<PAGE>
As filed with the Securities and Exchange Commission on August 20, 1996
Registration No.333-_____________
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
ROSLYN BANCORP, INC.
THE ROSLYN SAVINGS BANK
401(K) SAVINGS PLAN
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CERTIFICATE OF INCORPORATION)
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DELAWARE 6036 BEING APPLIED FOR
<S> <C> <C>
(state or other jurisdiction of (Primary Standard (IRS Employer Identification No.)
incorporation or organization) Classification Code Number)
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1400 OLD NORTHERN BOULEVARD
ROSLYN, NEW YORK 11576
(516) 621-6000
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
JOSEPH L. MANCINO
CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE OFFICER
THE ROSLYN SAVINGS BANK
ROSLYN, NEW YORK 11576
(516) 621-6000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
DOUGLAS P. FAUCETTE, ESQUIRE
LAWRENCE M.F. SPACCASI, ESQUIRE
MARC P. LEVY, ESQUIRE
MULDOON, MURPHY & FAUCETTE
5101 WISCONSIN AVENUE, N.W.
WASHINGTON, D.C. 20016
(202) 362-0840
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /X/
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Title of each Class of Amount to Purchase Price Aggregate Offering Registration
Securities to be Registered be Registered Per Share Price (1) Fee
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<S> <C> <C> <C> <C>
Common Stock 40,468,500 $10.00 $404,685,000 $139,547
$.01 par Value Shares
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Participation 589,232 ------- ------ (2)
Interests Shares
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(1) Estimated solely for the purpose of calculating the registration fee.
(2) The securities of Roslyn Bancorp, Inc. to be purchased by The Roslyn Savings
Bank 401(k) Savings Plan are included in the amount shown for Common Stock.
Accordingly, no separate fee is required for the participation interests. In
accordance with Rule 457(h) of the Securities Act, as amended, the
registration fee has been calculated on the basis of the number of shares of
Common Stock that may be purchased with the current assets of such Plan.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
<PAGE>
ROSLYN BANCORP, INC.
Cross Reference Sheet Showing Location in the Subscription and Community
Offering Prospectus ("Prospectus") of Information Required by Items of Form S-1:
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Registration Statement Item and Caption Prospectus Headings
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<S> <C> <C>
1. Forepart of the Registration Statement and Front Cover Page
Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Page Inside Front and Outside Back Cover Pages
of Prospectus
3. Summary Information, Risk Factors and Summary; Risk Factors
Ratio of Earnings to Fixed Charges
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price The Conversion- Stock Pricing
6. Dilution Not Applicable
7. Selling Security Holders Not Applicable
8. Plan of Distribution Front Cover Page; The Conversion - Subscription
Offering and Subscription Rights; -Community
Offering; -Syndicated Community Offering
9. Description of Securities to be Registered The Conversion - Certain Restrictions on Purchases
or Transfer of Shares After Conversion; Restrictions
on Acquisition of the Company and the Bank;
Description of the Capital Stock of the Company;
Description of the Capital Stock of the Bank
10. Interests of Named Experts and Counsel Not Applicable
11. Information with Respect to the Registrant Front Cover Page; Roslyn Bancorp, Inc.; The Roslyn Savings Bank;
Dividend Policy; Consolidated Statements of Operations; Management's
Discussion and Analysis of Financial Condition and Results of
Operations of the Bank; Business of the Bank; Regulation; Management
of the Company; Management of the Bank; The Conversion; Description
of the Capital Stock; Financial Statements
12. Disclosure of Commission Position on Not Applicable
Indemnification for Securities Act Liabilities
</TABLE>
<PAGE>
[To be used in connection with sales to Participants in The Roslyn Savings Bank
401(k) Savings Plan]
PROSPECTUS SUPPLEMENT
- ---------------------
ROSLYN BANCORP, INC.
THE ROSLYN SAVINGS BANK
____PARTICIPATION INTERESTS
THE ROSLYN SAVINGS BANK
401(k) SAVINGS PLAN
This Prospectus Supplement relates to the offer and sale to participants
(the "Participants") in The Roslyn Savings Bank 401(k) Savings Plan in RSI
Retirement Trust (the "Plan") of participation interests and shares of common
stock, par value $.01 per share (the "Common Stock"), as set forth herein.
In connection with the proposed conversion of The Roslyn Savings Bank (the
"Bank") from a mutual savings bank to a stock savings bank, (the "Conversion")
the Plan has been amended to permit the investment of plan assets in Common
Stock of Roslyn Bancorp, Inc. (the "Holding Company"). The amended Plan will
permit Participants to direct the trustee of the Plan (the "Trustee") to
purchase Common Stock with amounts in the Plan attributable to such
Participants. Based upon the value of the Plan assets at June 28, 1996, 589,232
shares of Common Stock could be purchased with Plan assets (assuming a purchase
price of $10.00 per share). This Prospectus Supplement relates to the initial
election of a Participant to direct the purchase of Common Stock in connection
with the Conversion and also to elections to purchase Common Stock after the
Conversion.
The Prospectus dated __________________, 1996 of the Holding Company
(the "Prospectus"), which is attached to this Prospectus Supplement,
includes detailed information with respect to the Conversion, the Common Stock
and the financial condition, results of operations and business of the Bank.
This Prospectus Supplement, which provides detailed information with respect to
the Plan, should be read only in conjunction with the Prospectus.
For a discussion of certain factors that should be considered by each
Participant, see "Risk Factors."
<PAGE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, THE FEDERAL DEPOSIT INSURANCE CORPORATION,
OR ANY OTHER FEDERAL AGENCY OR ANY STATE SECURITIES COMMISSION, NOR HAS SUCH
COMMISSION OR OTHER AGENCY OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS ____________________, 1996.
No person has been authorized to give any information or to make any
representations other than those contained in the Prospectus or this Prospectus
Supplement, and, if given or made, such information or representations must not
be relied upon as having been authorized by the Bank or the Plan. This
Prospectus Supplement does not constitute an offer to sell or solicitation of an
offer to buy any securities in any jurisdiction to any person to whom it is
unlawful to make such offer or solicitation in such jurisdiction. Neither the
delivery of this Prospectus Supplement and the Prospectus nor any sale made
hereunder shall under any circumstances create any implication that there has
been no change in the affairs of the Bank or the Plan since the date hereof, or
that the information herein contained or incorporated by reference is correct as
of any time subsequent to the date hereof. This Prospectus Supplement should be
read only in conjunction with the Prospectus that is attached hereto and should
be retained for future reference.
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TABLE OF CONTENTS
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THE OFFERING.................................................. 1
Securities Offered....................................... 1
Election to Purchase Common Stock in the Conversion...... 1
Value of Participation Interests......................... 1
Method of Directing Transfer............................. 1
Time for Directing Transfer.............................. 2
Irrevocability of Transfer Direction..................... 2
Direction to Purchase Common Stock After the Conversion.. 2
Purchase Price of Common Stock........................... 2
Nature of a Participant's Interest in the Common Stock... 3
Voting and Tender Rights of Common Stock................. 3
DESCRIPTION OF THE PLAN....................................... 3
Introduction............................................. 3
Eligibility and Participation............................ 4
Contributions Under the Plan............................. 5
Limitations on Contributions............................. 6
Investment of Contributions.............................. 8
Benefits Under the Plan.................................. 10
Withdrawals and Distributions From the Plan.............. 11
Administration of the Plan............................... 12
Reports to Plan Participants............................. 12
Plan Administrator....................................... 12
Amendment and Termination................................ 13
Merger, Consolidation or Transfer........................ 13
Federal Income Tax Consequences.......................... 13
ERISA and Other Qualification............................ 16
Restrictions on Resale................................... 16
SEC Reporting and Short-Swing Profit Liability........... 17
EXPERTS....................................................... 18
LEGAL OPINIONS................................................ 18
</TABLE>
<PAGE>
THE OFFERING
SECURITIES OFFERED
The securities offered hereby are participation interests in the Plan and
up to 589,232 shares (assuming the actual purchase price is $10.00 per share) of
Common Stock which may be acquired by the Plan for the accounts of employees
participating in the Plan are offered hereby. The Holding Company is the issuer
of the Common Stock. Only employees of the Bank and its subsidiary, Residential
First, Inc. (together hereinafter referred to as the "Employers"), may
participate in the Plan. Information with regard to the Plan is contained in
this Prospectus Supplement and information with regard to the Conversion and the
financial condition, results of operations and business of the Bank is contained
in the attached Prospectus. The address of the principal executive office of the
Bank is 1400 Old Northern Boulevard, Roslyn, New York 11576. The Bank's
telephone number is (516) 621-6000.
ELECTION TO PURCHASE COMMON STOCK IN THE CONVERSION
In connection with the Bank's Conversion, the Plan has been amended to
permit each Participant to direct that all or part of the funds which represent
his or her beneficial interest in the assets of the Plan may be transferred to
the Employer Stock Fund and used to purchase Common Stock issued in connection
with the Conversion. The Trustee of the Plan will follow the Participants'
directions. Funds not transferred to the Employer Stock Fund will remain in the
other investment funds of the Plan as directed by the Participant.
VALUE OF PARTICIPATION INTERESTS
The assets of the Plan were valued as of June 28, 1996, 1996 at $5,982,322
and each Participant was informed of the value of his or her beneficial interest
in the Plan. This value represented the market value as of June 28, 1996 of
past contributions to the Plan by the Employers and by the Participants and
earnings thereon, less previous withdrawals.
METHOD OF DIRECTING TRANSFER
The last page of this Prospectus Supplement is a form to direct a transfer
to the Employer Stock Fund (the "Investment Form"). If a Participant wishes to
transfer all or part of his or her beneficial interest in the assets of the Plan
to the purchase of Common Stock issued in connection with the Conversion, he or
she should indicate that decision in part 2 of the Investment Form. If a
Participant does not wish to make such an election, he or she does not need to
take any action.
1
<PAGE>
TIME FOR DIRECTING TRANSFER
The deadline for submitting a direction to transfer amounts to the Employer
Stock Fund in order to purchase Common Stock issued in connection with the
Conversion is ____________________________, 1996. The Investment Form should be
returned to the Bank's Human Resource Department by ____ p.m. on such date.
IRREVOCABILITY OF TRANSFER DIRECTION
A Participant's direction to transfer amounts credited to such
participant's account in the Plan to the Employer Stock Fund in order to
purchase shares of Common Stock in connection with the Conversion shall be
irrevocable. Participants, however, will be able to direct the investment of
their accounts ("Accounts") under the Plan as explained below.
DIRECTION TO PURCHASE COMMON STOCK AFTER THE CONVERSION
After the Conversion, a Participant shall be able to direct that a certain
percentage of such participant's interests in the Trust Fund be transferred to
the Employer Stock Fund and invested in Common Stock, or to the other investment
funds available under the Plan. Alternatively, a Participant may direct that a
certain percentage of such participant's interest in the Employer Stock Fund be
transferred to the Trust Fund to be invested in accordance with the terms of the
Plan. Participants will be permitted to direct that future contributions made
to the Plan by or on their behalf will be invested in Common Stock. Following
the initial election, the allocation of a Participant's interest in the Employer
Stock Fund may be changed only four times in any plan year by filing a written
notice with the plan administrator at least fifteen days before the effective
date of the change. Special restrictions apply to transfers directed by those
Participants who are officers, directors and principal shareholders of the Bank
who are subject to the provisions of Section 16(b) of the Securities Exchange
Act of 1934 (the "1934 Act").
PURCHASE PRICE OF COMMON STOCK
The funds transferred to the Employer Stock Fund for the purchase of Common
Stock in connection with the Conversion will be used by the Trustee to purchase
shares of Common Stock. The price paid for such shares of Common Stock will be
the same price as is paid by all other persons who purchase shares of Common
Stock in the Conversion.
Common Stock purchased by the Trustee after the Conversion will be acquired
in open market transactions. The prices paid by the Trustee for shares of
Common Stock will not exceed "adequate consideration" as defined in Section
3(18) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA").
2
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NATURE OF A PARTICIPANT'S INTEREST IN THE COMMON STOCK
The Common Stock will be held in the name of the Trustee for the Plan, as
trustee. Each Participant has an allocable interest in the investment funds of
the Plan but not in any particular assets of the Plan. Accordingly, a specific
number of shares of Common Stock will not be directly attributable to the
account of any Participant. Earnings, e.g., gains and losses, are allocated to
----
the Account of a Participant based on the particular investment designations of
the Participants. Therefore, earnings with respect to a Participant's Account
should not be affected by the investment designations (including investments in
Common Stock) of other Participants.
VOTING AND TENDER RIGHTS OF COMMON STOCK
The Trustee generally will exercise voting and tender rights attributable
to all Common Stock held by the Trust as directed by Participants with interests
in the Employer Stock Fund. With respect to each matter as to which holders of
Common Stock have a right to vote, each Participant will be allocated a number
of voting instruction rights reflecting such participant's proportionate
interest in the Employer Stock Fund. The number of shares of Common Stock held
in the Employer Stock Fund that are voted in the affirmative and negative on
each matter shall be proportionate to the number of voting instruction rights
exercised in the affirmative and negative, respectively. In the event of a
tender offer for Common Stock, the Plan provides that each Participant will be
allotted a number of tender instruction rights reflecting such participant's
proportionate interest in the Employer Stock Fund. The percentage of shares of
Common Stock held in the Employer Stock Fund that will be tendered will be the
same as the percentage of the total number of tender instruction rights that are
exercised in favor of tendering. The remaining shares of Common Stock held in
the Employer Stock Fund will not be tendered. The Plan makes provision for
Participants to exercise their voting instruction rights and tender instruction
rights on a confidential basis.
DESCRIPTION OF THE PLAN
I. INTRODUCTION
The Plan was established effective January 1, 1979 as the Incentive Savings
Plan of The Roslyn Savings Bank. Effective as of April 1, 1985 the Plan was
amended and restated in its entirety as The Roslyn Savings Bank 401(k) Savings
Plan in the Retirement System for Savings Institutions (the "Plan"). The Plan is
a cash or deferred arrangement established in accordance with the requirements
under Section 401(a) and Section 401(k) of the Internal Revenue Code of 1986
(the "Code"). The Plan will be submitted to the Internal Revenue Service (the
"IRS") in a timely manner for a determination that the Plan, as amended and
restated, is qualified under Section 401(a) of the Internal Revenue Code of
1986, as amended (the "Code"), and that its related trust is qualified under
Section 501(a) of the Code.
The Bank intends that the Plan, in operation, will comply with the
requirements under Section 401(a) and Section 401(k) of the Code. The Bank will
adopt any amendments to the
3
<PAGE>
Plan that may be necessary to ensure the qualified status of the Plan under the
Code and applicable Treasury Regulations.
Employee Retirement Income Security Act. The Plan is an "individual
---------------------------------------
account plan" other than a "money purchase pension plan" within the meaning of
ERISA. As such, the Plan is subject to all of the provisions of Title I
(Protection of Employee Benefit Rights) and Title II (Amendments to the Internal
Revenue Code Relating to Retirement Plans) of ERISA, except the funding
requirements contained in Part 3 of Title I of ERISA which by their terms do not
apply to an individual account plan (other than a money purchase plan). The Plan
is not subject to Title IV (Plan Termination Insurance) of ERISA. Neither the
funding requirements contained in Part 3 of Title I of ERISA nor the plan
termination insurance provisions contained in Title IV of ERISA will be extended
to Participants (as defined below) or beneficiaries under the Plan.
APPLICABLE FEDERAL LAW REQUIRES THE PLAN TO IMPOSE SUBSTANTIAL RESTRICTIONS
ON THE RIGHT OF A PLAN PARTICIPANT TO WITHDRAW AMOUNTS HELD FOR HIS BENEFIT
UNDER THE PLAN PRIOR TO THE PARTICIPANT'S TERMINATION OF EMPLOYMENT WITH THE
BANK. A SUBSTANTIAL FEDERAL TAX PENALTY MAY ALSO BE IMPOSED ON WITHDRAWALS MADE
PRIOR TO THE PARTICIPANT'S ATTAINMENT OF AGE 59-1/2, REGARDLESS OF WHETHER SUCH
A WITHDRAWAL OCCURS DURING HIS EMPLOYMENT WITH THE BANK OR AFTER TERMINATION OF
EMPLOYMENT.
Reference to Full Text of Plan. The following statements are summaries of
------------------------------
certain provisions of the Plan. They are not complete and are qualified in their
entirety by the full text of the Plan. Copies of the Plan are available to all
employees by filing a request with the Plan Administrator. Each employee is
urged to read carefully the full text of the Plan.
II. ELIGIBILITY AND PARTICIPATION
Any salaried or commission-paid employee of the Bank or its subsidiary
Residential First, Inc. (together referenced to as the "Employer") is eligible
to participate in the Plan on the first day of any payroll period following
completion of a Year of Service with an Employer. Employees compensated on an
hourly basis and employees compensated on a daily, fee or retainer basis, leased
employees (within the meaning of Section 414(n) of the Code) and employees
covered by a collective bargaining agreement which does not expressly provide
for their coverage under the Plan, are not eligible to participate in the Plan.
As of _______________, 1996, there were approximately ____ employees
eligible to participate in the Plan, and ___ employees had elected to
participate in the Plan.
4
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III. CONTRIBUTIONS UNDER THE PLAN
401(k) Plan Contributions. Each Participant in the Plan is permitted to
-------------------------
elect to reduce such participant's Compensation (as defined below) pursuant to a
"Compensation Reduction Agreement" by an amount not less than 1% and not more
than 12% and have that amount contributed to the Plan on such Participant's
behalf. Such amounts are credited to the Participant's "Basic Contribution
Account." For purposes of the Plan, "Compensation" means a Participant's
compensation from an Employer for the year, prior to any reduction pursuant to a
Compensation Reduction Agreement. Compensation includes salary, wages and wage
continuation to an employee who is absent due to an illness or disability of a
short-term nature and commissions paid on loan originations. "Compensation" does
not include expense allowances, commissions other than those paid on the
originations of loans, severance pay, fees, bonuses, incentive payments,
contributions other than Basic Contributions made to the Plan and contributions
made by the Employer to any other pension, insurance welfare or other employee
benefit plan. The annual compensation of each Participant taken into account
under the Plan is limited to $150,000 (adjusted for increases in the cost of
living as permitted by the Code). Generally, a Participant may elect to modify
the amount contributed to the Plan under such participant's Compensation
Reduction Agreement not more often than four times plan year by providing notice
to the Plan Administrator at least 10 days before commencement of the first day
of the payroll period for which the modification is to become effective.
However, special restrictions apply to persons subject to Section 16 of the 1934
Act. Basic Contributions are transferred by the Employer to the Trustee of the
Plan.
Notwithstanding the preceding, a Participant who receives a hardship
distribution under the terms of the Plan, may not be eligible to make additional
contributions under a Compensation Reduction Agreement for a period of twelve
months after the receipt of the hardship distribution.
Employer Contributions. The Employer contributes to the Plan for each Plan
----------------------
Year 50% of the Participant's Basic Contributions, up to a maximum of 3% of the
Participant's Compensation for the Plan Year. In addition, for each Participant
who has been a Participant for a total of at least sixty calendar months, the
Employer contributes an additional 50% of the Participant's Basic Contributions
for a total of 100% of Basic Contributions, up to a maximum of 6% of the
Participant's Compensation for the Plan Year. Such amounts are credited to the
Participant's "Company Contribution Account". At its discretion, the Employer
may make an additional contribution to the Plan as of the end of the Plan Year
in an amount determined by the Employer. Such amounts are credited to
Participants' "Special Contribution Accounts" based on each Participant's
compensation. Special Contributions may be made only to the accounts of non-
highly compensated employees.
5
<PAGE>
IV. LIMITATIONS ON CONTRIBUTIONS
Limitations on Annual Additions and Benefits. Pursuant to the requirements
--------------------------------------------
of the Code, the Plan provides that the amount of contributions and forfeitures
allocated to each Participant's Basic Contribution Account and Matching
Contribution Account during any Plan Year may not exceed the lesser of 25% of
the Participant's (S)415 Compensation for the Plan Year or $30,000 (adjusted for
increases in the cost of living as permitted by the Code). A Participant's
(S)415 Compensation is a Participant's Compensation, excluding any Employer
contribution to the Plan or to any other plan of deferred compensation or any
distributions from a plan of deferred compensation. In addition, annual
additions shall be limited to the extent necessary to prevent the limitations
for the combined plans of the Bank from being exceeded. To the extent that these
limitations would be exceeded by reason of excess annual additions with respect
to a Participant, such excess will be disposed of as follows:
(i) Any excess amount in the Participant's Account will be used to
reduce the Employer's contributions for such Participant in the next Limitation
Year, and each succeeding Limitation Year if necessary;
(ii) If, an excess amount still exists, and the Participant is not
---
covered by the Plan at the end of the Limitation Year, the excess amount will be
held unallocated in a suspense account which will then 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 the
Limitation Year, it will not participate in the allocation of investment gains
and losses.
$7,000 Limitation on 401(k) Plan Contributions. The annual amount of
----------------------------------------------
Deferred Compensation of a Participant (when aggregated with any elective
deferrals of the Participant under a simplified employee pension plan or a tax-
deferred annuity) may not exceed $7,000 adjusted for increases in the cost of
living as permitted by the Code (the limitation for 1996 is $9,500).
Contributions in excess of this limitation ("excess deferrals") will be included
in the Participant's gross income for federal income tax purposes in the year
they are made. In addition, any such excess deferral will again be subject to
federal income tax when distributed by the Plan to the Participant, unless the
excess deferral (together with any income allocable thereto) is distributed to
the Participant not later than the first April 15th following the close of the
taxable year in which the excess deferral is made. Any income on the excess
deferral that is distributed not later than such date shall be treated, for
federal income tax purposes, as earned and received by the Participant in the
taxable year in which the excess deferral is made.
Limitation on Plan Contributions for Highly Compensated Employees.
-----------------------------------------------------------------
Sections 401(k) and 401(m) of the Code limit the amount of Deferred Compensation
that may be made to the Plan in any Plan Year on behalf of Highly Compensated
Employees (defined below) in relation to the amount of Deferred Compensation
made by or on behalf of all other employees eligible to participate in the Plan.
Specifically, the actual deferral percentage (i.e., the average
6
<PAGE>
of the ratios, calculated separately for each eligible employee in each group,
by dividing the amount of Deferred Compensation credited to the Basic
Contribution Account of such eligible employee by such eligible employee's
compensation for the Plan Year) of the Highly Compensated Employees may not
exceed the greater of (i) 125% of the actual deferral percentage of all other
eligible employees, or (ii) the lesser of (x) 200% of the actual deferral
percentage of all other eligible employees, or (y) the actual deferral
percentage of all other eligible employees plus two percentage points. In
addition, the actual contribution percentage for such Plan Years (i.e., the
average of the ratios calculated separately for each eligible employee in each
group, by dividing the amount of voluntary employee and employer matching
contributions credited to the Matching Contribution Account and Special
contribution Account of such eligible employee by such eligible employee's
compensation for the Plan Year) of the Highly Compensated Employees may not
exceed the greater of (i) 125% of the actual contribution percentage of all
other eligible employees, or (ii) the lesser of (x) 200% of the actual
contribution percentage of all other eligible employees, or (y) the actual
contribution percentage of all other eligible employees plus two percentage
points.
In general, a Highly Compensated Employee includes any employee who, during
the Plan Year or the preceding Plan Year, (1) was at any time a 5% owner (i.e.,
owns directly or indirectly more than 5% of the stock of the Employer, or stock
possessing more than 5% of the total combined voting power of all stock of the
Employer), (2) received compensation from the Employer in excess of $100,000 (3)
received compensation from the Employer in excess of $66,000 and was in the
group consisting of the top 20% of employees when ranked on the basis of
compensation paid during the Plan Year, or (4) was at any time an officer of the
Employer and received compensation in excess of $60,000 (a "Highly Compensated
Employee"). The dollar amounts in the foregoing sentence are for 1995. Such
amounts are adjusted annually to reflect increases in the cost of living. If
the Employer does not have at least one officer whose annual compensation is in
excess of $60,000, then the highest paid officer of the Employer will be treated
as a Highly Compensated Employee.
In addition, the compensation of an employee who is a family member of a 5%
owner, or one of the ten most highly compensated employees during the relevant
period is aggregated with that of the Highly Compensated Employee. All such
family members are treated as a single employee with respect to the application
of the limitations on highly compensated employees.
In order to prevent the disqualification of the Plan, any amount
contributed by Highly Compensated Employees that exceed the average deferral
limitation in any Plan Year ("excess contributions"), together with any income
allocable thereto, must be distributed to such Highly Compensated Employees
before the close of the following Plan Year. However, the Employer will be
subject to a 10% excise tax on any excess contributions unless such excess
contributions, together with any income allocable thereto, either are
recharacterized or are distributed before the close of the first 2 1/2 months
following the Plan Year to which such excess contributions relate.
7
<PAGE>
Top-Heavy Plan Requirements. If for any Plan Year the Plan is a Top-Heavy
---------------------------
Plan (as defined below), then (i) the Bank may be required to make certain
minimum contributions to the Plan on behalf of non-key employees (as defined
below), and (ii) certain additional restrictions would apply with respect to the
combination of annual additions to the Plan and projected annual benefits under
any defined benefit plan maintained by the Bank.
In general, the Plan will be regarded as a "Top-Heavy Plan" for any Plan
Year if, as of the last day of the preceding Plan Year, the aggregate balance of
the Accounts of Participants who are Key Employees exceeds 60% of the aggregate
balance of the Accounts of all Participants. Key Employees generally include
any employee who, at any time during the Plan Year or any of the four preceding
Plan Years, is (1) an officer of the Bank having annual compensation in excess
of $60,000 who is in an administrative or policy-making capacity, (2) one of the
ten employees having annual compensation in excess of $30,000 and owning,
directly or indirectly, the largest interests in the Bank, (3) a 5% owner of the
Bank, (i.e., owns directly or indirectly more than 5% of the stock of the Bank,
or stock possessing more than 5% of the total combined voting power of all stock
of the Bank) or (4) a 1% owner of the Bank having annual compensation in excess
of $150,000.
V. INVESTMENT OF CONTRIBUTIONS
All amounts credited to Participants' Accounts under the Plan are held in
the Plan Trust (the "Trust") which is administered by the Trustee appointed by
the Bank's Board of Trustees.
Prior to _____________________, 1996, the Accounts of a Participant held in
the Trust have been invested by the Trustee at the direction of the Participant
in the following funds:
a. Core Equity Fund;
b. Emerging Growth Equity Fund;
c. Value Equity Fund;
d. Intermediate - Term Bond Fund;
e Actively Managed Bond Fund; and
f. Short-Term Investment Fund.
The Plan, as amended effective ____________, now provides that in addition
to the Funds specified above, a Participant who is employed by the Bank may
direct the Trustee to invest all or a portion of his Basic Contribution Account,
Rollover Account and Special Contribution Account in the Employer Stock Fund.
The Company Contribution Account of Participants who are Bank employees will be
entirely invested in Employer Stock under the terms of Roslyn Savings Bank
Employee Stock Ownership Plan being implemented by the Bank.
Participants in the Plan who are employees of Residential First, Inc. may
direct the Trustee to invest all or a portion of his Basic Contribution Account,
Company Contribution Account, Rollover Account and Special Contribution Account
in the Employer Stock Fund.
8
<PAGE>
Not more frequently than once in each calendar quarter, but in no event
more frequently than six times each Plan Year, a Participant may elect (in
increments of 5%), to have both past and future contributions and additions to
the Participant's Basic Contribution Account, Rollover Account and Special
Contribution Account invested either in the Employer Stock Fund or in such other
Funds. Participants may also elect to have past contributions to their Company
Contribution Accounts (and future contributions to the Company Contribution
Account for those Participants who are Residential First, Inc. employees)
invested in either the Employer Stock Fund or in such other Funds. These
elections will be effective on the effective date of the Participant's written
notice to the plan administrator, provided such notice is filed with the
administrator at least 10 days before it is to become effective. Any amounts
credited to a Participant's Accounts for which investment directions are not
given will be invested in accordance with the terms of the Plan. Because
investment allocations only are required to be made in increments of 5%,
Participants can invest their Accounts in each of the 7 available investment
funds. Lack of diversification with respect to the investment of a Participant's
Account should not be a significant risk given the 7 investment options
available to Participants and the ability of Participants to make investment
designations six times each year.
A Participant who receives a loan from the Plan has a separate account
established under the Plan. The balance of a Participant's loan account
represents the unpaid principal and interest (if any) of such participant's loan
from the Plan. Repayments of principal and payments of interest on loans are
invested by the Trustee as directed by the Participant or, if no investment
directions are given, in accordance with the terms of the Plan.
The net gain (or loss) of the Funds from investments (including interest
payments, dividends, realized and unrealized gains and losses on securities, and
expenses paid from the Trust) will be determined at least monthly during the
Plan Year. For purposes of such allocations, all assets of the Trust are valued
at their fair market value.
A. Previous Funds.
--------------
Prior to _________________________, contributions under the Plan were
invested in the six Funds specified above. The annual percentage return on
these funds for the prior three years was:
<TABLE>
<CAPTION>
1995 1994 1993
-----------------------
<S> <C> <C> <C>
a. Core Equity Fund 40.17% 1.31% 10.34%
b. Emerging Growth Equity Fund 42.83 3.53 20.99
c. Value Equity Fund 33.96 (1.14) 8.10
d. Intermediate-Term Bond Fund 13.99 (2.54) 7.63
e. Actively Managed Bond Fund 17.70 (4.21) 11.20
</TABLE>
9
<PAGE>
<TABLE>
<S> <C> <C> <C>
f. Short-Term Investment Fund 5.39 3.40 2.40
</TABLE>
B. The Employer Stock Fund.
-----------------------
The Employer Stock Fund will consist of investments in Common Stock
made on and after the effective date of the Conversion. Cash dividends, if any,
paid on Common Stock held in the Employer Stock Fund will be credited to a cash
dividend subaccount for each Participant investing in the Employer Stock Fund.
The Board of Directors of the Holding Company may consider a policy of paying
cash dividends on the Common Stock in the future; however, no decision as to the
amount or timing of cash dividends, if any, has been made. The Trustee will, to
the extent practicable, use all amounts held by it in the Employer Stock Fund
(except the amounts credited to cash dividend subaccounts) to purchase shares of
Common Stock of the Bank. It is expected that all purchases will be made at
prevailing market prices. Under certain circumstances, the Trustee may be
required to limit the daily volume of shares purchased. Pending investment in
Common Stock, assets held in the Employer Stock Fund will be placed in bank
deposits and other short-term investments.
When Common Stock is purchased or sold, the cost or net proceeds are
charged or credited to the Accounts of Participants affected by the purchase or
sale. Participants' Accounts will also be adjusted for any brokerage
commissions, transfer fees and other expenses incurred in the sale and purchase
of Common Stock for the Employer Stock Fund. A Participant's Account will be
adjusted to reflect changes in the value of shares of Common Stock resulting
from stock dividends, stock splits and similar changes.
As of the date of this Prospectus Supplement, none of the shares of Common
Stock have been issued or are outstanding and there is no established market for
the Common Stock. Accordingly, there is no record of the historical performance
of the Employer Stock Fund. Performance will be dependent upon a number of
factors, including the financial condition and profitability of the Holding
Company and the Bank and market conditions for the Common Stock generally.
INVESTMENTS IN THE EMPLOYER STOCK FUND MAY INVOLVE CERTAIN SPECIAL RISKS
IN INVESTMENTS IN COMMON STOCK OF THE COMPANY. FOR A DISCUSSION OF THESE RISK
FACTORS, SEE "RISK FACTORS" IN THE PROSPECTUS.
VI. BENEFITS UNDER THE PLAN
Vesting. A Participant, at all times, has a fully vested, nonforfeitable
-------
interest in his Basic Contribution Account and the earnings thereon under the
Plan. A Participant vests in his Matching Contribution Account under the Plan
according to the following schedule:
10
<PAGE>
<TABLE>
<CAPTION>
Period of Service Vested Percentage
----------------- -----------------
<S> <C>
less than 1 year 0%
1 years 20%
2 years 40%
3 years 60%
4 years 80%
5 or more years 100%
</TABLE>
VII. WITHDRAWALS AND DISTRIBUTIONS FROM THE PLAN
Withdrawals Prior to Termination of Employment. A Participant may make a
----------------------------------------------
withdrawal from his Basic Contribution Account subject to the hardship
distribution rules under the Plan. These requirements insure that Participants
have a true financial need before a withdrawal may be made.
A Participant may make a withdrawal from either his Basic Contribution
Account after he turns 59 1/2. A Participant may make a withdrawal from
contributions to his Basic Contribution Account made prior to the 1992 amendment
and restatement of the Plan or the vested portion of his Matching Contribution
Account at any time. However, such withdrawals may not be made more often than
four times during any Plan Year.
Distribution Upon Retirement, Disability or Termination of Employment.
---------------------------------------------------------------------
Payment of benefits to a Participant who retires, incurs a disability, or
otherwise terminates employment generally shall be made in a lump sum cash
payment as soon as administratively feasible after such termination of
employments if the vested value of the Participant's Account is $3,500 or less.
If the vested portion of the Participant's Account balance is greater than
$3,500, the Participant may request a distribution (subject to the minimum
distribution rules) in a lump sum payment: (a) as soon as administratively
possible after termination, (b) as of any Valuation Date up to 13 months after
termination or (c) as of the date the Participant attains normal retirement age.
At the request of the Participant, the distribution may include an in kind
distribution of Common Stock of the Bank credited to the Participant's Account.
Benefit payments ordinarily shall be made not later than 60 days following the
end of the Plan Year in which occurs the latter of the Participant's: (i)
termination of employment; (ii) the later of attainment of age 65 or completion
of six years of vesting service; (iii) or early retirement following (a) the
Participant's attainment of age 60, or (b) the sum of the Participant's attained
age and vested service equals or exceeds 75 years, or (c) 10th anniversary of
commencement of participation in the Plan; but in no event later than the April
1 following the calendar year in which the Participant attains age 70 1/2.
However, if the vested portion of the Participant's Account balances exceeds
$3,500, no distribution shall be made from the Plan prior to the Participant's
attaining age 65 unless the Participant consents to an earlier distribution.
11
<PAGE>
Distribution upon Death. A Participant who dies prior to the benefit
-----------------------
commencement date for retirement, disability or termination of employment, and
who has a surviving spouse shall have his benefits paid to the surviving spouse
in a lump sum as soon as administratively possible following the date of his
death, unless the Participant elected prior to his death or the beneficiary so
elects within 90 days of the Participant's death, to receive such distribution
in a lump sum payment as of any Valuation Date which occurs within one year of
the Participant's death. With respect to an unmarried Participant, and in the
case of a married Participant with spousal consent to the designation of another
beneficiary, payment of benefits to the beneficiary of a deceased Participant
shall be made in the form of a lump-sum payment in cash or in Common Stock in
the same manner described above as to a Participant with a surviving spouse.
Nonalienation of Benefits. Except with respect to federal income tax
-------------------------
withholding and as provided with respect to a qualified domestic relations order
(as defined in the Code), benefits payable under the Plan shall not be subject
in any manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, charge, garnishment, execution, or levy of any kind, either
voluntary or involuntary, and any attempt to anticipate, alienate, sell,
transfer, assign, pledge, encumber, charge or otherwise dispose of any rights to
benefits payable under the Plan shall be void.
ADMINISTRATION OF THE PLAN
The Trustee with respect to the Plan is the named fiduciary of the Plan for
purposes of Section 402 of ERISA.
Trustees. The Trustee is appointed by the Board of Directors of the Bank
--------
to serve at its pleasure. The current Trustee of the Plan is the RSI Retirement
Trust. However, a additional Trustee, is being appointed to hold funds invested
in the Employer Stock Fund.
The Trustee receives and holds the contributions to the Plan in trust and
distributes them to Participants and beneficiaries in accordance with the terms
of the Plan and the directions of the Plan Administrator. The Trustee is
responsible for investment of the assets of the Trust.
REPORTS TO PLAN PARTICIPANTS
The Administrator will furnish to each Participant a statement at least
quarterly showing (i) the balance in the Participant's Account as of the end of
that period, (ii) the amount of contributions allocated to such participant's
Account for that period, and (iii) the adjustments to such participant's Account
to reflect earnings or losses (if any).
PLAN ADMINISTRATOR
Pursuant to the terms of the Plan, the Plan is administered by one or more
persons who are appointed by and who serve at the pleasure of the Bank (the
"Administrator").
12
<PAGE>
Currently, the Administrator is Mr. Arthur Toohig, Senior Vice President and
Human Resources Officer of the Bank. The address and telephone number of the
Administrator is c/o 1400 Old Northern Boulevard, Roslyn, New York 11576; (516)
621-6000. The Administrator is responsible for the administration of the Plan,
interpretation of the provisions of the Plan, prescribing procedures for filing
applications for benefits, preparation and distribution of information
explaining the Plan, maintenance of Plan records, books of account and all other
data necessary for the proper administration of the Plan, and preparation and
filing of all returns and reports relating to the Plan which are required to be
filed with the U.S. Department of Labor and the IRS, and for all disclosures
required to be made to Participants, Beneficiaries and others under Sections 104
and 105 of ERISA.
AMENDMENT AND TERMINATION
It is the intention of the Bank to continue the Plan indefinitely.
Nevertheless, the Bank may terminate the Plan at any time. If the Plan is
terminated in whole or in part, then regardless of other provisions in the Plan,
each employee affected by such termination shall have a fully vested interest in
his Accounts. The Bank reserves the right to make, from time to time, any
amendment or amendments to the Plan which do not cause any part of the Trust to
be used for, or diverted to, any purpose other than the exclusive benefit of
Participants or their beneficiaries; provided, however, that the Bank may make
any amendment it determines necessary or desirable, with or without retroactive
effect, to comply with ERISA.
MERGER, CONSOLIDATION OR TRANSFER
In the event of the merger or consolidation of the Plan with another plan,
or the transfer of the Trust assets to another plan, the Plan requires that each
Participant would (if either the Plan or the other plan then terminated) receive
a benefit immediately after the merger, consolidation or transfer which is equal
to or greater than the benefit he would have been entitled to receive
immediately before the merger, consolidation or transfer (if the Plan had then
terminated).
FEDERAL INCOME TAX CONSEQUENCES
The following is only a brief summary of certain federal income tax aspects
of the Plan which are of general application under the Code and is not intended
to be a complete or definitive description of the federal income tax
consequences of participating in or receiving distributions from the Plan. The
summary is necessarily general in nature and does not purport to be complete.
Moreover, statutory provisions are subject to change, as are their
interpretations, and their application may vary in individual circumstances.
Finally, the consequences under applicable state and local income tax laws may
not be the same as under the federal income tax laws. PARTICIPANTS ARE URGED TO
CONSULT THEIR TAX ADVISORS WITH RESPECT TO ANY DISTRIBUTION FROM THE PLAN AND
TRANSACTIONS INVOLVING THE PLAN.
The Plan will be submitted to the IRS in a timely manner for a
determination that it is qualified under Section 401(a) and 401(k) of the Code,
and that the related Trust is exempt
13
<PAGE>
from tax under Section 501(a) of the Code. A plan that is "qualified" under
these sections of the Code is afforded special tax treatment which include the
following: (1) The sponsoring employer is allowed an immediate tax deduction for
the amount contributed to the Plan each year; (2) Participants pay no current
income tax on amounts contributed by the employer on their behalf; and (3)
Earnings of the plan are tax-exempt thereby permitting the tax-free accumulation
of income and gains on investments. The Plan will be administered to comply in
operation with the requirements of the Code as of the applicable effective date
of any change in the law. The Bank expects to timely adopt any amendments to the
Plan that may be necessary to maintain the qualified status of the Plan under
the Code. Following such an amendment, the Bank will submit the Plan to the IRS
for a determination that the Plan, as amended, continues to qualify under
Sections 401(a) and 501(a) of the Code and that it continues to satisfy the
requirements for a qualified cash or deferred arrangement under Section 401(k)
of the Code. Should the Plan receive from the IRS an adverse determination
letter regarding its tax exempt status, all participants would recognize income
equal to their vested interest in the Plan, the participants would not be
permitted to transfer amounts distributed from the Plan to an IRA or to another
qualified retirement plan, and the Bank may be denied certain deductions taken
with respect to the Plan.
Assuming that the Plan is administered in accordance with the requirements
of the Code and that the IRS issues a favorable determination as described in
the preceding paragraph, participation in the Plan under existing federal income
tax laws will have the following effects:
(a) Amounts contributed to a Participant's Basic Contribution Account
and the investment earnings on this Account are not includable in a
Participant's federal taxable income until such contributions or earnings
are actually distributed or withdrawn from the Plan. Special tax treatment
may apply to the taxable portion of any distribution that includes Common
Stock or qualifies as a Lump Sum Distribution (as described below).
(b) Income earned on assets held by the Trust will not be taxable to
the Trust.
Lump Sum Distribution. A distribution from the Plan to a Participant or
---------------------
the beneficiary of a Participant will qualify as a Lump Sum Distribution if it
is made: (i) within one taxable year of the Participant or beneficiary; (ii) on
account of the Participant's death, disability or separation from service, or
after the Participant attains age 59 1/2; and (iii) consists of the balance to
the credit of the Participant under this Plan and all other profit sharing
plans, if any, maintained by the Bank. The portion of any Lump Sum Distribution
that is required to be included in the Participant's or beneficiary's taxable
income for federal income tax purposes (the "total taxable amount") consists of
the entire amount of such Lump Sum Distribution less the amount of after-tax
contributions, if any, made by the Participant to any other profit sharing plans
maintained by the Bank which is included in such distribution.
Averaging Rules. The portion of the total taxable amount of a Lump Sum
---------------
Distribution that is attributable to participation after 1973 in this Plan or in
any other profit-sharing plan
14
<PAGE>
maintained by the Bank (the "ordinary income portion") will be taxable generally
as ordinary income for federal income tax purposes. However, a Participant who
has completed at least five years of participation in this Plan before the
taxable year in which the distribution is made, or a beneficiary who receives a
Lump Sum Distribution on account of the Participant's death (regardless of the
period of the Participant's participation in this Plan or any other profit-
sharing plan maintained by the Employers), may elect to have the ordinary income
portion of such Lump Sum Distribution taxed according to a special averaging
rule ("five-year averaging"). The election of the special averaging rules may
apply only to one Lump Sum Distribution received by the Participant or
beneficiary, provided such amount is received on or after the Participant turns
59-1/2 and the recipient elects to have any other Lump Sum Distribution from a
qualified plan received in the same taxable year taxed under the special
averaging rule. Under a special grandfather rule, individuals who turned 50 by
1986 may elect to have their Lump Sum Distribution taxed under either the five-
year averaging rule or under the prior law ten-year averaging rule. Such
individuals also may elect to have that portion of the Lump Sum Distribution
attributable to the participant's pre-1974 participation in the Plan taxed at a
flat 20% rate as gain from the sale of a capital asset.
Common Stock Included in Lump Sum Distribution. If a Lump Sum Distribution
----------------------------------------------
includes Common Stock, the distribution generally will be taxed in the manner
described above, except that the total taxable amount will be reduced by the
amount of any net unrealized appreciation with respect to such Common Stock,
i.e., the excess of the value of such Common Stock at the time of the
distribution over its cost to the Plan. The tax basis of such Common Stock to
the Participant or beneficiary for purposes of computing gain or loss on its
subsequent sale will be the value of the Common Stock at the time of
distribution less the amount of net unrealized appreciation. Any gain on a
subsequent sale or other taxable disposition of such Common Stock, to the extent
of the amount of net unrealized appreciation at the time of distribution, will
be considered long-term capital gain regardless of the holding period of such
Common Stock. Any gain on a subsequent sale or other taxable disposition of the
Common Stock in excess of the amount of net unrealized appreciation at the time
of distribution will be considered either short-term capital gain or long-term
capital gain depending upon the length of the holding period of the Common
Stock. The recipient of a distribution may elect to include the amount of any
net unrealized appreciation in the total taxable amount of such distribution to
the extent allowed by the regulations to be issued by the IRS.
Distributions: Rollovers and Direct Transfers to Another Qualified Plan or
---------------------------------------------------------------------------
to an IRA. Pursuant to a change in the law, effective January 1, 1993,
- ----------
virtually all distributions from the Plan may be rolled over to another
qualified Plan or to an IRA without regard to whether the distribution is a Lump
Sum Distribution or a Partial Distribution. Effective January 1, 1993,
Participants have the right to elect to have the Trustee transfer all or any
portion of an "eligible rollover distribution" directly to another plan
qualified under Section 401(a) of the Code or to an IRA. If the Participant does
not elect to have an "eligible rollover distribution" transferred directly to
another qualified plan or to an IRA, the distribution will be subject to an
mandatory federal withholding tax equal to 20% of the taxable distribution. An
"eligible rollover distribution" means any amount distributed from the Plan
except: (1) a distribution
15
<PAGE>
that is (a) one of a series of substantially equal periodic payments made (not
less frequently than annually) over the Participants designated beneficiary, or
(b) for a specified period of ten years or more; (2) any amount that is required
to be distributed under the minimum distribution rules; and (3) any other
distributions excepted under applicable federal law. The tax law change
described above did not modify the special tax treatment of Lump Sum
Distributions, that are not rolled over or transferred i.e., forward averaging,
capital gains tax treatment and the nonrecognition of net unrealized
appreciation, discussed earlier.
ERISA AND OTHER QUALIFICATION
As noted above, the Plan is subject to certain provisions of the Employee
Retirement Income Security Act of 1974, as amended, and will be submitted to the
IRS for a determination that it is qualified under Section 401(a) of the Code.
THE FOREGOING IS ONLY A BRIEF SUMMARY OF CERTAIN FEDERAL INCOME TAX ASPECTS
OF THE PLAN WHICH ARE OF GENERAL APPLICATION UNDER THE CODE AND IS NOT INTENDED
TO BE A COMPLETE OR DEFINITIVE DESCRIPTION OF THE FEDERAL INCOME TAX
CONSEQUENCES OF PARTICIPATING IN OR RECEIVING DISTRIBUTIONS FROM THE PLAN.
ACCORDINGLY, EACH PARTICIPANT IS URGED TO CONSULT A TAX ADVISOR CONCERNING THE
FEDERAL, STATE AND LOCAL TAX CONSEQUENCES OF PARTICIPATING IN AND RECEIVING
DISTRIBUTIONS FROM THE PLAN.
RESTRICTIONS ON RESALE
Any person receiving shares of Common Stock under the Plan who is an
"affiliate" of the Bank as the term "affiliate" is used in Rules 144 and 405
under the Securities Act of 1933 (e.g., directors, officers and substantial
shareholders of the Bank) may reoffer or resell such shares only pursuant to a
registration statement filed under the Securities Act of 1933 or, assuming the
availability thereof, pursuant to Rule 144 or some other exemption of the
registration requirements of the Securities Act of 1933 (the "Securities Act").
Any person who may be an "affiliate" of the Bank may wish to consult with
counsel before transferring any Company Stock owned by him. In addition,
Participants are advised to consult with counsel as to the applicability of
Section 16 of the 1934 Act which may restrict the sale of Common Stock where
acquired under the Plan, or other sales of Common Stock.
Persons who are not deemed to be "affiliates" of the Bank at the time of
---
resale will be free to resell any shares of Common Stock to them under the Plan,
either publicly or privately, without regard to the Registration and Prospectus
delivery requirements of the Securities Act or compliance with the restrictions
and conditions contained in the exemptive rules thereunder. An "affiliate" of
the Bank is someone who directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control, with the
Bank. Normally, a director, principal officer or major shareholder of a
corporation may be deemed to be an "affiliate" of that corporation. A person who
may be deemed an "affiliate" of the Bank at the time of a proposed resale will
be permitted to make public resales of the Bank's Common Stock only pursuant to
a "reoffer" Prospectus or in accordance with the restrictions and conditions
contained in Rule 144 under the Securities Act or some other
16
<PAGE>
exemption from registration, and will not be permitted to use this Prospectus in
connection with any such resale. In general, the amount of the Bank's Common
Stock which any such affiliate may publicly resell pursuant to Rule 144 in any
three-month period may not exceed the greater of one percent of the Bank's
Common Stock then outstanding or the average weekly trading volume reported on
the National Bank of Securities Dealers Automated Quotation System during the
four calendar weeks prior to the sale. Such sales may be made only through
brokers without solicitation and only at a time when the Bank is current in
filing the reports required of it under the 1934 Act.
SEC REPORTING AND SHORT-SWING PROFIT LIABILITY
Section 16 of the 1934 Act imposes reporting and liability requirements on
officers, directors and persons beneficially owning more than ten percent of
public companies such as the Holding Company. Section 16(a) of the 1934 Act
requires the filing of reports of beneficial ownership. Within ten days of
becoming a person subject to the reporting requirements of Section 16(a), a Form
3 reporting initial beneficial ownership must be filed with the Securities and
Exchange Commission. Certain changes in beneficial ownership, such as purchases,
sales, gifts and participation in savings and retirement plans must be reported
periodically, either on a Form 4 within ten days after the end of the month in
which a change occurs, or annually on a Form 5 within 45 days after the close of
the Bank's fiscal year. Participation in the Employer Stock Fund of the Plan by
officers, directors and persons beneficially owning more than ten percent of
Common Stock of the Holding Company must be reported to the SEC annually on a
Form 5 by such individuals. At ________________, ____% of the Plan assets were
allocated to officers and directors.
In addition to the reporting requirements described above, Section 16(b) of
the 1934 Act provides for the recovery by the Holding Company of profits
realized by any officer, director or any person beneficially owning more than
ten percent of the Holding Company's Common Stock ("Section 16(b) Persons")
resulting from the purchase and sale or sale and purchase of the Holding
Company's Common Stock within any six-month period.
The SEC has adopted rules that provide exemption from the profit recovery
provisions of Section 16(b) for participant-directed employer security
transactions within an employee benefit plan, such as the Plan, provided certain
requirements are met. These requirements generally involve restrictions upon
the timing of elections to acquire or dispose of employer securities for the
accounts of Section 16(b) Persons.
Except for distributions of Common Stock due to death, disability,
retirement, termination of employment or under a qualified domestic relations
order, Section 16(b) Persons are required to hold shares of Common Stock
distributed from the Plan for six months following such distribution.
17
<PAGE>
EXPERTS
The financial statements and schedule of The Roslyn Savings Bank 401(k)
Savings Plan in RSI Retirement Trust as of December 31, 1994 and 1993 and for
the years then ended have been included herein in reliance upon the receipt of
KPMG Peat Marwick LLP, independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing, included in this Prospectus Supplement have been prepared by the
Bank.
LEGAL OPINIONS
The validity of the issuance of the Common Stock will be passed upon by
Muldoon, Murphy & Faucette, Washington, D.C., which firm acted as special
counsel for the Bank in connection with the Bank's Conversion from a mutual
savings association to a stock based organization.
18
<PAGE>
THE ROSLYN SAVINGS BANK
401(K) SAVINGS PLAN IN RSI RETIREMENT TRUST
Investment Form
---------------
Name of Plan Participant: ________________________________
Social Security Number: ________________________________
1. INSTRUCTIONS. In connection with the proposed Conversion of The
------------
Roslyn Savings Bank from a mutual savings bank to a stock based organization
(the "Conversion"), The Roslyn Savings Bank 401(k) Savings Plan in RSI
Retirement Trust 401(k) Plan ("Plan") has been amended to permit participants to
direct their current account balances for their Basic Contribution Account,
Company Contribution Account, Rollover Account and Special Contribution Account
into a new fund: the Employer Stock Fund. The percentage of a participant's
account transferred at the direction of the participant into the Employer Stock
Fund will be used to purchase shares of common stock of Roslyn Bancorp, Inc.
(the "Common Stock").
To direct a transfer of all or a part of the funds credited to your
accounts to the Employer Stock Fund, you should complete and file this form with
the Human Resources Department, no later than _____________, 1996. A
representative for the Plan Administrator will retain a copy of this form and
return a copy to you. If you need any assistance in completing this form,
please contact Mr. Arthur Toohig at(516)621-6000, extension 1253 . If you do
not complete and return this form to the Plan Administrator by ____________, the
funds credited to your accounts under the Plan will continue to be invested in
accordance with your prior investment direction, or in accordance with the terms
of the Plan if no investment direction has been provided.
2. INVESTMENT DIRECTIONS. I hereby direct the Plan Administrator to invest the
following percentage (in multiples of not less than 5%) of my Basic Contribution
Account, Company Contribution Account, Rollover Account and Special Contribution
Account in the:
a. Core Equity Fund ____%
b. Emerging Growth Fund ____%
c. Value Equity Fund ____%
d. Intermediate - Term Investment Fund ____%
e. Actively Managed Bond Fund ____%
f. Short-Term Investment Fund ____%
g. Employer Stock Fund ____%
NOTE: The total percentage of directed investments, above, may not exceed 100%.
3. ACKNOWLEDGEMENT OF PARTICIPANT. I understand that this Investment Form
shall be subject to all of the terms and conditions of the Plan. I acknowledge
that I have received a copy of the Prospectus and the Prospectus Supplement.
_________________________ ________________
Signature of Participant Date
- -----------------------------------------------------
ACKNOWLEDGMENT OF RECEIPT BY ADMINISTRATOR. This Investment Form was received
by the Plan Administrator and will become effective on the date noted below.
__________________ ________________
By:______________ Date
19
<PAGE>
THE ROSLYN SAVINGS BANK
401(K) SAVINGS PLAN
FINANCIAL STATEMENTS AND SCHEDULES
DECEMBER 31, 1994 AND 1993
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
<PAGE>
THE ROSLYN SAVINGS BANK
401(k) SAVINGS PLAN
Index to Financial Statements
Independent Auditors' Report
Financial Statements:
Statements of Assets Available for Distribution as of December 31,
1994 and 1993
Statements of Changes in Assets Available for Distribution for the
years ended December 31, 1994 and 1993
Notes to Financial Statements
Item 27a - Schedule of Assets Held for Investment Purposes
Item 27d - Schedule of Reportable Transactions
<PAGE>
[KPMG LETTERHEAD APPEARS HERE]
Independent Auditors' Report
----------------------------
Board of Trustees
The Roslyn Savings Bank:
We have audited the accompanying statements of assets available for
distribution of The Roslyn Savings Bank 401(k) Savings Plan as of
December 31, 1994 and 1993, and the related statements of changes in
assets available for distribution for the years then ended. These
financial statements are the responsibility of the Plan's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the assets available for distribution
of The Roslyn Savings Bank 401(k) Savings Plan as of December 31, 1994
and 1993, and the changes in assets available for distribution for the
years then ended, in conformity with generally accepted accounting
principles.
Our audits were performed for the purpose of forming an opinion on the
basic financial statements of The Roslyn Savings Bank 401(k) Savings Plan
taken as a whole. The supplemental schedules of assets held for
investment purposes and reportable transactions are presented for the
purpose of additional analysis and are not a required part of the basic
financial statements but are supplementary information required by the
Department of Labor's Rules and Regulations for Reporting and Disclosure
under the Employee Retirement Income Security Act of 1974. The
supplemental schedules have been subjected to the auditing procedures
applied in the audits of the basic financial statements and, in our
opinion, are fairly stated in all material respects in relation to the
basic financial statements taken as a whole.
KPMG Peat Marwick LLP
September 15, 1995
<PAGE>
THE ROSLYN SAVINGS BANK
401(k) SAVINGS PLAN
Statements of Assets Available for Distribution
December 31, 1994 and 1993
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Cash $ - 1,422
Investments managed by the RSI Retirement
Trust, at estimated fair value:
Fixed-income funds:
Short-term investments fund 1,537,920 1,926,662
Intermediate-term bond fund 316,013 343,205
Actively managed bond fund 647,119 734,603
--------- ---------
Total fixed-income funds 2,501,052 3,004,470
--------- ---------
Equity funds:
Core equity fund 1,058,702 1,050,064
Emerging growth equity fund 299,795 236,106
Value equity fund 248,029 190,318
--------- ---------
Total equity funds 1,606,526 1,476,488
--------- ---------
Employer contributions receivable - 7,604
Employee contributions receivable - 14,259
Participant loans receivable 370,331 322,440
--------- ---------
Assets available for distribution $ 4,477,909 4,826,683
========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
THE ROSLYN SAVINGS BANK
401(k) SAVINGS PLAN
Statements of Changes in Assets Available for Distribution
Years ended December 31, 1994 and 1993
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Additions to assets:
Contributions:
Employer $ 220,386 206,842
Employee 428,897 381,539
---------- ---------
Total contributions 649,283 588,381
---------- ---------
Investment income:
Net investment income on fixed-income and equity
funds managed by The RSI Retirement Trust 28,987 279,304
Interest on participant loans 16,295 17,674
----------- ---------
Total investment income 45,282 296,978
---------- ---------
Total additions 694,565 885,359
---------- ---------
Distributions to participants and beneficiaries (1,043,339) (311,606)
---------- ---------
Excess (deficiency) of contributions and
investment income over distributions (348,774) 573,753
Assets available for distribution:
Beginning of year 4,826,683 4,252,930
---------- ---------
End of year $ 4,477,909 4,826,683
========== =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
THE ROSLYN SAVINGS BANK
401(k) SAVINGS PLAN
Notes to Financial Statements
December 31, 1994 and 1993
(1) Description of Plan
-------------------
The following brief description of The Roslyn Savings Bank 401(k) Savings
Plan (the Plan) is provided for general information purposes only.
Participants should refer to the Plan agreement for more complete
information:
(a) General
-------
The Roslyn Savings Bank (Bank) established the Savings Incentive Plan
(Prior Plan), effective as of January 1, 1979, for the benefit of its
eligible employees. Effective April 1, 1985, the Bank became a
Participating Employer in RSI Retirement Trust (formerly The Retirement
System for Savings Institutions) and amended and restated the Prior Plan
in its entirety so as to replace and supersede the same by a plan of
participation in the System to be known as The Roslyn Savings Bank
401(k) Savings Plan (Plan). The Plan is effectuated through the trust
established by the Bank by its adoption of the Agreement and Declaration
of Trust of the Retirement System for Savings Institutions (now known as
The RSI Retirement Trust).
The Plan is a defined contribution and thrift savings plan. All regular,
full-time employees are eligible for voluntary participation after one
or more years of continuous service. Effective June 12, 1992, Roslyn
Savings Bank purchased the East Northport Branch of Riverhead Savings
Bank (Riverhead Branch). With respect to employees of the Riverhead
Branch, who became employees of Roslyn Savings Bank, employment with
Riverhead Savings Bank was deemed employment with the Bank for purposes
of determining eligibility to participate in the Plan.
The Plan provides growth in savings through the Bank's contributions and
income from its investments. It is subject to the provisions of the
Employee Retirement Income Security Act of 1974 as amended (ERISA).
(b) Contributions to the Plan
-------------------------
The Plan allows the participants to contribute a specified percentage of
their base salary. The maximum percentage allowed is 12% and the minimum
is 1%. The Bank makes bi-weekly contributions equal to 50% of an
employee's contribution to the Plan, up to a maximum of 3%, during the
first 60 months in which an employee contributes to the Plan.
Thereafter, the Bank contributes 100% of the employee's contribution, up
to a maximum of 6%.
Under the provisions of the Plan, participants are fully vested to the
extent of their contributions, together with any related investment
earnings thereon. Participants obtain a vested interest in Bank
contributions, together with any related investment earnings thereon
under the following conditions:
100% in the event of:
(i) death prior to termination of employment
(ii) retirement
(iii) termination of employment due to permanent disability
(iv) completion of 5 years of service
(v) termination or partial termination of the Plan (if
participant is affected by such partial termination) or
discontinuance of contributions to the Plan;
(Continued)
<PAGE>
2
THE ROSLYN SAVINGS BANK
401(k) SAVINGS PLAN
Notes to Financial Statements, Continued
Otherwise:
(i) 20% upon entrance into the Plan
(ii) 40% after completion of 12 months
(iii) 60% after completion of 24 months
(iv) 80% after completion of 36 months
(v) 100% after completion of 48 months.
Forfeited balances of participants' nonvested accounts are used to reduce
future Bank contributions.
Effective January 1, 1994, the Plan was amended so as to grant vesting
credit from date of employment and to include all years of eligible service
(including any year an employee was eligible but elected not to participate).
(c) Plan Distributions
------------------
Under the provisions of the Plan, withdrawals of funds other than at
retirement, death, disability, or other termination will be permitted
subject to certain limitations. Distributions to participants are
recorded when paid.
The Plan provides that withdrawals may be made twice during any Plan year
and that such payments do not result in suspension of contributions to
the Plan. The Plan was amended, effective September 1, 1992, such that
each participant may make withdrawals not more than four times during
any Plan year. Participants may withdraw their own contributions made
prior to April 1, 1985 and any or all Bank contributions provided the
participant is 100% vested. Participant contributions made after April
1, 1985 may be withdrawn under the non-hardship withdrawal provisions
provided the individual is 59-1/2. If the individual is under 59-1/2,
withdrawals may be made under the hardship provisions.
Participants under age 59-1/2 may only withdraw their own contributions
made after April 1, 1985 provided they have withdrawn the maximum amount
available under the non-hardship provision and meet the hardship
withdrawal requirements. The reasons for determining financial hardship
must be described on a written notice to the Employee Benefits Committee
(the Committee), which must be submitted 15 days prior to the date the
payment is to be made. The Committee must approve the request and amount
of payment. Hardship shall include, without limitations: serious illness
of a member of your immediate family; or your educational needs or the
needs of your spouse and/or children; or the purchase or construction of
a principal residence; or to prevent the eviction of the participant
from their principal residence or foreclosure of the participant's
mortgage on their principal residence; or any similar circumstances, in
the discretion of the Committee. The Plan was amended, effective
September 1, 1992, such that participants may not apply for a hardship
withdrawal more often than four times during any plan year.
Bank contributions may only be withdrawn provided the participant is 100%
vested in such contributions.
The Plan was amended September 1, 1993 to conform with the following:
1. Unemployment Compensation Amendments of 1992 effective January 1,
1993.
(Continued)
<PAGE>
3
THE ROSLYN SAVINGS BANK
401(k) SAVINGS PLAN
Notes to Financial Statements, Continued
As per regulations issued under this Act, the Plan was amended allowing
Plan participants to transfer directly all or a portion of their
distributions to an IRA account or another qualified plan with a new
employer.
2. Technical Liberalizations of Hardship Distributions under Final Section
401(k) regulations.
The plan now allows participants who request hardship distributions to:
a. gross up their distributions to account for income and excise taxes;
b. receive a distribution to cover educational costs for 12 months
instead of only the current semester; and
c. include anticipated medical expenses in the hardship distribution.
Upon a participant's death, the value of his/her account(s) will be
distributed to the surviving beneficiary, or, if there is none, then to
the executor or administrator of his estate, or, if no such executor or
administrator is appointed and qualifies within a time which the
Committee shall, in their sole and absolute discretion, deem to be
reasonable, then to such one or more of the spouse, descendants, and
blood relatives of the deceased participant as the Committee, in their
sole and absolute discretion, may select.
Under the provisions of the Plan, distributions due to termination of
employment or termination of the Plan are to be paid in a lump sum. For
distributions due to retirement, death or disability, the payment can be
in a lump sum or in annual installments over a period not exceeding
fifteen years; this method of payment is at the discretion of the
participant or beneficiary. The Plan was amended, effective September 1,
1992, to allow this optional form of distribution only for employees who
became participants in the Plan prior to September 1, 1992.
(d) Participant Loans
-----------------
Subject to the approval of the Committee, a participant may borrow from his
or her accounts an amount up to the lesser of (i) fifty percent (50%) of
his vested interest in the net value of his or her basic contribution
account, participant contribution account and bank contribution account,
or (ii) $50,000 reduced by the highest outstanding loan balance during
the preceding twelve (12) months. The minimum loan permitted shall be
$500. All loans shall be for a fixed term of not more than five (5)
years, except that a loan which shall be used for the purchase or
construction of the principal residence of the participant or that of a
member of his immediate family, may, in the discretion of the Committee,
be made for a term not exceeding fifteen (15) years. Interest on a loan
will be charged at the three (3) year treasury rate in effect at the
time of the loan, adjusted to the nearest quarter (1/4) of one percent
(1%).
(2) Summary of Significant Accounting Policies
------------------------------------------
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles. The significant accounting
policies followed by the Plan are as follows:
(a) Basis of Presentation
---------------------
The accompanying financial statements have been prepared on an accrual
basis and present the assets available for distribution and changes in
those assets of the Plan.
(Continued)
<PAGE>
4
THE ROSLYN SAVINGS BANK
401(k) SAVINGS PLAN
Notes to Financial Statements, Continued
(b) Trust Funds Managed by The RSI Retirement Trust
-----------------------------------------------
Under the terms of a trust agreement between The RSI Retirement Trust (RSI)
and the Bank, the Bank participates in a trust fund managed by RSI. All
assets of the Plan are held in trust at RSI as Trustee for the exclusive
benefit of the participants and their beneficiaries under the Plan. The
Plan is administered by the Bank and, accordingly, the Bank has the
power to remove and replace the Trustee at any time. The RSI consists of
two groups of investment funds - the fixed-income funds, which are
invested in fixed income investments with limited equity holdings, and
the equity funds, which permit a higher percentage of funds to be
invested in common stocks. As of December 31, 1994 and 1993, there were
eight investment funds available of which only six are utilized by the
Plan. The funds currently consist of (i) three fixed-income funds: (a)
Short-Term Investments Fund, (b) Intermediate-Term Bond Fund, and (c)
Actively Managed Bond Fund, and (ii) three equity funds: (a) Core Equity
Fund, (b) Value Equity Fund, and (c) Emerging Growth Equity Fund. The
Plan has elected to permit investments in certain of the fixed-income
funds and the equity funds for which RSI has sole discretionary
authority concerning purchases and sales of investments therein.
The following is a brief description of the eight investment funds
available:
Short-Term Investments Fund - portfolio is invested in high quality
---------------------------
money market instruments maturing in one year or less, with an
average maturity of the portfolio not to exceed twelve months.
Intermediate-Term Bond Fund - diversified, high quality, fixed income
---------------------------
portfolio with all issues maturing within ten years.
Actively Managed Bond Fund - portfolio's maturity, quality and sector
--------------------------
distributions shifted based on management's interest rate and bond
market forecasts.
Dedicated Bond Fund - invested in a diversified portfolio of fixed-
-------------------
income securities with emphasis on predictable cash flows.
Core Equity Fund - invested in a broadly diversified group of
----------------
financially sound, high quality, large capitalization companies.
Emerging Growth Equity Fund - invested primarily in smaller companies
---------------------------
with higher than average earnings and dividend growth potential.
Value Equity Fund - invested in financially sound companies which offer
-----------------
prospects for significant earnings or dividend growth.
International Equity Fund - invested primarily in stocks of companies
-------------------------
that are headquartered in foreign countries with concentration in the
larger equity markets of Europe, Australia and the Far East.
(c) Investments in Trust Funds and Investment Income
------------------------------------------------
The Plan's investments in the funds of RSI consist of units of
beneficial interest in the funds in which the Plan participates (pooled
investments). The net investment income on trust funds managed by RSI
recognized by the Plan includes current earnings from investments, net
gains or losses realized from
(Continued)
<PAGE>
5
THE ROSLYN SAVINGS BANK
401(k) SAVINGS PLAN
Notes to Financial Statements, Continued
the sale of investments and the net change in the unrealized
appreciation or depreciation in the Plan's proportionate share of the
pooled investments.
All investments are reported at fair value, as determined by the unit value
reported by RSI which is based on the value of the underlying
investments at the balance sheet date. Fair value is measured by the
market price, if there is an active market for the investment, or at an
estimated fair value if a price is not available. Investments in cash
equivalents are stated at cost which approximates fair value. Mortgages,
if any, are valued on the basis of the future principal and interest
payments discounted at prevailing interest rates for similar
investments. Interest income is recorded on an accrual method and
dividend income is recorded on the ex-dividend date.
(d) Plan Investment Accounts
------------------------
Participants' contributions may be included in the Plan investment accounts
listed below:
Account A - Core Equity Fund
Account B - 1/2 Emerging Growth Equity Fund,
1/2 Value Equity Fund
Account C - 1/3 Intermediate-Term Bond Fund,
2/3 Actively Managed Bond Fund
Account D - Short-Term Investments Fund
Participants must direct the manner in which all contributions made on
their behalf are invested in the Plan investment accounts. Thus, they
may direct the investment of proportionate parts of those contributions
in any of the accounts described above in multiples of 5%. Participants
may change their election concerning choice of account(s) for investment
of contributions in accordance with procedures described in the Plan.
The Plan was amended, effective September 1, 1993, to allow participants
to change their election of investment direction and to transfer account
balances between investment options at least once each calendar quarter,
up to a maximum of six times a Plan year.
On May 23, 1995, RSI Trust unbundled the investment fund Accounts B and C
previously offered to the Roslyn Savings Bank 401(k) participants.
(Account B and Account C were each comprised of two individual
investment accounts). Participants' contributions will be included in
the Plan investment accounts as listed below subsequent to May 23, 1995:
Account A - Core Equity Fund
Account B - Emerging Growth Equity Fund
Account C - Value Equity Fund
Account D - Actively Managed Bond Fund
Account E - Intermediate-Term Bond Fund
Account F - Short-Term Investments Fund
(Continued)
<PAGE>
6
THE ROSLYN SAVINGS BANK
401(k) SAVINGS PLAN
Notes to Financial Statements, Continued
(e) Administrative Expenses
-----------------------
The Bank bears the costs of administering the Plan.
(f) Benefits
--------
Benefits to participants or their beneficiaries are recorded when paid.
(3) Investments in Trust Funds Managed by The RSI Retirement Trust
--------------------------------------------------------------
The total number of units and the net asset value per unit at December 31,
1994 were as follows:
<TABLE>
<CAPTION>
Unit Current
Units value value
----- ----- -----
<S> <C> <C> <C>
Short-Term Investments Fund 82,862 $ 18.56 1,537,920
Intermediate-Term Bond Fund 12,491 25.30 316,013
Actively Managed Bond Fund 24,737 26.16 647,119
Core Equity Fund 29,865 35.45 1,058,702
Emerging Growth Equity Fund 8,050 37.24 299,795
Value Equity Fund 9,540 26.00 248,029
----- ---------
$ 4,107,578
=========
</TABLE>
The Plan's investment in each of the following funds represent 5% or more
of the assets available for benefits at December 31, 1994; (a) Short-
Term Investments Fund, (b) Intermediate-Term Bond Fund, (c) Actively
Managed Bond Fund, (d) Core Equity Fund, (e) Emerging Growth Equity Fund
and (f) Value Equity Fund.
The total number of units and the net asset value per unit at December 31,
1993 were as follows:
<TABLE>
<CAPTION>
Unit Current
Units value value
----- ----- -----
<S> <C> <C> <C>
Short-Term Investments Fund 107,335 $ 17.95 1,926,662
Intermediate-Term Bond Fund 13,221 25.96 343,205
Actively Managed Bond Fund 26,899 27.31 734,603
Core Equity Fund 30,010 34.99 1,050,064
Emerging Growth Equity Fund 6,564 35.97 236,106
Value Equity Fund 7,236 26.30 190,318
---------
$ 4,480,958
=========
</TABLE>
The Plan's investment in each of the following funds represent 5% or more
of the assets available for benefits at December 31, 1993; (a) Short-
Term Investments Fund, (b) Intermediate-Term Bond Fund, (c) Actively
Managed Bond Fund and (d) Core Equity Fund.
(Continued)
<PAGE>
7
THE ROSLYN SAVINGS BANK
401(k) SAVINGS PLAN
Notes to Financial Statements, Continued
(4) Federal Income Taxes
--------------------
A determination letter dated May 24, 1994 had been obtained from the
Internal Revenue Service to the effect that the Prior Plan and all
amendments to the Prior Plan made before July 13, 1992 qualified for tax
exempt status for Federal income tax purposes. In the opinion of the
Plan administrator, the Plan and its underlying trust have operated
within terms of the Plan and remain qualified under applicable
provisions of the Internal Revenue Code.
(5) Participation in Plan Investment Accounts
-----------------------------------------
The assets of the Plan are comprised of assets in four investment accounts,
which are managed by RSI.
The assets available for distribution for Accounts A, B, C and D as of
December 31, 1994 and 1993 and the changes in those assets for the years
then ended are as follows:
<TABLE>
<CAPTION>
1994
----------------------------------------------------------------------------------
Account Account Account Account
A B C D Other Total
- - - - ----- -----
<S> <C> <C> <C> <C> <C> <C>
Fixed-income funds:
Short-term investments fund $ - - - 1,537,920 - 1,537,920
Intermediate-term bond fund - - 316,013 - - 316,013
Actively managed bond fund - - 647,119 - - 647,119
--------- ------- ------- --------- ------- ---------
- - 963,132 1,537,920 - 2,501,052
--------- ------- ------- --------- ------- ---------
Equity funds:
Core equity fund 1,058,702 - - - - 1,058,702
Emerging equity growth fund - 299,795 - - - 299,795
Value equity fund - 248,029 - - - 248,029
--------- ------- ------- --------- ------- ---------
1,058,702 547,824 - - - 1,606,526
--------- ------- ------- --------- ------- ---------
Participant loans receivable - - - - 370,331 370,331
--------- ------- ------- --------- ------- ---------
Assets available for distribution $ 1,058,702 547,824 963,132 1,537,920 370,331 4,477,909
========= ======= ======= ========= ======= =========
</TABLE>
(Continued)
<PAGE>
8
THE ROSLYN SAVINGS BANK
401(k) SAVINGS PLAN
Notes to Financial Statements, Continued
<TABLE>
<CAPTION>
1993
----------------------------------------------------------------------------
Account Account Account Account
Cash A B C D Other Total
---- - - - - ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Cash $ 1,422 - - - - - 1,422
Fixed-income funds:
Short-term investments fund - - - - 1,926,662 - 1,926,662
Intermediate-term bond fund - - - 343,205 - - 343,205
Actively managed bond fund - - - 734,603 - - 734,603
---------- --------- --------- --------- --------- --------- ---------
1,422 - - 1,077,808 1,926,662 - 3,004,470
---------- ---------- --------- --------- --------- --------- ---------
Equity funds:
Core equity fund - 1,050,064 - - - - 1,050,064
Emerging growth fund - - 236,106 - - - 236,106
Value equity fund - - 190,318 - - - 190,318
---------- --------- --------- --------- --------- --------- ---------
- 1,050,064 426,424 - - - 1,476,488
----------- ---------- --------- --------- --------- --------- ---------
Employer contributions receivable - - - - - 7,604 7,604
Employee contributions receivable - - - - - 14,259 14,259
---------- --------- --------- --------- --------- --------- ---------
- - - - - 21,863 21,863
---------- --------- ---------- ---------- ---------- ---------- ----------
Participant loans receivable - - - - - 322,440 322,440
---------- --------- --------- --------- --------- --------- ---------
Assets available for distribution $ 1,422 1,050,064 426,424 1,077,808 1,926,662 344,303 4,826,683
========== ========= ========= ========= ========= ========= =========
</TABLE>
(Continued)
<PAGE>
9
THE ROSLYN SAVINGS BANK
401(k) SAVINGS PLAN
Notes to Financial Statements, Continued
<TABLE>
<CAPTION>
Account Account Account Account
Cash A B C D
---- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1994:
Contributions:
Employer $ - 71,180 45,882 51,180 59,748
Employee - 148,158 87,164 96,817 111,017
------- --------- ------- --------- ---------
Total contributions - 219,338 133,046 147,997 170,765
Investment income:
Net investment income - 10,998 7,004 (41,745) 52,730
Participant loan repayments, net of
disbursements (including interest
of $16,295) (1,422) (6,651) 4,957 (17,451) (38,470)
------- --------- ------- --------- ---------
(1,422) 4,347 11,961 (59,196) 14,260
Distributions to participants
and beneficiaries - (254,722) (66,273) (300,727) (394,176)
Transfers between funds - 39,675 42,666 97,250 (179,591)
------- --------- ------- --------- ---------
Excess (deficiency) of
contributions and investment
income over distributions (1,422) 8,638 121,400 (114,676) (388,742)
Assets available for distribution:
Beginning of year 1,422 1,050,064 426,424 1,077,808 1,926,662
------- --------- ------- --------- ---------
End of year $ - 1,058,702 547,824 963,132 1,537,920
======= ========= ======= ========= =========
<CAPTION>
Participant
loans
Other receivable Total
----- ---------- -----
<S> <C> <C> <C>
Year ended December 31,
1994:
Contributions:
Employer (7,604) - 220,386
Employee (14,259) - 428,897
--------- ------- ----------
Total contributions (21,863) - 649,283
Investment income:
Net investment income - - 28,987
Participant loan repayments, net of
disbursements (including interest
of $16,295) - 75,332 16,295
--------- ------- ----------
- 75,332 45,282
Distributions to participants
and beneficiaries - (27,441) (1,043,339)
Transfers between funds - - -
--------- ------- ----------
Excess (deficiency) of
contributions and investment
income over distributions (21,863) 47,891 (348,774)
Assets available for
distribution:
Beginning of year 21,863 322,440 4,826,683
--------- ------- ----------
End of year - 370,331 4,477,909
========= ======= ==========
</TABLE>
<PAGE>
10
THE ROSLYN SAVINGS BANK
401(k) SAVINGS PLAN
Notes to Financial Statements, Continued
<TABLE>
<CAPTION>
Participant
Account Account Account Account loans
Cash A B C D Other receivable Total
---- - - - - ---- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1993:
Contributions:
Employer $ 52,726 33,374 42,123 78,358 261 - 206,842
Employee - 106,959 59,262 75,881 138,821 616 - 381,539
------ --------- ------- --------- --------- ------ ------- ---------
Total contributions - 159,685 92,636 118,004 217,179 877 - 588,381
Investment income:
Net investment income - 87,928 51,784 93,000 46,592 - - 279,304
Participant loan repay-
ments, net of disburse-
ments (including
interest of $17,674) 1,204 (19,322) 1,872 16,401 (3,172) - 20,691 17,674
------ --------- ------- --------- --------- ------ ------- ---------
1,204 68,606 53,656 109,401 43,420 - 20,691 296,978
Distributions to participants
and beneficiaries - (18,817) (15,922) (29,466) (240,729) - (6,672) (311,606)
Transfers between funds - 84,457 (60,584) (132,708) 108,835 - - -
------ --------- ------- --------- --------- ------ ------- ---------
Excess (deficiency) of
contributions and investment
income over distributions 1,204 293,931 69,786 65,231 128,705 877 14,019 573,753
Assets available for
distribution:
Beginning of year 218 756,133 356,638 1,012,577 1,797,957 20,986 308,421 4,252,930
------ --------- ------- --------- --------- ------ ------- ---------
End of year $ 1,422 1,050,064 426,424 1,077,808 1,926,662 21,863 322,440 4,826,683
====== ========= ======= ========= ========= ====== ======= =========
</TABLE>
<PAGE>
Supplemental Schedule 1
-----------------------
THE ROSLYN SAVINGS BANK
401(k) SAVINGS PLAN
Item 27a - Schedule of Assets Held for Investment Purposes
December 31, 1994
<TABLE>
<CAPTION>
Identity of issuer
or borrower Description of investment Cost Current value
----------- ------------------------- ---- -------------
<S> <C> <C> <C>
RSI Retirement Trust Short-Term Investments Fund (82,862 units) $ 1,539,577 1,537,920
RSI Retirement Trust Intermediate-Term Bond Fund (12,491 units) 322,633 316,013
RSI Retirement Trust Actively Managed Bond Fund (24,737 units) 682,246 647,119
RSI Retirement Trust Core Equity Fund (29,865 units) 705,403 1,058,702
RSI Retirement Trust Emerging Growth Equity Fund (8,050 units) 243,201 299,795
RSI Retirement Trust Value Equity Fund (9,540 units) 257,759 248,029
*Plan participants Participant Loans Receivable (maturing within
15 years at the rates ranging from 4.25% to 8.75%) 370,331 370,331
----------
$ 4,477,909
==========
</TABLE>
<PAGE>
Supplemental Schedule 2
-----------------------
THE ROSLYN SAVINGS BANK
401(k) SAVINGS PLAN
Item 27d - Schedule of Reportable Transactions
Year ended December 31, 1994
<TABLE>
<CAPTION>
Current
value of
Expense asset on
Identity of Purchase Selling Lease incurred with Cost of transaction Net gain
party involved Description of Assets price price rental transaction asset date (loss)
-------------- --------------------- ----- ----- ------ ----------- ----- ---- ------
(1) (2)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
RSI Retirement Trust Short-Term Investments Fund $ 441,940 - - - - 441,940 -
======= ======= ====== =========== ====== ======= =========
" " " Short-Term Investments Fund $ - 883,411 - - - 883,411 -
======= ======= ====== =========== ====== ======= =========
" " " Actively Managed Bond Fund $ 329,197 - - - - 329,197 -
======= ======= ====== =========== ====== ======= =========
" " " Actively Managed Bond Fund $ - 384,347 - - - 384,347 -
======= ======= ====== =========== ====== ======= =========
" " " Core Equity Fund $ 407,092 - - - - 407,092 -
======= ======= ====== =========== ====== ======= =========
" " " Core Equity Fund $ - 409,452 - - - 409,452 -
======= ======= ====== =========== ====== ======= =========
</TABLE>
(1) Expenses incurred as a result of these transactions were immaterial and
therefore not shown on this schedule.
(2) Actual cost of asset was not available, however, RSI marks each investment
to market, therefore, they are considered to be at fair market value at the
time of sale.
<PAGE>
[To be used in connection with the Syndicated Community Offering only]
SYNDICATED PROSPECTUS SUPPLEMENT
ROSLYN BANCORP, INC.
(PROPOSED HOLDING COMPANY FOR THE ROSLYN SAVINGS BANK)
__________ SHARES OF COMMON STOCK
Roslyn Bancorp, Inc. (the "Company"), a Delaware corporation, is offering
for sale in a syndicated community offering (the "Syndicated Community
Offering") __________ shares, at a per share price of $10.00, of its common
stock, $0.01 par value (the "Common Stock"), to be issued upon the conversion of
The Roslyn Savings Bank, Roslyn, New York (the "Bank") from a New York chartered
mutual savings bank to a New York chartered stock savings bank and the issuance
of the Bank's outstanding capital stock to the Company pursuant to a plan of
conversion (the "Plan of Conversion"). The remaining __________ shares of the
Common Stock have been subscribed for in subscription and community offerings
(the "Subscription and Community Offerings") by the Bank's holders of deposit
accounts with the Bank with a balance of $100 or more as of April 30, 1995, by
The Roslyn Savings Bank Employee Stock Ownership Plan, a tax-qualified employee
benefit plan, and related trust (the "ESOP"), by holders of deposit accounts
with a balance of $100 or more as of ______________, 1996, by certain other
account holders and borrowers of the Bank and then by certain members of the
general public. See "The Conversion - General." Contained herein is the
Prospectus in the form used in the Subscription and Community Offerings. The
purchase price for all shares purchased in the Syndicated Community Offering
will be the same as the price paid by subscribers in the Subscription and
Community Offerings (the "Purchase Price"). The Purchase Price of $10.00 per
share is the amount to be paid for each share at the time a purchase order is
submitted. See the cover page of the Prospectus and the table below for
information as to the method by which the range within which the number of
shares offered may vary and the method of subscribing for shares of the Common
Stock.
Funds submitted to the Bank with purchase orders will earn interest at the
Bank's passbook rate of interest from the date of receipt until completion or
termination of the Conversion. The Syndicated Community Offering will expire no
later than _______________, 1996, unless extended by the Bank and the Company
with the approval of the Superintendent of Banks of the State of New York and
the Federal Deposit Insurance Corporation, if necessary. Such extensions may
not go beyond _______________, 1998. If an extension of time has been granted,
all subscribers will be notified of such extension, and of their rights to
confirm their subscriptions, or to modify or rescind their subscriptions and
have their funds returned promptly with interest, and of the time period within
which the subscriber must notify the Bank of his intention to confirm, modify or
rescind his subscription. If an affirmative response to any resolicitation is
not received by the Bank and the Company from subscribers, such orders will be
rescinded and all funds will be returned promptly with interest. The minimum
number of shares which may be purchased is 25 shares. Except for the ESOP,
which may purchase up to
<PAGE>
8% of the total number of shares of Common Stock issued in the Conversion, no
person, together with associates of and persons acting in concert with such
person, may purchase in the Community Offering and the Syndicated Community
Offering more than $675,000 of the aggregate value of Common Stock offered in
the Conversion. See "Plan of Conversion -Limitations on Common Stock
Purchases." The Company reserves the right, in its absolute discretion, to
accept or reject, in whole or in part, any or all subscriptions in the
Syndicated Community Offering.
The Company and the Bank have engaged Sandler O'Neill & Partners, L.P.
("Sandler O'Neill") to assist them in the sale of the Common Stock in the
Syndicated Community Offering. It is anticipated that Sandler O'Neill will use
the services of other registered broker-dealers ("Selected Dealers") and that
fees to Sandler O'Neill and such Selected Dealers will be _____% of the
aggregate Purchase Price of the shares sold in the Syndicated Community
Offering. Neither Sandler O'Neill nor any Selected Dealer shall have any
obligation to take or purchase any shares of Common Stock in the Syndicated
Community Offering.
The Company has received conditional approval from the National Association
of Securities Dealers ("NASD") to have its Common Stock quoted on the Nasdaq
National Market u nder the symbol "RSLN." Prior to this Offering, there has not
been a public market for the Common Stock, and there can be no assurance that an
active and liquid trading market for the Common Stock will develop. The absence
or discontinuance of a market may have an adverse impact on both the price and
liquidity of the stock.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE NEW YORK
BANKING DEPARTMENT OR ANY OTHER FEDERAL OR STATE AGENCY OR ANY STATE SECURITIES
COMMISSION, NOR HAS SUCH COMMISSION, OFFICE, OTHER AGENCY OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR DEPOSITS
AND ARE NOT FEDERALLY INSURED OR GUARANTEED.
2
<PAGE>
<TABLE>
<CAPTION>
Estimated Estimated Net Pro-
Underwriting Estimated Net ceeds of Subscrip-
Commissions Proceeds of tion, Community
Syndicated and Other Syndicated and Syndicated
Community Fees and Community Community
Offering Price Expenses(1) Offering Offerings(2)(3)
==========================================================================================================================
<S> <C> <C> <C> <C>
Minimum Per Share $10.00 $ $ $
- --------------------------------------------------------------------------------------------------------------------------
Midpoint Per Share $10.00 $ $ $
- --------------------------------------------------------------------------------------------------------------------------
Maximum Per Share $10.00 $ $ $
- --------------------------------------------------------------------------------------------------------------------------
Total Minimum(5) $ $ $ $
- --------------------------------------------------------------------------------------------------------------------------
Total Midpoint $ $ $ $
- --------------------------------------------------------------------------------------------------------------------------
Total Maximum(5) $ $ $ $
- --------------------------------------------------------------------------------------------------------------------------
Total Maximum, As Adjusted(6) $ $ $ $
==========================================================================================================================
</TABLE>
______________________________
(1) Consists of a pro rata allocation of estimated expenses of the Bank and the
Company in connection with the Conversion (other than estimated fees to be
paid to Sandler O'Neill for services in connection with the Subscription
and Community Offerings) and estimated compensation of Sandler O'Neill and
Selected Dealers in connection with the sale of the remaining shares in the
Syndicated Community Offering which fees are estimated to be $__________
and $__________ at the minimum and the maximum of the estimated price range
and may be deemed to be underwriting fees. The information under "Pro Forma
Data" in the Prospectus was based on the assumptions stated therein, which
may differ from the estimates used for this table. See "The Conversion -
Marketing and Underwriting Arrangements" for a more detailed discussion of
fee arrangements.
(2) The Company applied to retain up to 50% of the net proceeds. The balance of
the net proceeds will be transferred to the Bank in exchange for all of the
capital stock of the Bank to be issued in connection with the Conversion.
(3) The net proceeds of the Subscription and Community Offerings (based upon
the sale of the __________ shares subscribed for at a price of $10.00 per
share and after allocation of a pro rata portion of the estimated expenses
relating to the Conversion) are estimated to be $__________.
(4) Based on an estimated price range of $__________ to $__________ at $10.00
per share (the "Estimated Price Range). The Total Minimum reflects the sale
of __________ shares at a per share price of $10.00, leaving a total of
__________ shares to be sold in the Syndicated Community Offering.
(5) Gives effect to an increase in the number of shares which could occur due
to an increase in the Estimated Price Range of up to 15% to reflect changes
in market and financial conditions following commencement of the offerings.
See "The Conversion - Stock Pricing." For a discussion of the distribution
and allocation of the additional shares, see "The Conversion - Subscription
Rights and Limitations on Common Stock Purchases."
SANDLER O'NEILL & PARTNERS, L.P.
_________________________________
The date of this Prospectus Supplement is _______________, 1996.
3
<PAGE>
PROSPECTUS
ROSLYN BANCORP, INC.
(Proposed Holding Company for The Roslyn Savings Bank)
34,165,049 Shares of Common Stock
Roslyn Bancorp, Inc. (the "Company" or "Roslyn Bancorp"), a Delaware
corporation, is offering up to 34,165,049 shares of its common stock, par value
$.01 per share (the "Common Stock"), in connection with the conversion of The
Roslyn Savings Bank (the "Bank" or "Roslyn") from a New York State chartered
mutual savings bank to a New York State chartered stock savings bank and the
issuance of the Bank's capital stock to the Company pursuant to the Bank's plan
of conversion, as amended (the "Plan" or "Plan of Conversion"). The
simultaneous conversion of the Bank to stock form, the issuance of the Bank's
stock to the Company and the offer and sale of the Common Stock by the Company
are herein referred to as the "Conversion." In certain circumstances, the
Company may increase the amount of Common Stock offered hereby up to 39,289,806
shares. See Footnote 4 to the table below.
(continued on following page)
_________________
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY EACH
PROSPECTIVE INVESTOR, SEE "RISK FACTORS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, THE NEW YORK STATE BANKING DEPARTMENT, THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY STATE SECURITIES COMMISSION, OR ANY OTHER
AGENCY, NOR HAS SUCH COMMISSION, DEPARTMENT, CORPORATION OR ANY STATE SECURITIES
COMMISSION OR OTHER AGENCY PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT DEPOSIT ACCOUNTS AND ARE
NOT INSURED BY THE BANK INSURANCE FUND OR THE SAVINGS ASSOCIATION INSURANCE FUND
OF THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
ESTIMATED UNDERWRITING
COMMISSIONS AND OTHER FEES
SUBSCRIPTION PRICE (1) AND EXPENSES(2) ESTIMATED NET PROCEEDS(3)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Minimum per Share $10.00 $0.25 $9.75
- -----------------------------------------------------------------------------------------------------------------------------
Midpoint Per Share $10.00 $0.24 $9.76
- -----------------------------------------------------------------------------------------------------------------------------
Maximum Per Share $10.00 $0.23 $9.77
- -----------------------------------------------------------------------------------------------------------------------------
Total Minimum(1) $252,524,270 $6,370,000 $246,154,270
- -----------------------------------------------------------------------------------------------------------------------------
Total Midpoint(1) $297,087,380 $7,086,000 $290,001,380
- -----------------------------------------------------------------------------------------------------------------------------
Total Maximum (1) $341,650,490 $7,801,000 $333,849,490
- -----------------------------------------------------------------------------------------------------------------------------
Total Maximum as adjusted(4) $392,898,060 $8,624,000 $384,274,060
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Determined in accordance with an independent appraisal prepared by FinPro,
Inc. ("FinPro") dated July 22, 1996, which states that the estimated pro
forma market value of the Common Stock being offered for sale in the
Conversion ranged from $252,524,270 to $341,650,490 with a midpoint of
$297,087,380 (the "Valuation Range"). The independent appraisal of FinPro
is based upon estimates and projections that are subject to change and the
valuation must not be construed as a recommendation as to the advisability
of purchasing the Common Stock nor an assurance that a purchaser will
thereafter be able to sell the Common Stock at prices within the Valuation
Range. Based on the Valuation Range, the Board of Directors of the Company
and the Bank established an estimated price range of the Common Stock being
offered for sale in the Conversion within the Valuation Range of $252.5
million to $341.6 million (the "Estimated Price Range") or between
25,252,427 and 34,165,049 shares of Common Stock issued at the $10.00 per
share price (the "Purchase Price") to be paid for each share of Common
Stock subscribed for or purchased in the Offering. See "The Conversion -
Stock Pricing."
(2) Consists of the estimated costs to the Bank and the Company arising from
the Conversion, including estimated fixed expenses of approximately $2.4
million, and marketing fees to be paid to Sandler O'Neill & Partners, L.P.
("Sandler O'Neill") estimated to be between $4.0 million and $5.4 million
at the minimum and maximum of the Estimated Price Range, respectively. See
"The Conversion -Marketing Arrangements." The actual fees and expenses may
vary from the estimates. See "Pro Forma Data" for the assumptions used to
arrive at these estimates.
(3) Actual net proceeds may vary substantially from estimated amounts depending
upon the number of shares sold in the Offerings and other factors. Includes
the purchase of shares of Common Stock by The Roslyn Savings Bank Employee
Stock Ownership Plan and related trust (the "ESOP") which is intended to be
funded by a loan to the ESOP from the Company or from a third party, which
will be deducted from the Company's stockholders equity. See "Use of
Proceeds" and "Pro Forma Data."
(4) As adjusted to reflect the sale of up to an additional 15% of the Common
Stock which may be offered at the Purchase Price, without resolicitation of
subscribers or any right of cancellation, due to regulatory considerations,
changes in market or general financial and economic conditions. See "Pro
Forma Data" and "The Conversion - Stock Pricing." For a discussion of the
distribution and allocation of the additional shares, if any, see "The
Conversion - Subscription Offering and Subscription Rights," "- Community
Offering" and "- Limitations on Common Stock Purchases."
_______________
SANDLER O'NEILL & PARTNERS, L.P.
_______________
The date of this Prospectus is _______________, 1996.
<PAGE>
(continued from previous page)
NON-TRANSFERABLE RIGHTS TO SUBSCRIBE FOR THE COMMON STOCK IN A SUBSCRIPTION
OFFERING (THE "SUBSCRIPTION OFFERING") HAVE BEEN GRANTED, IN THE FOLLOWING ORDER
OF PRIORITY: (1) TO THE BANK'S ELIGIBLE ACCOUNT HOLDERS (DEFINED AS HOLDERS OF
DEPOSIT ACCOUNTS TOTALLING $100 OR MORE AS OF APRIL 30, 1995); (2) TO THE
COMPANY'S AND BANK'S TAX-QUALIFIED EMPLOYEE BENEFIT PLANS (COLLECTIVELY, THE
"EMPLOYEE PLANS"), INCLUDING THE ESOP, WHICH INTENDS TO SUBSCRIBE FOR UP TO 8%
OF THE COMMON STOCK ISSUED IN CONNECTION WITH THE CONVERSION, INCLUDING SHARES
ISSUED TO THE ROSLYN SAVINGS BANK FOUNDATION (THE "FOUNDATION"); AND (3) TO THE
BANK'S SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS (DEFINED AS HOLDERS OF DEPOSIT
ACCOUNTS TOTALLING $100 OR MORE AS OF SEPTEMBER 30, 1996). SUBSCRIPTION RIGHTS
ARE NON-TRANSFERABLE. PERSONS FOUND TO BE TRANSFERRING SUBSCRIPTION RIGHTS WILL
BE SUBJECT TO FORFEITURE OF SUCH RIGHTS AND POSSIBLE FURTHER SANCTIONS AND
PENALTIES IMPOSED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION (THE "FDIC") AND
THE NEW YORK BANKING DEPARTMENT (THE "NYBD"). Concurrently, and subject to the
prior rights of holders of subscription rights, the Company is offering the
shares of Common Stock not subscribed for in the Subscription Offering for sale
in a community offering to certain members of the general public (the "Community
Offering"). Shares not subscribed for in the Subscription and Community
Offerings will be offered to certain members of the general public in a
syndicated community offering (the "Syndicated Community Offering") (the
Subscription Offering, Community Offering and the Syndicated Community Offering
are referred to collectively as the "Offerings").
Except for the ESOP, no Eligible Account Holder or Supplemental Eligible
Account Holder may, in their respective capacities as such, purchase in the
Subscription Offering more than $675,000 of Common Stock; no person, together
with associates and persons acting in concert with such person, may purchase in
the Community Offering and Syndicated Community Offering more than $675,000 of
Common Stock; and no person, together with associates of and persons acting in
concert with such person, may purchase in the aggregate more than the overall
maximum purchase limitation of 1.0% of the total number of shares of Common
Stock offered in the Conversion; provided, however, such purchase limitations
may be increased and the amount that may be subscribed for may be increased or
decreased at the sole discretion of the Bank and Company without further
approval of subscribers or the Bank's depositors. The minimum purchase is 25
shares. See "The Conversion - Subscription Offering and Subscription Rights,"
"- Community Offering" and "- Limitations on Common Stock Purchases."
Pursuant to the Plan, the Company intends to establish a charitable
foundation in connection with the Conversion. The Plan provides that the Bank
and the Company will create The Roslyn Savings Bank Foundation (the
"Foundation") and fund the Foundation with shares of Common Stock contributed by
the Company from authorized but unissued shares, in an amount equal to 3% of the
number of shares of Common Stock sold in the Conversion. The Foundation will be
dedicated to charitable purposes within the Bank's local community. For a
discussion of the Foundation and its effects on the Conversion, see "Risk
Factors - Establishment of the Charitable Foundation," "Pro Forma Data," and
"The Conversion - Establishment of Charitable Foundation."
The Bank has engaged Sandler O'Neill to consult with and advise the Company
and the Bank in the Offerings and Sandler O'Neill has agreed to use its best
efforts to assist the Company with the solicitation of subscriptions and
purchase orders for shares of Common Stock in the Offerings. Sandler O'Neill is
not obligated to take or purchase any shares of Common Stock in the Offerings.
The Bank and the Company will pay a fee to Sandler O'Neill which will be based
on the aggregate Purchase Price of the Common Stock sold in the Offerings. The
Company and the Bank have agreed to indemnify Sandler O'Neill against certain
liabilities arising under the Securities Act of 1933, as amended (the
"Securities Act"). See "The Conversion - Marketing and Underwriting
Arrangements."
THE SUBSCRIPTION AND COMMUNITY OFFERINGS WILL TERMINATE AT __________, NEW
YORK TIME, ON ______________, 1996 (THE "EXPIRATION DATE") UNLESS EXTENDED BY
THE BANK AND THE COMPANY, WITH THE APPROVAL OF THE SUPERINTENDENT OF BANKS OF
THE STATE OF NEW YORK (THE "SUPERINTENDENT") AND THE FDIC, IF NECESSARY. Orders
submitted are irrevocable until the completion of the Conversion; provided that,
if the Conversion is not completed within 45 days after the close of the
Subscription and Community Offerings, unless such period has been extended with
the consent of the Superintendent and FDIC, if necessary, all subscribers will
have their funds returned promptly with interest, and all withdrawal
authorizations will be cancelled. Such extensions may not go beyond
___________, 1998. See "The Conversion - Procedure for Purchasing Shares in
Subscription and Community Offerings."
The Company has received approval from the National Association of
Securities Dealers, Inc. ("NASD"), conditioned on the consummation of the
Conversion, to have its Common Stock quoted on the Nasdaq National Market under
the symbol "RSLN." Prior to this offering there has not been a public market for
the Common Stock, and there can be no assurance that an active and liquid
trading market for the Common Stock will develop, or that resales of the Common
Stock can be made at or above the Purchase Price. To the extent an active and
liquid trading market does not develop, the liquidity and market value of the
Common Stock may be adversely affected. See "Risk Factors -Absence of Market for
Common Stock" and "Market for the Common Stock."
<PAGE>
[MAP SHOWING THE LOCATION OF THE ROSLYN SAVINGS BANK'S HOME/ADMINISTRATIVE
OFFICE, BRANCH OFFICES AND MORTGAGE ORIGINATION OFFICES APPEARS ON THIS PAGE]
<PAGE>
SUMMARY
This summary is qualified in its entirety by the more detailed information
and Consolidated Financial Statements of the Bank and Notes thereto appearing
elsewhere in this Prospectus.
ROSLYN BANCORP, INC.
Roslyn Bancorp, Inc. is a Delaware corporation recently organized by the
Bank for the purpose of acquiring all of the capital stock of the Bank to be
issued in the Conversion. Immediately following the Conversion, the only
significant assets of the Company will be the capital stock of the Bank, the
Company's loan to the ESOP and the net proceeds of the Offerings retained by the
Company. The Company will purchase all of the capital stock of the Bank to be
issued upon the Conversion in exchange for 50% of the net Conversion proceeds
with the remaining net proceeds to be retained by the Company to be used for
general business activities, including a loan by the Company directly to the
ESOP to enable the ESOP to purchase up to 8% of the Common Stock issued in
connection with the Conversion, including shares issued to the Foundation.
Initially, the net proceeds are expected to be invested by the Company and the
Bank primarily in mortgage-backed and mortgage related securities, short- and
medium-term debt securities and preferred stock. See "Use of Proceeds" and "The
Conversion - General." The business of the Company will consist initially of the
business of the Bank. See "Business of the Company" and "Regulation and
Supervision - Holding Company Regulation."
The Company's executive offices are located at the administrative office
of the Bank at 1400 Old Northern Boulevard, Roslyn, New York 11576. The
Company's telephone number is (516) 621-6000.
THE ROSLYN SAVINGS BANK
The Bank was organized in 1875 as a New York State chartered mutual savings
bank. As of May 31, 1996, the Bank had total assets of $1.77 billion, total
deposits of $1.44 billion and retained earnings of $222.2 million. 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 conducts business from
its administrative/home office in Roslyn, New York and its five branch offices
located in the New York counties of Nassau and Suffolk. In August 1996, the Bank
entered into a contract for the purchase of two additional branch office
facilities located in Nassau County which are expected to open for business in
November 1996. The Bank, through its wholly owned mortgage banking subsidiary,
Residential First, Inc. ("RFI"), also operates six mortgage loan origination
offices located in the New York counties of Queens, Nassau, Suffolk and Albany
and the New Jersey counties of Morris and Monmouth.
The Bank is a community-oriented savings institution whose businesses
primarily consist of accepting deposits from customers in its primary market
area consisting of the New York counties of Nassau and Suffolk, and investing
those funds in mortgage-backed and mortgage related securities, debt and equity
securities, mortgage loans secured by one- to four-family residences, multi-
family properties and commercial properties construction and development loans,
home equity loans and student loans. The Bank's primary market area for one- to
four-family lending extends beyond Nassau and Suffolk Counties to the counties
in New York and New Jersey where RFI mortgage origination offices are located.
See "Business of the Bank - Lending Activities - Loan Sales, Servicing and
Mortgage Banking Activities."
The Bank's operating strategy concentrated on maintaining profitability by
primarily investing in mortgage-backed and mortgage related securities and U.S.
Government or agency debt securities. Since 1993, the Bank has decreased its
emphasis on investments in U.S. Government securities and increased its emphasis
on building its loan portfolio by restructuring its lending department, hiring
experienced
1
<PAGE>
commercial real estate loan personnel and revising its underwriting policies and
procedures. More recently, through its purchase of certain of the assets and
liabilities of a mortgage banking company and establishment of RFI, the Bank has
increased its emphasis on mortgage banking activities and developed a resource
for developing its one- to four-family loan portfolio. The Bank's current
operating strategy consists primarily of: (i) investing funds not utilized for
loan originations and purchases in shorter-term debt securities and mortgage-
backed and mortgage related securities and preferred stock of corporate issuers;
(ii) building its loan portfolio by purchasing one- to four-family loans
originated by RFI and placing emphasis on the origination of high quality
commercial real estate loans to selected real estate developers operating in the
Bank's primary market area; (iii) increasing fee income and building its loan
servicing portfolio through its mortgage banking operations whereby it sells,
generally on a servicing retained basis, certain one- to four-family mortgage
loans that it originates through RFI as a means of increasing servicing fee
income; (iv) attracting and retaining deposit accounts by paying competitive
rates on its deposit products and opening new branches; and (v) maintaining a
lower expense ratio by efficiently utilizing personnel and branch facilities to
service its customers.
The Bank's securities investment activities primarily consist of
investments in mortgage-backed and mortgage related securities and various debt
and equity securities. At May 31, 1996, the Bank's securities portfolio totalled
$1.27 billion, or 71.4% of total assets, of which $951.3 million was categorized
as available-for-sale and $314.2 million was classified as held-to-maturity. At
May 31, 1996, the Bank's mortgage-backed and mortgage related securities
portfolio totalled $831.6 million, or 46.9% of total assets, of which $519.4
million was classified as available-for-sale and $312.2 million was classified
as held-to-maturity, and consisted of mortgage-backed securities, guaranteed or
issued by Governmental-sponsored and federal agencies such as the Federal
National Mortgage Association ("FNMA"), Federal Home Loan Mortgage Corporation
("FHLMC") and Government National Mortgage Association ("GNMA") and
collateralized mortgaged obligations ("CMOs") issued by FNMA, FHLMC, GNMA and
private issuers. At May 31, 1996, the Bank's debt securities portfolio totalled
$295.1 million, or 16.7% of total assets, of which $293.2 million was classified
as available-for-sale and $1.9 million was classified as held-to-maturity. The
Bank's debt securities generally consist of United States Government securities,
obligations of FNMA, FHLMC and GNMA, obligations of corporate issuers, public
utility bonds and bonds issued by states and municipalities. At May 31, 1996,
the Bank's equity securities portfolio totalled $138.8 million, or 7.8% of total
assets, all of which was classified as available-for-sale. The Bank's equity
securities portfolio at such date consisted primarily of preferred stock of
corporate issuers. See "Business of the Bank - Securities Investment
Activities."
At May 31, 1996, the Bank's gross loan portfolio totalled $438.1 million,
or 24.7% of total assets, of which $213.0 million were one- to four-family
loans, $33.3 million were multi-family loans, $153.6 million were commercial
real estate loans, $31.0 million were construction and development loans, and
$7.2 million were home equity, second mortgage, student and consumer loans. At
May 31, 1996, $14.3 million of the Bank's loans were classified as held-for-sale
and consisted primarily of one- to four-family loans. Currently, all of the
Bank's one- to four-family loan origination and related servicing and sale
activities are conducted through RFI. RFI originates for sale to investors,
including the Bank, one- to four-family loans generally secured by properties
located in the New York Counties of Nassau, Suffolk, Kings, Queens and Albany
and the New Jersey Counties of Morris and Monmouth. For the five months ended
May 31, 1996, the Bank has purchased $21.6 million in one- to four-family loans
from RFI, which represented 16.8% of loans originated by RFI in that period. RFI
generally sells FNMA and FHLMC conforming loans on a servicing retained basis
and services such sold loans for others through a third party subservicer. At
May 31, 1996, loans serviced for others totalled $762.7 million, of which $48.8
million was being directly serviced by the Bank and $713.9 million was being
serviced by RFI. See "Business of the Bank - Lending Activities."
2
<PAGE>
At May 31, 1996, the Bank's deposit accounts totalled $1.44 billion, or
93.0% of total liabilities, of which $570.0 million, or 39.5%, were comprised of
saving accounts, negotiable order of withdrawal ("NOW") accounts, money market
accounts and non-interest-bearing checking accounts ("core deposits"). In
addition to core deposits, the Bank had $871.9 million of certificate accounts,
or 56.3% of total liabilities, of which $688.2 million were certificates of
deposit with maturities of one year or less and $140.7 million were certificates
of deposit with balances of $100,000 or more ("jumbo deposits").
At May 31, 1996, the Bank had retained earnings of $222.2 million and had a
leverage capital ratio of 12.39% and a total risk-based capital ratio of 28.10%.
See "Regulation and Supervision - FDIC Regulations - Capital Requirements."
THE ROSLYN SAVINGS BANK FOUNDATION
In furtherance of the Bank's commitment to its local community, the Bank's
Plan of Conversion provides for the establishment of a charitable foundation in
connection with the Conversion. The Plan provides that the Bank and the Company
will create The Roslyn Savings Bank Foundation, which will be incorporated under
Delaware law as a non-stock corporation and will fund the Foundation with shares
of Common Stock contributed by the Company, as further described below. The
Company and the Bank believe that the funding of the Foundation with Common
Stock of the Company is a means of establishing a common bond between the Bank
and its community and thereby enables the Bank's community to share in the
potential growth and success of the Company over the long term. By further
enhancing the Bank's visibility and reputation in its local community, the Bank
believes that the Foundation will enhance the long-term value of the Bank's
community banking franchise. See "The Conversion -- Establishment of Charitable
Foundation -- Structure of the Foundation."
The authority for the affairs of the Foundation will be vested in the Board
of Directors of the Foundation, which will be comprised of existing members of
the Company's Board of Directors. The Directors of the Foundation will be
responsible for establishing the policies of the Foundation with respect to
grants or donations by the Foundation, consistent with the purposes for which
the Foundation was established. Although no formal policy governing Foundation
grants exists at this time, the Foundation's Board of Directors will adopt such
a policy upon establishment of the Foundation. The Directors of the Foundation
will also be responsible for directing the activities of the Foundation,
including the management of the Common Stock held by the Foundation.
The Company proposes to establish the Foundation by contributing to the
Foundation immediately following the Conversion a number of shares of authorized
but unissued Common Stock equal to 3.0% of the Common Stock sold in the
Offerings, or 757,573, 891,262 and 1,024,951 shares at the minimum, midpoint and
maximum, respectively, of the Estimated Price Range. Such contribution, once
made, will not be recoverable by the Company or the Bank. Assuming the sale of
shares at the maximum of the Estimated Price Range and the issuance of shares to
the Foundation, the Company will have 35,190,000 shares issued and outstanding,
of which the Foundation will own 1,024,951 shares, or 2.9%. DUE TO THE ISSUANCE
OF ADDITIONAL SHARES OF COMMON STOCK TO THE FOUNDATION, PERSONS PURCHASING
SHARES IN THE CONVERSION WILL HAVE THEIR OWNERSHIP AND VOTING INTERESTS IN THE
COMPANY DILUTED BY 2.9%. SEE "PRO FORMA DATA." IN ADDITION, THE TRADING PRICE OF
THE COMMON STOCK COULD BE ADVERSELY AFFECTED IN THE EVENT THE MARKET REFLECTS
LESS OF A SPECULATIVE TAKEOVER PREMIUM AS A RESULT OF THE FOUNDATION HOLDING
2.9% OF THE COMPANY'S COMMON STOCK.
As a result of the establishment of the Foundation, the Company will
recognize an expense of the full amount of the contribution, offset in part by a
corresponding tax benefit, during the quarter in which the contribution is made,
which is expected to be the fourth quarter of 1996. Such expense would reduce
3
<PAGE>
earnings and have a material impact on the Company's earnings for the year.
While management cannot predict earnings for 1996, it expects that the
establishment and funding of the Foundation will have an adverse impact on the
Company's earnings for the year. However, assuming a contribution of $10.2
million in Common Stock in 1996, based on the maximum of the Estimated Price
Range and assuming a tax rate of 37%, the Company estimates a net tax effected
expense of $6.5 million. If the Foundation had been established at December 31,
1995, the Bank would have recorded net income of $12.2 million, rather than
recording net income of $18.7 million for the year ended December 31, 1995,
based on an assumed tax rate of 37%. In addition to the contribution of Common
Stock by the Company to the Foundation, the Bank expects in the future to
continue making ordinary charitable contributions within its community. For
further discussion of the Foundation and its impact on purchasers in the
Conversion, see "Risk Factors - Establishment of the Charitable Foundation,"
"Pro Forma Data" and "The Conversion."
THE CONVERSION AND THE OFFERINGS
On May 29, 1996 the Board of Trustees of the Bank adopted the Plan of
Conversion which was subsequently amended on July 30, 1996. Pursuant to the
Plan, the Bank is converting from a New York State chartered mutual savings bank
to a New York State chartered stock savings bank, the Common Stock of the
Company will be offered and sold hereby and all of the outstanding capital stock
of the Bank will be acquired by the Company in exchange for 50% of the net
proceeds of the Offerings. The Conversion and the Offerings are subject to
approval by the Superintendent and the FDIC, which such approvals were received
on _______, 1996, and approval of Eligible Account Holders at a special meeting
to be held on _______, 1996 (the "Special Meeting"). See "The Conversion -
General."
The Bank is converting to increase its capital and structure itself in the
holding company form of organization used by many commercial banks and other
business entities and a growing number of savings institutions. The Conversion
will enhance the Bank's ability to access capital markets, expand its current
operations, acquire other financial institutions or branch offices and diversify
into other financial services, to the extent allowable by applicable law and
regulation. 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 there
are no current arrangements, understandings or agreements regarding any such
opportunities, the Company will be in a position after the Conversion, subject
to regulatory limitations and the Company's financial position, to take
advantage of any such opportunities that may arise. See "The Conversion -
Purposes of Conversion."
Common Stock will be offered in the Subscription and Community Offerings
and, to the extent shares are available, in the Syndicated Community Offering.
Common Stock offered in the Subscription Offering will be offered in the
following order of priority: (1) depositors whose accounts in the Bank totalled
$100 or more on April 30, 1995 ("Eligible Account Holders"); (2) the Employee
Plans, including the ESOP; and (3) depositors whose accounts in the Bank
totalled $100 or more on September 30, 1996 ("Supplemental Eligible Account
Holders"). Subject to the prior rights of holders of subscription rights, Common
Stock not subscribed for in the Subscription Offering is being concurrently
offered in the Community Offering to certain members of the general public. The
Company and the Bank reserve the absolute right to reject or accept any orders
in the Community Offering, in whole or in part, either at the time of receipt of
an order or as soon as practicable following the Expiration Date.
All shares of Common Stock not purchased in the Subscription and Community
Offerings, if any, will be offered for sale to the general public in a
Syndicated Community Offering through a syndicate of registered broker-dealers
to be formed and managed by Sandler O'Neill acting as agent of the Company to
assist the Company and the Bank in the sale of the Common Stock. The Company and
the Bank
4
<PAGE>
reserve the absolute right to reject orders, in whole or part, in their sole
discretion, in the Syndicated Community Offering.
The Bank and Company have engaged Sandler O'Neill as conversion agent and
financial advisor in connection with the Offerings and to assist in soliciting
subscriptions and purchase orders in the Offerings. The Bank and Company will
pay a fee to Sandler O'Neill which will be based on the aggregate Purchase Price
of the Common Stock sold in the Offerings. See "The Conversion -Marketing and
Underwriting Arrangements." Neither Sandler O'Neill nor any registered broker-
dealer shall have any obligation to take or purchase any shares of the Common
Stock in the Subscription Offering, Community Offering or Syndicated Community
Offering. However, Sandler O'Neill has agreed to use its best efforts in the
sale of shares in the Syndicated Community Offering. Subscription rights will
expire if not exercised by _____ p.m., New York time on _______, 1996, unless
extended by the Bank and Company. See "The Conversion - Subscription Offering
and Subscription Rights" and "- Community Offering."
PROSPECTUS DELIVERY AND PROCEDURE FOR PURCHASING SHARES
To ensure that each purchaser receives a prospectus at least 48 hours prior
to the Expiration Date in accordance with Rule 15c2-8 of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), no prospectus will be mailed any
later than five days prior to the Expiration Date or hand delivered any later
than two days prior to such date. Stock order forms will only be distributed
with a prospectus. The Bank is not obligated to accept for processing orders not
submitted on an original stock order form. Stock order forms unaccompanied by an
executed certification form will not be accepted. Payment by check, money order,
cash (if delivered in person) or debit authorization to an existing account at
the Bank must accompany the stock order and certification forms. No wire
transfers will be accepted. See "The Conversion - Procedure for Purchasing
Shares in Subscription and Community Offerings."
RESTRICTIONS ON TRANSFER OF SUBSCRIPTION RIGHTS
Prior to the completion of the Conversion, no person may transfer or enter
into any agreement or understanding to transfer the legal or beneficial
ownership of the subscription rights issued under the Plan or the shares of
Common Stock to be issued upon their exercise. Following the Conversion, there
generally will be no restrictions on the transfer or sale of shares by
purchasers other than affiliates of the Company and Bank. See "Regulation and
Supervision - Federal Securities Laws" and "The Conversion - Restrictions on
Transfer of Subscription Rights and Shares."
PURCHASE LIMITATIONS
The minimum purchase in the Subscription and Community Offerings is 25
shares. With the exception of the ESOP, no Eligible Account Holder or
Supplemental Eligible Account Holder may purchase, in his or her capacity as
such, in the Subscription Offering more than $675,000 of Common Stock to be
issued; no person, together with associates and persons acting in concert with
such person, may purchase in the Community Offering and Syndicated Community
Offering more than $675,000 of Common Stock to be issued; and no person or
entity, individually or together with associates and persons acting in concert,
may purchase in the aggregate in the Offerings more than the overall maximum
purchase limitation of 1.0% of the total number of shares of Common Stock to be
issued in the Conversion, exclusive of any shares issued pursuant to an increase
in the Estimated Price Range of up to 15%. At any time during the Conversion and
without approval of the Bank's depositors or a resolicitation of subscribers,
the Bank and Company may, in their sole discretion, decrease the maximum
purchase limitation below $675,000 of Common Stock to be issued in the
Conversion. Additionally, at any time during the Conversion, the Bank and
Company may, in their sole discretion, increase the maximum
5
<PAGE>
purchase limitation in the Subscription and Community Offerings to an amount in
excess of $675,000 up to a maximum of 5% of the shares to be issued in the
Conversion. Similarly, the 1.0% overall maximum purchase limitation may be
increased up to 5.0% of total shares of Common Stock to be issued in the
Conversion. Prior to consummation of the Conversion, if the maximum purchase
limitation is increased, subscribers for the maximum amount will be, and certain
other large subscribers in the sole discretion of the Bank and Company may be,
given the opportunity to increase their subscriptions up to the then applicable
limits. In the event of an increase in the Estimated Price Range, the additional
shares will be distributed and allocated to fill unfilled orders in the
Subscription and Community Offerings, with first priority given to the ESOP,
without any resolicitation of subscribers as described in "The Conversion -
Subscription Offering and Subscription Rights" and "- Community Offering" and in
accordance with the Plan of Conversion.
STOCK PRICING AND NUMBER OF SHARES TO BE ISSUED IN THE CONVERSION
NYBD regulations require that the aggregate purchase price of the Common
Stock to be issued in the Conversion be consistent with an independent appraisal
of the estimated pro forma market value of the Common Stock giving effect to the
Conversion. FinPro, an independent appraiser, has advised the Bank that in its
opinion, dated July 22, 1996, the aggregate estimated pro forma market value of
the Common Stock being offered for sale in connection with the Conversion ranges
from $252.5 million to $341.7 million (with a midpoint of $297.1 million). For
information regarding FinPro, see "The Conversion - Stock Pricing."
