enter into an agreement or understanding to transfer the legal or beneficial ownership of the shares of Common Stock to be purchased by such person in the Offering. Each depositor and borrower who submits an order form will be required to certify that the purchase of Common Stock by such person is solely for the purchaser's own account and there is no agreement or understanding regarding the sale or transfer of such shares. The Bank intends to pursue any and all legal and equitable remedies in the event it becomes aware of any such agreement or understanding, and will not honor orders reasonably believed by the Bank to involve such an agreement or understanding.
Procedure for Purchasing Shares of Common Stock
To ensure that each purchaser receives a Prospectus at least 48 hours before the Expiration Date, Prospectuses may not be mailed any later than five days prior to such date or be hand delivered any later than two days prior to such date. Order forms may only be distributed with a Prospectus.
Expiration Date. The Offering will terminate at 12:00 noon, New York time on December __, 1998, unless extended by the Bank for up to an additional 45 days or, if approved by the Superintendent, for an additional period after such 45-day extension (as so extended, the "Expiration Date"). The Bank is not required to give purchasers notice of any extension unless the Expiration Date is later than __________, 1998, in which event purchasers will be given the right to increase, decrease, confirm, or rescind their orders. If the minimum number of shares sold in the Offering (814,249 shares) is not sold by the Expiration Date, the Bank may terminate the Offering and promptly refund all orders for Common Stock. A reduction in the number of shares below the minimum of the Estimated Valuation Range will not require the approval of depositors or an amendment to the Independent Valuation. If the number of shares is reduced below the minimum of the Estimated Valuation Range, purchasers will be given an opportunity to increase, decrease, or rescind their orders.
Use of Order Forms. In order to purchase the Common Stock, each purchaser must complete an order form except for certain persons purchasing in the Syndicated Community Offering as more fully described below. Any person receiving an order form who desires to purchase Common Stock may do so by delivering (by mail or in person) to the Bank a properly executed and completed Order Form, together with full payment for the shares purchased. The order form must be received prior to 12:00 noon, New York time on December __, 1998. Once tendered, an Order Form cannot be modified or revoked without the consent of the Bank. Each person ordering shares is required to represent that they are purchasing such shares for their own account. The interpretation by the Bank of the terms and conditions of the Plan and of the acceptability of the order forms will be final. The Bank is not required to accept copies of order forms.
Payment for Shares. Payment for all shares will be required to accompany all completed order forms for the purchase to be valid. Payment for shares may be made by (i) check or money order, or (ii) authorization of withdrawal from a deposit account maintained with the Bank. Third party checks will not be accepted as payment for a subscriber's order. Appropriate means by which such withdrawals may be authorized are provided in the order forms. Once such a withdrawal amount has been authorized, a hold will be placed on such funds, making them unavailable to the depositor until the Offering has been completed or terminated. In the case of payments authorized to be made through withdrawal from deposit accounts, all funds authorized for withdrawal will continue to earn interest at the contract rate until the Offering is completed or terminated. Interest penalties for early withdrawal applicable to certificate of deposit accounts will not apply to withdrawals authorized for the purchase of shares; however, if a withdrawal results in a certificate of deposit account with a balance less than the applicable minimum balance requirement, the certificate of deposit shall be canceled at the time of withdrawal without penalty, and the remaining balance will earn interest at the Bank's passbook rate subsequent to the withdrawal. Payments made by check or money order will be placed in a segregated savings account and will be paid interest at the Bank's passbook rate of ____% (calculated using the simple interest method), from the date payment is received until the Offering is completed or terminated. Such interest will be paid by check, on all funds held, including funds accepted as payment for shares of Common Stock, promptly following completion or termination of the Offering. An executed order form, once received by the Bank, may not be modified, amended or rescinded without the consent of the Bank, unless the Offering is not completed by __________, 1998, in which event purchasers may be given the opportunity to increase, decrease, confirm or rescind their orders for a specified period of time.
Depending on market conditions, the Common Stock may be offered for sale to the general public on a best efforts basis in a Syndicated Community Offering by a selling group of broker-dealers to be managed by Friedman, Billings, Ramsey Co., Inc. In its discretion, Friedman, Billings, Ramsey & Co., Inc. will instruct selected broker-dealers as to the number of shares to be allocated to each selected broker-dealer. Only upon allocation of shares to selected broker-dealers may they take orders from their customers. Investors who desire to purchase shares in the Community Offering directly through a selected broker-dealer, which may include Friedman, Billings, Ramsey & Co., Inc., will be advised that the members of the selling group are required either (a) upon receipt of an executed order form or direction to execute an order form on behalf of an investor, to forward the appropriate purchase price to the Bank for deposit in a segregated account on or before twelve noon, prevailing time, of the business day next following such receipt or
execution; or (b) upon receipt of confirmation by such member of the selling group of an investor's interest in purchasing shares, and following a mailing of an acknowledgment by such member to such investor on the business day next following receipt of confirmation, to debit the account of such investor on the fifth business day next following receipt of confirmation and to forward the appropriate purchase price to the Bank for deposit in the segregated account on or before twelve noon, prevailing time, of the business day next following such debiting. Payment for any shares purchased pursuant to alternative (a) above must be made by check in full payment of the purchase price. Payment for shares purchased pursuant to alternative (b) above may be made by wire transfer to the Bank.
Owners of self-directed Individual Retirement Accounts ("IRA") may use the assets of such IRAs to purchase shares of Common Stock in the Offering. Individuals who are participants in self-directed tax qualified plans maintained by self-employed individuals may use the assets in their self-directed Keogh Plan accounts to purchase shares of Common Stock in the Offering. In addition, the provisions of ERISA and IRS regulations require that executive officers, trustees, and 10% stockholders who use self-directed IRA funds and/or Keogh Plan accounts to purchase shares of Common Stock in the Offering, make such purchase for the exclusive benefit of the IRA and/or Keogh Plan participant.