Based upon the above Valuation Range, the Board of Directors of the Bank
has established the Estimated Price Range of $252.5 million to $341.7 million,
assuming the issuance of 25,252,427 shares to 34,165,049 shares of Common Stock
at the Purchase Price of $10.00 per share. All shares of Common Stock issued in
the Conversion will be sold at the Purchase Price of $10.00 per share, as
determined by the Bank and approved by the Company. The actual number of shares
to be issued in the Conversion will be determined by the Company and the Bank
based upon FinPro's updated estimate of the aggregate pro forma market value of
the Common Stock, giving effect to the Conversion, at the completion of the
Offerings. The maximum of the Estimated Price Range may be increased by up to
15% and the number of shares of Common Stock to be issued may be increased up to
39,289,806 shares due to regulatory considerations and changes in market or
general financial and economic conditions. No resolicitation of subscribers will
be made and subscribers will not be permitted to modify or cancel their
subscriptions unless the gross proceeds from the sale of the Common Stock are
less than the minimum or more than 15% above the maximum of the current
Estimated Price Range. See "Pro Forma Data," "The Conversion - Stock Pricing"
and "- Number of Shares to be Issued."
The Company will issue an additional amount of Common Stock to the
Foundation from authorized but unissued shares equal to 3.0% of Common Stock
sold in the Conversion (or 757,573 to 1,024,951 shares based on the minimum and
maximum of the Estimated Price Range, respectively) immediately following
completion of the Conversion. As a result, the Company will have a total of
35,190,000 shares of Common Stock outstanding (based on the issuance of
34,165,049 shares of Common Stock being offered for sale) which will have the
effect of diluting the ownership and voting interests of persons purchasing
shares in the Conversion by 2.9% since a greater number of shares will be
outstanding upon completion of the Conversion. See "Pro Forma Data."
USE OF PROCEEDS
Net proceeds from the sale of the Common Stock are estimated to be between
$246.2 million and $333.8 million (or $384.3 million if the Estimated Price
Range is increased by 15%) depending on the
6
<PAGE>
number of shares sold and the expenses of the Conversion. See "Pro Forma Data."
The Company will purchase all of the outstanding capital stock of the Bank to be
issued upon Conversion in exchange for 50% of the net proceeds, with the
remaining net proceeds to be retained by the Company. Net proceeds to be
retained by the Company after the purchase of the capital stock of the Bank are
estimated to be between $123.1 million and $166.9 million (or $192.1 million if
the Estimated Price Range is increased by 15%). The Company will be unable to
utilize any of the net proceeds until the close of the Offerings.
Funds retained by the Company will be used for general business activities,
including a loan by the Company directly to the ESOP to enable the ESOP to
purchase up to 8% of the stock issued in connection with the Conversion,
including shares issued to the Foundation. The Company intends to initially
utilize net proceeds not used to fund the ESOP to invest in mortgage-backed and
mortgage related securities, short and medium term debt securities and preferred
stock. Funds may also be used by the Company in the future for the possible
payment of dividends and repurchases of Common Stock. Assuming the acquisition
by the ESOP of 8% of the shares to be issued in the Conversion and Common Stock
issued to the Foundation, the amount of the loan to the ESOP is estimated to be
between $20.8 million and $28.2 million (or $32.4 million if the Estimated Price
Range is increased by 15%) to be repaid over a 30 year period at the prevailing
prime rate, which is currently 8.75%. See "Management of the Bank - Benefit
Plans - Plan/ESOP." Funds received by the Bank from the Company's purchase of
its capital stock will be used for general business purposes, including
investment in securities and loans.
The Company and the Bank may also use net proceeds raised in the Conversion
to expand operations through the acquisition or establishment of branch offices
and the acquisition of financial institutions or assets of other financial
institutions or financial services companies. Other than the agreement to
purchase two additional branch office facilities, neither the Bank nor the
Company has any pending agreements or understandings regarding acquisitions of
any specific financial institutions, branch offices, financial services
companies, or assets of other financial institutions or financial services
companies. See "Use of Proceeds" and "Business of the Bank." To the extent that
the stock-based benefit plans which the Company or the Bank intend to adopt
subsequent to the Conversion are not funded with authorized but unissued common
stock of the Company, the Company or Bank may use net proceeds from the
Conversion to fund the purchase of stock to be awarded under such stock-based
benefit plans. See "Risk Factors - Stock-Based Benefits to Management,
Employment Contracts and Change in Control Payments" and "Management of the
Bank - Benefit Plans - Stock Option Plans" and "- Stock Programs."
DIVIDENDS
The Board of Directors of the Company intends to consider a policy of
paying cash dividends on the Common Stock. However, no decision has been made as
to the amount or timing of such dividends, if any. See "Dividend Policy."
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered by prospective investors.
7
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF THE BANK
Set forth below are selected consolidated financial and other data of
the Bank. This financial data is derived in part from, and should be read in
conjunction with, the Consolidated Financial Statements of the Bank and Notes
thereto presented elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT MAY 31, AT DECEMBER 31,
------------ ----------------------------------------------------------------------------
1996(1) 1995 1994 1993 1992 1991
------------ ------------ ------------ ------------ ------------ ------------
SELECTED FINANCIAL CONDITION
DATA: (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Total assets........................ $1,772,175 $1,596,744 $1,438,379 $1,344,432 $1,305,369 $1,144,217
Debt securities(2):
Available-for-sale/held-for-sale.. 293,151 260,553 - - 31,674 -
Held-to-maturity/held-
for-investment.................. 1,930 1,930 466,204 530,802 477,250 370,996
Equity securities(2):
Available-for-sale................ 138,781 118,778 89,787 - - -
Held-for-investment............... - - - 66,298 38,215 32,377
Mortgage-backed and mortgage
related securities, net(2):
Available-for-sale................ 519,399 413,485 50,711 - - -
Held-to-maturity/held-
for-investment.................. 312,233 347,213 411,341 399,417 373,903 305,856
Loans held for sale, net............ 14,265 17,151 - 8,105 - -
Loans receivable held for
investment, net(3)................ 399,484 365,265 342,091 264,667 307,317 379,275
Deposits............................ 1,441,845 1,335,550 1,219,518 1,141,565 1,134,543 961,521
Borrowed funds...................... 69,598 1,647 - - - 27,244
Retained earnings................... 222,244 226,418 193,071 176,385 152,242 137,315
</TABLE>
(continued on next page)
8
<PAGE>
<TABLE>
<CAPTION>
FOR THE FIVE
MONTHS ENDED
MAY 31, FOR THE YEAR ENDED DECEMBER 31,
----------------------- ----------------------------------------------------------
1996(1) 1995(1) 1995 1994 1993 1992 1991
----------- ---------- ---------- ---------- ---------- ---------- ----------
SELECTED OPERATING DATA: (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income..................... $50,063 $44,550 $111,034 $94,516 $95,004 $100,641 $94,955
Interest expense.................... 27,128 22,738 59,298 40,353 39,698 46,902 56,603
------ ------ ------ ------ ------ ------ ------
Net interest income
before provision for
possible loan losses............ 22,935 21,812 51,736 54,163 55,306 53,739 38,352
Provision for possible
loan losses....................... 300 250 600 600 6,860 9,300 18,600
------ ------ ------ ------ ------ ------ ------
Net interest income after
provision for possible
loan losses..................... 22,635 21,562 51,136 53,563 48,446 44,439 19,752
Non-interest income................. 2,954 1,130 5,714 2,049 4,864 528 18,780
Non-interest expense................ 13,544 11,242 29,622 26,172 24,564 19,124 16,878
------ ------ ------ ------ ------ ------ ------
Income before income taxes
and cumulative effect of
changes in accounting
principles........................ 12,045 11,450 27,228 29,440 28,746 25,843 21,654
Provision for income taxes.......... 3,654 3,876 8,510 10,018 10,586 10,916 10,968
------ ------ ------ ------ ------ ------ ------
Income before cumulative
effect of changes in
accounting principles............. 8,391 7,574 18,718 19,422 18,160 14,927 10,686
Cumulative effect of changes
in accounting principles(4)....... - - - - 5,983 - -
------ ------ ------ ------ ------ ------ ------
Net income.......................... $8,391 $7,574 $18,718 $19,422 $24,143 $14,927 $10,686
======= ======= ======== ======= ======= ======== =======
</TABLE>
(continued on next page)
9
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE FIVE
MONTHS ENDED AT OR FOR THE YEAR ENDED
MAY 31, DECEMBER 31,
------------------------- --------------------------------------------------------
1996(1) 1995(1) 1995 1994 1993(14) 1992 1991
----------- ----------- -------- -------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED FINANCIAL RATIOS AND
OTHER DATA(5):
PERFORMANCE RATIOS:
Return on average assets........... 1.19% 1.20% 1.21% 1.39% 1.35% 1.21% 0.99%
Return on average retained earnings 8.96 8.92 8.82 10.27 10.85 10.26 8.03
Average retained earnings to
average assets................... 13.31 13.50 13.69 13.56 12.48 11.78 12.36
Retained earnings to total assets
at end of period................. 12.54 13.42 14.18 13.42 13.12 11.66 12.00
Net interest rate spread(6)........ 2.74 2.98 2.79 3.54 3.82 3.93 2.72
Net interest margin(7)............. 3.38 3.58 3.45 4.02 4.28 4.49 3.66
Average interest-earning assets
to average interest-bearing
liabilities...................... 116.31 116.16 116.55 116.11 114.72 114.29 117.32
Total non-interest expense
to average assets(8)............. 1.90 1.78 1.89 1.87 1.83 1.55 1.57
Efficiency ratio(9)................ 49.96 46.74 50.14 44.99 41.34 34.57 42.51
Net interest income to
operating expenses................. 169.35 194.01 174.65 206.95 225.15 281.01 227.22
REGULATORY CAPITAL RATIOS(10):
Leveraged capital.................. 12.39 13.34 13.27 13.57 13.07 11.60 12.00
Total Risk-based capital........... 28.10 28.77 28.93 27.01 30.95 33.22 32.58
ASSET QUALITY RATIOS AND DATA:
Total non-performing loans(11)..... $11,945 $18,321 $12,173 $25,055 $31,343 $29,097 $31,905
Real estate owned, net............. 5,366 3,486 6,047 3,359 2,613 2,911 519
Total non-performing assets(12).... 17,311 21,807 18,220 28,414 33,956 32,008 32,424
Non-performing loans as a
percent of loans(11)(13)......... 2.83% 5.02% 3.13% 6.82% 10.84% 8.80% 8.00%
Non-performing assets as a percent
of total assets(12)(13).......... 0.98 1.42 1.14 1.98 2.53 2.45 2.83
Allowance for possible loan losses
as a percent of loans(3)(13)..... 5.29 6.62 6.01 6.84 8.47 7.02 4.94
Allowance for possible loan
losses as a percent of total
non-performing loans(3)(11)...... 186.79 131.68 191.82 100.28 78.17 79.69 61.74
OTHER DATA:
Number of deposit accounts......... 112,543 105,291 107,441 99,305 94,257 99,088 96,511
Number of full service customer
facilities....................... 6 6 6 6 6 6 5
Number of mortgage origination
offices.......................... 6 - 6 - - - -
</TABLE>
(footnotes on next page)
10
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______________________________
(1) The data presented for the five months ended May 31, 1996 and 1995 were
derived from unaudited consolidated financial statements and reflect, in
the opinion of management, all adjustments (consisting only of normal
recurring adjustments) which are necessary to present fairly the results
for such interim periods. Interim results at and for the five months ended
May 31, 1996 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1996.
(2) The Bank adopted Statement of Financial Accounting Standards ("SFAS") No.
115, "Accounting for Certain Investments in Debt and Equity Securities," as
of January 1, 1994, and reclassified securities having a market value of
$658.3 million from its held-to-maturity portfolio to its available-for-
sale portfolio in November 1995 pursuant to a Financial Accounting
Standards Board ("FASB") interpretation of SFAS No. 115. Prior to the
adoption of SFAS No. 115, securities were carried at amortized cost, as
adjusted for amortization of premiums and accretion of discounts over the
remaining terms of the securities from the dates of purchase. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -Comparison of Financial Condition at December 31, 1995 and
December 31, 1994."
(3) All loans receivable held for investment are presented net of the Bank's
allowance for possible loan losses which at May 31, 1996, December 31,
1995, 1994, 1993, 1992 and 1991 was $22.3 million, $23.4 million, $25.1
million, $24.5 million, $23.2 million and $19.7 million, respectively.
(4) Reflects the net cumulative effect of the Bank's adoption of SFAS No. 106,
"Employer's Accounting for Post-retirement Benefits Other than Pensions"
and SFAS No. 109, "Accounting for Income Taxes." See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Cumulative Effect of Changes in Accounting Principles."
(5) Asset Quality Ratios and Regulatory Capital Ratios are end of period
ratios. With the exception of end of period ratios, all ratios are based on
average monthly balances during the indicated periods and are annualized
where appropriate.
(6) The net interest rate spread represents the difference between the weighted
average yield on average interest-earning assets and the weighted average
cost of average interest-bearing liabilities and includes the effect of the
Bank's payment of a special interest payment which has generally ranged
from 10% to 25% of the interest paid on savings and NOW accounts. See
"Business of the Bank - Sources of Funds."
(7) The net interest margin represents net interest income as a percent of
average interest-earning assets and includes the effect of the Bank's
payment of a special interest payment which has generally ranged from 10%
to 25% of the interest paid on savings and NOW accounts. See "Business of
the Bank - Sources of Funds."
(8) Excludes the effect of the amortization of goodwill.
(9) The efficiency ratio represents the ratio of operating expenses, excluding
the amortization of goodwill, divided by the sum of net interest income and
non-interest income.
(10) For definitions and further information relating to the Bank's regulatory
capital requirements, see "Regulation and Supervision - FDIC Regulations-
Capital Requirements." See "Regulatory Capital Compliance" for the Bank's
pro forma capital levels as a result of the Offerings.
(11) Non-performing loans consist of all non-accrual loans and all other loans
90 days or more past due. It is the Bank's policy to generally cease
accruing interest on all loans 90 days or more past due. See "Business of
the Bank - Delinquent Loans, Real Estate Owned and Classified Assets."
(12) Non-performing assets consist of non-performing loans and real estate
owned, net ("REO").
(13) Loans include loans receivable held for investment, net, excluding the
allowance for possible loan losses.
(14) Does not include the net effect of accounting changes due to the
implementation of SFAS Nos. 106 and 109.
11
<PAGE>
RISK FACTORS
The following special considerations, in addition to those discussed
elsewhere in this Prospectus, should be considered by investors in deciding
whether to purchase the Common Stock offered hereby.
SENSITIVITY TO INCREASES IN INTEREST RATES
The Bank's profitability, like that of most financial institutions, is
dependent to a large extent upon its net interest income, which is the
difference between its interest income on interest-earning assets, such as loans
and securities, and its interest expense on interest-bearing liabilities, such
as its deposits and borrowed funds. Accordingly, the Bank's results of
operations and financial condition are largely dependent on movements in market
interest rates and its ability to manage its assets and liabilities in response
to such movements.
While the Bank emphasizes investment in adjustable rate or shorter term
loans, the Bank currently invests in one- to four-family mortgage loans with
terms in excess of 15 years if such loans bear interest rates of 8% or greater.
At May 31, 1996, 61.7% of the Bank's gross loans had adjustable interest rates
and its loan portfolio had an average weighted maturity of 13.2 years. At such
date, $118.5 million, or 9.4%, of the Bank's securities had adjustable interest
rates and its securities portfolio had a weighted average maturity of 3.2 years.
At May 31, 1996, the composition of its deposit base consisted of $688.2 million
of certificates of deposit with maturities of one year or less and $140.7
million of deposits over $100,000, which tend to be less stable sources of
funding as compared to core deposits and represented 46.4% of the Bank's
interest-bearing liabilities. As a result, the ratio of the Bank's ratio of
interest-earning assets repricing or maturing within one year or less as
compared to its interest-bearing liabilities maturing or repricing in one year
or less ("one year gap position") was a negative 22.8%. Due to the Bank's level
of shorter term certificates of deposit, the Bank's cost of funds may increase
at a greater rate in a rising interest rate environment than if it had a greater
amount of core deposits which, in turn, may adversely affect net interest income
and net income. Accordingly, in a rising interest rate environment, the Bank's
interest-bearing liabilities may adjust upwardly more rapidly than its yield on
its adjustable-rate loans, adversely affecting the Bank's net interest rate
spread, net interest income and net income.
Significant increases in the level of market interest rates also may
adversely affect the fair value of the Bank's securities and other interest-
earning assets. At May 31, 1996, $1.15 billion, or 90.6%, of the Bank's
securities had fixed interest rates. Generally, the value of fixed-rate
instruments fluctuates inversely with changes in interest rates. As a result,
increases in interest rates could result in decreases in the market value of
interest-earning assets which could adversely affect the Bank's results of
operations if sold or, in the case of interest-earning assets classified as
available-for-sale, the Bank's retained earnings if retained. Increases in
market interest rates also can affect the type (fixed-rate or adjustable-rate)
and amount of loans originated by the Bank and the average life of loans and
securities, which can adversely impact the yields earned on the Bank's loan and
securities portfolio. In periods of decreasing interest rates, the average life
of loans held by the Bank may be shortened to the extent increased prepayment
activity occurs during such periods which, in turn, may result in the Bank
investing funds from such prepayments in lower yielding assets. Additionally,
the Bank's loan sale and servicing activity may also be adversely affected by a
declining interest rate environment to the extent such environment results in
increased loan prepayment activity of serviced loans or losses associated with
the use of forward commitment loan sale contracts. In this regard, at May 31,
1996, the Bank and RFI serviced $762.7 million of loans for others and at such
date had recorded an $8.6 million mortgage servicing rights asset. To the extent
loan prepayment activity of serviced loans increases, it would result in a
reduction in the value of the Bank's mortgage servicing rights which, in turn,
would adversely affect net income. See
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"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Management of Interest Rate Risk."
INCREASED LENDING RISKS ASSOCIATED WITH COMMERCIAL REAL ESTATE, MULTI-FAMILY
AND CONSTRUCTION AND DEVELOPMENT LENDING
At May 31, 1996, the Bank's commercial real estate, multi-family and
construction and development loan portfolios totalled $218.0 million, or 49.7%
of total loans and 12.8% of total interest-earning assets. At that date, multi-
family loans totalled $33.3 million, or 7.6% of total loans, commercial real
estate loans totalled $153.6 million, or 35.1% of total loans, and construction
and development loans totalled $31.0 million, or 7.1% of total loans.
Additionally at such date, the Bank had $87.5 million of outstanding commitments
to fund commercial real estate, multi-family and construction and development
loans.
Commercial real estate and multi-family loans are generally viewed as
exposing the lender to a greater risk of loss than one- to four-family
residential loans. Repayment of commercial real estate and multi-family loans
generally is dependent, in large part, on sufficient income from the property to
cover operating expenses and debt service. Economic events and government
regulations, which are outside the control of the borrower or lender, could
impact the value of the security for the loan or the future cash flow of the
affected properties. Additionally, although commercial real estate and multi-
family values have stabilized in recent periods, the decline in real estate
values experienced in the Bank's primary market area in the late 1980s and early
1990s was more pronounced with respect to commercial real estate and multi-
family properties than one- to four-family residential properties. Construction
and development financing is generally considered to involve a higher degree of
credit risk than long-term financing on improved, owner-occupied real estate as
the risk of loss on such loans is dependent largely upon the accuracy of the
initial estimate of the property's value at completion of construction or
development compared to the estimated cost (including interest) of construction.
If the estimate of value proves to be inaccurate, the property securing the
loan, when completed, may have a value which is insufficient to assure full
repayment of the loan.
Prior to 1993, the Bank had experienced significant charge-offs on its
commercial real estate and construction and development loans, including charge-
offs of $8.0 million, $5.6 million and $5.2 million for 1991, 1992 and 1993,
respectively. Beginning in 1993, the Bank restructured its multi-family,
commercial real estate and construction and development lending procedures and
policies and hired experienced commercial real estate loan personnel in an
effort to improve such loan programs and, since such time, has placed increased
emphasis on commercial real estate loan originations. The Bank's commercial real
estate portfolio has grown from $101.8 million at December 31, 1993 to $153.6
million at May 31, 1996. Of the $153.6 million of commercial real estate loans
in the Bank's loan portfolio as of May 31, 1996, $103.6 million of such loans,
or 67.6%, were originated since 1993 and of the $50.0 million of such loans
originated during or prior to 1993, $7.4 million were included in nonperforming
loans at May 31, 1996. Additionally, at May 31, 1996, the Bank had $14.1 million
of outstanding commitments to fund commercial real estate loans. Given the
recent growth in the Bank's commercial real estate loan portfolio and the
relatively recent nature of its commercial real estate loan origination
activity, the Bank has a more limited history of loan loss experience on such
loans which it may utilize to base its commercial real estate loan underwriting
and to establish its level of loan loss reserves for such loans. Accordingly,
the Bank's historical loan loss activity associated with its commercial real
estate lending may not be indicative of the future performance of its commercial
real estate loan portfolio. See "- Weaknesses in Local Economy" and "Business of
the Bank - Lending Activities" for discussions of the Bank's underwriting
procedures utilized in originating multi-family, commercial real estate and
other loans.
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DEPENDENCE ON SECURITIES INVESTMENTS
Prior to 1993, the Bank's operating strategy focused heavily on investing
funds in U.S. Government and mortgage-backed and mortgage related securities,
and the Bank did not emphasize investment in whole loans. Beginning in 1993, the
Bank refocused its operating strategy on loan production primarily in the areas
of one- to four-family loans and commercial real estate loans. Although the
Bank's loan portfolio has grown from $297.3 million at December 31, 1993 to
$438.1 million at May 31, 1996, the Bank has not significantly increased its
loan portfolio as a percentage of total assets. As a result, at May 31, 1996,
the Bank's net loan portfolio, excluding loans held for sale, totalled $399.5
million, or 23.5% of total interest earning assets, and its securities portfolio
totalled $1.27 billion, or 74.5% of total interest-earning assets. As of May 31,
1996, the weighted average rate of the Bank's securities portfolio was 6.96% as
compared to the weighted average rate of its mortgage loan portfolio of 8.57%.
As a result, at May 31, 1996, the Bank's net interest spread (the difference
between the average yield on its interest-earning assets and the average cost of
interest-bearing liabilities) was 2.89%. To the extent the Bank's investment in
loans as a percentage of total interest-earning assets remain at current levels
or declines, the net yield on the Bank's interest-earning assets may be below
that of its peer group and its net interest spread may correspondingly be below
its peer group. Investments in mortgage-backed and mortgage related securities
also involve the risk that actual prepayment of the loans underlying the
securities exceed the prepayments estimated over the life of the security, which
may result in the loss of any premium paid for such security and thereby reduce
the net yield on such securities.
In an effort to broaden its lending operations in August 1995, the Bank
purchased certain assets and liabilities of Residential Mortgage Banking, Inc.
("RMBI"), including its loan servicing portfolio, and with such assets and
liabilities established its mortgage banking subsidiary, RFI, on August 1, 1995.
Through RFI, the Bank has attempted to increase its investment in one-to four-
family loans and increase its loan servicing-related income, thereby lessening
its dependence on securities investments. The Bank has been successful in
increasing its levels of one- to four-family loans and, for the five months
ended May 31, 1996, the Bank purchased $21.6 million in one- to four-family
loans from RFI as compared to originating $7.1 million of such loans for the
same period in 1995. In addition, since 1993, the Bank has restructured its
commercial lending activities by hiring qualified commercial real estate and
construction and development loan personnel who are familiar with the Bank's
primary market area and local developers and by revising its commercial real
estate loan underwriting policies and processing procedures, in an effort to
increase its investment in higher-yielding commercial real estate and
construction and development loans.
If current economic conditions persist and loan demand remains at current
levels, no assurances can be made that the Bank will be able to increase the
level of its mortgage loan portfolio, or that RFI or the Bank will be able to
increase the level of originations or purchases of mortgage loans in the Bank's
primary market area, or that it will be able to invest a significant portion of
the net Conversion proceeds in mortgage loans. To the extent that net Conversion
proceeds are not invested in mortgage loans, the Bank expects to use such funds
for other general corporate purposes, such as investments in mortgage-backed and
mortgage related and other securities, which generally bear lower rates of
interest than whole mortgage loans. Further, there can be no assurances that the
Bank will be able to acquire mortgage-backed securities with terms and
characteristics which conform with the Bank's investment criteria and interest
rate risk policies, such as mortgage-backed securities backed by adjustable rate
mortgages or loans with shorter terms.
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ESTABLISHMENT OF THE CHARITABLE FOUNDATION
Pursuant to the Plan, the Company intends to establish a charitable
foundation in connection with the Conversion. The Plan provides that the Bank
and the Company will establish the Foundation, which will be incorporated under
Delaware law as a non-stock corporation and will be funded with shares of Common
Stock contributed by the Company. The contribution of Common Stock to the
Foundation will be dilutive to the interests of stockholders and will have an
adverse impact on the reported earnings of the Company in 1996, the year in
which the Foundation is established.
Dilution of Stockholders' Interests. The Company proposes to establish the
Foundation with Company Common Stock in an amount equal to 3.0% of the Common
Stock to be issued in the Conversion. At the minimum, midpoint and maximum of
the Estimated Price Range, the contribution to the Foundation would equal
757,573, 891,262 and 1,024,951 shares, with a value of $7.6 million, $8.9
million and $10.2 million, respectively, based on the Purchase Price of $10 per
share. Assuming the sale of Common Stock at the maximum of the Estimated Price
Range, upon completion of the Conversion and establishment of the Foundation,
the Company will have 35,190,000 shares issued and outstanding of which the
Foundation will own 1,024,951 shares, or 2.9%. AS A RESULT, PERSONS PURCHASING
SHARES IN THE CONVERSION WILL HAVE THEIR OWNERSHIP AND VOTING INTERESTS IN THE
COMPANY DILUTED BY 2.9%, AS COMPARED TO COMPLETING THE CONVERSION WITHOUT THE
FOUNDATION. SEE "PRO FORMA DATA." IN ADDITION, THE TRADING PRICE OF THE COMMON
STOCK COULD BE ADVERSELY AFFECTED IN THE EVENT THE MARKET PRICE OF THE COMMON
STOCK REFLECTS LESS OF A SPECULATIVE TAKEOVER PREMIUM AS A RESULT OF THE
FOUNDATION HOLDING 2.9% OF THE COMPANY'S OUTSTANDING COMMON STOCK.
Impact on Earnings. The contribution of Common Stock to the 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 Common Stock to the Foundation in the quarter
in which it occurs, which is expected to be the fourth quarter of 1996. The
amount of the contribution will range from $7.6 million to $10.2 million,
depending on the amount of Common Stock sold in the Conversion. 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 Foundation will be tax deductible, subject to an annual
limitation based on 10% of the Company's annual taxable income. Assuming a
contribution of $10.2 million in Common Stock (based on the maximum of the
Estimated Price Range), the Company estimates a net tax effected expense of $6.5
million (based upon a 37% tax rate). If the Foundation had been established at
December 31, 1995, the Bank would have reported net income of $12.2 million,
rather than reporting net income of $18.7 million for the year ended December
31, 1995. Management cannot predict earnings for 1996, but expects that the
establishment and funding of the Foundation will have an adverse impact on the
Company's earnings for the year. In addition to the contribution to the
Foundation, the Bank expects in the future to continue making ordinary
charitable contributions within its community.
Tax Considerations. The Company and the Bank have been advised by their
independent tax advisors that an organization created for the above purposes
should qualify as a Section 501(c)(3) exempt organization under the Code, and
should be classified as a private foundation. In this regard, the 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 Foundation would qualify as a Section 501(c)(3) exempt organization
under the Code. 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 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, subject to an annual
limitation based on 10% of the Company's annual taxable income. The Company,
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however, would be able to carry forward any unused portion of the deduction for
five years following the contribution. Thus, while the Company would have
received a charitable contribution deduction of approximately $2.7 million in
1995 (based upon a contribution of $10.2 million of Common Stock and the Bank's
pre-tax income for 1995), the Company is permitted under the Code to carryover
the excess contribution in the five following years. Assuming the sale of Common
Stock at the midpoint of the Estimated Price 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
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 Foundation
would be fully expensed, resulting in a further reduction in earnings in the
year in which the IRS makes such a determination.
Comparison of Valuation and Other Factors Assuming the Foundation is Not
Established as Part of the Conversion. The establishment of the 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 Subscription and Community Offerings 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 Conversion is currently estimated to
be between $252.5 million and $341.7 million, with a midpoint of $297.1 million.
The pro forma price to book ratio and the pro forma price to earnings ratio, at
and for the five months ended May 31, 1996, are 63.91% and 10.31x, respectively,
at the midpoint of the Estimated Price Range. In the event that the Conversion
did not include the Foundation, FinPro has estimated that the estimated pro
forma market value of the Common Stock would be approximately $313.8 million at
the midpoint based on a pro forma price to book ratio and the pro forma price to
earnings ratio that are approximately the same as the independent appraisal at
63.91% and 10.39x, respectively. See "Comparison of Valuation and Pro Forma
Information with No Foundation." This estimate by FinPro was prepared solely for
purposes of providing Eligible Account Holders and subscribers with information
with which to make an informed decision on the Conversion.
The Bank believes that the establishment of the Foundation is in the best
interests of the Bank, its depositors, its prospective stockholders and its
community. The Foundation will be integrally tied to the Bank's business of
operating a community banking institution and the Bank believes that the
Foundation will have a positive impact on the Bank's long-term franchise value.
The amount of Common Stock being offered for sale in the Conversion at the
midpoint of the Estimated Price Range is approximately $16.7 million less than
the estimated amount of Common Stock that would be offered in the Conversion
without the Foundation based on the estimate provided by FinPro. Accordingly,
certain depositors 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.
The decrease in the amount of Common Stock being offered as a result of the
contribution of Common Stock to the 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 Conversion. The Bank's
leverage and risk-based capital ratios at May 31, 1996 were 12.39% and 28.10%,
respectively. Assuming the sale of shares at the midpoint of the Estimated Price
Range, the Bank's pro forma leverage and risk-based capital ratios at May 31,
1996 would be 17.44% and 39.11%, respectively. On a consolidated basis, the
Company's pro forma stockholders' equity would be $478.8 million, or
approximately 23.60% of pro forma consolidated assets, assuming the sale of
shares at the midpoint of the Estimated Price Range. Pro forma stockholders'
equity
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per share and pro forma net earnings per share would be $15.65 and $0.40,
respectively. If the Foundation was not being established in the Conversion,
based on the FinPro estimate, the Company's pro forma stockholders' equity would
be approximately $491.0 million, or approximately 24.06% of pro forma
consolidated assets at the midpoint of the estimate, and pro forma stockholder's
equity per share and pro forma net earnings per share would be substantially
similar with the Foundation as without the establishment of the Foundation. See
"Comparison of Valuation and Pro Forma Information with No Foundation."
Potential Anti-Takeover Effect. Upon completion of the Conversion, the
Foundation will own 2.9% of the total shares of the Company's Common Stock
outstanding. Such shares will be owned solely by the Foundation. The
Foundation's board of directors will be comprised of the members of the board of
directors of the Company. Management of the Company and the Bank may benefit to
the extent that the board of directors of the Foundation determines to vote the
shares of Common Stock held by the Foundation in favor of proposals supported by
the Company and the Bank. Furthermore, when the Foundation's shares are combined
with shares purchased directly by officers and directors of the Company, shares
held by the Stock Programs trust, and shares held in the ESOP, the aggregate of
such shares could exceed 20% of the Company's outstanding Common Stock, which
could enable management to defeat stockholder proposals requiring 80% approval.
Consequently, such potential voting control might preclude takeover attempts
that certain stockholders deem to be in their best interest, and might tend to
perpetuate management. However, since the ESOP shares are allocated to all
eligible employees of the Bank, and any unallocated shares will be voted by an
independent trustee, and because the Stock Programs must first be approved by
stockholders no sooner than six months following completion of the Conversion,
and awards under such proposed plans may be granted to employees other than
executive officers and trustees. Management of the Company does not expect to
have voting control of all shares covered by the ESOP and other stock-based
benefit plans. See, " - Certain Anti-Takeover Provisions - Voting Control of
Officers and Trustees."
Potential Challenges. The establishment and funding of a charitable
foundation as part of a conversion of a mutual savings institution to stock form
has been done only on one prior occasion. As such, the Foundation and the NYBD
and the FDIC approval of the Conversion may be subject to potential challenges
notwithstanding that the Board of Directors of the Company and the Board of
Trustees of the Bank have carefully considered the various factors involved in
the establishment of the Foundation in reaching their determination to establish
the Foundation as part of the Conversion. See "The Conversion - Establishment of
Charitable Foundation - Purpose of Foundation." If challenges were to be
instituted seeking to require the Bank to eliminate establishment of the
Foundation in connection with the Conversion, no assurances can be made that the
resolution of such challenges would not result in a delay in the consummation of
the Conversion 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
Foundation, the Company may be required to resolicit subscribers in the
Offerings.
HIGHLY COMPETITIVE INDUSTRY AND GEOGRAPHIC AREA
The Bank faces significant competition in its primary market area both in
attracting deposits and in originating loans. The Long Island, New York area is
a highly competitive market. The Bank's share of deposits in Suffolk and Nassau
Counties amounts to 2.39%. The Bank faces direct competition from a significant
number of financial institutions operating in its market area, many with a
state-wide or regional presence, and, in some cases, a national presence. This
competition arises from commercial banks, savings banks, mortgage banking
companies, credit unions and other providers of financial services,
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many of which are significantly larger than the Bank and, therefore, have
greater financial and marketing resources than those of the Bank. See "Business
of the Bank - Market Area."
WEAKNESS IN LOCAL ECONOMY
During the late 1980s to the early 1990s, the New York City metropolitan
area, experienced reduced employment as a result of layoffs in the financial
services industry, high technology and defense corporate relocations and the
general decline of the local, regional and national economies. Additionally,
during that period the area experienced a general weakening of real estate
values and a decline in home sales and construction. In particular, the New York
Counties of Nassau and Suffolk suffered reduced employment levels as a result of
restructuring and downsizing in the high technology and defense related
industries, which historically have been significant sources of employment in
the Bank's primary market area. As a result, loan delinquencies increased and
the underlying values of properties securing non-performing loans made by
lending institutions generally declined resulting in substantial losses to some
institutions. Since 1993, however, the economy of the Bank's primary market area
began to stabilize as demonstrated by improved employment and economic
indicators. Since such time, residential real estate values in the Bank's
primary market have stabilized and recently have begun to improve. However,
commercial real estate values, which previously experienced the greatest
declines during the late 1980s and early 1990s, have only recently began to
stabilize and have not improved as much as residential real estate and generally
remain below the values experienced in the late 1980s.
Management does not believe that the current national or local economic
trends will severely affect the Bank's financial condition, since a substantial
portion of the Bank's assets are invested in mortgage-backed securities,
mortgage related securities and U.S. Government securities. There can be no
assurances, however, that conditions in the local economy, national economy, or
real estate market in general will not deteriorate and adversely affect the
financial condition and results of operations of the Bank. Based on information
available to management at this time, management believes the current allowance
for possible loan losses is adequate. Although management of the Bank believes
that the current allowance for loan losses is adequate in light of current
economic conditions, many factors may require additions to the allowance for
loan losses in future periods above those reasonably anticipated. These factors
include: (i) adverse changes in economic conditions and changes in interest
rates that may affect the ability of borrowers to make payments on loans, (ii)
changes in the financial capacity of individual borrowers, (iii) changes in the
local real estate market and the value of the Bank's loan collateral, (iv)
changes in the composition of the Bank's loan portfolio, and (v) future review
and evaluation of the Bank's loan portfolio, internally or by regulators. The
amount of the allowance for loan losses at any time represents good faith
estimates that are susceptible to significant changes due to changes in
appraisal values of collateral, national and regional economic conditions,
prevailing interest rates and other factors. Future adjustments to the allowance
also may be necessary if economic or other conditions differ substantially from
those underlying the assumptions used in making such estimates. In addition, the
Bank's plan to increase its investment in commercial real estate and multi-
family loans can be expected to increase the overall level of credit risk
inherent in the Bank's loan portfolio. The greater risk associated with
commercial real estate and multi-family loans may require the Bank to increase
its provisions for loan losses and to maintain an allowance for loan losses as a
percentage of total loans that is in excess of the allowance currently
maintained by the Bank.
POSSIBLE PAYMENT OF FINANCING CORPORATION BONDS
Deposits of the Bank are presently insured by the BIF. Both the BIF and the
Savings Association Insurance Fund ("SAIF"), the deposit insurance fund that
covers most savings and loan association deposits, are statutorily required to
be recapitalized to a 1.25% of insured deposits reserve ratio. A portion
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of the insurance assessment paid by SAIF members is required by statute to be
used to make payments on bonds issued by the Financing Corporation ("FICO")
which were issued in the late 1980's to recapitalize the predecessor to the
SAIF.
The BIF has achieved the 1.25% ratio and the FDIC recently adopted a new
assessment rate schedule of 0 to 27 basis points for BIF members. Under the new
schedule, approximately 92% of BIF members, including the Bank, are required to
pay only $2,000 per year, the legal minimum, in insurance premiums. With respect
to SAIF member institutions, the FDIC adopted a final rule retaining the
existing assessment rate schedule applicable to SAIF member institutions of 23
to 31 basis points. The SAIF is several years away from achieving the required
ratio largely due to the required FICO payments. Consequently, there is a
significant differential in the insurance premiums paid by BIF and SAIF members.
Several bills have been introduced in Congress to mitigate the effect of
the BIF/SAIF premium disparity. These bills would, among other things, impose a
special assessment on SAIF insured deposits, spread the FICO payments, which is
currently only paid by SAIF-insured institutions through SAIF premiums, across
all BIF-insured institutions and SAIF-insured institutions and require a merger
of the BIF and SAIF under certain circumstances. Accordingly, pursuant to the
terms of proposed legislation, BIF insured institutions such as the Bank may be
required to pay higher FDIC insurance premiums or assessed other fees associated
with the FICO payments. Management cannot predict whether legislation requiring
BIF members to share the FICO payments or merging the BIF and SAIF will be
enacted, or, if enacted, the amount of such FICO bond payments.
CERTAIN ANTI-TAKEOVER PROVISIONS
Provisions in the Company's and the Bank's Governing Instruments. Certain
provisions of the Company's Certificate of Incorporation and Bylaws,
particularly a provision limiting voting rights, and the Bank's New York State
restated organization Certificate (the "Restated Organization Certificate") and
Bylaws, 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 shareholders, limits on the ability to vote Common Stock
in excess of 10% of outstanding shares, and certain uniform price provisions for
certain business combinations. The New York State Banking Regulations prohibit,
for a period of one year following the date of conversion, offers to acquire or
the acquisition of beneficial ownership of more than 10% of the outstanding
stock of the Bank. 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 equity securities. Any person, or group
acting in concert, violating this restriction may not vote the Bank's or
Company's securities in excess of 10%. These provisions in the Bank's and the
Company's governing instruments may discourage potential proxy contests and
other potential takeover attempts, particularly those which have not been
negotiated with the Board of Directors, and thus, generally may serve to
perpetuate current management. See "Restrictions on Acquisitions of the Holding
Company and the Bank."
Voting Control of Officers and Trustees. Trustees, directors and executive
officers of the Bank and the Company expect to purchase approximately 1.7% or
1.1% of the shares of Common Stock to be issued in the Conversion, based upon
the minimum and the maximum of the Estimated Price Range, respectively,
exclusive of shares that may be attributable to directors and officers through
the Stock Programs, the Stock Option Plans and the ESOP. Management's potential
voting control could, together
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with additional stockholder support, defeat stockholder proposals requiring 80%
approval of stockholders. As a result, this potential voting control may
preclude takeover attempts that certain stockholders deem to be in their best
interest and may tend to perpetuate existing management. See "Restrictions on
Acquisition of the Company and the Bank - Restrictions in the Company's
Certificate of Incorporation and Bylaws."
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 its Common Stock at this
time. The Company has applied to have its Common Stock quoted on the Nasdaq
National Market under the symbol "RSLN." 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
Purchase 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 the liquidity of the Common Stock and
the market value of the Common Stock.
STOCK-BASED BENEFITS TO MANAGEMENT, EMPLOYMENT CONTRACTS AND CHANGE IN CONTROL
PAYMENTS
Stock Programs. The Company intends to adopt stock-based benefit plans
which would provide stock grants of Common Stock to non-employee trustees and
directors and selected officers and employees of the Company and Bank (the
"Stock Programs") and intends to seek stockholder approval of such plans at a
meeting of stockholders following the Conversion, which may be held no earlier
than six months after completion of the Conversion. The Company expects to
acquire Common Stock on behalf of the Stock Programs in an amount equal to 4% of
the Common Stock issued in connection with the Conversion, including shares
issued to the Foundation, or 1,040,400 shares and 1,407,600 shares at the
minimum and maximum of the Estimated Price Range, respectively. These shares
will be acquired either through open market purchases or from authorized but
unissued Common Stock. See "- Possible Dilutive Effect of Stock Programs and
Stock Options."
Although no specific award determinations have been made, the Company
anticipates that it will provide awards under the Stock Programs to the
trustees, directors and selected officers and employees of the Company and Bank
to the extent permitted by applicable regulations. Current NYBD regulations
provide that, to the extent any non-tax qualified stock or stock option plan is
implemented within one year after conversion, no individual may receive more
than 25% of the shares of any such stock-based benefit plan and non-employee
directors or trustees may not receive more than 5% individually, or 30% in the
aggregate, of the shares awarded under any such plan. These shares granted under
the Stock Programs will be awarded at no cost to the recipients. Under the terms
of the Stock Programs, an independent trustee will vote unallocated shares in
the same proportion as it receives instructions from recipients with respect to
allocated shares which have not been earned and distributed. Recipients will
vote allocated shares. The plan trustee will not vote allocated shares which
have not been distributed if it does not receive instructions from the
recipient. The specific terms of the Stock Programs intended to be adopted and
the amounts of awards thereunder have not yet been determined by the Board of
Directors, and any such determination will include consideration of various
factors, including but not limited to, the financial
20
<PAGE>
condition of the Company, current and past performance of plan participants and
tax and securities law and regulation requirements. The stock-based benefits
provided under the Stock Programs and stock option plans, discussed below, may
be provided under separate plans established for officers and employees and non-
employee trustees and directors or such benefits may be provided for under a
single master stock-based benefit plan adopted by the Company which would
incorporate the benefits and features of the separate plans (the "Master Stock-
Based Benefit Plan"). Additionally, the granting or vesting of awards under such
benefit plans may be conditioned upon the achievement of individual or company-
wide performance goals, including the achievement by the Company or Bank of
specified levels of net income or returns on equity or assets. The
implementation of such Stock Programs may result in increased compensation
expenses to the Company and may have a dilutive effect on existing stockholders
to the extent the Stock Programs are funded with authorized but unissued shares.
See "Management of the Bank -Benefit Plans - Stock Programs" and "- Possible
Dilutive Effect of Stock Programs and Stock Options."
Stock Option Plans. The Company also intends to adopt stock-based benefit
plans which would provide options to purchase Common Stock ("Stock Options") to
officers, employees and non-employee trustees and directors of the Company and
Bank (the "Stock Option Plans") and intends to seek stockholder approval of such
plans at a meeting of stockholders following the Conversion, which may be held
no earlier than six months after completion of the Conversion. Although no
specific determinations have been made, the Company expects that non-employee
trustees and directors and selected officers and employees of the Company and
Bank will be granted options to purchase Common Stock in an amount equal to 10%
of the Common Stock issued in connection with the Conversion, including shares
issued to the Foundation (or 2,601,000 shares and 3,519,000 shares at the
minimum and maximum of the Estimated Price Range, respectively). It is currently
intended that the exercise price of the Stock Options will be equal to the fair
market value of the underlying Common Stock on the date of grant. Stock Options
will permit such trustees, directors, officers and employees to benefit from any
increase in the market value of the shares in excess of the exercise price at
the time of exercise. Recipients of Stock Options will not be required to pay
for the shares until the date of exercise. The specific terms of the Stock
Option Plans intended to be adopted and amounts and awards thereunder have not
yet been determined by the Board and any such determination will include
consideration of various factors, including but not limited to, the financial
condition of the Company, current and past performance of award recipients and
tax and securities law and regulation requirements. The Stock Options discussed
above may be provided under a single stock option plan, may be granted under
separate stock option plans for officers and employees and non-employee
directors and trustees or may be provided for under the Master Stock-Based
Benefit Plan which would incorporate the features and benefits of the separate
stock option plans and the Stock Programs, and benefits awarded thereunder may
be conditioned upon the achievement of individual or company-wide performance
goals, including the achievement by the Company or Bank of specified levels of
net income or returns on equity or assets. The implementation of such Stock
Option Plans may result in increased compensation expense to the Company and may
have a dilutive effect upon existing stockholders of the Company to the extent
option exercises are satisfied with authorized but unissued shares. See "-
Possible Dilutive Effect of Stock Programs and Stock Options" and "Management of
the Bank - Benefit Plans -Stock Option Plans."
21
<PAGE>
Change In Control Provisions. Employment or change in control agreements
with certain officers of the Bank and Company provide for benefits and cash
payments in the event of their termination following a change in control of the
Company or Bank. These provisions may have the effect of increasing the cost of
acquiring the Company or Bank, thereby discouraging future attempts to take over
the Company or the Bank. Additionally, the Bank's employee severance
compensation plan, which similarly provides a cash payment and benefits to
eligible employees upon such employees' termination upon a change in control of
the Company or Bank, also may have the effect of increasing the cost of
acquiring the Company or Bank. Based on current salaries, cash payments to be
paid in the event of a change in control pursuant to the terms of the employment
agreements, change in control agreements and the employee severance compensation
plan would be approximately $__ million. However, the actual amount to be paid
in the event of a change in control of the Bank or the Company cannot be
estimated at this time because the actual amount is based on the average salary
of the employee and other factors existing at the time of the change in control.
See "Restrictions on Acquisition of the Company and the Bank - Restrictions in
the Company's Certificate of Incorporation and Bylaws," "Management of the
Bank - Employment Agreements," "- Change in Control Agreements," "- Employee
Severance Compensation Plan," "-Benefit Plans - Stock Option Plans" and "-
Benefit Plans -Stock Programs."
POSSIBLE DILUTIVE EFFECT OF STOCK PROGRAMS AND STOCK OPTIONS
Following the Conversion, the Stock Programs will acquire an amount of
shares equal to 4% of the shares of Common Stock issued in the Conversion,
either through open market purchases or the issuance of authorized but unissued
shares of Common Stock from the Company. If the Stock Programs are funded by the
issuance of authorized but unissued shares, the voting interests of existing
shareholders will be diluted by 3.8%. Also following the Conversion, the Company
intends to implement the Stock Option Plans which will provide trustees,
directors and selected employees of the Company and the Bank with Stock Options
to purchase authorized but unissued shares in an amount equal to 10% of the
Common Stock issued in the Conversion. If all of the Stock Options intended to
be granted were to be exercised using authorized but unissued Common Stock and
if the Stock Programs were funded with authorized but unissued shares, the
voting interests of existing stockholders would be diluted by 12.3%.
POSSIBLE ADVERSE INCOME TAX CONSEQUENCES OF THE DISTRIBUTION OF SUBSCRIPTION
RIGHTS
The Bank has received an opinion of FinPro that subscription rights granted
to Eligible Account Holders have no value. However, this opinion is not binding
on the IRS. If the subscription rights granted to Eligible Account Holders or
Supplemental Eligible Account Holders are deemed to have an ascertainable value,
such recipients could be taxed upon receipt or exercise of such subscription
rights. 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 Conversion - Effects of
Conversion" and "- Tax Aspects."
POSSIBLE INCREASE IN ESTIMATED PRICE RANGE AND NUMBER OF SHARES ISSUED
The number of shares to be sold in the Conversion may be increased as a
result of an increase in the Estimated Price Range of up to 15% to reflect
changes in market and financial conditions following the commencement of the
Subscription and Community Offerings. In the event that the Estimated Price
Range is so increased, it is expected that the Company will issue up to
39,289,806 shares of Common Stock at the Purchase Price for an aggregate
purchase price of up to $392,898,060. An increase in the number of shares issued
will decrease a subscriber's pro forma net earnings per share and stockholders'
22
<PAGE>
equity per share and will increase the Company's pro forma consolidated
stockholders' equity and net earnings. Such an increase will also increase the
Purchase Price as a percentage of pro forma stockholders' equity per share and
net earnings per share.
23
<PAGE>
ROSLYN BANCORP, INC.
Roslyn Bancorp was recently organized at the direction of the Board of
Trustees of the Bank for the purpose of acquiring all of the capital stock of
the Bank to be issued in the Conversion. The Company expects to receive approval
from the Office of Thrift Supervision ("OTS") to become a savings and loan
holding company and, upon completion of the Conversion, will be subject to
regulation by the OTS. See "The Conversion - General" and "Regulation and
Supervision - Holding Company Regulation." Upon consummation of the Conversion,
the Company will have no significant assets other than the shares of the Bank's
common stock acquired in the Conversion and an amount equal to 50% of the net
proceeds of the Conversion, including the loan to the ESOP, and will have no
significant liabilities. The Company intends to use a portion of the net
proceeds it retains to loan to the ESOP funds to enable the ESOP to purchase up
to 8% of the stock issued in connection with the Conversion, including shares
issued to the Foundation. See "Use of Proceeds." The management of the Holding
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 but 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, should it decide to do so, its
business activities through existing or newly formed subsidiaries, or through
acquisitions of or mergers with other financial institutions and financial
services related companies. Although there are no current arrangements,
understandings or agreements regarding any such opportunities, the Company will
be in a position after the Conversion, 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 administrative offices of
the Bank, 1400 Old Northern Boulevard, Roslyn, New York 11576. Its telephone
number is (516) 621-6000.
THE ROSLYN SAVINGS BANK
The Bank was organized in 1875 as a New York State chartered mutual savings
bank. The Bank's deposit accounts are insured to the maximum allowable amount by
the BIF as administered by the FDIC. Including the Bank's principal office,
which is located in Roslyn, New York, the Bank services its customers from six
full service banking facilities located in the New York Counties of Nassau and
Suffolk and also operates, through its wholly-owned mortgage banking subsidiary,
RFI, six mortgage origination offices located in the New York and New Jersey
counties in and surrounding New York City and Albany, New York. At May 31, 1996,
the Bank had total assets of $1.77 billion, total deposits of $1.44 billion and
retained earnings of $222.2 million.
The Bank's historical business activities have consisted of those conducted
by traditional savings banks. More recently, the Bank has added mortgage banking
activities to its operations. The savings bank activities are conducted directly
by the Bank, which is a community-oriented savings institution whose businesses
primarily consist of accepting deposits from customers and investing those funds
in U.S. Government securities, mortgage-backed and mortgage related securities,
mortgage loans secured by one-
24
<PAGE>
to four-family residences, multi-family properties and commercial real estate,
construction and development loans and home equity, second mortgage, student and
consumer loans. At May 31, 1996, the Bank's securities portfolio totalled $1.27
billion, or 71.4% of total assets, and its gross loan portfolio totalled $438.1
million, or 24.7% of total assets, of which $213.0 million were one- to four-
family loans, $33.3 million were multi-family loans, $153.6 million were
commercial real estate loans, $31.0 million were construction and development
loans, and $7.2 million were home equity and second mortgage, student and
consumer loans. Currently, the Bank's one- to four-family loan origination,
related loan servicing and loan sale activities are primarily conducted through
its wholly-owned mortgage banking subsidiary, RFI, which the Bank formed in
August 1995 in connection with its purchase of certain assets and liabilities of
Residential Mortgage Banking, Inc., a well established mortgage banking firm
that primarily operated in the New York and New Jersey counties in and
surrounding New York City and Albany, New York. RFI's mortgage banking
activities are conducted through the Bank's six full-service offices and RFI's
six offices located in the New York Counties of Queens, Nassau, Suffolk and
Albany and the New Jersey counties of Morris and Monmouth.
The Bank's investment activities primarily consist of investments in
mortgage-backed and mortgage related securities and investment securities
consisting of various debt and equity securities. At May 31, 1996, the Bank had
$831.6 million in mortgage-backed and mortgage related securities, or 46.9% of
total assets, including CMOs guaranteed or issued by governmental-sponsored and
federal agencies such as FNMA, FHLMC and GNMA as well as CMOs issued by private
issuers, of which $519.4 was classified as available-for-sale and $312.2 million
was classified as held-to-maturity. The Bank's debt securities generally consist
of United States Government securities, obligations of corporate issuers, public
utility bonds, and bonds issued by states and other municipalities consisting of
$293.2 million of securities classified as available-for-sale and $1.9 million
of securities classified as held-to-maturity. At May 31, 1996, the Bank's equity
securities totalled $138.8 million and consisted of preferred stock of corporate
issuers, common stock of corporate issuers and mutual fund securities, all of
which were classified as available-for-sale. In November 1995, in accordance
with the FASB interpretation regarding SFAS No. 115, the Bank transferred
investment securities having a carrying value of $648.7 and a market value of
$658.3 at that date, from its held-to-maturity portfolio to its available-for-
sale portfolio. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Comparison of Financial Condition at December 31,
1995 and December 31, 1994."
The Bank's executive office is located at 1400 Old Northern Boulevard,
Roslyn, New York 11576. Its telephone number is (516) 621-6000.
25
<PAGE>
REGULATORY CAPITAL COMPLIANCE
At May 31, 1996, 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 May 31, 1996, on an historical and pro forma basis
assuming that the indicated number of shares were sold as of such date and
receipt by the Bank of 50% of the net proceeds. For purposes of the table below,
the amount expected to be borrowed by the ESOP and the cost of its shares
expected to be acquired by the Stock Programs are deducted from pro forma
regulatory capital.
<TABLE>
<CAPTION>
PRO FORMA AT MAY 31, 1996 BASED UPON THE SALE AT $10.00 PER SHARE
------------------------------------------------------------------------
25,252,427 SHARES 29,708,738 SHARES
(MINIMUM OF THE (MIDPOINT OF THE
HISTORICAL AT ESTIMATED ESTIMATED
MAY 31, 1996 PRICE RANGE) PRICE RANGE)
--------------------- ----------------------- -----------------------
PERCENT PERCENT PERCENT
OF OF OF
AMOUNT ASSETS(2) AMOUNT ASSETS(2) AMOUNT ASSETS(2)
---------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
GAAP(3) Capital............ $222,244 12.54% $314,109 16.85% $330,525 17.58%
======== ======== ========
Leverage Capital:
Capital Level(4)......... $219,267 12.39% 311,132 16.71 327,548 17.44
Requirement(5)........... 53,091 3.00 55,847 3.00 56,339 3.00
-------- ----- -------- ----- -------- -----
Excess................... $166,176 9.39% $255,285 13.71% 271,209 14.44%
======== ===== ======== ===== ======== =====
Risk-Based Capital:
Capital Level(4)(6)...... $229,474 28.10% 321,856 37.52% 338,364 39.11%
Requirement.............. 65,322 8.00 68,629 8.00 69,220 8.00
-------- ----- -------- ----- -------- -----
Excess................... $164,152 20.10% $253,227 29.52% $269,144 31.11%
======== ===== ======== ===== ======== =====
<CAPTION>
39,289,806 SHARES
34,165,049 SHARES (15% ABOVE
(MAXIMUM OF THE MAXIMUM OF THE
ESTIMATED ESTIMATED
PRICE RANGE) PRICE RANGE)(1)
------------------------- -------------------------
PERCENT PERCENT
OF OF
AMOUNT ASSETS(2) AMOUNT ASSETS(2)
---------- ------------ ---------- ------------
<C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
GAAP(3) Capital............ $346,941 18.29% $365,819 19.10%
======== ========
Leverage Capital:
Capital Level(4)......... 343,964 18.16 362,842 18.96
Requirement(5)........... 56,832 3.00 57,398 3.00
-------- ----- -------- -----
Excess................... 287,132 15.16% 305,444 15.96%
======== ===== ======== =====
Risk-Based Capital:
Capital Level(4)(6)...... 354,872 40.67% 373,856 42.43%
Requirement.............. 69,811 8.00 70,491 8.00
-------- ----- -------- -----
Excess................... $285,061 32.67% $303,365 34.43%
======== ===== ======== =====
</TABLE>
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Price Range of up to 15%
as a result of regulatory considerations as changes in market or general
financial or economic conditions following the commencement of the
Subscription and Community Offering.
(2) Leverage capital levels are shown as a percentage of tangible assets.
Risk-based capital levels are calculated on the basis of a percentage of
risk-weighted assets.
(3) GAAP defined as Generally Accepted Accounting Principles.
(4) Pro forma capital levels assume receipt by the Bank of 50% of the net
proceeds from the shares of Common Stock sold at the minimum, midpoint and
maximum of the Estimated Price Range. These levels also assume funding by
the Bank of the Stock Programs and repayment of the Company's loan to the
ESOP valued at the minimum, midpoint and maximum of the Estimated Price
Range.
(5) The current leverage capital requirement for savings banks is 3% of total
adjusted assets for savings banks that receive the highest supervisory
rating for safety and soundness. The current leverage capital ratio
applicable to all other savings banks is 4% or 5%. See "Regulation and
Supervision - FDIC Regulations - Capital Requirements."
(6) Assumes net proceeds are invested in assets that carry a risk-weighting
equal to the actual risk weighting of the Bank's assets as of May 31,
1996.
26
<PAGE>
USE OF PROCEEDS
Although the actual net proceeds from the sale of the Common Stock cannot
be determined until the Conversion is completed, it is presently anticipated
that the net proceeds from the sale of the Common Stock will be between $246.2
million and $333.8 million (or $384.3 million if the Estimated Price Range is
increased by 15%). See "Pro Forma Data" and "The Conversion - Stock Pricing" as
to the assumptions used to arrive at such amounts. The Company will be unable to
utilize any of the net proceeds of the Offerings until the consummation of the
Conversion.
The Company will purchase all of the outstanding capital stock of the Bank
to be issued upon Conversion in exchange for 50% of the net proceeds of the
Offerings. Based on net proceeds of $246.2 million to $333.8 million, the
Company expects to utilize between $123.1 million and $166.9 million of net
proceeds to purchase the common stock of the Bank. Such portion of net proceeds
received by the Bank from the Company will be added to the Bank's general funds
which the Bank currently intends to utilize for general corporate purposes,
including investments in short- and medium-term, investment grade debt
securities, mortgage-backed and mortgage related securities and preferred stock.
The Bank also intends to utilize funds to increase its emphasis on one- to four-
family, multi-family and commercial real estate lending depending on market
conditions. The Bank may also use such funds for the expansion of its
facilities, and to expand operations through acquisitions of other financial
institutions, branch offices or other financial services companies, including
those located within the Bank's primary market area. To the extent that the
stock-based benefit programs which the Company or the Bank intend to adopt
subsequent to the Conversion are not funded with authorized but unissued common
stock of the Company, the Company or Bank may use net proceeds from the
Conversion to fund the purchase of stock to be awarded under such stock benefit
programs. See "Risk Factors -Stock-Based Benefits to Management, Employment
Contracts and Change in Control Payments" and "Management of the Bank - Benefit
Plans - Stock Option Plans" and " - Stock Programs."
The Company intends to use a portion of the net proceeds it retains (i.e.,
50% of the net proceeds, which based on net proceeds of $246.2 million to $333.8
million will be between $123.1 million and $166.9 million) to make a loan
directly to the ESOP to enable the ESOP to purchase in the Conversion, or in the
open market to the extent Common Stock is not available to fill the ESOP's
subscription, 8% of the Common Stock issued in connection with the Conversion,
including shares issued to the Foundation. Based upon the sale of 25,252,427
shares or 34,165,049 shares at the minimum and maximum of the Estimated Price
Range, and the issuance of shares to the Foundation, the amount of the loan to
the ESOP would be $20.8 million or $28.2 million, respectively (or $32.4 million
if the Estimated Price Range is increased by 15%), with a term of 30 years at
the prevailing prime rate of interest, which currently is 8.75%. The Company and
Bank may alternatively choose to fund the ESOP's stock purchases through a loan
by a third party financial institution. See "Management of the Bank - Benefit
Plans - ESOP." The remaining net proceeds retained by the Company will initially
be invested in short- and medium-term debt obligations, mortgage-backed and
mortgage related securities and other investment grade marketable securities.
The net proceeds retained by the Company may also be used to support the
future expansion of operations through branch acquisitions, the establishment of
branch offices and the acquisition of savings associations and commercial banks
or their assets, including those located within the Bank's market area or
diversification into other banking related businesses. Except for the Bank's
intended purchase of two branches, which are expected to open in November 1996,
the Company and the Bank have no current arrangements, understandings or
agreements regarding any such transactions. The Company, upon the Conversion,
will be a savings and loan holding company, which under existing laws would be
restricted
27
<PAGE>
as to the types of business activities in which it may engage. See "Regulation
and Supervision - Holding Company Regulation" for a description of certain
regulations applicable to the Company.
Upon completion of the Conversion, the Board of Directors of the Company
will have the authority to adopt stock repurchase plans, subject to statutory
and regulatory requirements. Unless approved by the Superintendent, the Company,
pursuant to NYBD regulations, may not repurchase any Common Stock in the first
year after conversion and, during the next two following years, may only
repurchase up to 5% of its outstanding capital stock during each twelve-month
period. Further, the Company may not repurchase any of its Common Stock if the
repurchases would cause the Bank to become "undercapitalized" within the meaning
of the FDIC prompt corrective action regulation. See "Regulation and
Supervision - Prompt Corrective Regulatory Action." Based upon facts and
circumstances following the Conversion 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 shareholders.
In the event the Company determines to repurchase stock, such repurchases may be
made at market prices which may be in excess of the Purchase Price in the
Conversion. To the extent that the Company repurchases stock at market prices in
excess of the Purchase Price in the Conversion, such repurchases may have a
dilutive effect upon the interests of existing stockholders. Any stock
repurchases will be subject to the determination of the Board of Directors that
both the Company and the Bank will be capitalized in excess of all applicable
regulatory requirements after any such 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. See "The Conversion - Certain Restrictions on
Purchase or Transfer of Shares after Conversion."
While the Company's Board of Directors intends to consider a policy of
paying cash dividends in the future, the Board has not currently formulated a
policy with respect to the payment of dividends. The payment of dividends or
repurchase of stock, however, would be prohibited if stockholders' equity would
be reduced below the amount required to maintain the Bank's liquidation account.
See "Dividend Policy" and "The Conversion - Liquidation Rights" and "- Certain
Restrictions on Purchase or Transfer of Shares After Conversion."
DIVIDEND POLICY
Upon Conversion, the Board of Directors of the Company will have the
authority to declare dividends on the Common Stock, subject to statutory and
regulatory requirements. Following the Conversion, the Board of Directors
intends to consider a policy of paying cash dividends on the Common Stock.
However, no decision has been made as to the amount or timing of such dividends,
if any.
The Bank will not be permitted to pay dividends on its common stock or
repurchase shares of its common stock if its stockholder's equity would be
reduced below the amount required for the liquidation account. See "The
Conversion - Liquidation Rights." Under New York State 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
28
<PAGE>
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 and Supervision." As of May 31, 1996, the Bank had
$46.5 million available for the payment of dividends without prior approval of
the Superintendent. Subsequent to the Conversion, the availability of the Bank's
funds for the payment of dividends may be limited by the liquidation account.
See "The Conversion - Liquidation Rights." Dividends or any repurchase by the
Bank of its stock 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."
Unlike the Bank, the Company is not subject to NYBD regulatory restrictions
on the payment of dividends to its stockholders, although the source of such
dividends will be, in part, dependent upon dividends from the Bank in addition
to the net proceeds retained by the Company and earnings thereon. The Company is
subject, however, to the requirements of Delaware law, which generally limit
dividends to an amount equal to the excess of the net assets of the Company (the
amount by which total assets exceed total liabilities) over its statutory
capital, or if there is no such excess, to its net profits for the current
and/or immediately preceding fiscal year.
MARKET FOR THE 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
National Market under the symbol "RSLN" subject to the completion of the
Conversion and compliance with certain conditions including the presence of at
least two registered and active market makers. The Company will seek to
encourage and assist at least two market makers to make a market in its Common
Stock. Making a market involves maintaining bid and ask quotations and being
able, as principal, to effect transactions in reasonable quantities at those
quoted prices, subject to various securities laws and other regulatory
requirements. There can be no assurance that the Common Stock will be able to
meet the applicable listing criteria in order to maintain its quotation on the
Nasdaq National Market or that an active and liquid trading market will develop
or, if developed, will be maintained. A public market having the desirable
characteristics of depth, liquidity and orderliness, however, depends upon the
presence in the marketplace of both willing buyers and sellers of Common Stock
at any given time, which is not within the control of the Company. No assurance
can be given that an investor will be able to resell the Common Stock at or
above the Purchase Price of the Common Stock after the Conversion. See "Risk
Factors - Absence of Market for Common Stock."
29
<PAGE>
CAPITALIZATION
The following table presents the historical capitalization of the Bank at
May 31, 1996, and the pro forma consolidated capitalization of the Company after
giving effect to the Conversion, including the issuance of shares to the
Foundation, based upon the sale of the number of shares indicated in the table
and the other assumptions set forth under "Pro Forma Data."
<TABLE>
<CAPTION>
COMPANY PRO FORMA BASED UPON SALE AT $10.00 PER SHARE
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
39,289,806
25,252,427 29,708,738 34,165,049 SHARES
SHARES SHARES SHARES (15% ABOVE
(MINIMUM OF (MIDPOINT OF (MAXIMUM OF MAXIMUM OF
BANK ESTIMATED ESTIMATED ESTIMATED ESTIMATED
HISTORICAL PRICE RANGE) RICE RANGE) PRICE RANGE) PRICE RANGE)(1)
---------- ------------ ----------- ------------ ---------------
(IN THOUSANDS)
Deposits (2)................................... $1,441,845 $ 1,441,845 $ 1,441,845 $ 1,441,845 $ 1,441,845
---------- ----------- ----------- ----------- -----------
Total deposits and borrowed funds.............. $1,511,443 $ 1,511,443 $ 1,511,443 $ 1,511,443 $ 1,511,443
========== =========== =========== =========== ===========
Stockholders' equity:
Preferred Stock, $.01 par value,
10,000,000 shares authorized;
none to be issued.......................... - - - - -
Common Stock, $.01 par value,
100,000,000 shares authorized;
shares to be issued as reflected........... - 260 306 352 405
Additional paid-in capital(3)................ - 253,470 298,608 343,747 395,656
Retained earnings(4)......................... 222,916 222,916 222,916 222,916 222,916
Less:
Expense of contributions to - (7,576) (8,913) (10,250) (11,787)
Foundation................................
Plus: - 2,803 3,298 3,792 4,361
Tax effect of contribution
to Foundation(5)..........................
Net unrealized loss on (672) (672) (672) (672) (672)
securities available-for-sale, net of taxes..
Less:
Common Stock acquired by the - (20,808) (24,480) (28,152) (32,375)
ESOP(6)...................................
Common Stock acquired by the - (10,404) (12,240) (14,076) (16,187)
Stock Programs(7).......................... ---------- ----------- ----------- ----------- -----------
Total stockholders' equity..................... $ 222,244 $ 439,989 $ 478,823 $ 517,657 $ 562,317
========== =========== =========== =========== ===========
</TABLE>
_______________________
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Price Range of up to 15% as
a result of regulatory considerations or changes in market or general
financial and economic conditions following the commencement of the
Subscription and Community Offerings.
(2) Does not reflect withdrawals from deposit accounts for the purchase of
Common Stock in the Conversion. Such withdrawals would reduce pro forma
deposits by the amount of such withdrawals.
(3) Reflects the issuance of shares sold in the Offerings and the issuance of
additional shares of Common Stock to the Foundation at a value of $10.00
per share. No effect has been given to the issuance of additional shares of
Common Stock pursuant to the Company's Stock Option Plans intended to be
adopted by the Company and presented for approval of stockholders at a
meeting of stockholders following the Conversion. The Stock Option Plans
would provide the grant of stock options to purchase an amount of Common
Stock equal to 10% of the shares of Common Stock issued in the Conversion.
See "Management of the Bank - Benefit Plans - Stock Option Plans."
(4) The retained earnings of the Bank will be substantially restricted after
the Conversion. See "The Conversion - Liquidation Rights."
(5) Represents the tax effect of the contribution of Common Stock to the
Foundation based on a 37% 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.
(6) Assumes that 8% of the shares issued in connection with the Conversion,
including shares issued to the Foundation, will be purchased by the ESOP
and 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 -
ESOP" and "- Benefit Plans - Stock Programs."
(7) Assumes that, subsequent to the Conversion, an amount equal to 4% of the
shares of Common Stock sold in the Conversion and issued to the Foundation
is purchased by the Stock Programs through open market purchases. The
Common Stock purchased by the Stock Programs is reflected as a reduction
of stockholder's equity. See "Risk Factors - Possible Dilutive Effect of
Stock Programs and Stock Options," Footnote 2 to the tables under "Pro
Forma Data" and "Management of the Bank - Benefit Plans - Stock Programs."
30
<PAGE>
PRO FORMA DATA
The actual net proceeds from the sale of the Common Stock cannot be
determined until the Conversion is completed. However, net proceeds are
currently estimated to be between $246.2 million and $333.8 million based upon
the following assumptions: (i) $4.5 million will be sold to executive officers,
Trustees, Directors and employees of the Bank and Company, the ESOP will
purchase 8% of the Common Stock issued in connection with the Conversion,
including shares issued to the Foundation, and the remaining shares will be sold
in the Subscription and Community Offerings; (ii) commissions will be paid as
follows: (A) Sandler O'Neill will receive a fee equal to 1.75% of the aggregate
Purchase Price of the shares sold in the Subscription Offering, Community
Offering and Syndicated Community Offering; and (B) no fee will be paid with
respect to shares purchased by the ESOP, officers, employees, Trustees and
Directors of the Bank and Company and members of their immediate families; and
(iii) the Company will issue to the Foundation an amount of Common Stock of 3%
of the Common Stock sold in the Conversion from authorized but unissued shares;
and (iv) Conversion expenses, excluding the marketing fees paid to Sandler
O'Neill, will be approximately $2.4 million. Actual Conversion expenses may vary
from those estimated.
Pro forma consolidated net income of the Company for the five months ended
May 31, 1996 and for the year ended December 31, 1995 have been calculated as if
the Common Stock had been sold at the beginning of the respective periods and
the net proceeds had been invested at 5.78% (the one year U.S. Treasury bill
rate as of July 30, 1996). 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 3.64% for the five months
ended May 31, 1996, (based on an assumed tax rate of 37.0%) and 3.64% for the
year ended December 31, 1995 (based on an assumed tax rate of 37.0%). 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 and the effect of the
issuance of shares to the Foundation. 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
Conversion proceeds.
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.
The following tables summarize historical data of the Bank and pro forma
data of the Company at or for the five months ended May 31, 1996, and at or for
the year ended December 31, 1995, based on the assumptions set forth above and
in the table and should not be used as a basis for projections of market value
of the Common Stock following the Conversion. The tables below give effect to
the Stock Programs, which are expected to be adopted by the Company following
the Conversion and presented to stockholders for approval at a meeting of
stockholders. See Footnote 2 to the tables and "Management of the Bank - Benefit
Plans - Stock Programs." No effect has been given in the tables to the possible
issuance of additional shares reserved for future issuance pursuant to the Stock
Option Plans to be adopted by the Board of Directors of the Company and
presented to stockholders for approval at a meeting of stockholders, nor does
book value as presented give any effect to the liquidation account to be
established for the benefit of Eligible Account Holders or, in the event of
liquidation of the Bank, to the tax effect of the bad debt reserve and other
factors. See Footnote 3 to the tables below, "The Conversion -Liquidation
Rights" and "Management of the Bank - Benefit Plans -Stock Option Plans." THE
FOLLOWING
31
<PAGE>
TABLE GIVES EFFECT TO THE ISSUANCE OF AUTHORIZED BUT UNISSUED SHARES OF THE
COMPANY'S COMMON STOCK TO THE FOUNDATION CONCURRENTLY WITH THE COMPLETION OF THE
CONVERSION. THE VALUATION RANGE, AS SET FORTH HEREIN AND IN THE TABLE BELOW,
TAKES INTO ACCOUNT THE DILUTIVE IMPACT OF THE ISSUANCE OF SHARES TO THE
FOUNDATION.
32
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE FIVE MONTHS ENDED MAY 31, 1996
------------------------------------------------------------------
<S> <C> <C> <C> <C>
39,289,806
25,252,427 29,708,738 34,165,049 SHARES SOLD
SHARES SOLD SHARES SOLD SHARES SOLD AT $10.00 PER
AT $10.00 AT $10.00 AT $10.00 SHARE (15%
PER SHARE PER SHARE PER SHARE ABOVE
(MINIMUM (MIDPOINT (MAXIMUM MAXIMUM
OF ESTIMATED OF ESTIMATED OF ESTIMATED OF ESTIMATED
PRICE RANGE) PRICE RANGE) PRICE RANGE) PRICE RANGE)(6)
-------------- ------------ ------------ ----------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Gross proceeds.......................... $ 252,524 $ 297,087 $ 341,650 $ 392,898
Plus: Shares acquired by Charitable
Trust Foundation (equal to 3% of
stock issued in Conversion)......... 7,576 8,913 10,250 11,787
----------- ----------- ----------- -----------
Pro forma market capitalization......... $ 260,100 $ 306,000 $ 351,900 $ 404,685
=========== =========== =========== ===========
Gross proceeds.......................... $ 252,524 $ 297,087 $ 341,650 $ 392,898
Less: Offering expenses and
commissions........................ (6,370) (7,086) (7,801) (8,624)
----------- ----------- ----------- -----------
Estimated net proceeds.................. $ 246,154 $ 290,001 $ 333,849 $ 384,274
Less: Common Stock purchased
by ESOP.......................... (20,808) (24,480) (28,152) (32,375)
Common Stock purchased by
Stock Programs................... (10,404) (12,240) (14,076) (16,187)
----------- ----------- ----------- -----------
Estimated net proceeds, as adjusted.. $ 214,942 $ 253,281 $ 291,621 $ 335,712
=========== =========== =========== ===========
Net income(1):
Historical........................... $ 8,391 $ 8,391 $ 8,391 $ 8,391
Pro forma income on net proceeds,
as adjusted....................... 3,261 3,843 4,425 5,094
Pro forma ESOP adjustment(2)......... (182) (214) (246) (283)
Pro forma Stock
Program adjustment(3)............. (546) (643) (739) (850)
----------- ----------- ----------- -----------
Pro forma net income................ $ 10,924 $ 11,377 $ 11,831 $ 12,352
=========== =========== =========== ===========
Per share net income(1):
Historical........................... $ 0.35 $ 0.30 $ 0.26 $ 0.23
Pro forma income on net proceeds,
as adjusted....................... 0.14 0.13 0.14 0.13
Pro forma ESOP adjustment(2)......... (0.01) (0.01) (0.01) (0.01)
Pro forma Stock Programs
adjustment(3)..................... (0.02) (0.02) (0.02) (0.02)
----------- ----------- ----------- -----------
Pro forma net income per share...... $ 0.46 $ 0.40 $ 0.37 $ 0.33
=========== =========== =========== ===========
Stockholders' equity:
Historical........................... $ 222,244 $ 222,244 $ 222,244 $ 222,244
Estimated net proceeds............... 246,154 290,001 333,849 384,274
Plus: Tax benefit of
Foundation........................ 2,803 3,298 3,792 4,361
Less: Common Stock acquired
by ESOP(2)....................... (20,808) (24,480) (28,152) (32,375)
Less: Common Stock acquired
by Stock Programs(3)............. (10,404) (12,240) (14,076) (16,187)
----------- ----------- ----------- -----------
Pro forma stockholders'
equity(3)(4)(5).................... $ 439,989 $ 478,823 $ 517,657 $ 562,317
=========== =========== =========== ===========
Stockholders' equity per share:
Historical........................... $ 8.55 $ 7.26 $ 6.32 $ 5.49
Estimated net proceeds............... 9.46 9.48 9.48 9.50
Plus: Tax benefit of
Charitable Foundation................ 0.11 0.11 0.11 0.11
Less: Common Stock acquired
by ESOP(2)......................... (0.80) (0.80) (0.80) (0.80)
Common Stock acquired by
Stock Programs(3).................. (0.40) (0.40) (0.40) (0.40)
----------- ----------- ----------- -----------
Pro forma stockholders' equity
per share(3)(4)(5)................. $ 16.92 $ 15.65 $ 14.71 $ 13.90
=========== =========== =========== ===========
Offering price as a percentage of
pro forma stockholders' equity
per share........................... 59.12% 63.91% 67.98% 71.97%
Offering price to pro forma net
earnings per share................... 9.14x 10.31x 11.40x 12.56x
</TABLE>
33
<PAGE>
______________________
(1) Does not give effect to the non-recurring expense that will be recognized
in 1996 as a result of the establishment of the Foundation. The Company
will recognize an after-tax expense for the amount of the contribution to
the Foundation which is expected to be $4.8 million, $5.6 million, $6.5
million and $7.4 million at the minimum, midpoint, maximum and maximum as
adjusted, of the Estimated Price Range, respectively.
(2) It is assumed that 8% of the shares of Common Stock issued in connection
with the Conversion, including shares issued to the Foundation, will be
purchased by the ESOP. For purposes of this table, 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
thirty equal annual installments of principal, with an assumed interest
rate at 8.75%. The pro forma net earnings assumes: (i) that the Bank's
contribution to the ESOP is equivalent to the debt service requirement for
the five months ended May 31, 1996, and was made at the end of the period;
(ii) that 28,900, 34,000, 39,100 and 44,965 shares at the minimum,
midpoint, maximum and 15% above the maximum of the range, respectively,
were committed to be released during the five months ended May 31, 1996, 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 earnings per
share calculations. See "Management of the Bank -Benefit Plans - ESOP."
(3) Gives effect to the Stock Programs expected to be adopted by the Company
following the Conversion and presented for approval at a meeting of
stockholders. If the Stock Programs are approved by stockholders, the Stock
Programs intend to acquire an amount of Common Stock equal to 4% of the
shares of Common Stock sold in the Conversion and issued to the Foundation,
or 1,040,400, 1,224,000, 1,407,600 and 1,618,740 shares of Common Stock at
the minimum, midpoint, maximum and 15% above the maximum of the Estimated
Price 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 Stock Programs to
purchase the shares will be contributed to the Stock Programs by the Bank.
In calculating the pro forma effect of the Stock Programs, it is assumed
that the shares were acquired by the Stock Programs at the beginning of the
period presented in open market purchases at the Purchase Price and that
8.3% of the amount contributed was an amortized expense during such period.
The issuance of authorized but unissued shares of the Company's Common
Stock to the Stock Programs instead of open market purchases would dilute
the voting interests of existing stockholders by approximately 3.8% and pro
forma net earnings per share would be $0.44, $0.39, $0.35 and $0.32 at the
minimum, midpoint, maximum and 15% above the maximum of the range,
respectively, and pro forma stockholders' equity per share would be $16.65,
$15.43, $14.53 and $13.75 at the minimum, midpoint, maximum and 15% above
the maximum of the range, respectively. There can be no assurance that the
actual purchase price of the shares granted under the Stock Programs will
be equal to the Purchase Price. See "Management of the Bank - Benefit
Plans - Stock Programs."
(4) No effect has been given to the issuance of additional shares of Common
Stock pursuant to the Stock Option Plans expected to be adopted by the
Company following the Conversion. The Company expects to present the Stock
Option Plans for approval at a meeting of stockholders. If the Stock Option
Plans are approved by stockholders, an amount equal to 10% of the Common
Stock issued in connection with the Conversion, including shares issued to
the Foundation, or 2,601,000, 3,060,000, 3,519,000 and 4,046,850 shares at
the minimum, midpoint, maximum and 15% above the maximum of the Estimated
Price Range, respectively, will be reserved for future issuance upon the
exercise of options to be granted under the Stock Option Plans. The
issuance of Common Stock pursuant to the exercise of options under the
Stock Option Plans 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 earnings per share
would be $0.41 $0.36, $0.33 and $0.30, respectively, and the pro forma
stockholders' equity per share would be $16.29, $15.13, $14.28 and $13.54,
respectively. See "Management of the Bank - Benefit Plans - Stock Option
Plans."
(5) The retained earnings of the Bank will continue to be substantially
restricted after the Conversion. See "Dividend Policy," "The Conversion -
Liquidation Rights" and "Regulation and Supervision - New York State Law."
(6) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Price Range of up to 15% as
a result of regulatory considerations or changes in market or general
financial and economic conditions following the commencement of the
Subscription and Community Offerings.
34
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED DECEMBER 31, 1995
-------------------------------------------------------------
<S> <C> <C> <C> <C>
25,252,427 29,708,738 34,165,049
SHARES SOLD SHARES SOLD SHARES SOLD 39,289,806
AT $10.00 AT $10.00 AT $10.00 SHARES SOLD
PER SHARE PER SHARE PER SHARE AT $10.00 PER
(MINIMUM (MIDPOINT (MAXIMUM SHARE (15%
OF OF OF ABOVE
ESTIMATED ESTIMATED ESTIMATED MAXIMUM
PRICE PRICE PRICE OF ESTIMATED
RANGE) RANGE) RANGE) PRICE RANGE)(6)
--------- -------- ------- --------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Gross proceeds.......................... $ 252,524 $ 297,087 $ 341,650 $ 392,898
Plus: Shares acquired by Charitable
Trust Foundation (equal to 3% of
stock issued in Conversion)......... 7,576 8,913 10,250 11,787
----------- ----------- -------- -----------
Pro forma market capitalization......... $ 260,100 $ 306,000 $351,900 $ 404,685
=========== =========== ======== ===========
Gross proceeds.......................... $ 252,524 $ 297,087 $341,650 $ 392,898
Less: Offering expenses and
commissions........................ (6,370) (7,085) (7,801) (8,624)
----------- ----------- -------- -----------
Estimated net proceeds.................. $ 246,154 $ 290,001 $333,849 $ 384,274
Less: Common Stock purchased
by ESOP......................... (20,808) (24,480) (28,152) (32,375)
Common Stock purchased by
Stock Programs................... (10,404) (12,240) (14,076) (16,187)
----------- ----------- -------- -----------
Estimated net proceeds, as adjusted.. $ 214,942 $ 253,281 $291,621 $ 335,712
=========== =========== ======== ===========
Net income(1):
Historical........................... $ 18,718 $ 18,718 $ 18,718 $ 18,718
Pro forma income on net proceeds,
as adjusted....................... 7,827 9,223 10,619 12,225
Pro forma ESOP adjustment(2)......... (437) (514) (591) (680)
Pro forma Stock Programs
adjustment(3)..................... (1,311) (1,542) (1,774) (2,040)
----------- ----------- -------- -----------
Pro forma net income................ $ 24,797 $ 25,885 $ 26,972 $ 28,223
=========== =========== ======== ===========
Per share net income(1):
Historical........................... $ 0.78 $ 0.66 $ 0.58 $ 0.50
Pro forma income on net proceeds,
as adjusted.......................... 0.34 0.34 0.33 0.34
Pro forma ESOP adjustment(2)......... (0.02) (0.02) (0.02) (0.02)
Pro forma Stock Programs
adjustment(3)..................... (0.06) (0.06) (0.06) (0.06)
----------- ----------- -------- -----------
Pro forma net income per share...... $ 1.04 $ 0.92 $ 0.83 $ 0.76
=========== =========== ======== ===========
Stockholders' equity:
Historical........................... $ 226,418 $ 226,418 $226,418 $ 226,418
Estimated net proceeds............... 246,154 290,001 333,849 384,274
Plus: Tax benefit of
Foundation........................ 2,803 3,298 3,792 4,361
Less: Common Stock acquired
by ESOP(2)....................... (20,808) (24,480) (28,152) (32,375)
Less: Common Stock acquired
by Stock Programs(3)............. (10,404) (12,240) (14,076) (16,187)
----------- ----------- -------- -----------
Pro forma stockholders'
equity(3)(4)(5).................... $ 444,163 $ 482,997 $521,831 $ 566,491
=========== =========== ======== ===========
Stockholders' equity per share:
Historical........................... $ 8.71 $ 7.40 $ 6.43 $ 5.59
Estimated net proceeds............... 9.46 9.47 9.49 9.50
Plus: Tax benefit of
Charitable Foundation................ 0.11 0.11 0.11 0.11
Less: Common Stock acquired
by ESOP(2)......................... (0.80) (0.80) (0.80) (0.80)
Common Stock acquired by
Stock Programs(3).................. (0.40) (0.40) (0.40) (0.40)
----------- ----------- -------- -----------
Pro forma stockholders' equity
per share(3)(4)(5)................. $ 17.08 $ 15.78 $ 14.83 $ 14.00
=========== =========== ======== ===========
Offering price as a percentage of
pro forma stockholders' equity
per share........................... 58.55% 63.37% 67.43% 71.43%
Offering price to pro forma net
earnings per share................... 9.62x 10.87x 12.05x 13.16x
(see footnotes on next page)
</TABLE>
35
<PAGE>
(1) Does not give effect to the non-recurring expense that will be recognized
in 1996 as a result of the establishment of the Foundation. The Company
will recognize an after-tax expense for the amount of the contribution to
the Foundation which is expected to be $4.8 million, $5.6 million, $6.5
million and $7.4 million at the minimum, midpoint, maximum and maximum as
adjusted, of the Estimated Price Range, respectively.
(2) It is assumed that 8% of the shares of Common Stock issued in connection
with the Conversion, including shares issued to the Foundation, will be
purchased by the ESOP. For purposes of this table, 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
30 equal annual installments of principal, with an assumed interest rate at
8.75%. The pro forma net earnings assumes: (i) that the Bank's contribution
to the ESOP is equivalent to the debt service requirement for the year
ended December 31, 1995, and was made at the end of the period; (ii) that
69,360, 81,600, 93,840 and 107,916 shares at the minimum, midpoint, maximum
and 15% above the maximum of the range, respectively, were committed to be
released during the year ended December 31, 1995 at an average fair value
of $10.00 per share in accordance with SOP 93-6; and (iii) only the ESOP
shares committed to be released were considered outstanding for purposes of
the net earnings per share calculations. See "Management of the Bank -
Benefit Plans - ESOP."
(3) Gives effect to the Stock Programs expected to be adopted by the Company
following the Conversion and presented for approval at a meeting of
stockholders. If the Stock Programs are approved by stockholders, the Stock
Programs intend to acquire an amount of Common Stock equal to 4% of the
shares of Common Stock issued in connection with the Conversion, including
shares issued to the Foundation, or 1,040,400, 1,224,000, 1,407,600 and
1,618,740 shares of Common Stock at the minimum, midpoint, maximum and 15%
above the maximum of the Estimated Price 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.
In calculating the pro forma effect of the Stock Programs, it is assumed
that the shares were acquired by the Stock Programs at the beginning of the
period presented in open market purchases at the Purchase Price and that
20% of the amount contributed was an amortized expense during such period.
The issuance of authorized but unissued shares of the Company's Common
Stock to the Stock Programs instead of open market purchases would dilute
the voting interests of existing stockholders by approximately 3.8% and pro
forma net earnings per share would be $0.99, $0.88, $0.80 and $0.72 at the
minimum, midpoint, maximum and 15% above the maximum of the range,
respectively and pro forma stockholders' equity per share would be $16.80,
$15.56, $14.64 and $13.84 at the minimum, midpoint, maximum and 15% above
the maximum of the range, respectively. There can be no assurance that the
actual purchase price of the shares granted under the Stock Programs will
be equal to the Purchase Price. See "Management of the Bank - Benefit
Plans - Stock Programs."
(4) No effect has been given to the issuance of additional shares of Common
Stock pursuant to the Stock Option Plans expected to be adopted by the
Company following the Conversion. The Company expects to present the Stock
Option Plans for approval at a meeting of stockholders. If the Stock Option
Plans are approved by stockholders, an amount equal to 10% of the Common
Stock issued in connection with the Conversion, including shares issued to
the Foundation, or 2,601,000, 3,060,000, 3,519,000 and 4,046,850 shares at
the minimum, midpoint, maximum and 15% above the maximum of the Estimated
Price Range, respectively, will be reserved for future issuance upon the
exercise of options to be granted under the Stock Option Plans. The
issuance of Common Stock pursuant to the exercise of options under the
Stock Option Plans 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 earnings per share
would be $0.93, $0.83, $0.75 and $0.68, respectively, and the pro forma
stockholders' equity per share would be $16.43, $15.26, $14.39 and $13.63,
respectively. See "Management of the Bank - Benefit Plans - Stock Option
Plans."
(5) The retained earnings of the Bank will continue to be substantially
restricted after the Conversion. See "Dividend Policy," "The Conversion -
Liquidation Rights" and "Regulation and Supervision - New York State Law."
(6) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Price Range of up to 15% as
a result of regulatory considerations or changes in market or general
financial and economic conditions following the commencement of the
Subscription and Community Offerings.
36
<PAGE>
COMPARISON OF VALUATION AND PRO FORMA INFORMATION WITH NO FOUNDATION
In the event that the Foundation was not being established as part of the
Conversion, FinPro has estimated that the pro forma aggregate market would be
approximately $313.8 million, at the midpoint, which is approximately $7.8
million greater than the pro forma aggregate market if the Foundation is
included and would result in approximately an $16.7 million increase in the
amount of Common Stock offered for sale in the Conversion. 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 Foundation. Further, assuming the midpoint of the Estimated
Price Range, pro forma stockholders' equity per share and pro forma earnings per
share would be the same with the Foundation as without the Foundation. In this
regard, pro forma stockholders' equity and pro forma net income per share would
be $15.65 and $0.40, respectively, at the midpoint of the estimate, assuming no
Foundation, and $15.65 and $0.40, respectively, with the Foundation. The pro
forma price to book ratio and the pro forma price to earnings ratio are 63.91%
and 10.39x, respectively, at the midpoint of the estimate, assuming no
Foundation and are 63.91% and 10.31x, respectively, with the Foundation. There
is no assurance that in the event the Foundation was not formed that the
appraisal prepared at that time would have concluded that the pro forma market
value of the Company would be the same as that estimated herein. Any appraisal
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 maximum, as
adjusted, of the Estimated Price Range, assuming the Conversion was completed at
May 31, 1996.
<TABLE>
<CAPTION>
AT THE MAXIMUM,
AT THE MINIMUM AT THE MIDPOINT AT THE MAXIMUM AS ADJUSTED
-------------------------------------------------------------------------------------------------------
WITH NO WITH NO WITH NO WITH NO
FOUNDATION FOUNDATION FOUNDATION FOUNDATION FOUNDATION FOUNDATION FOUNDATION FOUNDATION
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Estimated offering amount.. $ 252,524 $ 266,730 $ 297,087 $ 313,800 $ 341,650 $ 360,870 $ 392,898 $ 415,001
Pro forma market
capitalization............ 260,100 266,730 306,000 313,800 351,900 360,870 404,685 415,001
Total assets............... $1,989,920 $2,000,299 $2,028,754 $2,040,965 $2,067,588 $2,081,631 $2,112,248 $2,128,396
Total liabilities.......... 1,549,931 1,549,931 1,549,931 1,549,931 1,549,931 1,549,931 1,549,931 1,549,931
Pro forma stockholders'
equity.................... 439,989 450,368 478,823 491,034 517,657 531,700 562,317 578,465
Pro forma consolidated net
earnings.................. 10,924 11,106 11,377 11,591 11,831 12,076 12,352 12,634
Pro forma stockholders'
equity per share.......... $ 16.92 $ 16.89 $ 15.65 $ 15.65 $ 14.71 $ 14.73 $ 13.90 $ 13.94
Pro forma consolidated net
earnings per
share..................... 0.46 0.45 0.40 0.40 0.37 0.36 0.33 0.33
Pro Forma Pricing Ratios:
Offering price as a
percentage of pro
forma stockholders'
equity per share... 59.12% 59.22% 63.91% 63.91% 67.98% 67.87% 71.97% 71.74%
Offering price to pro
forma
net earnings per
share.............. 9.14x 9.22x 10.31x 10.39x 11.40x 11.47x 12.56x 12.61x
Offering price to
assets................ 13.07% 13.33% 14.64% 15.38% 16.52% 17.34% 18.60% 19.50%
Pro Forma Financial Ratios:
Return on assets......... 1.32% 1.33% 1.35% 1.36% 1.37% 1.39% 1.40% 1.42%
Return on stockholders'
equity.................. 5.96 5.92 5.70 5.67 5.49 5.45 5.27 5.24
Stockholders' equity to
assets.................. 22.11 22.52 23.60 24.06 25.04 25.54 26.62 27.18
</TABLE>
37
<PAGE>
THE ROSLYN SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
The following Consolidated Statements of Income of the Bank for each of the
years in the three-year period ended December 31, 1995 have been audited by KPMG
Peat Marwick LLP, independent certified public accountants, whose report thereon
appears elsewhere in this Prospectus. Such report includes an explanatory
paragraph relating to changes in accounting principles. With respect to
information for the five months ended May 31, 1996 and 1995, which is unaudited,
in the opinion of management, all adjustments necessary for a fair presentation
of such interim periods have been included and are of a normal recurring nature.
Results for the five months ended May 31, 1996 are not necessarily indicative of
the results that may be expected for the year ended December 31, 1996. These
statements should be read in conjunction with the Consolidated Financial
Statements and Notes thereto and Management's Discussion and Analysis of
Financial Condition and Results of Operations included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
FOR THE FIVE
MONTHS FOR THE YEAR
ENDED MAY 31, ENDED DECEMBER 31,
-------------------- --------------------------------
1996 1995 1995 1994 1993
--------- --------- --------- --------- -----------
(unaudited)
(In thousands)
<S> <C> <C> <C> <C> <C>
Interest income:
Federal funds sold and short term deposits......................... $ 587 $ 722 $ 1,819 $ 1,069 $ 949
Debt and equity securities......................................... 11,287 15,197 37,891 38,972 39,638
Mortgage-backed and mortgage
related securities................................................ 22,940 14,207 37,086 27,976 27,897
Real estate loans.................................................. 15,024 13,751 33,341 24,665 24,742
Consumer and student loans......................................... 225 673 897 1,834 1,778
--------- -------- --------- -------- ---------
Total interest income............................................ 50,063 44,550 111,034 94,516 95,004
--------- -------- --------- -------- ---------
Interest expense:
Deposits........................................................... 26,198 22,038 57,744 40,353 39,516
Borrowed funds..................................................... 930 700 1,554 - 182
--------- -------- --------- -------- ---------
Total interest expense 27,128 22,738 59,298 40,353 39,698
--------- -------- --------- -------- ---------
Net interest income before provision
for possible loan losses 22,935 21,812 51,736 54,163 55,306
Provision for possible loan losses.................................... 300 250 600 600 6,860
--------- -------- --------- -------- ---------
Net interest income after provision
for possible loan losses........................................... 22,635 21,562 51,136 53,563 48,446
--------- -------- --------- -------- ---------
Non-interest income:
Loan servicing and fee income...................................... 1,686 1,226 3,729 3,339 3,363
Net gains (losses) on sales of loans............................... 1,599 455 1,827 (289) 33
Net (losses) gains on securities................................... (257) (758) (811) (1,181) 3,123
Net (losses) gains on real estate operations....................... (271) 203 714 156 (1,665)
Other non-interest income.......................................... 197 4 255 24 10
--------- -------- --------- -------- ---------
Total non-interest income........................................ 2,954 1,130 5,714 2,049 4,864
--------- -------- --------- -------- ---------
Non-interest expense:
General and administrative expenses:
Compensation and employee benefits................................. 8,167 6,032 15,815 13,409 12,492
Occupancy and equipment............................................ 1,427 1,245 3,288 2,845 2,539
Deposit insurance premiums......................................... 1 1,142 1,430 2,630 2,587
Advertising and promotion.......................................... 918 604 1,708 1,350 1,200
Other non-interest expenses........................................ 2,835 2,168 7,115 5,816 5,654
--------- -------- --------- -------- ---------
Total general and administrative expenses........................ 13,348 11,191 29,356 26,050 24,472
Amortization of excess of cost over fair
value of net assets acquired..................................... 196 51 266 122 92
--------- -------- --------- -------- ---------
Total non-interest expense....................................... 13,544 11,242 29,622 26,172 24,564
--------- -------- --------- -------- ---------
Income before income taxes and cumulative
effect of changes in accounting principles 12,045 11,450 27,228 29,440 28,746
Provision for income taxes............................................ 3,654 3,876 8,510 10,018 10,586
--------- -------- --------- -------- ---------
Income before cumulative effect of changes in
accounting principles.............................................. 8,391 7,574 18,718 19,422 18,160
Cumulative effect of changes in accounting
principles......................................................... - - - - 5,983
--------- -------- --------- -------- ---------
Net income............................................................ $ 8,391 $ 7,574 $ 18,718 $ 19,422 $ 24,143
========= ======== ========= ======== =========
</TABLE>
(See accompanying notes to the consolidated financial statements)
38
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company has only recently been formed and, accordingly, has no results
of operations. The Bank's results of operations are dependent primarily on net
interest income, which is the difference between the income earned on its loan
and securities portfolios and its cost of funds, consisting of the interest paid
on deposits and borrowings. Results of operations are also affected by the
Bank's provision for possible loan losses, real estate operations expense,
securities and loan sale activities and loan servicing activities. The Bank's
non-interest expense principally consists of compensation and benefits,
occupancy and equipment expense, federal deposit insurance premiums and other
expenses. Results of operations are also significantly affected by general
economic and competitive conditions, particularly changes in interest rates,
government policies and actions of regulatory authorities. See "Regulation and
Supervision" for a discussion of the regulatory changes resulting from the
Financial Institutions Reform Recovery and Enforcement Act of 1989 ("FIRREA")
and the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
and the impact of such changes on the Bank. Future changes in applicable law,
regulations or government policies may materially impact the Bank. On August 1,
1995, the Bank acquired through its wholly-owned subsidiary, RFI, certain assets
and liabilities, including the loan origination business and the loan servicing
portfolio of Residential Mortgage Banking, Inc., a mortgage banking company
which primarily operated in New York and New Jersey counties in and surrounding
the New York City metropolitan area and in Albany, New York. The acquisition was
accounted for under the purchase method of accounting. Accordingly, the
information contained in this section regarding periods subsequent to July 31,
1995 reflects the consolidated operations of the Bank, inclusive of its mortgage
banking subsidiary.
MANAGEMENT STRATEGY
In recent years, the Bank's operating strategy concentrated on maintaining
profitability by primarily investing in mortgage-backed and mortgage related and
U.S. Government or agency debt securities. Since 1993, the Bank has decreased
its emphasis on investments in U.S. Government securities and increased its
emphasis on building its loan portfolio by restructuring its lending department,
hiring experienced commercial real estate loan personnel and revising its
underwriting policies and procedures. More recently, through its purchase of
certain of the assets and liabilities of a mortgage banking company and the
establishment of RFI, the Bank has increased its emphasis on mortgage banking
activities and developed a resource for developing its one- to four-family loans
portfolio. The Bank's current operating strategy consists primarily of: (i)
investing funds not utilized for loan originations and purchases in shorter-term
debt securities and mortgage-backed and mortgage related securities and
preferred stock of corporate issuers; (ii) building its loan portfolio by
purchasing one- to four-family loans originated by RFI and placing emphasis on
the origination of high quality commercial real estate loans to selected real
estate developers operating in the Bank's primary market area; (iii) increasing
fee income and building its loan servicing portfolio through its mortgage
banking operations whereby it sells, generally on a servicing retained basis,
one- to four-family mortgage loans that it originates through RFI as a means of
increasing servicing fee income; (iv) attracting and retaining deposit accounts
by paying competitive rates on its deposit products and opening new branches;
and (v) maintaining a lower expense ratio by efficiently utilizing personnel and
branch facilities to service its customers.
39
<PAGE>
MANAGEMENT OF INTEREST RATE RISK
The principal objective of the Bank's interest rate risk management is to
evaluate the interest rate risk inherent in certain balance sheet accounts,
determine the level of risk appropriate given the Bank's business strategy,
operating environment, capital and liquidity requirements and performance
objectives, and manage the risk consistent with the Board of Trustees' approved
guidelines. Through such management, the Bank seeks to reduce the vulnerability
of its operations to changes in interest rates. The Bank's Board of Trustees
reviews the Bank's interest rate risk position on a monthly basis. The Bank's
Asset/Liability Committee is comprised of the Bank's senior management under the
direction of the Board of Trustees, with senior management responsible for
reviewing with the Board of Trustees its activities and strategies, the effect
of those strategies on the Bank's net interest margin, the market value of the
portfolio and the effect that changes in the interest rates will have on the
Bank's portfolio and the Bank's exposure limits. See "Risk Factors - Sensitivity
to Increases in Interest Rates."
In recent years, the Bank has utilized the following strategies to manage
interest rate risk: (1) emphasizing the origination and retention of fixed-rate
mortgage loans having terms to maturity of not more than fifteen years,
adjustable-rate loans and consumer loans consisting primarily of home equity
loans and second mortgage loans; (2) selling substantially all 30-year fixed-
rate mortgage loans originated to the secondary market without recourse and on a
servicing retained basis (except for such loans with interest rates of 8% or
greater, which the Bank retains in its loan portfolio); and (3) investing in
shorter term and, to a lesser extent, adjustable rate securities which may
generally bear lower yields as compared to longer term investments, but which
better position the Bank for increases in market interest rates. In recent
years, the Bank has attempted to shorten the maturities of its interest-earning
assets by increasing its investment in shorter term investments to better match
the maturities of its deposit accounts, in particular its certificates of
deposit that mature in one year or less, which, at May 31, 1996, totalled $688.2
million, or 46.4% of total interest-bearing liabilities. These strategies may
adversely impact net interest income due to lower initial yields on these
investments in comparison to longer term fixed rate investments and whole loans.
However, management believes that reducing its exposure to interest rate
fluctuations will enhance long-term profitability.
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 said 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 May 31, 1996, the Bank's 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
negative 22.8%. 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 would be in a worse position to invest in higher yielding assets which,
consequently, may result in the cost of its interest-bearing liabilities
increasing at a rate faster than its yield on interest-earning assets than if it
had a positive gap. During a period of falling interest rates, an institution
with a negative gap would tend to have its interest-bearing liabilities
repricing downward at a faster rate than its interest-earning assets as compared
to an institution with a positive gap which, consequently, may tend to
positively affect the growth of its net interest income.
40
<PAGE>
The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at May 31, 1996, 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 May 31,
1996, on the basis of contractual maturities, anticipated prepayments, and
scheduled rate adjustments within a three month period and subsequent selected
time intervals. For loans on residential properties, adjustable-rate loans, and
fixed-rate loans, prepayment rates were assumed to range from 6.66% to 15.24%
annually. Mortgage-backed securities were assumed to prepay at rates between
6.54% and 36.54% annually. Savings accounts were assumed to decay at 7.00%,
7.00%, 7.00%, 10.00%, 10.00%, 10.00% and 49.00%, NOW accounts and money market
savings accounts were assumed to decay at 10.00%, 5.00%, 5.00%, 10.00%, 10.00%,
10.00% and 50.00%, for the periods of three months or less, three to six months,
six to 12 months, one to three years, three to five years, five to ten years and
more than ten years, respectively. Prepayment and deposit decay rates can have a
significant impact on the Bank's estimated gap. While the Bank believes such
assumptions to be reasonable, there can be no assurance that assumed prepayment
rates and decay rates will approximate actual future loan prepayment and deposit
withdrawal activity. See "Business of the Bank - Lending Activities," "-
Investment Activities" and "-Sources of Funds."
41
<PAGE>
<TABLE>
<CAPTION>
AT MAY 31, 1996
--------------------------------------------------------
3 MORE THAN MORE THAN MORE THAN 1
MONTHS 3 MONTHS TO 6 MONTHS TO YEAR TO
OR LESS 6 MONTHS 1 YEAR 3 YEARS
------------ ------------- ------------ -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
INTEREST-EARNING ASSETS(1):
Federal funds sold.................................. $ 18,500 $ - $ - $ -
Debt and equity securities(2)....................... 12,530 8,988 21,005 143,373
Mortgage-backed and
mortgage related securities(2)................... 75,686 56,622 106,320 290,740
Real estate loans, net(3)(4)........................ 55,746 4,452 104,873 34,835
Consumer and student loans(4)....................... 1,915 4 9 35
-------- -------- -------- --------
Total interest-earning assets................. 164,377 70,066 232,207 468,983
-------- -------- -------- --------
INTEREST-BEARING LIABILITIES:
Money market savings accounts....................... 6,141 3,071 3,071 6,141
Savings accounts.................................... 30,505 31,994 30,505 43,578
NOW accounts........................................ 3,736 1,868 1,868 3,736
Certificates of deposit............................. 226,486 226,486 235,404 88,506
Borrowed funds...................................... 69,598 - - -
-------- -------- -------- ---------
Total interest-bearing liabilities............ 336,466 263,419 270,848 141,961
-------- -------- -------- ---------
Interest sensitivity gap(5)......................... ($172,089) ($193,353) ($38,641) $ 327,022
======== ======== ======== =========
Cumulative interest sensitivity gap................. ($172,089) ($365,442) ($404,083) ($77,061)
======== ======== ======== =========
Cumulative interest sensitivity gap as a percentage
of total assets................................... (9.71%) (20.62%) (22.80%) (4.35%)
Cumulative interest sensitivity gap as a percentage
of total interest-earning assets ................. (104.69%) (521.57%) (174.02%) (16.43%)
Cumulative net interest-earning assets as a
percentage of cumulative interest-bearing
liabilities....................................... 48.85% 39.08% 53.59% 92.39%
<CAPTION>
AT MAY 31, 1996
--------------------------------------------------------
MORE THAN MORE THAN
3 YEARS TO 5 YEARS TO MORE THAN
5 YEARS 10 YEARS 10 YEARS TOTAL
--------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
INTEREST-EARNING ASSETS(1):
Federal funds sold.................................. $ - $ - $ - $ 18,500
Debt and equity securities(2)....................... 70,939 137,379 33,132 427,346
Mortgage-backed and
mortgage related securities(2)................... 170,893 109,137 29,923 839,321
Real estate loans, net(3)(4)........................ 128,847 66,766 26,159 421,678
Consumer and student loans(4)....................... 35 88 352 2,438
-------- -------- -------- ---------
Total interest-earning assets................. 370,714 313,370 89,566 1,709,283
-------- -------- -------- ---------
INTEREST-BEARING LIABILITIES:
Money market savings accounts....................... 6,141 6,141 30,705 61,411
Savings accounts.................................... 43,578 43,578 213,534 437,272
NOW accounts........................................ 3,736 3,736 18,679 37,359
Certificates of deposit............................. 83,139 11,855 - 871,876
Borrowed funds...................................... - - - 69,598
-------- -------- -------- ---------
Total interest-bearing liabilities............ 136,594 65,310 262,918 1,477,516
-------- -------- -------- ---------
Interest sensitivity gap(5)............................. $234,120 $248,060 ($173,352) $231,767
======== ======== ======== =========
Cumulative interest sensitivity gap..................... $157,059 $405,119 $231,767
======== ======== ========
Cumulative interest sensitivity gap as a percentag
of total assets..................................... 8.86% 22.86% 13.08%
Cumulative interest sensitivity gap as a percentage
of total interest-earning assets.................... 42.37% 129.28% 258.77%
Cumulative net interest-earning assets as a
percentage of cumulative interest-bearing
liabilities......................................... 113.67% 133.35% 115.69%
</TABLE>
_____________________
(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) Debt and equity and mortgage-backed and mortgage related securities are
shown excluding the market value adjustment of ($1.2 million) before tax,
from the implementation of SFAS No. 115. Equity securities primarily
consist of callable preferred stock, the maturities of which have been
assumed to be the date on which they are initially callable.
(3) For purposes of the gap analysis, the allowance for possible loan losses
and non-performing loans have been excluded.
(4) Loans held for sale are included in the 3 months or less category.
(5) Interest sensitivity gap represents the difference between net interest-
earning assets and interest-bearing liabilities.
42
<PAGE>
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.
Net Portfolio Value. The Bank's interest rate sensitivity is monitored by
management through the use of a Net Portfolio Value Model which generates
estimates of the change in the Bank's net portfolio value ("NPV") over a range
of interest rate scenarios. NPV is the present value of expected cash flows from
assets, liabilities, and off-balance sheet contracts. The NPV ratio, under any
interest rate scenario, is defined as the NPV in that scenario divided by the
market value of assets in the same scenario. The model assumes estimated loan
prepayment rates, reinvestment rates and deposit decay rates similar to the
assumptions utilized for the GAP Table. The following NPV Table sets forth the
Bank's NPV as of May 31, 1996.
<TABLE>
<CAPTION>
NPV AS % OF PORTFOLIO
CHANGE IN NET PORTFOLIO VALUE VALUE OF ASSETS
INTEREST RATES --------------------------- ------------------------
IN BASIS POINTS % NPV %
(RATE SHOCK) AMOUNT $ CHARGE CHANGE RATIO CHANGE
------------------- ------------ ----------- ----------- ---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
400 $260,158 $(108,917) (29.51)% 17% (10.97)%
300 286,734 (82,341) (22.31) 18 (8.35)
200 315,619 (53,455) (14.48) 19 (5.55)
100 342,633 (26,442) (7.16) 20 (2.79)
Static 369,075 0 0 21 0.00
(100) 388,416 19,342 5.24 22 2.43
(200) 396,441 27,366 7.41 22 4.28
(300) 399,318 30,243 8.19 21 5.91
(400) 405,999 36,924 10.00 21 7.84
</TABLE>
As is the case with the GAP Table, certain shortcomings are inherent in the
methodology used in the above interest rate risk measurements. Modeling changes
in NPV require the making of certain assumptions which may or may not reflect
the manner in which actual yields and costs respond to changes in market
interest rates. In this regard, the NPV Table presented assumes that the
composition of the Bank's interest sensitive assets and liabilities existing at
the beginning of a period remains constant over the period being measured and
also assumes that a particular change in interest rates is reflected uniformly
across the yield curve regardless of the duration to maturity or repricing of
specific assets and liabilities. Accordingly, although the NPV Table provides an
indication of the Bank's interest rate risk exposure at a particular point in
time, such measurements are not intended to and do not provide a precise
forecast of the effect of changes in market interest rates on the Bank's net
interest income and will differ from actual results.
43
<PAGE>
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.
44
<PAGE>
Average Balance Sheet. The following table sets forth certain information
relating to the Bank at May 31, 1996 and for the five months ended May 31, 1996
and 1995 and for the years ended December 31, 1995, 1994 and 1993. The average
yields and costs are derived by dividing income or expense by the average
balance of interest-earning assets or interest-bearing liabilities,
respectively, for the periods shown and reflect annualized yields and costs.
Average balances are derived from average daily balances. The yields and costs
include fees which are considered adjustments to yields.
<TABLE>
<CAPTION>
FOR THE FIVE MONTHS ENDED MAY 31,
---------------------------------------------------------------------
AT MAY 31, 1996 1996 1995
---------------------- ---------------------------------- ---------------------------------
AVERAGE AVERAGE AVERAGE
YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE COST BALANCE INTEREST COST BALANCE INTEREST COST
---------- ---------- ----------- ----------- -------- ----------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-earning assets(1):
Federal funds sold and
short-term deposits......... $ 18,500 5.16% $ 26,984 $ 587 5.22% $ 28,738 $ 722 6.03%
Debt and equity securities... 433,862 7.34 403,020 11,287 6.72 572,400 15,197 6.37
Mortgage-backed and mortgage
related securities, net..... 831,632 6.77 803,795 22,940 6.85 509,206 14,207 6.70
Real estate loans, net(2).... 411,311 8.57 388,682 15,024 9.28 333,265 13,751 9.90
Consumer and student loans... 2,438 9.38 4,296 225 12.57 18,908 673 8.54
---------- ---------- ------- ---------- -------
Total interest-earning
assets................ 1,697,743 7.34 1,626,777 50,063 7.39 1,462,517 44,550 7.31
Non-interest-earning assets..... 74,432 ------ 62,917 ------- ------ 46,723 ------- ------
---------- ---------- ----------
Total assets........... $1,772,175 $1,689,694 $1,509,240
========== ========== ==========
LIABILITIES AND RETAINED EARNINGS:
Interest-bearing liabilities:
Deposits:
Money market accounts......... $ 61,411 2.97% $ 64,051 $ 768 2.88% $ 73,539 $ 872 2.85%
Savings accounts (3)(4)....... 441,842 2.58 451,871 6,045 3.21 507,861 6,437 3.04
NOW accounts(4)............... 37,359 2.24 35,163 373 2.55 33,367 336 2.42
Certificates of deposit....... 871,876 5.52 806,584 19,012 5.66 618,016 14,393 5.59
---------- ---------- ------- ---------- -------
Total deposits......... 1,412,488 4.40 1,357,669 26,198 4.63 1,232,783 22,038 4.29
Borrowed funds................ 69,598 5.44 41,041 930 5.44 26,276 700 6.39
---------- ---------- ------- ---------- -------
Total interest-bearing
liabilities........... 1,482,086 4.45 1,398,710 27,128 4.65 1,259,059 22,738 4.33
------ ------ ------
Non-interest-bearing liabilities.. 67,845 66,121 46,383
---------- ---------- ----------
Total liabilities...... 1,549,931 1,464,831 1,305,442
Total retained earnings........... 222,244 224,863 203,798
---------- ---------- ----------
Total liabilities and
retained earnings..... $1,772,175 $1,689,694 $1,509,240
========== ========== ==========
Net interest income/interest rate
spread(5)........................ 2.89% $22,935 2.74% $21,812 2.98%
====== ======= ====== ======= ======
Net interest margin as a
percentage of interest-earning
assets(6)........................ 3.38% 3.58%
====== ======
Ratio of interest-earning assets
to interest-bearing liabilities.. 114.55% 116.31% 116.16%
====== ====== ======
</TABLE>
___________________________
(1) Includes related assets available-for-sale and unamortized discounts and
premiums.
(2) Amount is net of deferred loan fees, deferred mortgage interest,
unamortized discounts net and allowance for possible loan losses and
includes loans held for sale and non-performing loans.
(3) Savings accounts includes mortgagor's escrow deposits.
(4) The average cost of savings and NOW accounts at May 31, 1996 does not
reflect the payment of a special interest payment of approximately 25% of
interest paid on such accounts in prior years. To the extent such special
interest payments were paid on such accounts, the additional average cost
of savings and NOW accounts would have been 64 basis points and 56 basis
points at May 31, 1996, respectively. Such payments resulted in an
additional cost of savings accounts of 63 basis points and 57 basis points
for the five months ended May 31, 1996 and 1995, respectively, and an
additional cost of NOW accounts of 50 basis points and 40 basis points for
the five months ended May 31, 1996 and 1995, respectively.
(5) Net interest rate spread represents the difference between the yield on
interest-earning assets and the cost of interest-bearing liabilities.
(6) Net interest margin represents net interest income divided by average
interest-earning assets.
45
<PAGE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------------
1995 1994 1993
-----------------------------------------------------------------------------------------------
AVERAGE AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST BALANCE INTEREST COST
----------- ---------- ------- ---------- -------------------- ------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-earning assets(1):
Federal funds sold and
short-term deposits....... $ 30,568 $ 1,819 5.95% $ 23,420 $ 1,069 4.56% $ 28,600 $ 949 3.32%
Debt and equity securities. 560,663 37,891 6.76 586,096 38,972 6.65 603,367 39,638 6.57
Mortgage-backed and
mortgage related
securities, net........... 545,642 37,086 6.80 439,239 27,976 6.37 371,397 27,897 7.51
Real estate loans, net(2).. 350,802 33,341 9.50 275,661 24,665 8.95 268,944 24,742 9.20
Consumer and student loans. 9,816 897 9.14 21,580 1,834 8.50 21,325 1,778 8.34
---------- -------- ---------- ------- ---------- -------
Total
interest-earning
assets............. 1,497,491 111,304 7.41 1,345,996 94,516 7.02 1,293,633 95,004 7.34
---------- -------- ---- ------- ---- ------- ----
Non-interest-earning assets. 53,237 49,302 46,797
---------- ---------- ----------
Total assets........ $1,550,728 $1,395,298 $1,340,430
========== ========== ==========
LIABILITIES AND RETAINED
EARNINGS:
Interest-bearing liabilities:
Deposits:
Money market accounts...... $ 69,237 $ 2,007 2.90 $ 83,482 $ 2,025 2.43 $ 91,606 $ 2,241 2.45
Savings accounts(3)(4)..... 480,572 15,317 3.19 612,447 17,844 2.91 604,487 19,588 3.24
NOW accounts(4)............ 33,135 837 2.53 33,248 820 2.47 30,012 854 2.85
Certificates of deposit.... 677,510 39,583 5.84 430,022 19,664 4.57 396,040 16,833 4.25
---------- -------- ---------- ------- ---------- -------
Total deposits...... 1,260,454 57,744 4.58 1,159,199 40,353 3.48 1,122,145 39,516 3.52
Borrowed funds............. 24,345 1,554 6.38 - - 0.00 5,527 182 3.29
---------- -------- ---------- ------- ---------- -------
Total
interest-bearing
liabilities........ 1,284,799 59,298 4.62 1,159,199 40,353 3.48 1,127,672 39,698 3.52
------ ------ ------
Non-interest-bearing
liabilities................ 53,610 46,914 45,430
---------- ---------- ----------
Total liabilities... 1,338,409 1,206,113 1,173,102
Total retained earnings..... 212,319 189,185 167,328
---------- ---------- ----------
Total liabilities
and retained
earnings........... $1,550,728 $1,395,298 $1,340,430
========== ========== ==========
Net interest income/interest
rate spread(5)............. $ 51,736 2.79% $54,163 3.54% $55,306 3.82%
======== ====== ======= ====== ======= ======
Net interest margin as a
percentage of
interest-earning assets(6). 3.45% 4.02% 4.28%
Ratio of interest-earning ====== ====== ======
assets to interest-bearing
liabilities................ 116.55% 116.11% 114.72%
====== ====== ======
</TABLE>
______________________________
(1) Includes related assets available-for-sale and unamortized discounts and
premiums.
(2) Amount is net of deferred loan fees, deferred mortgage interest,
unamortized discounts net and allowance for possible loan losses and
includes loans held for sale and non-performing loans.
(3) Savings accounts includes mortgagor's escrow deposits.
(4) The average cost of savings and NOW accounts for the periods above reflects
the payment of a special interest payment of approximately 25% of interest
paid on such accounts. Such payments resulted in additional cost of
savings accounts of 61 basis points, 46 basis points and 52 basis points
for the years ended December 31, 1995, December 31, 1994 and December 31,
1993, respectively, and additional cost of NOW accounts of 49 basis points,
39 basis points and 44 basis points for the years ended December 31, 1995,
December 31, 1994 and December 31, 1993, respectively.
(5) Net interest rate spread represents the difference between the yield on
interest-earning assets and the cost of interest-bearing liabilities.
(6) Net interest margin represents net interest income divided by average
interest-earning assets.
46
<PAGE>
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.