If the ESOP purchases shares of the Common Stock, such plan will not be required to pay for such shares until consummation of the Offering.
Delivery of Stock Certificates. Certificates representing Common Stock issued in the Offering will be mailed by the Bank to the persons entitled thereto at the registered address noted on the order form, as soon as practicable following consummation of the Offering. Any certificates returned as undeliverable will be held by the Bank until claimed by persons legally entitled thereto or otherwise disposed of in accordance with applicable law. Until certificates for the Common Stock are available and delivered to purchasers, purchasers may not be able to sell the shares of stock which they ordered.
Plan of Distribution and Selling Commissions
Offering materials for the Offering initially have been distributed to certain persons by mail, with additional copies made available at the Bank's offices and by Friedman, Billings, Ramsey & Co., Inc. All prospective purchasers are to send payment directly to the Bank, where such funds will be held in a segregated savings account and not released until the Offering is completed or terminated.
To assist in the marketing of the Common Stock, the Bank has retained Friedman, Billings, Ramsey & Co., Inc., a broker-dealer registered with the National Association of Securities Dealers, Inc. ("NASD"). Friedman, Billings, Ramsey & Co., Inc. will assist the Bank in the Offering as follows: (i) in training and educating the Bank's employees regarding the mechanics and regulatory requirements of the Offering; (ii) in conducting informational meetings for employees, customers and the general public; (iii) in coordinating the selling efforts in the Bank's local communities; and (iv) in soliciting orders for Common Stock. For these services, Friedman, Billings, Ramsey & Co., Inc. will receive a fixed fee of $110,000. If there is a Syndicated Community Offering, the fixed fee will be a negotiated percentage of the value of the Common Stock sold by Friedman, Billings, Ramsey & Co., Inc. and other NASD member firms under selected broker-dealer agreements.
The Bank also will reimburse Friedman, Billings, Ramsey & Co., Inc. for its reasonable out-of-pocket expenses associated with its marketing effort, up to a maximum of $40,000 (including legal fees and expenses ). The Bank has made an advance payment of $12,500 to Friedman, Billings, Ramsey & Co., Inc. If the Plan of Reorganization is terminated by the Bank, if the Offering is not completed by ________, 1999, or if Friedman, Billings, Ramsey & Co., Inc. terminates its agreement with the Bank in accordance with the provisions of the agreement, Friedman, Billings, Ramsey & Co., Inc. will only receive reimbursement of its reasonable out-of-pocket expenses. The Bank will indemnify Friedman, Billings, Ramsey & Co., Inc. against liabilities and expenses (including legal fees) incurred in connection with certain claims or litigation arising out of or based upon untrue statements or omissions contained in the offering material for the Common Stock, including liabilities under the Securities Act of 1933.
Trustees and executive officers of the Bank may participate in the
solicitation of offers to purchase Common Stock. Other trained employees of the
Bank may participate in the Offering in ministerial capacities, providing
clerical work in effecting a sales transaction or answering questions of a
ministerial nature. Other questions of prospective purchasers will be directed
to executive officers or registered representatives. The Bank will rely on Rule
3a4-1 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
so as to permit officers, trustees, and employees to participate in the sale of
the Common Stock. No officer, trustee, or employee of the Bank will be
compensated for his participation by the payment of commissions or other
remuneration based either directly or indirectly on the transactions in the
Common Stock.
A Stock Center will be established at a location adjacent to the Bank's
main office. Employees will inform prospective purchasers to direct their
questions to the Stock Center and will provide such persons with the telephone
number of the Center.
Limitations upon Purchases of Common Stock
The following additional limitations have been imposed upon purchases of shares of Common Stock. Defined terms used in this section and not otherwise defined in this Prospectus shall have the meaning set forth in the Plan of Reorganization.
A. The aggregate amount of outstanding Common Stock of the Company owned or controlled by persons other than Mutual Company at the close of the Offering shall not exceed 49% of the Company's total outstanding Common Stock.
B. No person or group of persons acting in concert, together
with their associates, may purchase more than 20,000 shares,
or $200,000, of Common Stock in the Offering, except that:
(i) the Company may, in its sole discretion and without
further notice to or solicitation of subscribers or other
prospective purchasers, increase such maximum purchase
limitation to up to 5% of the number of shares sold in the
Offering; (ii) Tax-Qualified Employee Plans may purchase up
to 10% of the shares sold in the Offering; and (iii) for
purposes of this paragraph shares to be held by any
Tax-Qualified Employee Plan and attributable to a person
shall not be aggregated with other shares purchased directly
by or otherwise attributable to such person.
C. The aggregate amount of Common Stock acquired in the Offering by all management persons and their associates, exclusive of any stock acquired by such persons in the secondary market, shall not exceed 32% of the outstanding shares of Common Stock of the Company held by persons other than the Mutual Company at the close of the Offering. In calculating the number of shares held by management persons and their associates under this paragraph or under the provisions of paragraph C below, shares held by any Tax-Qualified Employee Benefit Plan or any Non-Tax-Qualified Employee Benefit Plan of the Bank that are attributable to such persons shall not be counted.
D. Notwithstanding any other provision of the Plan of Reorganization, no person shall be entitled to purchase any Common Stock to the extent such purchase would be illegal under any federal law or state law or regulation or would violate regulations or policies of the National Association of Securities Dealers, Inc., particularly those regarding free riding and withholding. The Company and/or its agents may ask for an acceptable legal opinion from any purchaser as to the legality of such purchase and may refuse to honor any purchase order if such opinion is not timely furnished.
E. The Board of Directors of the Company has the right in its sole discretion to reject any order submitted by a person whose representations the Board of Directors believes to be false or who it otherwise believes, either alone or acting in concert with others, is violating, circumventing, or intends to violate, evade or circumvent the terms and conditions of the Plan of Reorganization.
F. The Company will make reasonable efforts to comply with the securities laws of all states in the United States in which persons entitled to subscribe for Common Stock pursuant to the Plan of
Reorganization reside. However, the Company and the Bank are not required to offer Common Stock to any person who resides in a foreign country.
Establishment of the Charitable Foundation
General. In furtherance of the Bank's commitment to the communities that it serves, the Bank intends to establish a Charitable Foundation in connection with the Reorganization. The Plan of Reorganization provides that the Bank and the Company may establish the Charitable Foundation, which will be incorporated under Delaware law as a non-stock corporation and will be funded with cash and shares of Common Stock contributed by the Company. The Bank will contribute to the Charitable Foundation 1.96% of the shares of Common Stock to be issued in the Reorganization or 35,908, 42,245, 48,582 and 55,869 shares at the minimum, midpoint, maximum and adjusted maximum of the Offering, range and $100,000 in cash. The contribution of Common Stock to the Charitable Foundation will be dilutive to the interests of stockholders and will have an adverse impact on the reported earnings of the Company in the year in which the Charitable Foundation is established.
Purpose of the Charitable Foundation. The purpose of the Charitable Foundation is to provide funding to support charitable causes and community development activities. Historically, the Bank has emphasized community lending and development activities within the communities that it services, and the Charitable Foundation is being formed as a complement to the Bank's existing community activities. Management believes the establishment of a Charitable Foundation is consistent with the Bank's commitment to community service. Funding of the Charitable Foundation with Common Stock of the Company also may be a means of enabling the communities served by the Bank to share in the growth and success of the Company. The Charitable Foundation will also enable the Company and the Bank to develop a unified charitable donation strategy and will centralize the responsibility for administration and allocation of corporate charitable funds. Charitable foundations have been formed by other financial institutions for this purpose, among others. The contribution to the Charitable Foundation will not take the place of the Bank's traditional community lending activities.
Structure of the Charitable Foundation. The Charitable Foundation will be incorporated under Delaware law as a non-stock corporation. Pursuant to the Charitable Foundation's Bylaws, the Charitable Foundation's initial board of directors will consist of persons who are existing directors and officers of the Company. Subsequent to the Reorganization, other individuals may be appointed to the Board. The members of the Charitable Foundation, who are comprised of its board members, will elect the directors at the annual meeting of the Charitable Foundation from those nominated by the nominating committee. Only persons serving as directors of the Charitable Foundation qualify as members of the Charitable Foundation, with voting authority. Directors will be divided into three classes with each class appointed for three-year terms. The certificate of incorporation of the Charitable Foundation provides that the corporation is organized exclusively for charitable purposes, including community development, as set forth in Section 501(c)(3) of the Internal Revenue Code of 1986 (the "Code"). The Charitable Foundation's certificate of incorporation further provides that no part of the net earnings of the Charitable Foundation will inure to the benefit of, or be distributable to, its directors, officers or members.
The authority for the affairs of the Charitable Foundation will be vested in its board of directors which will be responsible for establishing the policies of the Charitable Foundation with respect to grants or donations consistent with the purpose for which the Charitable Foundation was established. Although no formal policy governing Charitable Foundation grants exists at this time, the Charitable Foundation's board of directors will adopt such a policy upon establishment of the Charitable Foundation. As directors of a nonprofit corporation, directors of the Charitable Foundation will at all times be bound by their fiduciary duty to advance the Charitable Foundation's charitable goals, to protect the assets of the Charitable Foundation and to act in a manner consistent with the charitable purpose for which the Charitable Foundation is established. The directors of the Charitable Foundation also will be responsible for directing the activities and managing the assets of the Charitable Foundation. However, as a condition to receiving the non-objection of the Reorganization, the Charitable Foundation has been required to commit to the FDIC and the Department that all shares of Common Stock held by the Charitable Foundation will be voted in the same ratio as all other shares of the Company's Common Stock (other than shares held by the Mutual Company) on all proposals considered by stockholders of the Company; provided, however, that, consistent with such condition, the FDIC and the Department would waive this voting restriction under certain circumstances (and subject to certain additional conditions) if compliance with the voting restriction would: (i) cause a violation of the law of the State of Delaware; (ii) cause the Charitable Foundation to lose its tax-exempt status, or cause the Internal Revenue Service (the "IRS") to deny the
Charitable Foundation's request for a determination that it is an exempt organization or otherwise have a material and adverse tax consequence on the Charitable Foundation; or (iii) cause the Charitable Foundation to be subject to an excise tax under Section 4941 of the Code. In order for the FDIC and the Department to waive such voting restriction, the Company's or the Charitable Foundation's legal counsel would be required to render an opinion satisfactory to the FDIC and the Department that compliance with the voting requirement would have the effect described in clauses (i), (ii) or (iii) above. Under those circumstances, the FDIC and the Department would grant waivers of the voting restriction upon submission of such legal opinion(s) by the Company or the Charitable Foundation that are satisfactory to the FDIC and the Department. In the event that the FDIC and the Department were to waive the voting requirement, the directors would direct the voting of the Common Stock held by the Charitable Foundation.