<TABLE>
<CAPTION>
FIVE MONTHS ENDED YEAR ENDED YEAR ENDED
MAY 31, 1996 DECEMBER 31,1995 DECEMBER 31, 1994
COMPARED TO COMPARED TO COMPARED TO
FIVE MONTHS ENDED YEAR ENDED YEAR ENDED
MAY 31, 1995 DECEMBER 31, 1994 DECEMBER 31, 1993
---------------------------- -------------------------------- -----------------------------
INCREASE INCREASE INCREASE
(DECREASE) (DECREASE) (DECREASE)
DUE TO DUE TO DUE TO
------------------ -------------------- ---------------------
VOLUME RATE NET VOLUME RATE NET VOLUME RATE NET
------ ------- ----- -------- ------- ------ --------- -------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS(1):
Federal funds sold and
short-term
deposits................ $ (42) $ (93) $ (135) $ 375 $ 375 $ 750 $ (192) $ 312 $ 120
Debt and equity
securities.............. (4,706) 796 (3,910) (1,716) 635 (1,081) (1,145) 479 (666)
Mortgage-backed and
mortgage related
securities, net......... 8,408 325 8,733 7,125 1,985 9,110 4,668 (4,589) 79
Real estate loans, net... 2,176 (903) 1,273 7,080 1,596 8,676 607 (684) (77)
Consumer and student
loans................... (672) 224 (448) (1,066) 129 (937) 22 34 56
------- ------- ------ -------- -------- -------- ------ ------ ------
Total interest-earning
assets.............. 5,164 349 5,513 11,798 4,720 16,518 3,960 (4,448) (448)
------- ------- ------ -------- -------- --------
INTEREST-BEARING
LIABILITIES:
Money market accounts.... (113) 9 (104) (376) 358 (18) (198) (18) (216)
Savings accounts(2)...... (737) 345 (392) (4,117) 1,590 (2,527) 257 (2,001) (1,744)
NOW accounts............. 19 18 37 (3) 20 17 87 (121) (34)
Certificates of deposit.. 4,437 182 4,619 13,433 6,486 19,919 1,508 1,323 2,831
Borrowed funds........... 346 (116) 230 1,554 - 1,554 (182) - (182)
------- ------- ------ -------- -------- -------- ------ ------ ------
Total interest-bearing
liabilities........ $3,952 $438 $4,390 $10,491 $8,454 $ 18,945 $ 1,472 ($817) $655
------- ------ -------- -------- -------- ------ ------ ------
Net change in net interest
income.................... $1,212 ($89) $1,123 $1,307 ($3,734) ($2,427) $ 2,488 ($3,631) ($1,143)
======= ======= ====== ======== ======== ======== ====== ====== ======
</TABLE>
___________________
(1) Includes assets available-for-sale.
(2) Includes mortgagors' escrow deposits.
47
<PAGE>
COMPARISON OF FINANCIAL CONDITION AT MAY 31, 1996 AND DECEMBER 31, 1995
Total assets increased by $175.4 million, or 11.0%, from $1.60 billion at
December 31, 1995 to $1.77 billion at May 31, 1996. The growth in assets is
primarily attributable to a $158.5 million increase in debt, equity and
mortgage-backed and mortgage related securities available-for-sale and a $33.5
million increase in real estate loans held-for-investment, net. Asset growth was
funded primarily through deposit inflows and borrowed funds. The asset growth
was partially offset by a $35.0 million decrease in mortgage-backed and mortgage
related securities held-to-maturity. Debt and equity securities at May 31, 1996,
totalled $433.9 million, an increase of $52.6 million, or 13.8%, compared to
$381.3 million at December 31, 1995. Mortgage-backed and mortgage related
securities increased by $70.9 million, or 9.32%, from $760.7 million at December
31, 1995 to $831.6 million at May 31, 1996. Substantially all of the increase in
securities was attributable to new purchases of adjustable-rate and short-term
fixed-rate mortgage-backed and mortgage related securities and federal agency
obligations, and preferred stock of corporate issuers. The Bank's held-to-
maturity securities portfolio continued to decrease through the normal
amortization of securities so designated. Real estate loans, net, increased by
$33.5 million, or 8.7%, from $386.8 million at December 31, 1995 to $420.3
million at May 31, 1996, primarily due to increased one- to four-family loan
purchases from RFI and increased origination of commercial real estate loans.
The relatively low interest rate environment in late 1995 and early 1996
increased one- to four-family loan refinance activity, primarily in the
adjustable-rate and 15-year fixed-rate mortgage products, which the Bank
retains. Premises and equipment increased by $2.2 million, or 17.7%, primarily
due to the purchase in May 1996 of land and a building, which upon renovation
will provide additional office space for the Bank's administrative operations.
The renovation is due to be completed in October 1996.
Total deposits at May 31, 1996 were $1.44 billion, an increase of $106.3
million, or 8.0%, compared to $1.34 billion at December 31, 1995. The increase
was primarily due to an increase of $122.1 million, or 16.3%, in certificates of
deposit from $749.8 million at December 31, 1995 to $871.9 million at May 31,
1996. The increase in certificates of deposit was primarily attributable to the
Bank's strategy of offering competitive rates on all of its certificates of
deposit products in order to fund the Bank's asset growth and increase net
interest income. To a lesser extent, the increase in certificate accounts and
decrease in core deposits is reflective of depositors shifting funds from lower
yielding core savings accounts into higher-yielding certificates of deposit. The
Bank's core deposit accounts, which totalled $585.8 million at December 31,
1995, declined by $15.8 million during the five month period ending May 31,
1996. Borrowed funds increased to $69.6 million at May 31, 1996 from $1.6
million at December 31, 1995 as management determined to utilize borrowings,
primarily in the form of reverse repurchase agreements, to fund a portion of the
Bank's asset growth.
Retained earnings decreased by $4.2 million, or 1.8%, from $226.4 million
at December 31, 1995 to $222.2 million at May 31, 1996, resulting in the Bank's
ratio of equity capital to total assets decreasing from 14.18% at December 31,
1995 to 12.54% at May 31, 1996. The decrease in equity resulted from a $12.6
million decline in the after-tax net unrealized gain on available-for-sale
securities due to higher market interest rates which adversely affected the
market value of the Bank's securities which was offset, in part, by net income
of $8.4 million during the period.
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 1995 AND DECEMBER 31, 1994
Total assets at December 31, 1995 were $1.60 billion as compared to total
assets of $1.44 billion at December 31, 1994, an increase of $158.4 million, or
11.0%. Asset growth was funded primarily through deposits which increased $116.0
million, or 9.5%, from $1.22 billion at December 31, 1994 to $1.34 billion at
December 31, 1995, primarily due to a $232.3 million increase in certificates of
deposit. Asset growth during the year-ended December 31, 1995 was concentrated
in the mortgage-backed and
48
<PAGE>
mortgage related securities and one- to four-family and commercial real estate
loans. The securities portfolio increased by $123.9 million, or 12.2%, from
$1.02 billion at December 31, 1994 to $1.14 billion at December 31, 1995. The
growth in the securities portfolio resulted primarily from total mortgage-backed
and mortgage related securities increasing by $298.6 million, or 64.6%, from
$462.1 million at December 31, 1994, to $760.7 million at December 31, 1995,
offset by a $174.7 million, or 31.4%, decrease in debt and equity securities.
The increase in the mortgage-backed securities portfolio was primarily
attributable to new purchases of both adjustable-rate and short-term fixed-rate
securities, consistent with the Bank's interest rate risk management strategy.
In November 1995, in accordance with the FASB interpretation regarding SFAS
No. 115, the Bank transferred securities having a carrying value of $648.7
million and a market value of $658.3 million at that date, from its held-to-
maturity portfolio to its available-for-sale portfolio. The securities
reclassified consisted of $415.3 million of debt securities and $233.4 million
of mortgage-backed and mortgage related securities from held-to-maturity to
available-for-sale. Subsequent to this reclassification, but prior to the end of
1995, the Bank sold $115.7 million in lower yielding U.S. Government obligations
and corporate bonds, incurring a loss of $14,000. The sale proceeds were
reinvested primarily in private label and agency issued mortgage-backed and
mortgage related securities with average lives not exceeding four years. Under
the provisions of SFAS No. 115, securities categorized as available-for-sale are
reported at fair value, with unrealized gains and losses reported as a separate
component of equity. At December 31, 1995, the fair value of the Bank's debt and
equity and mortgage-backed and mortgage-related securities available-for-sale
exceeded the related amortized cost by $20.8 million.
Gross loans increased by $38.7 million, or 10.5%, to $407.7 million at
December 31, 1995. One-to-four family loans increased by $44.2 million, or
28.8%, commercial real estate loans increased by $10.7 million, or 9.3%, multi-
family loans increased by $17.7 million, or 95.3%, and construction and
development loans decreased $14.6 million, or 25.9%. Due to changes in the
Federal Family Educational Loan Program, in April 1995, the Bank sold $21.5
million of student loans to the Student Loan Marketing Association ("SLMA"),
recording an aggregate net gain of $496,000. The sale proceeds were reinvested
in short-term adjustable and fixed-rate mortgage-backed securities. The increase
in one- to four-family loans was primarily attributable to origination activity
of the Bank's mortgage banking operations through RFI, which commenced on August
1, 1995. At December 31, 1995, real estate loans held-for-sale were $15.3
million compared to none at December 31, 1994. Federal funds sold totalled $10.0
million at December 31, 1995, a decrease of $15.0 million from December 31,
1994. Cash and due from banks was $9.7 million at December 31, 1995, an increase
of $7.4 million from $2.3 million at December 31, 1994. The increase in cash and
due from banks was a result of the timing of operating and investing cash flows.
Mortgage servicing rights, net, were $8.3 million at December 31, 1995, which
primarily represented servicing purchased from RMBI. The purchase of certain
assets and liabilities of RMBI also resulted in the Bank's recognition of $3.5
million of goodwill which is being amortized over a ten year period.
The increase in deposit growth was attributable to the combined effect of
net deposit inflows of $58.8 million and interest paid on deposits of $57.2
million during the period. The composition of the Bank's deposits continued
to change, as reflected in the shift of deposits out of lower yielding savings
accounts and into higher yielding certificates of deposit in the declining
interest rate environment during 1995. The Bank's core deposit accounts,
which totalled $585.8 million at December 31, 1995, declined by $116.3
million, or 16.6%, during the year-ended December 31, 1995. Certificates of
deposit, on the other hand, increased by $232.3 million, or 44.9%, during the
period to $749.8 million, representing 56.1% of total deposits at December 31,
1995. The shift in deposits reflects depositors shifting funds from lower
yielding core deposit accounts to higher yielding certificate of deposit
accounts in the declining interest rate environment and the Bank's competitive
pricing of certificate of deposit accounts. See "- Management Strategy" and
"- Management of Interest Rate Risk."
49
<PAGE>
Retained earnings totalled $226.4 million at December 31, 1995, or 14.2% of
total assets, an increase of $33.3 million from December 31, 1994. The increase
is attributable to net income of $18.7 million during the period and a $14.6
million increase in the component of net unrealized gain on the Bank's
available-for-sale securities portfolio, net of taxes, as required by SFAS No.
115.
COMPARISON OF OPERATING RESULTS FOR THE FIVE MONTHS ENDED MAY 31, 1996 AND MAY
31, 1995
GENERAL
Net income for the five months ended May 31, 1996 increased by $817,000, or
10.8%, from $7.6 million for the five months ended May 31, 1995 to $8.4 million
for the same period in 1996. The increase was due primarily to an increase in
net interest income which primarily resulted from an increase in the average
balance of interest-earning assets, an increase in non-interest income related
to the sale of loans by RFI and a decrease in FDIC insurance premiums. The
increases were partially offset by a 24 basis point decrease in the average
interest rate spread to 2.74% for the 1996 period from 2.98% for the 1995
period, and a $2.2 million increase in non-interest expense due primarily to the
operations of RFI.
INTEREST INCOME
Interest income amounted to $50.1 million for the five months ended May 31,
1996, representing an increase of $5.5 million from the same period in 1995. The
increase was the result of the combined effect of a $164.3 million increase in
average interest-earning assets and an 8 basis point increase in the yield on
interest earning assets. The increase in the average interest rate on interest
earning assets was primarily due to the higher interest rate environment during
the five month period ended May 31, 1996 which affected both new securities
purchased and the reallocation of interest-earning assets from lower yielding
U.S. Government securities to higher yielding real estate loans and mortgage-
backed and mortgage related securities and repricing assets, mostly adjustable-
rate mortgage-backed and mortgage related securities and whole loans. Generally,
market interest rates during January and February of 1996 remained at the levels
experienced during 1995 and began to increase in March 1996 through May 1996.
Interest income on mortgage-backed and mortgage related securities increased
$8.7 million for the five months ended May 31, 1996, as compared to the same
period in 1995. This increase was primarily due to an increase in the average
balance of mortgage-backed and mortgage related securities of $294.6 million,
which resulted from the restructuring of the securities portfolio and investment
of excess funds not utilized for loan demand into mortgage-backed and mortgage
related securities. The yield on the mortgage-backed and mortgage related
securities portfolio increased by 15 basis points due to the increased rate
environment for new purchases and the repricing of adjustable-rate securities
purchased in prior periods. Interest income on debt and equity securities
decreased $3.9 million due to management's restructuring of its securities
portfolio.
The increase in interest income on loans was a result of growth in the
average balance of loans outstanding. As a result of the establishment of RFI in
August 1995, and the relatively low interest rate environment during most of the
first quarter of 1996, the Bank was able to increase its one- to four-family
loan portfolio through an increased market presence and refinance activity,
primarily in adjustable-rate and 15-year fixed-rate mortgage products, which the
Bank retains. Further contributing to the increase in interest income for the
period was a 34.8% decrease in non-performing loans, from $18.3 million at May
31, 1995 to $11.9 million at May 31, 1996. Although interest income on real
estate loans increased during the period, the average yield decreased by 62
basis points, from 9.90% for the five months ended May 31, 1995 to 9.28% for the
same period in 1996, primarily because of a $700,000 interest recovery in March
1995 on the satisfaction of a non-performing loan. Interest income on consumer
and student
50
<PAGE>
loans decreased $448,000 from $673,000 for the five months ended May 31, 1995 to
$225,000 for the same period in 1996, principally due to the sale in April 1995
of $21.5 million of student loans to SLMA.
INTEREST EXPENSE
Interest expense for the five months ended May 31, 1996 was $27.1 million,
compared to $22.7 million for the five months ended May 31, 1995, an increase of
$4.4 million, or 19.3%. This increase reflects both a $124.9 million increase in
the average balance of interest-bearing deposits in the 1996 period compared to
the 1995 period, and a 34 basis point increase in the average rate paid on such
liabilities over the same period due to a higher interest rate environment. The
increase in average interest-bearing deposits was primarily attributable to an
increase in the average balance of certificates of deposit to $806.6 million for
the five months ended May 31, 1996 from $618.0 million for the five months ended
May 31, 1995. Certificates of deposit increased during this period due to a
higher interest rate environment resulting in a continued shift of deposits out
of savings accounts and into higher costing certificate of deposit accounts, and
management's strategy of funding its asset growth by offering competitive rates.
The combined effect of the higher average balance and rate was an increase of
$4.6 million in interest expense on certificates of deposit. Interest expense
decreased $392,000 on savings accounts to $6.0 million for the five months ended
May 31, 1996 from the same period a year earlier. This decrease was attributable
to a decline in the average balance of these accounts to $451.9 million for the
five months ended May 31, 1996, from $507.9 million during the comparable period
in 1995, partially offset by an increase in the average cost to 3.21% from 3.04%
during the same periods.
Interest expense on borrowed funds increased $230,000, or 32.9%, in the
five months ended May 31, 1996 to $930,000 due to a $14.8 million increase in
the average balance of such funds to $41.0 million, which was offset by a 95
basis point reduction in the average rate paid on borrowed funds to 5.44% at May
31, 1996. The increase in borrowed funds in 1996 reflects management's decision
to increase its utilization of reverse repurchase agreements to fund investments
in securities in periods when such agreements are cost effective as a source of
funds. See "Business of the Bank - Borrowed Funds."
PROVISION FOR POSSIBLE LOAN LOSSES
The Bank's provision for possible loan losses increased by $50,000, or
20.0%, from $250,000 for the five months ended May 31, 1995, to $300,000 for the
five months ended May 31, 1996. The increase in the provision was due primarily
to management's assessment of charge-off activity, particularly commercial real
estate and construction and development loan charge-offs relating to five loans
which totalled $1.3 million during the five month period ending May 31, 1996.
The events leading to such charge-offs associated with such loans were generally
attributable to events occurring in early 1996 which resulted in the Bank
reevaluating such loans or obtaining updated appraisals on the properties
securing such loans. The increased provision also reflects management's
assessment of its continuation of the origination of commercial real estate and
construction and development loans, which amounted to 42.1% and 40.9% of loans
at May 31, 1996 and 1995, respectively. Such loans generally bear a greater
degree of risk as compared to one- to four-family loans. At May 31, 1996, the
Bank's allowance for possible loan losses as a percentage of total non-
performing loans was 186.79%, compared to 131.68% at May 31, 1995, due to the
increase in the provision and a decrease in non-performing loans from $18.3
million at May 31, 1995 to $11.9 million at May 31, 1996. At May 31, 1996, the
Bank's allowance for possible loan losses as a percentage of loans, net,
excluding loans held for sale was 5.29%. Management of the Bank assesses the
adequacy of the allowance for possible loan losses based on evaluating known and
inherent risks in the loan portfolio and upon management's continuing analysis
of the factors underlying the quality of the loan portfolio. While management
believes that, based on information currently available, the Bank's allowance
for possible loan losses is sufficient to cover losses inherent in its loan
51
<PAGE>
portfolio at this time, no assurances can be given that the Bank's level of
allowance for possible loan losses will be sufficient to cover future possible
loan losses incurred by the Bank or that future adjustments to the allowance for
possible loan losses will not be necessary if economic and other conditions
differ substantially from the economic and other conditions used by management
to determine the current level of the allowance for possible loan losses.
Management may in the future increase its level of allowance for possible loan
losses as a percentage of total loans and non-performing loans in the event it
increases the level of multi-family, commercial real estate, commercial,
construction and development or consumer lending as a percentage of its total
loan portfolio. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Bank's allowance for possible
loan losses. Such agencies may require the Bank to provide additions to the
allowance based upon judgements different from management. See "Risk Factors -
Increased Lending Risks Associated with Commercial Real Estate, Multi-Family,
and Construction and Development Lending" and "Business of the Bank - Allowance
for Possible Loan Losses."
NON-INTEREST INCOME
Non-interest income is composed of fee income for bank services and profits
from the sale of assets. Total non-interest income for the five months ended May
31, 1996 increased $1.8 million, or 161.4%, from $1.1 million for the five
months ended May 31, 1995 to $2.9 million for the five months ended May 31,
1996. The primary reason for the improvement was due to net gains of $1.6
million on the sale of loans and loan servicing and fee income of $1.7 million
during the five months ended May 31, 1996 as compared to net gains of $455,000
on the sale of loans and loan servicing and fee income of $1.2 million in the
comparable period for 1995. The increases are primarily reflective of the Bank's
establishment of RFI in August 1995, which has had a significant effect on the
Bank's level of originations and sales of residential one-to four-family loans
and the outstanding balance of loans serviced for others. One- to four-family
originations increased $121.5 million for the five months ended May 31, 1996
from $7.1 million for the same period in 1995. For the same period, loan sales
were $106.2 million and $18.9 million, respectively. At May 31, 1996 the Bank
and RFI were servicing $762.7 million of loans for others compared to $36.5
million at May 31, 1995, resulting in loan servicing fee income of $828,000 for
the five months ended May 31, 1996 as compared to $51,000 for the same period in
1995. Additionally, non-interest income increased in 1996 due to a $501,000
reduction in the losses on securities from losses of $758,000 in 1995 to losses
of $257,000 in 1996. The increases in these items on non-interest income were
partially offset by a reduction in gains in real estate operations from gains of
$203,000 for 1995 to losses of $271,000 for 1996.
NON-INTEREST EXPENSE
Non-interest expense increased by $2.3 million, or 20.5%, from $11.2
million for the five months ended May 31, 1995 to $13.5 million for the five
months ended May 31, 1996 primarily due to increased costs related to the August
1995 establishment of RFI. Compensation and employee benefits expense increased
$2.1 million to $8.2 million for the five months ended May 31, 1996 from $6.0
million for the same period in 1995. Compensation and employee benefits expense
relating to the operations of RFI amounted to $2.0 million for the five months
ended May 31, 1996. Other significant changes in the Bank's operating expenses
included a $1.1 million decrease in the insurance premiums paid to the Federal
Deposit Insurance Corporation resulting from the FDIC's decision to lower the
insurance premiums paid by BIF-insured institutions to the legal minimum
effective January 1, 1996. See "Regulation and Supervision - Insurance of
Deposits" and "Risk Factors - Possible Payment of Financing Corporation Bonds."
Other non-interest expenses increased $667,000 to $2.8 million for the five
months ended May 31, 1996 compared to $2.2 million for the five months ended May
31, 1995 primarily due to an increase in professional fees of $343,000, mortgage
recording taxes of $223,000, and certain general and
52
<PAGE>
administrative costs associated with RFI. The Bank expects that compensation and
benefits expense may increase after the Conversion, primarily as a result of the
adoption of various employee benefit plans and compensation adjustments
contemplated in connection with the Conversion. In this regard, the proposed
ESOP, which intends to purchase 8% of the Common Stock issued in connection with
the Offering, including shares issued to the Foundation, and the Stock Programs
which, if implemented, would purchase an amount of Common Stock equal to 4% of
the Common Stock issued in connection with the Offering, including shares issued
to the Foundation, may result in increased compensation and benefits expense as
the amortization of the ESOP loan and amortization of the Stock Program awards
will be reflected as compensation expense. See "Management of the Bank - Benefit
Plans - ESOP." In addition, the Bank expects non-interest expenses to increase
in future periods as a result of its current renovation of a new administrative
office and the opening of at least two new branch offices in late 1996.
INCOME TAXES
Total income tax expense was $3.7 million for the five months ended May 31,
1996 compared to $3.9 million for the same period in 1995. Despite an increase
in pre-tax income for the 1996 period of $595,000, the decrease in income tax
expense of $222,000, or 5.7%, was due primarily to an increase in the Bank's
dividends received deduction on its equity securities portfolio of $688,000. The
effective tax rate was 30.3% for the five months ended May 31, 1996 as compared
to 33.9% for the same period in 1995.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 1995 AND
DECEMBER 31, 1994
GENERAL
Net income for the year ended December 31, 1995 was $18.7 million, compared
to $19.4 million for the year ended December 31, 1994. Interest rates rose
sharply in early 1994, then gradually declined after January 1995, resulting in
a higher yield on interest-earning assets and higher cost of interest-bearing
liabilities in 1995 than in 1994 and more interest-bearing liabilities repricing
than interest-earning assets during the year. The result was a decline in both
net interest income and net income for the Bank during 1995. Net income
decreased $704,000, or 3.6%, from the previous year, due to the decline in net
interest income, which decreased by $2.4 million, and an increase in non-
interest expense of $3.5 million which were substantially offset by an increase
in non-interest income of $3.7 million and a reduction in income tax expense of
$1.5 million. The increases in both non-interest income and non-interest expense
is primarily attributable to the Bank's acquisition of assets and liabilities of
RMBI in connection with the establishment of RFI in August 1995. The decrease in
income tax expense is attributable to both a decrease in taxable income and a
decrease in the Bank's effective tax rate due to a higher level of preferred
stock purchased in 1995.
INTEREST INCOME
Interest income totalled $111.0 million for 1995 compared to $94.5 million
for 1994. This increase reflects a $151.5 million increase in total average
interest-earning assets in 1995 compared to 1994 and a 39 basis point increase
in the average yield on such assets over the same period. Interest income on
real estate loans increased by $8.7 million to $33.3 million for 1995 from $24.7
million in 1994, reflecting a $75.1 million increase in the average balance of
real estate loans and a 55 basis point increase in the average yield to 9.50%.
The increase in the average balance of real estate loans was primarily due to an
increase in residential one-to-four family and multi-family loans. The increase
in the average yield on interest-earning assets was due primarily to an increase
in market interest rates and a 51.4% decrease in non-performing loans, from
$25.1 million to $12.2 million, at December 31, 1994 and
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1995, respectively. On a combined basis, interest income on debt and equity and
mortgage-backed and mortgage related securities increased $8.0 million to $75.0
million for 1995 from $67.0 million for 1994. The increase was primarily due to
a $9.1 million increase in interest income on mortgage-backed and mortgage
related securities, attributable to a $106.4 million increase in the average
balance of such securities to $545.6 million and a 43 basis point increase in
the yield to 6.80%. Interest income on debt and equity securities decreased $1.1
million to $37.9 million for 1995, reflecting a $25.4 million decrease in the
average balance of such securities, consistent with management's continuing
reallocation of its securities portfolio from lower yielding government bonds to
higher yielding real estate loans and mortgage-backed and mortgage related
securities. The average yield on debt and equity securities increased 11 basis
points during the period due to an increase in market interest rates. Interest
income on consumer and student loans decreased $937,000 from $1.8 million for
1994 to $897,000 for 1995, principally due to the sale in April 1995 of $21.5
million of student loans to SLMA.
INTEREST EXPENSE
Total interest expense for 1995 was $59.3 million, compared to $40.4
million for 1994, an increase of $18.9 million, or 46.9%. The increase in
interest expense was the result of a $125.6 million increase in the average
balance of interest-bearing liabilities and an increase in the average costs of
deposits and borrowings to 4.62% for 1995, from 3.48% for 1994. Interest on
deposits increased by $17.4 million to $57.7 million for 1995 compared to $40.4
million for 1994. This increase reflects both a $101.3 million increase in the
average balance of interest-bearing deposits in 1995 compared to 1994, and a 110
basis point increase in the average rate paid on such liabilities over the same
period. Such increase was primarily attributable to an increase in the average
balance of higher yielding certificates of deposit, which increased from $430.0
million for 1994 to $677.5 million for 1995 and an increase in the average rate
paid on such accounts from 4.57% to 5.84%, respectively. These two increases
resulted in the interest expense on certificate of deposit accounts increasing
from $19.7 million for 1994 to $39.6 million for 1995, a 101.3% increase. These
increases were partially offset by a decrease in interest expense on savings
accounts due to the combined effect of a decline in the average balance of such
accounts, which declined from $612.4 million for 1994 to $480.6 million for
1995, and an increase in the average rate paid on such accounts from 2.91% to
3.19%, resulting in a $2.5 million, or 14.2%, decrease in interest expense on
savings accounts. The increase in the average balance of certificates of deposit
and the decrease in the average balance of savings accounts was due primarily to
customers shifting funds from lower yielding savings accounts to higher yielding
certificates of deposit.
The Bank incurred interest expense on borrowed funds for 1995 of $1.6
million as compared to $0 for 1994 reflecting management's decision to utilize
borrowings to fund a portion of its asset growth, and, to a lesser extent, RFI's
utilization of government-sponsored agencies to fund a portion of its loan
origination activity. The average balance in borrowed funds increased $24.3
million for the year ended December 31, 1995 as there were no borrowings
outstanding during 1994. The average rate paid on such borrowings for 1995 was
6.38%.
PROVISION FOR POSSIBLE LOAN LOSSES
For 1995, the Bank's provision for possible loan losses was $600,000, the
same amount as was provided in 1994. Management determined that an increase in
the provision was unnecessary in light of its review of the Bank's loan
portfolio, asset quality, trends in the Bank's delinquent and non-performing
loans and the national and regional economies. In particular, non-performing
loans decreased by $12.9 million, or 51.4%, from $25.1 million at December 31,
1994, or 6.82% of loans, to $12.2 million at December 31, 1995, or 3.13% of
loans, primarily reflective of the general improvement in the overall credit
quality of the Bank's loan portfolio during 1995. The decrease in non-performing
loans was
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primarily attributable to the improvement in the regional economy and also to
the favorable results of the Bank's increased efforts to resolve problem loans.
At December 31, 1995, the allowance for possible loan losses totalled 191.82% of
total non-performing loans, an increase from 100.28% at December 31, 1994. Net
charge-offs for the year ended December 31, 1995 were $2.4 million representing
an increase of $2.4 million from the year ended December 31, 1994. The $2.4
million increase was primarily due to two commercial real estate loans. See
"Business of the Bank - Delinquent Loans, Real Estate Owned and Classified
Assets" and "- Allowance for Possible Loan Losses."
NON-INTEREST INCOME
Total non-interest income was $5.7 million for 1995, a $3.7 million
increase from the $2.0 million for 1994. Net gains on sales from secondary
market activity increased to $1.8 million for 1995 compared to net losses of
$289,000 for 1994. Loan servicing and fee income increased to $3.7 million for
1995 compared to $3.3 million for 1994. These increases are a result of the
increased volume of loans originated and sold in late 1995 with servicing
retained and the right to service $623.0 million in loans in the August 1995
acquisition from RMBI. One- to four-family originations increased $100.5 million
for the year ended December 31, 1995 from $52.7 million for the prior year. At
December 31, 1995 the Bank and RFI serviced $704.8 million of loans for others
compared to $37.1 million at December 31, 1994. Additionally, the net gains on
real estate owned operations increased from $156,000 for 1994 to $714,000 for
1995, primarily due to the sale of two commercial real estate properties which
resulted in net gains of $927,000. Total net losses on securities decreased
$370,000 to $811,000 for 1995 from $1.2 million for 1994. The decrease was
primarily attributable to the sale in late 1995 of $38.3 million of adjustable-
rate mortgage-backed securities at a gain of $818,000. These securities were
sold based on the anticipation of increased prepayment levels due to a decline
in market interest rates in the latter half of 1995.
NON-INTEREST EXPENSE
Total non-interest expense increased from $26.2 million for 1994 to $29.6
million for 1995. Compensation and employee benefits expense increased $2.4
million from $13.4 million for 1994 to $15.8 million for 1995, primarily due to
the added personnel costs associated with the employees of RFI which amounted to
$1.7 million during 1995. This was partially offset by a reduction in the rate
paid to the FDIC for deposit insurance premiums, combined with a refund from the
FDIC for premiums previously paid in the amount of $797,000, which lowered this
expense by $1.2 million during 1995. Other non-interest expense increased $1.3
million from $5.8 million for the year ended December 31, 1994 to $7.1 million
for the year ended December 31, 1995, primarily due to a $635,000 of increase in
expenses related to the operations of RFI and a provision for possible losses of
$500,000 related to a litigation initiated by the Bank against another
depository institution which provided check processing for the Bank to recover
check clearing balances.
INCOME TAXES
Tax expense totalled $8.5 million for the year ended December 31, 1995
compared to $10.0 million in 1994. The decrease was attributable to lower pre-
tax income which fell from $29.4 million for the year ended December 31, 1994 to
$27.2 million in 1995, and to an increase in the Bank's dividends received
deduction on its equity securities portfolio of $864,000.
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COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 1994 AND
DECEMBER 31, 1993
GENERAL
Net income decreased $4.7 million, or 19.6%, from $24.1 million for the
year ended December 31, 1993 to $19.4 million for the year ended December 31,
1994. The decrease was primarily attributable to $6.0 million of income
recognized in 1993 resulting from the net cumulative effect of changes in
accounting principles and a $1.1 million decrease in net interest income, a $2.8
million decrease in non-interest income, and a $1.6 million increase in non-
interest expenses. These items were partially offset by a $6.3 million reduction
in the Bank's provision for possible loan losses and a lower provision for taxes
due to a reduction in the Bank's effective tax rate.
INTEREST INCOME
Total income from interest-earning assets declined slightly from $95.0
million in 1993 to $94.5 million in 1994, a reduction of $488,000 due primarily
to a 32 basis point decline in the average yield on interest earning assets
which was offset, in part, by a $52.4 million increase in the average balance of
interest earning assets. Interest income on the Bank's securities portfolio fell
$587,000 from $67.5 million for the year ended December 31, 1993 to $66.9
million for the year ended December 31, 1994. New mortgage-backed securities
purchased during 1994 in the lower interest rate environment contributed to the
yield reduction on the Bank's securities portfolio. The yield on mortgage-backed
securities fell from 7.51% in 1993 to 6.37% in 1994, while the yield on the
Bank's debt and equity securities remained relatively stable at 6.65% and 6.57%,
for 1994 and 1993, respectively. Interest income on real estate loans decreased
by $77,000 for the year ended December 31, 1994. This was primarily attributable
to a $6.7 million increase in the average balance of real estate loans to $275.7
million for the year ended December 31, 1994 from $268.9 million for the year
ended December 31, 1993. The average yield on real estate loans decreased 25
basis points, to 8.95% in 1994, from 9.20% in 1993. The decrease was due to the
high levels of prepayments on higher rate mortgage loans during late 1993 and
the effects of lower interest rates on new loan originations.
INTEREST EXPENSE
Interest expense for the year ended December 31, 1994 was $40.4 million,
compared to $39.7 million for the year ended December 31, 1993, an increase of
$655,000, or 1.6%. The increase is primarily due to a $37.1 million increase in
the average balance of deposits outstanding, partly offset by a decrease in the
average cost of deposits to 3.48% for 1994, from 3.52% for 1993. The interest
expense on savings accounts decreased by $1.7 million, or 8.9%, from $19.6
million for 1993 to $17.8 million for 1994 due primarily to the Bank's
determination to reduce the rate paid on such accounts during 1994, which was
partially offset by an increase in the average balance of such accounts from
$604.5 million for 1993 to $612.4 million for 1994. The average rate paid on
savings accounts for 1994 was 2.91% compared to 3.24% for 1993. Despite the
effect of the lower interest rate environment and the decreased cost of savings
accounts, interest expense increased primarily due to higher rates paid on
certificate of deposit accounts. The average rate paid on certificates of
deposit accounts increased from 4.25% for the year ended December 31, 1993 to
4.57% for the year ended December 31, 1994 due primarily to the Bank's deposit
pricing strategy whereby it offered more competitive rates on certificate of
deposit accounts than on savings accounts in an effort to extend the maturity of
its deposit accounts resulting in an increase in the average balance of such
accounts from $396.0 million for 1993 to $430.0 million for 1994. The increase
in interest expense on certificates of deposit accounts of $2.8 million more
than offset the decrease in interest expense on savings accounts.
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PROVISION FOR POSSIBLE LOAN LOSSES
During 1994, the provision for possible loan losses was reduced to $600,000
from the prior year's level of $6.9 million. The lower provision was based on
management's evaluation of existing real estate market conditions, improvement
in the level of charge-offs and non-performing loans as well as a stabilization
of general economic conditions in the Bank's market area. In particular, charge-
offs decreased by $5.4 million for the year ended December 31, 1994 and
nonperforming loans decreased by $6.3 million from 10.84% of total loans to
6.82% of total loans at December 31, 1993 and December 31, 1994, respectively.
At December 31, 1993, the Bank's allowance for possible loan losses to total
non-performing loans and total loans was 78.17% and 8.47%, respectively, as
compared to 100.28% and 6.84%, respectively, at December 31, 1994.
NON-INTEREST INCOME
Non-interest income decreased by $2.8 million, or 57.9%, from $4.9 million
in 1993 to $2.0 million in 1994. The decrease was primarily attributable to the
decrease in net gains/(losses) on securities of $4.3 million from a net gain of
$3.1 million in 1993 to a net loss of $1.2 million in 1994, as a result of
amortizing premiums paid on certain callable preferred stocks and a reduced
level of sales of securities. This was partially offset by a $1.8 million
increase in the net gains/(losses) on real estate owned operations from a $1.7
million net loss in 1993 to a $156,000 net gain in 1994, which was primarily
attributable to the decrease in the provision for losses on real estate owned
from $1.2 million in 1993 to none in 1994. The provision for losses on real
estate owned in 1993 resulted from the Bank's reevaluation of its real estate
owned and based upon updated appraisals of such properties.
NON-INTEREST EXPENSE
Total non-interest expense increased $1.6 million in 1994 to $26.2 million,
as compared to $24.6 million in 1993. The increase primarily relates to
compensation and employee benefits which increased by $917,000, or 7.3%, from
$12.5 million in 1993 to $13.4 million in 1994, primarily the result of normal
salary increases and an increase in the Bank's pension related expenses.
INCOME TAXES
The provision for income taxes decreased by $568,000, or 5.4%, from $10.6
million in 1993 to $10.0 million in 1994, primarily as a result of the decrease
in the Bank's effective tax rate. The effective tax rate was 34.0% for the year
ended December 31, 1994 as compared to 36.8% for the prior year. The decrease in
the effective tax rate was primarily due to the Bank increasing its portfolio of
preferred stocks which earn dividends that are substantially non-taxable.
CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES
In February 1992, the FASB issued Statement of Financial Accounting
Standards No. 109 ("SFAS No. 109"), "Accounting for Income Taxes." SFAS No. 109
required a change from the deferred method to the asset and liability method
attributable to accounting for income taxes. Under the asset and liability
method, deferred tax assets and liabilities are recognized for the estimated
future tax consequences of the differences between the tax bases and financial
reporting bases of existing assets and liabilities. The Bank adopted SFAS No.
109 effective January 1, 1993, which resulted in a cumulative credit to earnings
of $7.5 million.
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In December 1990, the FASB issued Statement of Accounting Standards No. 106
("SFAS No. 106"), "Employer's Accounting for Post-retirement Benefits Other Than
Pensions." SFAS No. 106 focuses principally on post-retirement health care
benefits and significantly changed the previous practice of accounting for post-
retirement benefits on a cash basis to requiring accrual during the years that
the employee renders the necessary service, of the expected cost of providing
those benefits to an employee and the employee's beneficiaries and covered
dependents. SFAS No. 106 became effective for fiscal years beginning after
December 15, 1992, and adoption was required on a prospective basis. The Bank
adopted SFAS No. 106 effective January 1, 1993, which resulted in an accrued
liability, net of tax, of $1.5 million. See "-Impact of New Accounting
Standards" for a further description of SFAS No. 106.
LIQUIDITY AND CAPITAL RESOURCES
The Bank's primary sources of funds are deposits, proceeds from the
principal and interest payments on loans, mortgage-backed and mortgage related
and debt and equity securities, and to a lesser extent, proceeds from the sale
of fixed-rate mortgage loans to the secondary market. While maturities and
scheduled amortization of loans and securities are predictable sources of funds,
deposit outflows, mortgage prepayments and mortgage loan sales are greatly
influenced by general interest rates, economic conditions and competition.
The primary investing activities of the Bank are the origination of both
residential one-to four-family and commercial real estate loans and the purchase
of mortgage-backed and mortgage related and debt and equity securities. During
the five months ended May 31, 1996 and the years ended December 31, 1995, 1994,
and 1993, the Bank's loan originations totalled $189.9 million, $226.3 million,
$141.1 million and $61.0 million, respectively. Purchases of mortgage-backed,
mortgage related and debt and equity securities totalled $305.4 million, $642.5
million, $225.7 million and $459.7 million for the five months ended May 31,
1996 and the years ended December 31, 1995, 1994, and 1993, respectively. These
activities were funded primarily by deposit growth, principal repayments on
loans, mortgage-backed and mortgage related securities and debt and equity
securities. Loan sales provided additional liquidity to the Bank, totaling
$106.2 million, $134.1 million, $15.7 million and $15.8 million for the five
months ended May 31, 1996 and the years ended December 31, 1995, 1994 and 1993,
respectively. The increased loan sale activity commencing in 1995 reflects the
establishment of RFI during that year.
The Bank experienced a net increase in total deposits of $106.3 million,
$116.0 million, $78.0 million and $7.0 million for the five months ended May 31,
1996 and the years ended December 31, 1995, 1994, and 1993, respectively.
Deposit flows are affected by the level of interest rates, the interest rates
and products offered by the local competitors, the Bank and other factors.
The Bank closely monitors its liquidity position on a daily basis. Excess
short-term liquidity is invested in overnight federal funds sold. In the event
the Bank should require funds beyond its ability to generate them internally,
additional sources of funds are available through the use of reverse repurchase
agreements. At May 31, 1996, the Bank had outstanding $67.1 million in short-
term reverse repurchase agreements with third parties.
Loan commitments totalled $162.2 million at May 31, 1996, comprised of
$72.6 million in one-to four-family loan commitments and $14.1 million in
commercial real estate loan commitments, $73.4 million in construction and
development loan commitments and $2.1 million in home equity loan commitments.
Management of the Bank anticipates that it will have sufficient funds available
to meet its current loan commitments. Certificates of deposit which are
scheduled to mature in one year or less from May 31, 1996 totalled $688.2
million. From January 1, 1995 to May 31, 1996, the Bank experienced a 92.6%
retention rate of funds maturing from certificates of deposit. Based upon this
experience and the
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Bank's current pricing strategy, management believes that a significant portion
of such deposits will remain with the Bank.
At May 31, 1996, the Bank exceeded all of its regulatory capital
requirements with a leverage capital level of $219.3 million, or 12.39% of
adjusted assets, which is above the required level of $53.1 million and risk-
based capital of $229.5 million, or 28.10% of adjusted assets, which is above
the required level of $65.3 million, or 8.00%. See "Regulatory Capital
Compliance."
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 May 31,
1996, cash and interest-bearing demand accounts totalled $28.4 million, or 1.6%
of total assets.
IMPACT OF INFLATION AND CHANGING PRICES
The Consolidated Financial Statements and Notes thereto presented herein
have been prepared in accordance with GAAP, which require the measurement of
financial position and operating results in terms of historical dollar amounts
without considering the changes in the relative purchasing power of money over
time due to inflation. The impact of inflation is reflected in the increased
cost of the Bank's operations. Unlike industrial companies, nearly all of the
assets and liabilities of the Bank are monetary in nature. As a result, interest
rates have a greater impact on the Bank's performance than do the effects of
general levels of inflation. Interest rates do not necessarily move in the same
direction or to the same extent as the price of goods and services.
IMPACT OF NEW ACCOUNTING STANDARDS
Accounting for Long Lived Assets. In 1995, the FASB issued Statement of
Financial Accounting Standards No. 121, "Accounting for Impairment of Long-Lived
Assets and for Long Lived Assets to be Disposed of" ("SFAS No. 121"). This
Statement establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to those assets
to be held and used and for long-lived assets and certain identifiable
intangibles to be disposed of. This Statement became effective on January 1,
1996. Adoption of this Statement did not have a material impact on the earnings
or financial statements of the Bank.
Accounting for Stock-Based Compensation. In November 1995, the FASB issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation" ("SFAS No. 123"). This statement establishes financial accounting
standards for stock-based employee compensation plans. SFAS No. 123 permits the
Bank to choose either a new fair value based method or the current Accounting
Principles Board ("APB") Opinion 25 intrinsic value based method of accounting
for its stock-based compensation arrangements. SFAS No. 123 requires pro forma
disclosures of net earnings and earnings per share computed as if the fair value
based method had been applied in financial statements of companies that continue
to follow current practice in accounting for such arrangements under APB Opinion
25. SFAS No. 123 applies to all stock-based employee compensation plans in which
an employer grants shares of its stock or other equity instruments to employees
except for employee stock ownership plans. SFAS No. 123 also applies to plans in
which the employer incurs liabilities to employees in amounts based on the price
of the employer's stock, (e.g., stock option plans, stock purchase plans,
restricted stock plans, and stock appreciation rights). The statement also
specifies the accounting for transactions in which a company issues stock
options or other equity instruments for services provided by nonemployees or to
acquire goods or services from outside suppliers or vendors. The recognition
provisions of SFAS No. 123 for companies choosing to adopt the new fair value
based method of
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accounting for stock-based compensation arrangements may be adopted immediately
and will apply to all transactions entered into in fiscal years that begin after
December 15, 1995, however disclosure of the pro forma net earnings and earnings
per share, as if the fair value method of accounting for stock-based
compensation had been elected, is required for all awards granted in fiscal
years beginning after December 31, 1994. Any effect that this statement will
have on the Bank will be applicable upon the consummation of the Conversion.
Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities. In June 1996 the FASB issued SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities" ("SFAS No. 125"). This Statement 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. It 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. The financial-components
approach focuses on the assets and liabilities that exist after the transfer.
Many of these assets and liabilities are components of financial assets that
existed prior to the transfer. If a transfer does not meet the criteria for a
sale, the transfer is accounted for as a secured borrowing with pledge of
collateral. The Statement is effective for transfers and servicing of financial
assets and extinguishments of liabilities occurring after December 31, 1996, and
should be applied prospectively. Earlier or retroactive application of this
Statement is not permitted. The Company has not yet determined the impact that
this Statement will have on the Company's consolidated financial statements.
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BUSINESS OF THE COMPANY
GENERAL
The Company was organized in July 1996 at the direction of the Board of
Trustees of the Bank for the purpose of becoming a holding company to own all of
the outstanding capital stock of the Bank. Upon consummation of the Conversion,
it is anticipated that the Bank will become a wholly-owned subsidiary of the
Company. Upon the consummation of the Conversion, the Company will be a savings
and loan holding company. See "Regulation and Supervision -Holding Company
Regulation." The Company filed an application with, and received the approval
of, the OTS to become a savings and loan holding company and to acquire the
Bank.
The Company is currently not an operating company. Following the
Conversion, 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 securities, mortgage-backed and
mortgage related securities and preferred stock. In addition, the Company
intends to fund the loan to the ESOP to enable the ESOP to subscribe for 8% of
the Common Stock issued in connection with the Conversion, including shares
issued to the Foundation; however, a third party lender may be utilized to lend
funds to the ESOP. 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 Holding 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 Holding Company. The Company may utilize the support staff
of the Bank from time to time, if needed. Additional employees will be hired as
appropriate to the extent the Holding Company expands its business in the
future.
BUSINESS OF THE BANK
GENERAL
The Bank is a community-oriented mutual savings bank which was originally
chartered by the State of New York in 1875. In August 1995, the Bank completed
its acquisition of certain assets and liabilities of RMBI, including its loan
servicing portfolio, through its wholly-owned mortgage banking subsidiary, RFI.
The Bank's principal business consists of the acceptance of retail deposits from
the general public in the area surrounding its branch offices and the investment
of those deposits, together with funds generated from operations and borrowings,
primarily in mortgage-backed and mortgage related securities, various debt and
equity securities, one- to four-family residential mortgage loans and commercial
real estate loans. The Bank also invests in multi-family, construction and
development, home equity and second mortgage loans, and consumer and student
loans. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Management Strategy." The Bank currently originates all
one- to four-family loans through RFI. Currently, it is the Bank's policy to
sell, on a servicing retained basis, most longer-term fixed-rate one- to four-
family loans as a method of managing its interest rate risk and increasing its
loan servicing fee income. However, the Bank currently retains for its portfolio
one- to four-family loans in excess of 15 years which have interest rates of 8%
or greater. The Bank's revenues are derived principally from the interest on its
securities, mortgage, consumer and commercial loans and loan sale and servicing
fees. The Bank's primary sources of funds are deposits, principal and interest
payments on loans and securities, and proceeds from the sale of loans and
securities.
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The Bank's mortgage banking subsidiary, RFI, conducts mortgage banking
activities consisting of the origination, sale and servicing of one- to four-
family loans secured by properties in the See "-Lending Activities - Loan
Portfolio Composition," "- Lending Activities -Loan Originations" and "- Loan
Sales, Servicing and Mortgage Banking Activities." Currently, all of the Bank's
origination of one- to four-family loans is conducted through RFI, which
originates loans on behalf of the Bank as well as various other financial
institutions and investors. See "- Lending Activities - Loan Sales, Servicing
and Mortgage Banking Activities."
In addition to RFI, the Bank maintains various wholly-owned subsidiaries
most of which were incorporated in New York to maintain ownership of specific
real estate properties the Bank has taken ownership over as a result of
foreclosure or in connection with its lending activities. The Bank also offers
savings bank life insurance through a department of the Bank.
MARKET AREA
The Bank has been, and intends to continue to be, a community-oriented
financial institution offering a variety of financial services to meet the needs
of the communities it serves. The Bank currently operates six full service
banking offices in Nassau and Suffolk Counties and has recently entered into an
agreement to purchase two branch facilities located in Nassau County which it
expects to open in November 1996. The Bank's primary deposit gathering area is
currently concentrated around the areas where its full service banking offices
are located in Nassau and Suffolk Counties which the Bank generally considers to
be its primary market area. The Bank's primary lending area has also
historically been concentrated in Nassau and Suffolk Counties. However, with the
establishment of RFI in August 1995, the Bank's primary lending area with regard
to one- to four-family loans was broadened to include the area surrounding RFI's
mortgage origination offices in the New York Counties of Suffolk, Nassau, Queens
and Albany and the New Jersey Counties of Morris and Monmouth.
The New York City metropolitan area has historically benefitted from
having a large number of corporate headquarters and a diversity of financial
service entities. Additionally, the Counties of Nassau and Suffolk have
historically benefitted from a large developed suburban market, well educated
employment base and a diversity of industrial, service and high technology
businesses. During the late 1980s and early 1990s, however, due in part to the
effects of a prolonged period of weakness in the national economy, the decline
in the regional economy, layoffs in the financial services industry and
corporate relocations, the New York City metropolitan area experienced reduced
levels of employment. In addition, the Counties of Nassau and Suffolk
experienced reduced employment as a result of restructuring and downsizing in
the high technology defense related industries. These conditions, in conjunction
with a surplus of available commercial and residential property, resulted in an
overall decline in the underlying values of properties located in the area
during the late 1980s and early 1990s. Since 1993, the prices and values of real
estate have stabilized and, in certain areas, the prices and values of real
estate have increased. See "Risk Factors -Weakness in Local Economy."
LENDING ACTIVITIES
Loan Portfolio Composition. The types of loans that the Bank may originate
are subject to federal and state law and regulations. Interest rates charged by
the Bank on loans are affected principally by the demand for such loans, the
supply of money available for lending purposes and the rates offered by its
competitors. These factors are, in turn, affected by general and economic
conditions, monetary policies of the federal government, including the Federal
Reserve Board, legislative tax policies and governmental budgetary matters.
62
<PAGE>
The Bank's loan portfolio consists primarily of first mortgage loans
secured by one- to four-family residences and commercial real estate properties
located in its primary lending area. At May 31, 1996, the Bank's gross loan
portfolio totalled $438.1 million, of which $213.0 million were one- to four-
family residential mortgage loans, or 48.6% of total gross loans, and $153.6
million were commercial real estate loans, or 35.1% of gross loans. At such
date, the remainder of the loan portfolio consisted of $33.3 million of multi-
family loans, or 7.6% of total gross loans; $31.0 million of construction and
development loans, or 7.1% of total gross loans; $4.7 million of home equity and
second mortgage loans, or 1.1% of total gross loans; $1.5 million of consumer
loans, primarily consisting of home modification and passbook loans, or 0.3% of
total gross loans; and $955,000 of student loans, or 0.2% of total gross loans.
The following table sets forth the composition of the Bank's loan
portfolio, including loans held for sale, in dollar amounts and in percentages
of the respective portfolios at the dates indicated.
63
<PAGE>
<TABLE>
<CAPTION>
AT MAY 31, AT DECEMBER 31,
----------------- ---------------------------------------------------------
1996 1995 1994 1993
------------------ ------------------ ------------------ ------------------
PERCENT PERCENT PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
-------- -------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate loans:
One- to four-family....... $213,045 48.63% $197,357 48.41% $153,203 41.52% 134,248 45.16%
Multi-family.............. 33,320 7.60 36,353 8.92 18,617 5.05 21,642 7.28
Commercial real estate.... 153,592 35.05 124,976 30.65 114,317 30.98 101,806 34.24
Construction and 31,046 7.09 41,611 10.21 56,163 15.22 12,983 4.37
development..............
Home equity and second
mortgage.............. 4,690 1.07 3,672 0.90 4,346 1.18 5,255 1.77
Consumer(1)................ 1,483 0.34 1,760 0.43 1,680 0.46 1,995 0.67
Student.................... 955 0.22 1,959 0.48 20,626 5.59 19,345 6.51
-------- ------ -------- ------ -------- ------ -------- ------
Gross loans................ 438,131 100.00% 407,688 100.00% 368,952 100.00% 297,274 100.00%
====== ====== ====== ======
Less:
Unamortized discounts, net. 749 763 978 -
Deferred loan fees......... 769 666 611 -
Deferred mortgage interest. 552 493 145 -
Allowance for possible loan
Loans...................... 22,312 23,350 25,127 24,502
------ ------- ------ --------
Total loans, net........... 413,749 382,416 342,091 272,772
Less:
Loans held for sale, net:
One- to four-family...... 13,310 15,278 - 8,105
Student.................. 955 1,873 - -
-------- -------- -------- --------
Loans receivable held $399,484 $365,265 $342,091 $264,667
for investment, net... ======== ======== ======== ========
<CAPTION>
--------------------------------------
1992 1991
----------------- -----------------
PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL
------ -------- ------ ---------
<S> <C> <C> <C> <C>
Real estate loans:
One- to four-family....... 161,693 48.92% 222,907 55.87%
Multi-family.............. 24,090 7.29 25,631 6.42
Commercial real estate.... 100,894 30.53 99,048 24.83
Construction and 17,020 5.15 23,415 5.87
development..............
Home equity and second
mortgage.............. 4,607 1.39 5,122 1.28
Consumer(1)................ 2,970 0.90 3,232 0.81
Student.................... 19,230 5.82 19,618 4.92
-------- ------ -------- ------
Gross loans................ 330,504 100.00% 398,973 100.00%
====== ======
Less:
Unamortized discounts, net. - -
Deferred loan fees......... - -
Deferred mortgage interest. - -
Allowance for possible loan 23,187 19,698
losses..................... -------- --------
Total loans, net........... 307,317 379,275
Less:
Loans held for sale, net:
One- to four-family...... - -
Student.................. - -
-------- --------
Loans receivable held $307,317 $379,275
for investment, net... ======== ========
</TABLE>
______________________
(1) Consumer loans include modernization and passbook loans.
64
<PAGE>
Loan Originations. Prior to the establishment of its mortgage banking
subsidiary, RFI, in August 1995, all of the Bank's loan origination activity was
conducted directly by the Bank's loan personnel at its six branch offices and
through referrals from local real estate agents, attorneys and builders. While
the Bank continues to directly originate all multi-family, commercial real
estate, construction and development, home equity and second mortgage, and
consumer and student loans, since the establishment of RFI in August 1995, all
one- to four- family loan origination activity has been conducted through RFI
and RFI's commissioned loan officers operating in the Bank's full-service
banking offices as well as in RFI's six mortgage origination offices located in
the New York Counties of Nassau, Suffolk, Queens and Albany and the New Jersey
Counties of Morris and Monmouth.
All loans originated by the Bank or by RFI on behalf of the Bank are
underwritten pursuant to the Bank's loan underwriting policies and procedures.
The Bank originates both adjustable-rate and fixed-rate one- to four-family
loans (through RFI), multi-family loans, commercial real estate loans, home
equity and second mortgage loans, construction and development loans, consumer
loans and student loans. Since 1993, the Bank has placed increased emphasis on
the origination and retention of one- to four-family loans and commercial real
estate loans to selected real estate developers operating within the Bank's
primary market area. See "Risk Factors - Increased Lending Risks Associated with
Multi-Family, Commercial Real Estate and Construction Lending." In 1995, the
Bank began to phase out its direct student loan originations (except for its
direct lending program with SLMA) in response to the federal government's
initiation of the Federal Family Education Loan Program, which is a direct
student lending program. The Bank's and RFI's ability to originate loans is
dependent upon the relative customer demand for the type of loan and demand for
fixed-rate or adjustable-rate loans, which is affected by the current and
expected future levels of interest rates.
Loan Sales, Servicing and Mortgage Banking Activities. Prior to the
establishment of RFI, the Bank's loan sale, purchase and servicing activities
were primarily conducted directly by the Bank. Since August 1995, all of the
Bank's mortgage banking operations have been conducted through RFI with the
exception of the servicing of one- to four-family loans originated by the Bank
prior to the establishment of RFI, which continue to be serviced directly by the
Bank. RFI was formed in conjunction with the Bank's August 1995 acquisition of
certain assets and liabilities, including its loan servicing portfolio, of RMBI,
a mortgage banking firm operating in the New York and New Jersey counties in and
surrounding the New York City and Albany, New York. RFI's activities are
directed by its two executive officers, who were the co-founders of RMBI, with
such activities being overseen by the Bank. RFI's mortgage banking activities
primarily involve the origination, sale and servicing of one- to four-family
loans generally secured by properties located in the areas surrounding RFI
mortgage origination offices. RFI originates one- to four-family loans through
its commissioned loan personnel and through referrals from real estate brokers,
builders, developers and other sources. RFI loan personnel operate in the Bank's
six branch offices as well as RFI's six mortgage origination offices. RFI also
utilizes a network of approved mortgage brokers and loan correspondents. As a
mortgage banking company, RFI originates one- to four-family loans for sale to
the Bank as well as a variety of other investors, including financial
institutions and securities brokerage firms. RFI also originates loans for sale
directly to FNMA and FHLMC based upon loan terms and underwriting criteria
provided to RFI by such agencies. RFI delivers loan products to investors in the
form of whole loans and in the form of mortgage-backed securities issued by FNMA
and FHLMC which it receives in exchange for the sale of whole loans to such
agencies. RFI's one- to four-family loan production is not dedicated to the Bank
as RFI offers a variety of competing loan products to customers pursuant to loan
programs that are pre-approved by other potential loan investors. Accordingly,
the Bank competes with RFI's other investors for the purchase of one- to four-
family loans on the basis of rates and terms. With the exception of all Federal
Housing Authority ("FHA")/Veterans Administration ("VA") loans and non-
conforming loans, all loans sold by RFI are sold on a servicing retained basis.
The Bank's policy as to the types of loans it will originate for investment
through RFI
65
<PAGE>
varies in relation to the Bank's analysis of the current and anticipated market
interest rates and other market conditions. It is currently the policy of the
Bank to purchase from RFI for investment all adjustable-rate one- to four-family
loans and fixed-rate one- to four-family mortgage loans with terms of 15 years
or less or which have interest rates of 8% or more. For the five months ended
May 31, 1996, RFI originated $127.5 million of loans of which $21.6 million was
purchased by the Bank for its loan portfolio. RFI currently does not offer
commercial real estate, multi-family, construction and development loans, home
equity second mortgage or consumer loans.
Funding for the origination of all loans by RFI is provided by the Bank
through a $30 million revolving line of credit whereby borrowings on such line
of credit are immediately paid down by RFI upon the sale of loans. At May 31,
1996, $2.5 million of RFI's mortgage loans were pledged to secure notes payable
to FNMA under a warehouse line of credit known as the FNMA "As Soon As Pooled
Plus Program." The notes are repaid as the related mortgage loans are sold or
collected.
RFI's mortgage banking revenues generally consist of loan origination fees,
interest income on mortgages during the period they are held for sale, less the
interest expense incurred to finance the mortgages, gains (or losses) from the
sale of mortgage loans, loan servicing fees and gains (or losses) from the sale
of any loan servicing.
The loan products currently offered by RFI include mortgage loans insured
by the FHA and VA, as well as a variety of loans which conform to the
underwriting standards specified by FNMA and FHLMC ("conforming loans") and, to
a lesser extent, non-conforming loans. Because all loans originated by RFI are
sold, such loans must meet the origination and underwriting criteria established
by the final investors in the loans, including the Bank. All loans originated
by RFI are sold pursuant to commitments negotiated with FNMA, FHLMC and other
investors to purchase loans meeting such investor's defined criteria which may
require RFI to deliver a specific amount of mortgage loans. RFI sells most of
the conforming mortgage loans it originates to FNMA and FHLMC in exchange for
FNMA and FHLMC mortgage-backed securities through purchase and guarantee
programs sponsored by these agencies; RFI, in turn, sells such FNMA and FHLMC
mortgage-backed securities to private investors. These programs provide either
for direct sale of mortgage loans to FNMA or FHLMC, or for pooling of mortgage
loans in exchange for securities guaranteed by FNMA and FHLMC. Exchanges of
loans into agency securities and sales of loans are generally made without
recourse to RFI in the event of default by the borrower, except, in the case of
VA loans, which are subject to limitations on the VA's loan guarantees. RFI
generally retains the servicing rights on the mortgage loans exchanged for
mortgage-backed securities but generally sells loans to institutional investors
on a servicing released basis. Non-conforming one- to four-family loans
originated by RFI that do not meet FNMA and FHLMC guidelines are generally sold
to the Bank and private institutional investors.
Between the time RFI issues loan commitments and the time such loans or the
securities into which they are converted are sold, RFI is exposed to movements
in the market price due to changes in market interest rates. RFI attempts to
manage this risk by utilizing forward cash sales to FNMA, FHLMC and other
approved investors or agencies and forward sales of mortgage-backed securities
to securities brokers and dealers, other financial institutions and private
investors (such forward sales of loans or mortgage-backed securities are
collectively referred to as "forward sale commitments"). Generally, RFI
attempts to cover between 75% and 105% of the principal amount of the loans that
it has committed to fund at specified interest rates with forward sale
commitments. However, the type, amount and delivery date of forward sale
commitments RFI will enter into is based upon anticipated movements in market
interest rates, bond market conditions and management's estimates as to closing
volumes and the length of the origination or purchase commitments. Differences
between the volume and timing of actual loan originations and purchases and
management's estimates can expose the Bank and RFI to losses. If RFI
66
<PAGE>
is not able to deliver the mortgage loans or mortgage-backed securities during
the appropriate delivery period called for by the forward sale commitment, RFI
may be required to pay a non-delivery fee, repurchase the delivery commitments
at current market prices or purchase whole loans at premium for delivery. The
above activity is managed continually; however, there can be no assurance that
RFI will be successful in its efforts to eliminate the risk of interest rate
fluctuation between the time origination or purchase commitments are issued and
the ultimate sale of the loans. At May 31, 1996, RFI had $57.6 million of
forward sale commitments representing 99.3%, of closed loans and loan
commitments at specified interest rates at such date. See "Risk Factors -
Sensitivity to Increases in Interest Rates."
Currently, the Bank services all of its multi-family, commercial real
estate, home equity and second mortgage and consumer and student loans and all
one- to four-family loans originated for its portfolio prior to its
establishment of RFI on August 1, 1995. RFI services all loans it originates on
behalf of the Bank as well as for all conforming loans sold to other investors.
All FHA and VA loans are sold on a servicing-released basis, as are other
selected loans sold to private institutional investors. In addition, in
connection with the Bank's acquisition of certain liabilities and assets from
RMBI, the Bank acquired the servicing rights of $623 million of loans sold by
RMBI. At May 31, 1996, RFI's loan servicing portfolio totalled $739.9 million,
primarily consisting of conforming fixed-rate loans. The Bank's loan servicing
portfolio totalled $417.4 million as of May 31, 1996 and primarily consisted of
one- to four-family, commercial real estate and construction and development
loans originated by the Bank prior to its acquisition of certain assets and
liabilities from RMBI. Loan servicing includes collecting and remitting loan
payments, accounting for principal and interest, contacting delinquent
mortgagors, supervising foreclosures and property dispositions in the event of
unremedied defaults, making certain insurance and tax payments on behalf of the
borrowers and generally administering the loans. RFI utilizes a third party
subservicer, Essex Home Mortgage Service Corporation ("Essex"), to service all
loans. Essex receives an annual flat fee per loan and any ancillary fee income
and RFI recognizes servicing fee income in excess of servicing fees paid to
Essex and retains the use of the escrow balances. During the years ended
December 31, 1995 and 1994, the Bank sold without recourse, including loans sold
in 1995 by RFI, approximately $70.4 million and $15.9 million, respectively, of
whole loans with loan servicing retained. For the five months ended May 31,
1996, the Bank sold without recourse, including loans sold by RFI, approximately
$72.2 million of whole loans with loan servicing retained.
The following tables set forth the Bank's loan originations, purchases,
sales and principal repayments for the periods indicated and includes RFI's loan
originations on behalf of the Bank commencing August 1, 1995.
67
<PAGE>
<TABLE>
<CAPTION>
FOR THE FIVE MONTHS
ENDED MAY 31, FOR THE YEAR ENDED DECEMBER 31,
----------------------- ----------------------------------
1996 1995 1995 1994 1993
---------- ----------- ---------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Gross loans(1):
Balance outstanding at beginning of $407,688 $368,952 $368,952 $297,274 $330,504
period.................................. -------- -------- -------- -------- --------
Loans originated:
One- to four-family................... 128,559 7,073 153,206 52,668 42,106
Multi-family.......................... - 5,500 19,310 960 -
Commercial real estate................ 39,489 9,292 17,310 26,431 5,349
Construction and 16,978 15,331 31,598 55,950 8,974
development.........................
Home equity and second
mortgage............................ 2,980 - 50 424 1,072
Consumer and student (2).............. 1,889 2,302 4,845 4,664 3,476
-------- -------- -------- -------- --------
Total loans originated.............. 189,895 39,498 226,319 141,097 60,977
Loans purchased......................... - - 22,059 12,764 66
-------- -------- -------- -------- --------
Total loans originated and 189,895 39,498 248,378 153,861 61,043
purchased.......................... -------- -------- -------- -------- --------
Less:
Principal repayments.................... 51,626 19,610 66,084 61,196 70,947
Sales of loans.......................... 106,210 18,927 134,084 15,697 15,765
Transfers to real estate owned.......... 276 1,797 6,964 5,119 2,016
Principal charged off................... 1,340 1,300 2,510 171 5,545
-------- -------- -------- -------- --------
Total loans........................... 438,131 366,816 407,688 368,952 297,274
Less: Loans held for sale, net.......... (14,265) (83) (17,151) - (8,105)
-------- -------- -------- -------- --------
Loans receivable held for investment at $423,866 $366,733 $390,537 $368,952 $289,169
end of period........................ ======== ======== ======== ======== ========
</TABLE>
(1) Gross loans includes loans receivable held for investment and loans held for
sale.
(2) Consumer loans originated consist of modernization and passbook loans.
68
<PAGE>
Loan Maturity and Repricing. The following table shows the contractual
maturity of the Bank's loan portfolio at May 31, 1996. The table does not
include prepayments or scheduled principal amortization. Prepayments and
scheduled principal amortization on mortgage loans totalled $51.6 million for
the five months ended May 31, 1996, $66.1 million for fiscal 1995 and $61.2
million for fiscal 1994.
<TABLE>
<CAPTION>
AT MAY 31, 1996
----------------------------------------------------------------------------------------------
REAL ESTATE LOANS
------------------------------------------------------------
HOME
ONE-TO COMMERCIAL CONSTRUCTION EQUITY AND TOTAL
FOUR- MULTI- REAL AND SECOND LOANS
FAMILY FAMILY ESTATE DEVELOPMENT MORTGAGE CONSUMER STUDENT RECEIVABLE
--------- -------- --------- ------------ ------------- --------- ------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Amounts due:
Within one year...................... $ 14,037 $ 253 $ 17,055 $21,453 $ 174 $ 46 $955 $ 53,973
-------- ------- -------- ------------ ------ ------ -------- --------
After one year:
More than one year to three years... 1,527 300 14,799 9,440 1,324 169 - 27,559
More than three years to five years. 2,678 672 18,119 153 1,712 474 - 23,808
More than five years to 10 years.... 25,694 28,180 88,902 - 731 793 - 144,300
More than 10 years to 20 years...... 64,248 3,915 13,219 - 103 1 - 81,486
More than 20 years.................. 104,861 - 1,498 - 646 - - 107,005
-------- ------- -------- ------------ ------ ------ -------- --------
Total due after May 31, 1997........ 199,008 33,067 136,537 9,593 4,516 1,437 - 384,158
-------- ------- -------- ------------ ------ ------ -------- --------
Total amount due.................... $213,045 $33,320 $153,592 $31,046 $4,690 $1,483 $955 438,131
======== ======= ======== ============ ====== ====== ======== --------
Less:
Unamortized discounts, net........ 749
Deferred loan fees, net........... 769
Deferred mortgage interest........ 552
Allowance for possible loan losses 22,312
--------
Total loans, net.................... 413,749
Less: Loans held for sale, net..... 14,265
--------
Loans receivable held for invest $399,484
net................................. ========
</TABLE>
69
<PAGE>
The following table sets forth at May 31, 1996, the dollar amount of gross
loans receivable contractually due after May 31, 1997, and whether such loans
have fixed interest rates or adjustable interest rates.
<TABLE>
<CAPTION>
DUE AFTER MAY 31, 1997
--------------------------------
FIXED ADJUSTABLE TOTAL
--------- ------------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Real estate loans:
One- to four-family........... $127,937 $ 71,071 $199,008
Multi-family.................. 4,073 28,994 33,067
Commercial real estate........... 19,927 116,610 136,537
Construction and development..... - 9,593 9,593
Home equity and second mortgage.. 912 3,604 4,516
-------- -------- --------
Total real estate loans......... 152,849 229,872 382,721
Consumer and student loans(1).... 1,437 - 1,437
-------- -------- --------
Total loans receivable.......... $154,286 $229,872 $384,158
======== ======== ========
</TABLE>
______________
(1) Includes modernization loans and passbook loans.
One- to Four-Family Loans. The Bank, through RFI, currently offers both
fixed-rate and adjustable-rate mortgage loans secured by one- to four-family
residences located in the Bank's primary market area as well as in the New York
and New Jersey areas in which RFI operates mortgage origination offices, with
maturities up to thirty years. See "- Market Area." One- to four-family
mortgage loan originations are generally obtained from RFI's loan
representatives operating in the Bank's branch offices and RFI's offices and
through their contacts with the local real estate industry and through direct
consumer advertising. RFI has approximately 55 commissioned loan originators
who actively solicit mortgage loan applications.
At May 31, 1996, the Bank's one- to four-family loans totalled $213.0
million, or 48.6%, of gross loans. Of the one- to four-family loans outstanding
at that date, 66.0% were fixed-rate loans and 34.0% were adjustable-rate
mortgage loans. The Bank, through RFI, offers fixed-rate mortgage loans with
terms of ten, fifteen, twenty and thirty years. The Bank, through RFI,
currently offers a number of adjustable-rate mortgage loans with terms of up to
30 years and interest rates which adjust annually from the outset of the loan or
which adjust annually after a three, seven or ten year initial fixed period.
The interest rates for the majority of the Bank's adjustable-rate mortgage loans
are indexed to the one year and five year Constant Maturity Treasury ("CMT")
Index. Interest rate adjustments on such loans are limited to 2% annual
adjustment cap and a maximum adjustment of 6% over the life of the loan.
Certain of the Bank's adjustable-rate mortgage loans can be converted to a
fixed-rate loan with interest rates based upon the then-current market rates
plus a varying margin.
The volume and type of adjustable-rate mortgage loans originated by RFI on
behalf of the Bank have been affected by such market factors as the level of
interest rates, competition, consumer preferences and the availability of funds.
The origination of adjustable-rate residential mortgage loans, as opposed
70
<PAGE>
to fixed-rate residential mortgage loans, helps reduce the Bank's exposure to
increases in interest rates. However, adjustable-rate loans generally pose
credit risks not inherent in fixed-rate loans, primarily because as interest
rates rise, the underlying payments of the borrower rise, thereby increasing the
potential for default. Periodic and lifetime caps on interest rate increases
help to reduce the risks associated with adjustable-rate loans but also limit
the interest rate sensitivity thereof.
One- to four-family residential mortgage loans are generally underwritten
according to FNMA and FHLMC guidelines. The Bank, through RFI, currently
originates one- to four-family residential mortgage loans in amounts up to 90%
of the lower of the appraised value or the selling price of the property
securing the loan up to a maximum amount of $600,000 for loans originated for
sale. The Bank currently requires private mortgage insurance to be obtained for
loans in excess of an 80% loan to value ratio. Mortgage loans originated by the
Bank generally include due-on-sale clauses which provide the Bank with the
contractual right to deem the loan immediately due and payable in the event the
borrower transfers ownership of the property without the Bank's consent. Due-
on-sale clauses are an important means of adjusting the yields on the Bank's
fixed-rate mortgage loan portfolio and the Bank has generally exercised its
rights under these clauses.
In an effort to provide financing for low and moderate income home buyers,
RFI participates in residential mortgage programs and products sponsored by the
State of New York Mortgage Agency ("SONYMA") and the New Jersey Mortgage Housing
Finance Agency ("NJMHFA"). The SONYMA and NJMHFA mortgage programs provide low
and moderate income households with fixed-rate loans which are generally below
prevailing fixed-rate mortgages and which allow below market down payments.
Such loans generally are sold by RFI.
Multi-Family Lending. The Bank originates fixed- and adjustable-rate
multi-family mortgage loans generally secured by forty to four hundred unit
apartment buildings located in the Bank's primary market area. At May 31, 1996,
the Bank's multi-family loan portfolio was $33.3 million, or 7.6%, of gross
loans. In reaching its decision on whether to make a multi-family loan, the
Bank considers the qualifications and financial condition of the borrower,
including credit history, profitability and expertise, as well as the value and
condition of the underlying property. The factors considered by the Bank
include: the net operating income of the mortgaged premises before debt service
and depreciation; the debt coverage ratio (the ratio of net earnings to debt
service); and the ratio of loan amount to appraised value. Pursuant to the
Bank's underwriting policies, a multi-family mortgage loan may be made in an
amount up to 75% of the lower of the appraised value or sales price of the
underlying property with terms of up to 30 years. The Bank's adjustable-rate
multi-family loans are originated with rates that are fixed for the first five
years and adjust every five years thereafter based upon the 5 year U.S. Treasury
bill plus a margin of 1.75% to 3.0%. The Bank's current policies limit the
amount of multi-family loans the Bank may have to 25% of the aggregate loan
portfolio. The Bank's current policies limit such loans to $10 million per
project and an aggregate of $30 million in loans outstanding per borrower,
although the Bank will make exceptions to this policy provided full board
approval for the loan is obtained. In addition, the Bank generally requires a
debt service coverage ratio of a minimum of 120% and the personal guarantee of
the borrower during the construction stage. The Bank also requires an appraisal
on the property conducted by an independent appraiser and title insurance.
Additionally, the Bank requires a market occupancy rate of at least 90% prior to
lending for multi-unit apartment buildings. At May 31, 1996, the Bank's largest
multi-family loan was a $6.25 million loan secured by a 112 unit apartment
building located in Holbrook, New York.
When evaluating the qualifications of the borrower for a multi-family loan,
the Bank considers the financial resources and income level of the borrower, the
borrower's experience in owning or managing similar property and the Bank's
lending experience with the borrower. The Bank's underwriting
71
<PAGE>
policies require that the borrower be able to demonstrate management skills and
the ability to maintain the property from current rental income. The Bank's
policy requires borrowers to present evidence of the ability to repay the
mortgage and a history of making mortgage payments on a timely basis. In making
its assessment of the creditworthiness of the borrower, the Bank generally
reviews the financial statements and credit history of the borrower, as well as
other related documentation.
Loans secured by apartment buildings and other multi-family residential
properties generally involve larger principal amounts and a greater degree of
risk than one- to four-family residential mortgage loans. Because payments on
loans secured by multi-family properties are often dependent on successful
operation or management of the properties, repayment of such loans may be
subject to a greater extent to adverse conditions in the real estate market or
the economy. The Bank seeks to minimize these risks through its underwriting
policies, which require, among other things, such loans to be qualified at
origination on the basis of the property's income and debt coverage ratio. As
part of its operating strategy, the Bank intends to increase its multi-family
lending in its primary market area depending on market demand for such loans.
Commercial Real Estate Lending. The Bank originates commercial real estate
loans that are generally secured by properties used for business purposes or a
combination of residential and retail purposes which are located in the Bank's
primary market area. The Bank's underwriting procedures provide that commercial
real estate loans generally may be made in amounts up to 75% of the lower of the
appraised value or sales value of the property, subject to the Bank's current
loans-to-one-borrower limit, which at May 31, 1996, was $30 million; however,
the Bank's policies limit such loans to $10 million per project and an aggregate
of $30 million in loans outstanding per borrower. These loans may be made with
terms up to 20 years and are generally offered at interest rates which adjust in
accordance with the CMT Index. The Bank's underwriting standards and procedures
are similar to those applicable to its multi-family loans, whereby the Bank
considers the net operating income of the property and the borrower's expertise,
credit history and profitability. The Bank has generally required that the
properties securing commercial real estate loans have debt service coverage
ratios of at least 125%. At May 31, 1996, the Bank's commercial real estate
loan portfolio totalled approximately $153.6 million or 35.1% of total loans.
The largest commercial real estate loan in the Bank's portfolio at May 31, 1996,
was an $8.3 million loan secured by a shopping center located in Holbrook, New
York.
Loans secured by commercial real estate properties, like multi-family
loans, generally involve larger principal amounts and a greater degree of risk
than one- to four-family residential mortgage loans. Because payments on loans
secured by commercial real estate properties are often dependent on successful
operation or management of the properties, repayment of such loans may be
subject to adverse conditions in the real estate market or the economy. The
Bank seeks to minimize these risks through its underwriting standards, which
require such loans to be qualified on the basis of the property's income and
debt service coverage ratio. As part of the operating strategy, the Bank
intends to continue to emphasize its commercial real estate lending activities
on its primary market area depending on the demand for such loans and commercial
real estate market conditions.
Construction and Development Lending. The Bank originates loans for the
development of commercial and residential property located in its primary market
area. The Bank will originate loans for the acquisition of commercial and
residential property located in its primary market area only if such acquisition
loan is part of an overall development loan. Construction and development loans
are offered primarily to experienced local developers operating in the Bank's
primary market area. The majority of the Bank's construction loans are
originated primarily to finance the construction of one- to four-family, owner-
occupied residential, multi-family and commercial real estate properties located
in the Bank's primary market area. Such loans are offered for the construction
of properties that are pre-sold or for
72
<PAGE>
which permanent financing has been secured. At May 31, 1996, the Bank had $70.8
million of construction loans committed to the construction of one- to four-
family properties. Construction loans are generally offered with terms up to
three years for residential property and up to two years for multi-family and
commercial property. Construction loans may be made in amounts up to 90% of the
estimated cost of construction. With respect to construction loans, the Bank's
policy is to require borrowers to secure permanent financing commitments from
generally recognized lenders for an amount equal to or greater than the amount
of the loan. In some cases, the Bank may itself provide permanent financing.
Loan proceeds are disbursed on a monthly basis in increments as construction
progresses and as inspections by the Bank's supervising engineer warrant. The
Bank does not originate loans secured by undeveloped land. The largest
construction loan in the Bank's portfolio at May 31, 1996 was an unfunded loan
commitment for $14.8 million for the construction of 55 single family residences
in Dix Hills, New York.
Construction and development financing is generally considered to involve a
higher degree of credit risk than long-term financing on improved, owner-
occupied real estate. Risk of loss on a construction loan is dependent largely
upon the accuracy of the initial estimate of the property's value at completion
of construction or development compared to the estimated cost (including
interest) of construction and other assumptions, including the estimated time to
sell residential properties. If the estimate of value proves to be inaccurate,
the Bank may be confronted with a project, when completed, having a value which
is insufficient to assure full repayment.
Home Equity and Second Mortgage Lending. The Bank offers fixed-rate,
fixed-term home equity loans and adjustable-rate home equity lines of credit in
its primary market area. Fixed-rate, fixed-term home equity loans are offered
in amounts up to 80% of the appraised value of the property (including the first
mortgage) with a maximum loan amount of $50,000. Fixed-rate, fixed-term home
equity loans are offered with terms up to ten years and home equity lines of
credit are offered for terms up to thirty years, with interest-only payments
during the first ten years and repayment of principal and interest during the
final twenty years. Adjustable-rate home equity lines of credit are offered in
amounts up to 75% of the appraised value of the property (including the first
mortgage) with a maximum line amount of $100,000.
Consumer, Student and Other Lending. The Bank's portfolio of consumer,
student and other loans primarily consists of modernization loans secured by the
improvement itself, loans secured by deposit accounts and student loans. As of
May 31, 1996, consumer and student loans amounted to $2.4 million, or 0.56% of
the Bank's total loan portfolio, of which $955,000 were student loans. The Bank
has begun to phase out its direct student loan originations, except for its
direct lending program with SLMA. This phase-out was made necessary by the
initiation of the federal government's direct student loan origination program.
During the year ended December 31, 1995, the Bank sold approximately $21.5
million of its student loan portfolio, recording an aggregate gain of $496,000.
The Bank also has phased out its home improvement loans by expanding its home
equity loan program.
Loan Approval Procedures and Authority. The Board of Trustees establishes
the lending policies and loan approval limits of the Bank. The Board of
Trustees has established an Executive Committee, comprised of rotating members
of the Board of Trustees, to review and approve loans in amounts greater than
management has the authority to approve. The Board of Trustees has authorized
the following persons to approve loans up to the amounts indicated: commercial
real estate loans of up to $200,000 can be approved by the President or Senior
Lending Officer plus one additional officer in the Lending Division; all
commercial real estate loans, multi-family loans, construct loans and loan
participations in excess of $200,000 require the approval of the Executive
Committee of the Board of Trustees; when these loans exceed $1.0 million, they
require the approval of the Executive Committee and the Board of Trustees. Home
equity loans and lines of credit are approved by two officers within the lending
department, with one of those officers being a senior officer of the Bank. All
residential loans of up to
73
<PAGE>
$300,000 are approved within RFI by the underwriter; loans in excess of this
amount require the countersignature of a senior officer of RFI.
With respect to all loans originated by RFI on behalf of the Bank, upon
receipt of a completed loan application from a prospective borrower, a credit
report is ordered and certain other information is verified by an independent
credit agency. If necessary, additional financial information may be required.
An appraisal of real estate intended to secure a proposed loan generally is
required to be performed by appraisers approved by the Bank. For proposed
mortgage loans, the Board annually approves independent appraisers used by the
Bank and approves the Bank's appraisal policy. The Bank's policy is to obtain
title and hazard insurance on all mortgage loans and the Bank may require
borrowers to make payments to a mortgage escrow account for the payment of
property taxes. Any exceptions to the Bank's underwriting policies must be
noted on an underwriting standards checklist and approved by the Executive
Committee for loans of up to $1 million and by the Board of Trustees for loans
of $1 million or more. The Bank subjects all loan commitments for non-
residential mortgage loans to an environmental site assessment.
DELINQUENT LOANS, REAL ESTATE OWNED AND CLASSIFIED ASSETS
Management and the Board of Trustees perform a monthly review of all
delinquent loans. The procedures taken by the Bank with respect to
delinquencies vary depending on the nature of the loan and period of
delinquency. The Bank generally requires that delinquent mortgage loans be
reviewed and that a delinquency notice be mailed no later than the 16th day of
delinquency and a late charge is assessed after 15 days. RFI's subservicer,
Essex, follows similar delinquency procedures. The Bank's policies provide that
telephone contact will be attempted to ascertain the reasons for delinquency and
the prospects of repayment. When contact is made with the borrower at any time
prior to foreclosure, the Bank will attempt to obtain full payment or work out a
repayment schedule with the borrower to avoid foreclosure. It is the Bank's
general policy to discontinue accruing interest on all loans which are past due
90 days or when in the opinion of management such suspension is warranted.
Property acquired by the Bank as a result of foreclosure on a mortgage loan is
classified as "real estate owned" and is recorded at the lower of the unpaid
principal balance or fair value less costs to sell at the date of acquisition
and thereafter. Upon foreclosure, it is the Bank's policy to generally require
an appraisal of the property and, thereafter, appraisal of the property on an
as-needed basis.
At May 31, 1996, the Bank's real estate owned, net, consisting of
foreclosed assets totalled $5.4 million and was held directly by the Bank and by
its subsidiaries which were formed for the purpose of holding and maintaining
certain other real estate. See "- Subsidiary Activities." At such date, real
estate owned, net, was comprised of six (6) one- to four-family properties with
an aggregate carrying value of $597,000, and nine (9) commercial real estate
properties with an aggregate carrying value of $4.8 million. Bank personnel or
an independent inspector generally conducts periodic external inspections on all
properties securing loans in foreclosure and generally conducts external
appraisals on all properties prior to taking ownership of the property. Based
upon such inspections and appraisals, the Bank will charge off any loan
principal it deems appropriate at such time. Bank personnel conduct monthly
reviews of its foreclosed real estate and periodically adjust its valuation
allowance for possible declines in the value of real estate owned. The Bank's
allowance for possible losses on real estate owned at May 31, 1996 totalled $1.1
million, or 17.2% of the aggregate gross value of real estate owned. The Bank
is currently offering for sale all real estate owned as a result of foreclosure
through brokers and through its own personnel.
The Bank's policies permit the financing of the sale of its foreclosed real
estate on substantially the same terms applicable to its other real estate
mortgage loans with the exception that the Bank may loan up to 80% of the lesser
of the appraised value or sales price of the foreclosed property.
74
<PAGE>
Federal regulations and the Bank's Classification of Assets Policy require
that the Bank utilize an internal asset classification system as a means of
reporting problem and potential problem assets. The Bank currently classifies
problem and potential problem assets as "Substandard," "Doubtful" or "Loss"
assets. An asset is considered Substandard if it is inadequately protected by
the current net worth and paying capacity of the obligor or of the collateral
pledged, if any. Substandard assets include those characterized by the distinct
possibility that the insured institution will sustain "some Loss" if the
deficiencies are not corrected. Assets classified as Doubtful have all of the
weaknesses inherent in those classified Substandard with the added
characteristic that the weaknesses present make collection or liquidation in
full, on the basis of currently existing facts, conditions and values, 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 is not warranted. Assets which do
not currently expose the insured institution to sufficient risk to warrant
classification in one of the aforementioned categories but possess weaknesses
are required to be designated "Special Mention."
When an insured institution classifies one or more assets, or portions
thereof, as Substandard or Doubtful, it is required to establish a general
valuation allowance for possible loan losses in an amount deemed prudent by
management unless the loss of principal appears to be remote. General valuation
allowances represent loss allowances which 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 an
insured institution classifies one or more assets, or portions thereof, as Loss,
it is required either to establish a specific allowance for losses equal to 100%
of the amount of the assets so classified or to charge off such amount.
A savings institution's determination as to the classification of its
assets and the amount of its valuation allowances is subject to review by the
FDIC and NYBD, which can order the establishment of additional general or
specific loss allowances. The FDIC, in conjunction with the other federal
banking agencies, recently adopted an interagency policy statement on the
allowance for loan and lease losses. The policy statement provides guidance for
financial institutions on both the responsibilities of management for the
assessment and establishment of adequate allowances and guidance for banking
agency examiners to use in determining the adequacy of general valuation
guidelines. Generally, the policy statement recommends that institutions have
effective systems and controls to identify, monitor and address asset quality
problems; that management has analyzed all significant factors that affect the
collectibility of the portfolio in a reasonable manner; and that management has
established acceptable allowance evaluation processes that meet the objectives
set forth in the policy statement. While the Bank believes that it has
established an adequate allowance for possible loan losses, there can be no
assurance that regulators, in reviewing the Bank's loan portfolio, will not
request the Bank to materially increase at that time its allowance for possible
loan losses, thereby negatively affecting the Bank's financial condition and
earnings at that time. Although management believes that adequate specific and
general loan loss allowances have been established, actual losses are dependent
upon future events and, as such, further additions to the level of specific and
general loan loss allowances may become necessary.
The Bank's senior management reviews and classifies the Bank's loans on a
monthly basis and reports the results of its review to the Board of Trustees. At
May 31, 1996, the Bank had $14.7 million of assets designated as Substandard,
consisting of 47 commercial real estate, one- to four-family and construction
loans, $600,000 of assets classified as Doubtful, consisting of one commercial
real estate loan, and no assets classified as Loss, respectively. At May 31,
1996, the Bank had $20.1 million of assets designated as Special Mention,
consisting of 43 commercial real estate, one- to four-family and construction
loans which were designated Special Mention due to past loan delinquencies.
75
<PAGE>
The following table sets forth delinquencies in the Bank's loan portfolio as of
the dates indicated:
<TABLE>
<CAPTION>
AT MAY 31, 1996 AT DECEMBER 31, 1995
------------------------------------------------- ---------------------------------------------------
60-89 DAYS 90 DAYS OR MORE 60-89 DAYS 90 DAYS OR MORE
--------------------- -------------------------- ---------------------- ---------------------------
PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL
NUMBER BALANCE NUMBER BALANCE NUMBER BALANCE NUMBER BALANCE
OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS
----------- --------- --------- --------------- --------- ----------- --------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family........ $ 1 40 22 $ 1,912 4 $ 297 23 $ 1,915
Multi-family............... - - - - - - - -
Commercial real estate..... 1 45 11 6,446 - - 15 6,536
Construction and - - 2 752 - - 1 150
development...............
Home equity and second 2 79 - - - - 1 123
mortgage..................
Consumer loans(1).......... 1 13 4 27 - - - -
Student loans.............. - - - - - - 11 42
-- ------ --- ------- --- ------ --- -------
Total...................... 5 $ 177 39 $ 9,137 4 $ 297 51 $ 8,766
== ====== === ======= === ====== === =======
Delinquent loans to total
loans(2).................. 0.04% 2.17% 0.08% 2.26%
====== ======= ====== =======
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1994 AT DECEMBER 31, 1993
------------------------------------------------- ---------------------------------------------------
60-89 DAYS 90 DAYS OR MORE 60-89 DAYS 90 DAYS OR MORE
--------------------- -------------------------- ---------------------- ---------------------------
PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL
NUMBER BALANCE NUMBER BALANCE NUMBER BALANCE NUMBER BALANCE
OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS
----------- --------- --------- --------------- --------- ----------- --------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family........ 6 $ 173 20 $ 2,750 30 $1,401 57 $ 6,539
Multi-family............... - - - - - - 6 3,933
Commercial real estate..... 1 787 21 13,541 4 2,782 27 14,816
Construction and 1 388 3 2,900 1 970 3 3,226
development...............
Home equity and second - - 1 60 2 222 1 227
mortgage..................
Consumer loans(1).......... - - - - 2 26 2 14
Student loans.............. 86 330 128 605 81 309 59 222
-- ------ --- ------- --- ------ --- -------
Total...................... 94 $1,678 173 $19,856 120 $5,710 155 $28,977
== ====== === ======= === ====== === =======
Delinquent loans to total
loans(2).................. 0.46% 5.41% 1.97% 10.02%
====== ======= ====== =======
</TABLE>
_______________________
(1) Consumer loans consist of modernization loans and passbook loans.
(2) Total loans includes loans receivable held-for-investment, less deferred
loan fees, deferred mortgage interest and unamortized discounts, net.
76
<PAGE>
Non-Accrual and Past-Due Loans. The following table sets forth information
regarding non-accrual loans and REO.
<TABLE>
<CAPTION>
AT MAY 31, AT DECEMBER 31,
---------------------------------------------------------
1996 1995 1994 1993 1992 1991
---------- -------- ----------- -------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Non-accrual loans:
One- to four-family............. $ 2,936 $ 2,965 $ 4,708 $ 6,041 $ 5,130 $ 7,440
Multi-family.................... - - 263 1,037 925 -
Commercial real estate.......... 8,144 8,650 16,519 17,350 14,221 7,887
Construction and 752 150 2,900 3,226 5,475 10,149
development................... ------- ------- ------- ------- ------- -------
Total non-accrual loans........ 11,832 11,765 24,390 27,654 25,751 25,476
Loans contractually past due 90 113 408 665 3,689 3,346 6,429
days or more, other than non- ------- ------- ------- ------- ------- -------
accruing.......................
Total non-performing loans..... 11,945 12,173 25,055 31,343 29,097 31,905
Real estate owned, net(1)........ 5,366 6,047 3,359 2,613 2,911 519
------- ------- ------- ------- ------- -------
Total non-performing $17,311 $18,220 $28,414 $33,956 $32,008 $32,424
assets......................... ======= ======= ======= ======= ======= =======
Allowance for possible
loan losses as a percent
of loans(2).................... 5.29% 6.01% 6.84% 8.47% 7.02% 4.94%
Allowance for possible
loan losses as a percent
of total non-performing
loans(3)....................... 186.79% 191.82% 100.28% 78.17% 79.69% 61.74%
Non-performing loans
as a percent of loans(2)(3).... 2.83% 3.13% 6.82% 10.84% 8.80% 8.00%
Non-performing assets
as a percent of total
assets(3)...................... 0.98% 1.14% 1.98% 2.53% 2.45% 2.83%
</TABLE>
________________________________
(1) Real estate owned balances are shown net of related loss allowances.
(2) Loans include loans receivable held for investment, net, excluding the
allowance for possible loan losses.
(3) Non-performing assets consist of non-performing loans and REO. Non-
performing loans consist of non-accruing loans and all loans 90 days or more
past due and other loans which have been identified by the Bank as
presenting uncertainty with respect to the collectibility of interest or
principal.
77
<PAGE>
Non-accrual loans totalled $11.8 million as of May 31, 1996, and included
35 one- to four-family loans, with an aggregate balance of $2.9 million and 20
commercial real estate loans and construction and development loans with an
aggregate balance of $8.9 million. Non-accrual loans do not include student
loans delinquent 90 days or more as the Bank does not classify such loans as
non-accrual because delinquent principal and interest on guaranteed student
loans is guaranteed by the U.S. government.
ALLOWANCE FOR POSSIBLE LOAN LOSSES
The allowance for possible loan losses is maintained through provisions for
possible loan losses based on management's on-going evaluation of the risks
inherent in its loan portfolio in consideration of the trends in its loan
portfolio, the national and regional economies and the real estate market in the
Bank's primary lending area. The allowance for possible loan losses is
maintained at an amount management considers adequate to cover estimated losses
in its loan portfolio which are deemed probable and estimable based on
information currently known to management. The Bank's loan loss allowance
determinations also incorporate factors and analyses which consider the
potential principal loss associated with the loan, costs of acquiring the
property securing the loan through foreclosure or deed in lieu thereof, the
periods of time involved with the acquisition and sale of such property, and
costs and expenses associated with maintaining and holding the property until
sale and the costs associated with the Bank's inability to utilize funds for
other income producing activities during the estimated holding period of the
property.
As of May 31, 1996, the Bank's allowance for possible loan losses was $22.3
million, or 5.3%, of total loans and 186.8% of non-performing loans as compared
to $23.4 million, or 6.0% of total loans and 191.8% of non-performing loans as
of December 31, 1995. The Bank had total non-performing loans of $11.9 million
and $12.2 million at May 31, 1996 and December 31, 1995, respectively, and non-
performing loans to total loans of 2.8% and 3.1%, respectively. The Bank will
continue to monitor and modify its allowance for possible loan losses as
conditions dictate. While management believes that, based on information
currently available, the Bank's allowance for possible loan losses is sufficient
to cover losses inherent in its loan portfolio at this time, no assurances can
be given that the Bank's level of allowance for possible loan losses will be
sufficient to cover future possible loan losses incurred by the Bank or that
future adjustments to the allowance for possible loan losses will not be
necessary if economic and other conditions differ substantially from the
economic and other conditions used by management to determine the current level
of the allowance for possible loan losses. Management may in the future
increase its level of loan loss allowance as a percentage of total loans and
non-performing loans in the event it increases the level of multi-family,
commercial real estate, construction and development or other lending as a
percentage of its total loan portfolio. In addition, the FDIC and NYBD as an
integral part of their examination process, periodically reviews the Bank's
allowance for possible loan losses. Such agencies may require the Bank to make
additional provisions for estimated possible loan losses based upon judgments
different from those of management.
78
<PAGE>
The following table sets forth activity in the Bank's allowance for
possible loan losses for the periods set forth in the table.
<TABLE>
<CAPTION>
AT OR FOR THE
FIVE MONTHS
ENDED MAY 31, AT OR FOR THE YEAR ENDED DECEMBER 31,
-------------- --------------------------------------------------
1996 1995 1994 1993 1992 1991
-------------- ------ ------ ------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of period........ $23,350 $25,127 $24,502 $23,187 $19,698 $ 9,098
Provision for possible loan losses.... 300 600 600 6,860 9,300 18,600
Charge-offs:
Real estate loans:
One- to four-family............... 16 14 - 304 162 -
Multi-family...................... - - - - -
Commercial real estate............ 828 2,385 59 3,977 520 -
Construction and development...... 495 111 112 1,264 5,129 8,000
Consumer and student loans.......... 1 - - - - -
------- ------- ------- ------- ------- -------
Total charge-offs............... 1,340 2,510 171 5,545 5,811 8,000
Recoveries:
Real estate loans:
One- to four-family............... 2 40 107 - - -
Multi-family...................... - - - - - -
Commercial real estate............ - 92 89 - - -
Construction and development...... - 1 - - - -
Consumer and student loans.......... - - - - - -
------- ------- ------- ------- ------- -------
Total recoveries................ 2 133 196 - - -
Net charge-offs (recoveries).......... 1,338 2,377 (25) 5,545 5,811 8,000
------- ------- ------- ------- ------- -------
Balance at end of period.............. $22,312 $23,350 $25,127 $24,502 $23,187 $19,698
======= ======= ======= ======= ======= =======
</TABLE>
79
<PAGE>
The following tables set forth the Bank's percent of allowance for possible
loan losses to total allowance and the percent of loans to total loans in each
of the categories listed at the dates indicated.
<TABLE>
<CAPTION>
AT MAY 31, 1996
----------------------------------------------------------
PERCENT OF PERCENT OF
ALLOWANCE LOANS IN
TO TOTAL EACH CATEGORY
AMOUNT ALLOWANCE TO TOTAL LOANS
------------------ --------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
One- to four-family................................ $2,278 10.21% 48.63%
Multi-family....................................... 2,820 12.64 7.60
Commercial real estate............................. 7,321 32.81 35.05
Construction and development....................... 4,276 19.16 7.09
Home equity and second mortgage loans.............. 40 0.18 1.07
Consumer and student............................... 33 0.15 0.56
Unallocated........................................ 5,544 24.85 -
------- ------ ------
Total allowance for possible loan losses........ $22,312 100.00% 100.00%
======= ====== ======
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------------------------------------------
1995 1994
---------------------------------- ----------------------------------
PERCENT OF PERCENT OF
LOANS IN LOANS IN
PERCENT OF EACH PERCENT OF EACH
ALLOWANCE CATEGORY ALLOWANCE CATEGORY
TO TOTAL TOTAL TO TO TOTAL TOTAL TO
AMOUNT ALLOWANCE LOANS AMOUNT ALLOWANCE LOANS
-------- --------- ---------- -------- --------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
One- to
four-family..................... $ 2,176 9.32% 48.41% $ 2,677 10.65% 41.52%
Multi-family...................... 3,036 13.00 8.92 2,824 11.24 5.05
Commercial real
estate............................ 7,185 30.77 30.65 7,523 29.94 30.98
Construction and
development....................... 3,872 16.58 10.21 4,426 17.61 15.22
Home equity/second
mortgages......................... 35 0.15 0.90 31 0.13 1.18
Consumer and student.............. 34 0.15 0.91 35 0.14 6.05
Unallocated....................... 7,012 30.03 - 7,611 30.29 -
------- ------ ------ ------- ------ ------
Total allowance for
possible loan losses............. $23,350 100.00% 100.00% $25,127 100.00% 100.00%
======= ====== ====== ======= ====== ======
<CAPTION>
-------------------------------------------------------------------------
1993 1992
---------------------------------- ----------------------------------
PERCENT OF PERCENT OF
LOANS IN LOANS IN
PERCENT OF EACH PERCENT OF EACH
ALLOWANCE CATEGORY ALLOWANCE CATEGORY
TO TOTAL TOTAL TO TO TOTAL TO TOTAL
AMOUNT ALLOWANCE LOANS AMOUNT ALLOWANCE LOANS
-------- --------- ---------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
One- to
four-family..................... $ 2,801 11.43% 45.16% $ 3,121 13.46% 48.92%
Multi-family...................... 2,938 11.99 7.28 3,172 13.68 7.29
Commercial real
estate............................ 9,525 38.87 34.24 10,014 43.19 30.53
Construction and
development....................... 2,533 10.34 4.37 2,333 10.06 5.15
Home equity/second
mortgages......................... 32 0.13 1.77 31 0.13 1.39
Consumer and student.............. 38 0.16 7.18 43 0.18 6.72
Unallocated....................... 6,635 27.08 - 4,473 19.30 -
------- ------ ------ ------- ------ ------
Total allowance for
possible loan losses............. $24,502 100.00% 100.00% $23,187 100.00% 100.00%
======= ====== ====== ====== ====== ======
<CAPTION>
----------------------------------
1991
----------------------------------
PERCENT OF
LOANS IN
PERCENT OF EACH
ALLOWANCE CATEGORY
TO TOTAL TO TOTAL
AMOUNT ALLOWANCE LOANS
-------- --------- ----------
<S> <C> <C> <C>
One- to
four-family..................... $ 3,289 16.70% 55.87%
Multi-family...................... 2,097 10.64 6.42
Commercial real
estate............................ 7,821 39.70 24.83
Construction and
development....................... 4,102 20.83 5.87
Home equity/second
mortgages......................... 39 0.20 1.28
Consumer and student.............. 46 0.23 5.73
Unallocated....................... 2,304 11.70 -
------- ------ ------
Total allowance for
possible loan losses............. $19,698 100.00% 100.00%
======= ====== ======
</TABLE>
80
<PAGE>
ENVIRONMENTAL ISSUES
The Bank encounters certain environmental risks in its lending activities.
Under federal and state environmental laws, lenders may become liable for costs
of cleaning up hazardous materials found on property securing their loans. In
addition, the existence of hazardous materials may make it unattractive for a
lender to foreclose on such properties. Although environmental risks are usually
associated with loans secured by commercial real estate, risks also may be
substantial for loans secured by residential real estate if environmental
contamination makes security property unsuitable for use. This could also have a
negative effect on nearby property values. The Bank attempts to control its risk
by requiring a phase one environmental assessment be completed as part of its
underwriting review for all non-residential mortgage applications. In addition,
the Bank's policy is to maintain ownership of specific real estate properties
acquired by the Bank as a result of foreclosure in separately incorporated
subsidiaries.
The Bank believes its procedures regarding the assessment of environmental
risk are adequate and, as of May 31, 1996, the Bank was unaware of any
environmental issues which would subject it to any material liability at this
time. However, no assurance can be given that the values of properties securing
loans in the Bank's portfolio will not be adversely affected by unforeseen
environmental risks.
SECURITIES INVESTMENT ACTIVITIES
The Board of Trustees sets the securities investment policy of the Bank.
This policy dictates that investment decisions will be made based on the safety
of the investment, liquidity requirements of the Bank and potential return on
the investments. In pursuing these objectives, the Bank considers the ability of
an investment to provide earnings consistent with factors of quality, maturity,
marketability and risk diversification. The Board of Trustees has established an
Investment Committee comprised of three Trustees and the Investment Officer to
supervise the Bank's securities investment program. The Bank's Investment
Committee meets quarterly and evaluates all investment activities for safety and
soundness, evaluates investment policy and objectives for the next quarterly
period and submits a report to the Board of Trustees. The Bank's Investment
Officer is responsible for making securities investment portfolio decisions in
accordance with the Bank's policies. While the Investment Officer has the
authority to conduct trades within specific guidelines established by the Bank's
investment policy, all transactions are reviewed by the Investment Committee on
a quarterly basis and reported to the Board of Trustees on a monthly basis.
The Bank's current policies generally limit securities investments to U.S.
Government and agency securities, municipal bonds and corporate debt obligations
and corporate equities. In addition, the Bank's policies permit investments in
mortgage-backed and mortgage related securities, including securities issued and
guaranteed by FNMA, FHLMC, GNMA and privately-issued CMOs. The Bank's current
securities investment strategy is to deemphasize its investment in U.S.
government obligations, corporate debt and municipal bonds and to emphasize the
purchase of mortgage-backed and mortgage related securities and preferred stock
issued by corporate issuers in order to increase its overall investment
securities yield while remaining in short- and medium-term investments for
purposes of interest rate risk management.
At May 31, 1996, the Bank had $1.27 billion in securities, consisting
primarily of U.S. Government and agency obligations, mortgage-backed and
mortgage related securities, municipal, public utility and corporate
obligations, and preferred and common stocks. SFAS No. 115 requires the Bank to
designate its securities as held-to-maturity, available-for-sale or trading
depending on the Bank's intent regarding its investments. The Bank does not
currently maintain a trading portfolio of securities. In accordance with the
Special Report of the FASB regarding SFAS No. 115, in November 1995, the Bank
reclassified $415.3 million of debt securities and $233.4 million of mortgage-
backed and mortgage related
81
<PAGE>
securities from held-to-maturity to available-for-sale. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Comparison of Financial Condition at December 31, 1995 and December 31, 1994.
As of May 31, 1996, $951.3 million of the Bank's securities portfolio, or 53.7%
of total assets was classified as available-for-sale, with an average life of
the portfolio of 3.6 years. At such date, $314.2 million of the Bank's
securities portfolio, or 17.7% of total assets, was classified as held-to-
maturity, with a market value of $311.2 million and an average life of the
portfolio of 2.0 years. Since December 1995, the Bank designates all newly-
purchased securities as available-for-sale.
Mortgage-Backed and Mortgage Related Securities. The Bank purchases
mortgage-backed and mortgage related securities in order to: (i) generate
positive interest rate spreads with minimal administrative expense; (ii) lower
its credit risk as a result of the guarantees provided by FHLMC, FNMA, and GNMA;
(iii) utilize these securities as collateral for borrowings; and (iv) increase
the liquidity of the Bank. The Bank has primarily invested in mortgage-backed
and mortgage related securities issued or sponsored by FNMA, FHLMC and GNMA and
private issuers. The Bank also invests in CMOs issued or sponsored by FNMA and
FHLMC as well as private issuers. At May 31, 1996, mortgage-backed and mortgage-
related securities totalled $831.6 million, or 46.9% of total assets and 49.0%
of total interest earning assets of which $519.4 million was classified as
available-for-sale and $312.2 million was classified as held-to-maturity. At May
31, 1996, 22.8% of the mortgage-backed and mortgage related securities were
adjustable-rate and 77.2% were fixed-rate. The mortgage-backed and mortgage
related securities portfolio had coupon rates ranging from 5.0% to 13.5% and had
a weighted average yield of 6.77% at May 31, 1996. The estimated fair value of
the Bank's mortgage-backed securities available-for-sale at May 31, 1996, was
$519.4 million, which is $7.7 million less than the amortized cost of $527.1
million.
Mortgage-backed securities are created by the pooling of mortgages and
issuance of a security with an interest rate which is less than the interest
rate on the underlying mortgage. 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 FNMA, FHLMC
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 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
prepayments 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 reducing 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. The
Bank estimates prepayments for its mortgage-backed securities at purchase to
ensure that prepayment assumptions are reasonable considering the underlying
collateral for the mortgage-backed securities at issue and current mortgage
interest rates and to determine the yield and estimated maturity of its
mortgage-backed security portfolio. Of the Bank's $831.6 mortgaged-backed
securities portfolio at May 31, 1996, $67.3 million with a weighted average
yield of 5.68% had contractual maturities within five years and $764.3 million
with a weighted average yield of 6.86% had contractual maturities over five
years. However, the actual maturity of a mortgage-backed 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
82
<PAGE>
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 mortgage-backed securities prepay faster than
anticipated, the Bank may not be able to reinvest the proceeds of such
repayments and prepayments at a comparable rate.
At May 31, 1996, the Bank's CMO portfolio totalled $541.5 million, or
30.6%, of total assets and 31.9% of total interest earning assets, consisting of
$377.2 million of CMOs issued by private issuers such as GE Capital Mortgage
Services, Inc., Prudential Home Mortgage Securities, Inc., Residential Funding
Mortgage Securities, Inc. and Citicorp Mortgage Securities, Inc., and $164.3
million issued by government sponsored agencies such as FNMA and FHLMC. It is
the policy of the Bank to limit its privately issued CMOs to non-high risk
securities rated "AAA" by two rating agencies with an average life of seven
years or less. The Bank also limits the amount of such investments to $25
million per transaction, 10% of the issuer's outstanding CMOs and 35% of the
Bank's assets. For government sponsored CMOs, the Bank's policy limits such
investments to non-high risk securities that have an average life of ten years
or less. The Bank also limits the amount of such investments to $50 million per
transaction. The Bank monitors the credit rating of its CMOs on a regular basis.
The current securities investment policy of the Bank prohibits the purchase of
higher risk CMOs, which are defined as those securities exhibiting significantly
greater volatility of estimated average life and price relative to interest
rates than do standard 30-year fixed rate securities. At May 31, 1996, $229.2
million of the Bank's CMO portfolio was classified as available-for-sale and
$312.2 million was classified as held-to-maturity with a market value of $309.1
million. At such date, the Bank's CMO portfolio had an average estimated life of
2.5 years and an average weighted yield of 6.69%. CMOs are a type of debt
security issued by a special purpose entity that aggregates pools of mortgages
and mortgage-backed securities and creates different classes of CMO securities
with varying maturities and amortization schedules as well as a residual
interest with each class possessing different risk characteristics. The cash
flows from the underlying collateral is generally divided into "tranches" or
classes whereby tranches have descending priorities with respect to the
distribution of principal and interest repayment of the underlying mortgages and
mortgage-backed securities as opposed to pass through mortgage-backed securities
where cash flows are distributed pro rata to all security holders. In contrast
to mortgage-backed securities from which cash flow is received (and hence,
prepayment risk is shared) pro rata by all securities holders, the cash flow
from the mortgages or mortgage-backed securities underlying CMOs is paid in
accordance with a predetermined priority to investors holding various tranches
of such securities or obligations. A particular tranche of CMOs may therefore
carry prepayment risk that differs from that of both the underlying collateral
and other tranches. Accordingly, CMOs attempt to moderate reinvestment risk
associated with conventional mortgage-backed securities resulting from
unexpected prepayment activity. Investments in CMOs involve a risk that actual
prepayments will be greater than estimated prepayments over the life of the
security, which may require adjustments to the amortization of any premium
thereby reducing the net yield on such securities. Additionally, the market
value of such securities may be adversely affected by changes in the market
interest rates. Management believes these securities may represent attractive
alternatives relative to other investments due to the wide variety of maturity,
repayment and interest rate options available.
Debt Securities. The Bank's investment in debt securities generally
consists of investments in U.S. Treasury securities and debt securities issued
by government sponsored agencies such as FNMA, GNMA and FHLMC. To a lesser
extent, the Bank invests in debt securities and commercial paper issued by
industrial and financial companies and obligations of municipalities and public
utilities.
U.S. Government and Agency Obligations. At May 31, 1996, the Bank's U.S.
Government securities portfolio totalled $188.8 million, all of which were
classified as available-for-sale. Such
83
<PAGE>
portfolio primarily consists of short- to medium-term (maturities of one to five
years) securities. The Bank's current investment practice, however, is to
deemphasize its investments in such instruments. At May 31, 1996, the Bank's
agency securities portfolio totalled $86.9 million, all of which was classified
as available-for-sale and consisted of agency structured notes and callable
debentures. The agency structured notes generally provide for predetermined
interest rate adjustments ("step-ups") primarily consisting of annual interest
rate increases of 25 to 255 basis points. While such step-up structured notes
generally do not involve credit risk, such securities involves interest rate
risk in the event market interest rates increase at a rate faster than the
structured rate adjustment, which, in turn, may adversely affect the market
value of such investment. The Bank's callable agency debentures generally are
callable on either a quarterly or semi-annual basis following a holding period
of three to six months. The current policy of the Bank limits the purchase of
agency debt obligations to a maturity of thirty years or less and limits such
purchases to $50 million per transaction, although purchases of structured notes
are limited to $20 million per transaction and 10% of the Bank's assets.
Corporate Bonds. The Bank's corporate bond portfolio, which at May 31,
1996, totalled $17.4 million, all of which is classified as available-for-sale,
was composed primarily of short- and medium-term, floating-rate investment grade
issues of General Motors Corporation, U.S. West, Citicorp, Massachusetts
Electric Co. and Phillip Morris, Inc. as well as $2.8 million in public utility
bonds. At May 31, 1996, the portfolio had an average life of approximately 2
years and an average coupon rate of 7.7%. The Bank's policy limits investments
in corporate bonds with maturities of ten years or less to bonds rated "A" or
better by at least one nationally recognized rating agency and to a total
investment of 25% of the Bank's assets, with a 1% limitation of a single issuer.
The Bank's policy limits investments in corporate bonds with maturities between
ten years and thirty years to bonds rated "A" or better by at least one
nationally recognized rating agency and a total investment of no more than 33%
of the Bank's current total corporate investments. Consistent with the Bank's
current securities investment strategy, the Bank intends to deemphasize
investments in corporate debt obligations.
Municipal Bonds. The Bank's municipal bond portfolio, which at May 31,
1996 totalled $1.9 million, had an estimated fair value of $2.1 million. All of
such securities were classified as held-to-maturity and were comprised of
general obligation bonds (i.e., obligations backed by the general credit of the
issuer). All of the Bank's municipal bonds are currently rated "AAA." At May 31,
1996, the Bank's municipal bond portfolio was comprised of 12 bonds, the average
principal amount of which was $1.9 million. At such date the average life of the
portfolio was approximately 3.3 years and the portfolio had an average coupon
rate of 7.4%. Interest earned on municipal bonds is exempt from federal, state
and local income taxes. The Bank's current policy is to deemphasize its
investment in municipal bonds.
Equity Securities. At May 31, 1996, the Bank's equity securities portfolio
totalled $138.8 million all of which were classified as available-for-sale. Such
portfolio consisted of $133.2 million of preferred stock issued by corporate
issuers such as Ford Motor Co., McDonald's and other nationally recognized
companies and $5.0 million of common stock issued by FHLMC. The substantial
majority of the Bank's preferred stock portfolio is redeemable by the issuers
pursuant to the terms of the preferred stock, generally after a three to five
year holding period. As of May 31, 1996, the Bank had $68.4 million of preferred
stock eligible for redemption on or before December 31, 1997. The Bank benefits
from its investment in common and preferred stocks due to a tax deduction the
Bank receives with regard to dividends paid by corporate issuers on equity
securities held by other corporate entities such as the Bank. Accordingly, on an
after tax basis, the yield on the Bank's preferred stock portfolio was 9.89%. At
May 31, 1996, the Bank also had a $600,000 investment in Institutional Investors
Mutual Fund, a common stock mutual fund. The Bank's policy limit for its common
and preferred stock investments is 7.50% of its total assets and allows only for
the purchase of common stock with a 1% limitation on the purchase of any single
issuer and a total investment of 5% of the Bank's total assets. The Bank's
current policies
84
<PAGE>
permit the purchase of preferred stock rated "A" or better, with a 1% limitation
on the purchase of preferred stock of any single issuer. See "Regulation and
Supervision-FDIC Regulations."
85
<PAGE>
The following table sets forth the composition of the Bank's debt and
equity and mortgage-backed and mortgage related securities portfolios in dollar
amounts and in percentages at the dates indicated:
<TABLE>
<CAPTION>
AT MAY 31, AT DECEMBER 31,
------------------------- ------------------------------------------------------
1996 1995 1994
------------------------- ------------------------- -------------------------
PERCENT PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
---------- ------------ ---------- ------------ ---------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Debt securities:
U.S. Government obligations........... $ 188,847 14.92% $ 204,626 17.92% $ 333,234 32.73%
Agency securities..................... 86,856 6.86 34,744 3.04 34,996 3.44
Municipal bonds....................... 1,930 .15 1,930 .17 2,715 .27
Corporate obligations................. 14,678 1.16 18,384 1.61 75,680 7.43
Other debt obligations(1)............. 2,770 .22 2,799 .25 19,579 1.92
---------- ------ ---------- ------ ---------- ------
Total debt securities.............. 295,081 23.31 262,483 22.99 466,204 45.79
---------- ------ ---------- ------ ---------- ------
Equity securities:
Preferred stock....................... 133,212 10.53 113,768 9.96 86,305 8.48
Common stock.......................... 5,569 .44 5,010 .44 3,482 .34
---------- ------ ---------- ------ ---------- ------
Total equity securities............ 138,781 10.97 118,778 10.40 89,787 8.82
---------- ------ ---------- ------ ---------- ------
Mortgage-backed and mortgage related
securities:
FHLMC................................. 141,861 11.21 116,267 10.18 86,044 8.45
GNMA.................................. 141,385 11.17 113,616 9.95 36,185 3.56
FNMA.................................. 6,925 .55 27,299 2.39 45,580 4.48
CMOs.................................. 541,461 42.79 503,516 44.09 294,243 28.90
---------- ------ ---------- ------ ---------- ------
Total mortgage-backed and mortgage
related securities................. 831,632 65.72 760,698 66.61 462,052 45.39
---------- ------ ---------- ------ ---------- ------
Total securities................ 1,265,494 100.00% 1,141,959 100.00% 1,018,043 100.00%
========== ====== ========== ====== ========== ======
Debt and equity securities
available-for-sale................. 431,932 34.13 379,331 33.22 89,787 8.82
Debt and equity securities
held-to-maturity................... 1,930 .15 1,930 .17 466,204 45.79
---------- ------ ---------- ------ ---------- ------
Total debt and equity
securities........................ 433,862 34.28 381,261 33.39 555,991 54.61
---------- ------ ---------- ------ ---------- ------
Mortgage-backed and mortgage related
securities available-for-sale...... 519,399 41.05% 413,485 36.20% 50,711 4.98%
Mortgage-backed and mortgage related
securities held-to-maturity........ 312,233 24.67 347,213 30.41 411,341 40.41
---------- ------ ---------- ------ ---------- ------
Total mortgage-backed and mortgage
related securities................. 831,632 65.72 760,698 66.61 462,052 45.39
---------- ------ ---------- ------ ---------- ------
Total securities................... $1,265,494 100.00% $1,141,959 100.00% $1,018,043 100.00%
========== ====== ========== ====== ========== ======
- ------------------
<CAPTION>
-----------------------
1993
-----------------------
PERCENT
AMOUNT OF TOTAL
---------- ------------
<S> <C> <C>
Debt securities:
U.S. Government obligations........... $ 375,357 37.67%
Agency securities..................... 39,995 4.01
Municipal bonds....................... 3,235 .33
Corporate obligations................. 78,075 7.83
Other debt obligations(1)............. 34,140 3.43
--------- ------
Total debt securities.............. 530,802 53.27
---------
Equity securities:
Preferred stock....................... 65,581 6.58
Common stock.......................... 717 .07
--------- ------
Total equity securities............ 66,298 6.65
--------- ------
Mortgage-backed and mortgage related
securities:
FHLMC................................. 86,013 8.63
GNMA.................................. 41,588 4.17
FNMA.................................. - -
CMOs.................................. 271,816 27.28
--------- ------
Total mortgage-backed and mortgage
related securities................. 399,417 40.08
--------- ------
Total securities................. 996,517 100.00%
========= ======
Debt and equity securities
available-for-sale................. -
Debt and equity securities
held-to-maturity................... 597,100 59.92
--------- ------
Total debt and equity
securities........................ 597,100 59.92
--------- ------
Mortgage-backed and mortgage related
securities available-for-sale...... - -
Mortgage-backed and mortgage related
securities held-to-maturity........ 399,417 40.08
--------- ------
Total mortgage-backed and mortgage
related securities................. 399,417 40.08
--------- ------
Total securities................... $996,517 100.00%
======== ======
</TABLE>
_____________
(1) Includes public utility, Canadian and industrial bonds.