The Charitable Foundation's place of business will be located at the Bank's administrative offices and initially the Charitable Foundation is expected to have no employees but will utilize the members of the staff of the Company or the Bank. The board of directors of the Charitable Foundation will appoint such officers as may be necessary to manage the operation of the Charitable Foundation. In this regard, it is expected that the Bank will be required to provide the FDIC with a commitment that, to the extent applicable, the Bank will comply with the affiliate restrictions set forth in Sections 23A and 23B of the Federal Reserve Act with respect to any transactions between the Bank and the Charitable Foundation.
Under Section 501(c)(3) of the Code, the Charitable Foundation will be required to distribute annually in grants or donations, a minimum of 5% of the average fair market value of its net investment assets. One of the conditions imposed on the gift of Common Stock by the Company is that the amount of Common Stock that may be sold by the Charitable Foundation in any one year shall not exceed 5% of the average market value of the assets held by the Charitable Foundation, except where the board of directors of the Charitable Foundation determines that the failure to sell an amount of Common Stock greater than such amount would result in a longer-term reduction of the value of the Charitable Foundation's assets and as such would jeopardize the Charitable Foundation's capacity to carry out its charitable purposes. Upon completion of the Reorganization and the contribution of shares to the Charitable Foundation, the Company would have 1,829,370, 2,152,200 and 2,475,030 shares issued and outstanding at the minimum, midpoint and maximum of the Estimated Valuation Range. Because the Company will have an increased number of shares outstanding, the voting and ownership interests of stockholders in the Company's Common Stock would be diluted by 1.96%, as compared to their interests in the Company if the Charitable Foundation was not established. For additional discussion of the dilutive effect, see "Pro Forma Data."
Impact on Earnings. The contribution of cash and Common Stock to the Charitable Foundation will have an adverse impact on the Company's and the Bank's earnings in the year in which the contribution is made. The Company will recognize the full expense in the amount of the contribution of cash and Common Stock to the Charitable Foundation in the quarter in which it occurs, which is expected to be the quarter ending December 31, 1998. The aggregate amount of the contribution will range from $459,080 to $585,820, based on the minimum and maximum of the Estimated Valuation Range, respectively (or up to $658,690 at the adjusted maximum of the Estimated Valuation Range). The number of shares to be contributed to the Charitable Foundation will range from 35,908 to 48,582, and the amount of cash to be contributed will be fixed at $100,000. The contribution expense will be partially offset by the tax benefit related to the expense. The Company and the Bank have been advised by their independent tax advisors that the contribution to the Charitable Foundation will be tax deductible, subject to an annual limitation based on 10% of the Company's annual taxable income. Assuming an aggregate contribution of $585,820 (based on the maximum of the Estimated Valuation Range), the Company estimates a net tax effected expense of $351,600 (based upon a 40% tax rate). Management cannot predict earnings for the fiscal year ending June 30, 1999, but expects that the establishment and funding of the Charitable Foundation will have an adverse impact on the Company's earnings for the year. In addition to the contribution to the Charitable Foundation, the Bank or the Mutual Company may continue making grants and contributions to the community that would not be permitted for the Charitable Foundation.
Tax Considerations. The Company and the Bank have been advised by their
independent tax advisors that an organization created for the above purposes
would qualify as a Section 501(c)(3) exempt organization under the Code, and
would be classified as a private Charitable Foundation. The Charitable
Foundation will submit a request to the IRS to be recognized as an exempt
organization. The Company and the Bank have received an opinion of their
independent tax advisors that the Charitable Foundation would qualify as a
Section 501(c)(3) exempt organization under the Code, except that such opinion
does not consider the impact of the condition to be agreed to by the Charitable
Foundation that Common Stock issued to the Charitable Foundation be voted in the
same ratio as all other shares of the Company's
Common Stock (other than shares held by the Mutual Company) on all proposals
considered by stockholders of the Company. Consistent with this condition, in
the event that the Company or the Charitable Foundation receives an opinion of
their legal counsel that compliance with the voting restriction would have the
effect of causing the Charitable Foundation to lose its tax-exempt status, or
otherwise have a material and adverse tax consequence on the Charitable
Foundation or subject the Charitable Foundation to an excise tax under Section
4941 of the Code, the FDIC and the Superintendent shall waive such voting
restriction upon submission of a legal opinion by the Company or the Charitable
Foundation that is satisfactory to them. The independent tax advisors' opinion
further provides that there is substantial authority for the position that the
Company's contribution of its own stock to the Charitable Foundation would not
constitute an act of self-dealing, and that the Company would be entitled to a
deduction in the amount of the fair market value of the stock at the time of the
contribution less the nominal par value that the Charitable Foundation is
required to pay to the Company for such stock, subject to an annual limitation
based on 10% of the Company's annual taxable income. The Company, however, would
be able to carry forward any unused portion of the deduction for five years
following the contribution. Assuming the sale of Common Stock at the adjusted
maximum of the Estimated Valuation Range, the Company estimates that all of the
deduction should be deductible over the six-year period. Although the Company
and the Bank have received an opinion of their independent tax advisors that the
Company will be entitled to the deduction for the charitable contribution, there
can be no assurances that the IRS will recognize the Charitable Foundation as a
Section 501(c)(3) exempt organization or that the deduction will be permitted.
In such event, the Company's tax benefit related to the Charitable Foundation
would have to be fully expensed, resulting in a further reduction in earnings in
the year in which the IRS makes such a determination.
As a private Charitable Foundation, earnings and gains, if any, from the sale of Common Stock or other assets are generally exempt from federal and state corporate income taxation. However, investment income, such as interest, dividends and capital gains, of a private Charitable Foundation will generally be subject to a federal excise tax of 2.0%. The Charitable Foundation will be required to make an annual filing with the IRS within four and one-half months after the close of the Charitable Foundation's fiscal year to maintain its tax-exempt status. The Charitable Foundation will be required to publish a notice that the annual information return will be available for public inspection for a period of 180 days after the date of such public notice. The information return for a private Charitable Foundation must include, among other things, an itemized list of all grants made or approved, showing the amount of each grant, the recipient, any relationship between a grant recipient and the Charitable Foundation's managers and a concise statement of the purpose of each grant. The Charitable Foundation will also be required to file an annual report with the Charities Bureau of the Office of the Attorney General of the State of New York.
Comparison of Valuation and Other Factors Assuming the Charitable Foundation is Not Established as Part of the Reorganization. The establishment of the Charitable Foundation was taken into account by FinPro in determining the estimated pro forma market value of the Common Stock of the Company. The aggregate price of the shares of Common Stock being offered in the Offering is based upon the independent appraisal conducted by FinPro of the estimated pro forma market value of the Common Stock of the Company. The pro forma aggregate price of the Common Stock being offered for sale in the Reorganization is currently estimated to be between $8.1 million and $11.0 million, with a midpoint of $9.6 million. The pro forma price to book ratio and the pro forma price to earnings ratio, at and for the year ended June 30, 1998, are 91.41% and 15.87x, respectively, at the midpoint of the Estimated Valuation Range. In the event that the Reorganization did not include the Charitable Foundation, FinPro has estimated that the estimated pro forma market value of the Common Stock being offered for sale in the Offering would be $10.0 million at the midpoint based on a pro forma price to book ratio and a pro forma price to earnings ratio of 91.74% and 15.87x, respectively. The amount of Common Stock being offered for sale in the Offering at the midpoint of the Estimated Valuation Range is 42,245 less than the estimated amount of Common Stock that would be sold in the Offering without the Charitable Foundation based on the estimate provided by FinPro. Accordingly, certain account holders of the Bank who subscribe to purchase Common Stock in the Subscription Offering would receive fewer shares depending on the size of a depositor's stock order and the amount of his or her qualifying deposits in the Bank and the overall level of subscriptions. See "Comparison of Valuation and Pro Forma Information Without Charitable Foundation." This estimate by FinPro was prepared solely for purposes of providing subscribers with information with which to make an informed decision on the Reorganization.
The decrease in the amount of Common Stock being offered as a result of the contribution of Common Stock to the Charitable Foundation will not have a significant effect on the Company or the Bank's capital position. The Bank's regulatory capital is significantly in excess of its regulatory capital requirements and will further exceed such requirements following the Reorganization. The Bank's leverage and risk-based capital ratios at June 30, 1998 were
11.09% and 20.32%, respectively. Assuming the sale of shares at the midpoint of the Estimated Valuation Range, the Bank's pro forma leverage and risk-based capital ratios at June 30, 1998 would be 13.11% and 24.08%, respectively. On a consolidated basis, the Company's pro forma stockholders' equity would be $23.7 million, or approximately 16.0% of pro forma consolidated assets, assuming the sale of shares at the midpoint of the Offering Range. Pro forma stockholders' equity per share and pro forma net income per share would be $10.98 and $0.63, respectively. If the Charitable Foundation was not being established in the Reorganization, based on the FinPro estimate, the Company's pro forma stockholders' equity would be approximately $24.0 million, or approximately 16.1% of pro forma consolidated assets at the midpoint of the Estimated Valuation Range, and pro forma stockholder's equity per share and pro forma net income per share would be substantially similar with or without the Charitable Foundation. See "Comparison of Valuation and Pro Forma Information without Charitable Foundation."
Regulatory Conditions Imposed on the Charitable Foundation.
Establishment of the Charitable Foundation is subject to certain conditions
agreed to by the Charitable Foundation in writing as a condition to receiving
the FDIC's non-objection to and Superintendent's approval of the Reorganization,
including the following: (i) the Charitable Foundation will be subject to
examination by the FDIC and the Department; (ii) the Charitable Foundation must
comply with supervisory directives imposed by the FDIC and the Department; (iii)
the Charitable Foundation will operate in accordance with written policies
adopted by the board of directors, including a conflict of interest policy; and
(iv) any shares of Common Stock held by the Charitable Foundation must be voted
in the same ratio as all other outstanding shares of Common Stock (other than
shares held by the Mutual Company) on all proposals considered by stockholders
of the Company; provided, however, that, consistent with the condition, the FDIC
and the Department would waive this voting restriction under certain
circumstances (and subject to additional conditions) if compliance with the
voting restriction would: (a) cause a violation of the law of the State of
Delaware; (b) would cause the Charitable Foundation to lose its tax-exempt
status or otherwise have a material and adverse tax consequence on the
Charitable Foundation; or (c) would cause the Charitable Foundation to be
subject to an excise tax under Section 4941 of the Code. In order to obtain a
waiver, the Charitable Foundation's legal counsel would be required to render an
opinion satisfactory to the FDIC and the Department. There can be no assurances
that a legal opinion addressing these issues could be rendered, or if rendered,
that the FDIC and the Department would grant unconditional waivers of the voting
restriction. In no event would the voting restriction survive the sale of shares
of the Common Stock held by the Charitable Foundation.
Potential Challenges. The establishment and funding of a Charitable Foundation as part of a conversion of a mutual savings institution to stock form has only recently occurred. As such, the Charitable Foundation, and the Superintendent's approval of the Reorganization and the FDIC's nonobjection to the Reorganization, may be subject to potential challenges notwithstanding that the board of directors of the Company and the board of trustees of the Bank have considered the various factors involved in the establishment of the Charitable Foundation in reaching their determination to establish the Charitable Foundation as part of the Reorganization. If challenges were to be instituted seeking to prevent the Bank from establishing the Charitable Foundation in connection with the Reorganization, no assurances could be made that the resolution of such challenges would not result in a delay in the consummation of the Reorganization or that any objecting persons would not be ultimately successful in obtaining such removal or other relief against the Company or the Bank. Additionally, if the Company and the Bank are forced to eliminate the Charitable Foundation, the Company may be required to resolicit subscribers in the Offering.