86
<PAGE>
The following table sets forth the Bank's securities activities for the
periods indicated:
<TABLE>
<CAPTION>
FOR THE FIVE MONTHS FOR THE YEAR
ENDED MAY 31, ENDED DECEMBER 31,
----------------------- ----------------------------------------
1996 1995 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BEGINNING BALANCE................................. $1,141,959 $1,018,043 $1,018,043 $ 996,517 $ 921,042
---------- ---------- ---------- ---------- ---------
Debt securities purchased - held
to maturity...................................... - 88,018 176,308 24,807 174,422
Debt securities purchased - available-for-
sale............................................. 92,384 - 2,002 - -
Equity securities purchased - held-to-maturity.... - - - - 38,878
Equity securities purchased - available-for-sale.. 34,849 10,745 32,957 37,470 -
Mortgage-backed and mortgage related
securities purchased - held-to-maturity........ - 60,878 240,702 109,433 246,373
Mortgage-backed and mortgage related
securities purchased - available-for-sale......... 178,190 37,625 190,564 54,000 -
LESS:
Sale of debt securities - available-for-sale...... - - 112,077 - -
Sale of debt securities - held-to-maturity........ - 19,970 60,022 46,062 75,012
Sale of equity securities - available-for-sale.... 12,180 687 11,077 5,164 -
Sale of equity securities - held-to-maturity...... - - - - 10,693
Sale of mortgage-backed and mortgage 19,657 8,880 48,463 - -
related securities available-for-sale..........
Principal repayments on mortgage-backed 75,905 23,138 91,987 100,381 223,002
and mortgage related securities..................
Maturities of debt securities..................... 52,393 34,913 218,757 44,542 78,058
Realized gains (losses) received on sales
of mortgage-backed and mortgage related
securities....................................... 28 85 904 - -
Realized and unrealized gains (losses)
on debt and equity
securities........................................ (285) (843) (1,715) (1,181) 3,123
Accretion of discount/Amortization of
(premium)........................................ 439 (632) (962) (2,076) (556)
Change in net unrealized gains (losses)
on available-for-sale securities................. (21,935) 10,717 25,539 (4,778) -
---------- ---------- ---------- ---------- --------
ENDING BALANCE.................................... $1,265,494 $1,137,048 $1,141,959 $1,018,043 $996,517
========== ========== ========== ========== ========
</TABLE>
87
<PAGE>
The following table sets forth certain information regarding the amortized
cost and market values of the Bank's debt and equity and mortgage-backed and
mortgage related securities, at the dates indicated:
<TABLE>
<CAPTION>
AT MAY 31, AT DECEMBER 31,
----------------------------------------------------------------------
1996 1995 1994 1993
---------------------- ---------------------- -------------------------- -----------
AMORTIZED MARKET AMORTIZED MARKET AMORTIZED MARKET AMORTIZED
COST VALUE COST VALUE COST VALUE COST
--------- --------- ---------- ---------- ----------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Debt securities
held-to-maturity:
U.S. Government
obligations............ $ - $ - $ - $ - $ 333,234 $ 326,163 $ 375,357
Agency securities....... - - - - 34,996 33,539 39,995
Municipal bonds......... 1,930 2,086 1,930 2,151 2,715 2,867 3,235
Corporate obligations... - - - - 75,680 73,343 78,075
Other debt
obligations(2)......... - - - - 19,579 18,786 34,140
---------- ---------- ---------- ---------- ---------- -------- --------
Total debt securities
held-to-maturity.......... 1,930 2,086 1,930 2,151 466,204 454,698 530,802
---------- ---------- ---------- ---------- ---------- -------- --------
Debt securities
available-for-sale:
U.S. Government
obligations............ 185,658 188,847 195,701 204,626 - - -
Agency securities....... 88,556 86,856 34,764 34,744 - - -
Corporate obligations... 14,409 14,678 17,838 18,384 - - -
Other debt
obligations(3)......... 2,745 2,770 2,742 2,799 - - -
---------- ---------- ---------- ---------- ---------- -------- --------
Total debt securities
available-for-sale..... 291,368 293,151 251,045 260,553 - - -
---------- ---------- ---------- ---------- ---------- -------- --------
Equity securities
held-to-maturity:
Preferred stock......... - - - - - - 65,581
Common stock............ 717
---------- ---------- ---------- ---------- ---------- -------- --------
Total equity
securities held-to-
maturity............. - - - - - - 66,298
---------- ---------- ---------- ---------- ---------- -------- --------
Equity securities
available-for-sale:
Preferred stock......... 133,188 133,212 111,896 113,766 92,634 86,305 -
Common stock............ 860 5,569 259 5,012 717 3,482 -
---------- ---------- ---------- ---------- ---------- -------- --------
Total equity securities
available-for-sale......... 134,048 138,781 112,155 118,778 93,351 89,787 -
---------- ---------- ---------- ---------- ---------- -------- --------
Total debt and equity
securities................ 427,346 434,018 365,130 381,482 559,555 544,485 597,100
---------- ---------- ---------- ---------- ---------- -------- --------
Mortgage-backed and mort-
gage related securities:
Held-to-maturity:
FHLMC............... - - - - 57,288 52,167 86,013
GNMA................ - - - - 28,319 29,043 41,588
FNMA................ - - - - 31,491 28,598 -
CMOs................ 312,233 309,068 347,213 348,799 294,243 284,662 271,816
---------- ---------- ---------- ---------- ---------- -------- --------
Total mortgage-backed and
mortgage related securi-
ties held-to-maturity..... 312,233 309,068 347,213 348,799 411,341 394,470 399,417
---------- ---------- ---------- ---------- ---------- -------- ---------
Available-for-sale:
FHLMC............... 146,761 141,861 116,100 116,267 29,351 28,756 -
GNMA................ 139,451 141,385 109,966 113,616 8,103 7,866 -
FNMA................ 7,197 6,925 27,689 27,299 14,471 14,089 -
CMOs................ 233,679 229,228 155,100 156,303 - - -
---------- ---------- ---------- ---------- ---------- -------- --------
Total mortgage-backed and
mortgage related securi-
ties available-for-sale.. 527,088 519,399 408,855 413,485 51,925 50,711 -
---------- --------- ---------- --------- --------- -------- --------
Total mortgage-backed and
mortgage related
securities............... 839,321 828,467 756,068 762,284 463,266 445,181 399,417
---------- ---------- ---------- ---------- ---------- -------- --------
Net unrealized (losses) gains
on available-for-sale
securities.............. (1,173) - 20,761 - (4,778) - -
---------- ---------- ---------- ---------- ---------- -------- --------
Total securities........... $1,265,494 $1,262,485 $1,141,959 $1,143,766 $1,018,043 $989,666 $996,517
========== ========== ========== ========== ========== ======== ========
<CAPTION>
1993(1)
-----------
MARKET
VALUE
-----------
<S> <C>
Debt securities
held-to-maturity:
U.S. Government
obligations........ $ 394,872
Agency securities....... 40,480
Municipal bonds......... 3,586
Corporate obligations... 80,015
Other debt
obligations(2)......... 34,977
Total debt securities ----------
held-to-maturity....... 553,930
Debt securities ----------
available-for-sale:
U.S. Government
obligations............ -
Agency securities....... -
Corporate obligations... -
Other debt
obligations(3)......... -
----------
Total debt securities
available-for-sale..... -
----------
Equity securities
held-to-maturity:
Preferred stock......... 67,513
Common stock............ 3,550
----------
Total equity
securities held-to-
maturity............. 71,063
----------
Equity securities
available-for-sale:
Preferred stock......... -
Common stock............ -
----------
Total equity securities
available-for-sale......... -
----------
Total debt and equity
securities................ 624,993
----------
Mortgage-backed and
mortgage related
securities:
Held-to-maturity:
FHLMC............... 86,323
GNMA................ 44,881
FNMA................ -
CMOs................ 274,734
----------
Total mortgage-backed and
mortgage related
securities
held-to-maturity.......... 405,938
----------
Available-for-sale:
FHLMC............... -
GNMA................ -
FNMA................ -
CMOs................ -
----------
Total mortgage-backed
and mortgage
related
securities
available-for-sale.
Total mortgage-backed and
mortgage
related securities....... 405,938
----------
Net unrealized (losses)
gains
on available-for-sale
securities.............. -
----------
Total securities........... $1,030,931
==========
</TABLE>
_______________________________
(1) The Bank adopted the provisions set forth in SFAS No. 115 on January 1,
1994, which requires entities to carry securities that are available-for-
sale at their market value.
(2) At May 31, 1996 and December 31, 1995, these securities include public
utilities. At December 1994, these securities consist of public utility
bonds and Canadian bonds and at December 1993, these securities include
public utility bonds, Canadian bonds and industrial bonds.
88
<PAGE>
The table below sets forth certain information regarding the carrying
value, weighted average yields and contractual maturities of the Bank's
securities portfolio as of May 31, 1996.
<TABLE>
<CAPTION>
AT MAY 31, 1996
---------------------------------------------------------------------------------------------------------
MORE THAN ONE MORE THAN FIVE
ONE YEAR OR LESS YEAR TO FIVE YEARS YEARS TO TEN YEARS MORE THAN TEN YEARS
---------------------- ------------------------ ------------------------ ----------------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE
VALUE YIELD VALUE YIELD VALUE YIELD VALUE YIELD
----------- --------- ---------- ----------- ---------- ----------- ----------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Held-to-maturity:
Municipal bonds........... $ - -% $ 1,860 7.39% $ 70 7.71% $ - -%
Mortgage-backed and
mortgage
related.................. - - 9,515 5.72 28,432 6.36 274,286 6.86
------- -------- -------- --------
Total held-to-maturity... - - 11,375 5.99 28,502 6.37 274,286 6.86
------- -------- -------- --------
Available-for-sale:
Mortgage-backed and
mortgage related
securities:
FHLMC.................... - - 46,519 5.68 - - 95,342 7.12
GNMA..................... - - 948 5.64 3,316 8.76 137,120 7.18
FNMA..................... - - 6,925 5.68 - - - -
CMOs..................... - - 3,455 5.61 36,920 6.38 188,853 6.63
------- -------- -------- --------
Total mortgage-backed
and mortgage related
securities............. - - 57,847 5.67 40,236 6.58 421,315 6.92
------- -------- -------- --------
Debt Securities:
U.S. Government
obligations............. 30,200 6.79 142,869 7.14 15,778 7.46 - -
Agency securities.......... - - 23,700 6.26 63,156 6.61 - -
Corporate obligations...... 1,005 7.65 12,423 8.02 1,250 6.50 - -
Other debt obligations(1).. 2,770 8.39 - - - - - -
------- -------- -------- --------
Total debt securities..... 33,975 6.94 178,992 7.09 80,184 6.78 - -
------- -------- --------
Equity Securities:
Preferred stock............ - - - - - - - -
Common stock............... - - - - - - - -
------- -------- -------- --------
Total equity securities... - - - - - - - -
------- -------- -------- --------
Total available-for-sale 33,975 6.94% 236,839 6.74% 120,420 6.71% 421,315 6.92%
------- -------- -------- --------
Total securities........... $33,975 $248,214 $148,922 $695,601
======= ======== ======== ========
<CAPTION>
AT MAY 31,1996
-----------------------------
TOTAL
-----------------------------
WEIGHTED
CARRYING AVERAGE
VALUE YIELD
----------- ----------
Held-to-maturity: <C> <C>
Municipal bonds........... $ 1,930 7.40%
Mortgage-backed and ---------- 6.78
mortgage
related.................. 312,233
----------
Total held-to-maturity... 314,163 6.78
----------
Available-for-sale:
Mortgage-backed and
mortgage related
securities:
FHLMC.................... 141,861 6.65
GNMA..................... 141,385 7.23
FNMA..................... 6,925 5.68
CMOs....................... 229,228 6.57
----------
Total mortgage-backed
and mortgage related
securities............. 519,399 6.76
----------
Debt Securities:
U.S. Government
obligations............. 188,847 7.11
Agency securities.......... 86,856 6.52
Corporate obligations...... 14,678 7.87
Other debt obligations(1).. 2,770 8.39
----------
Total debt securities...... 293,151 6.98
Equity Securities: ----------
Preferred stock............ 133,212 7.20
Common stock............... 5,569 29.04
----------
Total equity securities.... 138,781 8.08
----------
Total available-for-sale 951,331 7.02%
----------
Total securities........... $1,265,494
==========
</TABLE>
- ---------------------
(1) Other debt obligations consist of public utility bonds.
89
<PAGE>
SOURCES OF FUNDS
General. Deposits, repayments and prepayments of loans and securities,
proceeds from sales of loans and 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. To a lesser
extent, the Bank utilizes borrowed funds, primarily reverse-repurchase
agreements to fund its operations.
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, checking accounts, money market accounts, school savings and club
accounts and certificates of deposit accounts. The Bank offers certificate of
deposit accounts with balances in excess of $100,000 at preferential rates
(jumbo certificates) and also offers Individual Retirement Accounts ("IRAs") and
other qualified plan accounts. To enhance the deposit products it offers and
increase its market share, in 1995, the Bank added commercial checking accounts
for small- to moderately-sized commercial businesses, a payroll accounts service
with direct deposit features, as well as a low-cost checking account service for
low-income customers.
At May 31, 1996, the Bank's deposits totalled $1.44 billion or 97.2% of
interest-bearing liabilities. For the five months ended May 31, 1996, the
average balance of core deposits (savings, NOW, money market and non-interest-
bearing checking accounts) totalled $580 million, or 41.8% of total average
deposits. At May 31, 1996, the Bank had a total of $871.9 million in
certificates of deposit, of which $688.2 million had maturities of one year or
less reflecting the shift in deposit accounts from savings accounts to shorter-
term certificate accounts that has occurred in recent years. For the year ended
December 31, 1993, the average balance of core deposits represented
approximately 65.1% of total deposits and certificate accounts represented
34.9%, as compared to core deposits representing 41.8% of total deposits and
certificate accounts representing 58.2% of deposits for the five months ended
May 31, 1996. See "Risk Factors - Sensitivity to Increases in Interest Rates."
Although the Bank has a significant portion of its deposits in shorter term
certificates of deposit, management monitors activity on the Bank's certificate
of deposit 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. The Bank's deposits are obtained predominantly from the areas in
which its 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. In
addition, the Bank has historically paid a special interest payment on savings
and NOW accounts, ranging from 10% to 25% of interest paid on the savings
accounts during the year. For the year ended December 31, 1995, the Bank paid a
special interest payment of 25% of interest paid on savings and NOW accounts,
which totalled $3.0 million. While it is the present intention of the Bank to
pay a special interest payment on savings and NOW accounts for the year ended
December 31, 1996, the Bank has made no decision as to the amount of such
special interest payment or whether such special payments will continue after
1996. The Bank uses traditional means of advertising its deposit products,
including radio and print media and generally does not solicit deposits from
outside its market area. While certificate accounts in excess of $100,000 are
accepted by the Bank, and may be subject to preferential rates, the Bank does
not actively solicit such deposits as such deposits are more difficult to retain
than core deposits. Although the Bank has historically not used brokers to
obtain deposits, the Bank has authorized the utilization of brokers to obtain
deposits to fund its activities and has recently entered into a relationship
with a nationally recognized retail brokerage firm to accept deposits sold by
such brokerage firm. The Bank intends to use such brokered deposits to fund
investments in securities with durations which match the maturities of such
brokered
90
<PAGE>
deposits. The Bank's policies limit the amount of brokered deposits which the
Bank may have at any time to 10% of total retail deposits. At May 31, 1996, the
Bank had no brokered deposits.
The following table presents the deposit activity of the Bank for the
periods indicated.
<TABLE>
<CAPTION>
FOR THE FIVE
MONTHS
ENDED MAY 31, FOR THE YEAR ENDED DECEMBER 31,
-------------------- -------------------------------
1996 1995 1995 1994 1993
-------- -------- -------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net deposits (withdrawals)............. $ 84,030 $23,901 $ 58,840 $37,903 $(32,610)
Interest credited on deposit accounts.. 22,265 18,414 57,192 40,050 39,632
-------- ------- -------- ------- --------
Total increase in deposit accounts..... $106,295 $42,315 $116,032 $77,953 $ 7,022
======== ======= ======== ======= ========
</TABLE>
At May 31, 1996, the Bank had outstanding $140.7 million in certificate of
deposit accounts in amounts of $100,000 or more, maturing as follows:
<TABLE>
<CAPTION>
WEIGHTED
MATURITY PERIOD AMOUNT AVERAGE RATE
------------------------------ --------- --------------
<S> <C> <C>
(DOLLARS IN THOUSANDS)
Three months or less........... $ 53,426 5.39%
Over three through six months.. 27,764 5.34
Over six through 12 months..... 33,846 5.59
Over 12 months................. 25,631 6.40
--------
Total.......................... $140,667 5.61%
========
</TABLE>
91
<PAGE>
The following table sets forth the distribution of the Bank's average
deposit accounts for the periods indicated and the weighted average interest
rates on each category of deposits presented. Averages for the periods
presented utilize average daily balances.
<TABLE>
<CAPTION>
For the Five Months
Ended May 31, For the Year Ended December 31,
----------------------------------- ----------------------------------
1996 1995
----------------------------------- ----------------------------------
Percent Percent
of Total Weighted of Total Weighted
Average Average Average Average Average Average
Balance Deposits Rate Balance Deposits Rate
----------- ----------- --------- ---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Money market accounts......... $64,051 4.62% 2.88% $69,237 5.41% 2.90%
Savings accounts(1)........... 445,015 32.09 3.21 473,682 36.99 3.21
NOW accounts(2)............... 35,163 2.54 2.55 33,135 2.59 2.53
Non-interest-bearing
accounts..................... 35,908 2.59 - 26,901 2.10 -
---------- ------ ---------- ------
Total......................... 580,137 41.84 2.96 602,955 47.09 2.99
---------- ------ ---------- ------
Certificates of deposit:
Less than six months.......... 153,775 11.09 5.10 119,414 9.33 5.28
Over six through 12 months.... 292,008 21.05 5.52 238,283 18.60 5.76
Over 12 through 24 months..... 82,252 5.93 5.73 74,302 5.80 5.62
Over 24 months................ 149,357 10.77 6.45 147,580 11.53 6.51
Certificates over $100,000.... 129,192 9.32 5.66 97,931 7.65 5.90
---------- ------ ---------- ------
Total certificates of
deposit................... 806,584 58.16 5.66 677,510 52.91 5.84
---------- ------ ---------- ------
Total average deposits... $1,386,721 100.00% 4.53 $1,280,465 100.00% 4.50
========== ====== ========== ======
<CAPTION>
For the Year Ended December 31,
---------------------------------------------------------------------------
1994 1993
------------------------------------- -----------------------------------
Percent Percent
of Total Weighted of Total Weighted
Average Average Average Average Average Average
Balance Deposits Rate Balance Deposits Rate
----------- ------------------- --------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Money market accounts......... $83,482 7.12% 2.43% $91,606 8.08% 2.45%
Savings accounts(1)........... 605,797 51.65 2.93 597,191 52.67 3.26
NOW accounts(2)............... 33,248 2.83 2.47 30,012 2.65 2.85
Non-interest-bearing 20,357 1.74 - 18,948 1.67 -
accounts..................... ---------- ------ ---------- ------
Total......................... 742,884 63.34 2.77 737,757 65.07 3.06
---------- ------ ---------- ------
Certificates of deposit:
Less than six months.......... 98,683 8.41 3.29 119,432 10.53 3.04
Over six through 12 months.... 102,913 8.77 3.61 99,757 8.80 3.54
Over 12 through 24 months..... 48,424 4.13 4.48 37,153 3.28 4.26
Over 24 months................ 121,376 10.35 6.52 88,214 7.78 6.88
Certificates over $100,000.... 58,626 5.00 4.45 51,484 4.54 3.95
---------- ------ ---------- ------
Total certificates of
deposit..................... 430,022 36.66 4.57 396,040 34.93 4.25
---------- ------ ---------- ------
Total average deposits...... $1,172,906 100.00% 3.43 $1,133,797 100.00% 3.48
========== ====== ========== ======
</TABLE>
___________________
(1) Reflects special interest payment made by the Bank on such accounts which
for the five month period ended May 31, 1996 and years ended December 31,
1995, 1994 and 1993, which resulted in an increased cost of such accounts
of 63 basis points, 61 basis points, 46 basis points and 52 basis points,
respectively.
(2) Reflects special interest payment made by the Bank on such accounts which
for the five month period ended May 31, 1996 and years ended December 31,
1995, 1994 and 1993, which resulted in an increased cost of such accounts
of 50 basis points, 49 basis points, 39 basis points and 44 basis points,
respectively.
92
<PAGE>
The following table presents, by various rate categories, the amount of
certificate of deposit accounts outstanding at the dates indicated.
<TABLE>
<CAPTION>
PERIOD TO MATURITY FROM MAY 31, 1996 AT DECEMBER 31,
--------------------------------------------------------------- ---------------------------
LESS
THAN ONE TO TWO TO
ONE TWO THREE THREE TO FOUR TO FIVE YEARS AT
YEAR YEARS YEARS FOUR YEARS FIVE YEARS OR MORE MAY 31, 1996 1995 1994 1993
------- ------- ------- ---------- ----------- ---------- ------------ ------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Certificates of deposit:
0 to 4.00%................ $ 475 $ - $ 56 $ 2 $ - $ 39 $ 572 $ 3,720 $108,015 $253,446
4.01 to 5.00%............. 65,792 1,108 1,133 - - - 68,033 18,094 131,208 37,947
5.01 to 6.00%............. 563,758 54,971 23,332 728 7,466 1,696 651,951 464,858 142,642 31,834
6.01 to 7.00%............. 47,439 3,804 2,104 47,633 12,474 8,485 121,939 225,343 97,811 26,028
7.01 to 8.00%............. 4,116 8 28 3,552 678 1,642 10,024 12,762 13,621 14,765
8.01 to 9.00%............. 2,309 1,634 825 4,867 5,319 39 14,993 14,704 14,500 15,521
Over 9.01%................ 4,355 - - 6 3 - 4,364 10,294 9,640 8,951
-------- ------- ------- ------- ------- ------- -------- -------- -------- --------
Total................... $688,244 $61,525 $27,478 $56,788 $25,940 $11,901 $871,876 $749,775 $517,437 $388,492
======== ======= ======= ======= ======= ======= ======== ======== ======== ========
</TABLE>
93
<PAGE>
Borrowed Funds. At May 31, 1996, the Bank had $69.6 million of borrowed
funds which primarily consisted of outstanding reverse-repurchase agreements
entered into with nationally recognized securities brokerage firms. Reverse-
repurchase agreements are contracts for the sale of securities owned or borrowed
by the Bank with an agreement to repurchase those securities at an agreed upon
price and date. Historically, the Bank has entered into reverse-repurchase
agreements as a method of providing the Bank with cost effective funding in
periods where its needs for funds exceeded the amount of funds provided by its
deposit gathering activities. Currently, the Bank utilizes such reverse-
repurchase agreements in periods when the Bank can generate securities
investments with yields in excess of its cost of such borrowing. The Bank's
policies limit the Bank's use of reverse-repurchase agreements to maturities of
overnight to five years, with collateral consisting of U.S. Treasury
obligations, U.S. agency obligations or GNMAs. Securities brokers utilized by
the Bank in these agreements must have a minimum of $100 million of "net" excess
capital with a Public Securities Association Master repurchase agreement on
file. There were no reverse-repurchase agreements outstanding as of December 31,
1995, although the Bank averaged approximately $22.3 million pursuant to such
agreements during the year ended December 31, 1995. At May 31, 1996, $2.5
million of RFI's mortgage loans were pledged to secure notes payable to FNMA
under a warehouse line of credit known as the FNMA "As Soon As Pooled Plus
Program." These notes are repaid as the related mortgage loans are sold or
collected.
The following table sets forth certain information regarding borrowed funds
for the dates indicated:
<TABLE>
<CAPTION>
For the Five Months For the Year Ended December 31,
Ended May 31,
--------------------- -------------------------------
1996 1995 1995 1994 1993
---------- -------- ------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
FNMA warehouse line of credit:
Average Balance Outstanding............... $ 3,532 $ - $ 2,053 $ - $ -
Maximum amount outstanding at any month
end during the period................... 2,455 - 5,734 - -
Balance outstanding at end of period...... 2,455 - 1,647 - -
Weighted average interest rate during
the period.............................. 5.71% - 6.04% - -
Weighted average interest rate at end of
period.................................. 6.43% - 6.84% - -
Reverse repurchase agreements:
Average Balance Outstanding............... $37,509 $26,276 $22,292 - $ 5,527
Maximum amount outstanding at any month
end during the period................... 68,392 40,700 40,850 - 40,030
Balance outstanding at end of period...... 67,143 40,700 - - -
Weighted average interest rate during
the period.............................. 5.41% 6.39% 6.42% - 3.29%
Weighted average interest rate at end of
period................................. 5.36% 6.37% - - -
Total borrowed funds:
Average Balance Outstanding............... $41,041 $26,276 $24,345 $ - $ 5,527
Maximum amount outstanding at
any month end during the period........ 70,847 40,700 46,584 - 40,030
Balance outstanding at end
of period............................... 69,598 40,700 1,647 - -
Weighted average interest rate
during the period...................... 5.44% 6.39% 6.38% - 3.29%
Weighted average interest rate at
end of period.......................... 5.44% 6.37% 6.84% - -
</TABLE>
94
<PAGE>
SAVINGS BANK LIFE INSURANCE
The Bank, through its Savings Bank Life Insurance ("SBLI") department,
engages in group life insurance coverage per individual under SBLI's Financial
Institution Group Life Insurance policy. The SBLI Department's activities are
segregated from the Bank and, while they do not directly affect the Bank's
earnings, management believes that offering SBLI is beneficial to the Bank's
relationship with its depositors and the general public. The SBLI Department
pays its own expenses and reimburses the Bank for expenses incurred on its
behalf.
SUBSIDIARY ACTIVITIES
Residential First, Inc. RFI is the Bank's wholly owned mortgage banking
subsidiary which was established in August 1995 for the origination, sale and
servicing of one- to four-family loans. RFI was formed in connection with the
Bank's acquisition of certain assets and liabilities of Residential Mortgage
Banking, Inc., a mortgage banking entity operating in the New York and New
Jersey counties in and surrounding the New York City metropolitan area and
Albany, New York. The consideration paid for the assets and liabilities of
RMBI, including a $623.0 million loan servicing portfolio, exceeded the
estimated fair market value of the net assets acquired by approximately $3.5
million, which was recorded by RFI as goodwill and is being amortized on a
straight line basis over a ten year period. RFI is operated under the direction
of its executive officers who are the co-founders of RMBI and who are overseen
by RFI's Board of Directors which consists of certain members of the Board of
Trustees of the Bank and the President and Executive Vice President of RFI. In
addition to being authorized to operate as a mortgage banking company in New
York and New Jersey, RFI is authorized to conduct mortgage banking activities in
Connecticut. For a discussion of RFI's activities, see "Business of the Bank -
Lending Activities - Loan Sale, Servicing and Mortgage Banking Activities."
RSB Agency, Inc. RSB Agency, Inc., a wholly-owned subsidiary of the Bank
incorporated in 1983, previously engaged in the sale of life insurance. RSB
Agency, Inc. is currently inactive except for its collection of commissions for
previously-issued life insurance policies.
Other Subsidiaries. The Bank has five other wholly-owned subsidiaries.
Blizzard Realty Corp., 1400 Corp. and BSR 1400 Corp. are periodically used to
hold real estate owned. Residential Mortgage Banking, Inc. was established to
preserve the name thereof for future use. Old Northern Co. Ltd. currently is an
inactive subsidiary.
COMPETITION
The Bank faces significant competition both in making loans and in
attracting deposits. The New York City metropolitan area has a high density of
financial institutions, many of which are branches of significantly larger
institutions which have greater financial resources than the Bank, and all of
which are competitors of the Bank to varying degrees. The Bank's competition
for loans comes principally from savings banks, commercial banks, savings and
loan associations, mortgage banking companies, credit unions and insurance
companies and other financial service companies. Its most direct competition
for deposits has historically come from savings and loan associations, savings
banks, commercial banks and credit unions. The Bank faces additional
competition for deposits from non-depository competitors such as the mutual fund
industry, securities and brokerage firms and insurance companies. Competition
may also increase as a result of the lifting of restrictions on the interstate
operations of financial institutions.
95
<PAGE>
PROPERTIES
The Bank currently conducts its business through six full service banking
offices. In addition, RFI conducts its business through the Bank's banking
offices as well as six mortgage origination offices. The following table sets
forth the Bank's and RFI's offices as of May 31, 1996 and does not include the
two branch office facilities which the Bank plans to acquire subsequent to such
date, which are expected to open in November 1996.
<TABLE>
<CAPTION>
ORIGINAL NET BOOK VALUE
YEAR OF PROPERTY OR
LEASED LEASED DATE OF LEASEHOLD
OR OR LEASE IMPROVEMENTS AT
LOCATION OWNED ACQUIRED EXPIRATION MAY 31, 1996
- ---------------------------------- ----------- ------------ -------------- ---------------
<S> <C> <C> <C> <C>
ADMINISTRATIVE/HOME OFFICE: (In thousands)
Roslyn Office: Owned 1932 Not Applicable $4,368
1400 Old Northern Blvd.
Roslyn, NY 11576
BRANCH OFFICES:
West Hempstead Office: Owned 1965 Not Applicable $934
50 Hempstead Turnpike
West Hempstead, NY 11552
Farmingdale Office: Owned 1968 Not Applicable $704
14 Conklin Street
Farmingdale, NY 11567
Bellmore Office: Owned 1972 Not Applicable $748
2641 Merrick Road
Bellmore, NY 11710
Woodbury Office(1): Leased 1976 2009** $790
8081 Jericho Turnpike
Woodbury, NY 11797
East Northport Office: Owned 1992 Not Applicable $1,881
580 Larkfield Road
East Northport, NY 11731
ADMINISTRATIVE OFFICE:
Port Washington Office: Owned 1996 Not Applicable $1,612
Two Seaview Blvd.
Port Washington, NY 11050
RFI MORTGAGE ORIGINATION OFFICES:
Hauppauge Office: Leased 1986 1996 -
350 Motor Parkway
Hauppauge, NY 11788
East Meadow Office: Leased 1992 month to -
325 Merrick Avenue month
East Meadow, NY 11554
Albany Office: Leased 1992 1996 -
427 New Karner Road
Albany, NY 12205
Bayside Office: Leased 1993 1998 -
218-15 Northern Blvd.
Bayside, NY 11361
</TABLE>
96
<PAGE>
<TABLE>
<CAPTION>
ORIGINAL NET BOOK VALUE
YEAR OF PROPERTY OR
LEASED LEASED DATE OF LEASEHOLD
OR OR LEASE IMPROVEMENTS AT
LOCATION OWNED ACQUIRED EXPIRATION MAY 31, 1996
- ---------------------------------- ----------- ------------ -------------- ---------------
<S> <C> <C> <C> <C>
Shrewsbury Office: Leased 1993 1998 -
1 Revmont Dr. No., Rt. 35
Shrewsbury, NJ 07702
Parsippany Office: Leased 1995 1996 -
140 Littleton Road
Parsippany, NJ 07054
</TABLE>
______________________________
(1) The Bank owns the building but leases the majority portion of the land.
The Bank has the option to renew the lease upon expiration for two (2)
additional consecutive terms of thirty-three (33) years each.
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 and results of operations of the Bank.
PERSONNEL
As of May 31, 1996, the Bank and RFI had 303 full-time employees and 77
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 Holding Company and the Bank will report their income on a
consolidated basis, using a calendar year and the accrual method of accounting
and will be subject to federal income taxation in the same manner as other
corporations with some exceptions, including particularly the Bank's addition to
its reserve for bad debts discussed below. The following discussion of tax
matters is intended only as a summary and does not purport to be a comprehensive
description of the tax rules applicable to the Bank or the Holding Company. The
Bank had been audited by the IRS for the year ended December 31, 1991 resulting
in no change to taxable income. The Bank was also audited by the State of New
York for the three-year period ended December 31, 1993, resulting in adjustments
which were immaterial to the Bank's financial statements. RFI has not been
audited by the IRS, the State of New York or New York City to date.
Bad Debt Reserves. Savings institutions such as the Bank which meet
certain definitional tests primarily relating to their assets and the nature of
their business ("qualifying thrifts") are permitted to establish a reserve for
bad debts and to make annual additions thereto, which additions may, within
specified formula limits, be deducted in arriving at their taxable income. The
Bank's deduction with respect to "qualifying loans," generally loans secured by
certain interests in real property, may be
97
<PAGE>
computed using the experience method, or a percentage equal to 8% of the Bank's
adjusted taxable income. Use of the percentage of taxable income method of
calculating its deductible addition to its bad debt reserve has the effect of
reducing the marginal rate of tax to 32.2% exclusive of any minimum or
environmental tax, as compared to the generally applicable maximum corporate
federal income tax rate of 35%. The Bank's deduction with respect to non-
qualifying loans must be computed under the experience method which essentially
allows a deduction for actual charge-offs. Any deduction for the addition to
the reserve for non-qualifying loans reduces the addition to the reserve for
qualifying real property loans calculated under the percentage of taxable income
method.
The Bank presently satisfies the qualifying thrift definitional tests. If
the Bank did not satisfy such tests, the Bank would be required to deduct bad
debts as they occur and would additionally be required to recapture its bad debt
reserve ratably over a multi-year period. Among other things, the qualifying
thrift definitional tests require the Bank to hold at least 60% of its assets as
"qualifying assets." Qualifying assets generally include cash, obligations of
the United States or any agency or instrumentality thereof, certain obligations
of a state or political subdivision thereof, loans secured by interests in
improved residential real property or by savings accounts, student loans and
property used by the Bank in the conduct of its banking business. The Bank's
ratio of qualifying assets to total assets exceeded 60% through May 31, 1996.
Although there can be no assurance that the Bank will satisfy the 60% test in
the future, management believes that this level of qualifying assets can be
maintained by the Bank.
The amount of the addition to the reserve for losses on qualifying real
property loans under the percentage of taxable income method cannot exceed the
amount necessary to increase the balance of the reserve for losses on qualifying
real property loans at the close of the taxable year to 6 percent of the balance
of the qualifying real property loans outstanding at the end of the taxable
year. Also, if the qualifying thrift uses the percentage of taxable income
method, then the qualifying thrift's aggregate addition to its reserve for
losses on qualifying real property loans cannot, when added to the addition to
the reserve for losses on nonqualifying loans, exceed the amount by which (i) 12
percent of the amount that the total deposits or withdrawable accounts of
depositors of the qualifying thrift at the close of the taxable year exceed (ii)
the sum of the qualifying thrift's surplus, undivided profits and reserves at
the beginning of such year. As of December 31, 1995, the overall 12 percent of
deposits limitation has restricted the Bank's deduction for additions to its bad
debt reserve. At December 31, 1995, the Bank's bad debt reserve for tax
purposes was $10.3 million.
Legislation regarding bad debt reserves has been passed by Congress and
sent to the President for signature. The legislation prevents an institution,
such as the Bank, from making further additions to its bad debt reserves, and
requires the recapture of an institution's bad debt reserves accumulated after
1987. The recapture of tax on post-1987 bad debt reserves must be paid over a
six year period starting in 1996. The payment of the tax can be deferred in
1996 and 1997 provided the institution originates at least the average annual
principal amount of mortgage loans that it originated in the six years prior to
1996. If the President were to sign the legislation and the Bank were required
to recapture its bad debt reserve as proposed, the Bank does not believe it
would have a material impact on the Bank's results of operations.
Distributions. To the extent that (i) the Bank's reserve for losses on
qualifying real property loans exceeds the amount that would have been allowed
under the experience method and (ii) the Bank makes "nondividend distributions"
to stockholders that are considered to result in distributions from the excess
tax bad debt reserve or the supplemental reserve for losses on loans ("Excess
Distributions"), then an amount will be included in the Bank's taxable income.
Nondividend distributions include distributions in excess of the Bank's current
and accumulated earnings and profits, distributions in redemption of stock and
distributions in partial or complete liquidation. (However, dividends paid out
of the Bank's current or accumulated earnings and profits, as calculated for
federal income tax purposes, will not be considered
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to result in a distribution from the Bank's bad debt reserves.) The amount of
additional taxable income resulting from an Excess Distribution is an amount
that when reduced by the tax attributable to the income is equal to the amount
of the distribution. Thus, approximately one and one-half times the amount of
the nondividend distribution made would be includable in gross income for
federal income tax purposes, assuming a 35% corporate income tax rate (exclusive
of state taxes). See "Regulation and Supervision" and "Dividend Policy" for
limits on the payment of dividends by the Bank. The Bank does not intend to pay
dividends that would result in a recapture of any portion of its bad debt
reserves.
Corporate Alternative Minimum Tax. The Code imposes a tax on alternative
minimum taxable income ("AMTI") at a rate of 20%. The excess of the bad debt
reserve deduction using the percentage of taxable income method over the
deduction that would have been allowable under the experience method is treated
as a preference item for purposes of computing the AMTI. Only 90% of AMTI can
be offset by net operating loss carryforwards. The adjustment to AMTI based on
book income will be an amount equal to 75% of the amount by which a
corporation's adjusted current earnings exceeds its AMTI (determined without
regard to this adjustment and prior to reduction for net operating losses). In
addition, for taxable years beginning after December 31, 1986 and before January
1, 1996, an environmental tax of .12% of the excess of AMTI (with certain
modifications) over $2 million, is imposed on corporations, including the Bank,
whether or not an Alternative Minimum Tax ("AMT") is paid. Under the
President's legislative proposals, the AMT environmental tax would be extended
for tax years beginning before 2007. The Bank does not expect to be subject to
the AMT but is subject to the environmental tax liability.
Dividends Received Deduction and Other Matters. The Holding Company may
exclude from its income 100% of dividends received from the Bank as a member of
the same affiliated group of corporations. The corporate dividends received
deduction is generally 70% in the case of dividends received from unaffiliated
corporations with which the Holding Company and the Bank will not file a
consolidated tax return, except that if the Holding Company and the Bank own
more than 20% of the stock of a corporation distributing a dividend, then 80% of
any dividends received may be excluded. Under the President's legislative
proposals, the 70% dividends received deduction would be reduced to 50%.
STATE AND LOCAL TAXATION
New York State and New York City Taxation. The Bank is subject to the New
York State Franchise Tax on Banking Corporations in an annual amount equal to
the greater of (i) 9% of the Bank's "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 greatest of (a) .01% of the value
of the Bank's assets allocable to New York State with certain modifications, (b)
3% of the Bank's "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 (including that net operating losses cannot be carried
back or carried forward) and alternative entire net income is equal to entire
net income without certain deductions. While the Bank is not directly subject
to any New York City tax, RFI will be subject to a New York City tax of 9% on
income allocated to New York City. As discussed above, the Bank is permitted a
deduction for an addition to the reserve for losses on qualifying real property
loans. For New York State purposes, the applicable percentage to calculate bad
debt deduction under the percentage of taxable income method is 32%. However,
the Bank cannot fully utilize this deduction because its New York reserve for
qualifying real property loans is at the 6% of the qualifying real property loan
limit. The New York state law was recently amended to prevent the recapture of
tax bad debt reserves that would otherwise occur as a result of the enactment of
the 1996 Act. See "Federal Taxation - Bad Debt Reserves."
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A Temporary Metropolitan Transportation Business Tax Surcharge on banking
corporations doing business in the metropolitan district has been applied since
1982. The Bank does all of its business within this District and is subject to
this surcharge. For the tax year ended December 31, 1996, the surcharge rate is
17%. In addition, a 2.5% tax surcharge on the Bank's New York State Franchise
Tax is imposed on the Bank.
Delaware State Taxation. As a Delaware holding company not earning income
in Delaware, the Company is exempted 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 AND SUPERVISION
GENERAL
The Bank is a New York State chartered mutual savings bank and its deposit
accounts are insured up to applicable limits by the FDIC under the Bank
Insurance Fund ("BIF"). The Bank is subject to extensive regulation by the NYBD,
as its chartering agency, and by the FDIC, as the deposit insurer. The Bank
must file reports with the NYBD and the FDIC concerning its activities and
financial condition, in addition to obtaining regulatory approvals prior to
entering into certain transactions such as establishing branches and mergers
with, or acquisitions of, other depository institutions. There are periodic
examinations by the NYBD and the FDIC to assess the Bank's compliance with
various regulatory requirements. This regulation and supervision establishes a
framework of activities in which a savings bank can engage and is intended
primarily for the protection of the insurance fund and depositors. The
regulatory structure also gives the regulatory authorities extensive discretion
in connection with their supervisory and enforcement activities and examination
policies, including policies with respect to the classification of assets and
the establishment of adequate loan loss reserves for regulatory purposes. Any
change in such regulation, whether by the Banking Department, the FDIC or
through legislation, could have a material adverse impact on the Holding Company
and the Bank and their operations and stockholders. The Holding Company will
also be required to file certain reports with, and otherwise comply with the
rules and regulations, of the OTS, the NYBD and of the Securities and Exchange
Commission ("SEC") under the federal securities laws. Certain of the regulatory
requirements applicable to the Bank and to the Holding Company are referred to
below or elsewhere herein.
NEW YORK STATE LAW
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 Banking Department, as limited by FDIC regulations. See "- Investments and
Activities." 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
asset 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
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impermissible investments of up to 1% of the savings bank's 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 debt and equity 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. A savings bank may
also exercise trust powers upon approval of the NYBD.
New York State chartered savings banks may also invest in subsidiaries
under their service corporation investment power. 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
Banking 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.
The exercise by an FDIC-insured savings bank of the lending and investment
powers of a savings bank 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 effectively limited by the Federal Deposit Insurance
Corporation Improvement Act of 1991 and the FDIC regulations issued pursuant
thereto. See "- Investments and Activities."
With certain limited exceptions, a New York State chartered savings bank
may not make loans or extend credit for commercial, corporate or business
purposes (including lease financing) to a single borrower, the aggregate amount
of which would be in excess of 15% of the bank's net worth. The Bank currently
complies with all applicable loans-to-one-borrower limitations.
Under New York State Banking Law, the Bank may declare and pay dividends
out of its net profits, unless there is an impairment of capital, but approval
of the Superintendent is required if the total of all dividends declared in a
calendar year would exceed the total of its net profits for that year combined
with its retained net profits of the preceding two years, subject to certain
adjustments.
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 NYBD 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 NYBD against the Bank or any of its
Trustees or officers. The Superintendent also may take possession of a banking
organization under specified statutory criteria, including but not limited to
when the banking organization has violated any law or is conducting business in
an unauthorized manner.
FDIC REGULATIONS
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
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requirements more sensitive to differences in risk profiles among banking
organizations. 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.
The following is a summary of the Bank's regulatory capital at May 31,
1996:
<TABLE>
<S> <C>
GAAP Capital to Total Assets......................... 12.54%
Total Capital to Risk-Weighted Assets................ 28.10%
Tier I Leverage Ratio................................ 12.39%
</TABLE>
In August 1995, the FDIC, along with the other federal banking agencies,
adopted a regulation providing that the agencies will take account of the
exposure of a bank's capital and economic value to changes in interest rate risk
in assessing a bank's capital adequacy. According to the agencies, applicable
considerations include the quality of the bank's interest rate risk management
process, the overall financial condition of the bank and the level of other
risks at the bank for which capital is needed. Institutions with significant
interest rate risk may be required to hold additional capital. The agencies
recently issued a joint policy statement providing guidance on interest rate
risk management, including a discussion of the critical factors affecting the
agencies' evaluation of interest rate risk in connection with capital adequacy.
The agencies have determined not to proceed with a previously issued proposal to
develop a supervisory framework for measuring interest rate risk and an explicit
capital component for interest rate risk.
Standards for Safety and Soundness. Federal law requires each federal
banking agency to prescribe for depository institutions under its jurisdiction
standards relating to, among other things, internal controls; information
systems and audit systems; loan documentation; credit underwriting; interest
rate risk exposure; asset growth; compensation, fees and benefits; and such
other operational and managerial standards as the agency deems appropriate.
The federal banking agencies adopted a final regulation and Interagency
Guidelines Prescribing Standards for Safety and Soundness (the "Guidelines") to
implement these safety and soundness standards. 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
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capital becomes impaired. 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 proposed asset quality and earnings standards
which, if adopted in final, would be added to the Guidelines. 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 the Federal Deposit Insurance Act, as amended,
("FDI Act"). The final regulation establishes deadlines for the submission and
review of such safety and soundness compliance plans.
Real Estate Lending Standards. The FDIC and the other federal banking
agencies have adopted regulations that prescribe standards for extensions of
credit that (i) are secured by real estate or (ii) are made for the purpose of
financing the construction or improvements on real estate. The FDIC regulations
require each savings association to establish and maintain written internal real
estate lending standards that are consistent with safe and sound banking
practices and appropriate to the size of the association and the nature and
scope of its real estate lending activities. The standards also must be
consistent with accompanying FDIC guidelines, which include loan-to-value
limitations for the different types of real estate loans. Associations are also
permitted to make a limited amount of loans that do not conform to the proposed
loan-to-value limitations so long as such exceptions are reviewed and justified
appropriately. The guidelines also list a number of lending situations in which
exceptions to the loan-to-value standard are justified.
Dividend Limitations. The FDIC has 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
prohibits the payment of dividends by a bank that will result in the bank
failing to meet applicable capital requirements on a pro forma basis.
Additionally, the Bank, as a subsidiary of a savings and loan holding company,
will be required to provide the OTS with 30 days prior written notice before
declaring any dividend. The Plan of Conversion also restricts the Bank's
payment of dividends in the event the dividend would impair the liquidation
account established in connection with the Conversion. The Bank is also subject
to dividend declaration restrictions imposed by New York law. See "- New York
State Law" and "Dividend Policy."
INVESTMENTS AND ACTIVITIES
Since the enactment of the Federal Deposit Insurance Corporation
Improvement Act of 1991, all state-chartered financial institutions, including
savings banks and their subsidiaries, have generally been limited to activities
as principal and equity investments of the type and in the amount authorized for
national banks, notwithstanding state law. FDICIA and the FDIC regulations
thereunder permit certain exceptions to these limitations. For example, certain
state chartered banks, such as the Bank, may, with FDIC approval, continue to
exercise state authority to invest in common or preferred stocks 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. Such banks may also continue to sell savings bank life
insurance. In addition, the FDIC is authorized to permit such institutions to
engage in state authorized activities or investments that do not meet this
standard (other than non-subsidiary equity investments) for institutions that
meet all applicable capital requirements if it is determined that such
activities or investments do not pose a significant risk to the SAIF. All non-
subsidiary equity investments, unless otherwise authorized or approved by the
FDIC, must be divested by December 19, 1996, pursuant to a FDIC-approved
divestiture plan unless such investments were grandfathered by the FDIC. The
Bank received grandfathering authority from the FDIC in February 1993 to invest
in listed stocks and/or registered shares subject to the maximum permissible
investment of 100% of Tier 1 capital, as specified by the FDIC's regulations, or
the maximum amount permitted by New York
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State Banking Law, whichever is less. Such grandfathering authority is subject
to termination upon the FDIC's determination that such investments pose a safety
and soundness risk to the Bank or in the event the Bank converts its charter or
undergoes a change in control. As of May 31, 1996, the Bank had $138.8 million
of securities which were subject to such grandfathering authority.
PROMPT CORRECTIVE REGULATORY ACTION
Federal law requires, among other things, that federal bank regulatory
authorities take "prompt corrective action" with respect to banks that do not
meet minimum capital requirements. For these purposes, the law establishes five
capital tiers: well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized.
The FDIC has adopted regulations to implement the prompt corrective action
legislation. Among other things, the regulations define the relevant capital
measures for the five capital categories. An institution is deemed to be "well
capitalized" if it has a total risk-based capital ratio of 10% or greater, a
Tier I risk-based capital ratio of 6% or greater, and a leverage ratio of 5% or
greater, and is not subject to a regulatory order, agreement or directive to
meet and maintain a specific capital level for any capital measure. An
institution is deemed to be "adequately capitalized" if it has a total risk-
based capital ratio of 8% or greater, a Tier I risk-based capital ratio of 4% or
greater, and generally a leverage ratio of 4% or greater. An institution is
deemed to be "undercapitalized" if it has a total risk-based capital ratio of
less than 8%, a Tier I risk-based capital ratio of less than 4%, or generally a
leverage ratio of less than 4%. An institution is deemed to be "significantly
undercapitalized" if it has a total risk-based capital ratio of less than 6%, a
Tier I risk-based capital ratio of less than 3%, or a leverage ratio of less
than 3%. An institution is deemed to be "critically undercapitalized" if it has
a ratio of tangible equity (as defined in the regulations) to total assets that
is equal to or less than 2%.
"Undercapitalized" banks are subject to growth, capital distribution
(including dividend) and other limitations and are required to submit a capital
restoration plan. A bank's compliance with such plan is required to be
guaranteed by any company that controls the undercapitalized institutions. If
an "undercapitalized" bank fails to submit an acceptable plan, it is treated as
if it is "significantly undercapitalized." "Significantly undercapitalized"
banks are subject to one or more of a number of additional restrictions,
including but not limited to an order by the FDIC to sell sufficient voting
stock to become adequately capitalized, requirements to reduce total assets and
cease receipt of deposits from correspondent banks or dismiss directors or
officers, and restrictions on interest rates paid on deposits, compensation of
executive officers and capital distributions by the parent holding company.
"Critically undercapitalized" institutions also may not, beginning 60 days after
becoming "critically undercapitalized," make any payment of principal or
interest on certain subordinated debt or extend credit for a highly leveraged
transaction or enter into any material transaction outside the ordinary course
of business. In addition, "critically undercapitalized" institutions are
subject to appointment of a receiver or conservator. Generally, subject to a
narrow exception, the appointment of a receiver or conservator is required for a
"critically undercapitalized" institution within 270 days after it obtains such
status.
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
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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, more than 10% 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 shareholders who control more than
10% of a 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 shareholders
must 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.
ENFORCEMENT
The FDIC has extensive enforcement authority over insured savings banks,
including the Bank. This enforcement authority includes, among other things,
the ability to assess civil money penalties, to issue cease and desist orders
and to remove directors and officers. In general, these enforcement actions may
be initiated in response to violations of laws and regulations and to unsafe or
unsound practices.
The FDIC has authority under federal law to appoint a conservator or
receiver for an insured savings bank under certain circumstances. The FDIC is
required, with certain exceptions, to appoint a receiver or conservator for an
insured state savings bank if that savings bank was "critically
undercapitalized" on average during the calendar quarter beginning 270 days
after the date on which the savings bank became "critically undercapitalized."
For this purpose, "critically undercapitalized" means having a ratio of tangible
capital to total assets of less than 2%. See "- Prompt Corrective Regulatory
Action." The FDIC may also appoint a conservator or receiver for a state
savings bank on the basis of the institution's financial condition or upon the
occurrence of certain events, including: (i) insolvency, (whereby the assets of
the savings bank are less than its liabilities to depositors and others); (ii)
substantial dissipation of assets or earnings through violations of law or
unsafe or unsound practices; (iii) existence of an unsafe or unsound condition
to transact business; (iv) likelihood that the savings bank will be unable to
meet the demands of its depositors or to pay its obligations in the normal
course of business; and (v) insufficient capital, or the incurring or likely
incurring of losses that will deplete substantially all of the institution's
capital with no reasonable prospect of replenishment of capital without federal
assistance.
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INSURANCE OF DEPOSIT ACCOUNTS
The FDIC has adopted a risk-based insurance assessment system. The FDIC
assigns an institution to one of three capital categories based on the
institution's financial information, as of the reporting period ending seven
months before the assessment period, consisting of (1) well capitalized, (2)
adequately capitalized or (3) undercapitalized, and one of three supervisory
subcategories within each capital group. The supervisory subgroup to which an
institution is assigned is based on a supervisory evaluation provided to the
FDIC by the institution's primary federal regulator and information which the
FDIC determines to be relevant to the institution's financial condition and the
risk posed to the deposit insurance funds. An institution's assessment rate
depends on the capital category and supervisory category to which it is
assigned. Assessment rates currently range from 0 basis points (subject to a
statutorily required annual payment of $2,000) to 27 basis points. The FDIC is
authorized to raise the assessment rates in certain circumstances. The FDIC has
exercised this authority several times in the past and may raise insurance
premiums in the future. If such action is taken by the FDIC, it could have an
adverse effect on the earnings of the Bank. In addition, several legislative
bills have been introduced in Congress to mitigate the effects of the BIF/SAIF
disparity. These bills would, among other things, require BIF-insured
institutions to assist in the payment of FICO bonds. Management cannot predict
whether legislation imposing the payment of FICO bonds by BIF members will be
enacted, or, if enacted, the amount of such FICO bond payments. See "Risk
Factors - Possible Payment of Financing Corporation Bonds."
Under the FDI Act, insurance of deposits may be terminated by the FDIC upon
a finding that the institution has engaged in unsafe or unsound practices, is in
an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule, order or condition imposed by the FDIC or the
Division. The management of the Bank does not know of any practice, condition
or violation that might lead to termination of deposit insurance.
FEDERAL RESERVE SYSTEM
The Federal Reserve Board regulations require depository institutions to
maintain non-interest-earning reserves against their transaction accounts
(primarily NOW and regular checking accounts). The Federal Reserve Board
regulations generally require that reserves be maintained against aggregate
transaction accounts as follows: for that portion of transaction accounts
aggregating $52.0 million or less (subject to adjustment by the Federal Reserve
Board) the reserve requirement is 3%; and for accounts greater than $52.0
million, the reserve requirement is $1.6 million plus 10% (subject to adjustment
by the Federal Reserve Board between 8% and 14%) against that portion of total
transaction accounts in excess of $52.0 million. The first $4.3 million of
otherwise reservable balances (subject to adjustments by the Federal Reserve
Board) are exempted from the reserve requirements. The Bank is in compliance
with the foregoing requirements. Because required reserves must be maintained
in the form of either vault cash, a non-interest-bearing account at a Federal
Reserve Bank or a pass-through account as defined by the Federal Reserve Board,
the effect of this reserve requirement is to reduce the Bank's interest-earning
assets. Federal Home Loan Bank ("FHLB") System members are also authorized to
borrow from the Federal Reserve "discount window," but Federal Reserve Board
regulations require institutions to exhaust all FHLB sources before borrowing
from a Federal Reserve Bank.
COMMUNITY REINVESTMENT ACT
Federal Regulation. Under the Community Reinvestment Act, as amended,
("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
106
<PAGE>
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 Financial Institutions Reform, Recovery and Enforcement Act of
1989 ("FIRREA") amended the CRA to require, effective July 1, 1990, public
disclosure of an institution's CRA rating and require the FDIC to provide a
written evaluation of an institution's CRA performance utilizing a four-tiered
descriptive rating system which replaced the five-tiered numerical rating
system. The Bank's latest CRA rating, received from the FDIC was
"satisfactory."
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 NYBD 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 latest NYCRA rating, received from the NYBD was "satisfactory."
HOLDING COMPANY REGULATION
Federal law allows a state savings bank that qualifies as a "qualified
thrift lender" ("QTL"), discussed below, to exercise an election to be treated
as a savings association subsidiary of a savings and loan holding company under
the Home Owners' Loan Act, as amended, ("HOLA"). Such election would result in
its holding company being regulated as a savings and loan holding company by the
OTS rather than as a bank holding company by the Federal Reserve Board. The
Bank and Company intend to exercise this option. Accordingly, the Company will
be regulated as a non-diversified unitary savings and loan holding company
within the meaning of the HOLA. As such, the Company will be required to
register with the OTS and will be subject to OTS regulations, examinations,
supervision and reporting requirements. In addition, the OTS has enforcement
authority over the Company and its non-savings institution subsidiaries. Among
other things, this authority permits the OTS to restrict or prohibit activities
that are determined to be a serious risk to the subsidiary savings institution.
Additionally, the Bank will be required to notify the OTS at least 30 days
before declaring any dividend to the Company.
As a unitary savings and loan holding company, the Company generally will
not be restricted under existing laws as to the types of business activities in
which it may engage. Upon any non-supervisory acquisition by the Company of
another savings association as a separate subsidiary, the Company would become a
multiple savings and loan holding company and would be subject to extensive
limitations on the types of business activities in which it could engage. The
HOLA limits the activities of a multiple savings and loan holding company and
its non-insured institution subsidiaries primarily to activities permissible for
bank holding companies under Section 4(c)(8) of the Bank Holding Company Act, as
amended ("BHC Act"), subject to the prior approval of the OTS, and to other
activities authorized by OTS regulation. Multiple savings and loan holding
companies are prohibited from acquiring or retaining, with certain exceptions,
more than 5% of a non-subsidiary holding company, or a non-subsidiary company
engaged in activities other than those permitted by the HOLA. Recently proposed
legislation would treat all savings and loan holding companies as bank holding
companies and would limit the activities of such companies to those permissible
for bank holding companies.
107
<PAGE>
The HOLA prohibits a savings and loan holding company, directly or
indirectly, or through one or more subsidiaries, from acquiring more than 5% of
the voting stock of another savings institution or holding company thereof or
from acquiring such an institution or company by merger, consolidation or
purchase of its assets, without prior written approval of the OTS. In
evaluating applications by holding companies to acquire savings institutions,
the OTS must consider the financial and managerial resources and future
prospects of the company and institution involved, the effect of the acquisition
on the risk to the insurance funds, the convenience and needs of the community
and competitive factors.
The OTS is prohibited from approving any acquisition that would result in a
multiple savings and loan holding company controlling savings institutions in
more than one state, except: (i) interstate supervisory acquisitions by savings
and loan holding companies, and (ii) the acquisition of a savings institution in
another state if the laws of the state of the target savings institution
specifically permit such acquisitions. The states vary in the extent to which
they permit interstate savings and loan holding company acquisitions.
In order to elect and continue to be regulated as a savings and loan
holding company by the OTS (rather than as a bank holding company by the Federal
Reserve Board), the Bank must continue to qualify as a QTL. In order to qualify
as a QTL, the Bank must maintain compliance with a Qualified Thrift Lender Test
("QTL Test"). Under the QTL Test, a savings institution is required to maintain
at least 65% of its "portfolio assets" (total assets less: (i) specified liquid
assets up to 20% of total assets; (ii) intangibles, including goodwill; and
(iii) the value of property used to conduct business) in certain "qualified
thrift investments" (primarily residential mortgages and related investments,
including certain mortgage-backed and related securities) in at least 9 months
out of each 12 month period. A holding company of a savings institution that
fails the QTL test must either convert to a bank holding company or operate
under certain restrictions. As of May 31, 1996, the Bank maintained in excess
of 75.51% of its portfolio assets in qualified thrift investments and,
therefore, met the QTL test.
New York State Holding Company Regulation. In addition to the federal
holding company regulations, a bank holding company organized or doing business
in New York State may be also 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, including commercial banks and state
savings banks and savings and loan associations organized in stock form. In
general, a 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 NYBD 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 to 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
108
<PAGE>
law upon the Effective Date of the Conversion, any future acquisition of
ownership, control, or the power to vote 10% or more of the voting stock of
another banking institution or bank holding company would cause it to become
such.
INTERSTATE BANKING AND BRANCHING
The Company, as a savings and loan holding company, will be limited under
HOLA with respect to its acquisition of a savings association located in a state
other than New York. In general, a savings and loan holding company may not
acquire an additional savings association subsidiary that is located in a state
other than the home state of its first savings association subsidiary unless
such an interstate acquisition is permitted by the statutes of such other state.
Many states permit such interstate acquisitions if the statutes of the home
state of the acquiring savings and loan holding company satisfy various
reciprocity conditions. New York is one of a number of states that permit,
subject to the reciprocity conditions of the New York Banking Law, out-of-state
bank and savings and loan holding companies to acquire New York savings
associations.
In contrast, bank holding companies are generally authorized to acquire
banking subsidiaries in more than one state irrespective of any state law
restrictions on such acquisitions. The Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 ("Interstate Banking Act"), which was enacted
on September 29, 1994, permits approval under the BHC Act of the acquisition of
a bank located outside of the holding company's home state regardless of whether
the acquisition is permitted under the law of the state of the acquired bank.
The Federal Reserve Board may not approve an acquisition under the BHC Act that
would result in the acquiring holding company controlling more than 10% of the
deposits in the United States or more than 30% of the deposits in any particular
state.
In the past, branching across state lines was not generally available to a
state bank such as the Bank. Out-of-state branches of savings banks are
authorized under the New York Banking Law, but similar authority does not exist
generally under the laws of most other states. The Interstate Banking Act
permits, beginning June 1, 1997, the responsible federal banking agencies to
approve merger transactions between banks located in different states,
regardless of whether the merger would be prohibited under the law of the two
states. The Interstate Banking Act also permits a state to "opt in" to the
provisions of the Interstate Banking Act prior to June 1, 1997, and permits a
state to " opt out" of the provisions of the Interstate Banking Act by adopting
appropriate legislation before that date. Accordingly, the Interstate Banking
Act will, beginning no later than June 1, 1997, permit a bank, such as the Bank,
to acquire branches in a state other than New York unless the other state has
opted out of the Interstate Banking Act. The Interstate Banking Act also
authorizes de novo branching into another state if the host state enacts a law
-- ----
expressly permitting out of state banks to establish such branches within its
borders.
The Interstate Banking Act may facilitate the consolidation of the banking
industry that has taken place over recent years. The effect of the Interstate
Banking Act on the Bank, if any, is likely to occur as banking institutions,
state legislators, and bank regulators respond to the new federal regulatory
structure. The states will have to establish appropriate corporate law, tax and
regulatory structures to adjust to the growth of new interstate banks.
FEDERAL SECURITIES LAWS
The Company has filed with the SEC a registration statement under the
Securities Act of 1933, as amended (the "Securities Act"), for the registration
of the Common Stock to be issued pursuant to the Conversion. Upon completion of
the Conversion, the Company's Common Stock will be registered with the SEC under
the Exchange Act. The Company will then be subject to the information, proxy
solicitation, insider trading restrictions and other requirements under the
Exchange Act.
109
<PAGE>
The registration under the Securities Act of shares of the Common Stock to
be issued in the Conversion does not cover the resale of such shares. Shares of
the Common Stock purchased by persons who are not affiliates of the Company may
be resold without registration. Shares purchased by an affiliate of the Company
will be subject to the resale restrictions of Rule 144 under the Securities Act.
If the Company meets the current public information requirements of Rule 144
under the Securities Act, each affiliate of the Company who complies with the
other conditions of Rule 144 (including those that require the affiliate's sale
to be aggregated with those of certain other persons) would be able to sell in
the public market, without registration, a number of shares not to exceed, in
any three-month period, the greater of (i) 1% of the outstanding shares of the
Company or (ii) the average weekly volume of trading in such shares during the
preceding four calendar weeks. Provision may be made in the future by the
Company to permit affiliates to have their shares registered for sale under the
Securities Act under certain circumstances.
110
<PAGE>
MANAGEMENT OF THE COMPANY
DIRECTORS OF THE COMPANY
The Board of Directors of the Company is divided into three classes,
each of which contains one-third of the Board. The directors shall be elected by
the stockholders of the Company for staggered three year terms, or until their
successors are elected and qualified. One class of directors, consisting of
Messrs. Calabrese, Martin and Webel, has a term of office expiring at the first
annual meeting of stockholders, a second class, consisting of Messrs. Swiggett,
Freese and Mancino, has a term expiring at the second annual meeting of
stockholders and a third class, consisting of Messrs. York, McCuaig and
Nicholson, has a term of office expiring at the third annual meeting of
stockholders. The biographical information of each Director is set forth under
"Management of the Bank - Trustees." It is currently intended that Directors of
the Company will receive no additional fees for their services as Directors of
the Company. However, subsequent to the Conversion, the Company and the Bank
intend to engage a compensation consultant to study the level and structure of
compensation paid to the Boards of Directors of the Company and the Bank as
compared to similarly situated publicly-traded financial institutions and, upon
a review of such study, may revise the amounts of fees paid to Board members and
frequency of Board or Committee meetings. See "- Compensation of Trustees" for a
discussion of fees paid to Trustees of the Bank.
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 - Trustees of the Bank" and "- Executive Officers Who Are Not Trustees."
<TABLE>
<CAPTION>
POSITION(S) HELD
NAME WITH THE COMPANY
------------------------------------- --------------------------------------------------
<S> <C>
Joseph L. Mancino Chairman of the Board, President and
Chief Executive Officer
John R. Bransfield, Jr. Vice President
Michael P. Puorro Treasurer and Chief Financial Officer
Mary M. Ehrich Secretary
</TABLE>
The executive officers of the Company are elected annually and hold
office until their respective successors have been elected and qualified or
until death, resignation, retirement or removal by the Board of Directors.
Since the formation of the Company, none of the executive officers,
Directors or other personnel has received remuneration from the Company.
Executive officers of the Company will be compensated as described below under
"Management of the Bank."
111
<PAGE>
MANAGEMENT OF THE BANK
TRUSTEES OF THE BANK
The Directors of the Company are also Trustees of the Bank. Upon
consummation of the Conversion, the current Trustees of the Bank will become
Directors of the stock chartered Bank. The following table sets forth certain
information regarding the Board of Trustees of the Bank.
<TABLE>
<CAPTION>
POSITION(S) HELD
NAME AGE(1) WITH THE BANK TERM EXPIRES
- ------------------------ ---------- ------------------- ------------------
<S> <C> <C> <C>
Joseph L. Mancino 58 Chairman of the Board,
President and Chief
Executive Officer 1998
Floyd N. York 73 Trustee 1999
Victor C. McCuaig 67 Trustee 1999
John P. Nicholson 71 Trustee 1999
James E. Swiggett 64 Trustee 1998
Robert G. Freese 66 Trustee 1998
Thomas J. Calabrese, Jr. 54 Trustee 1997
Dr. Edwin Martin, Jr. 64 Trustee 1997
Richard C. Webel 44 Trustee 1997
</TABLE>
- ------------------
(1) As of May 31, 1996.
EXECUTIVE OFFICERS OF THE BANK
The following table sets forth certain information regarding the
executive officers of the Bank.
<TABLE>
<CAPTION>
POSITION(S) HELD
WITH
NAME AGE(1) THE BANK
- --------------------------------- -------------------- ----------------------------------------------------
<S> <C> <C>
Joseph L. Mancino 58 Chairman of the Board, President and Chief
Executive Officer
John R. Bransfield, Jr. 54 Senior Vice President and Senior Lending
Officer
Mary M. Ehrich 53 Senior Vice President and Secretary
John L. Klag 38 Vice President and Investment Officer
Daniel L. Murphy 36 Senior Vice President and Retail Banking
Officer
Michael P. Puorro 37 Vice President and Chief Financial Officer
Peter J. Russo 52 President and Chief Executive Officer, RFI
Anthony F. Panza 50 Executive Vice President, RFI
</TABLE>
- ------------------
(1) As of May 31, 1996.
112
<PAGE>
The executive officers of the Bank are elected annually and will hold
office in the converted Bank until the annual meeting of the Board of Directors
of the Bank held immediately after the first annual meeting of stockholders of
the Bank subsequent to Conversion, and until their successors are elected and
qualified or until death, resignation, retirement or removal by the Board of
Directors. Officers are re-elected by the Board of Directors annually.
BIOGRAPHICAL INFORMATION
TRUSTEES OF THE BANK
Joseph L. Mancino is Chairman of the Board of Trustees, President and
Chief Executive Officer of the Bank. Mr. Mancino was elected as Chairman of the
Board in 1995, has served as President since 1991 and Chief Executive Officer
since 1992 and served in various capacities with the Bank since 1960. Mr.
Mancino also serves on the board of directors of the Institutional Investors
Mutual Fund (a diversified open end investment fund), the Community Bankers
Association of New York State and the Savings Bank Life Insurance Fund. Mr.
Mancino also serves as President of Old Northern Co. Ltd., RSB Agency, 1400
Corp., BSR 1400 Corp. and Blizzard Realty Corp., as well as Chairman of
Residential First, Inc.
Thomas J. Calabrese, Jr. has served as a Trustee of the Bank since
1994. Mr. Calabrese also serves as a Director of RFI. Mr. Calabrese is currently
Managing Director - Human Resources of the NYNEX Corporation and has been
associated with the NYNEX Corporation since 1963.
Robert G. Freese has served as a Trustee of the Bank since 1988. Mr.
Freese also serves as a Director of BSR 1400 Corp. Mr. Freese retired as Vice
Chairman and Chief Financial Officer of Grumman Corporation in 1991 and served
with Grumman Corp. from 1956 to his retirement in 1991.
Dr. Edwin W. Martin, Jr. has served as a Trustee of the Bank since
1994. Dr. Martin also serves as a Director of Old Northern Co. Ltd., BSR 1400
Corp. and Blizzard Realty Corp. Dr. Martin served as President and Chief
Executive Officer of the National Center for Disability Services, a non-profit
education, rehabilitation and research corporation from 1981 to 1994. He is
presently President Emeritus and a Director of the National Center. He is also a
Director of National Captioning Institute, a non-profit agency which promotes
captioning on television for the deaf. Dr. Martin currently serves as a Director
of Interboro Mutual Indemnity Insurance Company, an insurance company, and Pall
Corp., a manufacturer of industrial filters.
Victor C. McCuaig has served as a Trustee of the Bank since 1970. Mr.
McCuaig also serves as a Director of RFI and Blizzard Realty Corp. Mr. McCuaig
is currently of counsel to and was previously a partner in the law firm of
Payne, Wood & Littlejohn, which serves as general counsel to the Bank.
John P. Nicholson has served as a Trustee of the Bank since 1975. Mr.
Nicholson also serves as a Director of Old Northern Co. Ltd., RSB Agency, Inc.
and 1400 Corp. Mr. Nicholson has served as the Chairman of Nicholson & Galloway
since 1991 and was the President and Chief Executive Officer from 1960 to 1991.
Nicholson & Galloway is a local construction firm specializing in roofing
construction. Mr. Nicholson also serves as an Advisory Director of Bank of New
York, Long Island Division.
James E. Swiggett has served as a Trustee of the Bank since 1980. Mr.
Swiggett also serves as a Director of RSB Agency, Inc., 1400 Corp. and RFI. Mr.
Swiggett served as President and then Chief Executive Officer and Board Chairman
of Kollmorgen Corp. during the period from 1985 to 1990 when he retired.
Kollmorgen Corp. is a diversified technology manufacturing company.
113
<PAGE>
Richard C. Webel has served as a Trustee of the Bank since 1995. Mr.
Webel also serves as a Director of Blizzard Realty Corp. Mr. Webel has served as
the managing director of Innocenti & Webel, an architectural firm, since 1985,
as well as President of the Webel Corporation, a strategic planning company
since 1984, and PlantAmerica, LLC, a software development corporation since
1996. Mr. Webel also serves as a general partner of Roundbush Associates, a real
estate development partnership.
Floyd N. York has served as a Trustee of the Bank since 1967. He served
as President of the Bank from 1968 to 1972, as President and Chief Executive
Officer from 1972 to 1978 and as Chairman, President and Chief Executive Officer
from 1978 to 1992. Mr. York also serves as a Director of Old Northern Co. Ltd.,
RSB Agency, Inc. and 1400 Corp. He also served as a member of the Board of
Directors of Nationar for approximately six years ending in 1993.
EXECUTIVE OFFICERS OF THE BANK WHO ARE NOT TRUSTEES
Mary M. Ehrich joined the Bank in 1960 and has served the Bank in a
variety of capacities. Since 1992, Mrs. Ehrich has served as a Senior Vice
President and Secretary. Her primary area of responsibility is as Corporate
Secretary for the Bank and each of its subsidiaries.
Michael P. Puorro joined the Bank in 1992 as Assistant Vice President
and Controller; in 1994 he was appointed Vice President and Treasurer and in
1995 he became Vice President and Chief Financial Officer. His primary area of
responsibility is accounting issues and regulatory reporting matters. Mr. Puorro
also serves as an officer of each of the Bank's subsidiaries. Prior to joining
the Bank, Mr. Puorro was a senior manager at KPMG Peat Marwick LLP and is a
certified public accountant.
John R. Bransfield, Jr. joined the Bank in 1993. He serves as a Senior
Vice President and Senior Lending Officer and operates as the chief lending
officer of the Bank overseeing all lending operations. Prior to joining the
Bank, Mr. Bransfield served as President of the Long Island Region of Fleet Bank
from 1988 to 1992 and Executive Vice President for Fleet Bank from 1992 to 1993.
John L. Klag joined the Bank in 1993 as Vice President and Investment
Officer. Mr. Klag's primary responsibilities include overseeing the Bank's
investment activities. Prior to joining the Bank, Mr. Klag was with a New
York-based savings bank from 1985 to 1993 and served as Vice President-Fixed
Income Portfolio Manager from 1988 to 1993.
Daniel L. Murphy joined the Bank in 1978 and served as Vice President
and Retail Banking Officer from 1993 to 1995 when he was elected Senior Vice
President and Retail Banking Officer. Mr. Murphy's primary responsibilities
include overseeing the Bank's retail deposit gathering and branch
administration.
Peter J. Russo is Director, President and Chief Executive Officer of
RFI. Mr. Russo is primarily responsible for RFI's residential lending and
mortgage banking operations. Prior to joining RFI, Mr. Russo was a co-founder
and President of Residential Mortgage Banking, Inc., a full-service mortgage
banking company which was incorporated in 1986 as Residential Mortgage Services,
Inc., the assets and liabilities of which were acquired by the Bank in August
1995. Mr. Russo is a Certified Mortgage Banker with 23 years of mortgage banking
experience.
Anthony F. Panza is a Director and Executive Vice President of RFI. Mr.
Panza is primarily responsible for RFI's residential lending and mortgage
banking operations. Prior to joining Mr. Panza was a co-founder and Executive
Vice President of Residential Mortgage Banking Inc. Mr. Panza has 15 years of
mortgage banking experience.
114
<PAGE>
MEETINGS AND COMMITTEES OF THE BOARDS OF THE BANK AND THE COMPANY
The Board of Trustees meets monthly and may have additional special
meetings as may be called by the Chairman or at the written request of three
trustees. During the fiscal year ended December 31, 1995, the Board held 14
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
for the year ended December 31, 1995. There are currently five committees of the
Board of Trustees consisting of the Investment Committee, Executive Committee,
Examining and Compliance Committee, Personnel Committee and Marketing Committee.
Subsequent to the Conversion, the Board of Trustees may consider and make
revisions to the current structure of its committees.
The Board of Trustees of the Bank has established the following
committees:
The Examining Committee consists of Messrs. Freese, Nicholson,
Swiggett, York and Webel. The Bank's Compliance Officer and Acting Auditor
reports to this committee. The purposes of this committee are to review audit
reports and management's actions regarding the implementation of audit findings
and to review compliance with all relevant laws and regulations. The committee
meets on a quarterly basis.
The Executive Committee consists of Messrs. McCuaig, Swiggett,
Calabrese, Jr., Mancino and two rotating members. The purposes of this Committee
are to approve certain loans and secondary market activities. The committee
meets on a weekly basis.
The Investment Committee consists of Messrs. McCuaig, York and Mancino.
This Committee is responsible for all matters regarding the Bank's investment
securities. This Committee meets on a quarterly basis.
The Marketing Committee consists of Messrs. Martin, Jr. and Calabrese,
Jr. This Committee is responsible for reviewing all marketing and promotional
matters. This Committee meets on an as needed basis.
The Personnel Committee consists of Messrs. Freese, Nicholson,
Swiggett, Calabrese, Jr. and Martin, Jr. This Committee is responsible for all
matters regarding compensation and fringe benefits. The committee meets on an as
needed basis.
Additionally, the Bank has a number of other management committees
including the Asset/Liability and the Loan and Asset Classification Committees.
The Board of Directors of the Company has established the following
committees: the Audit Committee consisting of Messrs. Freese, Swiggett,
Nicholson, York and Webel; the Pricing Committee consisting of Messrs. Mancino,
McCuaig, Calabrese, Jr., Swiggett and Webel; and the Compensation Committee
consisting of Messrs. Mancino, Calabrese, Jr., Freese, Swiggett, Nicholson and
Martin, Jr.
COMPENSATION OF TRUSTEES
Trustees of the Bank receive fees of $1,700 per Board meeting attended
and $800 per Committee meeting attended. Subsequent to the Conversion, the
Company and the Bank intend to engage a compensation consultant to study the
level and structure of compensation paid to the Boards of Directors of the
Company and the Bank as compared to similarly situated publicly-traded financial
institutions and, upon review of such study, may revise the amount of fees paid
to Board members and frequency of Board and Committee meetings.
115
<PAGE>
TRUSTEES EMERITUS
The Bank maintains a Board of Trustees Emeritus which currently
consists of three former Trustees of the Bank. Pursuant to the Bank's bylaws,
Trustees must retire in the year they reach age 75 and any Trustee who retires
because of such age limitation and has 20 years prior service on the Board of
Trustees is eligible to be elected as a Trustee Emeritus. Trustees Emeritus may
be re-elected until the year in which such person reaches age 80, although one
Trustee Emeritus has been excepted from this policy. Trustees Emeritus have no
vote and receive the same meeting fees as Trustees of the Bank.
116
<PAGE>
EXECUTIVE COMPENSATION
Summary/Compensation Table. The following table sets forth the cash
compensation paid by the Bank as well as certain other compensation paid or
accrued for services rendered in all capacities during the year ended December
31, 1995, to the Chief Executive Officer and the four highest paid executive
officers of the Bank who received salary and bonus in excess of $100,000 ("Named
Executive Officers").
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
ANNUAL COMPENSATION(1)
----------------------------------------------------
OTHER
ANNUAL
NAME AND PRINCIPAL COMPENSATION
POSITIONS YEAR SALARY($) BONUS($) ($)(2)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Joseph L. Mancino 1995 $336,539 $ 1,600 --
Chairman of the Board of Trustees,
President and Chief Executive
Officer
John R. Bransfield, Jr. 1995 151,719 75,736 --
Senior Vice President and Senior
Lending Officer
John L. Klag 1995 90,423 47,870 --
Vice President and Investment
Officer
Arthur W. Toohig 1995 91,692 44,500 --
Senior Vice President and Human
Resources Officer
Michael P. Puorro 1995 85,846 43,340 --
Vice President and Chief Financial
Officer
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
LONG-TERM COMPENSATION
-----------------------------------------------------------
AWARDS PAYOUTS
-----------------------------------------------------------
(I)
SECURITIES
RESTRICTED UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL STOCK AWARDS OPTIONS/SARS PAYOUTS COMPENSATION
POSITIONS ($)(3) (#)(4) ($)(5) ($)(6)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Joseph L. Mancino -- -- -- $20,433
Chairman of the Board of Trustees,
President and Chief Executive
Officer
John R. Bransfield, Jr. -- -- -- 10,578
Senior Vice President and Senior
Lending Officer
John L. Klag -- -- -- 3,004
Vice President and Investment
Officer
Arthur W. Toohig -- -- -- 7,400
Senior Vice President and Human
Resources Officer
Michael P. Puorro -- -- -- 2,847
Vice President and Chief Financial
Officer
</TABLE>
- ------------------
(1) Under Annual Compensation, the column titled "Salary" includes amounts
deferred by the Named Executive Officer under the Bank's 401(k) Plan and
the column titled "Bonus" consists of board approved discretionary bonus as
well as attendance bonuses, loan referral bonuses and recruitment bonuses.
(2) For 1995, there were no (a) perquisites over the lesser of $50,000 or 10%
of the individual's total salary and bonus for the year; (b) payments of
above-market preferential earnings on deferred compensation; (c) payments
of earnings with respect to long-term incentive plans prior to settlement
or maturation; (d) tax payment reimbursements; or (e) preferential
discounts on stock. For 1995, the Bank had no restricted stock or stock
related plans in existence.
3) Does not include awards pursuant to the Stock Programs, which may be
granted in conjunction with a meeting of shareholders of the Company,
subject to regulatory and shareholder approval, as such awards were not
earned, vested or granted in fiscal 1995. For a discussion of the terms of
the Stock Programs which are intended to be adopted by the Company, see "-
Benefit Plans - Stock Programs." For 1995, the Bank had no stock plans in
existence.
(4) No stock options or SARs were earned or granted in 1995. For a discussion
of the Stock Option Plans which are intended to be adopted by the Company,
see "Benefit Plans - Stock Option Plans."
(5) For 1995, there were no payouts or awards under any long-term incentive
plan.
6) Other compensation includes other benefits such as the Bank's matching
contribution under the Bank's 401(k) Plan, group term life insurance and
automobile allowance.
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REPORT OF INDEPENDENT COMPENSATION CONSULTANT
Pursuant to the NYBD regulations governing the Conversion, the Bank
must obtain the opinion of an independent compensation consultant as to whether
or not the total compensation for the executive officers, directors or trustees
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,
directors or trustees of similar publicly-traded financial institutions. The
Bank has obtained an opinion from , which provides
--------------------------
that, with respect to the total compensation for executive officers and 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, based upon 's survey data
-----
of similarly situated publicly-traded thrift financial institutions operating in
as of , 1996.
- ------------- -------
EMPLOYMENT AGREEMENTS
Currently, Mr. Panza and Mr. Russo are the only officers of the Bank or
any of its subsidiaries who have employment agreements with the Bank through
their employment with RFI. Messrs. Panza's and Russo's employment agreements
were entered into in connection with the Bank's purchase of certain assets and
liabilities of RMBI in August 1995. Such employment agreements are substantially
similar and provide for five year terms which will expire in July 2000. The
agreements provide for base salaries of $225,000 per year for each of Messrs.
Panza and Russo, and also provide for an incentive cash bonus equal to 12.5
basis points of the principal amount of one- to four-family loans closed by RFI
in excess of $200 million, subject to certain adjustments. The incentive cash
bonus provided under the agreements are subject to RFI meeting specified
financial performance goals and subject to the loan portfolio serviced by RFI
meeting certain delinquency performance goals. The agreements also provide that
Messrs. Panza and Russo shall be eligible to participate in any tax-qualified
defined contribution or defined benefit plan that is maintained by RFI and any
other insurance or medical benefits provided to employees of RFI. Additionally,
the agreements provide that the Bank shall indemnify Messrs. Panza and Russo to
the fullest extent permitted by law and provide indemnity insurance coverage.
Pursuant to the agreements, Messrs. Panza and Russo may be terminated for cause,
as defined in the agreements, and, upon termination for cause, all unpaid
compensation and benefits due under the agreements shall be forfeited. The
agreements prohibit Messrs. Panza and Russo from competing with the Bank in any
state in which the Bank engages in business for one year after they cease to
receive compensation from RFI under the agreements.
Upon the Conversion, the Bank and the Company intend to enter into
employment agreements with Messrs. Mancino, Bransfield, Klag, Toohig and Puorro,
Ms. Ehrich and two other executive officers (individually, the "Executive")
(collectively, the "Employment Agreements"). The Employment Agreements are
subject to the review of the NYBD and may be amended as a result of such review.
The Employment Agreements are intended to ensure that the Bank and the Company
will be able to maintain a stable and competent management base after the
Conversion. The continued success of the Bank and the Company depends to a
significant degree on the skills and competence of the above referenced
officers.
The Employment Agreements provide for three-year terms for each
Executive. The terms of the Employment Agreements shall be extended on a daily
basis unless written notice of non-renewal is given by the Board of Directors.
The Employment Agreements provide that the Executive's base salary will be
reviewed annually. The base salaries which will be effective for such Employment
Agreements for Messrs. Mancino, Bransfield, Klag, Toohig and Puorro will be
$ , $ , $ , $ and $ , respectively. In addition
------- ------- ------- ------- -------
to the base salary, the Employment Agreements provide for, among other things,
participation in stock benefits plans and other fringe benefits applicable to
executive
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<PAGE>
personnel. The agreements provide for termination by the Bank or the Company for
cause, as defined in the Employment Agreements, at any time. In the event the
Bank or the Company chooses to terminate the Executive's employment for reasons
other than for cause, or in the event of the Executive's resignation from the
Bank and the Company upon: (i) failure to re-elect the Executive to his current
offices; (ii) a material change in the Executive's functions, duties or
responsibilities; (iii) a relocation of the Executive's principal place of
employment by more than 25 miles; (iv) liquidation or dissolution of the Bank or
the Company; or (v) a breach of the agreement by the Bank or the Company, the
Executive or, in the event of death, his beneficiary would be entitled to
receive an amount equal to the remaining base salary payments due to the
Executive and the contributions that would have been made on the Executive's
behalf to any employee benefit plans of the Bank and the Company during the
remaining term of the agreement. The Bank and the Company would also continue
and pay for the Executive's life, health, dental and disability coverage for the
remaining term of the Agreement. Upon any termination of the Executive, the
Executive is subject to a one year non-competition agreement.
Under the Employment Agreements, if voluntary or involuntary
termination follows a change in control of the Bank or the Company, the
Executive or, in the event of the Executive's death, his beneficiary, would be
entitled to a severance payment equal to the greater of: (i) the payments due
for the remaining terms of the agreement; or (ii) three times the average of the
five preceding taxable years' annual compensation. The Bank and the Company
would also continue the Executive's life, health, and disability coverage for
thirty-six months. Notwithstanding that both the Bank and Company Employment
Agreements provide for a severance payment in the event of a change in control,
the Executive would only be entitled to receive a severance payment under one
agreement.
Payments to the Executive under the Bank's Employment Agreement will be
guaranteed by the Company in the event that payments or benefits are not paid by
the Bank. Payment under the Company's Employment Agreement would be made by the
Company. All reasonable costs and legal fees paid or incurred by the Executive
pursuant to any dispute or question of interpretation relating to the Employment
Agreements shall be paid by the Bank or Company, respectively, if the Executive
is successful on the merits pursuant to a legal judgment, arbitration or
settlement. The Employment Agreements also provide that the Bank and Company
shall indemnify the Executive to the fullest extent allowable under federal and
Delaware law, respectively. In the event of a change in control of the Bank or
the Company, the total amount of payments due under the Agreements, based solely
on cash compensation paid to the officers who will receive Employment Agreements
over the past five fiscal years and excluding any benefits under any employee
benefit plan which may be payable, would be approximately $ million.
---
CHANGE IN CONTROL AGREEMENTS
Upon Conversion, the Bank intends to enter into two-year Change in
Control Agreements (the "CIC Agreements") with seven Vice Presidents of the
Bank. Commencing on the first anniversary date and continuing on each
anniversary thereafter, the Bank CIC Agreements may be renewed by the Board of
Directors of the Bank for an additional year. The Bank's CIC Agreements will
provide that in the event voluntary or involuntary termination follows a change
in control of the Bank, the officer would be entitled to receive a severance
payment equal to two times the officer's compensation for the twelve months
preceding termination. The Bank would also continue and pay for the officer's
life, health and disability coverage for 24 months following termination. In the
event of a change in control of the Bank, the total payments that would be due
under the CIC Agreements, based solely on the current annual compensation paid
to the officers covered by the CIC Agreements and excluding any benefits under
any employee benefit plan which may be payable, would be approximately $
---
million.
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<PAGE>
EMPLOYEE SEVERANCE COMPENSATION PLAN
The Bank's Board of Directors intends to, upon Conversion, establish
the Roslyn Savings Bank Employee Severance Compensation Plan ("Severance Plan")
which will provide eligible employees with severance pay benefits in the event
of a change in control of the Bank or the Company following Conversion.
Management personnel with Employment Agreements or CIC Agreements are not
eligible to participate in the Severance Plan. Generally, employees are eligible
to participate in the Severance Plan if they have completed at least one year of
service with the Bank. The Severance Plan vests in each participant a
contractual right to the benefits such participant is entitled to thereunder.
Under the Severance Plan, in the event of a change in control of the Bank or the
Company, eligible employees who are terminated from or terminate their
employment within one year (for reasons specified under the Severance Plan),
will be entitled to receive a severance payment. If the participant, whose
employment has terminated, has completed at least one year of service, the
participant will be entitled to a cash severance payment equal to one-twelfth of
annual compensation for each year of service up to a maximum of 199% of annual
compensation. Such payments may tend to discourage takeover attempts by
increasing costs to be incurred by the Bank in the event of a takeover. In the
event the provisions of the Severance Plan are triggered, the total amount of
payments that would be due thereunder, based solely upon current salary levels,
would be approximately $ million. However, it is management's belief that
---
substantially all of the Bank's employees would be retained in their current
positions in the event of a change in control, and that any amount payable under
the Severance Plan would be considerably less than the total amount that could
possibly be paid under the Severance Plan.
BENEFIT PLANS
Retirement Plan. The Bank maintains a defined benefit plan ("Retirement
Plan") for eligible employees. The Retirement Plan is intended to satisfy the
requirements of section 401(a) of the Code. Employees who have attained age 21,
have completed at least one year of service for the Bank in which the employee
completes at least 1,000 hours of service and are not (i) paid on an hourly-rate
or contract basis, (ii) regularly employed outside the Bank's own offices in
connection with the operation and maintenance of building and other property
acquired through foreclosure or deed, or (iii) leased employees. Participants
become vested in their benefits under the Retirement Plan after being credited
with at least five years of service and the attainment of age 23.
The Retirement Plan provides for a monthly benefit to the participant
upon retirement at or after the later of (i) attainment of age 65 or (ii) the
fifth anniversary of initial participation in the Plan. The Retirement Plan also
provides for a benefit upon the participant's death or early retirement. The
annual normal retirement benefit for a participant under the Retirement Plan is
determined as (i) 2% of average annual earnings multiplied by years of credited
service (up to a maximum of 30 years), plus (ii) 0.5% of average annual earnings
multiplied by the participant's number of years and months of credited service
in excess of 30 years. For purposes of the Retirement Plan, average annual
earnings means the participant's average annual basic compensation during the 36
consecutive calendar months that yields the highest average within the
participants' final 120 consecutive calendar months of service. A participant is
eligible to receive an early retirement benefit upon the completion of at least
ten consecutive years of vested service in the Retirement Plan and (i)
attainment of age 60, or (ii) the sum of the participant's age and years of
service equals at least 75. Early retirement benefits are a reduced benefit
payable compared to the normal retirement benefit. Benefits are generally paid
in a straight life annuity with respect to unmarried participants and in the
form of a 50% joint and survivor annuity (with the spouse as designated
beneficiary) for married participants. Other forms of benefit payments are
available under the Retirement Plan.
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<PAGE>
Benefit Restoration Plan. The Bank maintains the Benefit Restoration
Plan (the "BRP"). The BRP is a non-qualified plan that is designed to permit
certain employees to receive supplemental retirement income from the Bank.
Participants in the BRP receive a benefit equal to the amount the participant
would have received under the 401(k) Plan and the Retirement Plan, but for the
reductions on such benefits and other limitations imposed on the benefits
payable under tax qualified plans under Section 401(a)(17), 401(m),401(k)(3),
402(g) and 415 of the Code. The BRP is being amended to provide BRP participants
to also receive a benefit equal to the amount of benefits the Participant would
have received under the ESOP but for the Code limitations. The Plan is an
unfunded plan, which provides participants only with a contractual right to
obtain the benefits provided thereunder from the general assets of the Bank.
Currently, only Messrs. Mancino and Bransfield are eligible to participate in
the BRP.
The following table sets forth the estimated annual benefits payable
under the Retirement Plan upon a participant's retirement at age 65 for the year
ended December 31, 1995, expressed in the form of a straight life annuity, and
any related amounts payable under the Benefit Restoration Plan. The covered
compensation under the Retirement Plan and Benefit Restoration Plan includes the
base salary for participants, including Named Executive Officers and does not
consider any cash bonus amounts. The benefits listed in the table below for the
Retirement Plan and Benefit Restoration Plan are not subject to a deduction for
social security benefits or any other offset amount.
<TABLE>
<CAPTION>
YEARS OF SERVICE
--------------------------------------------------------------------------------------------
FINAL AVERAGE
COMPENSATION 15 20 25 30 35 40
- -------------------- ------------- ------------- ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
$50,000 $ 15,000 $ 20,000 $ 25,000 $ 30,000 $ 31,250 $ 32,500
100,000 30,000 40,000 50,000 60,000 62,500 65,000
150,000 45,000 60,000 75,000 90,000 93,750 97,500
200,000 60,000 80,000 100,000 120,000 125,000 130,000
250,000 75,000 100,000 125,000 150,000 156,250 162,500
300,000 90,000 120,000 150,000 180,000 187,500 195,000
350,000 105,000 140,000 175,000 210,000 218,750 227,500
400,000 120,000 160,000 200,000 240,000 250,000 260,000
450,000 135,000 180,000 225,000 270,000 281,250 290,500
</TABLE>
The approximate years of service, as of December 31, 1995, for the
named executive officers are as follows:
<TABLE>
<CAPTION>
YEARS OF
SERVICE
----------------------
<S> <C>
Joseph L. Mancino................................. 35
John Klag......................................... 2
John Bransfield................................... 2
Arthur Toohig..................................... 19
Michael Puorro.................................... 3
</TABLE>
401(k) Plan. The Bank maintains the 401(k) Savings Plan ("401(k)
Plan"), a tax-qualified profit sharing and salary reduction plan under Sections
401(a) and 401(k) of the Code. The 401(k) Plan provides participants with
retirement benefits and may also provide benefits upon death, disability or
termination of employment with the Bank. Salaried, and as of August, 1995,
commission-paid employees, are eligible to participate in the Plan following the
completion of one year of service.
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<PAGE>
Participants may make salary reduction contributions to the 401(k) Plan
up to the lesser of 12% of the participant's compensation or the legally
permissible limit (currently $9,500). The Bank matches 50% of the amount of the
participant's salary reduction contributions up to a maximum of 3% of the
participant's compensation. For those employees who have been participants in
the 401(k) Plan for at least sixty months, the Bank contributes an additional
50% of that amount of the participant's salary reduction contributions up to a
maximum of 6% of the participant's compensation. The 401(k) Plan permits
participants to direct the investment of their 401(k) plan account into various
investment alternatives. The investment accounts are valued daily and
participants are provided with information regarding the market value of the
participant's investments and all contributions made on his or her behalf on at
least a quarterly basis.
Participants are always 100% vested in their salary reduction
contributions. Participants become 20% vested in Bank matching contributions
after the completion of one year of service with the Bank. Their vested interest
in Bank matching contribution increases by 20% for each year of service
completed, so that after the completion of 5 years of service, the participant
is 100% vested in Bank matching contributions. A participant who terminates
employment due to death, disability, or retirement also becomes fully vested in
the Bank's matching contributions credited to his or her account. A
participant's vested portion of his or her 401(k) Plan account is distributable
from the 401(k) Plan upon the termination of the participant's employment,
death, disability or retirement. In addition, a participant may withdraw amounts
rolled over to the 401(k) Plan from another qualified plan if the participant
has attained age 59 1/2. Participants may also receive hardship distributions
from the 401(k) Plan. Any distribution made to a participant prior to the
participant's attainment of age 59 1/2 is subject to a 10% tax penalty.
Participants may borrow against the vested portion of their accounts. The Board
of Directors may at any time discontinue the Bank's contributions to employee
accounts. For the years ended December 31, 1995, 1994 and 1993, the Bank's
matching contributions to the 401(k) Plan were $255,257, $220,386 and $206,841,
respectively.
Participants may direct the investment of their 401(k) Plan accounts
into specified investment funds. In connection with the Conversion, the Bank
intends to amend the 401(k) Plan to permit participants to invest in an Employer
Stock Fund as one of the investment alternatives. The Employer Stock Fund will
be invested primarily in shares of Common Stock. The trustee may follow the
voting directions of 401(k) Plan participants investing in the Employer Stock
Fund, provided that the trustee determines such voting is consistent with its
fiduciary duties. However, the trustee is not required to follow the voting
directions of the 401(k) Plan participants with respect to Common Stock held in
the Employer Stock Fund.
ESOP. In connection with the Conversion, the Bank intends to implement
an employee stock ownership plan ("ESOP"). The ESOP is a tax qualified
retirement plan designed to invest primarily in the Common Stock. The ESOP will
permit the Bank to contribute to the ESOP the Bank matching contributions
accrued under the 401(k) Plan to ESOP participant accounts. The Bank will make
additional contributions to the ESOP on behalf of all ESOP participants. The
ESOP will provide eligible employees with the opportunity to receive a Bank
funded retirement benefit based on the value of the Common Stock. All full-time
salaried employees of the Bank who have completed a year of service with the
Bank in which the employee completes at least 1,000 hours of service will be
eligible to participate in the ESOP portion of the combined plan.
The ESOP intends to purchase 8% of the Common Stock issued in
connection with the Conversion, including the issuance of shares to the
Foundation. As part of the Conversion and in order to fund the ESOP's purchase
of the Common Stock to be issued in the Conversion, the ESOP intends to borrow
funds from the Company equal to 100% of the aggregate purchase price of the
Common Stock
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<PAGE>
to be purchased by the ESOP. Alternatively, the Company and Bank may choose to
fund the ESOP's purchase of stock through a loan from a third party financial
institution. The collateral for the loan will be the Common Stock purchased by
the ESOP with the loan proceeds, as described below. The term of the ESOP loan
will be 30 years and it will be repaid principally from the Company's or the
Bank's contributions to the ESOP. The Bank intends to use matching contributions
made with respect to ESOP participants' 401(k) salary reduction contributions
and other discretionary contributions to meet the ESOP loan obligations.
Additionally, any dividends that may be paid on unallocated stock held by the
ESOP will also be used to repay the ESOP Plan. Subject to receipt of any
necessary regulatory approvals or opinions, the Bank may make additional
contributions to the ESOP for repayment of the loan or to reimburse the Company
for contributions made by it. The interest rate for the loan is expected to be
the prime rate, which currently is 8.75%.
Shares of Common Stock purchased by the ESOP with the loan proceeds
will initially be pledged as collateral for the loan, and will be held in a
suspense account until released for allocation among participants as the loan is
repaid. The pledged shares will be released annually from the suspense account
in an amount proportional to the repayment of the ESOP loan for each plan year.
The released shares will be allocated to the accounts of ESOP participants
pursuant to two methods. First, for each eligible ESOP participant, a portion of
the shares released for the plan year will be allocated to a special "matching"
account under the ESOP equal in value to the amount of matching contribution, if
any, that such participant would be entitled to under the terms of the Roslyn
Savings Bank 401(k) Plan for the plan year. Second, the remaining shares which
have been released for the plan year will be allocated to each eligible
participant's general ESOP account based on the ratio of each such participant's
base compensation to the total base compensation of all eligible ESOP
participants. Participants will vest in their ESOP account at a rate of 20%
annually commencing after the completion of one year of service, with 100%
vesting upon the completion of 5 years of service. Participants will also
completely vest if their service is terminated due to death, retirement,
permanent disability, or upon the occurrence of a change in control. Prior to
the completion of one year of credited service, a participant who terminates
employment for reasons other than death, retirement, disability, or change in
control of the Bank or the Company will not receive any benefit. Forfeitures
will be reallocated among remaining participating employees, in the same
proportion as contributions. Benefits may be payable upon death, retirement,
early retirement, or separation from service. The annual contributions to the
ESOP are not fixed, so benefits payable under the ESOP cannot be estimated.
In connection with the establishment of the ESOP, a Committee of the
Board of Directors and officers of the Bank will be appointed to administer the
ESOP (the "ESOP Committee"). An unrelated corporate trustee for the ESOP and the
401(k) Plan Employer Stock Fund will be appointed prior to the Conversion and
continuing thereafter. The ESOP Committee may instruct the trustee regarding
investment of funds contributed to the ESOP. The ESOP trustee, subject to its
fiduciary duties, must vote all allocated shares held in the ESOP in accordance
with the instructions of the participating employees. Under the ESOP,
unallocated shares and allocated shares for which no instructions are given will
be voted by the trustee in a manner calculated to most accurately reflect the
instructions it has received from participants regarding the allocated stock,
provided that such vote is in accordance with the provisions of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA").
Management Supplemental Executive Retirement Plan. The Bank intends to
implement a non-qualified Supplemental Executive Retirement Plan ("SERP") to
provide certain officers and highly compensated employees with additional
retirement benefits. The SERP benefit is intended to make up benefits lost under
the ESOP allocation procedures to participants who retire prior to the complete
repayment of the ESOP loan. At the retirement of a participant, the benefits
under the SERP are determined by first: (i) projecting the number of shares that
would have been allocated to the participant
123
<PAGE>
under the ESOP if they had been employed throughout the period of the ESOP loan
(measured from the participant's first date of ESOP participation); and
(ii) reducing the number determined by (i) above by the number of shares
actually allocated to the Participant's account under the ESOP; and second, by
multiplying the number of shares that represent the difference between such
figures by the average fair market value of the Common Stock over the preceding
five years. Benefits under the SERP vest in 20% annual increments over a five
year period commencing as of the date of a Participant's participation in the
SERP. The vested portion of the SERP Participant's benefits are payable upon the
retirement of the Participant upon or after the attainment of age 65 or in
accordance with the requirements of early retirement under the Retirement Plan.
The Bank will amend the existing irrevocable grantor's trust ("rabbi
trust") established in connection with the BRP to hold the assets of the SERP.
This trust would be funded with contributions from the Bank for the purpose of
providing the benefits promised under the terms of the SERP. The rabbi trust may
hold a variety of assets including the Company's stock, other securities,
insurance contracts and cash. The SERP participants have only the rights of
unsecured creditors with respect to the trust's assets, and will not recognize
income with respect to benefits provided by the SERP until such benefits are
received by the participants. The assets of the rabbi trust are considered part
of the general assets of the Bank and are subject to the claims of the Bank's
creditors in the event of the Bank's insolvency. Earnings on the trust's assets
are taxable to the Bank.
Stock Option Plans. Following the conversion, the Board of Directors of
the Company intends to adopt stock-based benefit plans which would provide for
the granting of options to purchase Common Stock to eligible officers, employees
and directors of the Company and Bank. Stock options are intended to be granted
under either a separate stock option plan for officers and employees (the
"Incentive Option Plan") and a separate option plan for outside directors (the
"Directors' Option Plan") (collectively, the "Option Plans") or under a single
Master Stock-Based Benefit Plan which would incorporate the benefits and
features of the Incentive Option Plan and Directors' Option Plan. At a meeting
of stockholders of the Company following the Conversion, which under applicable
NYBD regulations may be held no earlier than six months after the completion of
the Conversion, the Board of Directors intends to present the Option Plans or
the Master Stock-Based Benefit Plan to stockholders for approval and has
reserved an amount equal to 10% of the shares of Common Stock issued in the
Conversion, including shares issued to the Foundation (or 3,519,000 shares based
upon the issuance of 35,190,000 shares), for issuance under the Option Plans or
Master Stock-Based Benefit Plan. NYBD regulations provide that, in the event
such plan is implemented within the one year following the conversion, no
individual officer or employee of the Bank may receive more than 25% of the
options granted under the Option Plans or Master Stock- Based Benefit Plan and
non-employee directors may not receive more than 5% individually, or 30% in the
aggregate of the options granted under the Option Plans, and NYBD and FDIC
regulations provide that exercise price of any options granted under any such
plan must be the market price of the Common Stock as of the date of grant.
The stock option benefits provided under the Incentive Option Plan or
Master Stock-Based Benefit Plan will be designed to attract and retain qualified
personnel in key positions, provide officers and key employees with a
proprietary interest in the Company as an incentive to contribute to the success
of the Company and reward key employees for outstanding performance. The
granting or vesting of stock options may be conditioned upon the achievement of
individual or Company-wide performance goals, including the achievement by the
Company or Bank of specified levels of net income, asset growth, return on
equity or other specific financial performance goals. All full-time salaried and
commission paid employees of the Company and its subsidiaries may be eligible to
participate in the Incentive Option Plan. The Incentive Option Plan or Master
Stock-Based Benefit Plan will provide for the grant of: (i) options to purchase
the Company's Common Stock intended to qualify as incentive stock options under
Section
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<PAGE>
422 of the Code ("Incentive Stock Options"); (ii) options that do not so qualify
("Non-Statutory Stock Options"); and (iii) Limited Rights (discussed below)
which will be exercisable only upon a change in control of the Bank or the
Company. Unless sooner terminated, the Incentive Option Plan or Master
Stock-Based Benefit Plan will be in effect for a period of ten years from the
earlier of adoption by the Board of Directors or approval by the Company's
Stockholders. Subject to stockholder approval, the Company intends to grant
options with Limited Rights under the Incentive Option Plan or Master Stock-
Based Benefit Plan at an exercise price equal to the fair market value of the
underlying Common Stock on the date of grant. Subject to any applicable NYBD and
FDIC regulations, upon exercise of "Limited Rights" in the event of a change in
control, the employee will be entitled to receive a lump sum cash payment equal
to the difference between the exercise price of the related option and the fair
market value of the shares of common stock subject to the option on the date of
exercise of the right in lieu of purchasing the stock underlying the option. It
is anticipated that all options granted contemporaneously with stockholder
approval of the Incentive Option Plan will be intended to be Incentive Stock
Options to the extent permitted under Section 422 of the Code.
Under the Incentive Option Plan or Master Stock-Based Benefit Plan, it
is expected that the Personnel Committee will determine which officers and
employees will be granted options and Limited Rights, whether such options will
be Incentive or Non-Statutory Stock Options, the number of shares subject to
each option, the exercise price of each non-statutory stock option, whether such
options may be exercised by delivering other shares of Common Stock and when
such options become exercisable. It is expected that the per share exercise
price of an Incentive Stock Option will be required to be at least equal to the
fair market value of a share of Common Stock on the date the option is granted.
If the Incentive Option Plan or Master Stock-Based Benefit Plan is
adopted in the form described above, an employee will not be deemed to have
received taxable income upon grant or exercise of any Incentive Stock Option,
provided that such shares received through the exercise of such option are not
disposed of by the employee for at least one year after the date the stock is
received in connection with the option exercise and two years after the date of
grant of the option. No compensation deduction would be able to be taken by the
Company as a result of the grant or exercise of Incentive Stock Options,
provided such shares are not disposed of before the expiration of the period
described above (a "disqualifying disposition"). In the case of a Non-Statutory
Stock Option and in the case of a disqualifying disposition of an Incentive
Stock Option, an employee will be deemed to receive ordinary income upon
exercise of the stock option in an amount equal to the amount by which the
exercise price is exceeded by the fair market value of the Common Stock
purchased by exercising the option on the date of exercise. The amount of any
ordinary income deemed to be received by an optionee upon the exercise of a
Non-Statutory Stock Option or due to a disqualifying disposition of an Incentive
Stock Option would be a deductible expense for tax purposes for the Company. In
the case of Limited Rights, upon exercise, the option holder would have to
include the amount paid to him or her upon exercise in his gross income for
federal income tax purposes in the year in which the payment is made and the
Company would be entitled to a deduction for federal income tax purposes of the
amount paid.
If the Incentive Option Plan or Master Stock-Based Benefit Plan is
adopted in the form described above, stock options would become vested and
exercisable in the manner specified by the Company, subject to applicable NYBD
and FDIC regulations. Options granted in connection with the Incentive Option
Plan or Master Stock-Based Benefit Plan could be exercisable for three months
following the date on which the employee ceases to perform services for the Bank
or the Company, except that in the event of death or disability, options
accelerate and become fully vested and could be exercisable for up to one year
thereafter or such longer period as determined by the Company. However, any
Incentive Stock Options exercised more than three months following the date the
employee ceases to perform services as an employee, other than termination due
to death or disability, would be treated as a Non-Statutory Stock
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Option as described above. In the event of retirement, if the optionee continues
to perform services as a Director, Director Emeritus or consultant on behalf of
the Bank, the Company or an affiliate, unvested options would continue to vest
in accordance with their original vesting schedule until the optionee ceases to
serve as a Director, Director Emeritus or consultant. If the Incentive Stock
Option Plan or Master Stock-Based Benefit Plan is adopted in the form described
above, the Company, if requested by the optionee, could elect, in exchange for
vested options, to pay the optionee, or beneficiary in the event of death, the
amount by which the fair market value of the Common Stock exceeds the exercise
price of the options on the date of the employee's termination of employment.
Under the Directors' Option Plan or Master Stock-Based Benefit Plan
contemplated, the exercise price per share of each option granted may be equal
to the fair market value of the shares of Common Stock on the date the option is
granted. All Options granted to outside directors under the Directors' Option
Plan or Master Stock-Based Benefit Plan would be Non-Statutory Stock Options and
would vest and become exercisable in a manner specified by the Company, subject
to applicable NYBD and FDIC regulations, and would expire upon the earlier of
ten years following the date of grant or one year following the date the
optionee ceases to be a Director, Director Emeritus or consultant. In the event
of the death or disability of a participant, all previously granted options
would immediately vest and become fully exercisable.
It is intended that, subject to any applicable NYBD or FDIC
regulations, the Incentive Option Plan and the Directors Option Plan or Master
Stock-Based Benefit Plan described above provide for accelerated vesting of
previously granted options in the event of a change in control of the Company or
the Bank. A change in control would be defined in the contemplated Incentive
Option Plan, Master Stock-Based Benefit Plan or the Directors Option Plan
generally to occur when a person or group of persons acting in concert acquires
beneficial ownership of 20% or more of any class of equity security of the
Company or the Bank or in the event of a tender or exchange offer, merger or
other form of business combination, sale of all or substantially all of the
assets of the Company or the Bank or contested election of directors which
resulted in the replacement of a majority of the Board of Directors by persons
not nominated by the directors in office prior to the contested election.
Stock Programs. Following the Conversion, the Company intends to
establish performance based Stock Programs as a method of providing officers,
employees and non-employee directors of the Bank and Company with a proprietary
interest in the Company in a manner designed to encourage such persons to remain
with the Bank. The benefits intended to be granted under the Stock Programs may
be provided for under either a separate plan for officers and employees and a
separate plan for outside directors or under the Master Stock-Based Benefit Plan
which would incorporate the benefits and features of such separate Stock Program
plans and the Stock Option Plans discussed above. The Company intends to present
the Stock Programs or Master Stock-Based Benefit Plan for stockholder approval
at a meeting of stockholders, which pursuant to applicable NYBD regulations, may
be held no earlier than six months after the completion of the Conversion.
The Bank or Company expects to contribute funds to the Stock Programs
or Master Stock-Based Benefit Plan to enable such plans to acquire, in the
aggregate, an amount equal to 4% of the shares of Common Stock issued in the
Conversion, including shares issued to the Foundation (or 1,407,600 shares based
upon the issuance of 35,190,000 shares). These shares would be acquired through
open market purchases, if permitted, or from authorized but unissued shares.
Although no specific award determinations have been made, the Company
anticipates that, it would provide stock awards to the directors and employees
of the Company or Bank or their affiliates to the extent permitted by applicable
regulations. NYBD regulations provide that, to the extent the Stock Programs are
implemented within one year after the Conversion, no individual employee may
receive more than 25% of the shares of any
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plan and non-employee directors may not receive more than 5% of any plan
individually or 30% in the aggregate for all directors.
A committee of the Board of Directors would administer the Stock
Programs or Master Stock-Based Benefit Plan described above. Under the Stock
Programs or Master Stock-Based Benefit Plan, awards would be granted in the form
of shares of Common Stock held by the plans. Awards will be non-transferable and
non-assignable. The Board intends to appoint an independent fiduciary to serve
as trustee of the trust to be established pursuant to the Stock Programs or
Master Stock-Based Benefit Plan. Allocations and grants to officers and
employees under the Stock Programs or Master Stock-Based Benefit Plan may be
made in the form of base grants and allocations based on performance goals. The
granting or vesting of stock awards under the Stock Programs or Master
Stock-Based Benefit Plan may be conditioned upon the achievement of individual
or Company-wide performance goals, including the Company's or Bank's achievement
of specified levels of net income, return on assets, return on equity or other
specified financial performance goals and will be subject to applicable NYBD and
FDIC regulations.
In the event of death, grants would be 100% vested. In the event of
disability, grants would be 100% vested upon termination of employment of an
officer or employee, or upon termination of service as a director. In the event
of retirement, if the participant continues to perform services as a Director,
Director Emeritus or consultant on behalf of the Bank, the Company or an
affiliate or, in the case of a retiring Director, Director Emeritus, or as a
consulting director, unvested grants would continue to vest in accordance with
their original vesting schedule until the recipient ceases to perform such
services at which time any unvested grants would lapse.
It is intended that the Stock Programs or Master Stock-Based Benefit
Plan described above would provide for accelerated vesting of shares granted
under the Stock Programs or Master Stock-Based Benefit Plan in the event of a
change in control of the Bank or Company. A change in control is expected to be
defined in the Stock Programs or Master Stock-Based Benefit Plan generally to
occur when a person or group of persons acting in concert acquires beneficial
ownership of 20% or more of a class of equity securities of the Company or the
Bank or in the event of a tender or exchange offer, merger or other form of
business combination, sale of all or substantially all of the assets of the
Company or the Bank or contested election of directors which results in the
replacement of a majority of the Board of Directors by persons not nominated by
the directors in office prior to the contested election.
When shares become vested in accordance with the Stock Programs or
Master Stock-Based Benefit Plan described above, the participants would
recognize income equal to the fair market value of the Common Stock at that
time. The amount of income recognized by the participants would be a deductible
expense for tax purposes for the Company. When shares become vested and are
actually distributed in accordance with the Stock Programs or Master Stock-Based
Benefit Plan, the participants would receive amounts equal to any accrued
dividends with respect thereto. Prior to vesting, recipients of grants could
direct the voting of the shares awarded to them. Shares not subject to grants
and shares allocated subject to the achievement of performance and high
performance goals will be voted by the trustee of the Stock Programs or Master
Stock-Based Benefit Plan in proportion to the directions provided with respect
to shares subject to grants. Vested shares are distributed to recipients as soon
as practicable following the day on which they are vested.
In the event that additional authorized but unissued shares are
acquired by the Stock Programs or Master Stock-Based Benefit Plan after the
Conversion, the interests of existing shareholders would be diluted. See "Pro
Forma Data."
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TRANSACTIONS WITH CERTAIN RELATED PERSONS
The Bank's policies do not permit the Bank to make loans to any of its
Trustees and executive officers. The Company intends that all transactions
between the Company and its executive officers, directors, holders of 10% or
more of the shares of any class of its Common Stock and affiliates thereof, will
contain terms no less favorable to the Company than could have been obtained by
it in arms-length negotiations with unaffiliated persons and will be approved by
a majority of independent outside directors of the Company not having any
interest in the transaction.
SUBSCRIPTIONS BY EXECUTIVE OFFICERS, DIRECTORS AND TRUSTEES
The following table sets forth the number of shares of Common Stock the
Bank's executive officers, Trustees and Directors, and their associates, propose
to purchase, assuming shares of Common Stock are issued at the minimum and
maximum of the Estimated Price Range and that sufficient shares will be
available to satisfy their subscriptions. The table also sets forth the total
expected beneficial ownership of Common Stock as to all Trustees, Directors and
executive officers as a group.
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<TABLE>
<CAPTION>
AT THE MINIMUM AT THE MAXIMUM
OF THE ESTIMATED PRICE OF THE ESTIMATED PRICE
RANGE(1) RANGE(1)
-------------------------------- ---------------------------------
AS A PERCENT AS A PERCENT
NUMBER OF SHARES NUMBER OF SHARES
NAME AMOUNT OF SHARES OFFERED OF SHARES OFFERED
- ---------------------------- ---------- ------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Joseph L. Mancino $650,000 65,000 0.25% 65,000 0.17%
Floyd N. York 80,000 8,000 0.03 8,000 0.02
Victor C. McCuaig 500,000 50,000 0.19 50,000 0.12
John P. Nicholson 670,000 67,000 0.26 67,000 0.18
James E. Swiggett 600,000 60,000 0.23 60,000 0.15
Robert G. Freese 50,000 5,000 0.02 5,000 0.01
Thomas J. Calabrese 100,000 10,000 0.04 10,000 0.02
Dr. Edwin Martin, Jr. 40,000 4,000 0.01 4,000 0.01
Richard C. Webel 100,000 10,000 0.04 10,000 0.02
John R. Bransfield, Jr. 100,000 10,000 0.04 10,000 0.02
Mary M. Ehrich 150,000 15,000 0.06 15,000 0.04
John L. Klag 100,000 10,000 0.04 10,000 0.02
Daniel L. Murphy 200,000 20,000 0.08 20,000 0.05
Michael P. Puorro 160,000 16,000 0.06 16,000 0.04
Peter J. Russo 500,000 50,000 0.19 50,000 0.12
Anthony F. Panza 500,000 50,000 0.19 50,000 0.12
---------- ------- ---- ------- ----
All Directors and
Executive Officers as a
group (16 persons) $4,500,000 450,000 1.73% 450,000 1.11%
========== ======= ==== ======= ====
</TABLE>
- --------------------
(1) Includes proposed subscriptions, if any, by associates. Does not include
subscription orders by the ESOP. Intended purchases by the ESOP are
expected to be 8% of the shares issued in the Conversion, including shares
issued to the Foundation.
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THE CONVERSION
THE SUPERINTENDENT OF BANKS OF THE STATE OF NEW YORK HAS APPROVED THE
PLAN OF CONVERSION SUBJECT TO THE APPROVAL OF THE BANK'S ELIGIBLE ACCOUNT
HOLDERS AND THE SATISFACTION OF CERTAIN OTHER CONDITIONS. HOWEVER, SUCH APPROVAL
DOES NOT CONSTITUTE A RECOMMENDATION OR ENDORSEMENT OF THE PLAN OF CONVERSION BY
THE SUPERINTENDENT. NEITHER THE FDIC NOR THE SUPERINTENDENT HAS APPROVED OR
DISAPPROVED THE ESTABLISHMENT OF THE ROSLYN SAVINGS BANK FOUNDATION.
GENERAL
On May 29, 1996 the Bank's Board of Trustees adopted the Plan of
Conversion pursuant to which the Bank will be converted from a New York State
chartered mutual savings bank to a New York State chartered stock savings bank.
The Plan was subsequently amended on July 30, 1996, to provide for the
establishment and funding of the Foundation in connection with the Conversion.
It is currently intended that all of the capital stock of the Bank will be held
by the Company, which is incorporated under Delaware Law. The Plan has been
approved by the Superintendent and FDIC, subject to, among other things,
approval of the Plan by the Bank's Eligible Account Holders. A special meeting
of Eligible Account Holders has been called for this purpose to be held on
, 1996.
- -------
The Company expects to receive approval from the OTS to become a
savings and loan holding company and to acquire all of the common stock of the
Bank to be issued in the Conversion. The Company plans to retain 50% of the net
proceeds from the sale of the Common Stock and to use the remaining 50% to
purchase all of the common stock of the Bank to be issued in the Conversion. The
Conversion will be effected only upon completion of the sale of all of the
shares of Common Stock of the Company or all of the common stock of the Bank, if
the Company form of organization is not utilized, to be issued in the
Conversion.
The Plan provides that the Board of Trustees of the Bank, at any time
prior to the issuance of the Common Stock and for any reason, may decide not to
use the holding company form of organization in implementing the Conversion.
Such reasons may include possible delays resulting from overlapping regulatory
processing, or policies or conditions, which could adversely affect the Bank's
or the Company's ability to consummate the Conversion and transact its business
after the Conversion as contemplated herein and in accordance with the Bank's
operating policies. In the event that such a decision is made, the Bank will
withdraw the Company's registration statement from the SEC and will take all
steps necessary to complete the Conversion without the Company, including filing
any necessary documents with the Superintendent. In such event, and provided
there is no regulatory action, directive or other consideration upon which basis
the Bank determines not to complete the Conversion, if permitted by the
Superintendent, the Bank will issue and sell the common stock of the Bank and
subscribers will be notified of the elimination of the Company and resolicited
(i.e., be permitted to affirm their orders, in which case they will need to
affirmatively reconfirm their subscriptions prior to the expiration of the
resolicitation offering or their funds will be promptly refunded with interest,
or be permitted to modify or rescind their subscriptions) and notified of the
time period within which the subscriber must affirmatively notify the Bank of
his intention to affirm, modify or rescind his subscription. The following
description of the Plan assumes that a holding company form of organization will
be used in the Conversion. In the event that a holding company form of
organization is not used, all other pertinent terms of the Plan as described
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below will apply to the conversion of the Bank from the mutual to stock form of
organization and the sale of the Bank's common stock.
The Plan provides generally that (i) the Bank will convert from a
mutual savings bank to a capital stock savings bank and (ii) the Company will
offer Common Stock for sale in the Subscription Offering to Eligible Account
Holders, the ESOP and Supplemental Eligible Account Holders. Concurrently,
shares will be offered in the Community Offering to certain members of the
general public, with preference, except for certain shares reserved for
institutional investors, given to natural persons residing in the Bank's primary
market area, subject to the prior rights of holders of subscription rights. See
"- Community Offering." It is anticipated that all shares not subscribed for in
the Subscription and Community Offerings will be offered for sale by the Company
to the general public in a Syndicated Community Offering. The Bank and Company
have the right to accept or reject, in whole or in part, any orders to purchase
shares of the Common Stock received in the Community Offering or Syndicated
Community Offering.
The aggregate price of the shares of Common Stock to be sold in the
Conversion within the Estimated Price Range (currently estimated to be between
$252.5 million and $341.7 million based upon the issuance of between 25,252,427
and 34,165,049 shares at $10.00 per share) will be determined based upon an
independent appraisal prepared by FinPro of the estimated pro forma market value
of the Common Stock of the Company offered for sale giving effect to the
Conversion. All shares of Common Stock to be issued and sold in the Conversion
will be sold at the same price. FinPro's independent appraisal will be updated
and the final price of the shares will be determined at the completion of the
Subscription and Community Offerings, if all shares are subscribed for, or at
the completion of the Syndicated Community Offering. The independent appraisal
has been performed by FinPro, a consulting firm experienced in the valuation and
appraisal of savings institutions. See "- Stock Pricing" for a determination of
the estimated pro forma market value of the Common Stock.
The following is a brief summary of material aspects of the Conversion.
The summary is qualified in its entirety by reference to the provisions of the
Plan. A copy of the Plan is available upon written request from the Bank and is
available for inspection at each branch of the Bank and at the office of the
Superintendent. The Plan is also filed as an Exhibit to the Registration
Statement of which this Prospectus is a part, copies of which may be obtained
from the SEC. See "Additional Information."
ESTABLISHMENT OF CHARITABLE FOUNDATION
General. In furtherance of the Bank's commitment to its local
community, the Bank's Plan of Conversion provides for the establishment of a
charitable foundation in connection with the Bank's Conversion. The Plan
provides that the Bank and the Company will establish the Foundation, which will
be incorporated under Delaware law as a non-stock corporation, and will fund the
Foundation with Common Stock of the Company, as further described below. The
Company and the Bank believe that the funding of the Foundation with Common
Stock of the Company is a means of establishing a common bond between the Bank
and its community and thereby enables the Bank's community to share in the
growth and success of the Company over the long term. By further enhancing the
Bank's visibility and reputation in its local community, the Bank believes that
the Foundation will enhance the long-term value of the Bank's community banking
franchise. The Foundation would be dedicated to charitable purposes, including
community development activities.
Purpose of the Foundation. The purpose of the Foundation is to provide
funding to support charitable causes and community development activities. In
recent years, the Bank has emphasized community lending and community
development activities. The Bank received a satisfactory CRA rating in its last
CRA examination. The Foundation is being formed as a complement to the Bank's
existing
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community activities, not as a replacement for such activities. The Bank intends
to continue to emphasize community lending and community development activities
following the Conversion. However, such activities are not the Bank's sole
corporate purpose. The Foundation, conversely, will be completely dedicated to
community activities and the promotion of charitable causes, and may be able to
support such activities in ways that are not presently available to the Bank.
Since the Bank has a satisfactory record of serving its community under the CRA
and already engages in community development activities, the Bank believes that
the Foundation will enable the Company and the Bank to assist their local
community in areas beyond community development and lending. The Bank believes
the establishment of the Foundation will enhance its current activities under
the CRA. In this regard, the Board of Trustees believes the establishment of a
charitable foundation is consistent with the Bank's commitment to community
service. The Board further believes that the funding of the Foundation with
Common Stock of the Company is a means of enabling the Bank's community to share
in the growth and success of the Company long after completion of the
Conversion. The Foundation will accomplish that goal by providing for continued
ties between the Foundation and Bank, thereby forming a partnership with the
Bank's community. The establishment of the 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. The Bank, however, does not expect the contribution to the
Foundation to take the place of the Bank's traditional community lending and
charitable activities.
Structure of the Foundation. The Foundation will be incorporated under
Delaware law as a non-stock corporation. Pursuant to the Foundation's bylaws,
the Foundation's Board of Directors will be comprised of existing directors of
the Company. A Nominating Committee of the Board, which is to be comprised of a
minimum of three members of the board, will nominate individuals eligible for
election to the board of directors. The Board of Directors of the Foundation
will elect the Directors at the annual meeting of the Foundation from those
nominated by the Nominating Committee. Directors will be divided into three
classes with each class appointed for three-year terms. The certificate of
incorporation of the Foundation provides that the corporation is organized
exclusively for charitable purposes, including community development, as set
forth in Section 501(c)(3) of the Code. The Foundation's certificate of
incorporation further provides that no part of the net earnings of the
Foundation will inure to the benefit of, or be distributable to its directors,
officers or members.
The authority for the affairs of the Foundation will be vested in the
Board of Directors of the Foundation. The Directors of the Foundation will be
responsible for establishing the policies of the Foundation with respect to
grants or donations by the Foundation, consistent with the purposes for which
the Foundation was established. Although no formal policy governing Foundation
grants exists at this time, the Foundation's Board of Directors will adopt such
a policy upon establishment of the Foundation. The Directors of the Foundation
will also be responsible for directing the activities of the Foundation,
including the management of the Common Stock of the Company held by the
Foundation.
The Company intends to capitalize the Foundation with Company Common
Stock in an amount equal to 3.0% of the total amount of Common Stock to be sold
in connection with the Conversion. At the minimum, midpoint and maximum of the
Estimated Price Range, the contribution to the Foundation would equal 757,573,
891,262 and 1,024,951 shares, which would have a market value of $7,575,730,
$8,912,620 and $10,249,510, respectively, assuming the Purchase Price of $10.00
per share. The Company and the Bank determined to fund the Foundation with
Common Stock rather than cash because it desired to form a bond with its
community in a manner that would allow the community to share in the potential
growth and success of the Company and the Bank over the long term. The funding
of the Foundation with stock also provides the Foundation with a potentially
larger endowment than if the Company contributed cash to the Foundation since,
as a shareholder, the Foundation will share in the potential growth and success
of the Company. As such, the contribution of stock to the Foundation has
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the potential to provide a self-sustaining funding mechanism which reduces the
amount of cash that the Company, if it were not making the stock donation, would
have to contribute to the Foundation in future years in order to maintain a
level amount of charitable grants and donations.
The Foundation would receive working capital from any dividends that
may be paid on the Company's Common Stock in the future, and subject to
applicable federal and state laws, loans collateralized by the Common Stock or
from the proceeds of the sale of any of the Common Stock in the open market from
time to time as may be permitted to provide the Foundation with additional
liquidity. As a private foundation under Section 501(c)(3) of the Code, the
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 Foundation in any one year shall
not exceed 5% of the average market value of the assets held by the Foundation,
except where the board of directors of the Foundation, determines that the
failure to sell an amount of common stock greater than such amount would result
in a long-term reduction of the value of the Foundation's assets and as such
would jeopardize the Foundation's capacity to carry out its charitable purposes.
Upon completion of the Conversion and the contribution of shares to the
Foundation immediately following the Conversion, the Company would have
26,010,000, 30,600,000 and 35,190,000 shares issued and outstanding at the
minimum, midpoint and maximum of the Estimated Price Range. Because the Company
will have an increased number of shares outstanding, the voting and ownership
interests of shareholders in the Company's common stock would be diluted by
2.9%, as compared to their interests in the Company if the Foundation was not
established. For additional discussion of the dilutive effect, see "Pro Forma
Data."
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 likely be classified as a private foundation. The Foundation will submit a
request to the IRS to be recognized as an exempt organization. As long as the
Foundation files its application for tax-exempt status within 15 months from the
date of its organization, and provided the IRS approves the application, the
effective date of the Foundation's status as a Section 501(c)(3) organization
will be the date of its organization.
In addition, under Delaware law, the Company is authorized by statute
to make charitable contributions and case law has recognized the benefits of
such contributions to a Delaware corporation. In this regard, Delaware case law
provides that a charitable gift must be within reasonable limits as to amount
and purpose to be valid. Under the Code, the Company may deduct up to 10% of its
taxable income in any one year and any contributions made by the Company in
excess of the deductible amount will be deductible over each of the five
succeeding taxable years. The Company and the Bank believe that the Conversion
presents a unique opportunity to establish and fund a charitable foundation
given the substantial amount of additional capital being raised in the
Conversion. In making such a determination, the Company and the Bank considered
the dilutive impact of the contribution of Common Stock to the Foundation on the
amount of Common Stock available to be offered for sale in the Conversion. Based
on such consideration, the Company and Bank believe that the contribution to the
Foundation in excess of the 10% annual limitation is justified given the Bank's
capital position and its earnings, the substantial additional capital being
raised in the Conversion and the potential benefits of the Foundation to the
Bank's community. In this regard, assuming the sale of the Common Stock at the
midpoint of the Estimated Price Range, the Company would have pro forma
consolidated capital of $78.8 million or 23.6% of pro forma consolidated assets
and the Bank's pro forma leverage and risk-based capital ratios would be 17.44%
and 39.11%, respectively. See "Regulatory Capital Compliance," "Capitalization,"
and "Comparison of Valuation and Pro Forma Information with No Foundation."
Thus, the amount of the contribution will not adversely impact the financial
condition of the Company and the Bank and the
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Company and the Bank therefore believe that the amount of the charitable
contribution is reasonable given the Company's and the Bank's pro forma capital
positions. As such, the Company and the Bank believe that the contribution does
not raise safety and soundness concerns.
The Company and the Bank have received an opinion of their independent
tax advisors that the Company's contribution of its own stock to the Foundation
would not constitute an act of self-dealing, and that the Company will be
entitled to a deduction in the amount of the fair market value of the stock at
the time of the contribution, subject to a 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. If the Foundation would have been established in 1995, the Company
would have received a charitable contribution deduction of approximately $2.7
million (based on the Bank's pre-tax income for 1995, an assumed tax rate of 37%
and a contribution of Common Stock equal to $10.2 million). The Company is
permitted under the Code to carryover the excess contribution over the five year
period following the contribution to the Foundation. Assuming the close of the
Offerings at the midpoint of the Estimated Price Range, the Company estimates
that all of the deduction should be deductible over the six-year period. Neither
the Company nor the Bank expect to make any further contributions to the
Foundation within the first five years following the initial contribution. After
that time, the Company and the Bank may consider future contributions to the
Foundation. Any such decisions would be based on an assessment of, among other
factors, the financial condition of the Company and the Bank at that time, the
interests of shareholders and depositors of the Company and the Bank, and the
financial condition and operations of the Foundation.
Although the Company and the Bank have received an opinion of their
independent tax advisors that the Company is entitled to a deduction for the
charitable contribution, there can be no assurances that the IRS will recognize
the 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
contribution to the Foundation would be expensed without tax benefit, resulting
in a reduction in earnings in the year in which the IRS makes such a
determination. See "Risk Factors - Establishment of Charitable Foundation."
As a private foundation, earnings and gains, if any, from the sale of
Common Stock or other assets are exempt from federal and state corporate
taxation. However, investment income, such as interest, dividends and capital
gains, will be subject to a federal excise tax of 2.0%. The Foundation will be
required to make an annual filing with the IRS within four and one-half months
after the close of the Foundation's fiscal year to maintain its tax-exempt
status. The 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
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 Foundation's managers and a concise statement
of the purpose of each grant. The 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.
PURPOSES OF CONVERSION
The Bank, as a New York State chartered mutual savings bank, does not
have stockholders and has no authority to issue capital stock. By converting to
the capital stock form of organization, the Bank will be structured in the form
used by commercial banks, most business entities and a growing number of savings
institutions. The Conversion will be important to the future growth and
performance of the Bank by providing a larger capital base on which the Bank may
operate, enhanced future access to capital markets, enhanced ability to
diversify into other financial services related activities and enhanced ability
to render services to the public.
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The holding company form of organization, if used, would provide
additional flexibility to diversify the Bank's business activities through
existing or newly formed subsidiaries, or through acquisitions of or mergers
with both mutual and stock financial institutions, as well as other companies.
Although there are no current arrangements, understandings or agreements
regarding any such opportunities, the Company will be in a position after the
Conversion, subject to regulatory limitations and the Company's financial
position, to take advantage of any such opportunities that may arise.
The potential impact of Conversion upon the Bank's capital base is
significant. At May 31, 1996, the Bank had core capital of $219.3 million, or
12.39% of total assets. Assuming that $290.0 million (based on the $297.1
million at the midpoint of the Estimated Price Range) of net proceeds are
realized from the sale of Common Stock (see "Pro Forma Data" for the basis of
this assumption) and assuming that 50% of the net proceeds are used by the
Company to purchase the capital stock of the Bank, the Bank's core capital would
increase to $328.0 million, resulting in a pro forma leverage capital ratio of
17.44% giving effect to the Conversion. In the event that the holding company
form of organization is not utilized and all the net proceeds, at the midpoint
of the Estimated Price Range, are retained by the Bank, the Bank's core capital
would increase to $472.5 million, resulting in a pro forma leverage capital
ratio of 23.36% at May 31, 1996. The investment of the net proceeds from the
sale of the Common Stock will provide the Bank with additional income to further
increase its capital position.
After completion of the Conversion, the unissued Common Stock and
preferred stock authorized by the Company's Certificate of Incorporation will
permit the Company, subject to market conditions and applicable regulatory
approvals, to raise additional equity capital through further sales of
securities, and to issue securities in connection with possible acquisitions. At
the present time, the Company has no plans with respect to additional offerings
of securities, other than the issuance of additional shares upon exercise of
stock options under the Stock Option Plans or Master Stock-Based Benefit Plan or
the possible issuance of authorized but unissued shares to the Stock Programs or
Master Stock-Based Benefit Plan. Following the Conversion, the Company will also
be able to use stock-based benefit plans to attract and retain executive and
other personnel for itself and its subsidiaries. See "Management of the Bank -
Executive Compensation."
EFFECTS OF CONVERSION
General. Each depositor in a mutual savings bank has both a deposit
account in the institution and a pro rata ownership interest in the net worth of
the institution based upon the balance in his or her account, which interest may
only be realized in the event of a liquidation of the institution. However, this
ownership interest is tied to the depositor's account and has no tangible market
value separate from such deposit account. Any depositor who opens a deposit
account obtains a pro rata ownership interest in the net worth of the
institution without any additional payment beyond the amount of the deposit. A
depositor who reduces or closes his account receives a portion or all of the
balance in the account but nothing for his ownership interest in the net worth
of the institution, which is lost to the extent that the balance in the account
is reduced.
Consequently, mutual savings bank depositors normally have no way to
realize the value of their ownership interest, which has realizable value only
in the unlikely event that the mutual savings bank is liquidated. In such event,
the depositors of record at that time, as owners, would have a claim to share
pro rata in any residual surplus and reserves after other claims, including
claims of depositors to the amounts of their deposits, are paid.
When a mutual savings bank converts to stock form, depositors lose all
rights to the net worth of the mutual savings bank, except to the extent
depositors have rights to claim a pro rata share of funds
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representing the liquidation account established in connection with the
Conversion. Additionally, permanent nonwithdrawable capital stock is created and
offered to depositors which represents the ownership of the institution's net
worth, subject to certain claims of Eligible Account Holders with respect to
amounts representing the liquidation account. THE COMMON STOCK IS SEPARATE AND
APART FROM DEPOSIT ACCOUNTS AND CANNOT BE AND IS NOT INSURED BY THE FDIC OR ANY
OTHER GOVERNMENTAL AGENCY. Certificates are issued to evidence ownership of the
permanent stock. The stock certificates are transferable, and therefore the
stock may be sold or traded if a purchaser is available with no effect on any
deposit account the seller may hold in the institution.
Continuity. While the Conversion is being accomplished, the normal
business of the Bank of accepting deposits and making loans will continue
without interruption. The Bank will continue to be subject to regulation by the
Superintendent and the FDIC. After Conversion, the Bank will continue to provide
services for depositors and borrowers under current policies by its present
management and staff.
The Trustees of the Bank at the time of Conversion will serve as
Directors of the Bank after the Conversion. The Directors of the Company will
consist of the same individuals who will serve on the Board of Directors of the
Bank. All officers of the Bank at the time of Conversion will retain their
positions after the Conversion.
Effect on Deposit Accounts. Under the Plan, each depositor in the Bank
at the time of Conversion will automatically continue as a depositor after the
Conversion, 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 Conversion. Depositors will
continue to hold their existing passbooks and other evidences of their accounts.
Effect on Loans. No loan outstanding from the Bank will be affected by
the Conversion, and the amount, interest rate, maturity and security for each
loan will remain as it was contractually fixed prior to the Conversion.
Effect on Voting Rights of Depositors. In its current mutual form,
voting rights and control of the Bank are vested exclusively in the Board of
Trustees. After the Conversion, direction of the Bank will be under the control
of the Board of Directors of the Bank. The Company, as the holder of all of the
outstanding common stock of the Bank, will have exclusive voting rights with
respect to any matters concerning the Bank requiring stockholder approval,
including the election of Directors of the Bank.
After the Conversion, subject to the rights of the holders of preferred
stock that may be issued in the future, the holders of the Common Stock will
have exclusive voting rights with respect to any matters concerning the Company.
Each holder of Common Stock will, subject to the restrictions and limitations
set forth in the Company's Certificate of Incorporation discussed below, be
entitled to vote on any matters to be considered by the Company's stockholders,
including the election of directors of the Company.
Tax Effects. The Bank has received an opinion of counsel with regard to
federal income taxation and an opinion of its independent auditors with regard
to New York State and New York City taxation which indicate that the adoption
and implementation of the Plan of Conversion set forth herein will not be
taxable for federal, New York State or New York City income and corporate
franchise tax purposes to the Bank or its eligible account holders or the
Company, subject to the limitations and qualifications contained in such
opinions. See "- Tax Aspects."
Effect on Liquidation Rights. If a mutual savings bank were to
liquidate, all claims of creditors (including those of depositors, to the extent
of deposit balances) would be paid first. Thereafter, if there
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were any assets remaining, depositors would have a claim to receive such
remaining assets, pro rata, based upon the deposit balances in their deposit
accounts immediately prior to liquidation. In the unlikely event that the Bank
were to liquidate after Conversion, all claims of creditors (including those of
depositors, to the extent of their deposit balances) would also be paid first,
followed by distribution of the "liquidation account", if any, to certain
depositors (as described in "- Liquidation Rights," below), with any assets
remaining thereafter distributed to the Company as the holder of the Bank's
capital stock.
STOCK PRICING
The Plan of Conversion requires that the purchase price of the Common
Stock must be based on the appraised pro forma market value of the Common Stock,
as determined on the basis of an independent appraisal. The Bank and the Company
have retained FinPro to make such appraisal. For its services in making such
appraisal, FinPro will receive a fee of $70,000, including fees related to the
preparation of a business plan for the Company and Bank, and will be reimbursed
for certain of its expenses. 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 the independent appraiser, except where FinPro's liability
results from its negligence or willful misconduct.
An appraisal has been made 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 Company and the Bank
and the economic and demographic conditions in the Bank's existing marketing
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 savings institutions; the aggregate size of the offering of
the Common Stock; the impact of Conversion on the Bank's net worth and earnings
potential; the proposed dividend policy of the Company and the Bank; and the
trading market for securities of comparable institutions and general conditions
in the market for such securities. In particular, the appraisal considered the
Bank's financial condition and projected and historical operating results,
including income and expense trends, asset size, loan portfolio composition,
non-performing loans and assets, interest rate sensitivity position, capital
position, and yields on assets and costs of liabilities in comparison to other
publicly-traded thrifts with assets greater than $800 million located in the New
York City metropolitan area and other metropolitan areas in New York State. The
Board of Trustees of the Bank and Board of Directors of the Company have
reviewed the appraisal of FinPro in determining the reasonableness and adequacy
of such appraisal consistent with NYBD and FDIC regulations and have reviewed
the methodology and reasonableness of assumptions utilized by FinPro in the
preparation of such appraisal.
On the basis of the foregoing, FinPro has advised the Company and the
Bank that, in its opinion dated July 22, 1996, the estimated pro forma market
value of the Common Stock being sold in connection with the Conversion ranged
from a minimum of $252.5 million to a maximum of $341.7 million (the "Valuation
Price Range") with a midpoint of $297.1 million. The Board of Trustees
established the Estimated Price Range of $252.5 million to $341.7 million within
the Valuation Price Range based on the issuance of 25,252,427 to 34,165,049
shares at the Purchase Price of $10.00 per share. The Estimated Price Range may
be amended with the approval of the Superintendent and FDIC (if required), if
necessitated by subsequent developments in the financial condition of the
Company or the Bank or market conditions generally.
SUCH APPRAISAL, HOWEVER, IS NOT INTENDED, AND MUST NOT BE CONSTRUED, AS
A RECOMMENDATION OF ANY KIND AS TO THE ADVISABILITY OF PURCHASING SUCH SHARES OF
COMMON STOCK. FINPRO DID NOT
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INDEPENDENTLY VERIFY THE CONSOLIDATED FINANCIAL STATEMENTS AND OTHER INFORMATION
PROVIDED BY THE BANK, NOR DID FINPRO VALUE INDEPENDENTLY THE ASSETS OR
LIABILITIES OF THE BANK. THE APPRAISAL 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 APPRAISAL 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 SUCH SHARES IN The
CONVERSION WILL THEREAFTER BE ABLE TO SELL SUCH SHARES AT PRICES AT OR ABOVE THE
PURCHASE PRICE OR IN THE RANGE OF THE FOREGOING VALUATION OF THE PRO FORMA
MARKET VALUE THEREOF. THE APPRAISAL OF FINPRO MAY BE INSPECTED BY ANY ELIGIBLE
ACCOUNT HOLDER AT THE BANK'S MAIN OFFICE LOCATED AT 1400 OLD NORTHERN BOULEVARD,
ROSLYN, NEW YORK, DURING REGULAR BUSINESS HOURS OF THE BANK. COPIES OF THE
APPRAISAL MAY ALSO BE REQUESTED BY AN ELIGIBLE ACCOUNT HOLDER; PROVIDED,
HOWEVER, THAT SUCH ELIGIBLE ACCOUNT HOLDER SHALL BE RESPONSIBLE FOR ALL COSTS
ASSOCIATED WITH THE COPYING AND TRANSMITTAL OF SUCH APPRAISAL.
Following commencement of the Subscription and Community Offerings, the
maximum of the Estimated Price Range may be increased up to 15% and the number
of shares of Common Stock being sold in the Conversion may be increased to
39,289,806 shares due to regulatory considerations, changes in the market and
general financial and economic conditions, without the resolicitation of
subscribers. See "- Limitations on Common Stock Purchases" as to the method of
distribution and allocation of additional shares that may be issued in the event
of an increase in the Estimated Price Range to fill unfilled orders in the
Subscription and Community Offerings.
No sale of shares of Common Stock may be consummated unless, prior to
such consummation, FinPro confirms to the Bank, Company, Superintendent and FDIC
that, to the best of its knowledge, nothing of a material nature has occurred
which, taking into account all relevant factors, would cause FinPro to conclude
that the value of the Common Stock at the price so determined is incompatible
with its estimate of the pro forma market value of the Common Stock at the
conclusion of the Subscription and Community Offerings.
If the pro forma market value of the Common Stock is either more than
15% above the maximum of the Estimated Price Range or less than the minimum of
the Estimated Price Range, the Bank and the Company, after consulting with the
Superintendent and FDIC, may terminate the Plan and return all funds promptly
with interest at the Bank's passbook rate of interest on payments made by check,
bank draft or money order, extend or hold a new Subscription and Community
Offering, establish a new Estimated Price Range, commence a resolicitation of
subscribers or take such other actions as permitted by the Superintendent and
FDIC in order to complete the Conversion. 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 following the conclusion of the Subscription and Community
Offerings would not exceed 45 days or, if following the Syndicated Community
Offering, would not exceed 60 days, unless such resolicitation period is further
extended by the Superintendent or FDIC for periods of up to 60 days not to
extend beyond _______________, 1998.
If all shares of Common Stock are not sold through the Subscription and
Community Offerings, then the Bank and the Company expect to offer the remaining
shares in a Syndicated Community Offering which would occur as soon as
practicable following the close of the Subscription and Community Offerings but
may commence the Syndicated Community Offering during the Subscription and
Community Offerings subject to prior rights of subscribers. All shares of Common
Stock will be sold at the same price per share in the Syndicated Community
Offering as in the Subscription and Community Offerings. See "--Syndicated
Community Offering."
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No sale of shares of Common Stock may be consummated unless, prior to
such consummation, FinPro confirms to the Bank, Company, Superintendent and FDIC
that, to the best of its knowledge, nothing of a material nature has occurred
which, taking into account all relevant factors, including those which would be
involved in a cancellation of the Syndicated Community Offering, would cause
FinPro to conclude that the aggregate value of the Common Stock at the Purchase
Price is incompatible with its estimate of the pro forma market value of the
Common Stock of the Company at the time of the Syndicated Community Offering.
Any change which would result in an aggregate purchase price which is below or
more than 15% above the Estimated Price Range would be subject to Superintendent
and FDIC approval. If such confirmation is not received, the Bank may extend the
Conversion, extend, reopen or commence new Subscription and Community Offerings
or Syndicated Community Offering, establish a new Estimated Price Range and
commence a resolicitation of all subscribers with the approval of the
Superintendent and FDIC or take such other actions as permitted by the
Superintendent and FDIC in order to complete the Conversion, or terminate the
Plan and cancel the Subscription and Community Offerings and/or the Syndicated
Community Offering. In the event market or financial conditions change so as to
cause the aggregate purchase price of the shares to be below the minimum of the
Estimated Price Range or more than 15% above the maximum of such range, and the
Company and the Bank determine to continue the Conversion, subscribers will be
resolicited (i.e., be permitted to continue their orders, in which case they
will need to affirmatively reconfirm their subscriptions prior to the expiration
of the resolicitation offering or their subscription funds will be promptly
refunded with interest at the Bank's passbook rate of interest, or be permitted
to decrease or cancel their subscriptions). Any change in the Estimated Price
Range must be approved by the Superintendent and FDIC. A resolicitation, if any,
following the conclusion of the Subscription and Community Offerings would not
exceed 45 days, or if following the Syndicated Community Offering, 60 days,
unless further extended by the Superintendent for periods up to 60 days not to
extend beyond _______________, 1998. If such resolicitation is not effected, the
Bank will return all funds promptly with interest at the Bank's passbook rate of
interest on payments made by check, bank draft or money order.
Copies of the appraisal report of FinPro including any amendments
thereto, and the detailed memorandum of the appraiser setting forth the method
and assumptions for such appraisal are available for inspection at the main
office of the Bank and the other locations specified under "Additional
Information."
INTERPRETATION, AMENDMENT AND TERMINATION
All interpretations of the Plan by the Board of the Bank will be final,
subject to the authority of the Superintendent and FDIC. The Plan provides that,
if deemed necessary or desirable by the Board of Trustees of the Bank, the Plan
may be substantively amended prior to the solicitation of proxies from Eligible
Account Holders by a vote of the Board of Trustees; amendment of the Plan
thereafter requires the approval of the Superintendent and FDIC. The Plan will
terminate if the sale of all shares of stock being offered pursuant to the Plan
is not completed prior to 24 months after the date of the approval of the Plan
by the Superintendent. The Plan may be terminated by a vote of the Board of
Trustees of the Bank at any time prior to the Special Meeting, and thereafter by
such a vote with the approval of the Superintendent and FDIC.
NUMBER OF SHARES TO BE ISSUED
Depending upon market or financial conditions following the
commencement of the Subscription and Community Offerings, the total number of
shares to be sold in the Conversion may be increased or decreased without a
resolicitation of subscribers, provided that the product of the total number of
shares times the price per share is not below the minimum of the Estimated Price
Range or more than 15% above
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the maximum of the Estimated Price Range. Based on a fixed purchase price of
$10.00 per share and FinPro's estimate of the pro forma market value of the
Common Stock ranging from a minimum of $252.5 to a maximum, as increased by 15%,
of $392.9 million, the number of shares of Common Stock expected to be issued is
between a minimum of 25,252,427 shares and a maximum, as adjusted by 15%, of
39,289,981 shares. The actual number of shares issued between this range will
depend on a number of factors and shall be determined by the Bank and Company
subject to Superintendent and FDIC approval, if necessary.
In the event market or financial conditions change so as to cause the
aggregate purchase price of the shares to be below the minimum of the Estimated
Price Range or more than 15% above the maximum of the Estimated Price Range, if
the Plan is not terminated by the Company and the Bank after consultation with
the Superintendent and FDIC, purchasers will be resolicited (i.e., permitted to
continue their orders, in which case they will need to affirmatively reconfirm
their subscriptions prior to the expiration of the resolicitation offering or
their subscription funds will be promptly refunded, or be permitted to modify or
rescind their subscriptions). Any change in the Estimated Price Range must be
approved by the Superintendent and FDIC. If the number of shares issued in the
Conversion is increased due to an increase of up to 15% in the Estimated Price
Range to reflect changes in market or financial conditions, persons who
subscribed for the maximum number of shares will not be given the opportunity to
subscribe for an adjusted maximum number of shares, except for the ESOP which
will be able to subscribe for such adjusted amount. See "- Limitations on Common
Stock Purchases."
The number of shares to be issued and outstanding as a result of the
sale of Common Stock in the Conversion will be increased by a number of shares
equal to 3.0% of the Common Stock issued in the Conversion to fund the
Foundation. Assuming the sale of shares in the Offerings at the maximum of the
Estimated Price Range, the Company will issue 1,024,951 shares of its Common
Stock from authorized but unissued shares to the Foundation immediately
following the completion of the Conversion. In that event, the Company will have
total shares of Common Stock outstanding of 35,190,000 shares. Of that amount,
the Foundation will own 2.9%. Funding the Foundation with authorized but
unissued shares will have the effect of diluting the ownership and voting
interests of persons purchasing shares in the Conversion by 2.9% since a greater
number of shares will be outstanding upon completion of the Conversion than
would be if the Foundation were not established. See "Pro Forma Data."
An increase in the number of shares to be issued in the Conversion as a
result of an increase in the estimated pro forma market value would decrease
both a subscriber's ownership interest and the Company's pro forma net earnings
and stockholders' equity on a per share basis while increasing pro forma net
earnings and stockholders' equity on an aggregate basis. A decrease in the
number of shares to be issued in the Conversion would increase both a
subscriber's ownership interest and the Company's pro forma net earnings and
stockholders' equity on a per share basis while decreasing pro forma net
earnings and stockholder's equity on an aggregate basis. For a presentation of
the effects of such changes, see "Pro Forma Data."
SUBSCRIPTION OFFERING AND SUBSCRIPTION RIGHTS
In accordance with the Plan of Conversion, rights to subscribe for the
purchase of Common Stock have been granted under the Plan of Conversion to the
following persons in the following order of descending priority: (1) holders of
deposit accounts with the Bank who had a balance of $100 or more as of April 30,
1995 ("Eligible Account Holders"); (2) the Employee Plans, including the ESOP;
(3) holders of deposit accounts with a balance of $100 or more as of September
30, 1996 ("Supplemental Eligible Account Holders"). All subscriptions received
will be subject to the availability of Common Stock after satisfaction of all
subscriptions of all persons having prior rights in the Subscription Offering
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and to the maximum and minimum purchase limitations set forth in the Plan of
Conversion and as described below under "- Limitations on Common Stock
Purchases."
Priority 1: Eligible Account Holders. Each Eligible Account Holder will
receive, without payment therefor, first priority, nontransferable subscription
rights to subscribe for in the Subscription Offering up to the greater of the
amount permitted to be purchased in the Community Offering, currently $675,000
of the Common Stock offered, subject to the overall maximum purchase limitation
and exclusive of an increase in the number of shares issued pursuant to an
increase in the Estimated Price Range of up to 15%. See "- Limitations on Common
Stock Purchases." Subscription rights received by officers and trustees of the
Bank and their associates based on increased deposits in the Bank in the one
year period preceding April 30, 1995 will be subordinated to all other
subscription rights of Eligible Account Holders.
In the event that Eligible Account Holders exercise subscription rights
for a number of shares of Common Stock in excess of the total number of such
shares eligible for subscription, the shares of Common Stock will be allocated
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 among the remaining subscribing Eligible Account Holders whose
subscriptions remain unfilled in the proportion that the amounts of their
respective eligible deposits bear to the total amount of eligible deposits of
all remaining Eligible Account Holders whose subscriptions remain unfilled,
exclusive of any increase in the shares issued pursuant to an increase in the
Estimated Price Range of up to 15%.
Priority 2: Employee Plans. To the extent that there are sufficient
shares remaining after satisfaction of the subscriptions by Eligible Account
Holders, the Employee Plans, including the ESOP, will receive, without payment
therefor, second priority, nontransferable subscription rights to purchase, in
the aggregate, up to 10% of Common Stock issued in the Conversion, including any
increase in the number of shares of Common Stock to be issued in the Conversion
after the date hereof as a result of an increase of up to 15% in the maximum of
the Estimated Price Range. The ESOP intends to purchase 8% of the shares to be
issued in connection with the Conversion, including shares issued to the
Foundation, or 2,080,800 shares and 2,815,200 shares, based on the issuance of
26,010,000 shares and 35,190,000 shares, respectively. Subscriptions by the ESOP
will not be aggregated with shares of Common Stock purchased directly by or
which are otherwise attributable to any other participants in the Subscription
and Community Offerings, including subscriptions of any of the Bank's trustees,
officers, employees or associates thereof. See "Management of the Bank - Benefit
Plans - ESOP."
Priority 3: Supplemental Eligible Account Holders. To the extent there
are sufficient shares remaining after the satisfaction of subscriptions by
Eligible Account Holders and the Employee Plans, each Supplemental Eligible
Account Holder will receive, without payment therefor, as third priority,
nontransferable subscription rights to subscribe for in the Subscription
Offering up to the greater of the amount permitted to be purchased in the
Community Offering, currently $675,000 of the Common Stock offered, subject to
the overall maximum purchase limitation and exclusive of an increase in the
shares issued pursuant to an increase in the Estimated Price Range of up to 15%.
See "- Limitations on Common Stock Purchases."
In the event that Supplemental Eligible Account Holders exercise
subscription rights for a number of shares of Common Stock in excess of the
total number of shares eligible for subscription after the satisfaction of
subscriptions by Eligible Account Holders and the Employee Plans, the shares of
Common Stock will be allocated so as to permit each subscribing Supplemental
Eligible Account Holder, to the extent possible, 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
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among the remaining subscribing Supplemental Eligible Account Holders whose
subscriptions remain unfilled in the proportion that the amounts of their
respective eligible deposits bear to the total amount of eligible deposits of
all remaining Supplemental Eligible Account Holders whose subscriptions remain
unfilled, exclusive of any increase in the shares issued pursuant to an increase
in the Estimated Price Range of up to 15%.
Expiration Date for the Subscription Offering. The Subscription
Offering will expire on the Expiration Date ( _________________, 1996) at ____
p.m., New York time, unless extended for up to 45 days by the Bank and Company
or such additional periods with the approval of the Superintendent and FDIC.
Subscription rights which have not been exercised prior to the Expiration Date
will become void. The Bank will not execute orders until all shares of Common
Stock have been subscribed for or otherwise sold. If all shares have not been
subscribed for or sold within 45 days after the Expiration Date, unless such
period is extended with the consent of the Superintendent and FDIC, all funds
delivered to the Bank pursuant to the Subscription Offering will be returned
promptly to the subscribers with interest and all withdrawal authorizations will
be cancelled. If an extension beyond the 45 day period following the Expiration
Date is granted, the Bank will notify subscribers of the extension of time and
of any rights of subscribers to modify or rescind their subscriptions and have
their funds returned promptly with interest, and of the time period within which
subscribers must affirmatively notify the Bank of their intention to confirm,
modify, or rescind their subscription. If an affirmative response to any
resolicitation is not received by the Company from a subscriber, such order will
be rescinded and all subscription funds will be promptly returned with interest.
Such extensions may not go beyond _______________, 1998.
The Plan of Conversion provides that the Company complete the sale of
the Common Stock within 45 days after the close of the Subscription Offering. In
the event that the Company is unable to complete the sale of Common Stock and
effect the conversion within the 45-day time period, one or more extensions,
with each such extension up to 60 days, may be granted but such extensions may
not go beyond __________, 1998 unless waived by the Superintendent and FDIC, if
necessary. If an extension is granted, each subscriber will have the right to
affirm, increase, decrease or rescind the subscription at any time prior to 20
days before the end of the extension period or at any time prior to the date of
the commencement of the Syndicated Community Offering. If an extension is
granted, the Company will notify subscribers of such extension and of any rights
of subscribers to modify or rescind their subscriptions.
COMMUNITY OFFERING
To the extent that shares remain available for purchase after
satisfaction of all subscriptions of Eligible Account Holders, the ESOP and
Supplemental Eligible Account Holders, the Bank has determined to offer shares
pursuant to the Plan to certain members of the general public. The Plan provides
that with regard to shares offered in the Community Offering, the Bank and
Company may establish relative preferences, priorities and allocations of shares
among persons, including institutional investors, subscribing for shares. Such
persons, together with associates of and persons acting in concert with such
persons, may purchase up to $675,000 of the Common Stock offered, subject to the
maximum overall purchase limitation and exclusive of shares issued pursuant to
an increase in the Estimated Price Range by up to 15%. See "- Limitations on
Common Stock Purchases." This amount may be increased to up to a maximum of 5%
of the Common Stock issued or decreased to less than $675,000 at the sole
discretion of the Company and the Bank. THE OPPORTUNITY TO SUBSCRIBE FOR SHARES
OF COMMON STOCK IN THE COMMUNITY OFFERING CATEGORY IS SUBJECT TO THE RIGHT OF
THE BANK AND THE COMPANY, IN ITS SOLE DISCRETION, TO ACCEPT OR REJECT ANY SUCH
ORDERS, IN WHOLE OR IN PART, EITHER AT THE TIME OF RECEIPT OF AN ORDER OR AS
SOON AS PRACTICABLE FOLLOWING THE EXPIRATION DATE.
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Subject to the foregoing, if the amount of stock remaining is
insufficient to fill the orders of preferred subscribers after completion of the
Subscription and Community Offerings and the filling of institutional investor
orders, such stock will be allocated first to each preferred subscriber whose
order is accepted by the Bank, in an amount equal to the lesser of 100 shares or
the number of shares subscribed for by each such preferred subscriber, if
possible. Thereafter, unallocated shares will be allocated among the preferred
subscribers whose order remains unsatisfied on a 100 shares per order basis
until all such orders have been filled or the remaining shares have been
allocated. If there are any shares remaining, shares will be allocated to other
persons of the general public who purchase in the Community Offering applying
the same allocation described above for preferred subscribers.
Persons in Nonqualified States or Foreign Countries. The Company and
the Bank will make reasonable efforts to comply with the securities laws of all
states in the United States in which persons entitled to subscribe for stock
pursuant to the Plan reside. However, the Plan provides that the Bank and the
Company are not required to offer stock in the Subscription Offering to any
person who resides in a foreign country or resides in a state of the United
States with respect to which both of the following apply: (i) a small number of
persons otherwise eligible to subscribe for shares of Common Stock reside in
such state; and (ii) the Company or the Bank determines that compliance with the
securities laws of such state would be impracticable for reasons of cost or
otherwise, including but not limited to a request that the Company and the Bank
or their officers, directors or trustees register as a broker, dealer, salesman
or selling agent, under the securities laws of such state, or a request to
register or otherwise qualify the subscription rights or Common Stock for sale
or submit any filing with respect thereto in such state. Where the number of
persons eligible to subscribe for shares in one state is small, the Bank and the
Company will base their decision as to whether or not to offer the Common Stock
in such state on a number of factors, including the size of accounts held by
account holders in the state, the cost of registering or qualifying the shares
or the need to register the Bank, Company, or their officers, trustees,
directors or employees as brokers, dealers or salesmen.
MARKETING AND UNDERWRITING ARRANGEMENTS
The Bank and the Company have engaged Sandler O'Neill as a consultant
and financial advisor in connection with the offering of the Common Stock, and
Sandler O'Neill has agreed to use its best efforts to solicit subscriptions and
purchase orders for shares of Common Stock in the Offerings. Sandler O'Neill
will receive a fee equal to 1.75% of the aggregate Purchase Price of all shares
sold in the Offerings, excluding in each case shares purchased by trustees,
directors, officers and employees of the Bank or Company and any immediate
family member thereof and the ESOP for which Sandler O'Neill will not receive a
fee. In the event that a selected dealers agreement is entered into in
connection with a Syndicated Community Offering, the Company and Bank will pay a
fee (to be negotiated at such time under such agreement) to such selected
dealers, any sponsoring dealers fees, and a management fee to Sandler O'Neill of
1.5% for shares sold by a NASD member firm pursuant to a selected dealers
agreement; provided, however, that the aggregate fees payable to Sandler O'Neill
for Common Stock sold by them pursuant to such a selected dealers agreement
shall not exceed 1.75% of the aggregate Purchase Price and provided, further,
however, that the aggregate fees payable to Sandler O'Neill and the selected
dealers will not exceed 7% of the aggregate purchase price of the Common Stock
sold by selected dealers. Fees to Sandler O'Neill and to any other broker-dealer
may be deemed to be underwriting fees, and Sandler O'Neill and such
broker-dealers may be deemed to be underwriters. Sandler O'Neill will also be
reimbursed for its reasonable out-of-pocket expenses, including legal fees.
Notwithstanding the foregoing, in the event the Offerings are not consummated or
Sandler O'Neill ceases, under certain circumstances after the subscription
solicitation activities are commenced, to provide assistance to the Company,
Sandler O'Neill will be entitled to a fee for its management advisory services
in an amount to be agreed upon by the Bank and Sandler O'Neill, and based upon
the amount of services performed by
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Sandler O'Neill and will also be reimbursed for its reasonable out-of-pocket
expenses as described above. The Company and the Bank have agreed to indemnify
Sandler O'Neill for reasonable costs and expenses in connection with certain
claims or liabilities, including certain liabilities under the Securities Act.
Sandler O'Neill has received advances towards its marketing and financial
advisory service fees totalling $50,000. Total marketing fees to Sandler O'Neill
are expected to be $3,987,500 and $5,422,400 at the minimum and the maximum of
the Estimated Price Range, respectively. See "Pro Forma Data" for the
assumptions used to arrive at these estimates.
Sandler O'Neill will also perform proxy solicitation services,
conversion agent services and records management services for the Bank in the
Conversion and will receive a fee for these services of $55,000, plus
reimbursement of reasonable out-of-pocket expenses.
Directors, trustees and executive officers of the Company and Bank may
participate in the solicitation of offers to purchase Common Stock. Other
employees of the Bank may participate in the Offering in ministerial capacities
or providing clerical work in effecting a sales transaction. Other questions of
prospective purchasers will be directed to executive officers or registered
representatives. Such other employees have been instructed not to solicit offers
to purchase Common Stock or provide advice regarding the purchase of Common
Stock. The Company will rely on Rule 3a4-1 under the Exchange Act, and sales of
Common Stock will be conducted within the requirements of Rule 3a4-1, so as to
permit officers, trustees, directors and employees to participate in the sale of
Common Stock. No officer, trustee, director or employee of the Company or the
Bank will be compensated in connection with his participation by the payment of
commissions or other remuneration based either directly or indirectly on the
transactions in the Common Stock.
PROCEDURE FOR PURCHASING SHARES IN SUBSCRIPTION AND COMMUNITY OFFERINGS
To ensure that each purchaser receives a prospectus at least 48 hours
before the Expiration Date in accordance with Rule 15c2-8 of the Exchange Act,
no prospectus will be mailed any later than five days prior to such date or hand
delivered any later than two days prior to such date. Execution of the stock
order form and certification form will confirm receipt or delivery in accordance
with Rule 15c2-8. Stock order and certification forms will only be distributed
with a prospectus.
To purchase shares in the Subscription and Community Offerings, an
executed stock order form and certification form with the required payment for
each share subscribed for, or with appropriate authorization for withdrawal from
the Bank's deposit account (which may be given by completing the appropriate
blanks in the stock order form), must be received by the Bank at any of its
offices by _____ p.m., New York time, on the Expiration Date. Stock order forms
which are not received by such time or are executed defectively or are received
without full payment (or appropriate withdrawal instructions) are not required
to be accepted. In addition, the Bank and Company are not obligated to accept
orders submitted on photocopied or facsimilied stock order forms and will not
accept stock order forms unaccompanied by an executed certification form.
Notwithstanding the foregoing, the Company and Bank shall have the right, each
in their sole discretion, to permit institutional investors to submit
irrevocable orders together with a legally binding commitment for payment and to
thereafter pay for the shares of Common Stock for which they subscribe in the
Community Offering at any time prior to 48 hours before the completion of the
Conversion. The Company and the Bank have the right to waive or permit the
correction of incomplete or improperly executed forms, but do not represent that
they will do so. Once received, an executed stock order form may not be
modified, amended or rescinded without the consent of the Bank unless the
Conversion has not been completed within 45 days after the end of the
Subscription and Community Offerings, unless such period has been extended.
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In order to ensure that Eligible Account Holders and Supplemental
Eligible Account Holders are properly identified as to their stock purchase
priorities, depositors as of the Eligibility Record Date (April 30, 1995) and/or
the Supplemental Eligibility Record Date (September 30, 1996) must list all
accounts on the stock order form giving all names in each account and the
account number.
Payment for subscriptions may be made (i) in cash if delivered in
person at any branch office of the Bank, (ii) by check, bank draft or money
order, or (iii) by authorization of withdrawal from deposit accounts maintained
with the Bank. No wire transfers will be accepted. Interest will be paid on
payments made by cash, check, bank draft or money order at the Bank's passbook
rate of interest from the date payment is received until the completion or
termination of the Conversion. If payment is made by authorization of withdrawal
from deposit accounts, the funds authorized to be withdrawn from a deposit
account will continue to accrue interest at the contractual rates until
completion or termination of the Conversion, but a hold will be placed on such
funds, thereby making them unavailable to the depositor until completion or
termination of the Conversion.
If a subscriber authorizes the Bank to withdraw the amount of the
purchase price from his deposit account, the Bank will do so as of the effective
date of the Conversion. The Bank will waive any applicable penalties for early
withdrawal from certificate accounts. If the remaining balance in a certificate
account is reduced below the applicable minimum balance requirement at the time
that the funds actually are transferred under the authorization, the certificate
will be cancelled at the time of the withdrawal, without penalty, and the
remaining balance will earn interest at the Bank's passbook rate.
If the ESOP subscribes for shares during the Subscription Offering, the
ESOP will not be required to pay for the shares subscribed for at the time it
subscribes, but rather, may pay for such shares of Common Stock subscribed for
at the Purchase Price upon consummation of the Subscription and Community
Offering, if all shares are sold, or upon consummation of the Syndicated
Community Offering if shares remain to be sold in such offering; provided, that
there is in force from the time of its subscription until such time, a loan
commitment from an unrelated financial institution or the Company to lend to the
ESOP, at such time, the aggregate Purchase Price of the shares for which it
subscribed.
Owners of self-directed IRAs and other Qualified Plan accounts, such as
Keogh accounts, may use the assets of such IRAs and other Qualified Plan
accounts, to purchase shares of Common Stock in the Subscription and Community
Offerings, provided that such IRAs or other Qualified Plan accounts are not
maintained at the Bank. Persons with self-directed IRAs or Qualified Plan
accounts maintained at the Bank must have their accounts transferred to an
unaffiliated institution or broker to purchase shares of Common Stock in the
Subscription and Community Offerings. In addition, the provisions of ERISA and
IRS regulations require that officers, directors and ten percent shareholders
who use self-directed IRA or Qualified Plan account funds to purchase shares of
Common Stock in the Subscription and Community Offerings, make such purchases
for the exclusive benefit of the IRAs or Qualified Plan accounts.
Certificates representing shares of Common Stock purchased will be
mailed to purchasers at the address specified in properly completed stock order
forms, as soon as practicable following consummation of the sale of all shares
of Common Stock. Any certificates returned as undeliverable will be disposed of
in accordance with applicable law.
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RESTRICTIONS ON TRANSFER OF SUBSCRIPTION RIGHTS AND SHARES
Prior to the completion of the Conversion, the NYBD conversion
regulations prohibit any person with subscription rights, including the Eligible
Account Holders, the ESOP and Supplemental Eligible Account Holders, from
transferring or entering into any agreement or understanding to transfer the
legal or beneficial ownership of the subscription rights issued under the Plan
or the shares of Common Stock to be issued upon their exercise. Such rights may
be exercised only by the person to whom they are granted and only for his or her
account. Each person exercising such subscription rights will be required to
certify that he or she is purchasing shares solely for his or her own account
and that he or she has no agreement or understanding regarding the sale or
transfer of such shares. The regulations also prohibit any person from offering
or making an announcement of an offer or intent to make an offer to purchase
such subscription rights or shares of Common Stock prior to the completion of
the Conversion.
THE BANK AND THE COMPANY WILL PURSUE ANY AND ALL LEGAL AND EQUITABLE
REMEDIES (INCLUDING FORFEITURE) IN THE EVENT THEY BECOME AWARE OF THE TRANSFER
OF SUBSCRIPTION RIGHTS AND WILL NOT HONOR ORDERS KNOWN BY THEM TO INVOLVE THE
TRANSFER OF SUCH RIGHTS.
SYNDICATED COMMUNITY OFFERING
As a final step in the Conversion, the Plan provides that, if feasible,
all shares of Common Stock not purchased in the Subscription and Community
Offerings, if any, will be offered for sale to the general public in a
Syndicated Community Offering through a syndicate of registered broker-dealers
to be formed and managed by Sandler O'Neill acting as agent of the Company to
assist the Company and the Bank in the sale of the Common Stock. THE COMPANY AND
THE BANK HAVE THE RIGHT TO REJECT ORDERS IN WHOLE OR IN PART IN THEIR SOLE
DISCRETION IN THE SYNDICATED COMMUNITY OFFERING. Neither Sandler O'Neill nor any
registered broker-dealer shall have any obligation to take or purchase any
shares of the Common Stock in the Syndicated Community Offering, however,
Sandler O'Neill has agreed to use its best efforts in the sale of shares in the
Syndicated Community Offering.
The price at which Common Stock is sold in the Syndicated Community
Offering will be determined as described above under "- Stock Pricing." Subject
to the overall maximum purchase limitation, no person, together with any
associate or group of persons acting in concert, will be permitted to subscribe
in the Syndicated Community Offering for more than $675,000 of Common Stock to
be issued in the Conversion, exclusive of an increase in shares issued pursuant
to an increase in the Estimated Price Range of up to 15%; provided, however,
that shares of Common Stock purchased in the Community Offering by any persons,
together with associates of or persons acting in concert with such persons, will
be aggregated with purchases in the Syndicated Community Offering and be subject
to an overall maximum purchase limitation of 1.0% of the shares to be issued,
exclusive of an increase in shares issued pursuant to an increase in the
Estimated Price Range by up to 15%.
Payments made in the form of a check, bank draft, money order or in
cash will earn interest at the Bank's passbook rate of interest from the date
such payment is actually received by the Bank until completion or termination of
the Conversion.
In addition to the foregoing, if a syndicate of broker-dealers
("selected dealers") is formed to assist in the Syndicated Community Offering, a
purchaser may pay for his shares with funds held by or deposited with a selected
dealer. If an order form is executed and forwarded to the selected dealer or if
the selected dealer is authorized to execute the order form on behalf of a
purchaser, the selected dealer is required to forward the order form and funds
to the Bank for deposit in a segregated account on or before noon of the
business day following receipt of the order form or execution of the order form
by the
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selected dealer. Alternatively, selected dealers may solicit indications of
interest from their customers to place orders for shares. Such selected dealers
shall subsequently contact their customers who indicated an interest and seek
their confirmation as to their intent to purchase. Those indicating an intent to
purchase shall execute order forms and forward them to their selected dealer or
authorize the selected dealer to execute such forms. The selected dealer will
acknowledge receipt of the order to its customer in writing on the following
business day and will debit such customer's account on the third business day
after the customer has confirmed his intent to purchase (the "debit date") and
on or before noon of the next business day following the debit date will send
order forms and funds to the Bank for deposit in a segregated account. Although
purchasers' funds are not required to be in their accounts with selected dealers
until the debit date in the event that such alternative procedure is employed
once a confirmation of an intent to purchase has been received by the selected
dealer, the purchaser has no right to rescind his order.
Certificates representing shares of Common Stock purchased, together
with any refund due, will be mailed to purchasers at the address specified in
the order form, as soon as practicable following consummation of the sale of the
Common Stock. Any certificates returned as undeliverable will be disposed of in
accordance with applicable law.
The Syndicated Community Offering will terminate no more than 45 days
following the Subscription Expiration Date, unless extended by the Company with
the approval of the Superintendent and FDIC. Such extensions may not be beyond
_______________, 1998. See "- Stock Pricing" above for a discussion of rights of
subscribers, if any, in the event an extension is granted.
LIMITATIONS ON COMMON STOCK PURCHASES
The Plan includes the following limitations on the number of shares of
Common Stock which may be purchased during the Conversion:
(1) No less than 25 shares;
(2) Each Eligible Account Holder may subscribe for and purchase in
the Subscription Offering up to the amount permitted to be
purchased in the Community Offering, currently $675,000 of the
Common Stock to be issued, subject to the overall maximum
purchase limitation described in (7) below and exclusive of an
increase in the total number of shares issued due to an
increase in the Estimated Price Range of up to 15%;
(3) The Employee Plans, including the ESOP, are permitted to
purchase, in the aggregate, up to 10% of the shares of Common
Stock issued in the Conversion, including shares issued in the
event of an increase in the Estimated Price Range of 15%, and
the ESOP intends to purchase 8% of the shares of Common Stock
issued in connection with the Conversion, including shares
issued to the Foundation;
(4) Each Supplemental Eligible Account Holder may subscribe for
and purchase in the Subscription Offering up to the greater of
the amount permitted to be purchased in the Community
Offering, currently $675,000 of the Common Stock to be issued,
subject to the overall maximum purchase limitation described
in (7) below and exclusive of an increase in the total number
of shares issued due to an increase in the Estimated Price
Range of up to 15%;
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(5) Persons purchasing shares of Common Stock in the Community
Offering, together with associates of and groups of persons
acting in concert with such persons, may purchase in the
Community Offering up to $675,000 of the Common Stock to be
issued in the Conversion, subject to the overall maximum
purchase limitation described in (7) below and exclusive of an
increase in the total number of shares issued due to an
increase in the Estimated Price Range of up to 15%;
(6) Persons purchasing shares of Common Stock in the Syndicated
Community Offering, together with associates of and persons
acting in concert with such persons, may purchase in the
Syndicated Offering up to $675,000 of the shares of Common
Stock to be issued in the Conversion subject to the overall
maximum purchase limitation described in (7) below and
exclusive of an increase in the total number of shares issued
due to an increase in the Estimated Price Range of up to 15%
and, provided further that shares of Common Stock purchased in
the Community Offering by any persons, together with
associates of and persons acting in concert with such persons,
will be aggregated with purchases in the Syndicated Community
Offering in applying the $675,000 purchase limitation;
(7) Eligible Account Holders and Supplemental Eligible Account
Holders may purchase stock in the Community Offering and
Syndicated Community Offering, subject to the purchase
limitations described in (5) and (6) above, provided that,
except for the ESOP, the overall maximum number of shares of
Common Stock subscribed for or purchased in all categories of
the Conversion by any person, together with associates of and
groups of persons acting in concert with such persons, shall
not exceed 1.0% of the shares of Common Stock to be issued in
the Conversion and exclusive of an increase in the total
number of shares issued due to an increase in the Estimated
Price Range of up to 15%; and
(8) No more than 25% of the total number of shares offered for
sale in the Conversion may be purchased by trustees, directors
and officers of the Bank or Company and their associates in
the aggregate, excluding purchases by the ESOP.
Subject to any required regulatory approval and the requirements of
applicable laws and regulations, but without further approval of depositors of
the Bank or subscribers for Common Stock, both the individual amount permitted
to be subscribed for and the overall maximum purchase limitation may be
increased to up to a maximum of 5% of the Common Stock to be issued at the sole
discretion of the Company and the Bank. If such amount is increased, subscribers
for the maximum amount will be, and certain other large subscribers in the sole
discretion of the Bank may be, given the opportunity to increase their
subscriptions up to the then applicable limit.
In the event of an increase in the total number of shares offered in
the Conversion due to an increase in the Estimated Price Range of up to 15% (the
"Adjusted Maximum"), the additional shares will be allocated in the following
order or priority in accordance with the Plan: (i) to fill the ESOP's
subscription equal to 8% of the Adjusted Maximum number of shares issued in
connection with the Conversion, including shares issued to the Foundation; (ii)
in the event that there is an oversubscription by Eligible Account Holders, to
fill unsatisfied subscriptions of Eligible Account Holders, exclusive of the
Adjusted Maximum; (iii) in the event that there is an oversubscription by
Supplemental Eligible Account Holders, to fill unsatisfied subscriptions of
Supplemental Eligible Account Holders, exclusive of the Adjusted Maximum; and
(iv) to fill unsatisfied subscriptions in the Community Offering to the extent
possible, exclusive of the Adjusted Maximum and with preference to institutional
investors then a preference to Preferred Subscribers.
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The term "associate" of a person is defined to mean: (i) any
corporation (other than the Bank or a majority-owned subsidiary of the Bank) of
which such person is an officer, partner or 10% stockholder; (ii) any trust or
other estate in which such person has a substantial beneficial interest or
serves as a trustee or in a similar fiduciary capacity; provided, however, such
term shall not include any employee stock benefit plan of the Bank in which such
person has a substantial beneficial interest or serves as a trustee or in a
similar fiduciary capacity; and (iii) any relative or spouse of such person, or
any relative of such spouse, who either has the same home as such person or who
is a trustee or officer of the Bank. Trustees are not treated as associates of
each other solely because of their Board membership. For a further discussion of
limitations on purchases of a converting institution's stock at the time of
Conversion and subsequent to Conversion, see "Management of the Bank -
Subscriptions by Executive Officers, Directors and Trustees," "- Certain
Restrictions on Purchase or Transfer of Shares After Conversion" and
"Restrictions on Acquisition of the Company and the Bank."
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 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 would
have a claim to receive a pro rata share of any such 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. After the
Conversion, each depositor, in the event of a complete liquidation, would have a
claim as a creditor of the same general priority as the claims of all other
general creditors of the Bank. However, except as described below, his claim
would be solely in the amount of the balance in his deposit account plus accrued
interest. He would not have an interest in the value or assets of the Bank above
that amount.
The Plan provides for the establishment, upon the completion of the
Conversion, of a special "liquidation account" for the benefit of 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 Conversion. Each Eligible Account Holder, if he were to
continue to maintain his 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 prior to any payment to the stockholders of the
Bank. Each Eligible Account Holder would have an initial interest in such
liquidation account for each deposit account, demand account, NOW account, money
market deposit account, and certificate of deposit account, with a balance of
$100 or more held in the Bank on April 30, 1995 ("Deposit Account"). Each
Eligible Account Holder will have a claim to a pro rata interest in the total
liquidation account for each of his Deposit Accounts based on the proportion
that the balance of each such Deposit Account on the April 30, 1995 eligibility
record date bore to the balance of all Deposit Accounts in the Bank on such
date.
If, however, at the close of business on the last day of any period for
which the Bank or Company has prepared audited financial statements subsequent
to the effective date of the Conversion ("annual closing date"), the amount in
any Deposit Account is less than the amount in such Deposit Account on any other
annual closing date, then such person's interest in the liquidation account
relating to such Deposit Account would be reduced from time to time by the
proportion of any such reduction, and such interest will cease to exist if such
Deposit Account is withdrawn or closed. For purposes of the liquidation account,
time deposit accounts shall be deemed to be closed upon maturity regardless of
any renewal thereof. In addition, no interest in the liquidation account would
ever be increased despite any subsequent increase in the related Deposit
Account. Any assets remaining after the above liquidation rights of
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Eligible Account Holders are satisfied would be distributed to the Company as
the sole stockholder of the Bank.
TAX ASPECTS
Consummation of the Conversion is expressly conditioned upon the
receipt by the Bank of either a favorable ruling from the IRS or an opinion of
counsel with respect to federal income taxation, and an opinion of its
independent auditors with respect to certain New York state taxation, to the
effect that the Conversion will not be a taxable transaction to the Company, the
Bank, Eligible Account Holders or Supplemental Eligible Account Holders, except
as noted below. The federal and New York tax consequences will remain unchanged
in the event that a holding company form of organization is not utilized.
No private ruling has been requested from the IRS with respect to the
proposed Conversion. Instead, the Bank has received an opinion of its counsel,
Muldoon, Murphy & Faucette, to the effect that for federal income tax purposes,
among other matters: (i) the Bank's change in form from mutual to stock
ownership will constitute a reorganization under section 368(a)(1)(F) of the
Internal Revenue Code and neither the Bank nor the Company will recognize any
gain or loss as a result of the Conversion; (ii) no gain or loss will be
recognized to the Bank or the Company upon the purchase of the Bank's capital
stock by the Company or to the Company upon the purchase of its Common Stock in
the Conversion; (iii) no gain or loss will be recognized by Eligible Account
Holders or Supplemental Eligible Account Holders upon the issuance to them of
Deposit Accounts in the Bank in its stock form plus their interests in the
liquidation account in exchange for their deposit accounts in the Bank; (iv) the
tax basis of the depositors' deposit accounts in the Bank immediately after the
Conversion will be the same as the basis of their deposit accounts immediately
prior to the Conversion; (v) the tax basis of each Eligible Account Holder's or
Supplemental Eligible Account Holder's interest in the liquidation account will
be zero; (vi) no gain or loss will be recognized by Eligible Account Holders or
Supplemental Eligible Account Holders upon the distribution to them of
nontransferable subscription rights to purchase shares of the Common Stock,
provided that the amount to be paid for the Common Stock is equal to the fair
market value of such stock; and (vii) the tax basis to the stockholders of the
Common Stock of the Company purchased in the Conversion will be the amount paid
therefor and the holding period for the shares of Common Stock purchased by such
persons will begin on the date on which their subscription rights are exercised.
KPMG Peat Marwick LLP has opined, subject to the limitations and qualifications
in its opinion, that the Conversion will not be a taxable transaction to the
Company, the Bank, Eligible Account Holders or Supplemental Eligible Account
Holders for the purposes of the New York State or New York City income taxes and
will likely not be a taxable transaction for purposes of New York State and City
Real Property Transfer. The Conversion may result in certain other New York City
tax liabilities, which, if imposed, will be paid by the Company or the Bank.
Management believes that any possible tax liability imposed by New York State or
New York City will not be material. Certain portions of both the federal and the
state and local tax opinions are based upon the opinion of FinPro that
subscription rights issued in connection with the Conversion will have no value.
In the opinion of FinPro, which opinion is not binding on the IRS, the
subscription rights do not have any value, based on the fact that such rights
are acquired by the recipients without cost, are nontransferable and of short
duration, and afford the recipients the right only to purchase the Common Stock
at a price equal to its estimated fair market value, which will be the same
price as the Purchase Price for the unsubscribed shares of Common Stock. If the
subscription rights granted to Eligible Account Holders or Supplemental Eligible
Account Holders are deemed to have an ascertainable value, such recipients could
be taxed either on the receipt or exercise of such subscription rights.
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Unlike private rulings, an opinion of counsel is not binding on the IRS
and the IRS could disagree with conclusions reached therein. In the event of
such disagreement, there can be no assurance that the IRS would not prevail in a
judicial or administrative proceeding.
CERTAIN RESTRICTIONS ON PURCHASE OR TRANSFER OF SHARES AFTER CONVERSION
All shares of Common Stock purchased in connection with the Conversion
by a Director, Trustee or an executive officer of the Bank or Company will be
subject to a restriction that the shares not be sold for a period of one year
following the Conversion, except in the event of the death of such Director,
Trustee or executive officer. Each certificate for such restricted shares will
bear a legend giving notice of this restriction on transfer, and instructions
will be issued 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 such restriction. Any shares of Common Stock issued at a later date
as a stock dividend, stock split, or otherwise, with respect to such restricted
stock will be subject to the restriction that they may not be sold for a period
of one year following the Conversion. The Directors, Trustees and executive
officers of the Bank or Company will also be subject to the insider trading
rules promulgated pursuant to the Exchange Act.
Purchases of outstanding shares of Common Stock of the Company by
Trustees, directors, executive officers (or any person who was an executive
officer or Trustee of the Bank after adoption of the Plan of Conversion) and
their associates during the three-year period following Conversion may be made
only through a broker or dealer registered with the SEC, except with the prior
written approval of the Superintendent. This restriction does not apply,
however, to the purchase of Common Stock pursuant to the Stock Plan or the
Directors' Plan.
RESTRICTIONS ON ACQUISITION OF THE COMPANY AND THE BANK
GENERAL
The Bank's Plan of Conversion provides for the Conversion of the Bank
from the mutual to the stock form of organization and in connection therewith, a
Restated Organization Certificate and Bylaws to be adopted by Eligible Account
Holders of the Bank. The Plan also provides for the concurrent formation of a
holding company. See "The Conversion - General." Certain provisions in the
Company's Certificate of Incorporation and Bylaws and in its management
remuneration provided for in the Conversion, together with provisions of
Delaware corporate law, may have anti-takeover effects. In addition, the Bank's
Restated Organization Certificate and Bylaws and management remuneration
provided for in the Conversion may have anti-takeover effects as described
below. Finally, regulatory restrictions may make it difficult for persons or
companies to acquire control of either the Company or the Bank.
RESTRICTIONS IN THE COMPANY'S CERTIFICATE OF INCORPORATION AND BYLAWS
A number of provisions of the Company's Certificate of Incorporation
and Bylaws deal with matters of corporate governance and certain rights of
stockholders. The following discussion is a general summary of certain
provisions of the Company's Certificate of Incorporation and Bylaws and certain
other statutory and regulatory provisions relating to stock ownership and
transfers, the Board of Directors and business combinations, which might be
deemed to have a potential "anti-takeover" effect. These provisions may have the
effect of discouraging a future takeover attempt which is not approved by the
Board of Directors but which individual Company stockholders may deem to be in
their best interests or in which stockholders may receive a substantial premium
for their shares over then current market prices. As a result, stockholders who
might desire to participate in such a transaction may not have an opportunity
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to do so. Such provisions will also render the removal of the current Board of
Directors or management of the Company more difficult. The following description
of certain of the provisions of the Certificate of Incorporation and Bylaws of
the Company is necessarily general and reference should be made in each case to
such Certificate of Incorporation and Bylaws, which are incorporated herein by
reference. See "Additional Information" as to how to obtain a copy of these
documents.
Limitation on Voting Rights. The Certificate of Incorporation of the
Company provides that in no event shall any record owner of any outstanding
Common Stock which is beneficially owned, directly or indirectly, by a person
who beneficially owns in excess of 10% of the then outstanding shares of Common
Stock (the "Limit") be entitled or permitted to any vote in respect of the
shares held in excess of the Limit. Beneficial ownership is determined pursuant
to Rule 13d-3 of the General Rules and Regulations promulgated pursuant to the
Exchange Act, and includes shares beneficially owned by such person or any of
his affiliates (as defined in the Certificate of Incorporation), shares which
such person or his affiliates have the right to acquire pursuant to any
agreement, arrangement or understanding or upon the exercise of conversion
rights, exchange rights, warrants or options or otherwise and shares as to which
such person and his affiliates have sole or shared voting or investment power,
but shall not include shares that are subject to a publicly solicited revocable
proxy and that are not otherwise deemed to be beneficially owned by such person
and his affiliates. No Director or officer (or any affiliate thereof) of the
Company shall, solely by reason of any or all of such Directors or officers
acting in their capacities as such, be deemed to beneficially own any shares
beneficially owned by any other Director or officer (or affiliate thereof) nor
will the ESOP or any similar plan of the Company or the Bank or any trustee with
respect thereto (solely by reason of such trustee's capacity) be deemed to
beneficially own any shares held under any such plan. The Certificate of
Incorporation of the Company further provides that the provisions limiting
voting rights may only be amended upon the vote of the holders of at least 80%
of the voting power of all then outstanding shares of capital stock entitled to
vote thereon (after giving effect to the provision limiting voting rights).
Board of Directors. The Board of Directors of the Company is divided
into three classes, each of which shall contain approximately one-third of the
whole number of the members of the Board. Each class shall serve a staggered
term, with approximately one-third of the total number of Directors being
elected each year. The Company's Certificate of Incorporation and Bylaws provide
that the size of the Board shall be determined by a majority of the Whole Board
of Directors. The Certificate of Incorporation and the Bylaws provide that any
vacancy occurring in the Board, including a vacancy created by an increase in
the number of Directors or resulting from death, resignation, retirement,
disqualification, removal from office or other cause, shall be filled for the
remainder of the unexpired term exclusively by a majority vote of the Directors
then in office. The classified Board is intended to provide for continuity of
the Board of Directors and to make it more difficult and time consuming for a
stockholder group to fully use its voting power to gain control of the Board of
Directors without the consent of the incumbent Board of Directors of the
Company. Directors may be removed by the shareholders only for cause by the
affirmative vote of the holders of at least 80% of the voting power of all then
outstanding shares of capital stock entitled to vote thereon.
In the absence of these provisions, the vote of the holders of a
majority of the shares could remove the entire Board, with or without cause, and
replace it with persons of such holders choice.
Cumulative Voting, Special Meetings and Action by Written Consent. The
Certificate of Incorporation does not provide for cumulative voting for any
purpose. Moreover, special meetings of stockholders of the Company may be called
only by a resolution adopted by a majority of the Whole Board of Directors of
the Company. The Certificate of Incorporation also provides that any action
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required or permitted to be taken by the stockholders of the Company may be
taken only at an annual or special meeting and prohibits stockholder action by
written consent in lieu of a meeting.
Authorized Shares. The Certificate of Incorporation authorizes the
issuance of 100 million shares of Common Stock and 10 million shares of
preferred stock. The shares of Common Stock and preferred stock were authorized
in an amount greater than that to be issued in the Conversion to provide the
Company's Board of Directors with as much flexibility as possible to effect,
among other transactions, financings, acquisitions, stock dividends, stock
splits and employee stock options. However, these additional authorized shares
may also be used by the Board of Directors consistent with its fiduciary duty to
deter future attempts to gain control of the Company. The Board of Directors
also has sole authority to determine the terms of any one or more series of
preferred stock, including voting rights, conversion rates, and liquidation
preferences. As a result of the ability to fix voting rights for a series of
preferred stock, the Board has the power to the extent consistent with its
fiduciary duty to issue a series of preferred stock to persons friendly to
management in order to attempt to block a post-tender offer merger or other
transaction by which a third party seeks control, and thereby assist management
to retain its position. The Company's Board currently has no plans for the
issuance of additional shares, other than the issuance of additional shares upon
exercise of stock options.
Stockholder Vote Required to Approve Business Combinations with
Interested Stockholders. The Certificate of Incorporation requires the approval
of the holders of at least 80% of the Company's outstanding shares of voting
stock entitled to vote thereon to approve certain "Business Combinations" with
an "Interested Stockholder," each as defined therein, and related transactions.
UNDER DELAWARE LAW, ABSENT THIS PROVISION, BUSINESS COMBINATIONS, INCLUDING
MERGERS, CONSOLIDATIONS AND SALES OF ALL OR SUBSTANTIALLY ALL OF THE ASSETS OF A
CORPORATION MUST, SUBJECT TO CERTAIN EXCEPTIONS, BE APPROVED BY THE VOTE OF THE
HOLDERS OF ONLY A MAJORITY OF THE OUTSTANDING SHARES OF COMMON STOCK OF THE
COMPANY AND ANY OTHER AFFECTED CLASS OF STOCK. Under the Certificate of
Incorporation, the approval of the holders of at least 80% of the shares of
capital stock entitled to vote thereon is required for any business combination
involving an Interested Stockholder (as defined below) except (i) in cases where
the proposed transaction has been approved by a majority of those members of the
Company's Board of Directors who are unaffiliated with the Interested
Stockholder and were Directors prior to the time when the Interested Stockholder
became an Interested Stockholder or (ii) if the proposed transaction meets
certain conditions set forth therein which are designed to afford the
stockholders a fair price in consideration for their shares. In each such case,
where stockholder approval is required, the approval of only a majority of the
outstanding shares of voting stock is sufficient. The term "Interested
Stockholder" is defined to include, among others, any individual, a group acting
in concert, corporation, partnership, association or other entity (other than
the Company or its subsidiary) who or which is the beneficial owner, directly or
indirectly, of 10% or more of the outstanding shares of voting stock of the
Company. This provision of the Certificate of Incorporation applies to any
"Business Combination," which is defined to include: (i) any merger or
consolidation of the Company or any of its subsidiaries with any Interested
Stockholder or Affiliate (as defined in the Certificate of Incorporation) of an
Interested Stockholder or any corporation which is, or after such merger or
consolidation would be, an Affiliate of an Interested Stockholder; (ii) any
sale, lease, exchange, mortgage, pledge, transfer, or other disposition to or
with any Interested Stockholder or Affiliate of 25% or more of the assets of the
Company or combined assets of the Company and its subsidiary; (iii) the issuance
or transfer to any Interested Stockholder or its Affiliate by the Company (or
any subsidiary) of any securities of the Company (or any subsidiary) in exchange
for any cash, securities or other property the value of which equals or exceeds
25% of the fair market value of the Common Stock of the Company; (iv) the
adoption of any plan for the liquidation or dissolution of the Company proposed
by or on behalf of any Interested Stockholder or Affiliate thereof; and (v) any
reclassification of securities, recapitalization, merger or consolidation of the
Company with any of its subsidiaries which has the effect of increasing the
proportionate share of
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Common Stock or any class of equity or convertible securities of the Company or
subsidiary owned directly or indirectly, by an Interested Stockholder or
Affiliate thereof. The Trustees and executive officers of the Bank are
purchasing in the aggregate approximately 1.1% of the shares of the Common Stock
based on the maximum of the Estimated Price Range. In addition, the ESOP intends
to purchase 8% of the Common Stock issued in connection with the Conversion,
including shares issued to the Foundation. Additionally, if at a meeting of
stockholders following the Conversion stockholder approval of the proposed Stock
Programs and Stock Options Plans is received, the Company expects to acquire 4%
of the Common Stock issued in connection with the Conversion, including shares
issued to the Foundation on behalf of the Stock Programs and expects to grant
options to issue an amount equal to 10% of the Common Stock issued in connection
with the Conversion, including shares issued to the Foundation, under the Stock
Option Plans to directors and executive officers. As a result, assuming the
Stock Programs and Stock Option Plans are approved by stockholders, directors,
executive officers and employees have the potential to control the voting of
approximately 23.3% of the Company's Common Stock on a fully diluted basis at
the maximum of the Estimated Price Range, thereby enabling them to prevent the
approval of the transactions requiring the approval of at least 80% of the
Company's outstanding shares of voting stock described hereinabove.
Evaluation of Offers. The Certificate of Incorporation of the Company
further provides that the Board of Directors of the Company, when evaluating any
offer of another "Person" (as defined therein), to (i) make a tender or exchange
offer for any equity security of the Company, (ii) merge or consolidate the
Company with another corporation or entity or (iii) purchase or otherwise
acquire all or substantially all of the properties and assets of the Company,
may, in connection with the exercise of its judgment in determining what is in
the best interest of the Company and the stockholders of the Company, give due
consideration to all relevant factors, including, without limitation, those
factors that directors of any subsidiary (including the Bank) may consider in
evaluating any action that may result in a change or potential change of control
of such subsidiary, and the social and economic effects of acceptance of such
offer on: the Company's present and future customers and employees and those of
its subsidiaries (including the Bank); the communities in which the Company and
the Bank operate or are located; the ability of the Company to fulfill its
corporate objectives as a bank holding company; and the ability of the Bank to
fulfill the objectives of a New York State chartered stock savings bank under
applicable statutes and regulations. By having these standards in the
Certificate of Incorporation of the Company, the Board of Directors may be in a
stronger position to oppose such a transaction if the Board concludes that the
transaction would not be in the best interest of the Company, even if the price
offered is significantly greater than the then market price of any equity
security of the Company.
Amendment of Certificate of Incorporation and Bylaws. Amendments to the
Company's Certificate of Incorporation must be approved by a majority vote of
its Board of Directors and also by a majority of the outstanding shares of its
voting stock, provided, however, that an affirmative vote of the holders of at
least 80% of the outstanding voting stock entitled to vote (after giving effect
to the provision limiting voting rights) is required to amend or repeal certain
provisions of the Certificate of Incorporation, including the provision limiting
voting rights, the provisions relating to approval of certain business
combinations, calling special meetings, the number and classification of
Directors, Director and officer indemnification by the Company and amendment of
the Company's Bylaws and Certificate of Incorporation. The Company's Bylaws may
be amended by a majority of the Whole Board of Directors, or by a vote of the
holders of at least 80% (after giving effect to the provision limiting voting
rights) of the total votes eligible to be voted at a duly constituted meeting of
stockholders.
Certain Bylaw Provisions. The Bylaws of the Company also require a
stockholder who intends to nominate a candidate for election to the Board of
Directors, or to raise new business at an annual stockholder meeting to give at
least 90 days' advance notice to the Secretary of the Company. The notice
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provision requires a stockholder who desires to raise new business to provide
certain information to the Company concerning the nature of the new business,
the stockholder and the stockholder's interest in the business matter.
Similarly, a stockholder wishing to nominate any person for election as a
Director must provide the Company with certain information concerning the
nominee and the proposing stockholder.
ANTI-TAKEOVER EFFECTS OF THE COMPANY'S CERTIFICATE OF INCORPORATION AND BYLAWS
AND MANAGEMENT REMUNERATION ADOPTED IN CONVERSION
The provisions described above are intended to reduce the Company's
vulnerability to takeover attempts and certain other transactions which have not
been negotiated with and approved by members of its Board of Directors. Certain
provisions of the Stock Plans and Stock Programs provide for accelerated
benefits to participants in the event of a change in control of the Company or
the Bank or a tender or exchange offer for their stock. See "Management of the
Bank - Benefit Plans - Stock Option Plans," and "- Benefit Plans - Stock
Programs." The Company and the Bank have also entered into agreements with key
officers and intends to establish the Severance Compensation Plan which will
provide such officers and eligible employees with additional payments and
benefits on the officer's termination in connection with a change in control of
the Company or the Bank. See "Management of the Bank Employment Agreements,"
"-Change in Control Agreements" and "- Employee Severance Compensation Plan."
The foregoing provisions and limitations may make it more difficult for
companies or persons to acquire control of the Bank. Additionally, the
provisions could deter offers to acquire the outstanding shares of the Company
which might be viewed by stockholders to be in their best interests.
The Company's Board of Directors believes that the provisions of the
Certificate of Incorporation, Bylaws and Management Remuneration Plans are in
the best interest of the Company and its stockholders. An unsolicited
non-negotiated takeover proposal can seriously disrupt the business and
management of a corporation and cause it great expense. Accordingly, the Board
of Directors believes it is in the best interests of the Company and its
stockholders to encourage potential acquirors to negotiate directly with
management and that these provisions will encourage such negotiations and
discourage non-negotiated takeover attempts.
DELAWARE CORPORATE LAW
The State of Delaware has a statute designed to provide Delaware
corporations with additional protection against hostile takeovers. The takeover
statute, which is codified in Section 203 of the Delaware General Corporate Law
("Section 203"), is intended to discourage certain takeover practices by
impeding the ability of a hostile acquiror to engage in certain transactions
with the target company.
In general, Section 203 provides that a "Person" (as defined therein)
who owns 15% or more of the outstanding voting stock of a Delaware corporation
(an "Interested Stockholder") may not consummate a merger or other business
combination transaction with such corporation at any time during the three-year
period following the date such "Person" became an Interested Stockholder. The
term "business combination" is defined broadly to cover a wide range of
corporate transactions including mergers, sales of assets, issuances of stock,
transactions with subsidiaries and the receipt of disproportionate financial
benefits.
The statute exempts the following transactions from the requirements of
Section 203: (i) any business combination if, prior to the date a person became
an Interested Stockholder, the board of directors approved either the business
combination or the transaction which resulted in the stockholder becoming an
Interested Stockholder; (ii) any business combination involving a person who
acquired at least 85% of the outstanding voting stock in the transaction in
which he became an Interested Stockholder,
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excluding, for purposes of determining the number of shares outstanding, shares
owned by the corporation's directors who are also officers and certain employee
stock plans; (iii) any business combination with an Interested Stockholder that
is approved by the board of directors and by a two-thirds vote of the
outstanding voting stock not owned by the Interested Stockholder; and (iv)
certain business combinations that are proposed after the corporation had
received other acquisition proposals and which are approved or not opposed by a
majority of certain continuing members of the board of directors. A corporation
may exempt itself from the requirements of the statute by adopting an amendment
to its certificate of incorporation or bylaws electing not to be governed by
Section 203. At the present time, the Board of Directors does not intend to
propose any such amendment.
RESTRICTIONS IN THE BANK'S RESTATED ORGANIZATION CERTIFICATE AND NEW BYLAWS
Although the Board of Trustees of the Bank is not aware of any effort
that might be made to obtain control of the Bank after Conversion, the Board of
Trustees believes that it is appropriate to adopt certain provisions permitted
by New York State regulations to protect the interests of the converted Bank and
its stockholders from any hostile takeover. Such provisions may, indirectly,
inhibit a change in control of the Company, as the Bank's sole stockholder. See
"Risk Factors - Certain Anti-Takeover Provisions."
The New York State Banking Regulations prohibit, for a period of one
year following the date of conversion, offers to acquire beneficial ownership of
more than 10% of the outstanding stock of the Bank. The Bank's Restated
Organization Certificate will contain a provision whereby the acquisition of
beneficial ownership of more than 10% of the issued and outstanding shares of
any class of equity securities of the Bank by any person (i.e., any individual,
corporation, group acting in concert, trust, partnership, joint stock company or
similar organization), either directly or through an affiliate thereof, will be
prohibited for a period of three years following the date of completion of the
Conversion. Any stock in excess of 10% acquired in violation of the charter
provision will not be counted as outstanding for voting purposes. This
limitation shall not apply to any transaction in which the Bank forms a holding
company without a change in the respective beneficial ownership interests of its
stockholders other than pursuant to the exercise of any dissenter or appraisal
rights. In the event that holders of revocable proxies for more than 10% of the
shares of the Common Stock of the Company seek, among other things, to elect
one-third or more of the Company's Board of Directors, to cause the Company's
stockholders to approve the acquisition or corporate reorganization of the
Company or to exert a continuing influence on a material aspect of the business
operations of the Company, which actions could indirectly result in a change in
control of the Bank, the Board of Directors of the Bank will be able to assert
this provision of the Bank's Restated Organization Certificate against such
holders. Although the Board of Directors of the Bank is not currently able to
determine when and if it would assert this provision of the Bank's Restated
Organization Certificate, the Board of Directors, in exercising its fiduciary
duty, may assert this provision if it were deemed to be in the best interests of
the Bank the Company and its stockholders. It is unclear, however, whether this
provision, if asserted, would be successful against such persons in a proxy
contest which could result in a change in control of the Bank indirectly through
a change in control of the Company.
In addition, stockholders will not be permitted to call a special
meeting of stockholders or to cumulate their votes in the election of Directors.
Furthermore, the Bank's Restated Organization Certificate and Bylaws provide for
the election of three classes of directors to staggered terms. The staggered
terms of the Board of Directors could have an anti-takeover effect by making it
more difficult for a majority of shares to force an immediate change in the
Board of Directors since only one-third of the Board is elected each year. The
purpose of these provisions is to assure stability and continuity of management
of the Bank in the years immediately following the Conversion.
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Finally, the Restated Organization Certificate provides for the
issuance of shares of preferred stock on such terms, including conversion and
voting rights, as may be determined by the Bank's Board of Directors without
stockholder approval. Although the Bank has no arrangements, understandings or
plans at the present time for the issuance or use of the shares of undesignated
preferred stock (the "Preferred Stock") proposed to be authorized, the Board of
Trustees believes that the availability of such shares will provide the Bank
with increased flexibility in structuring possible future financings and
acquisitions and in meeting other corporate needs which may arise. In the event
of a proposed merger, tender offer or other attempt to gain control of the Bank
of which management does not approve, it might be possible for the Board of
Directors to authorize the issuance of one or more series of Preferred Stock
with rights and preferences which could impede the completion of such a
transaction. An effect of the possible issuance of such Preferred Stock,
therefore, may be to deter a future takeover attempt. The Board of Trustees does
not intend to issue any Preferred Stock except on terms which the Board deems to
be in the best interest of the Bank and its then existing stockholders.
REGULATORY RESTRICTIONS
The Plan of Conversion prohibits any person, prior to the completion of
the Conversion, from transferring, or from entering into any agreement or
understanding to transfer, to the account of another, legal or beneficial
ownership of the subscription rights issued under the Plan or the Common Stock
to be issued upon their exercise. The Plan also prohibits any person, prior to
the completion of the Conversion, from offering, or making an announcement of an
offer or intent to make an offer, to purchase such subscription rights or Common
Stock.
NYBD CONVERSION REGULATIONS
For one year following the Conversion, NYBD regulations prohibit any
person from acquiring or making an offer to acquire more than 10% of the stock
of any converted savings institution, except with the prior approval of the
Superintendent.
OTS REGULATIONS
In addition, any proposal to acquire 10% of any class of equity
security of the Company generally would be subject to approval by the OTS under
the Change in Bank Control Act. The OTS requires all persons seeking control of
a savings institution and, therefore, indirectly its holding company, to obtain
regulatory approval prior to offering to obtain control. Federal law generally
provides that no "person," acting directly or indirectly or through or in
concert with one or more other persons, may acquire directly or indirectly
"control," as that term is defined in OTS regulations, of a federally-insured
savings institution without giving at least 60 days' written notice to the OTS
and providing the OTS an opportunity to disapprove the proposed acquisition.
Such acquisitions of control may be disapproved it is determined, among other
things, that (i) the acquisition would substantially less competition; (ii) the
financial condition of the acquiring person might jeopardize the financial
stability of the savings institution or prejudice the interests of its
depositors; (iii) the competency, experience or integrity of the acquiring
person or the proposed management personnel indicates that it would not be in
the interest of the depositors or the public to permit the acquisition of
control by such person. Such change in control restrictions on the acquisition
of holding company stock are not limited to a set time period but will apply for
as long as the regulations are in effect. Persons holding revocable or
irrevocable proxies may be deemed to be beneficial owners of such securities
under OTS regulations and therefore prohibited from voting all or the portion of
such proxies in excess of the 10% aggregate beneficial ownership limit. Such
regulatory restrictions may prevent or inhibit proxy contests for control of the
Company or the Bank which have not received prior regulatory approval.
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New York State Bank Holding Company Regulation. Under New York 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 to 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. See "Regulation and
Supervision - Company Regulation - New York Bank Company Regulation."
New York State Change in Control Regulation. Prior approval of the New
York State Banking Board is also required before any action is taken that causes
any company to acquire direct or indirect control of a banking institution.
Control is presumed to exist if any company 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 that owns, controls or holds with power to
vote 10% or more of the voting stock of a banking institution. Accordingly,
prior approval of the Banking Board would be required before any company could
acquire 10% or more of the common stock of the Company.
DESCRIPTION OF CAPITAL STOCK
OF THE COMPANY
GENERAL
The Company is authorized to issue 100 million shares of Common Stock
having a par value of $.01 per share and 10 million shares of preferred stock
having a par value of $.01 per share (the "Preferred Stock"). Based on the sale
of Common Stock in connection with the Conversion and issuance of authorized but
unissued Common Stock in an amount equal to 3% of the Common Stock sold in the
Conversion to the Foundation, the Company currently expects to issue up to
40,468,500 shares of Common Stock (based on the maximum of the Estimated Price
Range, as adjusted by 15%) and no shares of Preferred Stock in the Conversion.
Except for shares issued in connection with the Conversion, the Company
presently does not have plans to issue Common Stock. Each share of the Company's
Common Stock will have the same relative rights as, and will be identical in all
respects with, each other share of Common Stock. Upon payment of the Actual
Purchase Price for the Common Stock, in accordance with the Plan of Conversion,
all such stock will be duly authorized, fully paid and nonassessable.
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
Dividends. The Company can pay dividends out of statutory surplus or
from certain net profits if, as and when declared by its Board of Directors. The
payment of dividends by the Company is subject to limitations which are imposed
by law and applicable regulation. See "Dividend Policy" and "Regulation and
Supervision." The holders of Common Stock of the Company 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 therefor. If the Company
issues Preferred Stock, the holders thereof may have a priority over the holders
of the Common Stock with respect to dividends.
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Voting Rights. Upon the Conversion, the holders of Common Stock of the
Company will possess exclusive voting rights in the Company. They will elect the
Company's Board of Directors and act on such other matters as are required to be
presented to them under Delaware law or as are otherwise presented to them by
the Board of Directors. Except as discussed in "Restrictions on Acquisition of
the Company and the Bank," each holder of Common Stock will be entitled to one
vote per share. Stockholders will not have any right to cumulate votes in the
election of Directors. If the Company issues Preferred Stock, holders of the
Preferred Stock may also possess voting rights. Certain matters require an 80%
stockholder vote (after giving effect to the provision limiting voting rights).
See "Restrictions on Acquisition of the Company and the Bank."
As a New York State mutual savings bank, corporate powers and control
of the Bank are vested in its Board of Trustees, who elect the officers of the
Bank and who fill any vacancies on the Board of Trustees as it exists upon
Conversion. Subsequent to Conversion, voting rights will be vested exclusively
in the owners of the shares of capital stock of the Bank, which will be the
Company, and voted at the direction of the Company's Board of Directors.
Consequently, the holders of the Common Stock will not have direct control of
the Bank.
Liquidation. In the event of any liquidation, dissolution or winding up
of the Bank, the Company, as holder of the Bank's capital stock would be
entitled to receive, after payment or provision for payment of all debts and
liabilities of the Bank (including all deposit accounts and accrued interest
thereon) and after distribution of the balance in the special liquidation
account to Eligible Account Holders (see "The Conversion - Liquidation Rights"),
all assets of the Bank available for distribution. In the event of liquidation,
dissolution or winding up of the Company, the holders of its Common Stock would
be entitled to receive, after payment or provision for payment of all of its
debts and liabilities, all of the assets of the Company available for
distribution. If Preferred Stock is issued, the holders thereof may have a
priority over the holders of the Common Stock in the event of liquidation or
dissolution.
Preemptive Rights; Redemption. Holders of the Common Stock of the
Company will not be entitled to preemptive rights with respect to any shares
which may be issued. The Common Stock is not subject to redemption.
PREFERRED STOCK
None of the shares of the Company's authorized Preferred Stock will be
issued in the Conversion. Such stock may be issued with such designations,
powers, preferences and rights as the Board of Directors may from time to time
determine. The Board of Directors can, without stockholder approval, issue
Preferred Stock with voting, dividend, liquidation and conversion rights which
could dilute the voting strength of the holders of the Common Stock and may
assist management in impeding an unfriendly takeover or attempted change in
control. The Company presently does not have plans to issue Preferred Stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is [Transfer
Agent].
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EXPERTS
The consolidated financial statements of the Bank and its subsidiaries
as of December 31, 1995 and 1994, and for each of the years in the three-year
period ended December 31, 1995, have been included herein in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing. Such report includes an explanatory paragraph relating
to changes in accounting principles.
_____________________ has consented to the publication herein of the
summary of its opinion relating to compensation matters.
FinPro has consented to the publication herein of the summary of its
report to the Bank and Company setting forth its opinion as to the estimated pro
forma market value of the Common Stock upon Conversion and its opinion with
respect to subscription rights.
LEGAL AND TAX OPINIONS
The legality of the Common Stock and the federal income tax
consequences of the Conversion will be passed upon for the Bank and Company by
Muldoon, Murphy & Faucette, Washington, D.C., special counsel to the Bank and
Company. The federal income tax consequences of The Roslyn Savings Bank
Foundation will be passed upon for the Bank and the Company by KPMG Peat Marwick
LLP, independent certified public accountants. Muldoon, Murphy & Faucette will
rely as to certain matters of Delaware law on the opinion of Morris, Nichols,
Arsht & Tunnel. New York State and New York City income tax consequences will be
passed upon by O'Reilly, Marsh & Corteselli. Certain legal matters will be
passed upon for Sandler O'Neill by Thacher Proffitt & Wood.
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, including
the Conversion Valuation Appraisal Report, which is an exhibit to the
Registration Statement, can be examined without charge at the public reference
facilities of the SEC located at 450 Fifth Street, N.W., Washington, D.C. 20549,
and copies of such material can be obtained from the SEC at prescribed rates.
The Conversion Valuation Appraisal Report may also be inspected by Eligible
Account Holders at the offices of the Bank during normal business hours. The
statements contained in this Prospectus 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; each
such statement is qualified by reference to such contract or document.
The Bank has filed an application for approval of conversion with the
Superintendent and the FDIC. Pursuant to the rules and regulations of the
Superintendent, this Prospectus omits certain information contained in that
application. The application may be examined at the principal office of the
Superintendent, Two Rector Street, New York, New York 10006.
The Company has filed with the Office of Thrift Supervision an
Application to Form a Holding Company. This Prospectus omits certain information
contained in such Application. The Application may be inspected at the offices
of the OTS, 1700 G Street, N.W., Washington, D.C. 20552.
160
<PAGE>
In connection with the Conversion, the Company will register its Common
Stock with the SEC under Section 12(g) of the Exchange Act, and, upon such
registration, the Company and the holders of its stock will become subject to
the proxy solicitation rules, reporting requirements and restrictions on stock
purchases and sales by Trustees, 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 Conversion. In
the event that the Bank amends the Plan to eliminate the concurrent formation of
the Company as part of the Conversion, the Bank will register its stock with the
Federal Deposit Insurance Corporation under Section 12(g) of the Exchange Act
and, upon such registration, the Bank and the holders of its stock will become
subject to the same obligations and restrictions.
A copy of the Certificate of Incorporation and the Bylaws of the
Company and the Restated Organization Certificate and Bylaws of the Bank are
available without charge from the Bank.
161
<PAGE>
THE ROSLYN SAVINGS BANK
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Independent Auditors' Report.............. F-2
Consolidated Statements of Financial
Condition as of May 31, 1996
(unaudited), and December 31, 1995,
1994 and 1993........................... F-3
Consolidated Statements of Income for
the five months ended May 31, 1996 and
1995 (unaudited), and the years ended
December 31, 1995, 1994 and 1993........ 38
Consolidated Statements of Changes in
Retained Earnings for the five months
ended May 31, 1996 (unaudited), and
the years ended December 31, 1995,
1994 and 1993........................... F-4
Consolidated Statements of Cash Flows
for the five months ended May 31, 1996
and 1995 (unaudited), and the years
ended December 31, 1995, 1994 and 1993.. F-5 TO F-8
Notes to Consolidated Financial
Statements.............................. F-9 TO F-42
</TABLE>
All schedules are omitted because they are not required or applicable, or
the required information is shown in the consolidated financial statements or
notes thereto.
The financial statements of Roslyn Bancorp, Inc. have been omitted because
Roslyn Bancorp, Inc. has not yet issued any stock, has no assets and no
liabilities, and has not conducted any business other than of an organizational
nature.
<PAGE>
Independent Auditors' Report
----------------------------
The Board of Trustees
The Roslyn Savings Bank:
We have audited the consolidated financial statements of The Roslyn Savings Bank
and subsidiaries (the Bank) as of December 31, 1995 and 1994, and for each of
the years in the three-year period ended December 31, 1995, as listed in the
accompanying index to the consolidated financial statements. These consolidated
financial statements are the responsibility of the Bank's management. Our
responsibility is to express an opinion on those consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of The Roslyn Savings
Bank and subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1995 in conformity with generally accepted accounting
principles.
As discussed in note 1(d) to the consolidated financial statements, effective
January 1, 1995, the Bank adopted the provisions of Statement of Financial
Accounting Standards (SFAS) No. 122, "Accounting for Mortgage Servicing Rights".
As discussed in note 1(c) to the consolidated financial statements, effective
January 1, 1994, the Bank adopted the provisions of SFAS No. 115, "Accounting
for Certain Investments in Debt and Equity Securities". As discussed in notes
1(j) and 1(k) to the consolidated financial statements, effective January 1,
1993, the Bank adopted the provisions of SFAS Nos. 109, "Accounting for Income
Taxes", and 106, "Employers' Accounting for Postretirement Benefits Other than
Pensions".
/s/ KPMG Peat Marwick LLP
Jericho, New York
March 8, 1996
F-2
<PAGE>
THE ROSLYN SAVINGS BANK
Consolidated Statements of Financial Condition
May 31, 1996 (unaudited) and December 31, 1995 and 1994
(In thousands)
<TABLE>
<CAPTION>
December 31,
May 31, -----------------
Assets 1996 1995 1994
------ ---- ---- ----
(unaudited)
<S> <C> <C> <C>
Cash and cash equivalents:
Cash and cash items $ 1,044 1,479 1,841
Due from banks 8,877 8,224 418
Federal funds sold 18,500 10,000 25,000
---------- --------- ---------
28,421 19,703 27,259
Debt and equity securities, net
Held-to-maturity (estimated fair
value of $2,086, $2,151 and
$454,698, respectively) 1,930 1,930 466,204
Available-for-sale 431,932 379,331 89,787
Mortgage-backed and mortgage
related securities, net:
Held-to-maturity (estimated fair
value of $309,068, $348,799
and $394,470, respectively) 312,233 347,213 411,341
Available-for-sale 519,399 413,485 50,711
---------- --------- ---------
1,265,494 1,141,959 1,018,043
Loans held for sale, net 14,265 17,151 -
Loans receivable held for
investment, net:
Real estate loans, net 420,313 386,769 344,912
Consumer and student 1,483 1,846 22,306
---------- --------- ---------
421,796 388,615 367,218
Less allowance for possible
loan losses (22,312) (23,350) (25,127)
---------- --------- ---------
399,484 365,265 342,091
Banking house and equipment, net 14,624 12,423 11,647
Accrued interest receivable 11,881 11,563 13,988
Mortgage servicing rights, net 8,619 8,297 -
Excess of cost over fair
value of net assets acquired 3,648 3,844 642
Real estate owned, net 5,366 6,047 3,359
Deferred tax asset, net 16,511 7,368 18,856
Other assets 3,862 3,124 2,494
---------- --------- ---------
Total assets $1,772,175 1,596,744 1,438,379
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
December 31,
May 31, -----------------
Liabilities and Retained Earnings 1996 1995 1994
--------------------------------- ---- ---- ----
(unaudited)
<S> <C> <C> <C>
Deposits:
Savings accounts $ 437,273 455,511 566,648
Certificates of deposit 871,876 749,775 517,437
Money market accounts 61,411 64,426 77,359
Demand deposit accounts 71,285 65,838 58,074
--------- --------- ---------
Total deposits 1,441,845 1,335,550 1,219,518
Borrowed funds 69,598 1,647 -
Accrued dividends and interest
on deposits 5,077 883 489
Mortgagors' escrow and
security deposits 5,501 7,091 6,462
Accrued taxes payable 9,595 8,265 9,063
Accrued expenses and other
liabilities 18,315 16,890 9,776
---------- --------- ---------
Total liabilities 1,549,931 1,370,326 1,245,308
---------- --------- ---------
Retained earnings:
Surplus fund 22,484 22,484 22,484
Undivided profits 200,432 192,041 173,323
Net unrealized (loss) gain on
securities available-for-sale,
net of tax (672) 11,893 (2,736)
---------- --------- ---------
Total retained earnings 222,244 226,418 193,071
---------- --------- ---------
Total liabilities and
retained earnings $1,772,175 1,596,744 1,438,379
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
THE ROSLYN SAVINGS BANK
Consolidated Statements of Changes in Retained Earnings
Five months ended May 31, 1996 (unaudited) and
years ended December 31, 1995, 1994 and 1993
(In thousands)
<TABLE>
<S> <C>
Balance at December 31, 1992 $ 152,242
Net income for year ended December 31, 1993 24,143
-------
Balance at December 31, 1993 176,385
Net income for year ended December 31, 1994 19,422
Effect of change in accounting for securities
available-for-sale at January 1, 1994 - net
unrealized gain, net of tax 2,625
Change in net unrealized gain in available-for-
sale securities, net of tax for the year ended
December 31, 1994 (5,361)
-------
Balance at December 31, 1994 193,071
Net income for year ended December 31, 1995 18,718
Net unrealized gain on securities transferred from
held-to-maturity to available-for-sale, net of tax 5,484
Change in net unrealized gain in available-for-sale
securities, net of tax for the year ended
December 31, 1995 9,145
-------
Balance at December 31, 1995 226,418
Net income for the five months ended May 31, 1996
(unaudited) 8,391
Change in net unrealized gain in available-for-
sale securities, net of tax for the period ended
May 31, 1996 (unaudited) (12,565)
-------
Balance at May 31, 1996 (unaudited) $ 222,244
=======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
THE ROSLYN SAVINGS BANK
Consolidated Statements of Cash Flows
Five months ended May 31, 1996 and 1995 and
years ended December 31, 1995, 1994 and 1993
(In thousands)
<TABLE>
<CAPTION>
Five months
ended May 31, Years ended December 31,
------------- ------------------------------
1996 1995 1995 1994 1993
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
(unaudited)
Cash flows from operating activities:
Net income $ 8,391 7,574 18,718 19,422 24,143
Adjustments to reconcile net income to net
cash provided by operating activities:
Cumulative effect of changes in
accounting principles - - - - (5,983)
Provision for possible loan losses 300 250 600 600 6,860
Provision for possible losses on real
estate owned 150 - - - 1,200
Originated mortgage servicing rights, net of
amortization (322) - (246) - -
Amortization of excess of cost over fair
value of net assets acquired 196 51 266 122 92
Depreciation and amortization 488 501 1,327 1,066 854
Accretion of discounts, net of
amortization of premiums (439) 632 962 2,076 556
Proceeds from sales of loans held for sale,
net of originations and purchases 2,699 - 6,307 - -
(Gains) losses on sales of loans (1,599) (455) (1,827) 289 (33)
Net losses (gains) on securities 257 758 811 1,181 (3,123)
Net gains on sales of real estate owned (9) (496) (1,113) (822) (34)
Deferred income taxes 227 (232) 578 (732) (2,095)
Changes in assets and liabilities (net of
effects from the purchase of assets and
liabilities of RMBI):
(Increase) decrease in accrued
interest receivable (318) 537 2,452 (1,109) 2,554
(Increase) decrease in other assets (738) (886) (167) (339) 243
(Increase) decrease in accrued
dividends and interest on deposits 4,194 4,114 394 176 (191)
Increase (decrease) in accrued taxes
payable 1,330 2,208 (798) (1,302) 2,511
Increase (decrease) in accrued
expense and other liabilities 1,425 1,107 7,004 1,272 (263)
Net increase in unearned income 148 371 187 1,734 -
Other, net (12) (128) (131) 22 83
------- ------- ------- ------- -------
Net cash provided by
operating activities 16,368 15,906 35,324 23,656 27,374
======= ======= ======= ======= =======
</TABLE>
(Continued)
F-5
<PAGE>
THE ROSLYN SAVINGS BANK
Consolidated Statements of Cash Flows, Continued
(In thousands)
<TABLE>
<CAPTION>
Five months
ended May 31, Years ended December 31,
------------- ------------------------------
1996 1995 1995 1994 1993
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
(unaudited)
Cash flows from investing activities:
Purchase of assets and liabilities of RMBI $ - - (12,220) - -
Proceeds from sales and redemptions of debt and
equity securities held-to-maturity 52,393 54,883 278,779 90,604 163,763
Proceeds from sales and repayments of mortgage-backed
and mortgage related securities held-to-maturity 75,905 23,138 92,207 100,381 223,002
Purchases of mortgage-backed and mortgage related
securities held-to-maturity - (60,878) (240,702) (109,433) (246,373)
Purchases of debt and equity securities
held-to-maturity - (88,018) (176,308) (24,807) (213,300)
Proceeds from sales and repayments of debt, equity,
mortgage-backed and mortgage related securities
available-for-sale 31,837 9,567 171,397 5,164 -
Purchases of debt, equity, mortgage-backed and
mortgage related securities available-for-sale (305,423) (48,370) (225,523) (91,470) -
Loan originations and purchases, net of principal
repayments (37,480) (19,888) (80,698) (92,665) 9,904
Proceeds from sales of loans 4,322 19,382 28,008 15,408 15,798
Purchases of banking house and equipment, net (2,685) (992) (1,708) (3,460) (2,848)
Proceeds from sales of real estate owned 825 2,342 5,580 5,371 1,174
--------- --------- --------- --------- ---------
Net cash used in investing activities (180,306) (108,834) (161,188) (104,907) (48,880)
--------- --------- --------- --------- ---------
</TABLE>
(Continued)
F-6
<PAGE>
THE ROSLYN SAVINGS BANK
Consolidated Statements of Cash Flows, Continued
(In thousands)
<TABLE>
<CAPTION>
Five months
ended May 31, Years ended December 31,
------------- ------------------------------
1996 1995 1995 1994 1993
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
(unaudited)
Cash flows from financing activities:
(Decrease) increase in demand deposit, money
market, and savings accounts $ (15,806) (111,364) (116,306) (50,992) 26,006
Increase (decrease) in certificates of deposit 122,101 153,679 232,338 128,945 (18,984)
Increase in borrowed funds 67,951 40,700 1,647 - -
(Decrease) increase in mortgagors' escrow and
security deposits (1,590) (1,439) 629 (838) (2,164)
------- ------- -------- ------- -------
Net cash provided by financing activities 172,656 81,576 118,308 77,115 4,858
------- ------- -------- ------- -------
Net increase (decrease) in cash and cash equivalents 8,718 (11,352) (7,556) (4,136) (16,648)
Cash and cash equivalents at beginning of period 19,703 27,259 27,259 31,395 48,043
------- ------- -------- ------- -------
Cash and cash equivalents at end of period $ 28,421 15,907 19,703 27,259 31,395
======= ======= ======== ======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest on deposits and borrowed funds $ 22,934 18,624 58,904 40,177 39,889
======= ======= ======== ======= =======
Income taxes $ 2,371 1,958 8,888 11,428 10,586
======= ======= ======== ======= =======
Non-cash investing activities:
Additions to real estate owned, net $ 276 1,797 6,964 5,119 2,016
======= ======= ======== ======= =======
Transfer of securities from held-to-maturity
to available-for-sale $ - - 648,705 66,483 -
======= ======= ======== ======= =======
</TABLE>
(Continued)
F-7
<PAGE>
THE ROSLYN SAVINGS BANK
Consolidated Statements of Cash Flows, Continued
(In thousands)
<TABLE>
<CAPTION>
Five months
ended May 31, Years ended December 31,
------------- ------------------------------
1996 1995 1995 1994 1993
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
(unaudited)
Fair value of assets acquired from RMBI:
Loans held for sale $ 22,571
Mortgage servicing rights 8,051
Excess of cost over fair value of net assets acquired 3,469
Other assets 628
-------
34,719
-------
Liabilities assumed from RMBI:
Borrowed funds 22,061
Other 438
-------
22,499
-------
Cash paid in acquisition $ 12,220
=======
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
THE ROSLYN SAVINGS BANK
Notes to Consolidated Financial Statements
May 31, 1996 and 1995 (unaudited) and
December 31, 1995, 1994 and 1993
(1) Summary of Significant Accounting Policies and Related Matters
--------------------------------------------------------------
The following is a summary of significant accounting policies:
The Roslyn Savings Bank and its wholly-owned subsidiaries (the Bank) primary
business activities include attracting deposits from the general public and
originating residential property loans (one-to-four family home mortgage,
cooperative apartment and multi-family property loans). The Bank also
makes commercial real estate loans and consumer loans. The Bank is subject
to competition from other financial institutions. Deposits at the Bank are
insured up to applicable limits by the Bank Insurance Fund (BIF) of the
Federal Deposit Insurance Corporation (FDIC). The Bank is a New York State
chartered savings bank and is subject to comprehensive regulation,
examination and supervision by the New York State Banking Department and
the FDIC.
(a) Principles of Consolidation and Basis of Financial Statement Presentation
-------------------------------------------------------------------------
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles (GAAP) and include the accounts of
the Bank and its wholly-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
Historically, the Bank has been required to issue audited financial
statements to meet regulatory requirements. As more fully discussed in
note 18, the Bank plans to convert from a mutual to capital stock form of
ownership. As a stock institution and as a result of the public offering
of the stock of the holding company intended to be formed by the Bank, the
Bank will be subject to the financial reporting requirements of the
Securities Exchange Act of 1934, as amended. Accordingly, in connection
with the conversion, the Bank performed a comprehensive review of its
accounting policies and practices, and made a determination that certain of
such policies and practices should be changed to adopt preferable
accounting practices. The accompanying consolidated financial statements
have been prepared to reflect such preferred accounting policies, which are
referred to in the paragraphs below and relate principally to the timing of
loan loss provisions and the accounting for premiums paid on certain
callable preferred stock.
On August 1, 1995, The Roslyn Savings Bank acquired, through a wholly-owned
subsidiary now known as Residential First, Inc. (RFI), certain assets and
liabilities, including the loan origination business and the $623 million
loan servicing portfolio (the acquisition), of Residential Mortgage
Banking, Inc. (RMBI), a mortgage banking firm which operated in New York
and New Jersey. RFI has entered into a sub-servicing agreement with another
mortgage banking firm to provide for the servicing of loans.
The acquisition was funded by The Roslyn Savings Bank, and was accounted for
under the purchase method of accounting; accordingly, the purchase price
was allocated to the assets and liabilities acquired based on their
estimated fair values as of August 1, 1995, including $8.1 million relating
to the value of the loan servicing portfolio acquired. The consideration
paid exceeded the estimated fair value of the net assets acquired by $3.5
million. This amount was recorded as goodwill and is being amortized over
10 years.
(Continued)
F-9
<PAGE>
THE ROSLYN SAVINGS BANK
Notes to Consolidated Financial Statements, Continued
May 31, 1996 and 1995 (unaudited) and
December 31, 1995, 1994 and 1993
A substantial portion of the Bank's loans are secured by real estate in the
New York Metropolitan area. Accordingly, the ultimate collectibility of
such loan portfolio is susceptible to changes in market conditions in the
New York Metropolitan area.
In preparing the consolidated financial statements, management is required to
make estimates and assumptions that affect the reported amounts of assets
and liabilities as of the date of the consolidated financial statements and
results of operations for the periods then ended. Actual results could
differ from those estimates. Material estimates that are particularly
susceptible to change in the near-term relate to the determination of the
allowance for possible loan losses. In connection with the determination
of the allowance for possible loan losses, management obtains independent
appraisals for significant properties.
Management believes that the allowance for possible loan losses is adequate.
While management uses available information to recognize losses on loans,
future additions to the allowance may be necessary based on unanticipated
changes in economic conditions, particularly in the New York Metropolitan
area. In addition, the New York State Banking Department and the FDIC, as
an integral part of their examination process, periodically review the
Bank's allowance for possible loan losses. Such agencies may require the
Bank to recognize additions to the allowance based on their judgments about
information available to them at the time of their examination.
Certain reclassifications have been made to prior periods amounts to conform
to the current period presentation.
(b) Cash and Cash Equivalents
-------------------------
For purposes of reporting cash flows, cash and cash equivalents include cash
on hand, amounts due from banks and federal funds, which are generally sold
for one to three day periods.
(c) Debt, Equity, Mortgage-Backed and Mortgage Related Securities
-------------------------------------------------------------
In accordance with Statement of Financial Accounting Standards No. (SFAS)
115, "Accounting for Certain Investments in Debt and Equity Securities",
which the Bank adopted effective January 1, 1994, the Bank is required to
report debt, readily-marketable equity, mortgage-backed and mortgage
related securities in one of the following categories: (i) "held-to-
maturity" (management has a positive intent and ability to hold to
maturity) which are to be reported at amortized cost adjusted, in the case
of debt securities, for the amortization of premiums and accretion of
discounts; (ii) "trading" (held for current resale) which are to be
reported at fair value, with unrealized gains and losses included in
earnings; and (iii) "available-for-sale" (all other debt, equity, mortgage-
backed and mortgage related securities) which are to be reported at fair
value, with unrealized gains and losses reported net of tax as a separate
component of retained earnings. The Bank classified all of its holdings of
debt, readily-marketable equity, mortgage-backed and mortgage related
securities at January 1, 1994 as either "held-to-maturity" or "available-
for-sale"; thereafter, at the time of new securities purchases, a
determination is made as to the appropriate classification.
(Continued)
F-10
<PAGE>
THE ROSLYN SAVINGS BANK
Notes to Consolidated Financial Statements, Continued
May 31, 1996 and 1995 (unaudited) and
December 31, 1995, 1994 and 1993
In November 1995, the Financial Accounting Standards Board (FASB) issued an
implementation guide for SFAS 115. The implementation allowed an
opportunity from mid-November 1995 to December 31, 1995 for banks to
reclassify securities in the "held-to-maturity" portfolio to the
"available-for-sale" portfolio without tainting the remainder of the
portfolio. In connection with this opportunity the Bank reclassified
$415.3 million of debt securities and $233.4 million of mortgage-backed and
mortgage related securities previously classified as "held-to-maturity" to
securities "available-for-sale".
Premiums and discounts on debt, mortgage-backed and mortgage related
securities are amortized to expense and accreted to income over the
estimated life of the respective security using the interest method.
Premiums paid on certain callable preferred stock are amortized to expense
over the period to the call date. Gains and losses on the sales of
securities are recognized on realization.
(d) Real Estate and Other Loans
---------------------------
Loans receivable are stated at unpaid principal balances, including negative
escrow, less unearned discounts, deferred mortgage interest and net
deferred loan origination fees.
Purchased loans are recorded at cost. Related premiums or discounts on
mortgages and other loans purchased are amortized to expense or accreted to
income using the interest method over the estimated life of the loans.
Accrual of interest on potential problem loans is excluded from income
primarily after a delinquency of 90 days or when, in the opinion of
management, such suspension is warranted.
Loans held for sale are carried at the aggregate lower of cost or market
value as determined by outstanding commitments from investors or current
investor yield requirements calculated on an aggregate loan basis.
In May 1993, SFAS 114, "Accounting by Creditors for Impairment of a Loan" was
issued. The statement is effective for financial statements for fiscal
years beginning after December 15, 1994. According to SFAS 114, impairment
is measured based upon the present value of expected future cash flows or
fair value of the loan's collateral, if collateral dependent.
In October 1994, SFAS 118, "Accounting by Creditors for Impairment of a Loan-
Income Recognition and Disclosures" was issued. SFAS 118 is also effective
for fiscal years beginning after December 15, 1994 and amends SFAS 114 to
allow a creditor to use existing methods for recognizing interest income on
an impaired loan. This statement also amends the disclosure requirements
of SFAS 114 to require information about the recorded investment in certain
impaired loans and about how a creditor recognizes interest income related
to those impaired loans. The Bank adopted SFAS 114 and SFAS 118 on January
1, 1995. The adoption of SFAS 114 and SFAS 118 did not have a significant
effect on the Bank's consolidated financial statements.
In May 1995, SFAS 122, "Accounting for Mortgage Servicing Rights" was issued.
SFAS 122 is effective for fiscal years beginning after December 15, 1995,
with earlier adoption permitted. The statement amends SFAS 65, "Accounting
for Certain Mortgage Banking Activities", to require that a mortgage
banking enterprise recognize as separate assets rights to service mortgage
loans for others,
(Continued)
F-11
<PAGE>
THE ROSLYN SAVINGS BANK
Notes to Consolidated Financial Statements, Continued
May 31, 1996 and 1995 (unaudited) and
December 31, 1995, 1994 and 1993
however acquired. For mortgage servicing rights that are created through
the origination of mortgage loans, and where the loans are subsequently
sold or securitized with servicing rights retained, the statement requires
that the total cost of the mortgage loans should be allocated to the
mortgage servicing rights and the loans based on their relative fair
values. The statement also requires the assessment of capitalized mortgage
servicing rights for impairment to be based on the current fair value of
those rights and recognized through a valuation allowance. The Bank
adopted SFAS 122 effective January 1, 1995, the impact of which was not
material to its financial statements.
Fees earned for servicing loans are reported as income when the related
mortgage loan payments are collected. Mortgage servicing rights (MSRs) are
amortized as a reduction to loan service fee income using the interest
method over the estimated remaining life of the underlying mortgage loans.
MSR assets are carried at fair value and impairment, if any, is recognized
through a valuation allowance.
(e) Allowance for Possible Loan Losses
----------------------------------
The allowance for possible loan losses is based on a periodic analysis of the
loan portfolio and reflects an amount which, in management's judgment, is
adequate to provide for possible loan losses in the existing portfolio. In
evaluating the portfolio, management takes into consideration numerous
factors such as the Bank's loan growth, prior loss experience, present and
potential risks of the loan portfolio and current economic conditions.
Provisions for possible losses on loans are charged to operations. Loans
are charged off against the allowance for possible loan losses when the
collectibility of loan principal is unlikely. Recoveries of loans
previously charged off are credited to the allowance.
(f) Commitment and Loan Origination Fees
------------------------------------
The Bank defers certain loan origination and commitment fees net of certain
origination costs and amortizes them as an adjustment of the loan's yield
over the term of the related loan using the interest method.