Effects of Reorganization
Continuity. While the Reorganization is being accomplished, the normal business of the Bank of accepting deposits and making loans will continue without interruption. During and after the completion of the Reorganization, the Stock Bank will continue to be subject to regulation by the Department and the FDIC. After the Reorganization, the Stock Bank will continue to provide services for depositors and borrowers under current policies by its present management and staff.
The Trustees serving the Bank at the time of the Reorganization will serve as Directors of the Stock Bank and the Company after the Reorganization. The Trustees of the Mutual Company will consist initially of individuals currently serving on the Board of Trustees of the Bank, except that one individual will not also serve on the Board of Trustees of the Mutual Company. All officers of the Bank at the time of the Reorganization will retain their positions with the Stock Bank after the Reorganization.
Effect on Deposit Accounts. Under the Plan, each depositor in the Bank at the time of the Reorganization will automatically continue as a depositor in the Stock Bank after the Reorganization, and each such deposit account will remain the same with respect to deposit balance, interest rate and other terms. Each such account will be insured by the FDIC to the same extent as before the Reorganization (i.e., up to $100,000 per depositor). Depositors will continue to hold their existing certificates, passbooks and other evidences of their accounts.
Effect on Loans. No loan outstanding from the Bank will be affected by the Reorganization, and the amount, interest rate, maturity and security for each loan will remain as they were contractually established prior to the Reorganization.
Effect on Liquidation Rights. Were a mutual savings institution to liquidate, all claims of creditors (including those of depositors, to the extent of deposit balances) would be paid first. Thereafter, if there were any assets remaining, depositors may receive such remaining assets, pro rata, based upon the deposit balances in their deposit accounts immediately prior to liquidation subject to the rights of the State of New York to garnish such assets. As more fully described below, after the Reorganization, each depositor, in the event of a complete liquidation, would have a claim as a creditor of the Bank. However, except as described below with respect to Liquidation Rights, this claim would be solely in the amount of the balance in the deposit account plus accrued interest. A depositor would not have an interest in the value or assets of the Bank above that amount.
Liquidation Rights
In the unlikely event of a complete liquidation of the Bank in its present mutual form, each depositor would have a claim to receive his or her pro rata share of any assets of the Bank remaining after payment of claims of all creditors (including the claims of all depositors to the withdrawal value of their accounts). To the extent there are remaining assets, a depositor may have a claim to receive a pro rata share of the remaining assets in the same proportion as the value of such depositor's deposit accounts to the total value of all deposit accounts in the Bank at the time of liquidation, subject to the right of the State of New York to garnish such assets. After the Reorganization, each depositor, in the event of a complete liquidation, would have a claim as a creditor of the Bank. However, except as described below, this claim would be solely in the amount of the balance in the deposit account plus accrued interest. A depositor would not have an interest in the value or assets of the Bank above that amount.
The Plan of Reorganization provides for the establishment, upon the completion of the Reorganization, of a special "liquidation account" for the benefit of Eligible Account Holders and Supplemental Eligible Account Holders in an amount equal to the surplus and reserves of the Bank as of the date of its latest balance sheet contained in the final Prospectus used in connection with the Reorganization. Each Eligible Account Holder and Supplemental Eligible Account Holder, who continues to maintain a deposit account at the Bank, would, on a complete liquidation of the Bank, have a claim to an interest in the liquidation account after payment of all creditors but prior to any payment to the stockholders of the Bank. Each Eligible Account Holder and Supplemental Eligible Account Holder would have an initial interest in such liquidation account for each deposit account, with a balance of $100 or more held in the Bank on June 30, 1997 and September 30, 1998, respectively ("Deposit Account"). Each Eligible Account Holder and Supplemental Eligible Account Holder will have a claim to a pro rata interest in the total liquidation account for each of his or her Deposit Accounts based on the proportion that the balance of each such Deposit Account on June 30, 1997 and September 30, 1998, respectively, bore to the balance of all Deposit Accounts in the Bank on such date.
If, however, on the last day of any fiscal year of the Bank commencing after the Eligibility Record Date or Supplemental Eligibility Record Date, as the case may be, the deposit balance in any Deposit Account of an Eligible Account Holder or Supplemental Eligible Account Holder is less than either (i) the amount of qualifying deposits of such Eligible Account Holder or Supplemental Eligible Account Holder on the Eligibility Record Date or Supplemental Eligibility Record Date, as the case may be, or (ii) the deposit balance in such Deposit Account at the close of business on the last day of any previous fiscal year of the Bank commencing after the Eligibility Record Date or the Supplemental Eligibility Record Date, then such Eligible Account Holder's or Supplemental Eligible Account Holder's account balance would be reduced in an amount equal to the reduction in such deposit balance, and such account balance will cease to exist if such Deposit Account is closed. In addition, no interest in the liquidation account would ever be increased despite any subsequent increase in the deposit balances of any Eligible Account Holder or Supplemental Eligible Account Holder. Any assets remaining after the above liquidation rights of Eligible Account Holders and Subsequent Eligible Account Holders are satisfied would be distributed to the stockholders of the Bank.
Neither the Bank nor the Company shall be required to set aside funds for the purpose of establishing the liquidation account, and the creation and maintenance of the account will not operate to restrict the use or application of any of the net worth accounts of the Bank, except that neither the Bank nor the Company shall declare or pay a cash dividend on, or repurchase any of, its capital stock if the effect would cause its net worth to be reduced below the amount required for the liquidation account.