(g) Banking House and Equipment
---------------------------
Land is carried at cost and buildings are carried at cost, less allowance for
depreciation computed on the straight-line method over a twenty-five to
fifty year period. Leasehold improvements are stated at cost, less
accumulated amortization. Amortization is computed on the straight-line
method over the terms of the respective lease or the life of the
improvement, whichever is shorter. Furniture, fixtures and equipment are
stated at cost, less accumulated depreciation. Depreciation is computed on
the straight-line method on the estimated service lives over a three to ten
year period.
(h) Real Estate Owned
-----------------
Real estate acquired through foreclosure or deed-in-lieu of foreclosure, are
reported at the lower of cost or fair value at the acquisition date, and
subsequently at the lower of its new cost or fair value less estimated
selling costs. Cost represents the unpaid loan balance at the acquisition
date plus expenses, when appropriate, incurred to bring the property to a
salable condition. The Bank maintains an allowance for subsequent declines
in estimated fair value less estimated selling costs. Certain costs
relating to holding the properties, and gains or losses resulting from the
disposition of properties are recognized in the current period's
operations.
(Continued)
F-12
<PAGE>
THE ROSLYN SAVINGS BANK
Notes to Consolidated Financial Statements, Continued
May 31, 1996 and 1995 (unaudited) and
December 31, 1995, 1994 and 1993
(i) Surplus Fund
------------
As required under State of New York Banking Law, if the retained earnings of
the Bank is less than ten percent of deposits at the close of any
accounting period, ten percent of net income during the year, as defined,
is credited to surplus. During the years ended December 31, 1995, 1994,
and 1993 and the five months ended May 31, 1996 and 1995, no amount was
required to be credited to surplus.
(j) Income Taxes
------------
The Bank adopted SFAS 109, " Accounting for Income Taxes effective January 1,
1993. Under the asset and liability method of SFAS 109, deferred tax assets
and liabilities are recognized for the future tax consequences attributable
to differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. To the extent that
current available evidence about the future raises doubt about the
realization of a deferred tax asset, a valuation allowance must be
established. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date. The
cumulative effect of adopting SFAS 109 as of January 1, 1993 is included in
the 1993 consolidated statement of income.
(k) Summary of Retirement Benefits Accounting
-----------------------------------------
The Bank's retirement plan is noncontributory and covers substantially all
eligible employees. The plan conforms to the provisions of the Employee
Retirement Income Security Act of 1974, as amended. The Bank's policy is
to accrue for all pension costs and to fund the maximum amount allowable
for tax purposes. Actuarial gains and losses that arise from changes in
assumptions concerning future events, used in estimating pension costs, are
amortized over a period that reflects the long-range nature of pension
expense. The Bank adopted SFAS 106 (SFAS 106), "Employers' Accounting for
Post-Retirement Benefits Other Than Pensions", on January 1, 1993. This
statement established accounting standards for postretirement benefits
other than pensions (hereinafter referred to as post-retirement benefits).
This statement focuses principally on health care benefits, although it
applies to all forms of postretirement benefits other than pensions. SFAS
106 changed the Bank's practice of accounting for postretirement benefits
on a cash basis by requiring accrual of the cost of providing those
benefits to an employee, and the employee's beneficiaries and covered
dependents, during the years that the employee renders the necessary
service. The cumulative effect of adopting SFAS 106 as of January 1, 1993,
based on the Bank's option to recognize all of the transition obligation in
the year of adoption, is included in the 1993 consolidated statement of
income, net of related tax effect.
(l) Employers' Accounting for Postemployment Benefits
-------------------------------------------------
In November 1992, the FASB issued SFAS 112, "Employers' Accounting for
Postemployment Benefits". SFAS 112 focuses principally on postemployment
benefits for employers who provide benefits to former or inactive employees
after employment but before retirement. Postemployment benefits are all
types of benefits provided to former or inactive employees, their
beneficiaries and
(Continued)
F-13
<PAGE>
THE ROSLYN SAVINGS BANK
Notes to Consolidated Financial Statements, Continued
May 31, 1996 and 1995 (unaudited) and
December 31, 1995, 1994 and 1993
covered dependents. This statement requires employers to recognize the
obligation to provide postemployment benefits in accordance with SFAS
43, "Accounting for Compensated Absences", if the obligation is
attributable to employees' service already rendered, employees' rights
to those benefits accumulate or vest, payment of the benefits is
probable, and the amount of the benefits can be reasonably estimated. If
those four conditions are not met, the employer should account for
postemployment benefits when it is probable that a liability has been
incurred and the amount can be reasonably estimated in accordance with
SFAS 5, "Accounting for Contingencies". If an obligation for
postemployment benefits is not accrued in accordance with SFAS 5 or SFAS
43 only because the amount cannot be reasonably estimated, the financial
statements shall disclose that fact.
The Bank adopted SFAS 112 on January 1, 1994. The impact of the Bank's
adoption of SFAS 112 was minimal because the majority of the Bank's
benefits do not vest or accumulate or are not attributable to past
service.
(m) Recently Adopted Accounting Pronouncements
------------------------------------------
In March 1995, the FASB issued SFAS 121, "Accounting for the Impairment of
Long-Lived Assets to be Disposed Of". SFAS 121 is effective for fiscal
years beginning after December 15, 1995 and establishes accounting
standards for impairment of long-lived assets, certain identifiable
intangibles, and goodwill related to those assets to be held and used
and for long-lived assets and certain identifiable intangibles to be
disposed of. This statement requires that long-lived assets and certain
identifiable intangibles, to be held and used by an entity, be reviewed
for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. In performing
the review for recoverability, the entity should estimate the future
cash flows expected to result from the use of the asset and its eventual
disposition. If the sum of the expected future cash flows is less than
the carrying amount of the asset, an impairment loss should be
recognized. This statement requires that long-lived assets and certain
identifiable intangibles to be disposed of be reported at the lower of
carrying amount or fair value less cost to sell. The Bank adopted SFAS
121 on January 1, 1996 Adoption of this statement did not have a
material effect on the Bank's consolidated financial statements.
(2) Debt and Equity Securities
--------------------------
Investments in debt and equity securities at May 31, 1996 are summarized as
follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Estimated
cost gain loss fair value
---- ---- ---- ----------
(In thousands)
<S> <C> <C> <C> <C>
Held-to-maturity:
Debt securities:
State, county and municipal $ 1,930 156 - 2,086
======= ======= ======= =======
</TABLE>
(Continued)
F-14
<PAGE>
THE ROSLYN SAVINGS BANK
Notes to Consolidated Financial Statements, Continued
May 31, 1996 and 1995 (unaudited) and
December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Estimated
cost gain loss fair value
---- ---- ---- ----------
(In thousands)
<S> <C> <C> <C> <C>
Available-for-sale:
Debt securities:
United States Government-
direct and guaranteed $185,658 3,245 (56) 188,847
United States Government
agencies 88,556 - (1,700) 86,856
Public utility 2,745 25 - 2,770
Other 14,409 295 (26) 14,678
-------- ------ ------ ----------
Total debt securities
available-for-sale $291,368 3,565 (1,782) 293,151
======== ====== ====== ==========
Equity securities:
Common 258 4,700 - 4,958
Preferred 133,188 1,996 (1,972) 133,212
Other 602 9 - 611
-------- ------ ------ -------
Total debt securities
available-for-sale $134,048 6,705 (1,972) 138,781
======== ====== ====== ==========
$ 431,932
=========
Investments in debt and equity securities at December 31, 1995 are summarized as follows:
Gross Gross
Amortized unrealized unrealized Estimated
cost gain loss fair value
---- ------ ------ ----------
(In thousands)
Held-to-maturity:
Debt securities:
State, county and
municipal $ 1,930 221 - 2,151
======== ====== ======= ========
Available-for-sale:
Debt securities:
United States Government -
direct and guaranteed 195,701 8,925 - 204,626
United States Government
agencies 34,764 6 (26) 34,744
Public utility 2,742 57 - 2,799
Other 17,838 557 (11) 18,384
-------- ------ ------ ----------
Total debt securities
available-for-sale $251,045 9,545 (37) 260,553
======== ====== ====== ==========
</TABLE>
(Continued)
F-15
<PAGE>
THE ROSLYN SAVINGS BANK
Notes to Consolidated Financial Statements, Continued
May 31, 1996 and 1995 (unaudited) and
December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Estimated
cost gain loss fair value
--------- ---------- ----------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Equity securities:
Common $ 257 4,753 - 5,010
Preferred 111,896 3,096 (1,226) 113,766
Other 2 - - 2
------- ------ ------ --------
Total equity securities
available-for-sale $ 112,155 7,849 (1,226) 118,778
======= ====== ====== =======
$379,331
=======
</TABLE>
Investments in debt and equity securities at December 31, 1994 are summarized
as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Estimated
cost gain loss fair value
---------- ---------- ----------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Held-to-maturity:
Debt securities:
United States Government -
direct and guaranteed $ 333,234 144 (7,215) 326,163
United States Government
agencies 34,996 - (1,457) 33,539
State, county and
municipal 2,715 153 (1) 2,867
Public utility 16,032 22 (758) 15,296
Foreign 3,547 - (57) 3,490
Other 75,680 184 (2,521) 73,343
------- ------ ------- --------
Total debt securities
held-to-maturity $ 466,204 503 (12,009) $454,698
======= ====== ======= ========
Available-for-sale:
Equity securities:
Common $ 580 2,817 3,397
Preferred 92,634 460 (6,789) 86,305
Institutional Investors
Mutual Fund, Inc. 137 - (52) 85
------ ------ ------- --------
Total equity securities
available-for-sale $93,351 3,277 (6,841) $ 89,787
====== ====== ====== ========
</TABLE>
U.S. Government direct and guaranteed obligations pledged as collateral were
$-0-, $-0- and $15.0 million at May 31, 1996 and December 31, 1995 and
1994, respectively.
(Continued)
F-16
<PAGE>
THE ROSLYN SAVINGS BANK
Notes to Consolidated Financial Statements, Continued
May 31, 1996 and 1995 (unaudited) and
December 31, 1995, 1994 and 1993
Sales of investments in debt and equity securities are summarized as follows:
<TABLE>
<CAPTION>
Five months
ended May 31, Years ended December 31,
------------- ------------------------
1996 1995 1995 1994 1993
---- ---- ----- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Proceeds from sales:
Equity securities $12,180 687 11,077 5,164 10,693
Debt securities - 19,970 172,099 46,062 75,012
Gross gains:
Equity securities 7 88 189 6 1,660
Debt securities - 8 159 102 1,682
Gross losses:
Equity securities 329 74 685 41 26
Debt securities - 36 231 13 8
</TABLE>
During the five month periods ended May 31, 1996 and 1995, and the years
ended December 31, 1995 and 1994, sales of investments in debt securities
were from both the "held-to-maturity" and "available-for-sale" portfolios
and the sales of investments in equity securities were from the "available-
for-sale" portfolio. Investments in debt securities sold from the "held-
to-maturity" portfolio were either called or sold within 90 days of the
maturity date.
The Bank wrote-off its investment in Nationar, a failed bank service
institution, in the amount of $376,000 and $561,000 for the five months
ended May 31, 1995 and the year ended December 31, 1995, respectively. In
addition, the Bank amortized premiums relating to its investments in
certain callable preferred stocks in the amounts of $292,000 and $453,000
for the five months ended May 31, 1996 and 1995, respectively, and $1.2
million, $1.2 million, and $185,000 for the years ended December 31, 1995,
1994 and 1993, respectively. Included in the gross losses realized on
sales of equity securities is $329,000 and $611,000 for the five months
ended May 31, 1996,and the year ended December 31, 1995, respectively,
which had been previously charged to income as a result of the
aforementioned premium amortization.
The maturities of the investments in debt securities at May 31, 1996 are as
follows:
<TABLE>
<CAPTION>
Available-for-sale
--------------------------
Amortized Estimated
Maturity cost fair value
-------- ---- ----------
(In thousands)
<S> <C> <C>
Within 1 year $ 33,735 33,975
After 1 year through 5 years 176,688 178,992
After 5 years through 10 years 80,945 80,184
--------- ---------
$ 291,368 293,151
========= ========
</TABLE>
(Continued)
F-17
<PAGE>
THE ROSLYN SAVINGS BANK
Notes to Consolidated Financial Statements, Continued
May 31, 1996 and 1995 (unaudited) and
December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Available-for-sale
---------------------
Amortized Estimated
Maturity cost fair value
-------- ---- ----------
(In thousands)
<S> <C>
After 1 year through 5 years $ 1,860 2,006
After 5 years through 10 years 70 80
------- ----------
$ 1,930 2,086
======= ==========
</TABLE>
The maturities of the investments in debt securities at December 31, 1995 are
as follows:
<TABLE>
<CAPTION>
Available-for-sale
-----------------------
Amortized Estimated
Maturity cost fair value
-------- ---- ----------
(In thousands)
<S> <C> <C>
Within 1 year $ 24,539 24,797
After 1 year through 5 years 179,007 184,405
After 5 years through 10 years 47,499 51,351
-------- -------
$251,045 260,553
======== =======
Available-for-sale
-----------------------
Amortized Estimated
Maturity cost fair value
-------- ---- ----------
(In thousands)
After 1 year through 5 years $ 1,630 1,802
After 5 years through 10 years 300 349
-------- -------
$ 1,930 2,151
======== =======
The maturities of the investments in debt securities at December 31, 1994 are
as follows:
Available-for-sale
-----------------------
Amortized Estimated
Maturity cost fair value
-------- ---- ----------
(In thousands)
Within 1 year $ 88,839 88,267
After 1 year through 5 years 305,120 295,918
After 5 years through 10 years 71,440 69,706
Over 10 years 805 807
-------- -------
$466,204 454,698
======== =======
</TABLE>
(Continued)
F-18
<PAGE>
THE ROSLYN SAVINGS BANK
Notes to Consolidated Financial Statements, Continued
May 31, 1996 and 1995 (unaudited) and
December 31, 1995, 1994 and 1993
Included in available-for-sale securities at May 31, 1996 and December 31,
1995 and in held-to-maturity securities at December 31, 1994 are callable
step up notes which were issued by U.S. Government agencies. The amortized
cost and estimated fair values of these notes aggregated $15.0 million and
$14.6 million, respectively, at May 31, 1996, $14.9 million and $14.9
million, respectively, at December 31, 1995 and $35.0 million and $33.5
million, respectively, at December 31, 1994. These notes represent general
U.S. Government agency obligations that provide for annual fixed rate step
ups of interest and are callable at par after one year and in six month
intervals thereafter. The weighted average rate of the notes was 6.00%,
5.54% and 5.55% at May 31, 1996 and December 31, 1995 and 1994,
respectively.
(3) Mortgage-Backed and Mortgage Related Securities
-----------------------------------------------
Included in the Bank's available-for-sale and held-to-maturity securities
portfolios are mortgage-backed and mortgage related securities which,
except for collateralized mortgage obligations (CMOs), represent
participating interests in pools of first mortgage loans.
Mortgage-backed and mortgage related securities at May 31, 1996 are
summarized as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gain loss value
---- ---- ---- -----
(In thousands)
<S> <C> <C> <C> <C>
Held-to-maturity:
Whole loan private collateralized
mortgage obligations, net $312,233 1,395 (4,560) 309,068
======= ======= ======= =======
Available-for-sale:
GNMA pass through securities, net 20,978 1,857 - 22,835
FNMA pass through securities, net 7,197 - (271) 6,926
FHLMC pass through securities, net 146,761 - (4,900) 141,861
GNMA adjustable rate mortgage
pass through securities, net 118,473 527 (451) 118,549
Agency collateralized mortgage
obligations, net 167,328 488 (3,519) 164,297
Whole loan private
collateralized mortgage
obligations, net 66,351 25 (1,445) 64,931
------- ------- ------- -------
Mortgage-backed and mortgage
related securities
available-for-sale, net $527,088 2,897 (10,586) 519,399
======= ======= ======= =======
</TABLE>
(Continued)
F-19
<PAGE>
THE ROSLYN SAVINGS BANK
Notes to Consolidated Financial Statements, Continued
May 31, 1996 and 1995 (unaudited) and
December 31, 1995, 1994 and 1993
Mortgage-backed and mortgage related securities at December 31, 1995 are
summarized as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gain loss value
---- ---- ---- -----
(In thousands)
<S> <C> <C> <C> <C>
Held-to-maturity:
Whole loan private collateralized
mortgage obligations, net $347,213 3,513 (1,927) 348,799
======== ====== ====== =======
Available-for-sale:
GNMA pass through securities, net 23,090 2,393 - 25,483
FNMA pass through securities, net 27,689 - (390) 27,299
FHLMC pass through
securities, net 116,100 766 (599) 116,267
GNMA adjustable rate mortgage
pass through securities, net 86,876 1,257 - 88,133
Agency collateralized mortgage
obligations, net 155,100 1,796 (593) 156,303
-------- ------ ------ -------
Mortgage-backed and mortgage
related securities available-for-
sale, net $408,855 6,212 (1,582) 413,485
======== ====== ====== =======
</TABLE>
Mortgage-backed and mortgage related securities at December 31, 1994, are
summarized as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gain loss value
---- ---- ---- -----
(In thousands)
<S> <C> <C> <C> <C>
Held-to-maturity:
GNMA pass through
securities, net $ 28,319 916 (192) 29,043
FNMA pass through
securities, net 31,491 61 (2,954) 28,598
FHLMC pass through
securities, net 57,288 - (5,121) 52,167
Collateralized mortgage
obligations, net:
Agency 114,145 2,812 (2,829) 114,128
Whole loan private 180,098 3,180 (12,744) 170,534
-------- ----- ------- -------
Mortgage-backed and mortgage
related securities held-to-
maturity, net $411,341 6,969 (23,840) 394,470
======== ===== ======= =======
</TABLE>
(Continued)
F-20
<PAGE>
THE ROSLYN SAVINGS BANK
Notes to Consolidated Financial Statements, Continued
May 31, 1996 and 1995 (unaudited) and
December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gain loss value
--------- ---------- ----------- --------
(In thousands)
<S> <C> <C> <C>
Available-for-sale:
GNMA adjustable rate mortgage
pass through securities, net $ 8,103 - (237) 7,866
FNMA adjustable rate mortgage
pass through securities, net 14,471 - (382) 14,089
FHLMC adjustable rate mortgage
pass through securities, net 29,351 - (595) 28,756
------ ------- ------ ------
Mortgage-backed and mortgage related
securities available-for-sale, net $51,925 - (1,214) 50,711
====== ======= ====== ======
</TABLE>
Sales of investments in mortgage-backed and mortgage related securities are
summarized as follows:
<TABLE>
<CAPTION>
Five months Year ended
ended May 31, December 31,
------------- ------------
1996 1995 1995
---- ----- ------
(In thousands)
<S> <C> <C> <C>
Proceeds from sales $19,657 8,880 48,463
Gross gains 46 85 904
Gross losses 18 - -
</TABLE>
During the five month periods ended May 31, 1996 and 1995, and the year ended
December 31, 1995, sales of mortgage-backed and mortgage related securities
were from the "available-for-sale" portfolio. There were no sales of mortgage-
backed and mortgage related securities during the years ended December 31,
1994 and 1993.
The contractual maturities of the investments in mortgage-backed and mortgage
related securities, net at May 31, 1996 are as follows:
<TABLE>
<CAPTION>
Available-for-sale
----------------------
Amortized Estimated
Maturity cost fair value
-------- --------- ----------
(In thousands)
<S> <C> <C>
After 1 year through 5 years $ 60,808 57,848
After 5 years through 10 years 40,963 40,236
Over 10 years 425,317 421,315
-------- -------
$527,088 519,399
======== =======
</TABLE>
(Continued)
F-21
<PAGE>
THE ROSLYN SAVINGS BANK
Notes to Consolidated Financial Statements, Continued
May 31, 1996 and 1995 (unaudited) and
December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Available-for-sale
---------------------
Amortized Estimated
Maturity cost fair value
-------- --------- ----------
(In thousands)
<S> <C> <C>
After 1 year through 5 years $ 9,515 9,293
After 5 years through 10 years 28,433 28,333
Over 10 years 274,285 271,442
-------- -------
$312,233 309,068
======== =======
</TABLE>
The contractual maturities of the investments in mortgage-backed and mortgage
related securities, net at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
Available-for-sale
---------------------
Amortized Estimated
Maturity cost fair value
-------- --------- ----------
(In thousands)
<S> <C> <C>
After 1 year through 5 years $ 74,338 73,459
After 5 years through 10 years 38,589 39,429
Over 10 years 295,928 300,597
-------- -------
$408,855 413,485
======== =======
</TABLE>
<TABLE>
<CAPTION>
Available-for-sale
---------------------
Amortized Estimated
Maturity cost fair value
-------- --------- ----------
(In thousands)
<S> <C> <C>
After 1 year through 5 years $ 59,702 59,092
After 5 years through 10 years 46,785 46,797
Over 10 years 240,726 242,910
-------- -------
$347,213 348,799
======== =======
</TABLE>
The contractual maturities of the investments in mortgage-backed and mortgage
related securities, net at December 31, 1994 are as follows:
<TABLE>
<CAPTION>
Available-for-sale
---------------------
Amortized Estimated
Maturity cost fair value
-------- --------- ----------
(In thousands)
<S> <C> <C>
Over 10 years $ 51,925 50,711
====== ======
</TABLE>
(Continued)
F-22
<PAGE>
THE ROSLYN SAVINGS BANK
Notes to Consolidated Financial Statements, Continued
May 31, 1996 and 1995 (unaudited) and
December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Available-for-sale
--------------------
Amortized Estimated
Maturity cost fair value
-------- --------- ----------
(In thousands)
<S> <C> <C>
After 1 year through 5 years $ 45,939 42,172
After 5 years through 10 years 167,847 161,199
Over 10 years 197,555 191,099
-------- -------
$411,341 394,470
======== =======
</TABLE>
Expected maturities differ from contractual obligations since borrowers may
have the right to call or prepay obligations with or without call or
prepayment penalties. Generally, the aging of mortgage-backed and mortgage
related securities is based on their weighted average maturities.
(4) Loans Held-for-Sale, Net and Loans Receivable Held for Investment, Net
----------------------------------------------------------------------
Loans held-for-sale, net are summarized as follows:
<TABLE>
<CAPTION>
May 31, 1996 Dec. 31, 1995
------------ -------------
(In thousands)
<S> <C> <C>
One-to-four family loans $13,310 15,278
Student loans 955 1,873
------- ------
Total loans held for sale, net $14,265 17,151
======= ======
</TABLE>
There were no loans held for sale at December 31, 1994.
RFI originates most fixed rate loans for immediate sale to the Federal
National Mortgage Association (FNMA) or other investors. Generally, the
sale of such loans is arranged at the time the loan application is
received through commitments.
In addition, student loans are sold to the Student Loan Mortgage Association
generally before repayment begins during the grace period of the loan.
During the five month periods ended May 31, 1996 and 1995, and the years
ended December 31, 1995, 1994 and 1993, the Bank sold approximately $2.7
million, $18.8 million, $21.7 million, $49,000 and $192,000,
respectively, of student loans, recording aggregate net gains of $28,000,
$455,000, $496,000, $0 and $0, respectively.
(Continued)
F-23
<PAGE>
THE ROSLYN SAVINGS BANK
Notes to Consolidated Financial Statements, Continued
May 31, 1996 and 1995 (unaudited) and
December 31, 1995, 1994 and 1993
Loans receivable held for investment, net are summarized as follows:
<TABLE>
<CAPTION>
May 31, December 31,
------------
1996 1995 1994
----------- ------------- --------
(In thousands)
<S> <C> <C> <C>
Real estate loans, net:
One-to four-family $199,735 182,079 153,203
Multi-family 33,320 36,353 18,617
Home equity and second mortgage 4,690 3,672 4,346
Commercial real estate 153,592 124,976 114,317
Construction and development 31,046 41,611 56,163
-------- ------- -------
Total real estate loans 422,383 388,691 346,646
-------- ------- -------
Less:
Deferred income (1,301) (1,256) (1,123)
Net deferred loan origination fees (769) (666) (611)
-------- ------- -------
Total real estate loans, net 420,313 386,769 344,912
-------- ------- -------
Other loans:
Consumer loans 1,483 1,760 1,680
Student -- 86 20,626
-------- ------- -------
Total other loans 1,483 1,846 22,306
-------- ------- -------
Less allowance for possible loan
losses (22,312) (23,350) (25,127)
-------- ------- -------
Loans receivable held for
investment, net $399,484 365,265 342,091
======== ======= =======
</TABLE>
The principal balance of non-accrual loans and loans where the terms have
been restructured due to a deterioration in the ability of the borrower to
service the outstanding debt approximated $11.8 million, $11.8 million and
$24.4 million at May 31, 1996 and December 31, 1995 and 1994, respectively.
Interest income that would have been recorded if the loans had been
performing in accordance with their original terms aggregated approximately
$426,000, $773,000, $1.5 million, $1.9 million and $1.8 million during the
five month periods ended May 31, 1996 and 1995, and the years ended
December 31, 1995, 1994 and 1993, respectively.
(Continued)
F-24
<PAGE>
THE ROSLYN SAVINGS BANK
Notes to Consolidated Financial Statements, Continued
May 31, 1996 and 1995 (unaudited) and
December 31, 1995, 1994 and 1993
Loans in arrears three months or more were as follows:
<TABLE>
<CAPTION>
Amount % of loans
-------- -----------
(In thousands)
<S> <C> <C>
May 31, 1996 $ 9,137 2.17%
======= ====
December 31, 1995 $ 8,766 2.26%
======= ====
December 31, 1994 $19,856 5.41%
======= ====
</TABLE>
The Bank has entered into various agreements to service loans for others. At
May 31, 1996 and December 31, 1995 and 1994, 6,499 loans, 6,039 loans and
361 loans, respectively, with a total balance of $762.7 million, $704.8
million and $37.1 million, respectively, were being serviced for others.
The Bank has not retained a participation in these loans.
The right to service loans for others is generally obtained by either the
sale of loans with servicing retained, the open market purchase of mortgage
servicing rights or the creation of mortgage servicing rights pursuant to
SFAS 122 (collectively referred to as mortgage servicing rights ("MSRs")).
During the five month periods ended May 31, 1996 and May 31, 1995, and the
years ended December 31, 1995, 1994 and 1993, the Bank sold without
recourse approximately $72.2 million, $1.4 million, $70.4 million, $15.9
million and $17.6 million, respectively, of whole loans with servicing
retained. Servicing fee income of $828,000, $51,000, $888,000, $115,000 and
$27,000 is included in loan servicing and fee income, net in the
accompanying consolidated statements of income for the five months ended
May 31, 1996 and 1995, and the years ended December 31, 1995, 1994 and
1993, respectively.
In connection with the 1995 acquisition of certain assets and liabilities of
RMBI, the Bank recorded MSRs with a fair value of $8.1 million. No
servicing rights were purchased prior thereto. In addition, effective
January 1, 1995, the Bank adopted SFAS 122. SFAS 122 provides for the
capitalization of MSRs when mortgage loans are originated and subsequently
sold or securitized where the right to service the loans is retained.
Accordingly, pursuant to the adoption of SFAS 122, the Bank recorded MSRs
in the amount of $690,000 during 1995. The Bank did not record any MSRs
during the five months ended May 31, 1995. During the five months ended
May 31, 1996, the Bank recorded MSRs in the amount of $878,000.
Fees earned for servicing loans are reported as income when the related
mortgage loan payments are collected. Mortgage servicing rights are
amortized as a reduction to loan servicing and fee income on the interest
method over the estimated remaining life of the underlying mortgage loans.
MSR assets are carried at fair value and impairment, if any, is recognized
through a valuation allowance. For the five months ended May 31, 1996 and
the year ended December 31, 1995, no impairment existed in the MSRs and as
a result, there was no valuation allowance required. See note 15 for risk
characteristics and assumptions used to estimate fair value.
(Continued)
F-25
<PAGE>
THE ROSLYN SAVINGS BANK
Notes to Consolidated Financial Statements, Continued
May 31, 1996 and 1995 (unaudited) and
December 31, 1995, 1994 and 1993
MSR activity is summarized as follows:
<TABLE>
<CAPTION>
Five months
ended Year ended
May 31, 1996 Dec. 31, 1995
------------- --------------
(In thousands)
<S> <C> <C>
Balance at beginning of period $ 8,297 -
Acquired in the acquisition - 8,051
Originated mortgage servicing
rights 878 690
Less:
Amortization (556) (444)
------- ------
Balance at end of period $ 8,619 8,297
======= ======
</TABLE>
(5) Allowance for Possible Loan Losses
----------------------------------
Impaired loans and related allowances for possible loan losses have been
identified and calculated in accordance with the provisions of SFAS 114.
The total allowance for possible loan losses has been determined in
accordance with the provisions of SFAS 5, "Accounting for
Contingencies". As such, the Bank has provided amounts for anticipated
losses that exceed the immediately identified losses associated with
loans that have been deemed impaired. Provisions have been made and
established accordingly, based upon experience and expectations, for
losses associated with the general population of loans, specific
industry and loan types, including residential and consumer loans which
are not subject to the provisions of SFAS 114.
The following table summarizes information regarding the Bank's impaired
loans at May 31, 1996 and December 31, 1995:
<TABLE>
<CAPTION>
May 31, 1996
---------------------------------------
<S> <C> <C> <C>
Related
allowance
Recorded for possible Net
investment loan losses investment
---------- ----------- -----------
(In thousands)
Nonresidential loans:
Without a related
allowance $ 5,165 - 5,165
------- ------- ------
Total impaired loans $ 5,165 - 5,165
======= ======= ======
</TABLE>
(Continued)
F-26
<PAGE>
THE ROSLYN SAVINGS BANK
Notes to Consolidated Financial Statements, Continued
May 31, 1996 and 1995 (unaudited) and
December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
December 31, 1995
----------------------------------
<S> <C> <C>
Related
allowance
Recorded for possible Net
investment loan losses investment
---------- ------------ -----------
(In thousands)
Nonresidential loans:
With a related allowance $2,320 828 1,492
Without a related allowance 2,332 - 2,332
----- ----- -----
Total impaired loans $4,652 828 3,824
====== ===== =====
</TABLE>
The Bank's average recorded investment in impaired loans for the five months
ended May 31, 1996 and 1995 and the year ended December 31, 1995 was $5.5
million, $1.2 million, and $5.1 million, respectively. Interest income
recognized on impaired loans, which was not materially different from cash-
basis interest income, amounted to $84,000, $196,000 and $378,000 for the
five months ended May 31, 1996 and 1995 and the year ended December 31,
1995.
The following is a summary of the activity in the allowance for possible loan
losses account:
<TABLE>
<CAPTION>
Five months
ended May
31, Years ended December 31,
----------------------- ------------------------
1996 1995 1995 1994 1993
----------- ---------- ------- ------- -------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of
period $23,350 25,127 25,127 24,502 23,187
Provisions for loan losses 300 250 600 600 6,860
Charge-offs (1,340) (1,300) (2,510) (171) (5,545)
Recoveries 2 49 133 196 -
------- ------ ------ ------ ------
Balance at end of period $22,312 24,126 23,350 25,127 24,502
======= ====== ====== ====== ======
</TABLE>
(Continued)
F-27
<PAGE>
THE ROSLYN SAVINGS BANK
Notes to Consolidated Financial Statements, Continued
May 31, 1996 and 1995 (unaudited) and
December 31, 1995, 1994 and 1993
(6) Banking House and Equipment
---------------------------
A summary of banking house and equipment at cost, net of accumulated
depreciation and amortization, and land at cost is as follows:
<TABLE>
<CAPTION>
May 31, December 31,
-------------
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Land $ 2,558 1,957 1,957
Banking house 12,036 10,232 9,290
Furniture, fixtures and
equipment 5,108 4,835 5,425
------- ------ ------
19,702 17,024 16,672
Accumulated depreciation
and amortization (5,078) (4,601) (5,025)
------- ------ ------
$ 14,624 12,423 11,647
======= ====== ======
</TABLE>
(7) Accrued Interest Receivable
---------------------------
Accrued interest receivable is summarized as follows:
<TABLE>
<CAPTION>
May 31, December 31,
---------------
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Loans $ 2,740 2,426 2,345
Mortgage-backed and
mortgage related securities 4,737 4,250 2,395
Debt and equity securities 4,404 4,887 9,248
------- ------ ------
Total accrued interest
receivable $11,881 11,563 13,988
======= ====== ======
</TABLE>
(8) Excess of Cost Over Fair Value of Net Assets Acquired
-----------------------------------------------------
The main component of excess of cost over fair value of net assets acquired
("goodwill") represents the excess of purchase price over fair value of net
assets acquired from RMBI. This goodwill is being amortized on a straight-
line basis over ten years. RFI will assess the recoverability of this
intangible asset by determining whether the amortization of the goodwill
over its remaining life can be recovered through future operating cash
flows of RFI. The unamortized balance of goodwill relating to the purchase
of RMBI was $3.2 million and $3.3 million as of May 31, 1996 and December
31, 1995, respectively.
In 1992, the Bank purchased certain assets and assumed the deposit
liabilities of the Riverhead Savings Bank's East Northport, New York
branch. The acquisition was accounted for under the purchase method and,
accordingly, all of the acquired assets and assumed liabilities were
adjusted to and recorded at their fair market value. The excess of
acquisition costs over the fair market value of net assets acquired
("goodwill") was $855,000 which is being amortized on a straight-line basis
over seven years. The unamortized balance of the goodwill as of May 31,
1996 and December 31, 1995 and 1994 was $468,000, $519,000 and $642,000,
respectively.
(Continued)
F-28
<PAGE>
THE ROSLYN SAVINGS BANK
Notes to Consolidated Financial Statements, Continued
May 31, 1996 and 1995 (unaudited) and
December 31, 1995, 1994 and 1993
(9) Real Estate Owned, Net
----------------------
Real estate owned, at the lower of its cost or fair value minus estimated
costs to sell, was as follows:
<TABLE>
<CAPTION>
May 31, December 31,
----------------
1996 1995 1994
------ ------ ------
(In thousands)
<S> <C> <C> <C>
One-to four-family real estate
properties $ 814 527 349
Commercial/building properties 5,664 6,570 4,519
Allowance for possible losses on
real estate owned (1,112) (1,050) (1,509)
------- ------ ------
$ 5,366 6,047 3,359
======= ====== ======
</TABLE>
The following is a summary of the activity in the allowance for possible
losses on real estate owned account:
<TABLE>
<CAPTION>
Five months
ended May 31, Years ended December 31,
------------- ------------------------
1996 1995 1995 1994 1993
---------- ------------ -------- ------ ------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning
of period $1,050 1,509 1,509 1,882 700
Provisions for losses 150 -- -- -- 1,200
Charge-offs (101) (59) (459) (415) (18)
Recoveries 13 -- 42 --
------ ------ ------ ------ ------
Balance at end of period $1,112 1,450 1,050 1,509 1,882
====== ====== ====== ====== ======
</TABLE>
(10) Deposits
---------
Savings and time deposit account balances (excluding demand deposit
accounts) are summarized as follows:
<TABLE>
<CAPTION>
May 31, 1996
---------------------
Weighted
Type of account average rate Amount
--------------- ------------ ------
(In thousands)
<S> <C> <C>
Savings accounts 2.58% $437,273
Certificates of deposit 5.52 871,876
Money market accounts 2.97 61,411
--------
$1,370,560
=========
</TABLE>
(Continued)
F-29
<PAGE>
THE ROSLYN SAVINGS BANK
Notes to Consolidated Financial Statements, Continued
May 31, 1996 and 1995 (unaudited) and
December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
December 31, 1995
--------------------
Weighted
Type of account average rate Amount
---------------- ------------ --------
(In thousands)
<S> <C> <C>
Savings accounts 2.57% $ 455,511
Certificates of deposit 5.83 749,775
Money market accounts 2.97 64,426
----------
$1,269,712
==========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994
--------------------
Weighted
Type of account average rate Amount
---------------- ------------ --------
(In thousands)
<S> <C> <C>
Savings accounts 2.57% $ 566,648
Certificate of deposit 5.18 517,437
Money market accounts 2.97 77,359
----------
$1,161,444
==========
</TABLE>
Scheduled maturities of certificates of deposit are as follows:
<TABLE>
<CAPTION>
May 31, 1996
------------------------------------
(In thousands)
Weighted
average rate Amount Percent
------------ -------- -------
<S> <C> <C> <C>
1 year or less 5.38% $ 688,244 78.94%
Greater than 1 year through 2 years 5.72 61,525 7.06
Greater than 2 years through 3 years 5.62 27,478 3.15
Greater than 3 years through 4 years 6.75 56,788 6.51
Greater than 4 years through 5 years 6.55 25,940 2.97
Over 5 years 6.53 11,901 1.37
---------- -------
$ 871,876 100.00%
======= =======
</TABLE>
(Continued)
F-30
<PAGE>
THE ROSLYN SAVINGS BANK
Notes to Consolidated Financial Statements, Continued
May 31, 1996 and 1995 (unaudited) and
December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
December 31, 1995
----------------------------------
(In thousands)
Weighted
average rate Amount Percent
------------ ------ -------
<S> <C> <C> <C>
1 year or less 5.72% $ 574,724 76.65%
Greater than 1 year through 2 years 6.04 60,397 8.06
Greater than 2 years through 3 years 5.75 26,412 3.52
Greater than 3 years through 4 years 6.47 53,812 7.18
Greater than 4 years through 5 years 7.06 21,725 2.90
Over 5 years 6.80 12,705 1.69
--------- ------
$ 749,775 100.00%
========= =======
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994
----------------------------------
(In thousands)
Weighted
average rate Amount Percent
------------ ------ -------
<S> <C> <C> <C>
1 year or less 4.50% $ 314,556 60.79%
Greater than 1 year through 2 years 6.31 86,183 16.65
Greater than 2 years through 3 years 5.87 20,340 3.93
Greater than 3 years through 4 years 5.70 22,860 4.42
Greater than 4 years through 5 years 6.45 51,937 10.04
Over 5 years 7.17 21,561 4.17
--------- -------
$ 517,437 100.00%
========= =======
</TABLE>
Certificates of deposit in excess of $100,000 were approximately $140.7 million,
$114.2 million and $74.3 million at May 31, 1996 and at December 31, 1995 and
1994, respectively.
Demand deposits are summarized as follows:
<TABLE>
<CAPTION>
May 31, 1996 December 31, 1995 December 31, 1994
----------------------- ----------------------- -----------------------
Type of Weighted Weighted Weighted
account average rate Amount average rate Amount average rate Amount
------- ------------ ------ ------------ ------ ------------ ------
(In thousands) (In thousands) (In thousands)
<S> <C> <C> <C> <C> <C> <C>
Personal - $ 33,926 - $ 30,781 - $ 22,661
NOW 2.24% 37,359 2.05% 35,057 2.05% 35,413
-------- -------- --------
$ 71,285 $ 65,838 $ 58,074
======== ======== ========
</TABLE>
The FDIC insures deposits of account holders up to $100,000 per insured
depositor. To provide for this insurance, the Bank must pay a risk-based
annual assessment which considers the financial
(Continued)
F-31
<PAGE>
THE ROSLYN SAVINGS BANK
Notes to Consolidated Financial Statements, Continued
May 31, 1996 and 1995 (unaudited) and
December 31, 1995, 1994 and 1993
soundness of the institution and capitalization level (note 17). At
December 31, 1995, the Bank was assessed at the FDIC's lowest assessment
level, as a well capitalized institution. During the third quarter of 1995,
the FDIC announced that the BIF was recapitalized as of May 31, 1995, and
issued refunds of deposit insurance overpayments from June 1 through
September 30, 1995. For 1996, it is expected that the Bank will pay $2,000
in FDIC insurance premiums, the statutory minimum, provided that the fund
remains at its targeted capital level.
Interest expense on deposit balances is summarized as follows:
<TABLE>
<CAPTION>
Five months Years ended
ended May 31, December 31,
------------- ------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
(In thousands)
Savings accounts $ 6,418 6,773 16,154 18,664 20,442
Money market accounts 768 872 2,007 2,025 2,241
Certificates of deposit 19,012 14,393 39,583 19,664 16,833
------- ------ ------ ------ ------
$ 26,198 22,038 57,744 40,353 39,516
======= ====== ====== ====== ======
</TABLE>
(11) Borrowed Funds and Repurchase Agreements
----------------------------------------
From time to time, the Bank enters into sales of securities under
agreements to repurchase (reverse-repurchase agreements). Fixed-coupon
reverse-repurchase agreements are treated as financing transactions, and
the obligations to repurchase are reflected as a liability in the
consolidated statements of financial condition. The dollar amount of
securities underlying the agreements remains in the asset account.
At May 31, 1996, the Bank has $67.1 million in reverse repurchase
agreements with a weighted-average interest rate of 5.36% and a weighted-
average maturity of 51 days.
Reverse repurchase agreements averaged approximately $37.5 million and
$26.3 million for the five months ended May 31, 1996 and 1995,
respectively, and $22.3 million, $-0-, and $5.5 millionduring the years
ended December 31, 1995, 1994, and 1993, respectively. The maximum amount
outstanding at the end of any month was $68.4 million and $40.7 million
for the five months ended May 31, 1996 and 1995, and $40.9 million, $-0-,
and $40.0 million for the years ended December 31, 1995, 1994, and 1993,
respectively.
There were no reverse repurchase agreements outstanding at December 31,
1995 or 1994.
At May 31, 1996 and December 31, 1995, $2.5 million and $1.6 million,
respectively of the mortgage loans held for sale were pledged to secure
notes payable to the FNMA under a warehouse line of credit known as the
FNMA "As Soon As Pooled Plus Program". The notes are repaid as the
related mortgage loans are sold or collected.
(Continued)
F-32
<PAGE>
THE ROSLYN SAVINGS BANK
Notes to Consolidated Financial Statements, Continued
May 31, 1996 and 1995 (unaudited) and
December 31, 1995, 1994 and 1993
(12) Income Taxes
------------
As discussed in note 1, the Bank adopted SFAS 109 as of January 1, 1993.
The cumulative effect of this change in accounting for income taxes of
$7,526,000 was determined as of January 1, 1993 and is reported in the
consolidated statement of income for the year ended December 31, 1993.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
May 31, 1996, December 31, 1995 and 1994 are presented below:
<TABLE>
<CAPTION>
May 31, December 31,
------- --------------
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Deferred tax assets:
Mortgages and other loans receivable,
primarily due to allowances for loss
and deferred loan fees $ 9,101 9,579 10,568
Real estate owned, primarily due to
allowance for loss 873 809 812
Postretirement benefits 1,262 1,261 1,266
Non-accrual loan interest 778 671 1,006
Employee bonus and fringe benefits 3,036 2,685 2,318
Unrealized loss on available-for-sale
securities 501 - 2,041
Callable preferred stock 931 807 578
Amortization of purchased mortgage
servicing rights 162 77 -
Mark to market on mortgage loans
held for sale 135 138 -
Other 510 569 308
------- ------ ------
Total gross deferred
tax assets 17,289 16,596 18,897
Deferred tax liabilities:
Unrealized gain on available-for-sale
securities - (8,869) -
Originated mortgage servicing rights (715) (303) -
Other (63) (56) (41)
------- ------ ------
Total gross deferred tax
liabilities (778) (9,228) (41)
------- ------ ------
Net deferred tax asset $16,511 7,368 18,856
======= ====== ======
</TABLE>
(Continued)
F-33
<PAGE>
THE ROSLYN SAVINGS BANK
Notes to Consolidated Financial Statements, Continued
May 31, 1996 and 1995 (unaudited) and
December 31, 1995, 1994 and 1993
Provisions for income taxes are comprised of the following amounts:
<TABLE>
<CAPTION>
Five months
ended May 31, Years ended December 31,
------------- ------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
(In thousands)
Current:
Federal $2,190 3,129 5,771 7,744 9,539
State and local 1,237 979 2,161 3,006 3,142
------ ----- ------ ------ ------
3,427 4,108 7,932 10,750 12,681
------ ------ ----- ------ ------
Deferred:
Federal 167 (170) 406 (620) (1,667)
State and local 60 (62) 172 (112) (428)
------ ----- ------ ------ ------
227 (232) 578 (732) (2,095)
------ ------ ----- ------ ------
$ 3,654 3,876 8,510 10,018 10,586
====== ===== ====== ====== ======
</TABLE>
Total income tax expense differed from the amounts computed by applying the
U.S. Federal income tax rate of 35% to income before income tax expense and
cumulative effect of changes in accounting as a result of the following:
<TABLE>
<CAPTION>
Five months
ended May 31, Years ended December 31,
------------- ------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Expected income tax
expense at statutory
Federal tax rate $4,216 4,008 9,530 10,304 10,061
State and local taxes, net
of Federal income tax
benefit 908 690 1,743 1,882 1,765
Dividend received
deduction (826) (585) (1,992) (1,690) (906)
Tax exempt income -- (30) (70) (77) (92)
Reversal of prior year taxes (600) (310) (750) (400) --
Tax rate change -- -- -- -- (286)
Other, net (44) 103 49 (1) 44
----- ----- ------ ------ ------
Total income
tax expense 3,654 3,876 8,510 10,018 10,586
====== ===== ====== ====== ======
</TABLE>
The Bank's retained earnings includes approximately $10.3 million at May 31,
1996 and December 31, 1995 and 1994 which has been segregated for Federal
income tax purposes as a bad debt reserve and for which no provision for
Federal income tax has been made. The use of this amount for purposes
other than to absorb losses on loans may result in taxable income for
Federal income taxes at the then current tax rate. Under the Internal
Revenue Code, the Bank is allowed a special bad debt deduction for
additions to tax bad debt reserves established for the purpose of absorbing
losses. For tax years beginning after January 1, 1987, the allowable
deduction is calculated utilizing either an experience method or by
applying the statutory rate of 8% of taxable income.
(Continued)
F-34
<PAGE>
THE ROSLYN SAVINGS BANK
Notes to Consolidated Financial Statements, Continued
May 31, 1996 and 1995 (unaudited) and
December 31, 1995, 1994 and 1993
(13) Employee Benefit Plans
----------------------
Pension Plan - The Bank's noncontributory pension plan with The RSI
Retirement Trust covers substantially all employees.
The following table depicts the components of pension expense for the years
ended December 31, 1995, 1994 and 1993 projected by RSI:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Service cost $ 384 391 347
Interest cost 822 740 797
Expected return on assets (2,044) (9) (788)
Amortization of unrecognized transition
asset (115) (115) (115)
Amortization of unrecognized loss - 35 -
Amortization of unrecognized past service
liability 5 22 3
Deferred investment loss 1,233 (758) -
----- ---- ----
Net periodic pension expense $ 285 306 244
======= ==== ====
</TABLE>
The following table sets forth the Bank's defined benefit plan funded status
at September 30, 1995 and 1994 (the latest valuation dates) as determined
by the plan's actuary:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Actuarial present value of (In thousands)
benefit obligations:
Accumulated benefit
obligation, including vested
benefits of $9,057 and $8,281
in 1995 and 1994, respectively $ 9,502 8,761
======= ======
Projected benefit
obligation for services rendered to
September 30, 1995 and 1994 (11,302) (10,432)
Market value of plan assets at September
30, 1995 and 1994 11,670 9,969
------- -------
Plan assets greater (less) than projected
benefit obligation 368 (463)
Unrecognized net transition asset
being amortized over 10.40 years (165) (280)
Unrecognized net loss 311 950
Unrecognized past service liability 35 13
-------- -------
Prepaid pension
expense $ 549 220
======= =======
Assumed rate of return on assets 8.00% 8.00%
======= =======
Assumed rate of compensation increase 5.50% 6.00%
======= =======
Assumed discount rate 7.50% 8.25%
======= =======
</TABLE>
(Continued)
F-35
<PAGE>
THE ROSLYN SAVINGS BANK
Notes to Consolidated Financial Statements, Continued
May 31, 1996 and 1995 (unaudited) and
December 31, 1995, 1994 and 1993
The projected benefit obligation represents the obligation to plan members
for services already rendered and then increases that obligation for future
compensation levels.
Supplemental Plan - The former chief executive officer is also covered by a
supplemental executive retirement plan with The RSI Retirement Trust. The
actuarial present value of the accumulated benefit obligation at December
31, 1995 and 1994 was $659,000 and $704,000 respectively. Included in the
employee benefit expense for the years ended December 31, 1995, 1994 and
1993 was $55,000, $39,000 and $39,000, respectively, related to this
obligation.
Benefit Restoration Plan - The plan provides benefits for any highly
compensated employee whose benefits are restricted under the Bank's defined
benefit and defined contribution plans. The actuarial present value of the
accumulated benefit obligation at December 31, 1995 and 1994 was $268,000
and $68,000, respectively. Included in employee benefit expense for the
years ended December 31, 1995, 1994 and 1993 was $168,000, $71,000 and
$13,000, respectively, related to this obligation.
401(k) Plan - The Bank also has a defined contribution and thrift savings
plan under Section 401(k) of the Internal Revenue Code. All regular, full-
time employees are eligible for voluntary participation after one or more
years of continuous service. The Plan is effectuated through a trust
established by the Bank. Under this plan, the Bank will make contributions
of 6% of the participant's base pay, provided that the participant
contributes at least 6% of their base pay. The Bank has contributed
$255,000, $220,000 and $207,000 for the years ended December 31, 1995, 1994
and 1993, respectively.
(14) Postemployment Health Care and Life Insurance Benefits
------------------------------------------------------
The Bank currently provides health care and life insurance benefits for
retirees and their eligible dependents. The coverage provided depends
upon the date they retired.
The cost of the Bank's postretirement health care and life insurance
benefits is recognized in the financial statements during the employee's
active working career.
The cumulative effect of adopting SFAS 106, effective January 1, 1993,
resulted in the recording of an actuarially determined accrued benefit
obligation as of January 1, 1993 of $2,693,000, a $1,150,000 deferred tax
asset, and a related charge to earnings of $1,543,000, (which was net of
the income tax benefit).
The status of the plan, which is unfunded, at December 31, 1995 and 1994 is
as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
(In thousands)
Accumulated postretirement benefit
obligation $3,135 2,808
Unrecognized net (loss) gain (64) 155
------ -----
Accrued postretirement benefit cost
recognized in the accompanying
consolidated statements of
financial condition $3,071 2,963
====== =====
</TABLE>
(Continued)
F-36
<PAGE>
THE ROSLYN SAVINGS BANK
Notes to Consolidated Financial Statements, Continued
May 31, 1996 and 1995 (unaudited) and
December 31, 1995, 1994 and 1993
Net periodic postretirement benefit cost included in salaries and employee
benefits in the accompanying consolidated statements of income for the
years ended December 31, 1995, 1994 and 1993 is comprised of the following
components:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
(In thousands)
Service cost-benefits earned during the year $ 40 49 39
Interest cost on accumulated postretirement
benefit obligation 228 190 214
---- ---- ----
Net periodic postretirement benefit cost $ 268 239 253
==== ==== ====
</TABLE>
For measurement purposes, a 14% annual rate of increase in the per capita
cost of covered benefits (health care cost trend rate) was assumed for
1995; with the rate assumed to gradually decrease to 5.5% by the year
2000 and remain at that level thereafter. This rate assumption has a
significant effect on the estimate of the accumulated postretirement
benefit obligation and aggregate service and interest cost components of
net periodic postretirement benefit cost. A 1% point increase in the
health care cost trend rate would increase the accumulated postretirement
benefit obligation by 11.3% as of December 31, 1995 while the aggregate
of the service and interest cost components of net periodic
postretirement benefit cost for the year ended December 31, 1995 would
increase 14.8%. The discount rate used in determining the accumulated
postretirement benefit obligation was 7.5% and 7.0%, respectively, at
December 31, 1995 and 1994.
(15) Disclosures About Fair Value of Financial Instruments
-----------------------------------------------------
SFAS 107, "Disclosures About Fair Value of Financial Instruments", requires
the Bank to disclose the fair value of its on-and off-balance sheet
financial instruments. A financial instrument is defined in SFAS 107 as
cash, evidence of an ownership interest in an entity or a contract that
creates a contractual obligation or right to deliver or receive cash or
another financial instrument from a second entity on potentially
favorable or unfavorable terms. SFAS 107 defines the fair value of a
financial instrument as the amount at which the instrument could be
exchanged in a current transaction between willing parties, other than in
a forced or liquidation sale.
(Continued)
F-37
<PAGE>
THE ROSLYN SAVINGS BANK
Notes to Consolidated Financial Statements, Continued
May 31, 1996 and 1995 (unaudited) and
December 31, 1995, 1994 and 1993
The following table represents the carrying amounts and fair values of the
Bank's financial instruments:
<TABLE>
<CAPTION>
May 31, 1996
------------
Carrying Estimated
<S> <C> amount fair value
-------- ----------
(In thousands)
Cash and cash equivalents $ 28,421 28,421
Debt and equity securities, net:
Held-to-maturity 1,930 2,086
Available-for-sale 431,932 431,932
Mortgage-backed and mortgage
related securities, net:
Held-to-maturity 312,233 309,068
Available-for-sale 519,399 519,399
Loans held for sale, net 14,265 15,511
Loans receivable held for investment, net 399,484 397,313
Mortgage servicing rights, net 8,619 8,918
Certificates of deposits (CD's) 871,876 872,767
Deposits, excluding CD's 569,969 569,969
Borrowed funds 69,598 69,598
December 31, 1995
-------------------
Carrying Estimated
amount fair value
------- ----------
(In thousands)
Cash and cash equivalents $ 19,703 19,703
Debt and equity securities, net:
Held-to-maturity 1,930 2,151
Available-for-sale 379,331 379,331
Mortgage-backed and mortgage
related securities, net:
Held-to-maturity 347,213 348,779
Available-for-sale 413,485 413,485
Loans held for sale, net 17,151 17,607
Loans receivable held for investment, net 365,265 363,280
Mortgage servicing rights, net 8,297 8,355
Certificates of deposits (CD's) 749,775 755,841
Deposits, excluding CD's 585,775 585,775
Borrowed funds 1,647 1,647
</TABLE>
F-38
(Continued)
<PAGE>
THE ROSLYN SAVINGS BANK
Notes to Consolidated Financial Statements, Continued
May 31, 1996 and 1995 (unaudited) and
December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
December 31, 1994
--------------------
Carrying Estimated
amount fair value
-------- ----------
(In thousands)
<S> <C> <C>
Cash and cash equivalents $ 27,259 27,259
Debt and equity securities, net:
Held-to-maturity 466,204 454,698
Available-for-sale 89,787 89,787
Mortgage-backed and mortgage
related securities, net:
Held-to-maturity 411,341 394,470
Available-for-sale 50,711 50,711
Loans receivable held for investment, net 342,091 334,089
Certificates of deposits (CD's) 517,437 509,649
Deposits, excluding CD's 702,081 702,081
</TABLE>
The carrying amounts in the table are included in the consolidated statements
of condition under the indicated captions.
The following summarizes the major methods and assumptions used in estimating
the fair values of the financial instruments:
Cash and Cash Equivalents - The carrying amounts for cash and cash
equivalents approximate fair value as they mature in 30 days or less and do
not present unanticipated credit concerns.
Securities -The fair values of securities are estimated based on bid
quotations received from securities dealers or from prices obtained from
firms specializing in providing securities pricing services.
Loans held for sale, net - Fair value is estimated based on current prices
established in the secondary market or, for those loans committed to be
sold, based upon the price established in the commitment.
Loans receivable held for investment, net - Fair values are estimated for
portfolios of loans with similar financial characteristics. Loans are
segregated by type, such as commercial real estate and residential
mortgage. Each loan category is further segmented into fixed and
adjustable rate interest terms and by performing and non-performing
categories. For performing residential mortgage loans, fair values are
estimated by discounting contractual cash flows through the estimated
maturity using discount rates and prepayment estimates based on secondary
market sources adjusted to reflect differences in servicing and credit
costs. The estimated fair value of remaining performing loans is
calculated by discounting scheduled cash flows using estimated market
discount rates that reflect the credit and interest rate risk inherent in
the loan. Fair values for non-performing real estate loans are based on
recent appraisals.
Mortgage servicing rights, net - Mortgage servicing rights are valued based
upon the Bank's stratification of the mortgage servicing portfolio.
Stratification is based upon the predominate risk characteristics of the
underlying loans, including but not limited to, interest rates, loan type,
the frequency of interest rate adjustments in the case of ARM loans, etc.
Each strata is then discounted to reflect the present
(Continued)
F-39
<PAGE>
THE ROSLYN SAVINGS BANK
Notes to Consolidated Financial Statements, Continued
May 31, 1996 and 1995 (unaudited) and
December 31, 1995, 1994 and 1993
value of the future cash flows utilizing current market assumptions
regarding discount rates, prepayment speeds, delinquency rates, etc.
Deposit Liabilities - All deposits, except savings investment certificates,
are subject to rate changes at any time, and therefore are considered to be
carried at estimated fair value. The fair value of savings investment
certificates was estimated by computing the present value of contractual
future cash flows for each certificate. The present value rate utilized
was the rate offered by the Bank at each date presented on certificates
with an initial maturity equal to the remaining term to maturity of the
existing certificates.
Borrowed Funds - Borrowed funds have maturities or terms to repricing not
exceeding 30 days. Therefore, the carrying amount is a reasonable estimate
of fair value.
Limitations - SFAS 107 requires disclosures of the estimated fair value of
financial instruments. Fair value estimates are made at a specific point
in time, based on relevant market information about the financial
instrument. These estimates do not reflect any premium or discount that
could result from offering for sale at one time the Bank's entire holdings
of a particular financial instrument nor the resultant tax ramifications or
transaction costs. Because no market exists for a significant portion of
the Bank's financial instruments, fair value estimates are based on
judgments regarding current economic conditions, risk characteristics of
various financial instruments, and other factors. These estimates are
subjective in nature and involve uncertainties and matters of significant
judgment and therefore cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
Fair value estimates are based on existing on-and-off balance sheet financial
instruments without attempting to estimate the value of anticipated future
business and the value of assets and liabilities that are not considered
financial instruments. For example, the Bank has a mortgage servicing
department that contributes fee income annually. The mortgage servicing
department is not considered a financial instrument, and as such its value
has not been incorporated into the fair value estimates. Other significant
assets of the Bank that are not considered financial assets include banking
house and equipment and deferred tax assets. In addition, the tax
ramifications related to the unrealized gains and losses can have a
significant effect on fair value estimates and have not been considered.
Commitments - The fair value of commitments is estimated using the fees
currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present creditworthiness of the
counterparties. For fixed rate loan commitments and commitments to sell
loans at specified prices, fair value also considers the difference between
current levels of interest rates and the committed rates.
Accrued Interest Receivable/Payable - The fair value of the accrued interest
receivable and payable balances are estimated to be their book value.
(16) Commitments and Contingencies
-----------------------------
In the normal course of the Bank's business, there are outstanding various
commitments and contingent liabilities that have not been reflected in the
consolidated statements of condition. In the opinion of management, the
financial position of the Bank will not be affected materially as a result
of such commitments and contingent liabilities.
(Continued)
F-40
<PAGE>
THE ROSLYN SAVINGS BANK
Notes to Consolidated Financial Statements, Continued
May 31, 1996 and 1995 (unaudited) and
December 31, 1995, 1994 and 1993
In the normal course of business, there are various outstanding legal
proceedings. In the opinion of management, after consultation with legal
counsel, the financial position of the Bank will not be affected
materially by the outcome of such legal proceedings.
At May 31, 1996 and December 31, 1995, respectively, there were outstanding
loan commitments by the Bank to advance approximately $162.2 million and
$81.8 million for mortgage loans substantially all of which were fixed
rate commercial and residential real estate loans. Lease commitments are
not significant.
At May 31, 1996 and December 31, 1995, the Bank had no available lines of
credit with banks and other institutions.
In the normal course of its mortgage banking activities, the Bank enters
into both optional and mandatory commitments to sell packages of mortgage
loans that it originates. The Bank commits to sell the loans at specified
prices in a future period generally ranging from 30 to 120 days from date
of commitment either directly to the FNMA and to other agencies or via
pass-through certificates guaranteed by these agencies. Market risk is
associated with these financial instruments which results from movements
in interest rates and is reflected by gains or losses on the sale of the
mortgage loan packages determined by the difference between the price of
the packaged loans and the price guaranteed in the commitment.
The Bank had unfilled mandatory delivery commitments with investors
totaling approximately $57.6 million and $35.4 million and optional
delivery commitments of approximately $2 million and $2 million at May
31, 1996 and December 31, 1995, respectively.
(17) Retained Earnings
-----------------
The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA)
established a capital based supervisory system of Prompt Corrective
Action (PCA) for all insured depository institutions. The regulations
adopted pursuant to FDICIA and effective December 19, 1992, established
capital categories that determine the degree of supervisory PCA to which
a depository institution could be subjected. The categories consist of
"well capitalized", "adequately capitalized", "undercapitalized",
"significantly undercapitalized" and "critically undercapitalized." An
institution is deemed to be "well capitalized" if (a) its risk-based
capital ratio is 10% or greater, (b) its Tier 1 risk-based capital ratio
is 6% or greater, and (c) its leverage ratio is 5% or greater. At May 31,
1996, the Bank is "well capitalized."
When an insured depository institution's capital ratios fall below the
"well capitalized" level it becomes subject to a series of increasingly
restrictive supervisory actions, to the point where a conservator or
receiver must be designated for a "critically undercapitalized"
institution unless certain certifications are made by the appropriate
regulatory agencies. An institution is deemed to be "critically
undercapitalized" if its ratio of Tier 1 capital to total assets is 2% or
less.
(18) Conversion to Capital Stock Form of Ownership
---------------------------------------------
On May 29, 1996, the Board of Trustees of the Bank adopted a Plan of
Conversion (Plan), which was subsequently amended on July 30, 1996, to
convert from a state chartered mutual savings bank to a state chartered
capital stock savings bank with the concurrent formation of a holding
company, Roslyn Bancorp, Inc. (Company), subject to the approval by
regulatory authorities and depositors of
(Continued)
F-41
<PAGE>
THE ROSLYN SAVINGS BANK
Notes to Consolidated Financial Statements
May 31, 1996 and 1995 (unaudited) and
December 31, 1995, 1994 and 1993
the Bank. The conversion is expected to be accomplished through amendment
of the Bank's state charter and the sale of the holding company's common
stock in an amount equal to the consolidated pro forma market value of the
holding company and the Bank after giving effect to the conversion. A
subscription offering of the shares of common stock will be offered
initially to employee benefit plans of the Bank, depositors, trustees,
officers and employees of the Bank, and to certain other eligible
subscribers. Any shares of common stock not sold in the offering are
expected to be sold to the underwriters for resale to the general public.
At the time of conversion, the Bank will establish a liquidation account in
an amount equal to its capital as of the date of the latest consolidated
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 balances for accounts 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 stockholder's equity to be reduced below applicable regulatory
capital maintenance requirements or if such declaration and payment would
otherwise violate regulatory requirements.
Conversion costs will be deferred and reduce the proceeds from the shares
sold in conversion. If the conversion is not completed, all costs will be
charged as expense. As of May 31,1996, no conversion costs have been
incurred.
Pursuant to the Plan, as amended, the holding company intends to establish a
Charitable Foundation in connection with the conversion. The Plan provides
that the Bank and the Company will create the Foundation immediately
following the conversion by contributing Company common stock in an amount
equal to 3.0% of the total amount of common stock to be issued in the
conversion. The Foundation is being formed as a complement to the Bank's
existing community activities and will be dedicated to community activities
and the promotion of charitable causes.
The Foundation will submit a request to the Internal Revenue Service to be
recognized as a tax-exempt organization and would likely be classified as a
private foundation. A contribution of common stock to the Foundation by
the Company would be tax deductible, 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. Upon funding the Foundation, the Company will
recognize an expense in the full amount of the contribution, offset in part
by the corresponding tax benefit, during the quarter in which the
contribution is made.
F-42
<PAGE>
================================================================================
No dealer, salesman or any other persons has been authorized to give any
information or to make any representation other than as contained in this
Prospectus in connection with the offering made hereby, and, if given or made,
such other information or representation must not be relied upon as having been
authorized by Roslyn Bancorp, Inc., the Bank or the Agents. This Prospectus does
not constitute an offer to sell or a solicitation of an offer to buy any of the
securities 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 in such jurisdiction. Neither the delivery of
this Prospectus nor any sale hereunder shall under any circumstances create any
implication that there has been no change in the affairs of Roslyn Bancorp,
Inc. or the Bank since any of the dates as of which information is furnished
herein or since the date hereof.
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary .............................................................
Selected Consolidated
Financial and Other
Data of the Bank ..................................................
Risk Factors ........................................................
Roslyn Bancorp, Inc. ................................................
The Roslyn Savings Bank .............................................
Regulatory Capital Compliance .......................................
Use of Proceeds .....................................................
Dividend Policy .....................................................
Market for the Common Stock .........................................
Capitalization ......................................................
Pro Forma Data ......................................................
Consolidated Statements of Income ...................................
Management's Discussion and
Analysis of Financial Condition
and Results of Operations ..........................................
Business of the Bank ................................................
Federal and State Taxation ..........................................
Regulation and Supervision ..........................................
Management of the Company ...........................................
Management of the Bank ..............................................
The Conversion ......................................................
Restrictions on Acquisition
of the Company and
the Bank ...........................................................
Description of Capital Stock of
the Company ........................................................
Transfer Agent and Registrar ........................................
Experts .............................................................
Legal and Tax Opinions ..............................................
Additional Information ..............................................
Index to Financial Statements .......................................
</TABLE>
- -------------------------------------------------------------------------------
Until_______, 199_ or 25 days after commencement of the Syndicated
Community Offering, if any, whichever is later, 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
obligation of dealers to deliver a Prospectus when acting as underwriters and
with respect to their unsold allotments or subscriptions.
===============================================================================
===============================================================================
34,165,049 Shares
ROSLYN BANCORP, INC.
(Proposed Company for
The Roslyn Savings Bank)
COMMON STOCK
(PAR VALUE $0.01 PER SHARE)
_________________________
PROSPECTUS
_________________________
SANDLER O'NEILL & PARTNERS, L.P.
_________, 1996
===============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.(1)
<TABLE>
<S> <C>
SEC filing fee $140,000............................... $140,000
NYSBD filing fee...................................... 5,000
OTS filing fee........................................ 2,000
NASD filing fee....................................... 5,000
Nasdaq National Market fee............................ 50,000
Printing, postage and mailing......................... 710,000
Legal fees and expenses (including underwriter's
counsel)............................................. 925,000
Accounting fees and expenses.......................... 250,000
Appraiser's fees and expenses (including
business plan)....................................... 70,000
Marketing fees, selling commissions, and
underwriter's expenses............................... 6,160,000
Proxy solicitation fees and expenses.................. 35,000
Conversion agent fees and expenses.................... 55,000
Transfer agent fees and expenses...................... 20,000
Certificate printing.................................. 15,000
Telephone, temporary help and other equipment......... 50,000
Blue Sky fees and expenses............................ 15,000
Miscellaneous......................................... 46,000
---------
TOTAL $8,553,000
=========
</TABLE>
__________________________
(1) Actual expenses based upon the registration of 40,468,500 shares at $10.00
per share. All other expenses are estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
In accordance with the General Corporation Law of the State of Delaware (being
Chapter 1 of Title 8 of the Delaware Code), Articles 10 and 11 of the
Registrant's Certificate of Incorporation provide as follows:
TENTH:
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 attorney's 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
<PAGE>
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 TENTH
shall include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition (hereinafter
an "advancement of expenses"); provided, however, that, if the Delaware General
Corporation Law requires, an advancement of expenses incurred by an indemnitee
in his or her capacity as a Director or Officer (and not in any other capacity
in which service was or is rendered by such indemnitee, including, without
limitation, 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 TENTH 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 TENTH 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 a advancement of expenses) it
shall be 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 TENTH, or otherwise shall be on the Corporation.
D. The rights to indemnification and to the advancement of expenses conferred
in this Article TENTH shall not be exclusive of any other rights which any
person may have or hereafter acquire under any statute, the Corporation's
Certificate of Incorporation, Bylaws, agreement, vote of stockholders or
Disinteresed 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 subsidiary
or Affiliate 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 TENTH with respect to the indemnification and
advancement of expenses of Directors and Officers of the Corporation.
<PAGE>
ELEVENTH:
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 omission 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 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.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
None.
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The exhibits and financial statement schedules filed as a part of this
Registration Statement are as follows:
(a) List of Exhibits (filed herewith unless otherwise noted)
1.1 Engagement Letter between The Roslyn Savings Bank and Sandler O'Neill &
Partners, L.P.
1.2 Draft Form of Agency Agreement*
2.1 Plan of Conversion (including the Restated Organization Certificate and
Stock Bylaws of The Roslyn Savings Bank)
3.1 Certificate of Incorporation of Roslyn Bancorp, Inc.
3.2 Bylaws of Roslyn Bancorp, Inc.
3.3 Restated Organization Certificate and Stock Bylaws of The Roslyn
Savings Bank (See Exhibit 2.1 hereto)
4.0 Draft Stock Certificate of Roslyn Bancorp, Inc.
5.0 Draft Opinion Of Muldoon, Murphy & Faucette re: legality
5.1 Draft Opinion of Morris, Nichols, Arsht & Tunnell re: legality
8.0 Draft Opinion of Muldoon, Murphy & Faucette re: Federal Tax Matters
8.1 Opinion of O'Reilly, Marsh & Corteselli re: State Tax Matters
10.1 Draft ESOP Loan Commitment Letter and ESOP Loan Documents
10.2 Form of Proposed Employment Agreement between The Roslyn Savings Bank
and certain executive officers
10.3 Form of Proposed Employment Agreement between Roslyn Bancorp, Inc. and
certain executive officers
10.4 Form of Proposed Change in Control Agreement between The Roslyn Savings
Bank and certain executive officers.
10.5 Form of Proposed Change in Control Agreement between Roslyn Bancorp,
Inc. and certain executive officers
10.6 Form of Proposed The Roslyn Savings Bank Employee Severance Compensation
Plan
10.7 Form of Proposed Management Supplemental Executive Retirement Plan
23.1 Consent of KPMG Peat Marwick LLP as independent auditors
23.2 Consent of Muldoon, Murphy & Faucette
23.3 Consent of Morris, Nichols, Arsht & Tunnell
23.4 Consent and Subscription Rights Opinion of FinPro, Inc.
23.5 Consent of O'Reilly, March & Corteselli
24.1 Powers of Attorney
27.0 Financial Data Schedule
99.1 Appraisal Report of FinPro, Inc. (P)
99.2 Draft of the Roslyn Savings Bank Foundation Gift Instrument*
____________________________
*To be filed by amendment
(P) Filed pursuant to Rule 202 of Regulation S-T.
<PAGE>
(b) Financial Statement Schedules
All schedules have been omitted as not applicable or not required under the
rules of Regulation S-X.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any Prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events arising after
the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the Offering.
The undersigned Registrant hereby undertakes to furnish stock certificates
to or in accordance with the instructions of the respective purchasers of the
Common Stock, so as to make delivery to each purchaser promptly following the
closing under the Plan of Conversion.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to trustees, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a trustee, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
trustee, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act will be governed by the final adjudication of
such issue.
<PAGE>
CONFORMED
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Roslyn, State of New
York, on August 20, 1996.
Roslyn Bancorp, Inc.
By: /s/ Joseph L. Mancino
---------------------------------
Joseph L. Mancino
Chairman of the Board, Chief
Executive Officer and President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Name Title Date
---- ----- ----
/s/ Joseph L. Mancino Chairman of the Board, August 20, 1996
- ------------------------------ Chief Executive Officer
Joseph L. Mancino and President
(principal executive officer)
/s/ Michael P. Puorro Vice President and Chief August 20, 1996
- ------------------------------ Financial Officer
Michael P. Puorro (principal accounting and
financial officer
/s/ Floyd N. York
- ------------------------------ Director August 20, 1996
Floyd N. York
/s/ Victor C. McCuaig
- ------------------------------ Director August 20, 1996
Victor C. McCuaig
/s/ John P. Nicholson
- ------------------------------ Director August 20, 1996
John P. Nicholson
/s/ James E. Swiggett
- ------------------------------ Director August 20, 1996
James E. Swiggett
/s/ Robert G. Freese
- ------------------------------ Director August 20, 1996
Robert G. Freese
/s/ Thomas J. Calabrese, Jr. Director August 20, 1996
- ------------------------------
Thomas J. Calabrese, Jr.
<PAGE>
/s/ Dr. Edwin W. Martin, Jr. Director August 20, 1996
- -------------------------------
Dr. Edwin W. Martin, Jr.
/s/ Richard C. Webel Director August 20, 1996
- -------------------------------
Richard C. Webel
<PAGE>
TABLE OF CONTENTS
LIST OF EXHIBITS (FILED HEREWITH UNLESS OTHERWISE NOTED)
<TABLE>
<S> <C>
1.1 Engagement Letter between The Roslyn Savings Bank and Sandler O'Neill
& Partners, L.P.
1.2 Draft Form of Agency Agreement*
2.1 Plan of Conversion (including the Restated Organization Certificate
and Stock Bylaws of The Roslyn Savings Bank)
3.1 Certificate of Incorporation of Roslyn Bancorp, Inc.
3.2 Bylaws of Roslyn Bancorp, Inc.
3.3 Restated Organization Certificate and Stock Bylaws of The Roslyn
Savings Bank (See Exhibit 2.1 hereto)
4.0 Draft Stock Certificate of Roslyn Bancorp, Inc.
5.0 Draft Opinion of Muldoon, Murphy & Faucette re: legality
5.1 Draft Opinion of Morris, Nichols, Arsht & Tunnell re: legality
8.0 Draft Opinion of Muldoon, Murphy & Faucette re: Federal Tax Matters
8.1 Opinion of O'Reilly, Marsh & Corteselli re: State Tax Matters
10.1 Draft ESOP Loan Commitment Letter and ESOP Loan Documents
10.2 Form of Proposed Employment Agreement between The Roslyn Savings Bank
and certain executive officers
10.3 Form of Proposed Employment Agreement between Roslyn Bancorp, Inc.
and certain executive officers
10.4 Form of Proposed Change in Control Agreement between The Roslyn
Savings Bank and certain executive officers
10.5 Form of Proposed Change in Control Agreement between Roslyn Bancorp,
Inc. and certain executive officers
10.6 Form of Proposed The Roslyn Savings Bank Employee Severance
Compensation Plan
10.7 Form of Proposed Management Supplemental Executive Retirement Plan
23.1 Consent of KPMG Peat Marwick LLP as independent auditors
23.2 Consent of Muldoon, Murphy & Faucette
23.3 Consent of Morris, Nichols, Arsht & Tunnell
23.4 Consent and Subscription Rights Opinion of FinPro, Inc.
23.5 Consent of O'Reilly, Marsh & Corteselli
24.1 Powers of Attorney
27.0 Financial Data Schedule
99.1 Appraisal Report of FinPro, Inc. (P)
99.2 Draft of The Roslyn Savings Bank Foundation Gift Instrument*
</TABLE>
_____________________________
*To be filed by amendment.
(P)Filed pursuant to Rule 202 of Regulation S-T.
<PAGE>
[LETTERHEAD OF SANDLER O'NEILL APPEARS HERE] EXHIBIT 1.1
[SANDLER O'NEILL LOGO]
June 3, 1996
Mr. Joseph L. Mancino
Chairman, President and Chief Executive Officer
The Roslyn Savings Bank
1400 Old Northern Boulevard
Roslyn, New York 11576
Dear Mr. Mancino:
Sandler O'Neill Corporate Strategies, a division of Sandler O'Neill &
Partners, L.P. ("Sandler O'Neill"), is pleased to act as an independent
financial advisor to The Roslyn Savings Bank (the "Bank") in connection with the
Bank's proposed conversion from mutual to stock form (the "Conversion"),
including the offer and sale of certain shares of the common stock of the
proposed new holding company for the Bank (the "Holding Company") to the Bank's
eligible account holders in a Subscription Offering, to members of the Bank's
community in a Direct Community Offering and, under certain circumstances, to
the general public in a Syndicated Community Offering (collectively, the
"Offerings"). For purposes of this letter, the term "Actual Purchase Price"
shall mean the price at which the shares of the Holding Company's common stock
are sold in the Conversion. This letter is to confirm the terms and conditions
of our engagement.
ADVISORY SERVICES
- -----------------
Sandler O'Neill will act as a consultant and advisor to the Bank and the
Holding Company and will work with the Bank's management, general and special
counsel, accountants and other advisors in connection with the Conversion and
the Offerings. We anticipate that our services will include the following, each
as may be necessary and as the Bank may reasonably request:
1. Consulting as to the securities marketing implications of any aspect
of the Plan of Conversion or related corporate documents;
2. Assist the Board in identifying potential independent appraisers to be
considered for retention by the Bank and reviewing with the Board of
Directors the independent appraiser's appraisal of the common stock,
particularly with regard
Sandler O'Neil & Partners L.P.. is a limited partnership, the sole general
partner of which is Sandler O'Neill & Partners Corp., a New York Corporation
<PAGE>
The Roslyn Savings Bank
June 3, 1996
Page 2 [SANDLER O'NEILL LOGO]
to aspects of the appraisal involving the methodology employed;
3. Reviewing all offering documents, including the Prospectus, stock
order forms and related offering materials (it being understood that
preparation and filing of such documents will be the responsibility of
the Bank and the Holding Company and their counsel);
4. Assisting in the design and implementation of a marketing strategy for
the Offerings;
5. Assisting in obtaining all requisite regulatory approvals;
6. Assisting the Bank in connection with listing the Holding Company's
common stock on a national securities exchange or the Nasdaq stock
market;
7. Assisting Bank management in scheduling and preparing for meetings
with potential investors and broker-dealers; and
8. Providing such other general advice and assistance as may be requested
to promote the successful completion of the Conversion.
SYNDICATED COMMUNITY OFFERING
- -----------------------------
If any shares of the Holding Company's common stock remain available after
the expiration of the Subscription Offering and the Direct Community Offering,
at the request of the Bank and subject to the continued satisfaction of the
conditions set forth in the second paragraph under the caption "Definitive
Agreement" below, Sandler O'Neill will seek to form a syndicate of registered
dealers to assist in the sale of such common stock in a Syndicated Community
Offering on a best efforts basis, subject to the terms and conditions set forth
in a selected dealers agreement. Sandler O'Neill will endeavor to limit the
aggregate fees to be paid by the Bank under any such selected dealers agreement
to an amount competitive with gross underwriting discounts charged at such time
for underwritings of comparable amounts of stock sold at a comparable price per
share in a similar market environment, which shall not exceed 7% of the
aggregate Actual Purchase Price of the shares sold under such agreements.
Sandler O'Neill will endeavor to distribute the common stock among dealers in a
fashion which best meets the distribution objectives of the Bank and the
requirements of the Plan of Conversion, which may result in limiting the
allocation of stock to certain selected dealers. It is understood that in no
event shall Sandler O'Neill be obligated to act as a selected dealer or to take
or purchase any shares of the Holding Company's common stock.
<PAGE>
The Roslyn Savings Bank
June 3, 1996
Page 3 [SANDLER O'NEILL LOGO]
FEES
- ----
If the Conversion is consummated, the Bank agrees to pay Sandler O'Neill
for its services hereunder the fees set forth below:
1. a fee of one and three quarters percent (1 3/4%) of the aggregate
Actual Purchase Price of the shares of common stock sold in the
Subscription Offering to eligible account holders, current depositors
and in the Direct Community Offering, excluding in each case shares
purchased by (i) any employee benefit plan of the Holding Company or
the Bank established for the benefit of their respective directors,
officers and employees, and (ii) any director, officer or employee of
the Holding Company or the Bank or members of their immediate families
or any partner or employee of the Bank's general counsel; and
2. with respect to any shares of the Holding Company's common stock sold
by an NASD member firm (other than Sandler O'Neill) under any selected
dealers agreement in the Syndicated Community Offering, (a) the sales
commission payable to the selected dealer under such agreement, (b)
any sponsoring dealer's fees, and (c) a management fee to Sandler
O'Neill of one and one-half percent (1.5%). Any fees payable to
Sandler O'Neill for common stock sold by Sandler O'Neill under any
such agreement shall be limited to an aggregate of one and three
quarters percent (1 3/4%) of the Actual Purchase Price of such shares.
If (i) Sandler O'Neill's engagement hereunder is terminated for any of the
reasons provided for under the second paragraph of the section of this letter
captioned "Definitive Agreement," or (ii) the Conversion is terminated by the
Bank, no fees shall be payable by the Bank to Sandler O'Neill hereunder;
however, the Bank shall reimburse Sandler O'Neill for its reasonable out-of-
pocket expenses incurred in connection with its engagement hereunder.
All fees payable to Sandler O'Neill hereunder shall be payable in cash at
the time of the closing of the Conversion. In recognition of the long lead
times involved in the conversion process, the Bank agrees to make advance
payments to Sandler O'Neill in the aggregate amount of $50,000, $25,000 of which
shall be payable upon execution of this letter and the remaining $25,000 of
which shall be payable upon commencement of the Subscription Offering, which
shall be credited against any fees or reimbursement of expenses payable
hereunder.
<PAGE>
The Roslyn Savings Bank
June 3, 1996
Page 4 [SANDLER O'NEILL LOGO]
COSTS AND EXPENSES
- ------------------
In addition to any fees that may be payable to Sandler O'Neill hereunder
and the expenses to be borne by the Bank pursuant to the following paragraph,
the Bank agrees to reimburse Sandler O'Neill, upon request made from time to
time, for its reasonable out-of-pocket expenses incurred in connection with its
engagement hereunder, regardless of whether the Conversion is consummated,
including, without limitation, legal fees, advertising, promotional,
syndication, and travel expenses; provided, however, that Sandler O'Neill shall
-------- -------
document such expenses to the reasonable satisfaction of the Bank. The
provisions of this paragraph are not intended to apply to or in any way impair
the indemnification provisions of this letter.
As is customary, the Bank will bear all other expenses incurred in
connection with the Conversion and the Offerings, including, without limitation,
(i) the cost of obtaining all securities and bank regulatory approvals,
including any required NASD filing fees; (ii) the cost of printing and
distributing the offering materials; (iii) the costs of blue sky qualification
(including fees and expenses of blue sky counsel) of the shares in the various
states; (iv) listing fees; and (v) all fees and disbursements of the Bank's and
the Holding Company's counsel, accountants, conversion agent and other advisors.
In the event Sandler O'Neill incurs any such fees and expenses on behalf of the
Bank or the Holding Company, the Bank will reimburse Sandler O'Neill for such
fees and expenses whether or not the Conversion is consummated; provided,
--------
however, that Sandler O'Neill shall not incur any substantial expenses on behalf
- -------
of the Bank or the Holding Company pursuant to this paragraph without the prior
approval of the Bank.
DUE DILIGENCE REVIEW
- --------------------
Sandler O'Neill's obligation to perform the services contemplated by this
letter shall be subject to the satisfactory completion of such investigation and
inquiries relating to the Bank and the Holding Company, and their respective
directors, officers, agents and employees, as Sandler O'Neill and its counsel in
their sole discretion may deem appropriate under the circumstances. In this
regard, the Bank agrees that, at its expense, it will make available to Sandler
O'Neill all information which Sandler O'Neill requests, and will allow Sandler
O'Neill the opportunity to discuss with the Bank's and the Holding Company's
management the financial condition, business and operations of the Bank and the
Holding Company. The Bank and the Holding Company acknowledge that Sandler
O'Neill will rely upon the accuracy and completeness of all information received
from the Bank and the Holding Company and their directors, trustees, officers,
employees, agents, independent accountants and counsel.
<PAGE>
The Roslyn Savings Bank
June 3, 1996
Page 5 [SANDLER O'NEILL LOGO]
BLUE SKY MATTERS
- ----------------
The Bank agrees that if Sandler O'Neill's counsel does not serve as counsel
with respect to blue sky matters in connection with the Offerings, the Bank will
cause the counsel performing such services to prepare a Blue Sky Memorandum
related to the Offerings including Sandler O'Neill's participation therein and
shall furnish Sandler O'Neill a copy thereof addressed to Sandler O'Neill or
upon which such counsel shall state Sandler O'Neill may rely.
CONFIDENTIALITY
- ---------------
Other than disclosure to other firms made part of any syndicate of selected
dealers or as required by law or regulation, Sandler O'Neill agrees that it will
not disclose any Confidential Information relating to the Bank obtained in
connection with its engagement hereunder (whether or not the Conversion is
consummated). Sandler O'Neill has in effect policies regarding the
confidentiality of confidential information provided by clients, which policies
have been distributed to all Sandler O'Neill employees who will have access to
Confidential Information. As used in this paragraph, the term "Confidential
Information" shall not include information which (i) is or becomes generally
available to the public other than as a result of a disclosure by Sandler
O'Neill, (ii) was available to Sandler O'Neill on a non-confidential basis prior
to its disclosure to Sandler O'Neill by the Bank, or (iii) becomes available to
Sandler O'Neill on a non-confidential basis from a person other than the Bank
who is not otherwise known to Sandler O'Neill to be bound not to disclose such
information pursuant to a contractual, legal or fiduciary obligation. If the
Conversion is not completed, Sandler O'Neill will return to the Bank all copies
of Confidential Information in its possession.
INDEMNIFICATION
- ---------------
Since Sandler O'Neill will be acting on behalf of the Bank and the Holding
Company in connection with the Conversion, the Holding Company and the Bank
agree to indemnify and hold Sandler O'Neill and its affiliates and their
respective partners, directors, officers, employees, agents and controlling
persons within the meaning of Section 15 of the Securities Act of 1933 or
Section 20 of the Securities Exchange Act of 1934 (Sandler O'Neill and each such
person being an "Indemnified Party") harmless from and against any and all
losses, claims, damages and liabilities, joint or several, to which such
Indemnified Party may become subject under applicable federal or state law, or
otherwise, related to or arising out of the Conversion or the engagement of
Sandler O'Neill pursuant to, or the performance by Sandler O'Neill of the
services contemplated by, this letter, and will reimburse any Indemnified Party
for all expenses (including reasonable legal fees and expenses) as they are
incurred, including expenses incurred
<PAGE>
The Roslyn Savings Bank
June 3, 1996
Page 6 [SANDLER O'NEILL LOGO]
in connection with the investigation of, preparation for or defense of any
pending or threatened claim or any action or proceeding arising therefrom,
whether or not such Indemnified Party is a party; provided, however, that the
-------- -------
Bank and the Holding Company will not be liable in any such case to the extent
that any such loss, claim, damage, liability or expense (i) arises out of or is
based upon any untrue statement of a material fact or the omission of a material
fact required to be stated therein or necessary to make not misleading any
statements contained in any proxy statement or prospectus (preliminary or
final), or any amendment or supplement thereto, or any of the applications,
notices, filings or documents related thereto made in reliance on and in
conformity with written information furnished to the Bank by Sandler O'Neill
expressly for use therein, or (ii) is primarily attributable to the gross
negligence, willful misconduct or bad faith of Sandler O'Neill.
DEFINITIVE AGREEMENT
- --------------------
Sandler O'Neill and the Bank agree that (a) except as set forth in clause
(b), the foregoing represents the general intention of the Bank and Sandler
O'Neill with respect to the services to be provided by Sandler O'Neill in
connection with the Offerings, which will serve as a basis for Sandler O'Neill
commencing activities, and (b) the only legal and binding obligations of the
Bank, the Holding Company and Sandler O'Neill with respect to the subject matter
hereof shall be (1) the Bank's obligation to reimburse costs and expenses
pursuant to the section captioned "Costs and Expenses," (2) those set forth
under the captions "Confidentiality" and "Indemnification," and (3) as set forth
in a duly negotiated and executed definitive Agency Agreement to be entered into
prior to the commencement of the Subscription Offering relating to the services
of Sandler O'Neill in connection with the Offerings. Such Agency Agreement
shall be in form and content satisfactory to Sandler O'Neill, the Bank and the
Holding Company and their respective counsel and shall contain indemnification
provisions mutually acceptable to the Bank and the Holding Company and Sandler
O'Neill.
Sandler O'Neill's execution of such Agency Agreement shall also be subject
to (i) Sandler O'Neill's satisfaction with its investigation of the Bank's
business, financial condition and results of operations, (ii) preparation of
offering materials that are satisfactory to Sandler O'Neill and its counsel,
(iii) compliance with all relevant legal and regulatory requirements to the
reasonable satisfaction of Sandler O'Neill's counsel, (iv) agreement that the
price established by the independent appraiser is reasonable and (v) market
conditions at the time of the proposed offering. Sandler O'Neill may terminate
this agreement if such Agency Agreement is not entered into prior to June 30,
1997.
<PAGE>
The Roslyn Savings Bank
June 3, 1996
Page 7 [SANDLER O'NEILL LOGO]
ELIMINATION OF HOLDING COMPANY
- ------------------------------
If the Board of Directors of the Bank, for any reason, elects not to
proceed with the formation of the Holding Company but determines to proceed with
the Conversion and substitute the common stock of the Bank for the common stock
of the Holding Company, all of the provisions of this letter relating to the
common stock of the Holding Company will be deemed to pertain to the common
stock of the Bank on the same terms and conditions that such provisions pertain
to the common stock of the Holding Company and all of the references in this
letter to the Holding Company shall be deemed to refer to the Bank or shall have
no effect, as the context of the reference requires.
Please confirm that the foregoing correctly sets forth our agreement by
signing and returning to Sandler O'Neill the duplicate copy of this letter
enclosed herewith.
Very truly yours,
Sandler O'Neill & Partners, L.P.
By: Sandler O'Neill & Partners Corp.,
the sole general partner
By: /s/Mark B. Cohen
--------------------------------
Mark B. Cohen
Vice President
Accepted and agreed to as of
the date first above written:
The Roslyn Savings Bank
By: /s/Joseph L. Mancino
-------------------------------------
Joseph L. Mancino
Chairman, President and Chief Executive Officer
<PAGE>
[LETTERHEAD OF SANDLER O'NEILL GOES HERE]
SANDLER O'NEILL
June 3, 1996
Mr. Joseph L. Mancino
Chairman, President and Chief Executive Officer
The Roslyn Savings Bank
1400 Old Northern Blvd.
Roslyn, New York 11576
Dear Mr. Mancino:
Sandler O'Neill Corporate Strategies, a division of Sandler O'Neill &
Partners, L.P. ("Sandler O'Neill"), is pleased to act as conversion agent to The
Roslyn Savings Bank (the "Bank") in connection with the Bank's proposed
conversion from mutual to stock form (the "Conversion"). This letter is to
confirm the terms and conditions of our engagement.
SERVICES AND FEES
- -----------------
In our role as Conversion Agent, we anticipate that our services will
include the services outlined below, each as may be necessary and as the Bank
may reasonably request:
I. Consolidation of Accounts and Development of a Central File
II. Preparation of Proxy, Order and/or Request Forms
III. Organization and Supervision of the Conversion Center
IV. Proxy Solicitation and Special Meeting Services
V. Subscription Services
Each of these services is further described in Appendix A to this agreement.
For its services hereunder, the Bank agrees to pay Sandler O'Neill a fee of
$55,000. This fee is based upon a total number of unconsolidated accounts of
approximately 115,000. No change in fees will occur as long as the variance in
the number of accounts does not exceed 5%. In the event the actual number of
accounts exceeds the number specified above by more than 5%, the fee will be
proportionately increased.
Sandler O'Neill & Partners, L.P., is a limited partnership, the sole general
partner of which is Sandler O'Neill & Partners Corp., a New York
Corporation.
<PAGE>
The Roslyn Savings Bank
June 3, 1996 SANDLER O'NEILL
Page 2
The fee set forth above is based upon the requirements of current
regulations and the Plan of Conversion as currently contemplated. Any unusual or
additional items or duplication of service required as a result of a material
change in the regulations or the Plan of Conversion or a material delay or other
similar events may result in extra charges which will be covered in a separate
agreement if and when they occur.
All fees under this agreement shall be payable in cash, as follows: (a)
$10,000 payable upon execution of this agreement by the Bank, which shall be
non-refundable; and (b) the balance upon the completion of the Conversion.
COSTS AND EXPENSES
- ------------------
In addition to any fees that may be payable to Sandler O'Neill hereunder,
the Bank agrees to reimburse Sandler O'Neill, upon request made from time to
time, for its reasonable out-of-pocket expenses incurred in connection with its
engagement hereunder regardless of whether the Conversion is consummated,
including, without limitation, travel, lodging, food, telephone, postage,
listings, forms and other similar expenses, provided, however, that Sandler
-------- -------
O'Neill shall document such expenses to the reasonable satisfaction of the Bank.
The provisions of this paragraph are not intended to apply to or in any way
impair the indemnification provisions of this agreement.
In addition, all taxes however designated, arising from or based upon this
agreement or the payments made to Sandler O'Neill pursuant hereto, including,
but not limited to, any applicable sales, use, excise and similar taxes, shall
be paid by the Bank as the same become due, and the Bank shall, upon request by
Sandler O'Neill, pay the same either to Sandler O'Neill or to the appropriate
taxing authority at any time during, or after the termination of, this
Agreement; provided, however, that the Bank shall not be responsible for the
payment of any state, federal, or local franchise or income taxes based upon the
net income of Sandler O'Neill.
RELIANCE ON INFORMATION PROVIDED
- --------------------------------
The Bank will provide Sandler O'Neill with such information as Sandler
O'Neill may reasonably require to carry out its duties. The Bank recognizes and
confirms that Sandler O'Neill (a) will use and rely on such information in
performing the services contemplated by this agreement without having
independently verified the same, and (b) does not assume
<PAGE>
The Roslyn Savings Bank
June 3, 1996 SANDLER O'NEILL
Page 3
responsibility for the accuracy or completeness of the information. The Bank
will also inform Sandler O'Neill within a reasonable period of time of any
changes in the Plan which require changes in Sandler O'Neill's services. If a
substantial expense results from any such change, the parties shall negotiate an
equitable adjustment in the fee.
LIMITATIONS
- -----------
Sandler O'Neill, as Conversion Agent hereunder, (a) shall have no duties or
obligations other than those specifically set forth herein; (b) will be regarded
as making no representations and having no responsibilities as to the validity,
sufficiency, value or genuineness of any order form or any stock certificates or
the shares represented thereby, and will not be required to and will make no
representations as to the validity, value or genuineness of the offer; (c) shall
not be liable to any person, firm or corporation including the Bank by reason of
any error of judgment or for any act done by it in good faith, or for any
mistake of law or fact in connection with agreement and the performance hereof
unless caused by or arising out of its own bad faith or negligence; (d) will not
be obliged to take any legal action hereunder which might in its judgment
involve any expense or liability, unless it shall have been furnished with
reasonable indemnity satisfactory to it; and (e) may rely on and shall be
protected in acting in reliance upon any certificate, instrument, opinion,
notice, letter, telex, telegram, or other document or security delivered to it
and in good faith believed by it to be genuine and to have been signed by the
proper party or parties.
Anything in this agreement to the contrary notwithstanding, in no event
shall Sandler O'Neill be liable for special, indirect or consequential loss or
damage of any kind whatsoever (including but not limited to lost profits), even
if Sandler O'Neill has been advised of the likelihood of such loss or damage and
regardless of form of action.
INDEMNIFICATION
- ---------------
The Bank agrees to indemnify and hold Sandler O'Neill and its affiliates
and their respective partners, directors, officers, employees, agents and
controlling persons (Sandler O'Neill and each such person being an "Indemnified
Party") harmless from and against any and all losses, claims, damages and
liabilities, joint or several, to which such Indemnified Party may become
subject under applicable federal or state law, or otherwise, related to or
arising out of the engagement of Sandler O'Neill pursuant to, and the
performance by Sandler O'Neill of the services contemplated by this letter, and
will reimburse any Indemnified Party
<PAGE>
The Roslyn Savings Bank
June 3, 1996 SANDLER O'NEILL
Page 4
for all expenses (including reasonable counsel fees and expenses) as they are
incurred, including expenses incurred in connection with the investigation of,
preparation for or defense of any pending or threatened claim or any action or
proceeding arising therefrom, whether or not such Indemnified Party is a party.
The Bank will not be liable under the foregoing indemnification provision to the
extent that any loss, claim damage, liability or expense is found in a final
judgment by a court of competent jurisdiction to have resulted primarily from
Sandler O'Neill's bad faith or negligence.
MISCELLANEOUS
- -------------
The following addresses shall be sufficient for written notices to each
other:
If to you: The Roslyn Savings Bank
1400 Old Northern Blvd.
Roslyn, New York 11576
Attention: Mr. Joseph L. Mancino
If to us: Sandler O'Neill & Partners, L.P.
747 Middle Neck Road
Great Neck, New York 11024
Attention: Mr. Mark B. Cohen
The Agreement and appendix hereto constitute the entire Agreement between
the parties with respect to the subject matter hereof and can be altered only by
written consent signed by the parties. This Agreement is governed by the laws of
the State of New York.
TERMINATION
- -----------
If the Bank elects to terminate the Conversion, the authority of the
Conversion Agent shall, upon notice delivered by the Bank, also terminate
without liability on the part of the Bank for fees due if the Conversion had
been completed.
<PAGE>
The Roslyn Savings Bank
June 3, 1996 SANDLER O'NEILL
Page 5
Please confirm that the foregoing correctly sets forth our agreement by
signing and returning to Sandler O'Neill the duplicate copy of this letter
enclosed herewith.
Very truly yours,
Sandler O'Neill & Partners, L.P.
By: Sandler O'Neill & Partners Corp.
the sole general partner
By: /s/ Mark B. Cohen
-----------------------------
Mark B. Cohen
Principal
Accepted and agreed to as of
the date first above written:
The Roslyn Savings Bank
By: /s/ Joseph L. Mancino
----------------------------
Mr. Joseph L. Mancino
Chairman, President and Chief Executive Officer
<PAGE>
SANDLER O'NEILL
APPENDIX A
-----------
OUTLINE OF CONVERSION AGENT SERVICES
------------------------------------
I. Consolidation of Accounts
1. Consolidate files in accordance with regulatory guidelines.
2. Accounts from various files are all linked together. The resulting
central file can then be maintained on a regular basis.
3. Our EDP format will be provided to your data processing people.
II. Proxy/Order Form/Request Card Preparation
1. Vote calculation.
2. Any combination of proxies, request cards and stock order forms for
voting and ordering stock.
3. Target group identification for subscription offering.
III. Organization and Supervision of Conversion Center
1. Advising on and supervising the physical organization of the
Conversion Center, including materials requirements.
2. Assist in the training of all Bank personnel who will be staffing the
conversion center.
3. Establish reporting procedures.
4. On-site supervision of the Conversion Center during the
solicitation/offering period.
IV. Special Meeting Services
1. Direct proxy solicitation if independent solicitor not used.
2. Proxy and ballot tabulation.
3. Support inspector of election.
4. Delete voting record date accounts closed prior to special meeting.
5. Produce final report of vote.
A - 1
<PAGE>
SANDLER O'NEILL
V. Subscription Services
1. Produce list of depositors by state (Blue Sky report).
2. Production of subscription rights and research books.
3. Stock order form processing.
4. Acknowledgement letter to confirm receipt of stock order.
5. Daily reports and analysis.
6. Proration calculations and share allocation in the event of an over
subscription.
7. Produce charter shareholder list.
8. Interface with Transfer Agent for Stock Certificate issuance.
9. Refund and interest calculations.
10. Confirmation letter to confirm purchase of stock.
11. Notification of full/partial rejection of orders.
12. Production of 1099/Debit tape.
A - 2
<PAGE>
EXHIBIT 2.1
AMENDED
PLAN OF CONVERSION FOR
THE ROSLYN SAVINGS BANK
ROSLYN, NEW YORK
1. INTRODUCTION
This Plan of Conversion ("Plan") provides for the conversion of The Roslyn
Savings Bank, Roslyn, New York ("INSTITUTION") into a state-chartered capital
stock savings bank under the name The Roslyn Savings Bank. The Board of
Trustees of the INSTITUTION currently contemplates that all of the stock of the
INSTITUTION shall be held by a Delaware corporation (the "Holding Company").
The Board of Trustees has carefully considered the alternatives available to the
INSTITUTION with respect to its corporate structure and has determined that a
mutual to stock conversion as described in this Plan is in the best interests of
the INSTITUTION, its depositors and the community served by the INSTITUTION.
The Board of Trustees believes that the decline in mutuality is placing mutual
savings associations, such as the INSTITUTION, at a disadvantage to the
increasing base of stock thrift and commercial bank institutions. The
restructuring of the INSTITUTION into the capital stock form of organization
will enable the INSTITUTION to expand the INSTITUTION'S franchise, compete more
effectively with commercial banks and other financial institutions for new
business opportunities, and as a stock institution, to increase its equity
capital base and access the capital markets when needed. The use of the Holding
Company, if so utilized, would also provide greater organizational and operating
flexibility. Shares of capital stock of the INSTITUTION will be sold to the
Holding
<PAGE>
Company and the Holding Company will offer the Conversion Stock upon the terms
and conditions set forth herein to the Eligible Account Holders and the Employee
Plans established by the INSTITUTION or Holding Company in the respective
priorities set forth in this Plan. Any shares of Conversion Stock not
subscribed for by the foregoing classes of persons will be offered for sale to
certain members of the public either directly by the INSTITUTION and the Holding
Company through a Community Offering or a Syndicated Community Offering or
through an underwritten firm commitment public offering or through a combination
thereof. In the event that the INSTITUTION decides not to utilize the Holding
Company in conversion, Conversion Stock of the INSTITUTION, in lieu of the
Holding Company, will be sold as set forth above and in the respective
priorities set forth in this Plan. In addition to the foregoing, the
INSTITUTION and the Holding Company intend to provide employment or severance
agreements to certain management employees and certain other benefits to the
trustees, officers and employees of the INSTITUTION as described in the
Prospectus for the Conversion Stock.
In furtherance of the INSTITUTION's commitment to its community, the
INSTITUTION has amended this Plan to provide for the establishment of a
charitable foundation as part of the Conversion. The charitable foundation is
intended to complement the INSTITUTION's existing community reinvestment
activities in a manner that will allow the INSTITUTION's local community to
share in the growth and profitability of the Holding Company and the INSTITUTION
over the long term. Consistent with the INSTITUTION's goal, the Holding Company
intends to donate to the charitable foundation immediately following the
Conversion a number of shares of its authorized but unissued Common Stock equal
to 3% of the common stock issued in the Conversion.
-2-
<PAGE>
This Plan, which has been unanimously approved by the Board of Trustees of
the INSTITUTION present at a duly called meeting of the Board, must also be
approved by the Eligible Account Holders of the INSTITUTION by: (1) the
affirmative vote of at least seventy five percent (75%) in amount of deposit
liabilities of Eligible Account Holders represented in person or by proxy at the
Special Meeting; and (2) the affirmative vote of at least a majority of the
amount of votes eligible to be cast at the Special Meeting. The Board of
Trustees shall appoint an independent custodian and tabulator to receive and
hold proxies to be voted at the Special Meeting and count the votes cast in
favor of and in opposition to the Plan. Prior to the submission of this Plan to
the Eligible Account Holders for consideration, the Plan must be approved by the
Superintendent of Banks of the State of New York or his or her designees
("Superintendent") and certain waivers must be granted by the New York Banking
Board and the Plan must be not objected to by the FDIC.
2. DEFINITIONS
For the purposes of this Plan, the following terms have the following
meanings:
Account Holder - The term Account Holder means any Person holding a Deposit
--------------
Account in the INSTITUTION.
Acting in Concert - The term "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 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; or
(iii) a person or company which acts in concert with another person or company
("other party") shall also be
-3-
<PAGE>
deemed to be acting in concert with any person or company who is also acting in
concert with that other party, except that any Tax-Qualified Employee Stock
Benefit Plan or Non-Tax-Qualified Employee Stock Benefit Plan will not be deemed
to be acting in concert with any other Tax-Qualified Employee Stock Benefit Plan
or Non-Tax-Qualified Employee Stock 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.
Actual Purchase Price - The term Actual Purchase Price means the per share
---------------------
price at which the Conversion Stock is ultimately sold in accordance with the
terms hereof.
Associate - The term Associate when used to indicate a relationship with
---------
any Person, means (i) any corporation or organization (other than the Holding
Company, the INSTITUTION or a majority-owned subsidiary of the INSTITUTION) of
which such Person is an officer or partner or is, directly or indirectly, the
beneficial owner of 10 percent or more of any class of equity securities, (ii)
any trust or other estate in which such person has a substantial beneficial
interest or as to which such person serves as trustee or in a similar fiduciary
capacity except that: (a) for the purposes of Sections 8 and 11 hereof, the
term "Associate" does not include any Non-Tax-Qualified Employee Stock Benefit
Plan or any Tax-Qualified Employee Stock Benefit Plan in which a person has a
substantial beneficial interest or serves as a trustee or in a similar fiduciary
capacity; and (b) for purposes of aggregating total shares that may be held by
Officers and Directors the term "Associate" does not include any Tax-Qualified
or Non-Tax-Qualified Employee Stock Benefit Plan, and (iii) any relative or
spouse of such Person, or any relative of such spouse, who has the same home as
such Person or who is a Trustee, Director or Officer of the INSTITUTION or the
Holding Company, if utilized, or any of its parents or subsidiaries.
-4-
<PAGE>
Banking Law - The term Banking Law shall mean the Banking Law of the
-----------
State of New York.
Banking Board - The term Banking Board means the Banking Board of the State
-------------
of New York.
Community Offering - The term Community Offering means the offering for
------------------
sale to certain members of the general public directly by the INSTITUTION or the
Holding Company, if utilized, of any shares not subscribed for in the
Subscription Offering.
Conversion - The term Conversion shall mean (a) the restatement of the
----------
Bank's organization certificate to authorize the issuance of capital stock in
accordance with the Banking Law and the Conversion Regulations and to otherwise
conform to the requirements of a New York stock savings bank and (b) the
issuance of the capital stock of the Bank in accordance with this Plan.
Conversion Regulations - The term Conversion Regulations shall mean Part 86
----------------------
of the General Regulations of the New York Banking Board and the regulations of
the Federal Deposit Insurance Corp., but only to the extent such regulations
supersede Part 86 of the General Regulations of the New York Banking Board.
Conversion Stock - The term Conversion Stock means the $.01 par value
----------------
common stock offered and issued by the Holding Company or the $.01 par value
Common Stock offered and issued by the INSTITUTION, if the Holding Company form
of organization is not utilized, upon conversion.
Deposit Account - The term Deposit Account means all deposits of the
---------------
INSTITUTION as defined in Section 9019 of the Banking Law of New York, and
includes without limitation,
-5-
<PAGE>
savings, time, demand, negotiable orders of withdrawal (NOW), money market and
passbook accounts maintained by the INSTITUTION.
Effective Date - The term Effective Date shall mean the effective date of
--------------
the Conversion and shall be the date of consummation of the Conversion in
accordance with the Conversion Regulations.
Eligible Account Holder - The term Eligible Account Holder means any person
-----------------------
holding a Qualifying Deposit at the INSTITUTION on the Eligibility Record Date.
Eligibility Record Date - The term Eligibility Record Date means the date
-----------------------
for determining Eligible Account Holders in the INSTITUTION and is April 30,
1995.
Employees - The term Employees means all Persons who are employed by the
---------
INSTITUTION.
Employee Plans - The term Employee Plans means the Tax-Qualified Employee
--------------
Stock Benefit Plans, including the Employee Stock Ownership Plan ("ESOP"),
approved or ratified by the Board of Trustees of the INSTITUTION or the Board of
Directors of the Holding Company.
Estimated Price Range - The term Estimated Price Range means the range of
---------------------
minimum and maximum aggregate values determined by the Board of Trustees of the
INSTITUTION within which the aggregate amount of Common Stock sold in the
Conversion will fall. The Estimated Price Range will be within the estimated
pro forma market value of the Conversion Stock as determined by the Independent
Appraiser prior to the Subscription Offering and as it may be amended from time
to time thereafter.
FDIC - The term FDIC means the Federal Deposit Insurance Corporation.
----
-6-
<PAGE>
Holding Company - The term Holding Company means the Delaware corporation
---------------
formed for the purpose of acquiring all of the shares of capital stock of the
INSTITUTION to be issued upon its conversion to stock form unless the Holding
Company form of organization is not utilized. Shares of common stock of the
Holding Company will be issued in the Conversion to Participants and others in a
Subscription, Community, Syndicated Community, or underwritten firm commitment
public offering, or through a combination thereof.
Independent Appraiser - The term Independent Appraiser means an appraiser
---------------------
retained by the INSTITUTION to prepare an appraisal of the pro forma market
value of the Conversion Stock.
Institution - The term INSTITUTION means The Roslyn Savings Bank, Roslyn,
-----------
New York.
Maximum Subscription Price - The term Maximum Subscription Price means the
--------------------------
amount per share of Conversion Stock to be paid initially by Participants in the
Subscription Offering and persons in the Community Offering.
Officer - The term Officer means an executive officer of the INSTITUTION
-------
which includes the Chief Executive Officer, President, Executive Vice President,
Senior Vice President, Vice President in charge of principal business functions,
Secretary and Controller and any Person participating in major policy making
functions of the INSTITUTION.
Order Form - The term Order Form means any form together with attached
----------
cover letter, sent by the INSTITUTION to any Participant or Person containing
among other things a description of the alternatives available to such Person
under the Plan and by which any such Person may make elections regarding
subscriptions for Conversion Stock in the Subscription and Community Offerings.
-7-
<PAGE>
Participants - The term Participants means the Employee Plans, Eligible
------------
Account Holders and Supplemental Eligible Account Holders.
Person - The term Person means an individual, a corporation, a partnership,
------
an association, a joint-stock company, a trust (including Individual Retirement
Accounts and KEOGH Accounts), any unincorporated organization, a government or
political subdivision thereof or any other entity.
Plan - The term Plan means this Plan of Conversion of the INSTITUTION as it
----
exists on the date hereof and as it may hereafter be amended in accordance with
its terms.
Prospectus - The term Prospectus shall mean the offering circular or
----------
prospectus utilized to offer Conversion Stock in accordance with the Plan of
Conversion.
Public Offering - The term Public Offering means the underwritten, firm
---------------
commitment offering to the public through one or more underwriters.
Qualifying Deposit - The term Qualifying Deposit means the aggregate of one
------------------
or more Deposit Accounts in the INSTITUTION with an aggregate balance of $100 or
more at the close of business on the Eligibility Record Date. Deposit Accounts
with aggregate total deposit balances of less than $100 shall not constitute a
Qualifying Deposit.
SEC - The term SEC refers to the Securities and Exchange Commission.
---
Special Meeting - The term Special Meeting means the special meeting of
---------------
depositors, and any adjournments thereof, held to consider and vote upon this
Plan.
Subscription Offering - The term Subscription Offering means the offering
---------------------
of Conversion Stock for purchase through Order Forms to Participants.
-8-
<PAGE>
Subscription Price Range - The term Subscription Price Range is the per
------------------------
share price range established by the INSTITUTION prior to commencement of the
Subscription and Community Offerings, and is based on the valuation of the
Independent Appraiser.
Superintendent - The term Superintendent shall mean the Superintendent of
--------------
Banks of the State of New York.
Supplemental Eligibility Record Date - The term Supplemental Eligibility
------------------------------------
Record Date means the supplemental record date for determining Supplemental
Eligible Account Holders of the INSTITUTION. The Supplemental Eligibility
Record Date shall be the last day of the calendar quarter preceding the
Superintendent's approval of the application for conversion.
Supplemental Eligible Account Holder - The term Supplemental Eligible
------------------------------------
Account Holder means any person (other than an Eligible Account Holder) holding
a Qualifying Deposit, except Officers, Trustees and their Associates, as of the
Supplemental Eligibility Record Date.
Syndicated Community Offering - The term Syndicated Community Offering
-----------------------------
means the offering of Conversion Stock following the Subscription and Community
Offerings through a syndicate of broker-dealers.
Syndicated Community Offering Price - The term Syndicated Community
-----------------------------------
Offering price means the per share price submitted with orders for shares of
Conversion Stock in the Syndicated Community Offering.
Tax-Qualified Employee Stock Benefit Plan - The term Tax-Qualified Employee
-----------------------------------------
Stock Benefit Plan means any defined benefit plan or defined contribution plan,
such as an employee stock ownership plan, stock bonus plan, profit-sharing plan
or other plan, which, with its related trust, meets the requirements to be
"qualified" under Section 401 of the Internal Revenue Code.
-9-
<PAGE>
For purposes of Section 9 of this Plan, the INSTITUTION'S profit sharing and/or
401 plan shall be considered a Tax-Qualified Employee Stock Benefit Plan only to
the extent of the unallocated funds, if any, over which investment authority is
vested solely with the trustee(s) of those plans. The INSTITUTION or Holding
Company may make scheduled discretionary contributions to a Tax-Qualified
Employee Stock Benefit Plan provided such contributions do not cause the
INSTITUTION to fail to meet its regulatory capital requirement. A "Non-Tax-
Qualified Employee Stock Benefit Plan" is any defined benefit plan or defined
contribution plan which is not so qualified.
Trustee - The term Trustee shall mean a member of the Board of Trustees of
-------
the INSTITUTION.
Voting Members - The term Voting Members means those persons qualifying as
--------------
Eligible Account Holders.
Voting Record Date - The term Voting Record Date means the date fixed by
------------------
the Trustees in accordance with the Conversion Regulations for determining
eligibility to vote at the Special Meeting.
3. PROCEDURE FOR CONVERSION
After approval of the Plan by the Board of Trustees of the INSTITUTION, the
Plan shall be submitted together with all other requisite material to the
Superintendent for approval or waiver by the Banking Board and shall be
submitted to the FDIC with all other requisite material for non-objection.
Promptly upon adoption of the Plan by the Board of Trustees, the INSTITUTION
will cause notice of the adoption of the Plan by the Board of Trustees of the
INSTITUTION to be conspicuously posted at its home office and at each of its
branch offices
-10-
<PAGE>
and will also cause notice of the adoption of the Plan to be published in a
newspaper having general circulation in each community in which an office of the
INSTITUTION is located and will issue a press release containing the material
terms of Conversion. Following approval by the Superintendent and non-objection
by the FDIC and receipt of all necessary waivers by the Banking Board, the Plan
will be submitted to a vote of the Eligible Account Holders at the Special
Meeting called for that purpose. Eligible Account Holders will also be given
the opportunity to request a copy of the Plan and the proposed Restated
Organization Certificate and proposed Bylaws. The Special Meeting shall be held
upon written notice given no less than 20 days nor more than 45 days from the
last date on which such Notice is mailed to Eligible Account Holders. The
notice of the Special Meeting, proxy card and proxy statement or short-form
proxy statement shall be sent to each Eligible Account Holder and shall be
accompanied by a Prospectus and Order Form. Separate and readily
distinguishable postage-paid envelopes shall be provided for the return of proxy
cards and Order Forms. At the Special Meeting, each Eligible Account Holder
shall be entitled to cast one vote in person or by proxy for every one hundred
dollars ($100) such Eligible Account Holder had on deposit with the Bank as of
the Eligibility Record Date; provided, however, that no Eligible Account Holder
shall be eligible to cast more than one thousand (1,000) votes.
The Superintendent shall be notified of the results of the Special Meeting
within five days after the conclusion of the Special Meeting by a certificate
signed by the Chief Executive Officer and Secretary of the Bank. The Plan must
be approved by: 1) the affirmative vote of at least seventy five percent (75%)
in amount of deposit liabilities of Eligible Account Holders represented in
person or by proxy at such Special Meeting; and 2) the affirmative vote of at
least
-11-
<PAGE>
a majority of the amount of votes entitled to be cast at such Special Meeting.
In such event, the Bank will take all other necessary steps to effect the
Conversion subject to the terms and conditions of this Plan. If the Plan is not
so approved upon conclusion of the Special Meeting and any adjournments thereof,
the Plan shall terminate, the Bank will remain in mutual form and all funds
submitted in the Subscription Offering and Community Offering and Syndicated
Community Offering will be returned to subscribers, with interest as provided
herein, and all withdrawal authorizations will be cancelled. The conversion
must be completed within 24 months of the approval of the Plan by the
Superintendent, unless a longer time period is permitted by governing laws and
regulations.
The Board of Trustees of the INSTITUTION intends to take all necessary
steps to form the Holding Company, including the filing of an Application with
the Superintendent and the appropriate regulatory authority which will govern
the activities of the Holding Company. In the event that the Holding Company is
utilized, upon conversion the INSTITUTION will issue its capital stock to the
Holding Company and the Holding Company will issue and sell the Conversion Stock
in accordance with this Plan.
The Board of Trustees of the INSTITUTION may determine for any reason at
any time prior to the issuance of the Conversion Stock not to utilize a holding
company form of organization in the Conversion, in which case, the Holding
Company's Registration Statement will be withdrawn from the SEC, the INSTITUTION
will take all steps necessary to complete the conversion from the mutual to the
stock form of organization, including filing any necessary documents with the
Superintendent, FDIC and the appropriate regulatory authority which will govern
the activities of the Holding Company, and will issue and sell the Conversion
Stock in
-12-
<PAGE>
accordance with this Plan. In such event, any subscriptions or orders received
for Conversion Stock of the Holding Company shall be deemed to be subscriptions
or orders for Conversion Stock of the INSTITUTION and the INSTITUTION shall take
such steps as permitted or required by the Superintendent, FDIC or the SEC. Any
references to the Holding Company in this Plan shall mean the INSTITUTION in the
event the Holding Company is eliminated in Conversion.
The Conversion Stock will not be insured by the FDIC. The INSTITUTION will
not knowingly lend funds or otherwise extend credit to any Person to purchase
shares of the Conversion Stock.
4. HOLDING COMPANY APPLICATIONS AND APPROVALS
The Holding Company shall make timely applications for any requisite
regulatory approvals, including an Application with the Superintendent and the
appropriate regulatory authority which will govern the activities of the Holding
Company and a Registration Statement to be filed with the SEC. The INSTITUTION
shall be a wholly-owned subsidiary of the Holding Company unless the Holding
Company is eliminated in the Conversion.
5. SALE OF CONVERSION STOCK
The Conversion Stock will be offered simultaneously in the Subscription
Offering to the Eligible Account Holders, Employee Plans and Supplemental
Eligible Account Holders in the respective priorities set forth in Sections 8
through 10 of this Plan. The Subscription Offering may be commenced as early as
the mailing of the Proxy Statement for the Special Meeting and must be commenced
in time to complete the conversion within the time period specified in Section
3.
-13-
<PAGE>
Any shares of Conversion Stock not subscribed for in the Subscription
Offering will be offered for sale in the Community Offering as provided in
Section 11 of this Plan. The Subscription Offering may be commenced prior to the
Special Meeting and, in that event, the Community Offering may also be commenced
prior to the Special Meeting and may commence concurrently with the Subscription
Offering. The offer and sale of Conversion Stock prior to the Special Meeting
shall, however, be conditioned upon approval of the Plan by the Eligible Account
Holders.
If feasible, any shares of Conversion Stock remaining after the
Subscription and Community Offerings, will be sold in a Syndicated Community
Offering or alternatively in a Public Offering, as determined by the Holding
Company and the INSTITUTION, as provided in Section 12 of this Plan in a manner
that will achieve the widest distribution of the Conversion Stock. The sale of
all Conversion Stock subscribed for in the Subscription and Community Offerings
will be consummated simultaneously on the date the sale of Conversion Stock in
the Syndicated Community Offering or Public Offering is consummated and only if
all unsubscribed for Conversion Stock is sold.
The INSTITUTION may elect to offer to pay fees on a per share basis to
qualifying brokers, as determined by the INSTITUTION in its sole discretion, who
assist Persons in determining to purchase shares in the Subscription and
Community Offerings.
6. NUMBER OF SHARES AND PURCHASE PRICE OF CONVERSION STOCK
The total number of shares (or a range thereof) of Conversion Stock to be
issued and offered for sale will be determined jointly by the Board of Trustees
of the INSTITUTION and Board of Directors of the Holding Company, if the holding
company form of organization is
-14-
<PAGE>
utilized, 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 Superintendent and FDIC, 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 Offering
if the Estimated Price Range is increased subsequent to the commencement of the
Subscription and Community Offering to reflect changes in market and financial
conditions and the Actual Purchase Price in the aggregate is not more than 15%
above the maximum of the Estimated Price Range.
All shares sold in the Conversion will be sold at a uniform price per share
referred to in this Plan as the Actual Purchase Price in accordance with the
Conversion Regulations. The aggregate purchase price for all shares of
Conversion Stock shall equal the estimated consolidated pro forma market value
of the Holding Company as of the Effective Date and will not be inconsistent
with the estimated consolidated pro forma market value of the Holding Company
established immediately prior to the commencement of the Subscription and
Community Offerings. The estimated consolidated pro forma market value of the
INSTITUTION or the Holding Company, if utilized, will be determined for such
purpose by the Independent Appraiser in accordance with the Conversion
Regulations. Prior to the commencement of the Subscription and Community
Offerings, an Estimated Price Range will be established, which range will vary
within 15% above to 15% below the average of the minimum and maximum of such
price range. The number of shares of Conversion Stock to be issued and the
purchase price per share may be increased or decreased by the INSTITUTION. In
the event that the aggregate purchase price of the Conversion Stock is below the
minimum of the Estimated Price Range, or materially above
-15-
<PAGE>
the maximum of the Estimated Price Range, resolicitation of purchasers may be
required, provided that up to a 15% increase above the maximum of the Estimated
Price 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
INSTITUTION shall establish, with the approval of the Superintendent and FDIC,
if required. Up to a 15% increase in the number of shares to be issued which is
supported by an appropriate change in the estimated pro forma market value of
the Holding Company will not be deemed to be material so as to require a
solicitation of subscriptions.
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, (if a holding company form of organization is utilized) and the
Board of Trustees of the INSTITUTION will fix the Maximum Subscription Price and
the Subscription Price Range. If upon completion of the Subscription and
Community Offerings all of the Conversion Stock is subscribed for, or if because
of a limited number of unsubscribed shares or otherwise a Syndicated Community
Offering or Public Offering cannot be effected, the Actual Purchase Price for
each share of Conversion Stock will be jointly determined by the INSTITUTION and
Holding Company (if a holding company form of organization is utilized) as
follows: (a) the estimated aggregate pro forma market value of the INSTITUTION
or the Holding Company, as the case may be, immediately after conversion as
determined by the Independent Appraiser, expressed in terms of a specific
aggregate dollar amount rather than as a range, upon completion of the
Subscription and Community Offerings or other sale of all of the Conversion
Stock shall be divided by (b) the total number of shares of Conversion Stock to
be issued and sold.
-16-
<PAGE>
If there is a Syndicated Community Offering or Public Offering of shares of
Conversion Stock not subscribed for in the Subscription and Community Offerings,
the price per share at which the Conversion Stock is sold in such Syndicated
Community Offering or Public Offering shall be not greater than the maximum nor
less than the minimum of the Subscription Price Range on a per share basis as
the INSTITUTION may determine subject to approval by the Superintendent and
FDIC, if required. Upon consummation of the sale in the Syndicated Community
Offering or Public Offering of the shares of Conversion Stock unsubscribed for
in the Subscription and Community Offerings, the Syndicated Community Offering
or Public Offering Price will become the Actual Purchase Price paid for all
shares of Conversion Stock in the Subscription, Community and Syndicated
Community or Public Offerings.
Notwithstanding the foregoing, no sale of Conversion Stock may be
consummated unless, prior to such consummation, the Independent Appraiser
confirms to the INSTITUTION and Holding Company, if utilized, and to the
Superintendent and FDIC, if required that, to the best knowledge of the
Independent Appraiser, nothing of a material nature has occurred which, taking
into account all relevant factors, would cause the Independent Appraiser to
conclude that the aggregate value of the Conversion Stock at the Actual Purchase
Price is incompatible with its estimate of the aggregate consolidated pro forma
market value of the Holding Company or the INSTITUTION if no Holding Company is
utilized. If such confirmation is not received, the INSTITUTION may cancel the
Subscription and Community Offerings and/or the Syndicated Community Offering,
and/or the Public Offering, extend the Conversion, establish a new Subscription
Price Range and/or Estimated Price Range, extend, reopen or hold new
Subscription
-17-
<PAGE>
and Community Offerings and/or Syndicated Community Offering and/or Public
Offering or take such other action as the Superintendent may permit.
The per share difference, if any, between the Actual Purchase Price and the
Maximum Subscription Price or amount submitted in the Syndicated Community
Offering or Public Offering will be refunded to all Persons who shall have paid
the Maximum Subscription Price or amount submitted in the Syndicated Community
Offering or the Public Offering for such shares, unless such difference is
applied to the purchase of additional whole shares in accordance with the
instructions of such Persons.
The Conversion Stock to be issued in the Conversion shall be fully paid and
nonassessable.
7. PURCHASE BY THE HOLDING COMPANY OF THE STOCK OF THE INSTITUTION
Upon the consummation of the sale of all of the Conversion Stock, and in
the event that a holding company form of organization is utilized, the Holding
Company will purchase from the INSTITUTION all of the capital stock of the
INSTITUTION to be issued by the INSTITUTION in the conversion in exchange for
the Conversion proceeds that are not to be retained by the Holding Company.
The Holding Company will retain 50% of the proceeds of the Conversion.
Assuming the Holding Company is not eliminated, a lesser percentage may be
acceptable in the judgment of the Board of Trustees. The INSTITUTION believes
that the Conversion proceeds will provide economic strength to the Holding
Company and the INSTITUTION for the future in a highly competitive and regulated
environment and would facilitate the possible expansion through acquisitions of
financial service organizations, possible diversification into other related
businesses
-18-
<PAGE>
and for other business and investment purposes, including the possible payment
of dividends and possible future repurchases of the Conversion Stock as
permitted by the Superintendent. If during the conversion process the Board of
Trustees of the INSTITUTION determines not to complete the conversion utilizing
a holding company form of organization, capital stock of the INSTITUTION will be
issued and sold in accordance with the Plan. The above activities may also be
engaged in by the INSTITUTION if the Holding Company is eliminated.
7A. ESTABLISHMENT AND FUNDING OF CHARITABLE FOUNDATION
As part of the Conversion, the Holding Company and the INSTITUTION intend
to establish a charitable foundation that will qualify as an exempt organization
under Section 501(c)(3) of the Internal Revenue Code ( the "Foundation") and to
donate to the Foundation from authorized, but unissued, shares of Common Stock
of the Holding Company up to 3.0% of the number of shares of Common Stock sold
in the Conversion. The Foundation is being formed in connection with the
Conversion in order to complement the INSTITUTION's existing community
reinvestment activities and to share with the INSTITUTION's local community a
part of the INSTITUTION's financial success as a locally headquartered,
community minded, financial services institution. The funding of the Foundation
with Common Stock of the Holding Company accomplishes this goal as it enables
the community to share in the growth and profitability of the Holding Company
and the INSTITUTION over the long-term.
The Foundation will be dedicated to the promotion of charitable purposes
including community development, grants or donations to support housing
assistance, not-for-profit community groups and other types of organizations or
civic minded projects. The Foundation will annually distribute total grants to
assist charitable organizations or to fund projects within
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its local community of not less than 5% of the average fair value of Foundation
assets each year. In order to serve the purposes for which it was formed and
maintain its 501(c)(3) qualification, the Foundation may sell, on an annual
basis, a limited portion of the Common Stock contributed to it by the Holding
Company.
A majority of the board of directors of the Foundation will be comprised of
individuals who are officers and/or trustees of the INSTITUTION and the
remaining board members will be comprised of civic and community leaders within
the INSTITUTION's local community. The board of directors of the Foundation
will be responsible for establishing the polices of the Foundation with respect
to grants or donations, consistent with the stated purposes of the Foundation.
The establishment and funding of the Foundation as part of the Conversion
is subject to the approval of the Superintendent and, if applicable, the FDIC.
8. SUBSCRIPTION RIGHTS OF ELIGIBLE ACCOUNT HOLDERS (FIRST PRIORITY)
A. Each Eligible Account Holder shall receive, without payment, as a first
priority, nontransferable subscription rights to subscribe for shares of
Conversion Stock equal to the amount permitted to be subscribed for in the
Community Offering, which amount, pursuant to Section 11, currently is $675,000
of the Conversion Stock offered, but which may be increased to 5.0% of the
Conversion Stock offered or decreased to 0.10% of the Conversion Stock offered
without the further approval of Eligible Account Holders or resolicitation of
subscribers, subject to the maximum purchase limitation specified in Section 13A
and the minimum purchase
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limitation in Section 13C and exclusive of an increase in the total number of
shares issued due to an increase in the Estimated Price Range of up to 15%.
B. In the event that Eligible Account Holders exercise Subscription Rights
for a number of shares of Conversion Stock in excess of the total number of such
shares eligible for subscription, the shares of Conversion Stock shall be
allocated among the subscribing Eligible Account Holders so as to permit each
subscribing Eligible Account Holder, to the extent possible, to purchase a
number of shares sufficient to make his or her total allocation of Conversion
Stock equal to the lesser of 100 shares or the number of shares subscribed for
by the Eligible Account Holder. Any shares remaining after that allocation will
be allocated among the subscribing Eligible Account Holders whose subscriptions
remain unsatisfied in the proportion that the amount of the Qualifying Deposit
of each remaining Eligible Account Holder whose subscription remains unsatisfied
bears to the total amount of the Qualifying Deposits of all subscribing Eligible
Account Holders whose subscriptions remain unsatisfied, provided, however, that
no fractional shares shall be issued. If any shares remain after the above
allocations, such shares shall then be allocated among those remaining Eligible
Account Holders whose subscriptions remain unfilled, on the same principle until
all available shares have been allocated or all subscriptions satisfied.
C. Subscription rights as Eligible Account Holders received by Trustees
and Officers and their Associates which are based on their increased deposits in
the INSTITUTION during the one (1) year period preceding the Eligibility Record
Date shall be subordinated to the Subscription Rights of all other Eligible
Account Holders.
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9. SUBSCRIPTION RIGHTS OF THE EMPLOYEE PLANS (SECOND PRIORITY)
Each Employee Plan purchasing stock shall receive, as second priority after
the filling of subscriptions of Eligible Account Holders, nontransferable
subscription rights to purchase in the Subscription Offering the number of
shares of Conversion Stock requested by any such plan, subject to the purchase
limitations set forth in Section 13. If, after the filling of subscriptions of
Eligible Account Holders, a sufficient number of shares of Conversion Stock is
not available to fill the subscriptions by any such plan, the subscription by
such plan shall be filled to the maximum extent possible, provided however, that
in the event of an increase in the total number of shares issued due to an
increase in the Estimated Price Range of up to 15%, the additional shares shall
be sold to any such plan, in accordance with and subject to the purchase
limitations set forth in Section 13.
The Employee Plans shall not be deemed to be associates or affiliates of or
Persons Acting in Concert with any Director, Trustee or Officer of the Holding
Company or the INSTITUTION.
10. SUBSCRIPTION RIGHTS OF SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS (THIRD
PRIORITY)
A. Each Supplemental Eligible Account Holder shall receive, as third
priority, after the filling of subscriptions of the Eligible Account Holders and
Employee Plans, nontransferable subscription rights to subscribe for shares of
Conversion Stock equal to an amount up to the greater of: the amount permitted
to be subscribed for in the Community Offering which amount, pursuant to Section
11, currently is $675,000 of the Conversion Stock offered, but which may be
increased to 5.0% of the Conversion Stock offered or decreased to less than
0.10% of the Conversion Stock offered without the further approval of Eligible
Account Holders or
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resolicitation of subscribers, subject to the maximum purchase limitation
specified in Section 13A and the minimum purchase limitation specified in
Section 13C and exclusive of an increase in the total number of shares issued
due to an increase in the Estimated Price Range of up to 15%.
B. In the event that Supplemental Eligible Account Holders exercise
subscription rights for a number of shares of Conversion Stock in excess of the
total number of such shares eligible for subscription, the shares of Conversion
Stock shall be allocated among the subscribing Supplemental Eligible Account
Holders so as to permit each subscribing Supplemental Eligible Account Holder,
to the extent possible, to purchase a number of shares sufficient to make his or
her total allocation of Conversion Stock equal to the lesser of 100 shares or
the number of shares subscribed for by the Supplemental Eligible Account Holder.
Any shares remaining after that allocation will be allocated among the remaining
subscribing Supplemental Eligible Account Holders whose subscriptions remain
unsatisfied in the proportion that the amount of the Qualifying Deposit of each
remaining Supplemental Eligible Account Holder whose subscription remains
unsatisfied bears to the total amount of the Qualifying Deposits of all
remaining Supplemental Eligible Account Holders whose subscriptions remain
unsatisfied provided, however, that no fractional shares shall be issued. If
any shares remain after the above allocations, such shares shall then be
allocated among those remaining Supplemental Eligible Account Holders whose
subscriptions remain unfilled on the same principle until all available shares
have been allocated or all subscriptions satisfied.
C. Subscription rights received by an Eligible Account Holder pursuant to
Section 8 shall be applied in partial satisfaction of the subscription rights to
be received as a Supplemental Eligible Account Holder pursuant to this Section
10.
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11. COMMUNITY OFFERING (FOURTH PRIORITY)
If less than the total number of shares of Conversion Stock to be
subscribed for in the Conversion are sold in the Subscription Offering, it is
expected that shares remaining unsubscribed for will be made available for
purchase in the Community Offering as a fourth priority to certain members of
the general public, which may subscribe together with any Associate or group of
persons Acting in Concert for up to $675,000 of the shares of Conversion Stock
offered subject to the maximum purchase limitation specified in Section 13A and
the minimum purchase limitation specified in Section 13C and exclusive of an
increase in the total number of shares issued due to an increase in the
Estimated Price Range of up to 15%; provided, however, that the amount permitted
to be purchased in the Community Offering may be increased to 5% or decreased to
0.10% without the further approval of depositors. The shares may be made
available in the Community Offering through a direct community marketing program
which may provide for utilization of a broker, dealer, consultant or investment
banking firm, experienced and expert in the sale of savings institutions
securities. Such entities may be compensated on a fixed fee basis or on a
commission basis, or a combination thereof. In offering the unsubscribed for
shares to the public in the Community Offering, the Holding Company and the
INSTITUTION may establish the relative preferences, priorities, purchase
limitations and allocation of shares among persons, including institutional
investors, subscribing for shares. The INSTITUTION may establish all other terms
and conditions of such offer. The INSTITUTION shall make distribution of the
Conversion Stock to be sold in the Community Offering in such a manner as to
promote a wide distribution of Conversion Stock. The INSTITUTION reserves
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the right to reject any or all orders, in whole or in part, which are received
in the Community Offering.
It is expected that the Community Offering will commence concurrently with
the Subscription Offering. The Community Offering must be completed within 45
days after the completion of the Subscription Offering unless otherwise extended
with the approval of the Superintendent and FDIC, if necessary.
12. SYNDICATED COMMUNITY OFFERING OR PUBLIC OFFERING
If feasible, all shares of Conversion Stock not subscribed for in the
Subscription and Community Offerings will be sold in a Syndicated Community
Offering, subject to such terms, conditions and procedures as may be determined
by the INSTITUTION, in a manner that will achieve the widest distribution of the
Conversion Stock subject to the right of the INSTITUTION to accept or reject in
whole or in part all subscriptions in the Syndicated Community Offering. In the
Syndicated Community Offering, any person, together with any Associate or group
of persons acting in concert, may purchase up to $675,000 of the total number of
shares of Conversion Stock offered subject to the maximum purchase limitation
specified in Section 13A and the minimum purchase limitation specified in
Section C and exclusive of an increase in the total number of shares issued due
to an increase in the Estimated Price Range of up to 15%; provided, however,
that this amount may be increased to 5% or decreased to 0.10% without the
further approval of depositors. The shares purchased by any Person together
with any Associate or group of persons acting in concert pursuant to Section 11
shall be counted toward meeting the maximum purchase limitation found in this
Section. Provided that the Subscription Offering has commenced, the INSTITUTION
may commence the Syndicated Community Offering at any time
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after the mailing to the Members of the Proxy Statement to be used in connection
with the Special Meeting, provided that the completion of the offer and sale of
the Conversion Stock shall be conditioned upon the approval of this Plan by the
Eligible Account Holders. If the Syndicated Community Offering is not sooner
commenced pursuant to the provisions of the preceding sentence, the Syndicated
Community Offering will be commenced as soon as practicable following the date
upon which the Subscription and Community Offerings terminate.
Alternatively, if a Syndicated Community Offering is not held, and the
INSTITUTION and the Holding Company determine to continue the Conversion, the
INSTITUTION shall have the right to sell any shares of Conversion Stock
remaining following the Subscription and Community Offerings in an underwritten
firm commitment Public Offering. The provisions of Section 13 hereof shall not
be applicable to sales to underwriters for purposes of such an offering but
shall be applicable to the sales by the underwriters to the public. The price
to be paid by the underwriters in such an offering shall be equal to the Actual
Purchase Price less an underwriting discount to be negotiated among such
underwriters and the INSTITUTION, which will in no event exceed an amount deemed
to be acceptable by the Superintendent and FDIC, if necessary.
If for any reason a Syndicated Community Offering or an underwritten firm
commitment public offering of shares of Conversion Stock not sold in the
Subscription and Community Offerings cannot be effected, or in the event that
any residue of shares of Conversion Stock not exceeding one percent of the
aggregate shares issued is not sold in the Subscription and Community Offerings
or in the Syndicated Community or underwritten firm commitment Public Offering,
other arrangements will be made for the disposition of unsubscribed shares by
the
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INSTITUTION, if possible. Such other purchase arrangements will be subject to
the approval of the Superintendent and FDIC, if necessary.
13. LIMITATION ON PURCHASES
In addition to the maximum amount of Conversion Stock that may be
subscribed for in Sections 8, 9, 10, 11, and 12, the following limitations shall
apply to all purchases of shares of Conversion Stock:
A. The maximum number of shares of Conversion Stock which may be
subscribed for or purchased in all categories in the conversion by any Person or
Participant, together with any Associate or group or persons Acting in Concert,
shall not exceed 1.0% of the Conversion Stock offered, except for the Employee
Plans which may subscribe for up to 10% of the Conversion Stock issued;
provided, however, that Trustees, Directors and Officers of the INSTITUTION and
the Holding Company shall not be deemed to be associates or acting together or
in concert solely as a result of their board membership or employment.
B. The maximum number of shares of Conversion Stock which may be purchased
in all categories in the conversion by Officers, Trustees and Directors of both
the INSTITUTION and the Holding Company in the aggregate shall not exceed 25% of
the total number of shares of Conversion Stock offered.
C. A minimum of 25 shares of Conversion Stock must be purchased by each
Person purchasing shares in the Conversion to the extent those shares are
available; provided, however, that in the event the minimum number of shares of
Conversion Stock purchased times the price per share exceeds $500, then such
minimum purchase requirement shall be reduced to such
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number of shares which when multiplied by the price per share shall not exceed
$500, as determined by the Board.
If the number of shares of Conversion Stock otherwise allocable pursuant to
Sections 8 through 12, inclusive, to any Person or that Person's Associates
would be in excess of the maximum number of shares permitted as set forth above,
the number of shares of Conversion Stock allocated to each such person shall be
reduced to the lowest limitation applicable to that Person, and then the number
of shares allocated to each group consisting of a Person and that Person's
Associates shall be reduced so that the aggregate allocation to that Person and
his or her Associates complies with the above maximums, and such maximum number
of shares shall be reallocated among that Person and his or her Associates as
they may agree, or in the absence of an agreement, in proportion to the shares
subscribed by each (after first applying the maximums applicable to each Person,
separately).
Depending upon market or financial conditions, the Board of Trustees of the
INSTITUTION and the Board of Directors of the Holding Company, with the approval
of the Superintendent, if necessary, and without further approval of the
depositors, may decrease the maximum purchase limitation applicable to Persons
to 0.10% of the Conversion Stock offered, provided, however, the maximum
purchase limitation applicable to all Persons, together with Associates and
Persons acting in concert in the Subscription Offering may not be decreased
below 1.0% of the Conversion Stock offered. The Board of Trustees of the
INSTITUTION and Board of Directors of the Holding Company with the approval of
the Superintendent, if necessary, and without further approval of depositors,
may decrease the maximum purchase limitation applicable to Persons together with
Associates and Persons Acting in Concert in the Community or
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Syndicated Community Offering or Public Offering to 0.10% of the Conversion
Stock offered. In addition, the Board of Trustees of the INSTITUTION and Board
of Directors of the Holding Company with the approval of the Superintendent and
FDIC, if necessary, and without further approval of depositors, may increase the
purchase limitations in this Plan, provided that the maximum purchase
limitations may not be increased in the Subscription Offering or Community
Offering to a percentage in excess of 5% of the Conversion Stock offered. If
the INSTITUTION or the Holding Company, as the case may be, increases the
maximum purchase limitations, the INSTITUTION or the Holding Company, as the
case may be, is only required to resolicit Persons who subscribed for the
maximum purchase amount and may, in the sole discretion of the INSTITUTION or
the Holding Company, as the case may be, resolicit certain other large
subscribers. Requests to purchase additional shares of the Conversion Stock in
the event that the purchase limitation is so increased will be determined by the
Board of Directors of the INSTITUTION and the Holding Company in their sole
discretion.
In the event of an increase in the total number of shares offered in the
Conversion due to an increase in the Estimated Price Range (the "Adjusted
Maximum") such shares will be allocated in the following order or priority: (i)
to fill the Employee Plans' subscription to the Adjusted Maximum; (ii) in the
event that there is an oversubscription at the Eligible Account Holder level, to
fill unfilled subscriptions of Eligible Account Holders exclusive of the
Adjusted Maximum according to Section 8; (iii) in the event there is an
oversubscription at the Supplemental Eligible Account Holder level, to fill
unfulfilled subscriptions of Supplemental Eligible Account Holders exclusive of
the Adjusted Maximum according to Section 10; and (iv) to fill unfilled
subscriptions
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in the Community Offering exclusive of the Adjusted Maximum with preference
given to natural persons in the county in which the INSTITUTION maintains its
office.
Prior to the Effective Date of the Conversion, 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 Conversion Stock,
except pursuant to this Plan of Conversion. Each Person purchasing Conversion
Stock in the conversion shall be deemed to confirm that such purchase does not
conflict with the above purchase limitations contained in this Plan.
For a period of three years following the conversion, no Officer, Trustee
or Director (or any person who was an Officer, Trustee or Director at any time
after the date on which the Board of Trustees adopts this Plan) of the
INSTITUTION or the Holding Company or their Associates shall, without the prior
written approval of the Superintendent, purchase or acquire direct or indirect
beneficial ownership of any outstanding shares of common stock of the
INSTITUTION or the Holding Company, as the case may be, except from a broker-
dealer registered with the SEC. This provision shall not apply to the exercise
of any options pursuant to a stock option plan or purchases of common stock of
the INSTITUTION or the Holding Company, as the case may be, made by or held by
any Tax-Qualified Employee Stock Benefit Plan or Non-Tax-Qualified Employee
Stock Benefit Plan of the INSTITUTION or the Holding Company (including the
Employee Plans) which may be attributable to any Officer, Director or Trustee.
14. PAYMENT FOR CONVERSION STOCK
All payments for Conversion Stock subscribed for in the Subscription,
Community and Syndicated Community Offerings must be delivered in full to the
INSTITUTION, together with a properly completed and executed Order Form, or
purchase order in the case of the Syndicated
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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
INSTITUTION; provided, however, 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
Conversion Stock subscribed for by such plans at the Actual Purchase Price upon
consummation of the Conversion, provided that, in the case of the ESOP there is
in force from the time of its subscription until the consummation of the
Conversion, a loan commitment from the Holding Company or from an unrelated
financial institution to lend to the ESOP, at such time, the aggregated Maximum
Subscription Price of the shares for which it subscribed. The Holding Company
or the INSTITUTION may make scheduled discretionary contributions to an Employee
Plan provided such contributions from the INSTITUTION, if any, do not cause the
INSTITUTION to fail to meet its regulatory capital requirement.
Notwithstanding the foregoing, the INSTITUTION and the Holding Company, if
utilized, shall have the right, in their sole discretion, to permit
institutional investors to submit contractually irrevocable orders in the
Community Offering and to thereafter submit payment for the Conversion Stock for
which they are subscribing in the Community Offering at any time prior to 48
hours before the completion of the Conversion, unless such 48 hour period is
waived by the INSTITUTION and the Holding Company in their sole discretion.
Payment for Conversion Stock subscribed for shall be made either in cash
(if delivered in person), check or money order. Alternatively, subscribers in
the Subscription and Community Offerings may pay for the shares subscribed for
by authorizing the INSTITUTION on the Order Form to make a withdrawal from the
subscriber's Deposit Account at the INSTITUTION in an
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amount equal to the purchase price of such shares. Funds for which a withdrawal
is authorized will remain in the subscriber's Deposit Account but may not be
used by the subscriber until the Conversion Stock has been sold or the 45-day
period (or such longer period as may be approved by the Superintendent)
following the Subscription and Community 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. Such
authorized withdrawal from a certificate account shall be without penalty as to
premature withdrawal. Any remaining balance in a Deposit Account will earn
interest after such withdrawal at the rate and manner applicable to such Deposit
Account, provided, that if the authorized withdrawal is from a certificate
account, and the remaining balance does not meet the applicable minimum balance
requirement, without penalty, the remaining balance will earn interest at the
same rate and manner as a comparable balance in a passbook account. Interest
will be paid by the INSTITUTION at not less than the passbook annual rate on
payments for Conversion Stock received in cash or by check. Such interest will
be paid from the date payment is received by the INSTITUTION until consummation
or termination of the conversion. If for any reason the conversion is not
consummated, all payments made by subscribers in the Subscription, Community and
Syndicated Community Offerings will be refunded to them with interest. In case
of amounts authorized for withdrawal from Deposit Accounts, refunds will be made
by cancelling the authorization for withdrawal. The INSTITUTION is prohibited
by regulation from knowingly making any loans or granting any lines of credit
for the purchase of stock in the conversion, and therefore, will not do so.
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15. MANNER OF EXERCISING SUBSCRIPTION RIGHTS THROUGH ORDER FORMS
As soon as practicable after the Prospectus prepared by the Holding Company
and INSTITUTION has been declared effective by the Superintendent, FDIC and the
SEC, if the holding company form of organization is utilized, Prospectus and
Order Forms will be distributed to the Employee Plans, all Eligible Account
Holders and Supplemental Eligible Account Holders at their last known addresses
appearing on the records of the INSTITUTION for the purpose of subscribing to
shares of Conversion Stock in the Subscription Offering and will be made
available for use by those Persons entitled to purchase in the Community
Offering.
Each Order Form will be preceded or accompanied by a Prospectus describing
the Holding Company, if utilized, the INSTITUTION, the Conversion 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
INSTITUTION, which date with respect to Eligible Account Holders and
Supplemental Eligible Account Holders shall be not less than five (5) days
following the Special Meeting, unless a shorter period of time is approved by
the Superintendent and FDIC, if necessary, and which date will constitute the
termination of the Subscription Offering.
B. The purchase price per share for shares of Conversion Stock to be sold
in the Subscription and Community Offerings;
C. A description of the minimum and maximum number of shares of Conversion
Stock which may be subscribed for pursuant to the exercise of Subscription
Rights or otherwise purchased in the Community Offering;
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D. Instructions as to how the recipient of the Order Form is to indicate
thereon the number of shares of Conversion 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. Specifically designated blank spaces for dating and signing the Order
Form;
G. Indicate 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 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 Conversion Stock for which the recipient elects
to subscribe in the Subscription Offering (or by authorizing on the Order Form
that the INSTITUTION withdraw said amount from the subscriber's Deposit Account
at the INSTITUTION) to the INSTITUTION; and
H. A statement to the effect that the executed Order Form, once received
by the INSTITUTION, may not be modified or amended by the subscriber without the
consent of the INSTITUTION.
Notwithstanding the above, the INSTITUTION and the Holding Company reserve
the right in their sole discretion to accept or reject orders received on
photocopied or facsimilied order forms.
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16. UNDELIVERED, DEFECTIVE OR LATE ORDER FORM: INSUFFICIENT PAYMENT
In the event Order Forms (a) are not delivered and are returned to the
INSTITUTION by the United States Postal Service or the INSTITUTION is unable to
locate the addressee, (b) are not received back by the INSTITUTION or are
received by the INSTITUTION after the expiration date specified thereon, (c) are
defectively filled out or executed, (d) are not accompanied by the full required
payment, or, in the case of institutional investors in the Community Offering,
by delivering irrevocable orders together with a legally binding commitment to
pay in cash, check, money order or wire transfer the full amount of the purchase
price prior to 48 hours before the completion of the Conversion, unless waived
by the INSTITUTION, for the shares of Conversion 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 contemplated Order Form within
the time period specified thereon; provided, however, that the INSTITUTION 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 INSTITUTION may specify. The
interpretation of the INSTITUTION of terms and conditions of the Plan and of the
Order Forms will be final, subject to the authority of the Superintendent and
FDIC.
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17. RESTRICTIONS ON RESALE OR SUBSEQUENT DISPOSITION
A. All shares of Conversion Stock purchased or acquired (either directly
or indirectly) by Trustees, Directors or Officers (as such term is defined in
Part 70 of the General Regulations of the New York Banking Board) of the
INSTITUTION or the Holding Company on original issue (or otherwise beneficially
owned immediately after such original issuance) in the conversion shall be
subject to the restriction that, except as provided in Section 17B, below, or as
may be approved by the Superintendent, such shares shall not be sold for a
period of one (l) year following the date of purchase.
B. The restriction on disposition of shares of Conversion Stock set forth
in Section 17A above shall not apply to the following:
(i) Any exchange of such shares in connection with a merger or
acquisition involving the INSTITUTION or the Holding Company, as the case may
be, which has been approved by the Superintendent; and
(ii) Any disposition of such shares following the death or judicial
declaration of incompetency of such Trustee, Director or Executive Officer.
C. With respect to all shares of Conversion Stock subject to restrictions
on resale or subsequent disposition, each of the following provisions shall
apply:
(i) Each certificate representing shares restricted within the
meaning of Section 17A, above, shall bear a legend prominently stamped on its
face giving notice of the restriction;
(ii) Appropriate instructions shall be issued to the stock transfer
agent for the INSTITUTION or the Holding Company, as the case may be, with
respect to applicable restrictions on transfer of such restricted stock; and
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(iii) Any shares of capital stock of the INSTITUTION or the Holding
Company, as the case may be, issued as a stock dividend, stock split, or
otherwise with respect to any such restricted stock may not be sold until the
restrictions respecting such originally restricted stock are terminated, and any
certificate for such shares shall bear a legend advising of such restrictions.
18. VOTING RIGHTS OF STOCKHOLDERS
Upon conversion, the holders of the capital stock of the INSTITUTION shall
have the exclusive voting rights with respect to the INSTITUTION as specified in
its charter. The holders of the common stock of the Holding Company (if a
holding company form of organization is utilized) shall have the exclusive
voting rights with respect to the Holding Company.
19. ESTABLISHMENT OF LIQUIDATION ACCOUNT
The INSTITUTION shall establish at the time of conversion a liquidation
account in an amount equal to its 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. The liquidation
account will be maintained by the INSTITUTION for the benefit of the Eligible
Account Holders who continue to maintain their Deposit Accounts at the
INSTITUTION in the event of a complete liquidation of the Bank following the
Conversion. Each 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 to such balance as it may be subsequently reduced, as hereinafter
provided. The initial liquidation account balance shall not be increased, and
shall be
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subject to downward adjustment to the extent of any downward adjustment of any
subaccount balance of any Eligible Account Holder in accordance with the
Conversion Regulations.
In the unlikely event of a complete liquidation of the INSTITUTION (and
only in such event), following all liquidation payments to creditors (including
those to Account Holders to the extent of their Accounts) each 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 INSTITUTION's capital stock. 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 INSTITUTION 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 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 Qualifying Deposit and the denominator of which is the
total amount of all Qualifying Deposits of all Eligible Account Holders in the
INSTITUTION. 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
INSTITUTION or the Holding Company, as the case may be, has prepared audited
financial statements subsequent to the effective date of conversion, the deposit
balance in the Deposit Account of an Eligible Account Holder is less than the
lesser of (i) the balance in the Deposit Account at the close of
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business on the last day of any period for which the INSTITUTION or the Holding
Company, as the case may be, has prepared audited financial statements
subsequent to the Eligibility Record Date, or (ii) the amount in such Deposit
Account as of the 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 the
Conversion 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 Bank subsequent to the Conversion and only out of funds available for such
purpose after payment of all creditors.
The Bank shall not 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 INSTITUTION, except that the INSTITUTION shall
not 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.
20. TRANSFER OF DEPOSIT ACCOUNTS AND CONTINUITY OF THE INSTITUTION
Upon conversion, each Deposit Account Holder having a Deposit Account at
the INSTITUTION at the time of conversion will continue to have a Deposit
Account, without
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payment therefor, in the same amount and subject to the same terms and
conditions (except for voting and liquidation rights) as in effect prior to the
conversion.
After conversion, the INSTITUTION will succeed to all the rights, powers,
franchises, debts, liabilities, interests, duties and obligations of the
INSTITUTION before conversion, including but not limited to all rights and
interests of the INSTITUTION in and to its assets and properties, whether real,
personal or mixed. All of the insured deposits of the INSTITUTION will continue
to be insured by the FDIC to the extent provided by applicable law.
21. RESTRICTIONS ON ACQUISITION OF THE INSTITUTION AND HOLDING COMPANY
A. In accordance with Conversion Regulations, except with the prior
approval of the Superintendent, no Person or group of Persons acting in concert,
other than the Holding Company (if a holding company form of organization is
utilized), for a period of one year following the Effective Date of the
Conversion, shall directly or indirectly offer to acquire or acquire the
beneficial ownership of more than 10% of any class of an equity security of the
INSTITUTION.
B. 1. The restated organization certificate of the converted INSTITUTION
contains a provision stipulating that no Person or group of Persons acting in
concert, except the Holding Company (if a holding company form of organization
is utilized), for a period of three years following the date of conversion shall
directly or indirectly offer to acquire or acquire the beneficial ownership of
more than 10% of any class of an equity security of the INSTITUTION, without the
prior written approval of the Superintendent. In addition, such restated
organization certificate may also provide that for a period of three years
following conversion shares beneficially owned in violation of the above-
described charter provision shall not be entitled to
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vote and shall not be voted by any person or counted as voting stock in
connection with any matter submitted to stockholders for a vote. In addition,
special meetings of the stockholders relating to changes in control or amendment
of the charter may only be called by the Board of Directors, and shareholders
shall not be permitted to cumulate their votes for the election of directors.
B. 2. The Certificate of Incorporation of the Holding Company, if a holding
company form of organization is utilized, will contain a provision stipulating
that in no event shall any record owner of any outstanding shares of the Holding
Company's common stock who beneficially owns in excess of 10% of such
outstanding shares be entitled or permitted to any vote in respect to any shares
held in excess of 10%. In addition, the Certificate of Incorporation and Bylaws
of the Holding Company contain provisions which provide for staggered terms of
the directors, noncumulative voting for directors, limitations on the calling of
special meetings, a fair price provision for certain business combinations and
certain notice requirements.
C. For the purposes of this Section 21.B.1:
(i) The term "person" includes an individual, a group acting in
concert, a corporation, a partnership, an association, a joint stock company, a
trust, an unincorporated organization or similar company, a syndicate or any
other group formed for the purpose of acquiring, holding or disposing of
securities of an insured institution;
(ii) The term "offer" includes every offer to buy or acquire,
solicitation of an offer to sell, tender offer for, or request or invitation for
tenders of, a security or interest in a security for value;
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(iii) The term "acquire" includes every type of acquisition, whether
effected by purchase, exchange, operation of law or otherwise; and
(iv) The term "security" includes non-transferable subscription rights
issued pursuant to a plan of conversion as well as a "security" as defined in 15
U.S.C. (S) 78c(a)(10).
22. PAYMENT OF DIVIDENDS AND REPURCHASE OF STOCK
The INSTITUTION shall not declare or pay a cash dividend on, or repurchase
any of, its capital stock if the effect thereof would cause its regulatory
capital to be reduced below the amount required for the Liquidation Account.
Otherwise, the INSTITUTION may declare dividends or make capital distributions
in accordance with applicable law and regulations.
23. AMENDMENT OF PLAN
If deemed necessary or desirable, the Plan may be substantively amended at
any time prior to solicitation of proxies from Eligible Account Holders to vote
on the Plan by the INSTITUTION's Board of Trustees, and at any time thereafter
by such vote of such Board of Trustees with the concurrence of the
Superintendent and FDIC. Amendment of the Plan may be necessary as a result of
comments from the Superintendent and FDIC. Any amendment to the Plan made after
approval by the Eligible Account Holders with the approval of the Superintendent
and FDIC shall not necessitate further approval by the Eligible Account Holders
unless otherwise required by the Superintendent and FDIC. The Plan may be
terminated by majority vote of the INSTITUTION's Board of Trustees at any time
prior to the Special Meeting to vote on this Plan, and at any time thereafter
with the concurrence of the Superintendent and FDIC.
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By adoption of the Plan, the Eligible Account Holders of the INSTITUTION
authorize the Board of Trustees to amend or terminate the Plan under the
circumstances set forth in this Section.
24. ORGANIZATION CERTIFICATE AND BYLAWS
The Bank shall take all appropriate steps to amend and restate its
Organization Certificate to read in the form of an Organization Certificate for
a New York stock savings bank as specified in the Banking Law and the
regulations of the New York Banking Board and approved by the Board of Trustees
of the Bank. By their approval of the Plan, the Eligible Account Holders of the
Bank will thereby approve and adopt such Restated Organization Certificate. The
Bank shall also take all appropriate steps to adopt Bylaws sufficient for a New
York stock savings bank. The name of the converted Bank shall be The Roslyn
Savings Bank.
25. CONSUMMATION OF CONVERSION
The conversion of the INSTITUTION shall be deemed to take place and be
effective upon the completion of all requisite organizational procedures for
obtaining an Organization Certificate for a New York stock savings bank for the
INSTITUTION and sale of all Conversion Stock.
26. REGISTRATION AND MARKETING
Within the time period required by applicable laws and regulations, the
INSTITUTION or the Holding Company, as the case may be, will register the
securities issued in connection with the conversion pursuant to the Securities
Exchange Act of 1934 and will not deregister such securities for a period of at
least three years thereafter, except that the maintenance of registration for
three years requirement may be fulfilled by any successor to the INSTITUTION or
any holding company of the INSTITUTION. In addition, the INSTITUTION/Holding
Company will
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use its best efforts to encourage and assist a market-maker to establish and
maintain a market for the Conversion Stock and to list those securities on a
national or regional securities exchange or the NASDAQ system.
27. RESIDENTS OF FOREIGN COUNTRIES AND CERTAIN STATES
The INSTITUTION will make reasonable efforts to comply with the securities
laws of all States in the United States in which Persons entitled to subscribe
for shares of Conversion Stock pursuant to the Plan reside. However, no such
Person will be issued subscription rights or be permitted to purchase shares of
Conversion Stock in the Subscription Offering if such Person resides in a
foreign country; or in a State of the United States with respect to which all of
the following apply: A. a small number of Persons otherwise eligible to
subscribe for shares under the Plan reside in such state; B. the issuance of
subscription rights or the offer or sale of shares of Conversion Stock to such
Persons would require the INSTITUTION or the Holding Company or their employees,
officers, directors or trustees, as the case may be, under the securities laws
of such state, to register as a broker, dealer, salesman or agent or to register
or otherwise qualify its securities for sale in such state and such registration
or qualification would be impracticable for reasons of cost or otherwise.
28. EXPENSES OF CONVERSION
The INSTITUTION shall use its best efforts to assure that expenses incurred
by it in connection with the conversion shall be reasonable.
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29. CONDITIONS TO CONVERSION
The conversion of the INSTITUTION pursuant to this Plan is expressly
conditioned upon the following:
(a) Prior receipt by the INSTITUTION of either rulings of the United
States Internal Revenue Service and the New York State taxing authorities, or
opinions of counsel or independent auditors, substantially to the effect that
the conversion will not result in any adverse federal or state tax consequences
to Eligible Account Holders or to the INSTITUTION and the Holding Company before
or after the conversion;
(b) The sale of all of the Conversion Stock offered in the conversion; and
(c) The completion of the conversion within the time period specified in
Section 3 of this Plan.
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
INSTITUTION shall be final, subject to the authority of the Superintendent and
FDIC.
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RESTATED ORGANIZATION CERTIFICATE
OF
THE ROSLYN SAVINGS BANK
UNDER SECTION 8007 OF
THE BANKING LAW
We, Joseph L. Mancino, being the Chairman of the Board, President and Chief
Executive Officer, and Mary M. Ehrich, being the Secretary, of THE ROSLYN
SAVINGS BANK, in accordance with Section 8007 of the Banking Law of the State of
New York, do hereby certify as follows:
FIRST, the name of the Corporation is THE ROSLYN SAVINGS BANK.
SECOND, the Corporation was created by an Organization Certificate filed
with the Superintendent in 1875.
THIRD, the text of the Organization Certificate of THE ROSLYN SAVINGS BANK
is hereby amended and changed in its entirety to read as follows:
Section 1. Corporate Title.
The full corporate title of the institution is THE ROSLYN SAVINGS BANK
("SAVINGS BANK").
Section 2. Office.
The home office shall be located in Roslyn, 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 ("NYB").
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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 hundred ten million (110,000,000), of
which one hundred million (100,000,000) shall be common stock, par value $.01
per share and of which ten million (10,000,000) 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 shareholders except as
otherwise provided in this Section 5 or to the extent that such approval is
required by governing law, rule, or regulation. The consideration for the
issuance of the shares shall be paid in full before their issuance and shall not
be less than the par value. Neither promissory notes nor future services shall
constitute payment or part payment for the issuance of shares of the 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
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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 NYB, the Federal Deposit Insurance
Corporation, or the Resolution Trust 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. Shareholders 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 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
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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 the other shares of
the same series.
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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 for 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 NYB's regulations, the SAVINGS BANK
shall establish and maintain a liquidation account for the benefit of its
deposit account holders as of April 30, 1995 ("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
shareholders.
Section 8. Certain Provisions 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 conversion of the SAVINGS BANK from mutual
to stock form, the following provisions shall apply:
A. Beneficial Ownership Limitation. No person shall directly or
-------------------------------
indirectly acquire the beneficial ownership of more than 10 percent of
any class of any equity security of the SAVINGS BANK. This limitation
shall not apply to a transaction in which the SAVINGS BANK forms a
holding company in conjunction with conversion, or thereafter, if such
formation is without change in the respective beneficial ownership
interests of the SAVINGS BANK's shareholders other than pursuant to
the exercise of any dissenter and appraisal rights, the purchase of
shares by underwriters in connection with a public offering, or the
purchase of shares by a tax-qualified employee stock benefit plan.
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In the event shares are acquired in violation of this Section 8, all
shares beneficially owned by any person in excess of 10% shall be
considered "excess shares" and shall not be counted as shares entitled
to vote and shall not be voted by any person or counted as voting
shares in connection with any matters submitted to the shareholders
for a vote; provided, however 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 shareholders for any purpose or purposes, unless
otherwise prescribed by the regulations of the NYB, 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 number of
authorized directorships, whether or not there exists any vacancies in any
previously authorized directorships).
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 nor more than 30 except when a greater number is approved
by the NYB 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:
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Class I with terms to expire at the first annual meeting of stockholders:
Thomas J. Calabrese, Jr.
Edwin W. Martin, Jr.
Richard C. Webel
Class II with terms to expire at the annual meeting of stockholders one
year thereafter:
Robert G. Freese
James E. Swiggett
Joseph L. Mancino
Class III with terms to expire at the annual meeting two years thereafter:
Floyd N. York
Victor C. McCuaig
John P. Nicholson
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 NYB, which preliminary
approval may be granted by the NYB pursuant to regulations specifying
preapproved organization certificate amendments, and thereafter approved by the
affirmative vote of the holders of at least 80 percent 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 NYB in
accordance with the regulatory procedures or on such other date as the NYB 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
Regulation of the NYB 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 shareholders 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
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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 persons 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 interest 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
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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.
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IN WITNESS WHEREOF, we have made, signed and acknowledged this Certificate
in duplicate, this ___ day of _________, 1996.
-------------------------------------------------
Joseph L. Mancino
Chairman of the Board, President and
Chief Executive Officer
-------------------------------------------------
Mary M. Ehrich
Secretary
STATE OF NEW YORK )
) ss.:
NASSAU COUNTY )
On the ___ day of _________, 1996, there personally appeared before me
Joseph L. Mancino, Chairman of the Board, President and Chief Executive Officer
of The Roslyn Savings Bank, and Mary M. Ehrich, Secretary of The Roslyn Savings
Bank, 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
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BYLAWS OF
THE ROSLYN SAVINGS BANK
ARTICLE I. HOME OFFICE
The home office of The Roslyn Savings Bank ("SAVINGS BANK") is 1400 Old
Northern Boulevard, Village of Roslyn, Nassau County, New York.
ARTICLE II. SHAREHOLDERS
Section l. Place of Meetings. All annual and special meetings of
-----------------------------
shareholders shall be held at the home office of the SAVINGS BANK or at such
other place in the State 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 120 days after the end of each
calendar year.
Section 3. Special Meetings. Special meetings of the shareholders for any
----------------------------
purpose or purposes, unless otherwise prescribed by the regulations of the New
York State Banking Department ("NYB"), may be called at any time by the Chairman
of the Board of Directors (as set forth in Article V, Section 7, 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 number of
authorized directorships, whether or not there exists any vacancies in any
previously authorized directorships.
Section 4. Conduct of Meetings. The Chairman of the Board shall preside
-------------------------------
at all meetings and in his absence, 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 as seem to him in order.
Section 5. Notice of Meetings. Written notice stating the place, day and
------------------------------
hour of the meeting and the purpose(s) for which the meeting is called shall be
delivered not fewer than 10 nor more than 50 days before the date of the
meeting, either personally or by mail, by or at the direction of the Chairman of
the Board, the 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 prescribed in Section 6 of this
Article II, with postage prepaid. When any
<PAGE>
shareholders' meeting, either annual or special, is adjourned for 30 days or
more, notice of the adjourned meeting shall be given as in the case of an
original meeting. It shall not be necessary to give any notice of the time and
place of any meeting adjourned for less than 30 days or of the business to be
transacted at the meeting, other than an announcement at the meeting at which
such adjournment is taken.
Section 6. Fixing of Record Date. For the purpose of determining
---------------------------------
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment, or shareholders entitled to receive payment of any dividend, or
in order to make a determination of shareholders for any other proper purpose,
the Board of Directors shall fix in advance a date as the record date for any
such determination of shareholders. Such date in any case shall be not more
than 50 days and, in case of a meeting of shareholders, not fewer than 10 days
prior to the date on which the particular action, requiring such determination
of shareholders, is to be taken. When a determination of shareholders entitled
to vote at any meeting of shareholders has been made as provided in this
section, such determination shall apply to any adjournment.
Section 7. Voting Lists. At least 20 days before each meeting of the
------------------------
shareholders, the officer or agent having charge of the stock transfer books for
shares of the SAVINGS BANK shall make a complete list of the shareholders
entitled to vote at such meeting, or any adjournment, arranged in alphabetical
order, with the address and the number of shares held by each. This list of
shareholders shall be kept on file at the home office of the SAVINGS BANK. Such
list shall also be produced and kept open at the time and place of the meeting
and shall be subject to the inspection by any shareholder during the entire time
of the meeting. The original stock transfer book shall constitute prima facie
evidence of the shareholders entitled to examine such list or transfer books or
to vote at any meeting of shareholders.
Section 8. 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 9. Proxies. At all meetings of shareholders, a shareholder may
-------------------
vote by proxy executed in writing by the shareholder or by his duly authorized
attorney in fact. Proxies solicited on behalf of the management shall be voted
as directed by the shareholder or, in the absence of such direction, as
determined by a majority of the Whole Board of Directors. No
2
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proxy shall be valid more than eleven months from the date of its execution
except for a proxy coupled with an interest.
Section l0. 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 ll. Voting of Shares by Certain Holders. Shares standing in the
-------------------------------------------------
name of another corporation may be voted by any officer, agent or proxy as the
bylaws of such corporation may prescribe, or, in the absence of such provision,
as the board of directors of such corporation may determine. Shares held by an
administrator, executor, guardian or conservator may be voted by him, either in
person or by proxy, without a transfer of such shares into his name. Shares
standing in the name of a trustee may be voted by him, either in person or by
proxy, but no trustee shall be entitled to vote shares held by him without a
transfer of such shares into his 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 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 12. Cumulative Voting. Shareholders shall not be entitled to
------------------------------
cumulate their votes for election of directors.
Section l3. Inspectors of Election. In advance of any meeting of
-----------------------------------
shareholders, the Board of Directors may appoint any persons other than nominees
for office as inspectors of election to act at such meeting or any adjournment.
The number of inspectors shall be either one or three. Any such appointment
shall not be altered at the meeting. If inspectors of election are not so
appointed, the Chairman of the Board may, or on the request of a shareholder
present at the meeting shall, make such appointment at the meeting. If
appointed at the meeting, the Chairman
3
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of the Board shall determine whether there shall be one or three inspectors of
election. If appointed at the meeting and the Chairman of the Board fails to
determine whether there shall be one or three inspectors of election, the
majority of the votes present shall determine whether one or three inspectors
are to be appointed. In case any person appointed as inspector fails to appear
or fails or refuses to act, the vacancy may be filled by appointment by the
Board of Directors in advance of the meeting, or at the meeting by the Chairman
of the Board.
Unless otherwise prescribed by regulations of the NYB, the duties of such
inspectors shall include: determining the number of shares outstanding and the
voting power of each share, the number of shares represented at the meeting, the
existence of a quorum, and the authenticity, validity and effect of proxies;
receiving votes, ballots, or consents; hearing and determining all challenges
and questions in any way arising in connection with the rights to vote; counting
and tabulating all votes or consents; determining the result; and such acts as
may be proper to conduct the election or vote with fairness to all shareholders.
Section 14. Nominating Committee. The Chairman of the Board, at least 30
---------------------------------
days prior to the date of each annual meeting, shall appoint a nominating
committee of three persons. Such committee shall make nominations for directors
in writing, and deliver to the secretary such written nominations at least 15
days prior to the date of the annual meeting, which nominations shall forthwith
be posted in a prominent place in the home office for the 15 day period prior to
the date of the annual meeting. Provided such committee is appointed and makes
such nominations, no nominations for directors except those made by the
nominating committee shall be voted upon at the annual meeting unless other
nominations by shareholders are made in writing and delivered to the secretary
of the SAVINGS BANK at least 5 days prior to the date of the annual meeting,
which nominations shall forthwith be posted in a prominent place in the home
office of the SAVINGS BANK for the 5 days period prior to the date of the annual
meeting. Ballots bearing the names of all persons nominated by the nominating
committee and shareholders shall be provided for use at the annual meeting.
However, if at any time the Chairman of the Board shall fail to appoint such
nominating committee or the nominating committee shall fail or refuse to act at
least 15 days prior to the annual meeting, nominations for directors may be made
at the annual meeting by any shareholder entitled to vote and shall be voted
upon.
Section 15. New Business. Any new business to be taken up at the annual
-------------------------
meeting shall be stated in writing and filed with the secretary of the SAVINGS
BANK at least 45 days before the date of the annual meeting, and all business so
stated, proposed, and filed shall be considered at the annual meeting, but no
other proposal shall be acted upon at the annual meeting. Any shareholder may
make any other proposal at the annual meeting and the same may be discussed and
considered, but unless stated in writing and filed with the secretary at least
45 days before the meeting, such proposal shall be laid over for action at an
adjourned, special, or annual meeting of the shareholders taking place 30 days
or more thereafter. This provision shall not prevent the consideration and
approval or disapproval at the annual meeting of reports of officers, directors
and committees; but in connection with such reports no new business shall be
acted upon at such annual meeting unless stated and filed as herein provided.
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Section l6. Informal Action by Shareholders. Any action required to be
--------------------------------------------
taken at a 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 l. General Powers. The business and affairs of the SAVINGS BANK
--------------------------
shall be under the direction of its Board of Directors. The Board of Directors
shall annually elect a Chairman from among its members who shall preside at its
regular and special meetings. In the absence or inability of the foregoing
officer to act, at any fully constituted meeting of the Board members, a
temporary chairperson shall be appointed by those present to act as such during
the interim term.
Section 2. Number and Term. The Board of Directors shall consist of nine
----------------------------
(9) members and shall be divided into three classes as nearly equal in number as
possible. The members of each class shall be elected for a term of three years
and until their successors are elected and qualified. One class shall be
elected by ballot annually.
Section 3. Regular Meetings. A regular meeting of the Board of Directors
-----------------------------
shall be held once each month without other notice than this bylaw. At least
one meeting shall be held immediately after and at the same place as, the annual
meeting of shareholders, which shall be the annual meeting of the Board. The
Board of Directors may provide, by resolution, the time and place, within the
SAVINGS BANK's normal lending territory, for the holding of additional regular
meetings without other notice than such resolution.
Section 4. Qualification. Each director shall at all times be the
-------------------------
beneficial owner of not less than 100 shares of capital stock of the SAVINGS
BANK unless the SAVINGS BANK is a wholly owned subsidiary of a holding company.
Section 5. Special Meetings. The Chairman of the Board, or in the absence
----------------------------
or disability of the Chairman of the Board, an Executive Vice President may call
special meetings of the Board, and the Secretary of the Board shall call a
meeting upon the written request of five (5) or more of the members of the
Board of Directors. A special meeting may be held at such time and place as
shall be stated in the notice of meeting.
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 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.
5
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Section 7. Notice. Written notice of any special meeting shall be given
------------------
to each director at least three (3) days prior thereto when delivered personally
or by telephone or telegram, or at least five days prior thereto when delivered
by mail at the address at which the director is most likely to be reached. Such
notice shall be deemed to be delivered when deposited in the mail so addressed,
with postage prepaid if mailed, or when delivered to the telegraph company if
sent by telegram. Any director may waive notice of any meeting by a writing
filed with the secretary. The attendance of a director at a meeting shall
constitute a waiver of notice of such meeting, except where a director attends a
meeting for the express purpose of objecting to the transaction of any business
because the meeting is not lawfully called or convened. The business to be
transacted at, and the purpose of, any special meeting of the Board of Directors
must be specified in the notice of such meeting and no other business shall be
transacted at that time.
Section 8. Quorum. A majority of the number of directors fixed by Section
-------------------
2 of this Article III shall constitute a quorum for the transaction of business
at any meeting of the Board of Directors, but if less than such majority is
present at a meeting, a majority of the directors present may adjourn the
meeting from time to time. Notice of any adjourned meeting shall be given in
the same manner as prescribed by Section 7 of this Article III.
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 regulations of the NYB,
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. Eligibility, Resignation, Retirement and Directors Emeritus.
-------------------------------------------------------------------------
Any director may resign at any time by sending a written notice of such
resignation to the home office of the SAVINGS BANK addressed to the Chairman of
the Board. Unless otherwise specified, such resignation shall take effect upon
receipt by the Chairman of the Board. The absence from regular meetings of the
Board of Directors and the meetings of any committee of the Board of which the
director is a member, for six consecutive months, unless excused by resolution
of the Board of Directors, shall automatically constitute a resignation,
effective when such resignation is accepted by the Board of Directors.
Except for the initial members of the Board of Directors as set forth in
the Restated Organization Certificate, no person shall be eligible for initial
election as a Director who is 66 years of age or more. No person may be
elected, appointed, nominated or otherwise serve as a director of the SAVINGS
BANK after December 31 of the year in which such person attains the age of 75.
Vacancies on the Board of Directors created by operation of this provision may
be filled in accordance with these Bylaws.
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A Director who retires from service on the Board of Directors, either on
account of reaching age 75 or due to inability to regularly attend meetings,
after serving as a Director for 20 years or more, may be elected, by a two-
thirds majority of the Board, as a Director Emeritus. Director Emeritus, once
elected, may stand for re-election each year at the annual meeting of the Board.
No Director Emeritus shall serve beyond December 31 of the year in which he
attains the age of 80. Director Emeritus shall be eligible to attend meetings
of the Board of Directors and to receive the same per diem compensation as a
Director for attendance, but shall have no vote.
Section 12. Vacancies. All vacancies in the office of Director, including
-----------------------
newly created Directorships resulting from an increase in the number of
Directors, shall be filled by election of stockholders, except that vacancies
not exceeding one-third of the entire Board of Directors may be filled by the
affirmative vote of a majority of the remaining directors, although less than a
quorum of the Board of Directors, provided that the nomination of a candidate
therefor shall have been made by the Nominating Committee, created as
hereinafter provided in these Bylaws. 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 l3. 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 either 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 14. 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 dissent or abstention shall be entered in the minutes of the meeting
or unless he 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 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 15. Removal of Directors. At a meeting of shareholders called
----------------------------------
expressly for that purpose, any director may be removed for cause by a vote of
the holders of a majority of the shares then entitled to vote at an election of
directors. Whenever the holders of the shares of any class are entitled to
elect one or more directors by the provisions of the restated organization
certificate or supplemental sections thereto, the provisions of this section
shall apply, in respect
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to the removal of a director or directors so elected, to the vote of the holders
of the outstanding shares of that class and not to the vote of the outstanding
shares as a whole.
Section 16. 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.
ARTICLE IV. COMMITTEES
Section 1. Enumeration of Committees. The standing committees of the Board
-------------------------------------
of Directors shall be an Executive Committee, an Audit Committee, and a
Nominating Committee. The Board of Directors, by vote of a majority of the whole
Board of Directors, may from time to time designate additional committees of the
Board, either temporary or permanent, with such lawfully delegable powers and
duties as it thereby confers not inconsistent with these Bylaws, to serve at the
pleasure of a majority of the Whole Board and shall, for these 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 ("Alternate Directors") who may replace any absent or disqualified
member at any meeting of the committee; provided however, that the Chairman
shall be a member of, and shall serve as the chairman of the Executive Committee
and he shall be an ex-officio member of all other committees, except the Audit
Committee and any other committee on which he is prohibited from being a member,
by law, the Restated Organization Certificate or these Bylaws. The Board of
Directors, by a resolution adopted by a majority of the Whole Board may
terminate any committee previously established.
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Section 2. The Executive Committee. The Executive Committee shall
------------------------------------
consist of the Chairman of the Board and four additional Directors elected
annually by the vote of the majority of the Whole Board.
If any member of the Executive Committee shall be absent from any meeting
of the committee, the Chairman shall designate some other Director, other than
one serving as a salaried officer, to act as a member of the committee at that
meeting. In the event there shall be a vacancy in the office of Chairman, then
and in that event such other additional Director or Directors as may be needed
to obtain the full complement of five members shall be elected by the Board to
serve until the vacancy is filled, or until the next annual meeting. Any member
of the executive committee may be removed at any time with or without cause by
resolution adopted by a majority of the Whole Board of Directors.
Regular meetings of the Executive Committee may be held without notice at
such times and places as the Executive Committee may fix from time to time by
resolution. Special meetings of the committee may be called by the Chairman or
at any time by any two members of the committee, upon twenty-four hours' notice
by mail, in person, or by telegraph or telephone. The notice of a special
meeting of the committee, however given, shall state the time when and the
place, which shall be within the State of New York, where the meeting is to be
held and the business which is to be presented and no business other than that
stated in the notice shall be transacted at said meeting. The Executive
Committee may make rules for the regulation of its meetings and proceedings not
inconsistent with these Bylaws.
Four members of the committee, including designees designated to act for an
absent member or members of the committee, shall be necessary for a quorum at
any meeting of the committee. Attendance by Alternate Directors shall
constitute membership on the Committee for determining quorum requirements.
Action of the executive committee must be authorized by the affirmative vote of
a majority of the members present at a meeting at which a quorum is present.
Any action required or permitted to be taken by the executive committee at a
meeting may be taken without a meeting if a consent in writing, setting forth
the action so taken, shall be signed by all of the members of the executive
committee.
Except as otherwise provided herein, the Executive Committee, when the
Board of Directors is not in session, shall have and may exercise all of the
authority of the Board of Directors, except to the extent, if any, that such
authority may be limited by resolution adopted by a majority of the Whole Board
of Directors or by the laws of the State of New York. In addition, the
Executive Committee shall not have the authority of the Board of Directors with
reference to: the submission to stockholders of any action that requires
stockholders' authorization under New York law or regulations; the filling of
vacancies in the Board of Directors or in any committee of the Board of
Directors; the fixing of compensation of the Directors for serving on the Board
or any committee thereof; the amendment or repeal of any resolution of the Board
of Directors which by its terms shall not be so amendable re repealable; the
taking of any action which is expressly required by New York law or regulation
to be taken at a meeting of the Board of Directors or by a specified proportion
of Directors; the amendment or repeal of the Restated
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Organization Certificate or Bylaws of the SAVINGS BANK or adoption of new Bylaws
of the SAVINGS BANK, or recommending to the shareholders a plan of merger,
consolidation, or conversion; the sale, lease or other disposition of all or
substantially all of the property and assets of the SAVINGS BANK otherwise than
in the usual and regular course of its business; a voluntary dissolution of the
SAVINGS BANK; a revocation of any of the foregoing; or the approval of a
transaction in which any member of the executive committee, directly or
indirectly, has any material beneficial interest.
Section 3. The Nominating Committee The Board of Directors, by
------------------------------------
resolution adopted by a majority of the Whole Board, shall appoint a Nominating
Committee of the Board, consisting of not less than three (3) members of the
Board of Directors, one of whom shall be the Chairman of the Board. The
Nominating Committee shall have authority (a) to review any nominations for
election to the Board of Directors made by a stockholder of the SAVINGS BANK and
(b) to recommend to the Whole Board nominees for election to the Board of
Directors (i) to replace those Directors whose terms expire at the annual
meeting of stockholders next ensuing and (ii) to fill vacancies resulting from
death, resignation, retirement, disqualification, removal from office or other
cause, or resulting from an increase in the authorized number of Directors.
Section 4. The Audit Committee. The Audit Committee shall consist of four
--------------------------------
or more Directors, none of whom shall be a salaried officer of the SAVINGS BANK,
who shall be elected to said Committee at the annual meeting of the Board of
Directors, or in the case of the filling of a vacancy (such vacancy, in every
case to be filled by an existing non-salaried Director) at any regular or
special meeting of the Board. The Audit Committee shall assist the Board of
Directors in fulfilling its obligation to oversee the appropriateness of
accounting policies, and SAVINGS BANK procedures and controls and shall be
charged with the duty of carrying out the requirements of Section 254 of the
Banking Law as the same now is in force or as it may be amended or of any law
substituted therefor. In performing its functions, the Audit Committee shall
utilize the expertise of the SAVINGS BANK's internal Auditing Department under
the direction of the SAVINGS BANK's internal Auditor. The Audit Committee shall
hold formal meetings with the SAVINGS BANK's internal auditors on a quarterly
basis.
ARTICLE V. OFFICERS
Section l. Positions. The Board shall elect a Chairman of the Board, who
----------------------
shall be the Chief Executive Officer and President, and who shall be a member of
the Board of Directors. The Board shall also elect one or more Executive Vice
Presidents, one or more Senior Vice Presidents, one or more Vice Presidents, and
a Secretary, who need not be members of the Board. The offices of Secretary and,
if appointed, Treasurer, may be held by the same person and a Vice President may
also be either a Secretary or a Treasurer. Any offices may be held concurrently
by the same person, except that the Chairman shall hold no additional office
other than as provided in this Section 1. The Board of Directors shall also
appoint the Auditor, who may not hold another office.
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The Chairman and the Executive Vice Presidents shall be the Executive
Officers of the SAVINGS BANK.
Section 2. Election and Term of Office. The officers of the SAVINGS BANK
---------------------------------------
shall be elected annually at the annual meeting of the Board of Directors or at
the first meeting of the Board of Directors held after each annual meeting of
the shareholders. If the election of officers is not held at such meeting, such
election shall be held as soon thereafter as possible. Each officer shall hold
office until a successor has been duly elected and qualified or until the
officer's death, resignation, retirement or removal in the manner hereinafter
provided. Election or appointment of an officer, employee or agent shall not of
itself create contractual rights. The Board of Directors may authorize the
SAVINGS BANK to enter into an employment contract with any officer; but no such
contract shall impair the right of the Board of Directors to remove any officer
at any time in accordance with Section 3 of this Article V.
Section 3. Removal. Any officer may be removed by the Board of Directors
-------------------
whenever in its judgment the best interests of the SAVINGS BANK will be served
thereby, but such removal, other than for cause, shall be without prejudice to
the contractual rights, if any, of the person so removed.
Section 4. Vacancies. A vacancy in any executive officer position because
---------------------
of death, resignation, removal, disqualification or otherwise, may be filled by
the Board of Directors for the unexpired portion of the term. Any vacancy in
any officer position other than a executive officer position may be filled by
the Chief Executive Officer for the unexpired portion of the term, provided such
action by the Chief Executive Officer is ratified by the Board of Directors.
Section 5. Delegation of Duties. In the absence or disability of an
----------------------------------
officer of the SAVINGS BANK, or for any other reason which may seem sufficient
to the Board, the Board of Directors may delegate his powers and duties to any
other officer or to any Director.
Section 6. Remuneration. The remuneration of the officers shall be fixed
------------------------
from time to time by the Board of Directors. The employees of the SAVINGS BANK
shall receive such compensation and allowances as the Board of Directors may
from time to time fix or approve or, within limits or schedules from time to
time fixed or established by the Board as may be determined by the Executive
Committee, the Chairman or a committee of the Board appointed for that purpose.
Section 7. Chairman of the Board of Directors, Chief Executive Officer and
---------------------------------------------------------------------------
President. The Chairman of the Board shall be the Chief Executive Officer and
- ---------
President of the SAVINGS BANK and, subject to the provisions of these Bylaws and
the resolutions of the Board, shall have the active management, direction and
supervision of the SAVINGS BANK and its officers, its operations, securities and
obligations, and shall have all powers and perform all duties incidental of his
office. He shall preside at all meetings of the Board and the Executive
Committee, appoint all committees not otherwise provided for by law, by these
Bylaws or by action of the Board of Directors and shall be an ex-officio member
of all other committees, except the Audit Committee
11
<PAGE>
and committees on which he is ineligible to serve by law, the Restated
Organization Certificate or these Bylaws. He may perform, or cause to be
performed, at any time, any of the functions or duties of any other officer. He
may assign to all other officers, employees and agents of the SAVINGS BANK,
duties in addition to those specifically described in these Bylaws.
He shall have custody of the common seal and direct the use of it. He
shall have power to sign and execute any and all contracts, papers and legal
documents. He may delegate to counsel and such other officers as are designated
by the Board of Directors, the authority, under the seal of the SAVINGS BANK, to
execute and acknowledge, in the name and on behalf of the SAVINGS BANK, all
contracts, papers and documents incident or related to the business of the
SAVINGS BANK, except where otherwise directed by law or by these Bylaws.
Unless otherwise provided by resolution of the Board of Directors or these
Bylaws, he may fill vacancies on committees and may appoint such other
committees as he may deem necessary or the Board may require. He shall perform
such other duties as the Board of Directors may direct.
The decisions of the Chairman of the Board on any matter, incident to the
business of the SAVINGS BANK, shall be conclusive unless modified by the Board
of Directors.
Section 8. Executive Vice Presidents. The Executive Vice Presidents shall
--------------------------------------
perform such administrative and executive duties as are provided in these
Bylaws, and as may be properly required of them or delegated to them by the
Chairman, or as may from time to time be required by the Board of Directors, and
shall exercise such powers as may from time to time be conferred upon them by
the Board.
In the absence or disability of the Chairman, the Board of Directors may
designate an Executive Vice President to perform the duties and exercise the
powers of such officers.
Section 9. Secretary. The Secretary shall give due notice as in these
----------------------
Bylaws provided of all meetings of the Board of Directors and of the Executive
Committee. He shall attend all meetings of the Board and of said Committee and
shall keep the minutes thereof. If requested so to do he shall attend and keep
the minutes of the meetings of any and all other committees of the Board. He
shall have custody of the corporate records of the SAVINGS BANK and its common
seal; and when properly affixed to any document shall attest said seal. He shall
perform all of the usual duties of the Secretary of a corporation, together with
such duties as may from time to time be properly assigned to him by the Chairman
or the Board of Directors.
Section 10. Senior Vice Presidents and Vice Presidents. The Senior Vice
--------------------------------------------------------
Presidents and the Vice Presidents shall severally perform such duties and shall
exercise such powers as may from time to time be assigned to or conferred upon
them by the Board of Directors, and they shall perform such other duties as may
be assigned to them by the Chairman.
12
<PAGE>
Section 11. Auditor. The Auditor shall, subject to the control and
---------------------
direction of the Board of Directors, have supervision and control of such
program of internal audit as may be approved by the Board or be required by a
body having supervisory or examining authority over the SAVINGS BANK; said
program shall in any case, require periodic review and verification of the
assets of the SAVINGS BANK, the control of items of income and the review of
expenditures. He shall also examine, or cause to be examined, and verify, or
cause to be verified, entries in financial records and shall review, or cause to
be reviewed all reports made to examining, supervisory and taxing authorities
before they are forwarded or filed. The Auditor shall report in writing upon the
foregoing matters to the Chairman at least as often as once in each quarter.
The Auditor also shall transmit directly to the Audit Committee of the Board of
Directors such reports, quarterly or otherwise, as may be necessary for that
Committee to perform its functions. The Auditor shall also prepare or have
prepared and shall submit any and all additional reports required of him at any
time by the Board of Directors or the Chairman.
Section 12. Other Officers. The Chairman of the Board or the Board of
---------------------------
Directors, upon recommendation of the Chairman of the Board, may in their
discretion, from time to time, establish such other offices as it may deem wise
and may elect incumbents thereof and fix their duties and powers not
inconsistent with the provisions of these Bylaws. Such officers, unless the
Board shall by resolution duly adopted otherwise provide, shall hold office
during the pleasure of the Board and the Chairman.
ARTICLE VI. SECURITIES AND INVESTMENTS
Section 1. Loans and Investments. The Board of Directors shall from time
---------------------------------
to time determine and direct to what extent the funds and property of the
SAVINGS BANK shall be invested, and, subject to all applicable provisions of
law, the kind and character of the investments which are to be made and how the
same shall be handled and dealt with. No loans shall be contracted on behalf of
the SAVINGS BANK and no evidence of indebtedness shall be issued in its name
unless authorized by the Board of Directors. Such authority may be general or
confined to specific instances.
Section 2. Care and Custody of Securities. All stocks, bonds and other
------------------------------------------
securities, including bonds and mortgages, not directed by the Board of
Directors to be held in bearer form, or in the name of a nominee, shall be in
the name of the SAVINGS BANK and, to the extent that the form of the several
securities may permit or as may be permitted or required by law, shall be
registered or recorded in the name of the Bank. All securities including bonds
and mortgages held by the SAVINGS BANK shall be kept in such manner and at such
places as the Board of Directors, having due regard for the safety and
protection thereof, may direct, and all or any part thereof may be lodged or
deposited for safekeeping with such other institutions as the Board may from
time to time approve.
13
<PAGE>
Section 3. Transfers of Securities, Etc. Transfers and assignments of
------------------------------------------
stocks, bonds and other securities standing, issued or registered in the name of
the SAVINGS BANK may be signed by any two of the following officers acting by
virtue of their several offices, to wit: the Chairman, the President, an
Executive Vice President, the Secretary, or may be signed by any one of said
officers together with such other officer or officers, or person or persons, as
the Board of Directors may from time to time authorize or designate.
The Chairman or the President, or in their absence an Executive Vice
President (other than one serving as Mortgage Loan Officer) or the Secretary,
shall execute any and all instruments for the proper transaction of the business
of the SAVINGS BANK relating to its mortgage investments, including extensions,
modifications, alterations, and amendments, assignments and satisfaction pieces.
The Board of Directors may, nevertheless, at any time authorize and empower
other additional officers or employees to do any one or more of these things.
ARTICLE VII. DEPOSITORIES, CHECKS AND DRAFTS
Section 1. Depositaries and Withdrawals. The Board of Directors may from
-----------------------------------------
time to time designate banks, trust companies or similar institutions to be
depositaries of funds of the SAVINGS BANK and may by resolution designate the
officer or officers, or employee or employees, who shall be authorized to sign
the checks, drafts, vouchers or orders of the SAVINGS BANK upon which such
depositaries shall be authorized to pay out the moneys so deposited. Unless and
until the Board shall otherwise provide, such checks, drafts, vouchers or orders
for the payment of deposited funds shall be signed by any two of the following
officers (other than one serving concurrently as Mortgage Loan Officer or
Auditor): the Chairman, the President, an Executive Vice President, a Senior
Vice President, a Vice President, the Secretary, the Comptroller, an Assistant
Vice President, an Assistant Secretary, an Assistant Comptroller and the
Assistant to the President, if the Board of Directors shall have established the
offices of Assistant Vice President, Assistant Secretary, Assistant Comptroller
or Assistant to the Chairman.
Section 2. Depositors' Withdrawals. The Chairman, the President, an
------------------------------------
Executive Vice President or the Secretary shall designate those officers and
employees who shall be authorized to sign or countersign checks drawn upon the
general deposit accounts of the SAVINGS BANK issued in payment of depositor
withdrawals.
The Board of Directors may also adopt such other means of payment of
depositor withdrawals as to it may seem proper and expedient.
ARTICLE VIII. CERTIFICATES FOR SHARES
AND THEIR TRANSFER
Section l. 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
14
<PAGE>
approved by the NYB. Such certificates shall be signed by the Chairman of the
Board or by any other officer of the SAVINGS BANK authorized by the Board,
attested by the secretary or an assistant secretary, and sealed with the
corporate seal or a facsimile thereof. The signatures of such officers upon a
certificate may be facsimiles if the certificate is manually signed on behalf of
a transfer agent or a registrar, other than the 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 cancelled and
no new certificate shall be issued until the former certificate for a like
number of shares has been surrendered and cancelled, except that in 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 legal
representative, who shall furnish proper evidence of such authority, or by his
attorney authorized by a duly executed power of attorney and filed with the
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 and the regulations and orders of the NYB, 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.
15
<PAGE>
ARTICLE XII. SURETY BONDS
Section 1. Surety Bonds and Premiums Thereon. The SAVINGS BANK shall
----------------------------------------------
procure from a responsible surety company approved by the Board of Directors and
shall keep continuously in force and effect a banker's blanket bond of insurance
or a fidelity bond of similar type and character covering all of the officers
and employees of the SAVINGS BANK in such amount as the Board may fix. The Board
may also require that individual officers or employees shall furnish separate
bonds conditioned for the faithful performance of their several duties. It shall
be obligatory upon the officers and employees to furnish to the SAVINGS BANK and
to the surety company involved any and all information necessary or appropriate
to the procurement of any bond or bonds herein provided for. The SAVINGS BANK
may dismiss any officer or employee who shall fail when asked or who shall
refuse to give any and all proper and relevant information required by the
designated surety company or as to whom such surety company shall decline to
give a bond or whom the surety company shall decline to include in a general
bond.
All expenses connected with such bond or bonds and all premiums thereon
shall be borne by the SAVINGS BANK.
ARTICLE XIII. RULES AND REGULATIONS
Management shall adopt rules and regulations not inconsistent with law for
the payment of deposits and interest and, generally, for the transaction and
management of the affairs of the SAVINGS BANK. Such rules and regulations shall
be posted in a conspicuous place in the offices of the SAVINGS BANK and shall be
available to depositors upon request. Such posting shall be taken and held as
actual notice to and be binding upon each depositor and to all persons claiming
any interest in any account. All notices to the SAVINGS BANK from depositors,
or other persons claiming any interest in any account, shall be not effective
unless they are in writing and signed by the persons giving such notice.
Rules and regulations adopted by management or any amendments thereto shall
be transmitted to the Board of Directors at its next regular monthly meeting
following the adoption of same.
ARTICLE XIV. AMENDMENTS
These Bylaws may be amended in a manner consistent with regulations of the
NYB 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.
16
<PAGE>
EXHIBIT 3.1
State of Delaware
PAGE 1
OFFICE OF THE SECRETARY OF STATE
________________________________
1, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
INCORPORATION OF "ROSLYN BANCORP, INC.", FILED IN THIS OFFICE ON THE
TWENTY-SIXTH DAY OF JULY, A.D. I996, AT 3 O'CLOCK P.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDED OF DEEDS FOR RECORDING.
/s/ Edward J. Freel
STAMP -----------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION:
8046110
DATE:
07-29-96
<PAGE>
CERTIFICATE OF INCORPORATION
OF
ROSLYN BANCORP, INC.
FIRST: The name of the Corporation is Roslyn Bancorp, Inc. (hereinafter
-----
sometimes referred to as the "Corporation").
SECOND: The address of the registered office of the Corporation in the
------
State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City
of Wilmington, County of New Castle. The name of the registered agent at that
address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
-----
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware.
FOURTH:
------
A. The total number of shares of all classes of stock which the
Corporation shall have authority to issue is One hundred ten million
(110,000,000) consisting of:
1. Ten million (10,000,000) shares of Preferred Stock, par value one
cent ($.01) per share (the "Preferred Stock"); and
2. One hundred million (100,000,000) shares of Common Stock, par
value one cent ($.01) per share (the "Common Stock").
B. The Board of Directors is authorized, subject to any limitations
prescribed by law, to provide for the issuance of the shares of Preferred
Stock in series, and by filing a certificate pursuant to the applicable law
of the State of Delaware (such certificate being hereinafter referred to as
a "Preferred Stock Designation"), to establish from time to time the number
of shares to be included in each such series, and to fix the designation,
powers, preferences, and rights of the shares of each such series and any
qualifications, limitations or restrictions thereof. The number of
authorized shares of Preferred Stock may be increased or decreased (but not
below the number of shares thereof then outstanding) by the affirmative
vote of the holders of a majority of the Common Stock, without a vote of
the holders of the Preferred Stock, or of any series thereof, unless a vote
of any such holders is required pursuant to the terms of any Preferred
Stock Designation.
C. 1. Notwithstanding any other provision of this Certificate of
Incorporation, in no event shall any record owner of any
outstanding Common Stock which is beneficially owned,
directly or indirectly, by a person who, as of any record
date for the determination of stockholders entitled to vote
on any matter, beneficially owns in excess of 10% of the
then-outstanding shares of Common Stock (the "Limit"), be
entitled, or permitted to any vote in respect of the shares
<PAGE>
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 beneficially 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 beneficially owned
by such person would be entitled to cast, (subject to the
provisions of this Article FOURTH) 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 C of
this Article FOURTH:
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 amended, 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, as amended, (or
any successor rule or statutory provision), or, if said
Rule 13d-3 shall be rescinded and there shall be no
successor rule or 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
of clauses 1 through 5 of Section A of Article
EIGHTH of this Certificate of Incorporation
("Article EIGHTH")), or upon the exercise of
conversion rights, exchange rights, warrants, or
options or otherwise, or (ii) sole or shared
2
<PAGE>
voting or investment power with respect thereto
pursuant to any agreement, arrangement,
understanding, relationship or otherwise (but
shall not be deemed to be the beneficial owner of
any voting shares solely by reason of a revocable
proxy granted for a particular meeting of
stockholders, pursuant to a public solicitation of
proxies for such meeting, with respect to shares
of which neither such person nor any such
Affiliate is otherwise deemed the beneficial
owner); or
(3) which are beneficially owned, directly or
indirectly, by any other person with which such
first mentioned person or any of its Affiliates
acts as a partnership, limited partnership,
syndicate or other group pursuant to any
agreement, arrangement or understanding for the
purpose of acquiring, holding, voting or disposing
of any shares of capital stock of this
Corporation; and provided further, however, that:
(1) no Director or Officer of this Corporation (or
any Affiliate of any such Director or Officer)
shall, solely by reason of any or all of such
Directors or Officers acting in their capacities
as such, be deemed, for any purposes hereof, to
beneficially own any Common Stock beneficially
owned by any other such Director or Officer (or
any Affiliate thereof); and (2) neither any
employee stock ownership or similar plan of 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 only of computing the percentage of
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.
3
<PAGE>
c. The "Limit" shall mean 10% of the then-outstanding
shares of Common Stock.
d. A "person" shall include 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, 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; and (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 C, the presence, in person or by proxy, of the
holders of record of shares of capital stock of the
Corporation entitling the holders thereof to cast a majority
of the votes (after giving effect, if required, to the
provisions of this Section C) 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.
4
<PAGE>
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 any provision (or portion thereof) of this
Section C shall be found to be invalid, prohibited or
unenforceable for any reason, the remaining provisions (or
portions thereof) of this Section shall remain in full force
and effect, and shall be construed as if such invalid,
prohibited or unenforceable provision had been stricken
herefrom or otherwise rendered inapplicable, it being the
intent of this Corporation and its stockholders that each
such remaining provision (or portion thereof) of this
Section C remain, to the fullest extent permitted by law,
applicable and enforceable as to all stockholders, including
stockholders owning an amount of stock over the Limit,
notwithstanding any such finding.
FIFTH: The following provisions are inserted for the management of the
-----
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its Directors and stockholders:
A. The business and affairs of the Corporation shall be managed by
or under the direction of the Board of Directors. In addition to the powers
and authority expressly conferred upon them by statute or by this
Certificate of Incorporation or the 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 not be effected by any
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 Whole Board or as otherwise provided in the Bylaws. The
term "Whole Board" shall mean the total number of authorized directorships
(whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board for
adoption).
5
<PAGE>
SIXTH:
-----
A. The number of Directors shall be fixed from time to time
exclusively by the Board of Directors pursuant to a resolution adopted by a
majority of the Whole Board. The Directors shall be divided into three
classes, as nearly equal in number as reasonably possible, with the term of
office of the first class to expire at the 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 following such initial classification and election,
Directors elected to succeed those Directors whose terms expire shall be
elected for a term of office to expire at the third succeeding annual
meeting of stockholders after their election with each Director to hold
office until his or her successor shall have been duly elected and
qualified.
B. Subject to the rights of holders of any series of Preferred Stock
outstanding, the 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. Subject to the rights of holders of any series of Preferred Stock
then outstanding, 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 percent of the voting power
of all of the then-outstanding shares of capital stock of the Corporation
entitled to vote generally in the election of Directors (after giving
effect to the provisions of Article FOURTH of this Certificate of
Incorporation ("Article FOURTH")), voting together as a single class.
SEVENTH: The Board of Directors is expressly empowered to adopt, amend or
-------
repeal 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 this
Corporation required by law or by this Certificate of Incorporation, the
affirmative vote of the holders of at least 80 percent of the voting power of
all of the
6
<PAGE>
then-outstanding shares of the capital stock of the Corporation entitled to vote
generally in the election of Directors (after giving effect to the provisions of
Article FOURTH), voting together as a single class, shall be required to adopt,
amend or repeal any provisions of the Bylaws of the Corporation.
EIGHTH:
------
A. In addition to any affirmative vote required by law or this
Certificate of Incorporation, and except as otherwise expressly provided in
this Article EIGHTH:
1. any merger or consolidation of the Corporation or any
Subsidiary (as hereinafter defined) with: (i) any Interested
Stockholder (as hereinafter defined); or (ii) any other
corporation (whether or not itself an Interested
Stockholder) which is, or after such merger or consolidation
would be, an Affiliate (as hereinafter defined) of an
Interested Stockholder; or
2. any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of
transactions) to or with any Interested Stockholder, or any
Affiliate of any Interested Stockholder, of any assets of
the Corporation or any Subsidiary having an aggregate Fair
Market Value (as hereinafter defined) equaling or exceeding
25% or more of the combined assets of the Corporation and
its Subsidiaries; or
3. the issuance or transfer by the Corporation or any
Subsidiary (in one transaction or a series of transactions)
of any securities of the Corporation or any Subsidiary to
any Interested Stockholder or any Affiliate of any
Interested Stockholder in exchange for cash, securities or
other property (or a combination thereof) having an
aggregate Fair Market Value (as hereinafter defined)
equaling or exceeding 25% of the combined Fair Market Value
of the outstanding common stock of the Corporation and its
Subsidiaries, except for any issuance or transfer pursuant
to an employee benefit plan of the Corporation or any
Subsidiary thereof; or
4. the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation proposed by or on behalf of
an Interested Stockholder or any Affiliate of any Interested
Stockholder; or
5. any reclassification of securities (including any reverse
stock split), or recapitalization of the Corporation, or any
merger or consolidation of the Corporation with any of its
Subsidiaries or any other transaction (whether or not with
or into or otherwise involving an Interested Stockholder)
which has the effect, directly or indirectly, of increasing
the proportionate share of the outstanding shares of any
class of equity
7
<PAGE>
or convertible securities of the Corporation or any
Subsidiary which is directly or indirectly owned by any
Interested Stockholder or any Affiliate of any Interested
Stockholder;
shall require the affirmative vote of the holders of at least 80% of the
voting power of the then-outstanding shares of stock of the Corporation
entitled to vote in the election of Directors (the "Voting Stock") (after
giving effect to the provisions of Article FOURTH), voting together as a
single class. Such affirmative vote shall be required notwithstanding the
fact that no vote may be required, or that a lesser percentage may be
specified, by law or by any other provisions of this Certificate of
Incorporation or any Preferred Stock Designation in any agreement with any
national securities exchange or otherwise.
The term "Business Combination" as used in this Article EIGHTH shall
mean any transaction which is referred to in any one or more of paragraphs
1 through 5 of Section A of this Article EIGHTH.
B. The provisions of Section A of this Article EIGHTH shall not be
applicable to any particular Business Combination, and such Business
Combination shall require only the affirmative vote of the majority of the
outstanding shares of capital stock entitled to vote after giving effect to
the provisions of Article FOURTH, or such vote (if any), as is required by
law or by this Certificate of Incorporation, if, in the case of any
Business Combination that does not involve any cash or other consideration
being received by the stockholders of the Corporation solely in their
capacity as stockholders of the Corporation, the condition specified in the
following paragraph 1 is met or, in the case of any other Business
Combination, all of the conditions specified in either of the following
paragraphs 1 or 2 are met:
1. The Business Combination shall have been approved by a majority
of the Disinterested Directors (as hereinafter defined).
2. All of the following conditions shall have been met:
a. The aggregate amount of the cash and the Fair Market Value
as of the date of the consummation of the Business
Combination of consideration other than cash to be received
per share by the holders of Common Stock in such Business
Combination shall at least be equal to the higher of the
following:
(1) (if applicable) the Highest Per Share Price (as
hereinafter defined), including any brokerage
commissions, transfer taxes and soliciting dealers'
fees, paid by the Interested Stockholder or any of its
Affiliates for any shares of Common Stock acquired by
it: (i) within the two-year period immediately prior to
the first public announcement of the proposal of the
Business Combination (the "Announcement Date"); or (ii)
in the
8
<PAGE>
transaction in which it became an Interested
Stockholder, whichever is higher; or
(2) the Fair Market Value per share of Common Stock on the
Announcement Date or on the date on which the
Interested Stockholder became an Interested Stockholder
(such latter date is referred to in this Article EIGHTH
as the "Determination Date"), whichever is higher.
b. The aggregate amount of the cash and the Fair Market Value
as of the date of the consummation of the Business
Combination of consideration other than cash to be received
per share by holders of shares of any class of outstanding
Voting Stock other than Common Stock shall be at least equal
to the highest of the following (it being intended that the
requirements of this subparagraph (b) shall be required to
be met with respect to every such class of outstanding
Voting Stock, whether or not the Interested Stockholder has
previously acquired any shares of a particular class of
Voting Stock):
(1) (if applicable) the Highest Per Share Price (as
hereinafter defined), including any brokerage
commissions, transfer taxes and soliciting dealers'
fees, paid by the Interested Stockholder for any shares
of such class of Voting Stock acquired by it: (i)
within the two-year period immediately prior to the
Announcement Date; or (ii) in the transaction in which
it became an Interested Stockholder, whichever is
higher; or
(2) (if applicable) the highest preferential amount per
share to which the holders of shares of such class of
Voting Stock are entitled in the event of any voluntary
or involuntary liquidation, dissolution or winding up
of the Corporation; or
(3) the Fair Market Value per share of such class of Voting
Stock on the Announcement Date or on the Determination
Date, whichever is higher.
c. The consideration to be received by holders of a particular
class of outstanding Voting Stock (including Common Stock)
shall be in cash or in the same form as the Interested
Stockholder has previously paid for shares of such class of
Voting Stock. If the Interested Stockholder has paid for
shares of any class of Voting Stock with varying forms of
consideration, the form of consideration to be received per
share by holders of shares of such class of Voting Stock
shall be either cash or the form used to acquire the largest
number of shares of such class of Voting Stock previously
acquired by the Interested Stockholder. The price determined
in accordance with subparagraph B.2 of this Article
9
<PAGE>
EIGHTH shall be subject to appropriate adjustment in the
event of any stock dividend, stock split, combination of
shares or similar event.
d. After such Interested Stockholder has become an Interested
Stockholder and prior to the consummation of such Business
Combination: (1) except as approved by a majority of the
Disinterested Directors (as hereinafter defined), there
shall have been no failure to declare and pay at the regular
date therefor any full quarterly dividends (whether or not
cumulative) on any outstanding stock having preference over
the Common Stock as to dividends or liquidation; (2) there
shall have been: (i) no reduction in the annual rate of
dividends paid on the Common Stock (except as necessary to
reflect any subdivision of the Common Stock), except as
approved by a majority of the Disinterested Directors; and
(ii) an increase in such annual rate of dividends as
necessary to reflect any reclassification (including any
reverse stock split), recapitalization, reorganization or
any similar transaction which has the effect of reducing the
number of outstanding shares of the Common Stock, unless the
failure to so increase such annual rate is approved by a
majority of the Disinterested Directors, and (3) neither
such Interested Stockholder or any of its Affiliates shall
have become the beneficial owner of any additional shares of
Voting Stock except as part of the transaction which results
in such Interested Stockholder becoming an Interested
Stockholder.
e. After such Interested Stockholder has become an Interested
Stockholder, such Interested Stockholder shall not have
received the benefit, directly or indirectly (except
proportionately as a stockholder), of any loans, advances,
guarantees, pledges or other financial assistance or any tax
credits or other tax advantages provided, directly or
indirectly, by the Corporation, whether in anticipation of
or in connection with such Business Combination or
otherwise.
f. A proxy or information statement describing the proposed
Business Combination and complying with the requirements of
the Securities Exchange Act of 1934, as amended, and the
rules and regulations thereunder (or any subsequent
provisions replacing such Act, and the rules or regulations
thereunder) shall be mailed to stockholders of the
Corporation at least 30 days prior to the consummation of
such Business Combination (whether or not such proxy or
information statement is required to be mailed pursuant to
such Act or subsequent provisions).
10
<PAGE>
C. For the purposes of this Article EIGHTH:
1. A "Person" shall include 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, 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.
2. "Interested Stockholder" shall mean any person (other than
the Corporation or any Holding Company or Subsidiary
thereof) who or which:
a. is the beneficial owner, directly or indirectly, of
more than 10% of the voting power of the outstanding
Voting Stock; or
b. is an Affiliate of the Corporation and at any time
within the two-year period immediately prior to the
date in question was the beneficial owner, directly or
indirectly, of 10% or more of the voting power of the
then outstanding Voting Stock; or
c. is an assignee of or has otherwise succeeded to any
shares of Voting Stock which were at any time within
the two-year period immediately prior to the date in
question beneficially owned by any Interested
Stockholder, if such assignment or succession shall
have occurred in the course of a transaction or series
of transactions not involving a public offering within
the meaning of the Securities Act of 1933, as amended.
3. For purposes of this Article EIGHTH, "beneficial ownership"
shall be determined in the manner provided in Section C of
Article FOURTH hereof.
4. "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General
Rules and Regulations under the Securities Exchange Act of
1934, as in effect on the date of filing of this Certificate
of Incorporation.
5. "Subsidiary" means any corporation of which a majority of
any class of equity security is owned, directly or
indirectly, by the Corporation; provided, however, that for
the purposes of the definition of Interested Stockholder set
forth in Paragraph 2 of this Section C, the term
"Subsidiary" shall mean only a corporation of which a
majority of each class of equity security is owned, directly
or indirectly, by the Corporation.
11
<PAGE>
6. "Disinterested Director" means any member of the Board of
Directors who is unaffiliated with the Interested
Stockholder and was a member of the Board of Directors prior
to the time that the Interested Stockholder became an
Interested Stockholder, and any Director who is thereafter
chosen to fill any vacancy of the Board of Directors or who
is elected and who, in either event, is unaffiliated with
the Interested Stockholder and in connection with his or her
initial assumption of office is recommended for appointment
or election by a majority of Disinterested Directors then on
the Board of Directors.
7. "Fair Market Value" means:
a. in the case of stock, the highest closing sales price
of the stock during the 30-day period immediately
preceding the date in question of a share of such stock
on the National Association of Securities Dealers
Automated Quotation System or any system then in use,
or, if such stock is admitted to trading on a principal
United States securities exchange registered under the
Securities Exchange Act of 1934, as amended, Fair
Market Value shall be the highest sale price reported
during the 30-day period preceding the date in
question, or, if no such quotations are available, the
Fair Market Value on the date in question of a share of
such stock as determined by the Board of Directors in
good faith, in each case with respect to any class of
stock, appropriately adjusted for any dividend or
distribution in shares of such stock or any stock split
or reclassification of outstanding shares of such stock
into a greater number of shares of such stock or any
combination or reclassification of outstanding shares
of such stock into a smaller number of shares of such
stock; and
b. in the case of property other than cash or stock, the
Fair Market Value of such property on the date in
question as determined by the Board of Directors in
good faith.
8. Reference to "Highest Per Share Price" shall in each case
with respect to any class of stock reflect an appropriate
adjustment for any dividend or distribution in shares of
such stock or any stock split or reclassification of
outstanding shares of such stock into a greater number of
shares of such stock or any combination or reclassification
of outstanding shares of such stock into a smaller number of
shares of such stock.
9. In the event of any Business Combination in which the
Corporation survives, the phrase "consideration other than
cash to be received" as used in Subparagraphs (a) and (b) of
Paragraph 2 of Section B of this Article EIGHTH shall
include the shares of Common Stock and/or the
12
<PAGE>
shares of any other class of outstanding Voting Stock
retained by the holders of such shares.
D. A majority of the Disinterested Directors of the Corporation
shall have the power and duty to determine for the purposes of this Article
EIGHTH, on the basis of information known to them after reasonable inquiry:
(a) whether a person is an Interested Stockholder; (b) the number of shares
of Voting Stock beneficially owned by any person; (c) whether a person is
an Affiliate or Associate of another; and (d) whether the assets which are
the subject of any Business Combination have, or the consideration to be
received for the issuance or transfer of securities by the Corporation or
any Subsidiary in any Business Combination has an aggregate Fair Market
Value equaling or exceeding 25% of the combined Fair Market Value of the
Common Stock of the Corporation and its Subsidiaries. A majority of the
Disinterested Directors shall have the further power to interpret all of
the terms and provisions of this Article EIGHTH.
E. Nothing contained in this Article EIGHTH shall be construed to
relieve any Interested Stockholder from any fiduciary obligation imposed by
law.
F. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser
vote or no vote, but in addition to any affirmative vote of the holders of
any particular class or series of the Voting Stock required by law, this
Certificate of Incorporation or any Preferred Stock Designation, the
affirmative vote of the holders of at least 80 percent of the voting power
of all of the then-outstanding shares of the Voting Stock (after giving
effect to the provisions of Article FOURTH), voting together as a single
class, shall be required to alter, amend or repeal this Article EIGHTH.
NINTH: The Board of Directors of the Corporation, when evaluating any
-----
offer of another Person (as defined in Article EIGHTH hereof) to: (A) make a
tender or exchange offer for any equity security of the Corporation; (B) merge
or consolidate the Corporation with another corporation or entity; or (C)
purchase or otherwise acquire all or substantially all of the properties and
assets of the Corporation, may, in connection with the exercise of its judgment
in determining what is in the best interest of the Corporation and its
stockholders, give due consideration to all relevant factors, including, without
limitation, those factors that Directors of any subsidiary of the Corporation
may consider in evaluating any action that may result in a change or potential
change in the control of the subsidiary, and the social and economic effect of
acceptance of such offer: on the Corporation's present and future customers and
employees and those of its Subsidiaries (as defined in Article EIGHTH hereof);
on the communities in which the Corporation and its Subsidiaries operate or are
located; on the ability of the Corporation to fulfill its corporate objective as
a savings and loan holding company under applicable laws and regulations; and on
the ability of its subsidiary savings bank to fulfill the objectives of a
federally-chartered stock form savings bank under applicable statutes and
regulations.
13
<PAGE>
TENTH:
-----
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 TENTH 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 TENTH 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.
14
<PAGE>
C. If a claim under Section A or B of this Article TENTH 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 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 TENTH or otherwise shall be on
the Corporation.
D. The rights to indemnification and to the advancement of expenses
conferred in this Article TENTH 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 subsidiary or Affiliate 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.
15
<PAGE>
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 TENTH with respect to the
indemnification and advancement of expenses of Directors and Officers of
the Corporation.
ELEVENTH: 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.
TWELFTH: The Corporation reserves the right to amend or repeal any
-------
provision contained in this Certificate of Incorporation in the manner
prescribed by the laws of the State of Delaware and all rights conferred upon
stockholders are granted subject to this reservation; provided, however, that,
notwithstanding any other provision of this Certificate of Incorporation or any
provision of law which might otherwise permit a lesser vote or no vote, but in
addition to any vote of the holders of any class or series of the stock of this
Corporation required by law or by this Certificate of Incorporation, the
affirmative vote of the holders of at least 80 percent of the voting power of
all of the then-outstanding shares of the capital stock of the Corporation
entitled to vote generally in the election of Directors (after giving effect to
the provisions of Article FOURTH), voting together as a single class, shall be
required to amend or repeal this Article TWELFTH, Section C of Article FOURTH,
Sections C or D of Article FIFTH, Article SIXTH, Article SEVENTH, Article EIGHTH
or Article TENTH.
THIRTEENTH: The name and mailing address of the sole incorporator are as
----------
follows:
Name Mailing Address
---- --------------------------------
Siobain M. Perkins Morris, Nichols, Arsht & Tunnell
1201 North Market Street
P.O. Box 1347
Wilmington, Delaware 19899-1347
16
<PAGE>
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 and do certify that the facts herein stated
are true, and accordingly, have hereto set my hand this 26th day of July,
--
1996.
/s/ Siobain M. Perkins
------------------------------
Incorporator
17
<PAGE>
CONSENT OF INCORPORATOR
OF
ROSLYN BANCORP, INC.
THE UNDERSIGNED, being the sole incorporator of Roslyn Bancorp, Inc. a
Delaware corporation, hereby adopts the following resolutions pursuant to
Section 108(c) of the Delaware General Corporation Law:
RESOLVED, that the Bylaws attached hereto are hereby adopted as and for the
Bylaws of this corporation.
RESOLVED, that each of the following persons is hereby elected to serve as
a director of the corporation for the terms indicated or until his successor is
elected and qualified and that they shall constitute the initial Board of
Directors of the corporation:
Terms of office to expire at the first annual meeting of stockholders:
Thomas J. Calabrese, Jr.
Edwin W. Martin, Jr.
Richard C. Webel
Terms of office to expire at the second annual meeting:
James E. Swiggett
Robert G. Freese
Joseph L. Mancino
Terms of office to expire at the third annual meeting:
Floyd N. York
Victor C. McCuaig
John P. Nicholson
/s/ Siobain M. Perkins
------------------------
Siobain M. Perkins
Incorporator
Dated July 26 1996
--
<PAGE>
EXHIBIT 3.2
ROSLYN BANCORP, INC.
BYLAWS
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 only by the Board of Directors pursuant to a resolution adopted by
a majority of the total number of Directors which the Corporation would have if
there were no vacancies on the Board of Directors (hereinafter the "Whole
Board").
Section 3. Notice of Meetings.
--------- ------------------
Written notice of the place, date, and time of all meetings of the
stockholders shall be given, not less than ten (10) nor more than sixty (60)
days before the date on which the meeting is to be held, to each stockholder
entitled to vote at such meeting, except as otherwise provided herein or
required by law (meaning, here and hereinafter, as required from time to time by
the Delaware General Corporation Law or the Certificate of Incorporation of the
Corporation).
When a meeting is adjourned to another place, date or time, written notice
need not be given of the adjourned meeting if the place, date and time thereof
are announced at the meeting at which the adjournment is taken; provided,
however, that if the date of any adjourned meeting is more than thirty (30) days
after the date for which the meeting was originally noticed, or if a new record
date is fixed for the adjourned meeting, written notice of the place, date, and
time of the adjourned meeting shall be given in conformity herewith. At any
adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
Section 4. Quorum.
--------- ------
At any meeting of the stockholders, the holders of 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 provisions of Article FOURTH 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
<PAGE>
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 (after giving effect to the provisions of Article FOURTH of
the Corporation's Certificate of Incorporation) 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 in person or by proxy constituting a quorum, then except as otherwise
required by law, those present in person or by proxy 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, 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 procedures 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 executive offices 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
2
<PAGE>
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 should so
determine, he shall so declare to the meeting and any such business so
determined to be not properly brought before the meeting shall not be
transacted.
At any special meeting of the stockholders, only such business shall be
conducted as shall have been brought before the meeting by or at the direction
of the Board of Directors.
(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 executive offices 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
election of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (including
such person's written consent to being named in the proxy statement as a nominee
and to serving as a director if elected); and (ii) as to the stockholder giving
the notice (x) the name and address, as they appear on the Corporation's books,
of such stockholder and (y) the class and number of shares of the Corporation's
capital stock that are beneficially owned by such stockholder. At the request
of the Board of Directors, any person nominated by the Board of Directors for
election as a Director shall furnish to the Secretary of the Corporation that
information required to be set forth in a stockholder's notice of nomination
which pertains to the nominee. No person shall be eligible for election as a
Director of the Corporation unless nominated in accordance with the
3
<PAGE>
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
shall so determine, he or she shall so declare to the meeting and the defective
nomination shall be disregarded.
Section 7. Proxies and Voting.
--------- ------------------
At any meeting of the stockholders, every stockholder entitled to vote may
vote in person or by proxy authorized by an instrument in writing filed in
accordance with the procedure established for the meeting. Any 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 made by a voice vote; provided, however, that upon demand therefor by a
stockholder entitled to vote or his or her proxy, a stock vote shall be taken.
Every stock vote shall be taken by ballot, each of which shall state the name of
the stockholder or proxy voting and such other information as may be required
under the procedures 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 duties, shall take and sign an oath faithfully to execute the
duties of inspector with strict impartiality and according to the best of his
ability.
All elections shall be determined by a plurality of the votes cast, and
except as otherwise required by law or the Certificate of Incorporation, all
other matters shall be determined by a majority of the votes cast.
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.
4
<PAGE>
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, Term of Office and Limitations.
--------- ------------------------------------------------------
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
have designated, except that in the absence of such designation shall be nine.
The Board of Directors shall annually elect a Chairman of the Board from among
its members who shall, when present, preside at its meetings.
Except for the initial members of the Board of Directors as of the
effective date of these Bylaws, no person shall be eligible for initial election
as a Director who is 66 years of age or more. No person may be elected,
appointed, nominated or otherwise serve as a Director of the Corporation after
December 31 of the year in which such person attains the age of 75. Vacancies on
the Board of Directors created by operation of this provision may be filled in
accordance with these Bylaws.
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, 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.
5
<PAGE>
Section 2. 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 3. Regular Meetings.
--------- ----------------
Regular meetings of the Board of Directors shall be held at such place or
places, on such date or dates, and at such time or times as shall have been
established by the Board of Directors and publicized among all Directors. A
notice of each regular meeting shall not be required.
Section 4. Special Meetings.
--------- ----------------
Special meetings of the Board of Directors may be called by one-third (1/3)
of the Directors then in office (rounded up to the nearest whole number), by the
Chairman of the Board or the President or, in the event that the Chairman of the
Board or President are incapacitated or otherwise unable to call such meeting,
by the Secretary, and shall be held at such place, on such date, and at such
time as they, or he or she, shall fix. Notice of the place, date, and time of
each such special meeting shall be given each Director by whom it is not waived
by mailing written notice not less than five (5) days before the meeting or by
telegraphing or telexing or by facsimile transmission of the same not less than
twenty-four (24) hours before the meeting. Unless otherwise indicated in the
notice thereof, any and all business may be transacted at a special meeting.
Section 5. Quorum.
--------- ------
At any meeting of the Board of Directors, a majority of the 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 6. Participation in Meetings By Conference Telephone.
--------- -------------------------------------------------
Members of the Board of Directors, or of any committee thereof, may
participate in a meeting of such Board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other and such participation shall
constitute presence in person at such meeting.
6
<PAGE>
Section 7. Conduct of Business.
--------- -------------------
At any meeting of the Board of Directors, business shall be transacted in
such order and manner as the Board may from time to time determine, and all
matters shall be determined by the vote of a majority of the Directors present,
except as otherwise provided herein or required by law. Action may be taken by
the Board of Directors without a meeting if all members thereof consent thereto
in writing, and the writing or writings are filed with the minutes of
proceedings of the Board of Directors.
Section 8. Powers.
--------- ------
The Board of Directors may, except as otherwise required by law, exercise
all such powers and do all such acts and things as may be exercised or done by
the Corporation.
Section 9. Compensation of Directors.
--------- -------------------------
Directors, as such, may receive, pursuant to resolution of the Board of
Directors, fixed fees and other compensation for their services as Directors,
including, without limitation, their services as members of committees of the
Board of Directors.
ARTICLE III - COMMITTEES
Section 1. Committees of the Board of Directors.
--------- ------------------------------------
The Board of Directors, by a vote of a majority of the Board of Directors,
may from time to time designate committees of the Board, with such lawfully
delegable powers and duties as it thereby confers, to serve at the pleasure of
the Board and shall, for these committees and any others provided for herein,
elect a Director or Directors to serve as the member or members, designating, if
it desires, other Directors as alternate members who may replace any absent or
disqualified member at any meeting of the committee. Any committee so
designated may exercise the power and authority of the Board of Directors to
declare a dividend, to authorize the issuance of stock or to adopt a certificate
of ownership and merger pursuant to Section 253 of the Delaware General
Corporation Law if the resolution which 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.
7
<PAGE>
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. The quorum requirements for each such
committee shall be a majority of the members of such committee unless otherwise
determined by the Board of Directors by a majority vote of the Board of
Directors which such quorum determined by a majority of the Board may be one-
third of such members and all matters considered by such committees shall be
determined by a majority vote of the members present. Action may be taken by any
committee without a meeting if all members thereof consent thereto in writing,
and the writing or writings are filed with the minutes of the proceedings of
such committee.
Section 3. Nominating Committee.
---------- --------------------
The Board of Directors shall appoint a Nominating Committee of the Board,
consisting of not less than three (3) members. The Nominating Committee shall
have authority: (a) to review any nominations for election to the Board of
Directors made by a stockholder of the Corporation pursuant to Section 6(c)(ii)
of Article I of these Bylaws in order to determine compliance with such Bylaw;
and (b) to recommend to the Whole Board nominees for election to the Board of
Directors to replace those Directors whose terms expire at the annual meeting of
stockholders next ensuing.
ARTICLE IV - OFFICERS
Section 1. Generally.
--------- ---------
(a) The Board of Directors as soon as may be practicable after the
annual meeting of stockholders shall choose a Chairman of the Board, Chief
Executive Officer, a President, one or more Vice Presidents, a Secretary and a
Treasurer and from time to time may choose such other officers as it may deem
proper. The Chairman of the Board shall be chosen from among the Directors.
Any number of offices may be held by the same person.
(b) The term of office of all Officers shall be until the next annual
election of Officers and until their respective successors are chosen but any
Officer may be removed from office at any time by the affirmative vote of a
majority of the authorized number of Directors then constituting the Board of
Directors.
(c) All Officers chosen by the Board of Directors shall 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.
8
<PAGE>
(d) The Board of Directors may, except as otherwise required by law,
remove any Officer of the Corporation with or without cause, and from time to
time, devolve the powers and duties of any Officer upon any other person for the
time being, and to confer upon any Officer of the Corporation the power to
appoint, remove or suspend subordinate officers, employees and agents.
Section 2. Chairman of the Board of Directors.
--------- ----------------------------------
The Chairman of the Board shall, subject to the provisions of these Bylaws
and to the direction of the Board of Directors, serve in general executive
capacity and unless the Board has designated another person, when present, shall
preside at all meetings of 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. 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. 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 (other than the Chairman of the Board), employees and agents of the
Corporation.
Section 4. Vice President.
---------- --------------
The Vice President or Vice Presidents shall perform the duties of the
President in his absence or during his inability 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 5. Secretary.
--------- ---------
The Secretary or 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 office 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.
Subject to the direction of the Board of Directors, the Secretary shall have the
power to sign all stock certificates.
9
<PAGE>
Section 6. Treasurer.
---------- ----------
The Treasurer shall be the Comptroller of the Corporation and shall have
the responsibility for maintaining the financial records of the Corporation. He
or she shall make such disbursements of the funds of the Corporation as are
authorized and shall render from time to time an account of all such
transactions and of the financial condition of the Corporation. The Treasurer
shall also perform such other duties as the Board of Directors may from time to
time prescribe. Subject to the direction of the Board of Directors, the
Treasurer shall have the power to sign all stock certificates.
Section 7. 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 8. Action with Respect to Securities of Other Corporations.
---------- --------------------------------------------------------
Unless otherwise directed by the Board of Directors, the President or any
Officer of the Corporation authorized by the President shall have power to vote
and otherwise act on behalf of the Corporation, in person or by proxy, at any
meeting of stockholders of or with respect to any action of stockholders of any
other corporation in which this Corporation may hold securities and otherwise to
exercise any and all rights and powers which this Corporation may possess by
reason of its ownership of securities in such other corporation.
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.
10
<PAGE>
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 next day 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 or 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 mails,
postage paid, or by sending such notice by prepaid telegram or mailgram or
11
<PAGE>
other 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
telegram or mailgram 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 Treasurer or by an Assistant Secretary or
an assistant to the Treasurer.
Section 3. Reliance Upon Books, Reports and Records.
--------- ----------------------------------------
Each Director, each member of any committee designated by the Board of
Directors, and each Officer of the Corporation shall, in the performance of his
or her duties, be fully protected in relying in good faith upon the books of
account or other records of the Corporation and upon such information, opinions,
reports or statements presented to the Corporation by any of its Officers or
employees, or committees of the Board of Directors so designated, or by any
other person as to matters which such Director or committee member reasonably
believes are within such other person's professional or expert competence and
who has been selected with reasonable care by or on behalf of the Corporation.
Section 4. Fiscal Year.
--------- -----------
The fiscal year of the Corporation shall be as fixed by the Board of
Directors.
12
<PAGE>
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.
Section 6. Adoption of Regulations.
---------- ------------------------
The Board of Directors may, except as otherwise required by law, adopt from
time to time regulations, not inconsistent with these Bylaws, for the management
of the Corporation's business and affairs.
ARTICLE VIII - AMENDMENTS
The Board of Directors may amend, alter or repeal these Bylaws at any
meeting of the Board, provided notice of the proposed change was given not less
than two (2) 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 the 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 required by law, the Certificate of Incorporation,
any Preferred 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.
The above Bylaws are effective as of July 26, 1996, the date of incorporation of
Roslyn Bancorp, Inc.
13
<PAGE>
EXHIBIT 4
COMMON STOCK COMMON STOCK
PAR VALUE $.01 SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP
ROSLYN BANCORP, INC
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES THAT
S P E C I M E N
is the owner of:
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK $.01 PAR VALUE PER SHARE OF
________________
The shares represented by this certificate are transferable only on the stock
transfer books of the Corporation by the holder of record thereof, or by his
duly authorized attorney or legal representative, upon the surrender of this
certificate properly endorsed. This certificate and the shares represented
hereby are issued and shall be held subject to all the provisions of the
Certificate of Incorporation of the Corporation and any amendments thereto
(copies of which are on file with the Transfer Agent), to all of which
provisions the holder by acceptance hereof, assents.
This certificate is not valid unless countersigned and registered by the
Transfer Agent and Registrar. The shares represented by this Certificate are
not insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency.
IN WITNESS THEREOF, Roslyn Bancorp, Inc. has caused this certificate
to be executed by the facsimile signatures of its duly authorized officers and
has caused a facsimile of its corporate seal to be hereunto affixed.
Dated: ____________, 1996 [SEAL]
President Secretary
<PAGE>
________________
The shares represented 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
10% 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.
The Board of Directors of the Corporation is authorized by resolution(s),
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 and
relative, participating, optional, or other special rights of the shares of each
such series and the qualifications, 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 affirmative vote of the holders of at least 80% of the voting
stock of the Corporation, voting together as a single class, shall be required
to approve certain business combinations and other transactions, pursuant to the
Certificate of Incorporation or 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:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFTS MIN ACT - ____________ custodian ____________
(Cust) (Minor)
TEN ENT - as tenants by the entireties under Uniform Gifts to Minors Act
____________________
(State)
</TABLE>
JT TEN - as joint tenants with right
of survivorship and not as
tenants in common
Additional abbreviations may also be used though not in the above list.
For value received, __________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFICATION NUMBER OF TRANSFEREE
________________________________________________________________________________
Please print or typewrite name and address including postal zip code of assignee
_______________________________________________ shares of the common stock
represented by the within Certificate, and do hereby irrevocably constitute and
appoint __________________________________________________________ Attorney to
transfer the said stock on the books of the within-named Corporation with full
power of substitution in the premises.
DATED ________________________ __________________________________
NOTICE: THE SIGNATURE TO THIS
ASSIGNMENT MUST CORRESPOND WITH THE
NAME AS WRITTEN UPON THE FACE OF
THE CERTIFICATE IN EVERY PARTICULAR
WITHOUT ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATEVER.
SIGNATURE GUARANTEED: ____________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15
<PAGE>
EXHIBIT 5
August ____, 1996
Board of Trustees
The Roslyn Savings Bank
1400 Old Northern Boulevard
Roslyn, New York 11576
Re: The offering of up to __________ shares of Roslyn Bancorp, Inc. Common
Stock
Gentlemen:
You have requested our opinion concerning certain matters of Delaware law
in connection with the conversion of The Roslyn Savings Bank (the "Bank"), a New
York chartered savings bank, from the mutual form of ownership to the stock form
of ownership (the "Conversion"), and the related subscription offering,
community offering and syndicated community offering (the "Offerings") by Roslyn
Bancorp, Inc., a Delaware corporation (the "Company"), of up to _________
shares of its common stock, par value $.01 per share, ("Common Stock"),
(_________ shares if the Estimated Valuation Range is increased up to 15% to
reflect changes in market and financial conditions following commencement of the
Offerings).
In connection with your request for our opinion, you have provided to us
and we have reviewed the Company's certificate of incorporation filed with the
Delaware Secretary of State on July 26, 1996 (the "Certificate of
Incorporation"); the Company's Bylaws; the Company's Registration Statement on
Form S-1, as filed with the Securities and Exchange Commission on August ___,
1996 (the "Registration Statement"); a consent of the sole incorporator of the
Company; resolutions of the Board of Directors of the Company (the "Board")
concerning the organization of the Company, the Offerings and designation of a
Pricing Committee of the Board, and the form of stock certificate approved by
the Board to represent shares of Common Stock. We have also been furnished a
certificate of the Delaware Secretary of State certifying the Company's good
standing as a Delaware corporation. Capitalized terms used but not defined
herein shall have the meaning given them in the Certificate of Incorporation.
<PAGE>
Board of Trustees
The Roslyn Savings Bank
August __, 1996
Page 2
In rendering this opinion, we have relied upon the opinion of Morris,
Nichols, Arsht & Tunnell as to matters of Delaware law, upon which opinion we
believe you are justified in relying. We have examined the opinion of Morris,
Nichols, Arsht & Tunnell, which opinion is in form satisfactory to us.
We understand that the Company will loan to the trust for the Bank's
Employee Stock Ownership Plan (the "ESOP") the funds which the ESOP Trust will
use to purchase shares of Common Stock for which the ESOP Trust subscribes
pursuant to the Offerings and for purposes of rendering the opinion set forth in
paragraph 2 below, we assume that: (a) the Board has duly authorized the loan
to the ESOP Trust (the "Loan"); (b) the ESOP serves a valid corporate purpose;
(c) the Loan will be made at an interest rate and on other terms that are fair
to the Company; (d) the terms of the Loan will be set forth in customary and
appropriate documents including, without limitation, a promissory note
representing the indebtedness of the ESOP Trust to the Company as a result of
the Loan; and (e) the closing for the Loan and for the sale of Common Stock to
the ESOP Trust will be held after the closing for the sale of the other shares
of Common Stock sold in the Offerings and the receipt by the Company of the
proceeds thereof.
Based upon and subject to the foregoing, and limited in all respects to
matters of Delaware law, it is our opinion that:
1. The Company has been duly organized and is validly existing in good
standing as a corporation under the laws of the State of Delaware.
2. Upon the due adoption by the Pricing Committee of a resolution fixing
the number of shares of Common stock to be sold in the Offerings, the Common
Stock to be issued in the Offerings (including the shares to be issued to the
ESOP Trust) will be duly authorized and, when such shares are sold and paid for
in accordance with the terms set forth in the Prospectus and such resolution of
the Pricing Committee, and certificates representing such shares in the form
provided to us are duly and properly issued, will be validly issued, fully paid
and nonassessable.
<PAGE>
Board of Trustees
The Roslyn Savings Bank
August __, 1996
Page 3
The following provisions of the Certificate of Incorporation may not be
given effect by a court applying Delaware law, but in our opinion the failure to
give effect to such provisions will not affect the duly authorized, validly
issued, fully paid and nonassessable status of the Common Stock:
1. (a) Subsections C.3 and C.6 of Article FOURTH and Section D of
Article EIGHTH, which grant the Board the authority to construe
and apply the provisions of those Articles, subsection C.4 of
Article FOURTH, to the extent that subsection obligates any
person to provide to the Board the information such subsection
authorizes the Board to demand, and the provision of Subsection
C.7 of Article EIGHTH empowering the Board to determine the Fair
Market Value of property offered or paid for the Company's stock
by an Interested Stockholder, in each case to the extent, if any,
that a court applying Delaware law were to impose equitable
limitations upon such authority; and
(b) Article NINTH of the Certificate of Incorporation, which
authorizes the Board to consider the effect of any offer to
acquire the Company on constituencies other than stockholders in
evaluating any such offer.