MANAGEMENT OF GREENE COUNTY BANCORP, INC.
Directors of the Company
The Board of Directors of the Company consists of nine members, each of whom is currently serving as a trustee of the Bank. Directors of the 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 class of directors whose term of office expires at the first annual meeting of stockholders following completion of the Reorganization consists of directors Whittaker, O'Grady and Smith. The class of directors whose term expires at the second annual meeting of stockholders following completion of the Reorganization consists of directors Buck, Klein and Camera. The class of directors whose term of office expires at the third annual meeting of stockholders following the completion of the Reorganization consists of directors Ingalls, Slutzky and Jenkins. The biographical information regarding these individuals is set forth under "Management of the Bank-Biographical Information."
Executive Officers of the Company
The following individuals are executive officers of the Company and hold the offices set forth below opposite their names. The biographical information for each executive officer is set forth under "Management of the Bank--Biographical Information."
Name Age* Position ---- ----- --------- J. Bruce Whittaker ............... 55 President and Chief Executive Officer Bruce P. Egger ................... 49 Vice President and Secretary Edmund L. Smith, Jr. ............. 55 Vice President and Treasurer Daniel T. Sager .................. 44 Vice President |
The executive officers of the Company are elected annually and hold office until their respective successors have been elected or until death, resignation, retirement or removal by the board.
Since the formation of the Company, none of the executive officers has received remuneration from the Company. It is not anticipated that the executive officers of the Company will initially receive any remuneration in his or her capacity as an executive officer. For information concerning compensation of executive officers of the Bank, see "Management of the Bank."
Indemnification and Limitation of Liability
The Certificate of Incorporation of the Company provides that a director or officer of the Company shall be indemnified by the Company to the fullest extent authorized by the Delaware General Corporation Law ("DGCL") against all expenses, liability and loss reasonably incurred or suffered by such person in connection with his or her 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 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 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 or her conduct was unlawful.
In addition, the Certificate of Incorporation and Delaware law also provide that the Company may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Company or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the
Company has the power to indemnify such person against such expense, liability or loss under the DGCL. The Company intends to obtain such insurance.
The Certificate of Incorporation also provides that directors of the Company shall not be personally liable to the Company 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 Company 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 (which relates to unlawful dividends or stock purchases or redemptions), or (iv) for any transaction from which the director derived an improper personal benefit.
MANAGEMENT OF THE BANK
Directors of the Bank
Upon completion of the Reorganization, the initial directors of the Bank will consist of those persons who currently serve on the Board of Trustees of the Bank. The directors of the Bank will have three year terms which will be staggered to provide for the election of approximately one-third of the board members each year. Directors of the Bank will be elected by the Company as sole stockholder of the Bank. The proposed directors of the Bank are as follows:
Director Age * Occupation Director Since Term Expires
-------- ----- ---------- -------------- ------------
Walter H. Ingalls ........ 67 Retired Lumber Company President 1966 2001
J. Bruce Whittaker ....... 55 President and Chief Executive Officer, 1987 1999
Greene County Savings Bank
Richard J. Buck .......... 73 Retired Partner, Insurance Agency 1970 2000
Raphael Klein ............ 71 Retired Movie Theater Owner 1986 2000
Paul Slutzky ............. 50 General Manager-Construction Company 1992 2001
Anthony Camera, Jr. ...... 72 Retired President and Chief Executive 1986 2000
Officer, Mutual Insurance Company
David H. Jenkins, DVM .... 44 Veterinarian/Owner-Catskill Animal Hospital 1996 2001
Dennis R. O'Grady ........ 58 Pharmacist/Co-Owner-Mikhitarian Pharmacy 1981 1999
Martin C. Smith .......... 53 Employee-Main Bros. Oil Co., Inc. 1993 1999
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*As of June 30, 1998
Executive Officers of the Bank
The following table sets forth certain information (as of June 30, 1998) regarding the executive officers of the Bank, all of whom currently serve in their indicated position as executive officers of the Bank.
Name Age Position ---- --- -------- J. Bruce Whittaker ................ 55 President and Chief Executive Officer Bruce P. Egger .................... 49 Vice President and Secretary Edmund L. Smith, Jr. .............. 55 Vice President and Treasurer Daniel T. Sager ................... 44 Vice President-Lending |
The executive officers of the Bank will be elected annually and will hold office until the next annual meeting of the board of directors of the Bank held immediately after the annual meeting of stockholders of the Bank, and until their successors are elected and qualified, or until death, resignation, retirement or removal by the board of directors.
Biographical Information
Trustees/Directors of the Bank
J. Bruce Whittaker is President and Chief Executive Officer of the Bank, and has served in that position since 1987. Mr. Whittaker has been affiliated with the Bank in various capacities since 1972. Mr. Whittaker was appointed to the Board of Trustees in 1987.
Walter H. Ingalls is the Chairman of the Board. Mr. Ingalls is retired. Prior to his retirement, Mr. Ingalls was the President of the GNH Lumber Co., a lumber company located in Norton Hill, New York.
Richard J. Buck is retired. Prior to his retirement he was a partner with Grossman Agency, a general insurance agency in Catskill, New York
Raphael Klein is retired. Prior to his retirement he was the co-owner of Klein Theaters, a movie theater chain in Hudson, New York.
Paul Slutzky is the General Manager of I. & O. A. Slutzky Constr. Co., a construction company located in Hunter, New York.
Anthony Camera, Jr. is retired. Prior to his retirement, he was President of Commercial Mutual Insurance Co., an insurance company in Catskill, New York.
David H. Jenkins, DVM is a veterinarian and the owner of Catskill Animal Hospital, Catskill, New York.
Dennis R. O'Grady is a pharmacist and the co-owner of Mikhitarian Pharmacy located in Catskill, New York.
Martin C. Smith is currently employed by Main Bros. Oil Co., Inc., and is the former owner of R.E. Smith Fuel Company, which was purchased by Main Bros. Oil Co., Inc., located in Albany, New York.
Executive Officers of the Bank Who Are Not Directors
Bruce P. Egger has served as Vice President and Secretary of the Bank since 1987 and has been affiliated with the Bank in various capacities since 1977. Prior to that time, Mr. Egger worked in the retail trade.
Edmund L. Smith, Jr., has served as Vice President and Treasurer of the Bank since 1988 and has been affiliated with the Bank in various capacities since 1975. Prior to that time, Mr. Smith was the bursar of Columbia-Greene Community College.
Daniel T. Sager has served as Vice President-Lending of the Bank since 1995 and has been affiliated with the Bank in various capacities since 1987. Prior to that time, Mr. Sager was employed as branch manager for a commercial bank.
Meetings and Committees of the Bank's Board
The Board of Trustees of the Bank meets monthly and may have additional special meetings as may be called by the Chairman or as otherwise provided by law. During the year ended June 30, 1998, the board held 13 meetings. No trustee attended fewer than 75% in the aggregate of the total number of meetings of the board or board committees on which such trustee served during 1997. The Board of Trustees of the Bank has the following standing committees: Audit Committee, Personnel Committee, Appraisal and Loan Committee, Re-Inspection Committee and Executive Committee.
Board of Directors and Committees of the Company after the Reorganization
Following the Reorganization, the board of directors of the Company is expected to meet monthly, or more often as may be necessary. The board of directors initially is expected to have a standing executive committee and an audit committee. The board of directors may, by resolution, designate one or more additional committees.
The executive committee initially will consist of the following six directors of the Company: Messrs. Buck, Ingalls, Klein, Slutzky, Whittaker and Smith. The executive committee is expected to meet as necessary when the board is not in session to exercise general control and supervision in all matters pertaining to the interests of the Company, subject at all times to the direction of the board of directors. The executive committee may also serve as the nominating committee for the purpose of identifying, evaluating and recommending potential candidates for election to the board.
The audit committee initially will consist of the following four directors of the Company: Messrs. Ingalls, Camera, Jenkins and O'Grady. The audit committee is expected to meet at least quarterly to examine and approve the audit report prepared by the independent auditors of the Bank, to review and recommend the independent auditors to be engaged by the Company, to review the internal audit function and internal accounting controls of the Company, and to review and approve audit policies.
Compensation of Trustees and Directors
Directors of the Bank will receive an annual retainer of $6,000 and a fee of $500 per meeting for attendance at Board and Committee meetings. Directors of the Bank and the Company who are also employees of the Bank and the Company are not eligible to receive Board fees. Initially, no separate compensation will be paid to directors for service on the Board of Directors or Board committees of the Company.
ADDITIONAL INFORMATION
The Bank has filed an Application with the Department with respect to the Reorganization. Pursuant to the rules and regulations of the Department, the Proxy Statement and Prospectus omit certain information contained in that Application. The Application may be examined at the office of the Department, 2 Rector Street, New York, New York, 10006, and at our administrative offices, at 425 Main and Church Streets, Catskill, New York, 12414 without charge. The Plan may be obtained without charge, together with the Restated Organization Certificate and Bylaws of the Stock Bank and the Certificate of Incorporation and Bylaws of Company, by contacting the Bank's Corporate Secretary at (518) 943-3700. In the alternative, please sign, complete and return the enclosed postage-prepaid Information Request Card by __________, 1998, and the Bank will provide you with a copy of the Plan. You do not need to return the Information Request Card to vote on the Reorganization. Copies of the Independent Valuation are available for inspection at each of the Bank's offices.
This Proxy Statement does not include all of the information regarding the Reorganization and Offering that is set forth in the Prospectus, which is enclosed with this Proxy Statement. The following sections of the Prospectus are specifically incorporated into this Proxy Statement by reference hereto:
PROSPECTUS SECTION PAGE IN PROSPECTUS ------------------ ------------------ SELECTED FINANCIAL DATA................................................. RECENT DEVELOPMENTS..................................................... RISK FACTORS............................................................ GREENE COUNTY SAVINGS BANK.............................................. REGULATORY CAPITAL COMPLIANCE........................................... USE OF PROCEEDS......................................................... CAPITALIZATION.......................................................... |
PRO FORMA DATA.......................................................... THE REORGANIZATION AND OFFERING......................................... MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL....................... CONDITION AND RESULTS OF OPERATIONS.................................. BUSINESS OF THE COMPANY................................................. BUSINESS OF THE BANK.................................................... FEDERAL AND STATE TAXATION.............................................. REGULATION.............................................................. MANAGEMENT OF THE BANK.................................................. DESCRIPTION OF CAPITAL STOCK OF THE COMPANY............................. CONSOLIDATED FINANCIAL STATEMENTS....................................... F-1 |
OTHER MATTERS
The Board of Trustees is not aware of any business to come before the Meeting other than those matters described above in this Proxy Statement. However, if any other matters should properly come before the Meeting (which matters are expected to consist of procedural matters and a vote to adjourn the Meeting, if necessary), it is intended that proxies in the accompanying form will be voted in respect thereof in accordance with the judgment of the person or persons voting the proxies.
BY ORDER OF THE BOARD OF TRUSTEES
Secretary
Catskill, New York
__________, 1998