We consent to the filing of this opinion as an exhibit to the Registration
Statement on Form S-1 and the Form 86-AC and to the use of the name of our firm
where it appears in the Registration Statement, Form 86-AC and in the
Prospectus.
Very truly yours,
MULDOON, MURPHY & FAUCETTE
Attachment: Opinion of Morris, Nichols, Arsht & Tunnell
<PAGE>
EXHIBIT 5.1
August 14, 1996 Draft
[Morris, Nichols, Arsht & Tunnell Letterhead]
August __, 1996
Muldoon, Murphy & Faucette
5101 Wisconsin Avenue, N.W.
Washington, DC 20016
Ladies and Gentlemen:
You have requested our opinion concerning certain matters of Delaware
law in connection with (i) the conversion of The Roslyn Savings Bank, a New York
chartered savings bank (the "Bank"), from the mutual form of ownership to stock
form of ownership (the "Conversion"), and (ii) the subscription and community
offering (the "Offering"), in connection with the Conversion, by Roslyn Bancorp,
Inc., a Delaware corporation (the "Company"), of up to ________ shares of its
common stock, par value $.01 per share (the "Common Stock"), and (iii) the sale
of ______ shares of Common Stock of The Roslyn Savings Bank Foundation (the
"Foundation") pursuant to the Charitable Gift to The Roslyn Savings Bank
Foundation dated as of ____________ ___, 1996 by the Company (the "Gift
Instrument").
In connection with your request for our opinion, you have provided to
us, and we have reviewed, the Company's certificate of incorporation (the
"Company Certificate of Incorporation"), its by-laws, the Registration Statement
filed with the Securities and
<PAGE>
Muldoon, Murphy & Faucette
August __, 1996
Page 2
Exchange Commission in connection with the Offering (the "Registration
Statement"), including the prospectus constituting a part thereof (the
"Prospectus"), a consent of the sole incorporator of the Company, resolutions of
the Board of Directors of the Company (the "Board") concerning, inter alia, the
----- ----
organization of the Company, the Offering and the designation of a Pricing
Committee of the Board (the "Pricing Committee"), the form of stock certificate
approved by the Board to represent shares of Common Stock, the Foundation's
certificate of incorporation (the "Foundation Certificate of Incorporation"),
its by-laws, a consent of the sole incorporator of the Foundation, and the Gift
Instrument. We have also obtained a certificate of the Delaware Secretary of
State as to the Company's and the Foundation's good standing as a Delaware
corporation. Capitalized terms used but not defined herein shall have the
meanings given them in the Company Certificate of Incorporation.
We understand that the Company will loan to the Bank's Employee Stock
Ownership Plan (the "ESOP") the funds the ESOP will use to purchase the shares
of Common Stock for which the ESOP has subscribed as part of the Offering. In
this regard, we have assumed, for purposes of rendering the opinion set forth in
paragraph 2 below, that: (a) the Board has duly authorized the loan to the ESOP
(the "Loan"); (b) the Loan serves a valid corporate purpose; (c) the Loan will
be made at an interest rate and on other
<PAGE>
Muldoon, Murphy & Faucette
August __, 1996
Page 3
terms that are fair to the Company; (d) the terms of the Loan will be set forth
in customary and appropriate documents including, without limitation, a
promissory note representing the indebtedness of the ESOP to the Company as a
result of the Loan; and (e) the closing for the Loan and for the sale of Common
Stock to the ESOP will be held after the closing for the sale of the other
shares of Common Stock sold in the Offering and the receipt by the Company of
the proceeds thereof.
We call your attention to the fact that the opinions expressed herein
are limited in all respects to matters of Delaware corporate law. We express no
opinion concerning the requirements of any other law, rule or regulation, state
or federal, applicable to the Bank, the Company, the Offering, or the
Conversion, including, without limitation, those applicable to federally insured
savings banks or their holding companies.
Based upon and subject to the foregoing, it is our opinion that:
1. The Company has been duly organized and is validly existing in
good standing as a corporation under the laws of the State of Delaware, with the
corporate power and authority to own its property and conduct its business as
now conducted as described in the Prospectus.
2. Upon the due adoption by the Pricing Committee of a resolution
fixing the number of shares of Common Stock to be sold
<PAGE>
Muldoon, Murphy & Faucette
August __, 1996
Page 4
in the Offering, the Common Stock to be issued in the Offering (including the
shares to be issued to the ESOP) will be duly authorized and, when such shares
are sold and paid for in accordance with the terms set forth in the Prospectus
and such resolution of the Pricing Committee, and certificates representing such
shares in the form provided to us are duly and properly issued, will be validly
issued, fully paid and nonassessable, with no personal liability for the payment
of the Company's debts arising solely by virtue of the ownership thereof; such
issuance and sale will not be in violation of or subject to any preemptive
rights provided for by Delaware law or by the Company Certificate of
Incorporation.
3. The Foundation has been duly organized and is validly existing as
a non-stock corporation in good standing under the laws of the State of Delaware
with the corporate power and authority to own, lease, and operate its properties
and to conduct its business as described in the Prospectus.
4. No approvals of any Delaware governmental agency, bureau,
commission, department or other organization is required to establish the
Foundation and to issue and sell the Foundation Shares to the Foundation as
described in the Prospectus pursuant to the Gift Instrument; provided, however,
-------- -------
that we express no opinion with respect to the Delaware Securities Act (6 Del.
----
C. (S) 7301 et. seq.).
- -- -- ---
<PAGE>
Muldoon, Murphy & Faucette
August __, 1996
Page 5
5. The Foundation Shares have been duly and validly authorized for
issuance and sale, and when issued and delivered by the Company as provided in
the Gift Instrument against payment therefor, and a certificate representing
such share in the form provided to us is duly and properly issued, such shares
will be duly and validly issued, fully paid and nonassessable, with no personal
liability for the payment of the Company's debts arising solely by virtue of the
ownership thereof; such issuance and sale will not be in violation of or subject
to any preemptive rights provided for by Delaware law or by the Company
Certificate of Incorporation.
The following provisions of the Company Certificate of Incorporation
may not be given effect by a court applying Delaware law, but in our opinion the
failure to give effect to such provisions will not affect the duly authorized,
validly issued, fully paid and nonassessable status of the Common Stock:
(a) Subsections C.3 and C.6 of Article FOURTH and Section D of Article
EIGHTH, which grant the Board the authority to construe and apply the provisions
of those Articles, subsection C.4 of Article FOURTH, to the extent that
provision obligates any person to provide to the Board the information such
subsection authorizes the Board to demand, and the provision of Section C.7 of
Article EIGHTH empowering the Board to determine the Fair Market Value of
property offered or paid for the Company's stock by an
<PAGE>
Muldoon, Murphy & Faucette
August __, 1996
Page 6
Interested Stockholder, to the extent, if any, that a court applying Delaware
law were to impose equitable limitations upon the authority of the directors of
the Company under such provisions.
(b) Article NINTH of the Company Certificate of Incorporation, which
purports to permit the Board to consider the effect of any offer to acquire the
Company on constituencies other than stockholders in evaluating any such offer.
Very truly yours,
<PAGE>
EXHIBIT 8.0
DRAFT: _____________, 1996
Board of Trustees
The Roslyn Savings Bank
1400 Old Northern Boulevard
Roslyn, New York 11576
Board of Directors
Roslyn Bancorp, Inc.
1400 Old Northern Boulevard
Roslyn, New York 11576
Re: Certain Federal Tax Consequences of the Conversion of The Roslyn
Savings Bank from a New York State Chartered Mutual Savings Bank to a
New York State Chartered Stock Savings Bank and the Issuance and Sale
of Common Stock of The Roslyn Savings Bank to the Company, pursuant to
a Plan of Conversion, as amended (the "Conversion")
Ladies and Gentlemen:
You have requested an opinion on certain federal income tax consequences of
the proposed conversion of The Roslyn Savings Bank (the "Bank") from a New York
State chartered mutual savings bank to a New York State chartered stock savings
bank and the acquisition of the Bank's capital stock by Roslyn Bancorp, Inc., a
Delaware corporation (the "Company" or the "Holding Company"), pursuant to the
plan of conversion originally adopted on May 29, 1996, and amended on July 30,
1996 (the "Plan of Conversion").
The proposed transaction is described in the Proxy Statement and Prospectus
and the Plan of Conversion, and the tax consequences of the proposed transaction
will be as set forth in the section of this letter entitled "FEDERAL TAX
OPINION."
<PAGE>
Board of Trustees
DRAFT: _______________, 1996
Page 2
We have made such inquiries and have examined such documents and records as
we have deemed appropriate for the purpose of this opinion. In rendering this
opinion, we have received certain standard representations of the Company and
the Bank concerning the Company and the Bank as well as the transaction
("Representations"). These Representations are required to be furnished prior
to the execution of this letter and again prior to the closing of the
Conversion. We will rely upon the accuracy of the Representations of the
Company and the Bank and the statements of facts contained in the examined
documents, particularly the Plan of Conversion. We have also assumed the
authenticity of all signatures, the legal capacity of all natural persons and
the conformity to the originals of all documents submitted to us as copies.
Each capitalized term used herein, unless otherwise defined, has the meaning set
forth in the Plan of Conversion. We have assumed that the Conversion will be
consummated strictly in accordance with the terms of the Plan of Conversion.
The Plan of Conversion and the Proxy Statement and Prospectus contain a
detailed description of the Conversion. These documents as well as the
Representations to be provided by the Company and the Bank are incorporated in
this letter as part of the statement of the facts.
As a mutual savings bank, the Bank has never been authorized to issue
stock. Instead, the proprietary interest in the reserves and undivided profits
of the Bank belong to the deposit account holders of the Bank, hereinafter
sometimes referred to as "depositors." A depositor of the Bank has a right to
share, pro rata, with respect to the withdrawal value of his respective deposit
account in any liquidation proceeds distributed in the event the Bank is ever
liquidated. In addition, a depositor of the Bank is entitled to interest on his
account balance as fixed and paid by the Bank.
In order to provide organizational and economic strength to the Bank, the
Board of Trustees has adopted the Plan of Conversion whereby the Bank will
convert itself into a New York State chartered stock savings bank (the
"Converted Bank"), the stock of which will be held entirely by the Holding
Company. The Holding Company will acquire the stock of the Bank by purchase,
using 50% of the net proceeds received from the sale of its own stock under the
Plan of Conversion. The aggregate sales price of the Common Stock issued in the
Conversion will be based on an independent appraiser's valuation of the
estimated pro forma market value of the Common Stock of the Converted Bank. The
Conversion and sale of the Common Stock will be subject to approval by the
Superintendent of Banks of the State of New York and the FDIC and the approval
of the Eligible Account Holders.
ESTABLISHMENT OF LIQUIDATION ACCOUNT. The Bank shall establish at the
time of Conversion a liquidation account in an amount equal to its net worth as
of the latest practicable date prior to Conversion. The liquidation account
will be maintained by the Bank for the benefit of the Eligible Account Holders
and Supplemental Eligible Account Holders who continue to maintain their savings
accounts at the Bank. Each Eligible Account Holder
<PAGE>
Board of Trustees
DRAFT: _______________, 1996
Page 3
and Supplemental Eligible Account Holder shall, with respect to his savings
account, hold a related inchoate interest in a portion of the liquidation
account balance, in relation to his savings account balance on the Eligibility
Record Date and/or Supplemental Eligibility Record Date or to such balance as it
may be subsequently reduced.
In the unlikely event of a complete liquidation of the Bank (and only in
such event), following all liquidation payments to creditors (including those to
account holders to the extent of their savings 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 savings account then held, before any
liquidation distribution may be made to any holders of the Bank's capital stock.
No merger, consolidation, purchase of bulk assets with assumption of savings
accounts and other liabilities, or similar transaction with an FDIC institution,
in which the Bank 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.
ESTABLISHMENT OF FOUNDATION. As part of the Conversion, the Company and
the Bank intend to establish a charitable foundation that will qualify as an
exempt organization under Section 501(c)(3) of the Internal Revenue Code (the
"Foundation") and to donate to the Foundation up to 3.0% of the number of shares
of common stock sold in the Conversion. The Foundation is intended to further
the Converted Bank's long term commitment to its community. The Plan of
Conversion provides that the Foundation is intended to complement the Bank's
existing community reinvestment activities so as to allow the local community to
share in the growth and profitability of the Holding Company and the Converted
Bank over the long term. In the event that the Foundation does not receive the
prerequisite approval, the Bank may determine to complete the Conversion without
the Foundation.
The Foundation will be dedicated to the promotion of charitable purposes
including community development, grants or donations to support housing
assistance, not-for-profit community groups and other types of organizations or
civic minded projects. The Foundation will 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 Foundation assets each year.
In order to serve the purposes for which it was formed and to maintain its
Section 501(c)(3) qualification, under the Plan of Conversion, the Foundation
may sell, on an annual basis, a limited portion of the Common Stock contributed
to it by the Holding Company.
* * *
<PAGE>
Board of Trustees
DRAFT: _______________, 1996
Page 4
You have provided the following representations concerning this
transaction:
(a) The fair market value of the withdrawable deposit accounts plus
interests in the liquidation account of the Converted Bank to be
constructively received under the Plan of Conversion will, in each
instance, be equal to the fair market value of the withdrawable
deposit accounts (plus the related interest in the residual equity of
the Bank) deemed to be surrendered in exchange therefor.
(b) If an individual's total deposits in the Bank equal or exceed $50 as
of the Eligibility Record Date or the Supplemental Eligibility Record
Date, then no amount of that individual's total deposits will be
excluded from participating in the liquidation account. The fair
market value of the deposit accounts of the Bank which have a balance
of less than $50 on the Eligibility Record Date or the Supplemental
Eligibility Record Date will be less than 1% of the total fair market
value of all deposit accounts of the Bank.
(c) Immediately following the Conversion, the Eligible Account Holders and
the Supplemental Eligible Account Holders of the Bank will own all of
the outstanding interests in the liquidation account and will own such
interest solely by reason of their ownership of deposits in the Bank
immediately before the Conversion.
(d) After the Conversion, the Converted Bank will continue the business of
the Bank in the same manner as prior to the Conversion. The Converted
Bank has no plan or intention and the Holding Company has no plan or
intention to cause the Converted Bank to sell its assets other than in
the ordinary course of business.
(e) The Holding Company has no plan or intention to sell, liquidate or
otherwise dispose of the stock of the Converted Bank other than in the
ordinary course of business.
(f) The Holding Company and the Converted Bank have no current plan or
intention to redeem or otherwise acquire any of the Common Stock
issued in the Conversion transaction.
(g) Immediately after the Conversion, the assets and liabilities of the
Converted Bank will be identical to the assets and liabilities of the
Bank immediately prior to the Conversion, plus the net proceeds from
the sale of the Converted Bank's common stock to the Holding Company
and any liability associated with indebtedness incurred by the
Employee Plans in the acquisition of Common Stock by the Employee
Plans.
<PAGE>
Board of Trustees
DRAFT: _______________, 1996
Page 5
(h) The Bank, Converted Bank and the Holding Company are corporations
within the meaning of section 7701(a)(3) of the Internal Revenue Code
of 1986, as amended (the "Code").
(i) None of the shares of the Common Stock to be purchased by the
depositor-employees of the Bank in the Conversion will be issued or
acquired at a discount. However, shares may be given to certain
Trustees and employees as compensation by means of the Employee Plans.
Compensation to be paid to such Trustees and depositor-employees will
be commensurate with amounts paid to third parties bargaining at arm's
length for similar services.
(j) The fair market value of the assets of the Bank, which will be
transferred to the Converted Bank in the Conversion, will equal or
exceed the sum of the liabilities of the Bank which will be assumed by
the Converted Bank and any liabilities to which the transferred assets
are subject.
(k) The Bank is not under the jurisdiction of a bankruptcy or similar
court in any Title 11 or similar case within the meaning of section
368(a)(3)(A) of the Code.
(l) Upon the completion of the Conversion, the Holding Company will own
and hold 100% of the issued and outstanding capital stock of the
Converted Bank and no other shares of capital stock of the Converted
Bank will be issued and/or outstanding. At the time of the
Conversion, the Converted Bank does not have any plan or intention to
issue additional shares of its stock following the transaction.
Further, no shares of preferred stock of the Converted Bank will be
issued and/or outstanding.
(m) Upon the completion of the Conversion, there will be no rights,
warrants, contracts, agreements, commitments or understandings with
respect to the capital stock of the Converted Bank, nor will there be
any securities outstanding which are convertible into the capital
stock of the Converted Bank.
(n) No cash or property will be given to Eligible Account Holders,
Supplemental Eligible Account Holders, or others in lieu of (a)
nontransferable subscription rights, or (b) an interest in the
liquidation account of the Converted Bank.
(o) The Bank utilizes the experience method of calculating its reserve for
bad debts in accordance with section 593 of the Code and, following
the Conversion, for federal income tax purposes, the Converted Bank
shall continue to utilize the experience method to calculate its
reserve for bad debts under section 585.
<PAGE>
Board of Trustees
DRAFT: _______________, 1996
Page 6
(p) The Bank currently satisfies the 60% "qualified assets" test of
section 7701(a)(19) of the Code. Management expects the Converted
Bank to be able to continue to satisfy the test in the future. The
Converted Bank will also satisfy the "qualified thrift lender" tests
set out in sections 301 and 303 of the Financial Institutions Reform,
Recovery and Enforcement Act of 1989 ("FIRREA").
(q) Depositors will pay the expenses of the Conversion solely applicable
to them, if any. The Holding Company and the Bank will each pay
expenses of the transaction attributable to them and will not pay any
expenses solely attributable to the depositors or to the Holding
Company shareholders.
(r) The exercise price of the subscription rights received by the Bank's
Eligible Account Holders, Supplemental Eligible Account Holders, and
other holders of subscription rights to purchase Holding Company
Common Stock will be equal to the fair market value of the stock of
the Holding Company at the time of the completion of the Conversion as
determined by an independent appraisal.
(s) The proprietary interests of the Eligible Account Holders and the
Supplemental Eligible Account Holders in the Bank arise solely by
virtue of the fact that they are account holders in the Bank.
(t) There is no plan or intention for the Converted Bank to be liquidated
or merged with another corporation following this proposed
transaction.
(u) The liabilities of the Bank assumed by the Converted Bank plus the
liabilities, if any, to which the transferred assets are subject were
incurred by the Bank in the ordinary course of its business and are
associated with the assets transferred.
(v) The Bank currently has no net operating losses for federal tax
purposes, and has no such losses available for carryover to future tax
years. The Bank has neither generated nor carried forward a net
operating loss for federal tax purposes in the past ten tax years.
LIMITATIONS ON OPINION
----------------------
Our opinions expressed herein are based solely upon current provisions of
the Internal Revenue Code of 1986, as amended, including applicable regulations
thereunder and current judicial and administrative authority. Any future
amendments to the Code or applicable regulations, or new judicial decisions or
administrative interpretations, any of which could be retroactive in effect,
could cause us to modify our opinion. No opinion is expressed herein
<PAGE>
Board of Trustees
DRAFT: _______________, 1996
Page 7
with regard to the federal, state, or city tax consequences of the Conversion
under any section of the Code, or with respect to any aspect of the transaction,
except if and to the extent specifically addressed.
FEDERAL TAX OPINION
-------------------
Based solely upon the foregoing representations and information and
assuming the transaction occurs in accordance with the Plan of Conversion (and
taking into consideration the limitations at the end of this opinion), it is our
opinion that under current federal income tax law:
(1) Pursuant to the Conversion, the changes at the corporate level other
than changes in the form of organization will be insubstantial. Based
upon that fact and the fact that the equity interest of a depositor in
a mutual savings bank is more nominal than real, unlike that of a
shareholder of a corporation, the Conversion of the Bank from a mutual
savings bank to a stock savings bank is a tax-free reorganization
since it is a mere change in identity, form or place of organization
within the meaning of section 368(a)(1)(F) of the Code (see Rev. Rul.
80-105, 1980-1 C.B. 78). Neither the Bank nor the Converted Bank
shall recognize gain or loss as a result of the Conversion. The Bank
and the Converted Bank shall each be "a party to a reorganization"
within the meaning of section 368(b) of the Code.
(2) No gain or loss shall be recognized by the Converted Bank or the
Holding Company on the receipt by the Converted Bank of money from the
Holding Company in exchange for shares of the Converted Bank's capital
stock or by the Holding Company upon the receipt of money from the
sale of its Common Stock (Section 1032(a) of the Code).
(3) The basis of the assets of the Bank in the hands of the Converted Bank
shall be the same as the basis of such assets in the hands of the Bank
immediately prior to the Conversion (Section 362(b) of the Code).
(4) The holding period of the assets of the Bank in the hands of the
Converted Bank shall include the period during which the Bank held the
assets (Section 1223(2) of the Code).
(5) No gain or loss shall be recognized by the Eligible Account Holders
and the Supplemental Eligible Account Holders of the Bank on the
issuance to them of withdrawable deposit accounts in the Converted
Bank plus interests in the liquidation account of the Converted Bank
in exchange for their deposit
<PAGE>
Board of Trustees
DRAFT: _______________, 1996
Page 8
accounts in the Bank or to the other depositors on the issuance to
them of withdrawable deposit accounts (Section 354(a) of the Code).
(6) Provided that the amount to be paid for such stock pursuant to the
subscription rights is equal to the fair market value of the stock, no
gain or loss will be recognized by Eligible Account Holders and
Supplemental Eligible Account Holders upon the distribution to them of
the nontransferable subscription rights to purchase shares of stock in
the Holding Company (Section 356(a)). Gain realized, if any, by the
Eligible Account Holders and Supplemental Eligible Account Holders on
the distribution to them of nontransferable subscription rights to
purchase shares of Common Stock will be recognized but only in an
amount not in excess of the fair market value of such subscription
rights (Section 356(a)). Eligible Account Holders and Supplemental
Eligible Account Holders will not realize any taxable income as a
result of the exercise by them of the nontransferable subscription
rights (Rev. Rul. 56-572, 1956-2 C.B. 182).
(7) The basis of the deposit accounts in the Converted Bank to be received
by the Eligible Account Holders, Supplemental Eligible Account Holders
and other depositors of the Bank will be the same as the basis of
their deposit accounts in the Bank surrendered in exchange therefor
(Section 358(a)(1) of the Code). The basis of the interests in the
liquidation account of the Converted Bank to be received by the
Eligible Account Holders of the Bank shall be zero (Rev. Rul. 71-233,
1971-1 C.B. 113). The basis of the Holding Company Common Stock to
its stockholders will be the purchase price thereof plus the basis, if
any, of nontransferable subscription rights (Section 1012 of the
Code). Accordingly, assuming the nontransferable subscription rights
have no value, the basis of the Common Stock to the Eligible Account
Holders and Supplemental Eligible Account Holders will be the amount
paid therefor. The holding period of the Common Stock purchased
pursuant to the exercise of subscription rights shall commence on the
date on which the right to acquire such stock was exercised (Section
1223(6) of the Code).
Our opinion under paragraph (6) above is predicated on the representation
that no person shall receive any payment, whether in money or property, in lieu
of the issuance of subscription rights. Our opinion under paragraphs (6) and
(7) above assumes that the subscription rights to purchase shares of Common
Stock received by Eligible Account Holders and Supplemental Eligible Account
Holders have a fair market value of zero. We understand that you have received
a letter from FinPro, Inc. that the subscription rights do not have any value.
We express no view regarding the valuation of the subscription rights.
If the subscription rights are subsequently found to have a fair market
value, income may be recognized by various recipients of the subscription rights
(in certain cases, whether
<PAGE>
Board of Trustees
DRAFT: _______________, 1996
Page 9
or not the rights are exercised) and Holding Company and/or the Converted Bank
may be taxable on the distribution of the subscription rights.
* * *
Since this letter is rendered in advance of the closing of this
transaction, we have assumed that the transaction will be consummated in
accordance with the Plan of Conversion as well as all the information and
representations referred to herein. Any change in the transaction could cause
us to modify our opinion.
We consent to the inclusion of this opinion as an exhibit to the Form 86-AC
and Form S-1 Registration Statement of Roslyn Bancorp, Inc. and the references
to and summary of this opinion in such Form 86-AC and Form S-1 Registration
Statement.
Sincerely,
MULDOON, MURPHY & FAUCETTE
<PAGE>
EXHIBIT 8.1
[LETTERHEAD OF O'REILLY, MARSH & CORTESELLI P.C. APPEARS HERE]
August 16, 1996
Board of Trustees
The Roslyn Savings Bank
1400 Old Northern Boulevard
Roslyn, New York 11576
RE: THE ROSLYN SAVINGS BANK ("ROSLYN")
STATE AND LOCAL TAX CONSIDERATIONS RELATING TO
THE PROPOSED CONVERSION TO A STOCK INSTITUTION
Ladies and Gentlemen:
As requested, contained herein is the opinion of this firm relating to the
state and lo cal tax consequences of the proposed conversion of The Roslyn
Savings Bank (the "Bank") from a New York State chartered mutual savings
bank to a New York State chartered stock savings bank and the formation of
a holding company parent, Roslyn Bancorp, Inc. (the "Holding Company"), to
purchase and hold the stock of the newly-formed New York State chartered
stock bank (the "Stock Bank") pursuant to the Plan of Conversion as adopted
by the Bank on May 29, 1996 (the "Plan"). The scope of the firm's opinion
and the discussion contained herein are limited to the following taxes:
. New York State Banking Franchise Tax
. New York State Sales or Use Tax
. New York State License Fee on Foreign Corporations
. New York State Stock transfer Tax
. New York State Real Property Transfer Gains Tax
. New York State Real Estate Transfer Tax
<PAGE>
2
O'REILLY, MARSH & CORTESELLI P.C.
In arriving at the firm's opinion, we have examined originals and copies,
certified or otherwise identified to our satisfaction, of such documents,
corporate records, certifi cates of public officials, certificates of officers
of the Bank, other instruments and matters of law, as we have deemed necessary
for the purposes of this opinion. As to various questions of fact material to
the opinions hereinafter set forth, we have relied upon representations or
certificates of officers of the Bank, as well as the Proxy Statement and
Prospectus. As to various federal tax law issues and questions of fact material
to the opinions hereinafter set forth, we have relied on the federal tax opinion
prepared by Muldoon, Murphy & Faucette, Esqs.
We have assumed the genuineness of all signatures, the authenticity of documents
submitted to us as originals, and the conformity to authentic original documents
of all documents submitted to us as certified, conformed, or photostatic copies.
In addition, we have assumed, without investigation and without expressing an
opinion, that the Plan has been duly and validly authorized and has been
approved and adopted by the Bank's Board of Trustees.
The firm's opinion assumes that the Bank will comply with the terms and
conditions of the Plan and will properly implement the Plan. The firm's opinion
does not, and is not meant to, address the effects of any variations from the
Plan. Any variations may affect the opinions we are rendering. The firm's
opinion is based on current New York State and New York City laws, regulations
promulgated thereunder and case law.
BACKGROUND
The Roslyn Savings Bank, a New York State chartered mutual savings bank
organized pursuant to New York State law and operated in New York State, desires
to con vert to a New York State stock institution which similarly, will be
organized pursuant to New York State law and operated in New York State. A
Delaware holding company (the "Holding Company") will be formed to acquire and
hold the stock of the New York State stock savings bank.
OPINION
NEW YORK STATE
A. NEW YORK STATE BANKING FRANCHISE TAX
<PAGE>
3
O'REILLY, MARSH & CORTESELLI P.C.
For purposes of the New York State banking and franchise tax, imposed by
Article 32 of the New York Tax Law, the proposed conversion will be tax-free.
The New York State banking franchise tax is based on net income for federal
income tax purposes, with some New York modifications. No adjustments to income
are pro vided with respect to transactions which are tax-free under Internal
Revenue Code (S)368(a)(1)(F). Thus, no gain or loss will be recognized since
the proposed conver sion will constitute a tax-free reorganization within the
meaning of (S)368(a)(1)(F) of the Internal Revenue Code of 1986, as amended (the
"Code" or "IRC"). It should be noted, however, that the Holding Company will be
subject to New York State bank ing franchise tax and will be required to file a
combined New York State banking franchise tax return with the Stock Bank.
B. NEW YORK STATE SALES OR USE TAX
For purposes of the New York State Sales or Use Tax, imposed by Article 28
of the New York Tax Law, the proposed conversion will be tax-free. New York
State places a tax on the sale or use of tangible personal property. Although
broadly defined, "tangible personal property" does not include intangible
personal property. Stock has been defined by New York caselaw as intangible
personal property in the nature of a chose in action. Thus, no tax liability
will be incurred due to the exclu sion of stock from the definition of "tangible
personal property."
C. NEW YORK STATE LICENSE AND MAINTENANCE FEES ON FOREIGN CORPORATIONS
For purposes of the New York State license and maintenance fees on foreign
corporations, the proposed conversion will result in tax liability. No
liability will be incurred from the Stock Bank issuance of stock to Holding
Company, but a license fee will be imposed on the Holding Company. An exemption
exists for certain banking corporations as defined in Tax Law (S)1452, but the
Holding Company will be unable to qualify for the exemption since the Holding
Company will not be engaged in a "banking business." As such, it will be
subject to a license fee and a rate of one-twentieth of one per centum (1/20%)
of the apportioned par value of shares issued by the foreign corporation. This
fee is a one-time tax which would be imposed on any additional shares issued by
the Holding Company in the future. Furthermore, an annual maintenance fee is
imposed.
D. NEW YORK STATE STOCK TRANSFER TAX
For purposes of the New York State Stock transfer tax, imposed by Article
12 of the New York Tax Law, the proposed conversion will be tax-free. Caselaw
holds
<PAGE>
4
O'REILLY, MARSH & CORTESELLI P.C.
that the tax does not apply to a corporation's original issuance of stock.
Thus, no tax will be imposed on the original issuance of Bank's stock or Holding
Company's stock.
E. NEW YORK STATE REAL ESTATE TRANSFER TAX
For purposes of the New York State real estate transfer tax imposed by
Article 31 of the New York Tax Law, the proposed conversion may result in tax
liability. Every conveyance of an interest in real property is subject to the
tax, however, cer tain exemptions do exist. It should be noted that the issue
of whether a mutual to stock conversion with a publicly-traded foreign holding
company acquiring the stock of the stock institution qualifies as a "mere
change" exemption has not been decided under New York caselaw or tax law
regulations. Under current regulations and on the basis of private letter
rulings, a position may be taken that the proposed conversion will qualify as a
"mere change" exemption and be tax-free.
F. NEW YORK STATE REAL PROPERTY TRANSFER GAINS TAX
For purposes of the New York State real property transfer gains tax,
imposed by Article 31-B of the New York Tax Law, the proposed conversion will
not result in tax liability, as this Article was repealed effective June 15,
1996.
ANALYSIS
NEW YORK STATE
A. NEW YORK STATE BANKING FRANCHISE TAX
New York State imposes a special franchise tax on banking corporations
doing business in New York State. Tax Law (S)1451. The tax is imposed for the
privilege of doing business or exercising the corporate franchise for the
taxable year. The tax is based on net income for federal income tax purposes
with some New York modifica tions. The proposed conversion presents the issue
of whether the transactions will result in gains taxable under this special
franchise tax.
A corporation organized as a bank is subject to the New York State banking
franchise tax only if it is doing business in New York. It is not necessary for
a non-New York bank to be doing a full-scale banking business in New York to be
subject to the tax. Tax Law (S)1452(a). It is sufficient that it is engaged in
a banking business anywhere and is doing business in New York. The term "doing
business" is used in a
<PAGE>
5
O'REILLY, MARSH & CORTESELLI P.C.
comprehensive sense and encompasses most corporate activities. See 20, Codes,
Rules and Regulations ("NYCRR") of the State of New York, NYCRR (S)16-2.7.
The determination of whether a corporation is "doing business" in New York State
is dependent upon the facts of each case. Consideration is given to such
factors as: (i) the nature, continuity, frequency and regularity of the
activities of the corporation in New York State; (ii) the purposes for which the
corporation was organized; (iii) the location of the corporation's officers and
other places of business; (iv) the employment in New York State of agents,
officers and employees; and (v) the location of the actual seat of management or
control of the corporation.
Given that the Stock Bank and Holding Company will maintain headquarters and of
ficers in New York State, both entities will be subject to the tax. The Holding
Com pany will be required to file a combined New York State banking franchise
tax return with the Stock Bank. Permission must be requested from the New York
State to file a combined return. 20 NYCRR (S)21-2.5.
Although the entities will be subject to the New York State banking franchise
tax, the proposed conversion, taken as a single transaction will not result in
tax liability. The New York State banking franchise tax is based on net income
for federal income tax purposes with some New York modifications. 20 NYCRA
(S)18-2.2. No adjustments to income are provided with respect to transactions
which are tax-free for federal income tax purposes under IRC (S)368(a)(1)(F).
Furthermore, a New York State advisory opinion specifically provided that a
bank's change in form from a mutual savings bank to a stock savings bank under
an IRC (S)368(a)(1)(F) tax-free reorganization was tax-free for purposes of the
New York State banking franchise tax. Goldome Bank for Savings, State Tax
Commission, Petition No. C831021A, 7/2/85. Thus, the proposed conversion is
tax-free for the purposes of the New York State banking franchise tax.
B. NEW YORK STATE SALES AND USE TAX
New York State imposes a sales and use tax on tangible personal property
and certain enumerated services. Tax Law (S)1101, et seq. The sales tax is a
transactions tax and is imposed on the receipts from the retail sale of tangible
personal property. Although the term "tangible personal property" encompasses
corporeal personal property of any nature having a material existence, it does
not include intangible personal property. 20 NYCRR (S)526.8. New York caselaw
holds that a share of stock is intangible personal property in the nature of a
chose in action. Agar v. Orda, 264 N.Y. 248, 190 N.E. 479 (1934); Pierpont v.
------------ -----------
Hoyt, 260 N.Y. 26, 182 N.E. 235 (1933).
- ----
<PAGE>
6
O'REILLY, MARSH & CORTESELLI P.C.
Accordingly, the transfer of stock in return for money does not constitute a
taxable transaction. Thus, the proposed conversion will be tax-free for
purposes of the New York State sales and use tax.
C. NEW YORK STATE LICENSE FEE ON FOREIGN CORPORATIONS
New York State imposes a license tax on foreign corporations doing business
in the state. The tax is based on the foreign corporation's capital structure
and is separate from the corporate franchise tax. Tax Law (S)181 et seq.
Furthermore, an annual maintenance fee of $300.00 is required. Tax Law
(S)181.2. The license tax and maintenance fee are imposed for the privilege of
exercising the corporation's franchise or carrying on business in a corporate
capacity in New York.
An exemption exists for certain banking corporations as defined in the New York
State banking franchise tax, but the Holding Company will be unable to qualify
for the exemption since the Holding Company will not be engaged in a "banking
business." As such, it will be subject to a license fee and a rate of one-
twentieth of one per centum (1/20%) of the apportioned par value of shares
issued by the foreign corporation. This fee is a one-time tax which would be
imposed on any additional shares issued by the Holding Company in the future.
D. NEW YORK STATE STOCK TRANSFER TAX
New York State imposes a tax on the sale and transfer of shares of stock on
a transactional basis. Tax Law (S)270 et seq. The original issuance of stock
by a corporation is exempt from the tax. Terminals and Transportation
----------------------------
Corporation v. State, 169 Misc. 703, 8 N.Y.S.2d 282 affirmed 257 App. Div. 1028,
- ---------------------
14 N.Y.S.2d 493 (1938). Furthermore, many State Department of Taxation and
Finance Opinions of Counsel confirm this exemption. Accordingly, no tax will be
imposed on the original issuance of stock pursuant to the proposed conversion.
E. NEW YORK STATE REAL ESTATE TRANSFER TAX ("NYS RETT")
New York State imposes a transfer tax on conveyances of interest in realty
located within the state. Tax Law (S)1415. Every conveyance of an interest in
real property located in New York is subject to tax at the time of transfer of
$2.00 for each $500.00 (or fraction thereof) of consideration given with an
additional tax on conveyance of residential real property, where the
consideration is greater than $1,000,000.00. Included in the definition of a
taxable transfer is the transfer of a "controlling interest" in an entity with
New York State real property interests. Tax
<PAGE>
7
O'REILLY, MARSH & CORTESELLI P.C.
Law (S)1440. A "controlling interest" is defined as ownership of fifty percent
or more of the combined voting power of the shares of a corporation. Tax Law
(S)1440.2.
The transfer of 100% of the Stock Bank's stock to the Holding Company pursuant
to a proposed conversion will be deemed a transfer of a controlling interest in
the Stock Bank (an entity with an interest in real property located in New York
State) and, thus, potentially subject to the New York State RETT.
Certain exemptions do apply. The tax does not apply to conveyances to
effectuate a mere change in identity or form of ownership or organization if
there is no change in beneficial ownership. Tax Law (S)1405.
Some support exists for the contention that the proposed conversion is tax-free
under "mere change" exemption. Two private letter rulings have held that the
conversion of a mutual savings bank to a stock institution is exempt from the
real estate transfer taxes the rulings primarily addressed the New York State
Real Property Transfer Gains Tax but the analysis is the same). It should be
noted, however, that both private letter rulings involved mergers of insolvent
banks under IRC (S)368(a)(1)(g). Nevertheless, the substantive reasoning behind
the rulings appear to be applicable to the proposed conversion. As such, there
exists a strong position that the proposed conversion will qualify as a "mere
change" exemption and be tax-free.
F. NEW YORK STATE REAL PROPERTY TRANSFER GAINS TAX ("GAINS TAX")
New York State no longer imposes an additional tax on gains attributable to
the transfer of real property, or an interest therein, located in New York State
where the consideration given is in excess of $1,000,000.00. Article 31-B of
the Tax Law was repealed effective June 15, 1996.
The opinions set forth herein are based on current law, including statutes,
regulations, and judicial and administrative interpretations thereof. Such
statutes and regulations could be amended with retroactive effect, and such
interpretations could change. Additionally, the taxing authorities could
disagree with the conclusions contained in this opinion, and no assurance can be
given that such conclusions would be sustained by a court, if these matters were
contested.
<PAGE>
8
O'REILLY, MARSH & CORTESELLI P.C.
The opinions set forth herein do not, and are not meant to, address the tax
return filing requirements of New York State. If the firm can be of further
assistance in the preparation and filing of the relevant state and local tax
returns, please do not hesitate to contact us.
The opinions set forth herein are furnished solely for the benefit of the Board
of Trustees of The Roslyn Savings Bank in connection with the proposed
conversion and is not to be relied upon or used for any other purposes without
the firm's prior written consent. Notwithstanding the foregoing, we hereby
consent to the references to this firm and our opinions in the Registration
Statement on Form S-1 filed by Roslyn Bancorp, Inc. and all amendments thereto
and the Application for Conversion on the Form 86-AC filed by The Roslyn Savings
Bank (the "Bank") and all amendments thereto, relating to the conversion of the
Bank from a New York chartered mutual savings bank to a New York chartered stock
savings bank, the concurrent issuance of the Bank's outstanding capital stock
to Roslyn Bancorp, Inc., a holding company formed for such purpose, and the
offering of Roslyn Bancorp, Inc.'s common stock.
VERY TRULY YOURS,
/S/O'Reilly, Marsh & Corteselli P.C.
------------------------------------
O'REILLY, MARSH & CORTESELLI P.C.
<PAGE>
EXHIBIT 10.1
[ROSLYN BANCORP, INC. LETTERHEAD]
June ____, 1996
Joseph L. Mancino
President and Chief Executive Officer
The Roslyn Savings Bank
1400 Old Northern Boulevard
Roslyn, New York 11576
Dear Mr. Mancino:
This letter confirms Roslyn Bancorp, Inc.'s commitment to fund a leveraged
ESOP in an amount up to $________. The commitment is subject to the following
terms and conditions:
1. Lender: Roslyn Bancorp, Inc. (the "Company").
------
2. Borrower: The Roslyn Savings Bank Employee Stock Ownership Plan.
--------
3. Trustee: ______________________________.
-------
4. Security: Unallocated shares of stock of the Company held in the
--------
Roslyn Savings Bank Employee Stock Ownership Plan.
5. Maturity: Up to 30 years from takedown.
--------
6. Amortization: Equal principal payments on quarterly, semi-annual or
------------
annual basis; specific amount to be set prior to takedown upon
determination of total loan disbursements.
7. Pricing:
-------
a. [8%] or [the Prime Rate as published in the Wall Street Journal
on the date of the loan transaction].
8. Interest Payments:
-----------------
a. Quarterly, semi-annual or annual 360 or 365 day basis.
<PAGE>
Mr. Joseph L. Mancino
June, 1996
Page 2
9. Funding: In full by _______________, unless such date is waived by the
-------
Company.
10. Prepayment: Voluntary prepayments are permitted at any time.
----------
11. Conditions Precedent to Closing: Receipt by the Company of all
-------------------------------
supporting loan documents in a form and with terms and conditions
satisfactory to the Company and its counsel. Consummation of the
transaction will also be contingent upon no material adverse change
occurring in the condition of The Roslyn Savings Bank or the Company.
12. Closing Date: Not later than _____________, unless such date is waived
------------
by the Company.
If the terms and conditions are agreeable to you, please indicate your
acceptance by signing the enclosed copy and returning it to my attention.
Sincerely,
John R. Bransfield, Jr.
Senior Vice President and Senior
Lending Officer
Accepted on Behalf of
The Roslyn Savings Bank
By: _____________________________________ Date: _____________________
Joseph L. Mancino
President and Chief Executive Officer
<PAGE>
THE ROSLYN SAVINGS BANK
EMPLOYEE STOCK OWNERSHIP TRUST
LOAN AND SECURITY AGREEMENT
Roslyn Bancorp, Inc.
1400 Old Northern Boulevard
Roslyn, New York 11576
___________, 1996
Gentlemen:
The undersigned, ________________ ("Trustee"), not individually but solely
as Trustee under the The Roslyn Savings Bank Employee Stock Ownership Trust (the
"Trust") effective _________________ (the "Borrower"), applies to you for your
commitment, subject to all of the terms and conditions hereof and on the basis
of the representations hereinafter set forth, to make a loan available to the
Borrower as hereinafter set forth. Roslyn Bancorp, Inc. is hereinafter referred
to as the "Lender". The term "Company" as used herein refers to The Roslyn
Savings Bank, as the sponsoring employer of The Roslyn Savings Bank Employee
Stock Ownership Plan (the "ESOP").
SECTION ONE. THE TERM LOAN.
1.1 AMOUNT AND TERMS. By its acceptance hereof the Lender agrees, subject
----------------
to all of the terms and conditions hereof and on the basis of the
representations hereinafter set forth, to make a loan (the "Loan") of up to
______________________________dollars ($___________________) (the "Commitment"),
such proceeds to be used by the Borrower entirely to acquire shares ("Shares")
of the common stock, par value $.01 of Roslyn Bancorp, Inc., a Delaware
corporation.
The Loan is intended to be an "exempt loan" as described in Section 4975(d)
of the Internal Revenue Code of 1986, as amended (the "Code"), as defined in
Section 54.4975-7(b) of the Treasury Regulations (the "Regulations"), as
described in Section 408(b)(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA") and as described in Department of Labor Regulations
Section 2550.408b-3 (collectively, the "Exempt Loan Rules").
<PAGE>
1.2 THE NOTE. The disbursement of the Loan pursuant to Section 1.1
--------
hereof shall be made against and evidenced by a promissory note of the Borrower
in the form annexed hereto as Exhibit A (the "Note"), such Note to bear interest
as hereinafter provided, and to mature in thirty consecutive annual principal
installments commencing on December 31, 1996 and on the last day of each and
every December each year thereafter, each such installment to be in an amount as
set forth on the attached amortization schedule, except that the final
installment in the amount of all principal and interest not sooner paid shall be
due on December 31, 2025, the final maturity thereof.
Without regard to the principal amount of the Note stated on its face, the
actual principal amount at any time outstanding and owed by the Borrower on
account of the Note shall be the amount of the disbursement of the Loan made by
the Lender under Section 1.1 hereof less all payments of principal actually
received by the Lender. The amount of such disbursement made by the Lender and
any repayments of principal thereof shall be recorded by the Lender on its books
or records or, at its option, endorsed on the reverse side of the Note by the
Lender and the unpaid principal balance at any time so recorded or endorsed by
the Lender shall be prima facie evidence in any court or other proceedings
brought to enforce the Note of the principal amount remaining unpaid thereon.
1.3 EXEMPT LOAN RULES. Notwithstanding anything to the contrary contained
------------------
in this Loan and Security Agreement (the "Agreement") or in the Note, the
Borrower shall be obligated to make repayments of the Loan only to the extent
that such repayments when added to the repayments theretofore made during the
applicable plan year would not exceed an amount which would cause the
limitations of Section 415 of the Code to be exceeded for any ESOP participant.
Except as set forth in the next succeeding sentence and to the extent
permitted by applicable law, including, without limitation, the Exempt Loan
Rules, the principal amount of the Loan and any interest thereon shall be
payable solely from contributions (other than contributions of employer
securities) made to the Trust in accordance with the ESOP, and cash dividends
received on the Shares, to enable the Borrower to pay its obligations under the
Loan and from earnings attributable to the Shares and the investment of such
contributions and dividends.
The Lender acknowledges and agrees that it shall have no other recourse
against the Borrower for repayment of the Loan and that it shall have no
recourse against assets of the ESOP included in the Trust other than pursuant to
Sections 3 and 8 hereof.
SECTION TWO. INTEREST AND FEES.
2.1 INTEREST RATE. The Loan shall bear interest (which the Borrower
-------------
hereby promises to pay) prior to maturity (whether by lapse of time,
acceleration or otherwise) at a rate per annum equal at all times to the
Interest Rate as defined in Section 10.3 hereof.
2
<PAGE>
2.2 BASIS AND PAYMENT DATES. All interest accruing on the Note prior to
-----------------------
maturity shall be due and payable on a annual basis on the last day of each year
(commencing December 31, 1996 and at maturity (unless prepaid in whole prior to
such date, then on the date of such prepayment in whole) and interest accruing
after maturity shall be due and payable upon demand. All interest on the Note
shall be computed on the basis of a year of 360 days.
SECTION THREE. COLLATERAL.
3.1 GRANT OF SECURITY INTEREST-PLEDGED SHARES. The Borrower hereby
-----------------------------------------
grants pledges and assigns to the Lender _________ shares of the issued and
outstanding common stock, par value $.01 per share all of which were either (i)
purchased by the Borrower from the proceeds of the disbursement of the Loan;
(ii) acquired by the Borrower with the proceeds of a prior exempt loan within
the meaning of Section 54.4975-7(b) of the Regulations, and pledged as
collateral for such prior exempt loan, where the balance of such prior exempt
loan has been repaid with the proceeds of the disbursement of the Loan (the
"Pledged Shares" being hereinafter referred to as the "Collateral"). The
Pledged Shares shall be evidenced by a stock certificate. The assignment and
pledge herein granted and provided for is made and given to secure and shall
secure the prompt payment of principal of and interest on the Note as and when
the same becomes due and payable and the payment, observance and performance of
any and all obligations and liabilities arising under or provided for in this
Agreement or the Note or any of them in each instance as the same may be amended
or modified and whether now existing or hereafter arising.
3.2 FURTHER ASSURANCES. The Borrower covenants and agrees that it will
------------------
at any time and from time to time as requested by the Lender execute and
deliver such further instruments and do and perform such other acts as the
Lender may reasonably deem necessary or desirable to provide for or perfect the
lien of the Lender in the Collateral hereunder.
3.3 VOTING. Upon the occurrence of a Default or an Event of Default
------
hereunder, the Lender shall have the right to transfer the Collateral or any
part thereof into its name or into the name of its nominee. The Lender shall
not be entitled to vote the Pledged Shares unless and until an Event of Default
has occurred and so long as the same shall not have been waived by the Lender.
3.4 PARTIAL RELEASES. The Lender agrees, provided always that no Default
----------------
or Event of Default shall have occurred and be continuing, as promptly as is
practicable after December 31 in each year (the period commencing the date
hereof and ending December 31, 1996 and each subsequent 12-month period ending
on December 31 being hereinafter referred to as a "Plan Year"), to release that
number of Pledged Shares then being held to secure the Loan which is equal to
the number of such Pledged Shares held as of the last day of the Plan Year
multiplied by a fraction, the numerator of which is the aggregate amount of all
principal and interest payments made on the Note during the Plan Year and the
denominator of which
3
<PAGE>
is the sum of the numerator plus the unpaid principal and interest of the Note
as of the last day of such Plan Year.
SECTION FOUR. PAYMENTS.
4.1 PLACE AND APPLICATION. All payments of principal, interest, fees and
---------------------
all other amounts payable hereunder shall be made to the Lender at 1400 Old
Northern Boulevard Roslyn, New York 11576, for the account of the Lender ( or at
such other place for the account of the Lender as the Lender may from time to
time in writing specify to the Borrower) in immediately available and freely
transferable funds at the place of payment. All payments shall be paid in full
without setoff or counterclaim and without reduction for and free from any and
all taxes, levies, duties, fees, charges, deductions, withholdings, restrictions
or conditions of any nature imposed by any government or any political
subdivision or taxing authority thereof.
4.2 PREPAYMENTS. The Borrower shall have the privilege of prepaying in
-----------
whole or in part the Note at any time upon giving three (3) Business Days'
prior notice to the Lender, each such prepayment to be made by the payment of
the principal amount to be prepaid and accrued interest thereon to the date
fixed for prepayment. All such prepayments shall be made without premium or
penalty. Prepayments shall first be applied to the several installments of the
Note in the inverse order of their respective maturities.
SECTION FIVE. REPRESENTATIONS AND WARRANTIES.
The Borrower represents and warrants to the Lender as follows:
5.1 The Trust is a duly organized, validly existing employee stock
ownership trust.
5.2 The proceeds of the disbursement of the Loan shall be applied in their
entirety to the payment of the purchase price for the Pledged Shares.
5.3 The Borrower has full right, power and authority to enter into this
Agreement, to make the borrowings hereunder provided for, to issue the Note in
evidence thereof and to perform each and all of the matters and things herein
and therein provided for and this Agreement does not, and the Note when issued
will not, nor will the performance or observance by the Borrower of any of the
matters or things herein or therein provided, contravene any provision of law or
the Trust or any other covenant or agreement affecting the Trust or any of its
assets. As of the date of the disbursement of the Loan, the Pledged Shares will
be fully paid and non-assessable and the Pledged Shares will be owned by the
Borrower free and clear of all liens, charges and encumbrances whatsoever,
except for any lien of Lender provided for herein.
4
<PAGE>
5.4 Except as disclosed to the Lender in writing, there is no litigation
or governmental proceeding pending, nor to the knowledge of the Borrower
threatened, against the ESOP and Trust.
5.5 The ESOP and Trust have no material liabilities, whether absolute or
contingent, except for those heretofore disclosed to the Lender.
SECTION SIX. REPRESENTATIONS AND WARRANTIES OF THE LENDER
The Lender represents and warrants that:
6.1 The Lender is a corporation duly organized under the laws of the State
of Delaware, and is validly existing and in good standing under the laws of the
State of Delaware. The Lender has full power and authority and legal right to
make and perform this Agreement.
6.2 The execution, delivery and performance by the Lender of this
Agreement have been duly authorized by all necessary action by the Lender and is
not and will not violate any provisions of law applicable to the Lender, any
rules, regulations or orders applicable to the Lender or any judgments or
decrees binding upon the Lender. This Agreement is a valid and legally binding
obligation of the Lender enforceable against the Lender in accordance with its
terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting credits' rights generally
and the general principles of equity (regardless of whether considered in a
proceeding at law or in equity).
6.3 No authorizations, approvals or consents of, and no filings or
registrations with, any governmental regulatory authority or agency are required
for the execution, delivery or performance by the Lender of this Agreement, or
any transaction contemplated hereby, or for the validity or enforceability
against the Lender hereof except as have already been received or accomplished.
6.4 The execution, delivery and performance of the Agreement and the
consummation of the transactions contemplated hereby will not violate, conflict
with or constitute a default under (i) any of the provisions of the Lender's
Certificate of Incorporation or Bylaws, (ii) any provision of any agreement,
instrument, order, arbitration award, judgment or decree to which the Lender is
a party or by which it is or its assets are bound (iii) any statute, rule or
regulation of any federal, state or local government or agency applicable to the
Lender, except in any such case (i), (ii) (iii) above, for any such conflicts,
violations defaults which either individually or in the aggregate do not have a
material adverse effect on the business properties of the Lender and its
subsidiaries, taken as a whole.
6.5 The Company has taken such actions as are required by applicable law
to be taken by it to establish the ESOP and the Trust.
5
<PAGE>
6.6 There is no action, suit, investigation or proceeding pending, or to
the best knowledge of the Company, threatened against or affecting the ESOP
before any court or governmental department, agency or instrumentality.
6.7 The Loan will be an "exempt loan" as that term is defined under
Section 54.4975-7(b)(1)(iii) of the Regulations, provided the ESOP Committee
determines that the interest rate is not more than reasonable; and the
transactions contemplated by this Agreement are not "prohibited transactions"
within the meaning of Section 4975 of the Code or Section 406(a) of ERISA.
6.8 Except as otherwise provided in this Agreement, the Shares are not
subject to any restriction on transfer under applicable Federal securities law
and may be freely traded over-the-counter.
SECTION SEVEN. CONDITIONS PRECEDENT.
The obligation of the Lender to make the Loan shall be subject to
satisfaction of the following conditions precedent:
7.1 The Lender shall have received executed originals of this Agreement
and the Note duly signed and properly completed.
7.2 The Lender shall have received either (i) the certificate evidencing
all the Pledged Shares together with duly executed blank stock power therefore
or (ii) if such Pledged Shares are not yet available, a duly executed agreement
to pledge such stock in the form attached hereto as Exhibit B (in which event
such certificate and stock power will be delivered within 10 days of the date of
the Lender makes the Loan).
7.3 The Lender shall have received copies (executed or certified, as may
be appropriate) of all legal documents or proceedings taken in connection with
the execution and delivery of this Agreement and the Note.
SECTION EIGHT. COVENANTS.
Borrower covenants and agrees that so long as any amount remains unpaid on
the Note or the Commitment is outstanding, except to the extent compliance in
any case or cases is waived in writing by the Lender:
8.1 COMPLIANCE.
----------
The Borrower will comply with all requirements of the Code, ERISA and any
other law, rule or regulation applicable to it as such laws, rules or
regulations affect the ESOP or the Trust.
<PAGE>
8.2 REPORTS.
-------
(a) The Borrower will maintain a system of accounting for the ESOP and
the Trust in accordance with sound accounting practice and will, from time to
time, furnish to the Lender and its duly authorized representatives, such
information and data with respect to the financial condition of the ESOP and the
Trust as the Lender may reasonably request.
(b) Without any request the Borrower will furnish to the Lender promptly
after knowledge thereof shall have come to the attention of the Borrower,
written notice of the occurrence of any Default or Event of Default hereunder or
of any threatened or pending litigation or governmental proceeding against the
Plan or the Trust.
8.3 DETERMINATION LETTER. The Company shall apply for a determination
--------------------
letter from the Internal Revenue Service that the Plan and the Trust, taken
together, qualify as an employee stock ownership plan for purposes of Section
4975(e)(7) of the Code and the rules and regulations thereunder.
SECTION NINE. EVENTS OF DEFAULT AND REMEDIES.
9.1 EVENT OF DEFAULT. Any one or more of the following shall constitute
-----------------
an Event of Default hereunder:
(a) The Borrower shall default in the payment of principal and/or
interest in respect of the Note or any other amounts payable under this
Agreement when due;
(b) Any representation, warranty or statement made by the Borrower
herein or in connection with the making of the Loan proves to be incorrect
in any material respect as of the date of the issuance or making thereof;
(c) The Borrower shall default in the due performance or observance
by it of any term, covenant or agreement (other than those referred to in
subparts (a) and (b), inclusive, of this Section 9.1) contained in this
Agreement and such default shall continue unremedied for a period of 30
days after notice to the Borrower by the Lender or any other holder of the
Note;
(d) The ESOP shall be terminated prior to the expiration of the term
of this Agreement.
9.2 LIMITATIONS ON USE OF TRUST ASSETS. When any Event of Default
-----------------------------------
described in subsections (a) to (c), of Section 9.1 has occurred and is
continuing, the Lender or the holder of the Note shall have no rights to assets
of the Trust other than (i) contributions (other than contributions of employer
securities) that are made by the Lender to enable the Borrower to meet its
obligations pursuant to the Loan, cash dividends received by the Borrower on the
Shares and earnings attributable to the investment of such contributions and
dividends and (ii)
7
<PAGE>
the Pledged Stock; provided further, however, that the value of Trust assets
transferred to the Lender as a result of an Event of Default shall not exceed
the amount of the repayment then in default, and, provided further, that so long
as the Lender is a "party in interest" within the meaning of ERISA Section 3(14)
or a "disqualified person" within the meaning of Section 4975(e)(2) of the Code,
a transfer of Trust assets upon default shall be made only if, and to the extent
of, the Borrower's failure to meet the loan's payment schedule.
9.3 RIGHTS UPON AN EVENT OF DEFAULT. When any Event of Default has
--------------------------------
occurred and is continuing the Lender may, in addition to such other rights or
remedies as it may have, then or at any time or times thereafter exercise with
respect to the Collateral any and all of the rights, options and remedies of a
secured party under the Uniform Commercial Code of New York (the "UCC")
including without limitation the sale of all or any part of the Collateral at
any brokers' board or any public or private sale, provided, however that the
Lender shall only be able to exercise such rights and remedies to the extent of
all interest and principal payments which are due and payable as of the date of
the Event of Default and provided further that prior to such exercise the Lender
shall release from the Collateral so much thereof as it would have been required
to release under Section 3.4 hereof if the period from the previous December 31
to the date of such release constituted a Plan Year and no Event of Default had
occurred. The net proceeds of any such sale, after deducting all costs and
expenses incurred in the collection, protection, sale and delivery of the
Collateral (which expenses Borrower promises to pay) shall be applied first to
the payment of any costs and expenses incurred by the Lender in selling or
otherwise disposing of the Collateral, second, to the payment of the principal
of and the interest on the Note, and, third, ratably as among any other items of
the indebtedness hereby secured. Any surplus remaining after the full payment
and satisfaction of the foregoing shall be returned to the Borrower or to
whomsoever a court of competent jurisdiction shall determine to be entitled
thereto. Any requirement of said UCC as to reasonable notice shall be met by
the Lender personally delivering or mailing notice (by certified mail - return
receipt requested) to the Borrower at its address as provided in Section 11.6
hereof at least ten (10) days prior to the event giving rise to the requirement
of such notice. In connection with any offer, solicitation or sale of the
Collateral, the Lender may restrict bidders and otherwise proceed in whatever
manner it reasonably believes appropriate in order to comply or assure
compliance with applicable legal requirements pertaining to the offer and sale
of securities of the same type as the Collateral.
9.4 ERISA RESTRICTIONS. The number of shares of Pledged Stock as to which
-------------------
the Lender may exercise the rights set forth in this Section 9 may not exceed
that number of shares (then remaining subject to pledge hereunder) which is then
equal in current value to the amount in default under the Note. The remedies
set forth in this Section 9 may only be exercised to the extent consistent with
the restrictions on remedies set forth in Section 408(b)(3) of ERISA and the
regulations thereunder and Section 4975(d)(3) of the Code and the regulations
thereunder.
8
<PAGE>
SECTION TEN. DEFINITIONS.
10.1 The term "Business Day" shall mean any day on which savings
------------
institutions are generally open for business in New York other than a Saturday
or Sunday.
10.2 The term "Event of Default" shall mean any event condition specified
----------------
as such in Section 9.1 hereof and the term "Default" shall mean any event or
-------
condition which, with the lapse of time, the giving of notice, or both would
constitute an Event of Default.
Capitalized terms defined elsewhere in this Agreement shall have the
meanings as defined in all provisions hereof.
10.3 The term "Interest Rate" shall mean [8%].
-------------
SECTION ELEVEN. MISCELLANEOUS
-------------
11.1 HOLIDAYS. If any principal of the Note shall fall due on Saturday,
--------
Sunday or on another day which is a legal holiday for savings institutions in
the State of New York, interest at the rate the Note bears for the period prior
to maturity shall continue to accrue on such principal from the stated due date
thereof to and including the next succeeding Business Day on which the same is
payable.
11.2 NO WAIVER, CUMULATIVE REMEDIES. No delay or failure on the part of
------------------------------
the Lender or the part of the holder of the Note in the exercise of any power
or right shall preclude any other or further exercise thereof, or the exercise
of any other power or right, and the rights and remedies hereunder of the Lender
and of any holder of the Note are cumulative to, and not exclusive of, any
rights or remedies which any of them would otherwise have.
11.3 AMENDMENTS, ETC. No amendment, modification, termination or waiver
----------------
of any provision of this Agreement or of the Note nor consent to any departure
by the Borrower therefrom, shall in any event be effective unless the same shall
be in writing and signed by the Lender, and then such consent, modification or
waiver shall be effective only in the specific instance and for the specific
purpose for which given. No notice to or demand on the Borrower in any case
shall entitle the Borrower to any other further notice or demand in similar or
other circumstances.
11.4. SURVIVAL OF REPRESENTATIONS. All representations and warranties
---------------------------
made herein or in certificates given in connection with the Loan shall survive
the execution and delivery of this Agreement and of the Note, and shall continue
in full force and effect with respect to the date as of which they were made as
long as any credit is in use or available hereunder.
9
<PAGE>
11.5 PAYMENTS. So long as the Lender is the holder of the Note, the
--------
Borrower will promptly and punctually pay the principal of and interest on the
Note without presentment of the Note and without any notation of any such
payment being made on the Note.
11.6 ADDRESSES FOR NOTICES. All communications provided for herein shall
---------------------
be in writing and shall be deemed to have been given or made when served
personally or when deposited in the United States mail addressed, if to the
Borrower at __________________________, Trust Officer; if to the Lender at 1400
Old Northern Boulevard, Roslyn, New York 11576, or at such other address as
shall be designated by any party hereto in a written notice to each other party
pursuant to this Section 11.6.
11.7 HEADINGS. Article and Section headings used in this Agreement are
--------
for convenience or reference only and are not a part of this Agreement for any
other purpose.
11.8 SEVERABILITY OF PROVISIONS. Any provision of this Agreement which is
--------------------------
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such unenforceability without impairing the enforceability of
the remaining provisions hereof affecting the enforceability of such provision
in any other jurisdiction.
11.9 COUNTERPARTS. This Agreement may be executed in any number of
------------
counterparts, and by different parties hereto on separate counterparts, and all
such counterparts taken together shall be deemed to constitute one and the same
instrument.
11.10 BINDING NATURE, GOVERNING LAW, ETC. This Agreement shall be binding
-----------------------------------
upon the Borrower and its successors and assigns and shall inure to the benefit
of the Lender and the benefit of its successors and assigns, including any
subsequent holder of the Note. To the extent not preempted by Federal law, this
Agreement and the rights and duties of the parties hereto shall be construed and
determined in accordance with the laws of the State of New York without regard
to principles of conflicts of laws. This Agreement constitutes the entire
understanding of the parties with respect to the subject matter hereof and any
prior agreements, whether written or oral, with respect thereto are superseded
hereby.
11.11 CONCERNING THE BORROWER. The term "Borrower" as used herein shall
-----------------------
mean and include the undersigned as Trustee of the Trust and its successors in
trust not individually but solely as Trustee under that certain The Roslyn
Savings Bank Employee Stock Ownership Trust effective ____________, by and
between the undersigned and The Roslyn Savings Bank and this Agreement shall be
binding upon the undersigned and its successors and assigns and upon the trust
estate. The undersigned assumes no personal or individual liability or
responsibility for payment of the indebtedness evidenced by the Note or for
observance or performance of the covenants and agreements herein contained or
for the truthfulness of the representations and warranties herein contained, the
undersigned having executed this Agreement and the Note solely in its capacity
as trustee as aforesaid to bind the undersigned, its successors in trust and the
trust estates.
10
<PAGE>
11.12 LIMITED LIABILITY. Anything contained herein or in the Note to the
-----------------
contrary notwithstanding, the sole and only recourse of the Lender and any other
holder of the Note for payment of the obligations hereunder and under the Note ,
as against the Borrower for the payment of the obligations hereunder and under
the Note shall be to (i) the Collateral, (ii) contributions, other than employer
securities not constituting Collateral hereunder, made to the ESOP and the Trust
by sponsoring employers to enable the Borrower to meet its obligations hereunder
and under the Note, and (iii) earnings attributable to the Pledged Shares and to
the investment of such employer contributions, but only to the extent of the
failure of the Borrower to meet the payment schedule of the Loan provided for
herein. The Trust assets may be transferred to Lender upon the occurrence of a
Default or an Event of Default hereunder only upon and to the extent of the
failure of the Plan to meet the payment schedule of the Loan. In no event may
the value of the Trust assets so transferred exceed the amount of the default.
11.13 LENDER'S DUTY OF CARE. It is agreed and understood that the
---------------------
Lender's duty with respect to the Collateral shall be solely to use reasonable
care in the custody and preservation of the Collateral in the Lender's
possession, which shall not include any steps necessary to preserve rights
against prior parties.
All provisions in this Agreement shall be construed so as to maintain (i)
the ESOP as a qualified leveraged employee stock ownership plan under Sections
401(a) and 4975(e)(7) of the Code, (ii) the Trust as exempt from taxation under
Section 501(a) of the Code, and (iii) the Loan as an "exempt loan" under the
Exempt Loan Rules.
[Remainder of this page intentionally left blank]
Upon your acceptance hereof in the manner hereinafter set forth, this
Agreement shall constitute a contract between us for the uses and purposes
hereinabove set forth.
11
<PAGE>
Dated as of this ___ day of ______________, 1996.
_______________________., and its successors in trust,
as Trustee under that certain The Roslyn Savings Bank
Employee Stock Ownership Trust effective __________ by
and between the undersigned and The Roslyn Savings
Bank.
By___________________________________
Accepted and agreed to at Roslyn, New York as of the date last above
written.
Roslyn Bancorp, Inc.
By___________________________________
12
<PAGE>
EXHIBIT A
PROMISSORY NOTE
$___________
Roslyn, New York ____________ , 19__
For VALUE RECEIVED, the undersigned,_____________________, not individually
but solely as Trustee under that certain The Roslyn Savings Bank Employee Stock
Ownership Trust effective______________ by and between the undersigned
("Borrower") and The Roslyn Savings Bank promises to pay to the order of Roslyn
Bancorp, Inc., a Delaware Corporation (the "Lender") at its office at 1400 Old
Northern Boulevard, Roslyn, New York 11576, the principal sum of
_____________________________ ($ ) , if less, the aggregate
----------------
principal amount of the loan made to the Borrower under Section 1.1 of the Loan
and Security Agreement hereinafter referred to in thirty consecutive annual
principal installments each in an amount equal to that set forth on the attached
amortization schedule, together with all accrued interest on the unpaid
principal sum, payable annually commencing on December 31,1996, and on the last
business day of each and every December in each year thereafter, except that the
final installment in the amount of all principal and interest not sooner paid
shall be due on December 31, 2025, the final maturity hereof.
The Borrower promises to pay interest (computed on the basis of a year of
360 days) at said office on the balance of principal from time to time remaining
outstanding and unpaid hereon at the rate per annum equal at all times to the
Interest Rate as defined in Section 10.3 of the Loan and Security Agreement (as
defined below) on the last business day of each and every December, commencing
December 31, 1996, and in each year thereafter and on the final maturity date of
this Note. On demand, the Borrower promises to pay interest on any overdue
principal hereof (whether by lapse of time, acceleration, or otherwise) until
paid at the stated rate.
This Note is issued under the terms and provisions of that certain The
Roslyn Savings Bank Employee Stock Ownership Trust Loan and Security Agreement
bearing even date herewith by and between the Borrower and the Lender (the "Loan
and Security Agreement") and this Note and the holder hereof are entitled to all
the benefits and security provided for thereby or referred to therein to which
Loan and Security Agreement reference is hereby made for a statement thereof.
This Note may be declared due prior to its express maturity and voluntary
prepayments may be made hereon, all in the events, on the terms and in the
manner as provided in such Loan and Security Agreement.
Recourse for the payment of this Note has been limited by the provisions of
the Loan and Security Agreement and this Note is expressly made subject to such
provisions. This
<PAGE>
Note shall be governed by and construed in accordance with the laws of New York
without regard to principles of conflicts of laws. The Borrower hereby waives
presentment for payment and demand.
Upon the occurrence of an Event of Default as such term is defined in the
Loan and Security Agreement at the option of the Lender, all amounts payable by
the Borrower to the Lender under the terms of this Note may immediately become
due and payable by the Borrower to the Lender pursuant to the provisions of
Section 9.2 of the Loan and Security Agreement, and the Lender shall have all of
the rights, powers, and remedies available under the terms of this Note, any of
the other documents evidencing and securing this Loan and all applicable laws.
The Borrower and all endorsers, guarantors, and other parties who may now or in
the future be primarily or secondarily liable for the payment of the
indebtedness evidenced by this Note hereby severally waive presentment, protest
and demand, notice of protest, notice of demand and of dishonor and non-payment
of this Note and expressly agree that this Note any payment hereunder may be
extended from time to time without in any way affecting the liability of the
Borrower, guarantors and endorsers.
_____________ and its successors in trust,
as Trustee under that certain The Roslyn
Savings Bank Employee Stock Ownership Trust
effective ________ by and between the
undersigned and The Roslyn Savings Bank.
By:___________________________________
<PAGE>
EXHIBIT B
SECURITY AGREEMENT
INSTRUMENTS OR NEGOTIABLE DOCUMENTS TO BE DEPOSITED
For new value contemporaneously given by Roslyn Bancorp, Inc., ("Lender")
to the undersigned ("Borrower"), the receipt whereof is hereby acknowledged, the
Borrower does hereby grant a security interest to said Lender in the instruments
or negotiable documents hereafter described ("Collateral"), in all of which
Collateral the Borrower warrants that the Borrower has good, valid and effective
rights to the ownership and possession thereof and to the grant of the security
interest hereby made:
___________ shares of the common stock, par value $.01 per share, of Roslyn
Bancorp, Inc., a Delaware corporation.
Borrower agrees to deliver said collateral to said Lender not later than
the close of business on _________________, ____, said date being within 10
days from the date hereof.
Said security interest secures the payment of all indebtedness and
liabilities as undertaken in the Loan and Security Agreement to which this is a
part, now existing or hereafter arising, and the Lender has all the rights with
respect to said Collateral and said security interest as more fully set forth in
the form of secured note or notes executed and delivered by the undersigned to
said Lender prior hereto or contemporaneously herewith.
This agreement, including matters of interpretation and construction, and
the rights of the Lender and the duties and obligations of the debt hereunder
are to be determined in accordance with the laws of the State of New York,
particularly the Uniform Commercial Code, except where preempted by federal law.
Dated at Roslyn, New York the ___ day of __________, ___.
_______________., and its successors in trust,
as Trustee under that certain The Roslyn Savings
Bank Employee Stock Ownership Trust effective
__________ by and between the undersigned and
The Roslyn Savings Bank.
By:_________________________________
<PAGE>
EXHIBIT C
LEVEL DEBT SERVICE LOAN AMORTIZATION SCHEDULE
<TABLE>
<CAPTION>
YEAR PRINCIPAL INTEREST
- ---- --------- --------
<S> <C> <C>
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
</TABLE>
<PAGE>
EXHIBIT 10.2
FORM OF
THE ROSLYN SAVINGS BANK
EMPLOYMENT AGREEMENT
This AGREEMENT ("Agreement") is made effective as of ______________, 1996
by and among The Roslyn Savings Bank (the "Institution"), a federally chartered
savings institution, with its principal administrative office at 1400 Old
Northern Boulevard, Roslyn, New York, 11576, Roslyn Bancorp, Inc., a corporation
organized under the laws of the State of Delaware, the holding company for the
Institution (the "Holding Company"), and __________________ ("Executive").
WHEREAS, the Institution wishes to assure itself of the services of
Executive for the period provided in this Agreement; and
WHEREAS, Executive is willing to serve in the employ of the Institution 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
_______________ of the Institution. Executive shall render administrative and
management services to the Institution such as are customarily performed by
persons situated in a similar executive capacity. During said period, Executive
also agrees to serve, if elected, as an officer and director of the Holding
Company or any subsidiary of the Institution.
2. TERMS AND DUTIES.
(a) The period of Executive's employment under this Agreement shall be
deemed to have commenced as of the date first above written and shall continue
for a period of thirty-six (36) full calendar months thereafter. Commencing on
the effective date of this Agreement, the term of this Agreement shall be
extended for one day each day until such time as the disinterested members of
the board of directors of the Institution ("Board") or Executive elects not to
extend the term of this Agreement by giving written notice in accordance with
Section 8 of this Agreement. The Board will review the Agreement and
Executive's performance annually for purposes of determining whether to extend
the Agreement and the rationale and results thereof shall be included in the
minutes of the Board's meeting. The Board shall give notice to the Executive as
soon as possible after such review as to whether the Agreement is to be
extended.
(b) During the period of Executive's employment hereunder, except for
periods of absence occasioned by illness, reasonable vacation periods, and
reasonable leaves of absence, Executive shall devote substantially all his
business time, attention, skill, and efforts to the
<PAGE>
faithful performance of his duties hereunder including activities and services
related to the organization, operation and management of the Institution and
participation in community and civic organizations; provided, however, that,
with the approval of the Board, as evidenced by a resolution of such Board, from
time to time, Executive may serve, or continue to serve, on the boards of
directors of, and hold any other offices or positions in, companies or
organizations, which, in such Board's judgment, will not present any conflict of
interest with the Institution, or materially affect the performance of
Executive's duties pursuant to this Agreement.
(c) Notwithstanding anything herein to the contrary, Executive's
employment with the Institution may be terminated by the Institution or the
Executive during the term of this Agreement, subject to the terms and conditions
of this Agreement.
3. COMPENSATION AND REIMBURSEMENT.
(a) The Institution shall pay Executive as compensation a salary of
$__________ per year ("Base Salary"). Base Salary shall include any amounts of
compensation deferred by Executive under any qualified or unqualified plan
maintained by the Institution. Such Base Salary shall be payable [bi-weekly,
monthly, semi-annually]. 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 one year from the date of this Agreement. Such review shall be
conducted by the Board or by a Committee of the Board, delegated such
responsibility by the Board. The Committee or the Board may increase
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 Institution shall also provide Executive, at no
premium cost to Executive, with all such other benefits as are provided
uniformly to permanent full-time employees of the Institution.
(b) The Executive shall be entitled to participate in any 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 Institution will
not, without Executive's prior written consent, make any changes in such plans,
arrangements or perquisites which would materially adversely affect Executive's
rights or benefits thereunder; except to the extent such changes are made
applicable to all Institution employees on a non-discriminatory basis. Without
limiting the generality of the foregoing provisions of this Subsection (b),
Executive shall 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, stock or
option plans, health-and-accident plans, medical coverage or any other employee
benefit plan or arrangement made available by the Institution 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 shall be entitled to incentive compensation and
bonuses as provided in any plan or arrangement of the Institution in which
Executive is eligible to participate. Nothing paid to
-2-
<PAGE>
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 Base Salary provided for by paragraph (a) of
this Section 3 and other compensation provided for by paragraph (b) of this
Section 3, the Institution 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.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during the Executive's term of employment under this Agreement, the provisions
of this Section shall apply. 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 Institution or the Holding Company of Executive's full-time
employment hereunder for any reason other than a termination governed by Section
5(a) hereof or Termination for Cause, as defined in Section 7 hereof; (ii)
Executive's resignation from the Institution's employ upon any of the following:
(A) unless consented to by the Executive, failure to elect or reelect or to
appoint or reappoint Executive as _________________ or failure to nominate or
re-nominate Executive as a Director of the Institution or Holding Company to the
extent Executive was serving as a Director as of the effective date of this
Agreement, (B) a 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, unless consented to by Executive, (C) a
relocation of Executive's principal place of employment by more than 25 miles
from its location at the effective date of this Agreement, unless consented to
by the Executive, (D) a reduction in the benefits and perquisites to the
Executive from those being provided as of the effective date of this Agreement,
unless consented to by the Executive, or (E) a liquidation or dissolution of the
Institution or Holding Company, or (F) breach of this Agreement by the
Institution. Upon the occurrence of any event described in clauses (A), (B),
(C), (D), (E) or (F), above, Executive shall have the right to elect to
terminate his employment under this Agreement by resignation upon not less than
sixty (60) days prior written notice given within six full months after the
event giving rise to said right to elect.
(b) Upon the occurrence of an Event of Termination, on the Date of
Termination, as defined in Section 8, the Institution shall be obligated to pay
Executive, or, in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be a sum equal to the sum of:
(i) the amount of the remaining payments that the Executive would have earned if
he had continued his employment with the Institution during the remaining term
of this Agreement at the Executive's Base Salary at the Date of Termination; and
(ii) the amount equal to the annual contributions or payments that would have
been made on Executive's behalf to any employee benefit plans of the Institution
or the Holding Company or for any benefit or perquisite which would have been
provided to Executive during the
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remaining term of this Agreement based on contributions or payments made (on an
annualized basis) at the Date of Termination; provided, however, that any
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payments pursuant to this subsection and subsection 4(c) below shall not, in the
aggregate, exceed three times Executive's average annual compensation for the
five most recent taxable years that Executive has been employed by the
Institution or such lesser number of years in the event that Executive shall
have been employed by the Institution for less than five years. In the event
the Institution is not in compliance with its minimum capital requirements or if
such payments pursuant to this subsection (b) would cause the Institution's
capital to be reduced below its minimum regulatory capital requirements, such
payments shall be deferred until such time as the Institution or successor
thereto is in capital compliance. At the election of the Executive, which
election is to be made prior to an Event of Termination, such payments shall be
made in a lump sum as of the Executive's Date of Termination. In the event that
no election is made, payment to Executive will be made on a monthly basis in
approximately equal installments during the remaining term of the 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 Institution
will cause to be continued life, medical, dental and disability coverage
substantially identical to the coverage maintained by the Institution or the
Holding Company for Executive prior to his termination at no premium cost to the
Executive, except to the extent such coverage may be changed in its application
to all Institution or Holding Company employees. Such coverage shall cease upon
the expiration of the remaining term of this Agreement.
5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, a "Change in Control" of the
Institution or Holding Company shall mean an event of a nature that: (i) would
be required to be reported in response to Item 1 of the current report on Form
8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"); or (ii)
results in a Change in Control of the Institution or the Holding Company within
the meaning of the Change in Bank Control Act and the Rules and Regulations
promulgated by the Federal Deposit Insurance Corporation ("FDIC") at 12 C.F.R.
(S) 303.4(a), with respect to the Institution and the Rules and Regulations
promulgated by the Office of Thrift Supervision ("OTS") (or its predecessor
agency), with respect to the Holding Company, as in effect on the date of this
Agreement; 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 voting securities of the Institution or the Holding Company
representing 20% or more of the Institution's or the Holding Company's
outstanding voting securities or right to acquire such securities except for any
voting securities of the Institution purchased by the Holding Company and any
voting securities purchased by any employee benefit plan of the Institution or
the Holding Company, 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
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that any person becoming a director subsequent to the date hereof whose election
was approved by a vote of at least three-quarters of the directors comprising
the Incumbent Board, or whose nomination for election by the Holding Company's
stockholders was approved by the 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
Institution or the Holding Company or similar transaction occurs in which the
Institution or Holding Company is not the resulting entity; or (D) a proxy
statement has been distributed soliciting proxies from stockholders of the
Holding Company, by someone other than the current management of the Holding
Company, seeking stockholder approval of a plan of reorganization, merger or
consolidation of the Holding Company or Institution 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 Institution
or the Holding Company, or (E) a tender offer is made for 20% or more of the
voting securities of the Stock Institution or Holding Company then outstanding.
(b) If a Change in Control has occurred pursuant to Section 5(a) or
the Board has determined that a Change in Control has occurred, Executive shall
be entitled to the benefits provided in paragraphs (c), and (d) of this Section
5 upon his subsequent termination of employment at any time during the term of
this Agreement due to: (1) Executive's dismissal or (2) Executive's voluntary
resignation following any demotion, loss of title, office or significant
authority or responsibility, material reduction in annual compensation or
benefits or relocation of his principal place of employment by more than 25
miles from its location immediately prior to the Change in Control, unless such
termination is because of his death, disability, retirement or termination for
Cause.
(c) Upon Executive's entitlement to benefits pursuant to Section 5(b),
the Institution shall pay Executive, or in the event of his subsequent death,
his beneficiary or beneficiaries, or his estate, as the case may be, a sum equal
to the greater of: (1) the payments due for the remaining term of the
Agreement; or 2) three (3) times Executive's average annual compensation for the
five (5) most recent taxable years that Executive has been employed by the
Institution or such lesser number of years in the event that Executive shall
have been employed by the Institution for less than five (5) years. Such
average annual compensation shall include Base Salary, commissions, bonuses,
contributions on Executive's behalf to any pension and/or profit sharing plan,
severance payments, retirement payments, directors or committee fees and fringe
benefits paid or to be paid to the Executive in any such year and payment of any
expense items without accountability or business purpose or that do not meet the
Internal Revenue Service requirements for deductibility by the Institution;
provided however, that any payment under this provision and subsection 5(d)
- -------- -------
below shall not exceed three (3) times the Executive's average annual
compensation. In the event the Institution is not in compliance with its
minimum capital requirements or if such payments would cause the Institution's
capital to be reduced below its minimum regulatory capital requirements, such
payments shall be deferred until such time as the Institution or successor
thereto is in capital compliance. At the election of the Executive, which
election is to be
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<PAGE>
made prior to a Change in Control, such payment shall be made in a lump sum as
of the Executive's Date of Termination. In the event that no election is made,
payment to the Executive will be made in approximately equal installments on a
monthly basis over a period of thirty-six (36) months following the Executive's
termination. Such payments shall not be reduced in the event Executive obtains
other employment following termination of employment.
(d) Upon the Executive's entitlement to benefits pursuant to Section 5(b),
the Institution will cause to be continued life, medical, dental and disability
coverage substantially identical to the coverage maintained by the Institution
for Executive prior to his severance at no premium cost to the Executive, except
to the extent that such coverage may be changed in its application for all
Institution employees on a non-discriminatory basis. Such coverage and payments
shall cease upon the expiration of thirty-six (36) months following the Date of
Termination.
6. CHANGE OF CONTROL RELATED PROVISIONS
Notwithstanding the provisions of Section 5, in no event shall the
aggregate payments or benefits to be made or afforded to Executive under said
paragraphs (the "Termination Benefits") constitute an "excess parachute payment"
under Section 280G of the Internal Revenue Code of 1986, as amended, or any
successor thereto, and in order to avoid such a result, Termination Benefits
will be reduced, if necessary, to an amount (the "Non-Triggering Amount"), the
value of which is one dollar ($1.00) less than an amount equal to three (3)
times Executive's "base amount", as determined in accordance with said Section
280G. The allocation of the reduction required hereby among the Termination
Benefits provided by Section 5 shall be determined by Executive.
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of: 1)
Executive's personal dishonesty, willful misconduct, breach of fiduciary duty
involving personal profit, intentional failure to perform stated duties, willful
violation of any law, rule, regulation (other than traffic violations or similar
offenses), final cease and desist order or material breach of any provision of
this Agreement which results in a material loss to the Institution or the
Holding Company, or 2) Executive's conviction of a crime or act involving moral
turpitude or a final judgement rendered against Executive based upon actions of
Executive which involve moral turpitude. For the purposes of this Section 7, no
act, or the failure to act, on Executive's part shall be "willful" unless done,
or omitted to be done, not in good faith and without reasonable belief that the
action or omission was in the best interests of the Institution or its
affiliates. 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 Notice of Termination which shall include a copy of a resolution duly
adopted by the affirmative vote of not less than a majority 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
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<PAGE>
the Board, Executive was guilty of conduct justifying Termination for Cause and
specifying the particulars thereof in detail. Executive shall not have the
right to receive compensation or other benefits for any period after the Date of
Termination for Cause. During the period beginning on the date of the Notice of
Termination for Cause pursuant to Section 8 hereof through the Date of
Termination for Cause, stock options and related limited rights granted to
Executive under any stock option plan shall not be exercisable nor shall any
unvested awards granted to Executive under any stock benefit plan of the
Institution, the Holding Company or any subsidiary or affiliate thereof, vest.
At the Date of Termination for Cause, such stock options and related limited
rights and any unvested awards shall become null and void and shall not be
exercisable by or delivered to Executive at any time subsequent to such
Termination for Cause.
8. NOTICE.
(a) Any purported termination by the Institution 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 the date specified in the Notice of
Termination (which, in the case of a Termination for Cause, shall not be less
than thirty days from the date such Notice of Termination is given.); provided,
however, that if a dispute regarding the Executive's termination exists, the
"Date of Termination" shall be determined in accordance with Section 8(c) of
this Agreement.
(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, 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 therefrom 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, in the event the Executive is
terminated for reasons other than Termination for Cause, the Institution will
continue to pay Executive his Base Salary in effect when the notice giving rise
to the dispute was given until the earlier of: 1) the resolution of the dispute
in accordance with this Agreement or 2) the expiration of the remaining term of
this Agreement as determined as of the Date of Termination. Amounts paid under
this Section are in addition to all other amounts due under this Agreement and
shall not be offset against or reduce any other amounts due under this
Agreement.
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<PAGE>
9. POST-TERMINATION OBLIGATIONS.
All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 9 for one (1) full year
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Institution. Executive shall, upon reasonable
notice, furnish such information and assistance to the Institution as may
reasonably be required by the Institution in connection with any litigation in
which it or any of its subsidiaries or affiliates is, or may become, a party.
10. NON-COMPETITION AND NON-DISCLOSURE.
(a) Upon any termination of Executive's employment hereunder pursuant to
Section 4 hereof, Executive agrees not to compete with the Institution for a
period of one (1) year following such termination in any city, town or county in
which the Executive's normal business office is located and the Institution 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 Institution. The parties hereto,
recognizing that irreparable injury will result to the Institution, its business
and property in the event of Executive's breach of this Subsection 10(a) agree
that in the event of any such breach by Executive, the Institution, 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, employees and all persons acting for or under the direction of
Executive. Nothing herein will be construed as prohibiting the Institution from
pursuing any other remedies available to the Institution 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 Institution and
affiliates thereof, as it may exist from time to time, is a valuable, special
and unique asset of the business of the Institution. 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 Institution or
affiliates thereof to any person, firm, corporation, or other entity for any
reason or purpose whatsoever. 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 Institution. Further, Executive may disclose
information regarding the business activities of the Institution to the
Superintendent of Banks of the State of New York, the New York Banking
Department, OTS and the Federal Deposit Insurance Corporation ("FDIC") pursuant
to a formal regulatory request. In the event of a breach or threatened breach by
Executive of the provisions of this Section, the Institution 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
Institution or affiliates thereof, or from rendering any services to any person,
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<PAGE>
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 Institution from pursuing any other remedies
available to the Institution for such breach or threatened breach, including the
recovery of damages from Executive.
11. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid in cash
or check from the general funds of the Institution. The Holding Company,
however, unconditionally guarantees payment and provision of all amounts and
benefits due hereunder to Executive and, if such amounts and benefits due from
the Institution are not timely paid or provided by the Institution, such amounts
and benefits shall be paid or provided by the Holding Company.
(b) Notwithstanding any provision herein to the contrary, to the extent
that payments and benefits, as provided by this Agreement, are paid to or
received by Executive under the Employment Agreement dated ______________, 1996,
between Executive and the Holding Company, such compensation payments and
benefits paid by the Holding Company will be subtracted from any amounts due
simultaneously to Executive under similar provisions of this Agreement. Payments
pursuant to this Agreement and the Holding Company Agreement shall be allocated
in proportion to the services rendered and time expended on such activities by
Executive as determined by the Holding Company and the Institution on a
quarterly basis.
12. 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 Institution or any
predecessor of the Institution and Executive, except that this Agreement shall
not affect or operate to reduce any benefit or compensation inuring to 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.
13. 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 Institution and their respective successors and assigns.
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<PAGE>
14. 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.
15. REQUIRED PROVISIONS.
(a) Any payments made to Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
(S)1828(k) and any rules and regulations promulgated thereunder, including 12
C.F.R. Part 359.
16. 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.
17. 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.
18. GOVERNING LAW.
The validity, interpretation, performance and enforcement of this Agreement
shall be governed by the laws of the State of New York.
19. 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 Executive within fifty
(50) miles from the location of the Institution, in accordance with the rules of
the American Arbitration Institution then in effect. Judgment
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<PAGE>
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.
20. PAYMENT OF COSTS AND LEGAL FEES.
In the event any dispute or controversy arising under or in connection with
Executive's termination is resolved in favor of the Executive, whether by
judgment, arbitration or settlement, Executive shall be entitled to the payment
of: (1) all legal fees incurred by Executive in resolving such dispute or
controversy, and (2) any back-pay, including salary, bonuses and any other cash
compensation, fringe benefits and any compensation and benefits due Executive
under this Agreement.
21. INDEMNIFICATION.
(a) The Institution 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 New York 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 director
or officer of the Institution (whether or not he continues to be a 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.
22. SUCCESSOR TO THE INSTITUTION.
The Institution 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 Institution or the Holding
Company, expressly and unconditionally to assume and agree to perform the
Institution's obligations under this Agreement, in the same manner and to the
same extent that the Institution would be required to perform if no such
succession or assignment had taken place.
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<PAGE>
SIGNATURES
IN WITNESS WHEREOF, The Roslyn Savings Bank and Roslyn Bancorp, Inc. have
caused this Agreement to be executed and their seals to be affixed hereunto by
their duly authorized officers and directors, and Executive has signed this
Agreement, on the __th day of _____________, 1996.
ATTEST: THE ROSLYN SAVINGS BANK
_____________________________ By: ___________________________________
Mary M. Ehrich _____________
Secretary For The Board of Directors
[SEAL]
ATTEST: ROSLYN BANCORP, INC.
(Guarantor)
_____________________________ By: ___________________________________
___________ _____________
Secretary For The Board of Directors
[SEAL]
WITNESS:
_____________________________ ________________________________________
[NAME]
Executive
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EXHIBIT 10.3
FORM OF
ROSLYN BANCORP, INC.
EMPLOYMENT AGREEMENT
This AGREEMENT ("Agreement") is made effective as of ____________,1996, by
and between Roslyn Bancorp, Inc. (the "Holding Company"), a corporation
organized under the laws of Delaware, with its principal offices at 1400 Old
Northern Boulevard, Roslyn, New York, and _______________ ("Executive"). Any
reference to "Institution" herein shall mean The Roslyn Savings Bank or any
successor thereto.
WHEREAS, the Holding Company wishes to assure itself of the services of
Executive for the period provided in this Agreement; and
WHEREAS, the Executive is willing to serve in the employ of the Holding
Company 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 Executive's employment hereunder, Executive agrees to
serve as the ____________ of the Holding Company. The Executive shall render
administrative and management services to the Holding Company such as are
customarily performed by persons in a similar executive capacity. During said
period, Executive also agrees to serve, if elected, as an officer and director
of any subsidiary of the Holding Company.
2. TERMS.
(a) The period of Executive's employment under this Agreement shall be
deemed to have commenced as of the date first above written and shall continue
for a period of thirty-six (36) full calendar months thereafter. Commencing on
the date of the execution of this Agreement, the term of this Agreement shall be
extended for one day each day until such time as the board of directors of the
Holding Company (the "Board") or Executive elects not to extend the term of the
Agreement by giving written notice to the other party in accordance with Section
8 of this Agreement, in which case the term of this Agreement shall be fixed and
shall end on the third anniversary of the date of such written notice.
(b) During the period of Executive's employment hereunder, except for
periods of absence occasioned by illness, reasonable vacation periods, and
reasonable leaves of absence, Executive shall devote substantially all his
business time, attention, skill, and efforts to the faithful performance of his
duties hereunder including activities and services related to the organization,
operation and management of the Holding Company and its direct or indirect
subsidiaries ("Subsidiaries") and participation in community and civic
organizations; provided,
<PAGE>
however, that, with the approval of the Board, as evidenced by a resolution of
such Board, from time to time, Executive may serve, or continue to serve, on the
boards of directors of, and hold any other offices or positions in, companies or
organizations, which, in such Board's judgment, will not present any conflict of
interest with the Holding Company or its Subsidiaries, or materially affect the
performance of Executive's duties pursuant to this Agreement.
(c) Notwithstanding anything herein contained to the contrary, Executive's
employment with the Holding Company may be terminated by the Holding Company or
Executive during the term of this Agreement, subject to the terms and conditions
of this Agreement. However, Executive shall not perform, in any respect,
directly or indirectly, during the pendency of his temporary or permanent
suspension or termination from the Institution, duties and responsibilities
formerly performed at the Institution as part of his duties and responsibilities
as President of the Holding Company.
3. COMPENSATION AND REIMBURSEMENT.
(a) The Executive shall be entitled to a salary from the Holding Company
or its Subsidiaries of $___________ per year ("Base Salary"). Base Salary shall
include any amounts of compensation deferred by Executive under any qualified or
unqualified plan maintained by the Holding Company and its Subsidiaries. Such
Base Salary shall be payable [bi-weekly, monthly or semi annually]. 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 one year from the
date of this Agreement. Such review shall be conducted by the Board or by a
Committee of the Board delegated such responsibility by the Board. The Committee
or the Board may increase 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 Holding Company shall also
provide Executive, at no premium cost to Executive, with all such other benefits
as provided uniformly to permanent full-time employees of the Holding Company
and its Subsidiaries.
(b) The Executive shall be entitled to participate in any 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 Holding Company and its
Subsidiaries will not, without Executive's prior written consent, make any
changes in such plans, arrangements or perquisites which would materially
adversely affect Executive's rights or benefits thereunder, except to the extent
that such changes are made applicable to all Holding Company and Institution
employees eligible to participate in such plans, arrangements and perquisites on
a non-discriminatory basis. Without limiting the generality of the foregoing
provisions of this Subsection (b), Executive shall 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, stock or option plans, health-and-accident plans, medical
coverage or any other employee benefit plan or arrangement made available by the
Holding Company and its Subsidiaries in the future to its senior executives and
key
2
<PAGE>
management employees, subject to and on a basis consistent with the terms,
conditions and overall administration of such plans and arrangements. Executive
shall be entitled to incentive compensation and bonuses as provided in any plan
or arrangement of the Holding Company and its Subsidiaries in which Executive is
eligible to participate. 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 Base Salary provided for by paragraph (a) of this
Section 3 and other compensation provided for by paragraph (b) of this Section
3, the Holding Company shall pay or reimburse Executive for all reasonable
travel and other reasonable expenses incurred in the performance of Executive's
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.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during the Executive's term of employment under this Agreement, the provisions
of this Section shall apply. As used in this Agreement, an "Event of
Termination" shall mean and include any of the following: (i) the termination by
the Holding Company of Executive's full-time employment hereunder for any reason
other than termination governed by Section 5(a) hereof, or for Cause, as defined
in Section 7 hereof; (ii) Executive's resignation from the Holding Company's
employ, upon, any (A) unless consented to by the Executive, failure to elect or
reelect or to appoint or reappoint Executive as __________ or failure to
nominate or renominate Executive as a Director of the Institution or Holding
Company to the extent Executive was serving as a Director as of the date of this
Agreement, (B) a material change in Executive's function, duties, or
responsibilities with the Holding Company or its Subsidiaries, 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, unless consented to by the Executive, (C) a relocation of
Executive's principal place of employment by more than 25 miles from its
location at the effective date of this Agreement, unless consented to by the
Executive, (D) a reduction in the benefits and perquisites to the Executive from
those being provided as of the effective date of this Agreement, unless
consented to by the Executive, (E) a liquidation or dissolution of the Holding
Company or the Institution, or (F) breach of this Agreement by the Holding
Company. Upon the occurrence of any event described in clauses (A), (B), (C),
(D), (E) or (F), above, Executive shall have the right to elect to terminate his
employment under this Agreement by resignation upon not less than sixty (60)
days prior written notice given within six full calendar months after the event
giving rise to said right to elect.
(b) Upon the occurrence of an Event of Termination, on the Date of
Termination, as defined in Section 8, the Holding Company shall be obligated to
pay Executive, or, in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be, a sum equal to the sum of: (i)
the amount of the remaining payments that the Executive would have earned if he
had continued his employment with the Institution during the
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remaining term of this Agreement at the Executive's Base Salary at the Date of
Termination; and (ii) the amount equal to the annual contributions or payments
that would have been made on Executive's behalf to any employee benefit plans of
the Institution or the Holding Company during the remaining term of this
Agreement based on contributions or payments made (on an annualized basis) at
the Date of Termination. At the election of the Executive, which election is to
be made prior to an Event of Termination, such payments shall be made in a lump
sum. In the event that no election is made, payment to the Executive will be
made on a monthly basis in approximately equal installments during the remaining
term of the 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 Holding Company
will cause to be continued life, medical, dental and disability coverage
substantially equivalent to the coverage maintained by the Holding Company or
its Subsidiaries for Executive prior to his termination at no premium cost to
the Executive. Such coverage shall cease upon the expiration of the remaining
term of this Agreement.
5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, a "Change in Control" of the Holding
Company or the Institution shall mean an event 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 Holding Company within the meaning of the
Change in Bank Control Act and the Rules and Regulations promulgated by the
Federal Deposit Insurance Corporation ("FDIC") at 12 C.F.R. (S) 303.4(a), with
respect to the Institution and the Rules and Regulations promulgated by the
Office of Thrift Supervision ("OTS") (or its predecessor agency), as in effect
on the date hereof with respect to the Holding Company; 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 voting securities of the
Institution or the Holding Company representing 20% or more of the Institution's
or the Holding Company's outstanding voting securities or right to acquire such
securities except for any voting securities of the Institution purchased by the
Holding Company and any voting securities purchased by any employee benefit plan
of the Holding Company or its Subsidiaries, 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 a
Nominating Committee solely composed of members which are Incumbent Board
members, 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 Institution or
the Holding Company or similar transaction occurs or is effectuated in which
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the Institution or Holding Company is not the resulting entity; or (D) a proxy
statement has been distributed soliciting proxies from stockholders of the
Holding Company, by someone other than the current management of the Holding
Company, seeking stockholder approval of a plan of reorganization, merger or
consolidation of the Holding Company or Institution 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 Institution or
the Holding Company shall be distributed, or (E) a tender offer is made for 20%
or more of the voting securities of the Institution or Holding Company then
outstanding.
(b) If a Change in Control has occurred pursuant to Section 5(a) or the
Board has determined that a Change in Control has occurred, Executive shall be
entitled to the benefits provided in paragraphs (c) and (d), of this Section 5
upon his subsequent termination of employment at any time during the term of
this Agreement due to (i) Executive's dismissal, or (ii) Executive's voluntary
resignation following any demotion, loss of title, office or significant
authority or responsibility,reduction in the annual compensation or material
reduction in benefits or relocation of his principal place of employment by more
than 25 miles from its location immediately prior to the change in control,
unless such termination is because of his death or termination for Cause.
(c) Upon the Executive's entitlement to benefits pursuant to Section 5(b),
the Holding Company 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 the greater of: (i)
the payments due for the remaining term of the Agreement; or (ii) three (3)
times Executive's annual compensation for the most recently completed year. Such
annual compensation shall include Base Salary, commissions, bonuses,
contributions or accruals on behalf of Executive to any pension and profit
sharing plan, any benefits to be paid or received under any stock-based benefit
plan, severance payments, directors or committee fees and fringe benefits paid
or to be paid to the Executive during such years. At the election of the
Executive, which election is to be made prior to a Change in Control, such
payment shall be made in a lump sum. In the event that no election is made,
payment to the Executive will be made on a monthly basis in approximately equal
installments during the remaining term of the Agreement. Such payments shall not
be reduced in the event Executive obtains other employment following termination
of employment.
(d) Upon the Executive's entitlement to benefits pursuant to Section 5(b),
the Company will cause to be continued life, medical, dental and disability
coverage substantially equivalent to the coverage maintained by the Institution
for Executive at no premium cost to Executive prior to his severance. Such
coverage and payments shall cease upon the expiration of thirty-six (36) months
following the Change in Control.
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6. CHANGE OF CONTROL RELATED PROVISIONS.
In each calendar year that Executive is entitled to receive payments or
benefits under the provisions of this Employment Agreement, the Holding Company
shall determine if an excess parachute payment (as defined in Section 4999 of
the Internal Revenue Code of 1986, as amended, and any successor provision
thereto, (the "Code")) exists. Such determination shall be made after taking any
reductions permitted pursuant to Section 280G of the Code and the regulations
thereunder. Any amount determined to be an excess parachute payment after taking
into account such reductions shall be hereafter referred to as the "Initial
Excess Parachute Payment". As soon as practicable after a Change in Control, the
Initial Excess Parachute Payment shall be determined. Upon the Date of
Termination following a Change in Control, the Holding Company shall pay
Executive, subject to applicable withholding requirements under applicable state
or federal law an amount equal to:
(1) twenty (20) percent of the Initial Excess Parachute Payment (or such
other amount equal to the tax imposed under Section 4999 of the Code);
and
(2) such additional amount (tax allowance) as may be necessary to
compensate Executive for the payment by Executive of state and federal
income and excise taxes on the payment provided under clause (1) and
on any payments under this Clause (2). In computing such tax
allowance, the payment to be made under Clause (1) shall be multiplied
by the "gross up percentage" ("GUP"). The GUP shall be determined as
follows:
Tax Rate
GUP = __________
1- Tax Rate
The "Tax Rate" for purposes of computing the GUP shall be the sum of
the highest marginal federal and state income and employment-related
tax rates, including any applicable excise tax rates, applicable to
the Executive in the year in which the payment under Clause (1) is
made.
(3) Notwithstanding the foregoing, if it shall subsequently be
determined in a final judicial determination or a final administrative
settlement to which Executive is a party that the excess parachute payment as
defined in Section 4999 of the Code, reduced as described above, is more than
the Initial Excess Parachute Payment (such different amount being hereafter
referred to as the "Determinative Excess Parachute Payment") then the Holding
Company's independent accountants shall determine the amount (the "Adjustment
Amount") the Holding Company must pay to the Executive in order to put the
Executive in the same position as the Executive would have been if the Initial
Excess Parachute Payment had been equal to the Determinative Excess Parachute
Payment. In determining the Adjustment Amount, independent accountants of the
Holding Company shall take into account any and all taxes (including any
penalties and interest) paid by or for Executive or refunded
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to Executive or for Executive's benefit. As soon as practicable after the
Adjustment Amount has been so determined, the Holding Company shall pay the
Adjustment Amount to Executive. In no event however, shall Executive make any
payment under this paragraph to the Holding Company.
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of: 1)
Executive's personal dishonesty, willful misconduct, breach of fiduciary duty
involving personal profit, intentional failure to perform stated duties, willful
violation of any law, rule, regulation (other than traffic violations or similar
offenses), final cease and desist order or material breach of any provision of
this Agreement which results in a material loss to the Institution or the
Holding Company, or 2) Executive's conviction of a crime or act involving moral
turpitude or a final judgement rendered against Executive based upon actions of
Executive which involve moral turpitude. For the purposes of this Section, no
act, or the failure to act, on Executive's part shall be "willful" unless done,
or omitted to be done, not in good faith and without reasonable belief that the
action or omission was in the best interests of the Bank or its affiliates.
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
Notice of Termination which shall include 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. During the period beginning on the date of the Notice of Termination
for Cause pursuant to Section 8 hereof through the Date of Termination, stock
options and related limited rights granted to Executive under any stock option
plan shall not be exercisable nor shall any unvested awards granted to Executive
under any stock benefit plan of the Institution, the Holding Company or any
subsidiary or affiliate thereof, vest. At the Date of Termination, such stock
options and related limited rights and any such unvested awards shall become
null and void and shall not be exercisable by or delivered to Executive at any
time subsequent to such Termination for Cause.
8. NOTICE.
(a) Any purported termination by the Holding Company 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.
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(b) "Date of Termination" shall mean 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);
provided, however, that if a dispute regarding the Executive's termination
exists, the "Date of Termination" shall be determined in accordance with Section
8(c) of this Agreement.
(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 occurrence of a
Change in Control and 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 therefrom 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 Holding
Company 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 him 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.
Amounts paid under this Section are in addition to all other amounts due under
this Agreement and shall not be offset against or reduce any other amounts due
under this Agreement.
9. POST-TERMINATION OBLIGATIONS.
All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 9 for one (1) full year
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Holding Company. Executive shall, upon
reasonable notice, furnish such information and assistance to the Holding
Company as may reasonably be required by the Holding Company in connection with
any litigation in which it or any of its subsidiaries or affiliates is, or may
become, a party.
10. NON-COMPETITION AND NON-DISCLOSURE.
(a) Upon any termination of Executive's employment hereunder pursuant to
Section 4 hereof, Executive agrees not to compete with the Holding Company or
its Subsidiaries for a period of one (1) year following such termination in any
city, town or county in which the Executive's normal business office is located
and the Holding Company or any of its Subsidiaries 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
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otherwise serve with, directly or indirectly, any entity whose business
materially competes with the depository, lending or other business activities of
the Holding Company or its Subsidiaries. The parties hereto, recognizing that
irreparable injury will result to the Holding Company or its Subsidiaries, its
business and property in the event of Executive's breach of this Subsection
10(a) agree that in the event of any such breach by Executive, the Holding
Company or its Subsidiaries, 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, employees and all persons
acting for or under the direction of Executive. Executive represents and admits
that in the event of the termination of his employment pursuant to Section 7
hereof, 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 Holding Company or its Subsidiaries, 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 Holding Company
or its Subsidiaries from pursuing any other remedies available to the Holding
Company or its Subsidiaries 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 Holding Company and
its Subsidiaries as it may exist from time to time, is a valuable, special and
unique asset of the business of the Holding Company and its Subsidiaries.
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
Holding Company and its Subsidiaries thereof to any person, firm, corporation,
or other entity for any reason or purpose whatsoever unless expressly authorized
by the Board of Directors or required by law. 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 Holding Company. Further, Executive
may disclose information regarding the business activities of the Bank or
Holding Company to the Superintendent of Banks of the State of New York, the New
York Banking Department, OTS and the Federal Deposit Insurance Corporation
("FDIC") pursuant to a formal regulatory request. In the event of a breach or
threatened breach by the Executive of the provisions of this Section, the
Holding Company 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 Holding Company or its Subsidiaries 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 Holding
Company from pursuing any other remedies available to the Holding Company for
such breach or threatened breach, including the recovery of damages from
Executive.
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11. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid in cash
or check from the general funds of the Holding Company subject to Section 11(b).
(b) Notwithstanding any provision herein to the contrary, to the extent
that payments and benefits, as provided by this Agreement, are paid to or
received by Executive under the Employment Agreement dated __________, 1996,
between Executive and the Institution, such compensation payments and benefits
paid by the Institution will be subtracted from any amount due simultaneously to
Executive under similar provisions of this Agreement. Payments pursuant to this
Agreement and the Institution Agreement shall be allocated in proportion to the
level of activity and the time expended on such activities by the Executive as
determined by the Holding Company and the Institution on a quarterly basis.
12. 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 Holding Company or any
predecessor of the Holding Company 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.
13. 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 Holding Company and their respective successors and assigns.
14. 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
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constitute a waiver of such term or condition for the future as to any act other
than that specifically waived.
15. 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.
16. 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.
17. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of Delaware,
unless otherwise specified herein.
18. 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 Executive within
fifty (50) miles from the location of the Institution, in accordance with the
rules of the American Arbitration Association then in effect. Judgment may be
entered on the arbitrator's award in any court having jurisdiction; 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.
19. PAYMENT OF COSTS AND LEGAL FEES AND REINSTATEMENT OF BENEFITS.
In the event any dispute or controversy arising under or in connection with
Executive's termination is resolved in favor of the Executive, whether by
judgment, arbitration or settlement, Executive shall be entitled to the payment
of: (1) all legal fees incurred by Executive in resolving such dispute or
controversy, and (2) any back-pay, including salary, bonuses and any other cash
compensation, fringe benefits and any compensation and benefits due Executive
under this Agreement.
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20. INDEMNIFICATION.
The Holding Company shall provide Executive (including his heirs, executors
and administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense, or in lieu thereof, shall indemnify
Executive (and his heirs, executors and administrators) to the fullest extent
permitted under Delaware 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 director
or officer of the Holding Company (whether or not he continues to be a 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.
21. SUCCESSOR TO THE HOLDING COMPANY.
The Holding Company 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 Institution or the Holding
Company, expressly and unconditionally to assume and agree to perform the
Holding Company's obligations under this Agreement, in the same manner and to
the same extent that the Holding Company would be required to perform if no such
succession or assignment had taken place.
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SIGNATURES
IN WITNESS WHEREOF, Roslyn Bancorp, Inc. has caused this Agreement to be
executed and its seal to be affixed hereunto by its duly authorized officer and
its directors, and Executive has signed this Agreement, on the __th day of
___________, 1996.
ATTEST: ROSLYN BANCORP, INC.
_______________________ By: _____________________________________
_______________ _____________________
Secretary For the Board of Directors
[SEAL]
WITNESS:
_______________________ By: _____________________________________
[Name]
Executive
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EXHIBIT 10.4
FORM OF
THE ROSLYN SAVINGS BANK
TWO YEAR CHANGE IN CONTROL AGREEMENT
This AGREEMENT is made effective as of __________, 1996 by and among The
Roslyn Savings Bank (the "Institution"), a federally chartered savings
institution, with its principal administrative office at 1400 Old Northern
Boulevard, Roslyn, New York, 11576, ____________________ ("Executive"), and
Roslyn Bancorp, Inc. (the "Holding Company"), a corporation organized under the
laws of the State of Delaware which is the holding company of the Institution.
WHEREAS, the Institution recognizes the substantial contribution Executive
has made to the Institution and wishes to protect Executive's position therewith
for the period provided in this Agreement; and
WHEREAS, Executive has agreed to serve in the employ of the Institution.
NOW, THEREFORE, in consideration of the contribution and responsibilities
of Executive, and upon the other terms and conditions hereinafter provided, the
parties hereto agree as follows:
1. TERM OF AGREEMENT.
-----------------
The period of this Agreement shall be deemed to have commenced as of the
date first above written and shall continue for a period of twenty-four (24)
full calendar months thereafter. Commencing on the date of the execution of
this Agreement, the term of this Agreement shall be extended for one day each
day until such time as the board of directors of the Institution (the "Board")
or Executive elects not to extend the term of the Agreement by giving written
notice to the other party in accordance with Section 4 of this Agreement, in
which case the term of this Agreement shall be fixed and shall end on the third
anniversary of the date of such written notice.
2. CHANGE IN CONTROL.
-----------------
(a) Upon the occurrence of a Change in Control of the Institution or the
Holding Company (as herein defined) followed at any time during the term of this
Agreement by the termination of Executive's employment, other than for Cause,
as defined in Section 2(c) hereof, the provisions of Section 3 shall apply.
Upon the occurrence of a Change in Control, Executive shall have the right to
elect to voluntarily terminate his employment at any time during the term of
this Agreement following any demotion, loss of title, office or significant
authority, material reduction in his annual compensation or benefits, or
relocation of his principal place of employment by more than 25 miles from its
location immediately prior to the Change in Control; provided, however, the
Executive may consent in writing to any such
<PAGE>
demotion, loss, reduction or relocation. The effect of any written consent of
the Executive under this Section 2 (a) shall be strictly limited to the terms
specified in such written consent.
(b) For purposes of this Agreement, a "Change in Control" of the
Institution or Holding Company shall mean an event of a nature that: (i) would
be required to be reported in response to Item 1 of the current report on Form
8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"); or (ii)
results in a Change in Control of the Institution or the Holding Company within
the meaning of the Change in Bank Control Act and the Rules and Regulations
promulgated by the Federal Deposit Insurance Corporation ("FDIC") at 12 C.F.R.
(S) 303.4(a), with respect to the Institution, and the Rules and Regulations
promulgated by the Office of Thrift Supervision ("OTS") (or its predecessor
agency), with respect to the Holding Company, as in effect on the date of this
Agreement; 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 voting securities of the Institution or the Holding Company
representing 20% or more of the Institution's or the Holding Company's
outstanding voting securities or right to acquire such securities except for any
voting securities of the Institution purchased by the Holding Company and any
voting securities purchased by any employee benefit plan of the Institution or
the Holding Company, 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 Holding 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 Institution or the Holding Company or similar transaction
occurs in which the Institution or Holding Company is not the resulting entity;
or (D) a proxy statement has been distributed soliciting proxies from
stockholders of the Holding Company, by someone other than the current
management of the Holding Company, seeking stockholder approval of a plan of
reorganization, merger or consolidation of the Holding Company or Institution 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 Institution or the Holding Company; or (E) a tender offer is
made for 20% or more of the voting securities of the Stock Institution or
Holding Company then outstanding.
(c) Executive shall not have the receive termination benefits pursuant to
Section 3 hereof upon Termination for Cause. The term "Termination for Cause"
shall mean termination because of: 1) Executive's personal dishonesty, willful
misconduct, breach of fiduciary duty involving personal profit, intentional
failure to perform stated duties, willful violation of any law, rule, regulation
(other than traffic violations or similar offenses), final
2
<PAGE>
cease and desist order or material breach of any provision of this Agreement
which results in a material loss to the Institution or the Holding Company, or
2) Executive's conviction of a crime or act involving moral turpitude or a final
judgement rendered against Executive based upon actions of Executive which
involve moral turpitude. For the purposes of this Section, no act, or the
failure to act, on Executive's part shall be "willful" unless done, or omitted
to be done, not in good faith and without reasonable belief that the action or
omission was in the best interests of the Bank or its affiliates.
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
Notice of Termination which shall include a copy of a resolution duly adopted by
the affirmative vote of not less than a majority 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. Executive shall not have the right to
receive compensation or other benefits for any period after Termination for
Cause. During the period beginning on the date of the Notice of Termination for
Cause pursuant to Section 4 hereof through the Date of Termination, stock
options and related limited rights granted to Executive under any stock option
plan shall not be exercisable nor shall any unvested awards granted to Executive
under any stock benefit plan of the Institution, the Holding Company or any
subsidiary or affiliate thereof vest. At the Date of Termination, such stock
options and related limited rights and such unvested awards shall become null
and void and shall not be exercisable by or delivered to Executive at any time
subsequent to such Date of Termination for Cause.
3. TERMINATION BENEFITS.
--------------------
(a) Upon the occurrence of a Change in Control, followed at any time
during the term of this Agreement by the voluntary or involuntary termination of
Executive's employment, other than for Termination for Cause, the Institution
shall be obligated to pay Executive, or in the event of his subsequent death,
his beneficiary or beneficiaries, or his estate, as the case may be, a sum equal
to two (2) times Executive's average annual compensation for the five most
recent taxable years that Executive has been employed by the Institution or such
lesser number of years in the event that Executive shall have been employed by
the Institution for less than five years. Such annual compensation shall include
base salary, commissions, bonuses, any other cash compensation, contributions or
accruals on behalf of Executive to any pension and profit sharing plan, benefits
received or to be received under any stock-based benefit plan, severance
payments, director or committee fees and fringe benefits paid or to be paid to
the Executive during such years. At the election of Executive which election is
to be made prior to a Change in Control, such payment shall be made in a lump
sum. In the event that no election is made, payment to Executive will be made on
a monthly basis in approximately equal installments during the remaining term of
this Agreement.
(b) Upon the occurrence of a Change in Control of the Institution or the
Holding Company followed at any time during the term of this Agreement by
Executive's voluntary or
3
<PAGE>
involuntary termination of employment, other than for Termination for Cause, the
Institution shall cause to be continued life, medical and disability coverage
substantially identical to the coverage maintained by the Institution or Holding
Company for Executive prior to his severance, except to the extent such coverage
may be changed in its application to all Institution or Holding Company
employees on a nondiscriminatory basis. Such coverage and payments shall cease
upon the expiration of twenty-four (24) full calendar months from the Date of
Termination.
(c) Notwithstanding the preceding paragraphs of this Section 3, in
the event that:
(i) the aggregate payments or benefits to be made or afforded to
Executive, which are deemed to be parachute payments as defined
in Section 280G of the Internal Revenue Code of 1986, as amended
(the "Code") or any successor thereof, (the "Termination
Benefits") would be deemed to include an "excess parachute
payment" under Section 280G of the Code; 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 three (3) times Executive's "base
amount," as determined in accordance with said Section 280G and
the Non-Triggering Amount less the product of the marginal rate
of any applicable state and federal income tax and the Non
Triggering Amount would be greater than the aggregate value of
the Termination Benefits (without such reduction) minus (i) the
amount of tax required to be paid by the Executive thereon by
Section 4999 of the Code and further minus (ii) the product of
the Termination Benefits and the marginal rate of any applicable
state and federal income tax,
then the Termination Benefits shall be reduced to the Non-Triggering Amount.
The allocation of the reduction required hereby among the Termination Benefits
shall be determined by the Executive.
4. NOTICE OF TERMINATION.
---------------------
(a) Any purported termination by the Institution or by Executive in
connection with a Change in Control 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 the date specified in the Notice of
Termination (which, in the instance of Termination for Cause, shall not be less
than thirty
4
<PAGE>
(30) days from the date such Notice of Termination is given); provided, however,
that if a dispute regarding the Executive's termination exists, the "Date of
Termination" shall be determined in accordance with Section 4(c) of this
Agreement.
(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, 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 therefrom 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 in connection with a Change in
Control, in the event that the Executive is terminated for reasons other than
Termination for Cause, the Institution will continue to pay Executive the
payments and benefits due under this Agreement in effect when the notice giving
rise to the dispute was given (including, but not limited to his annual salary)
until the earlier of: (1) the resolution of the dispute in accordance with this
Agreement; or (2) the expiration of the remaining term of this Agreement as
determined as of the Date of Termination.
5. SOURCE OF PAYMENTS.
------------------
It is intended by the parties hereto that all payments provided in this
Agreement shall be paid in cash or check from the general funds of the
Institution. Further, the Holding Company guarantees such payment and provision
of all amounts and benefits due hereunder to Executive and, if such amounts and
benefits due from the Institution are not timely paid or provided by the
Institution, such amounts and benefits shall be paid or provided by the Holding
Company.
6. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS.
-----------------------------------------------------
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior agreement between the Institution and Executive, except
that this Agreement shall not affect or operate to reduce any benefit or
compensation inuring to 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.
Nothing in this Agreement shall confer upon Executive the right to continue
in the employ of Institution or shall impose on the Institution any obligation
to employ or retain Executive in its employ for any period.
5
<PAGE>
7. 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, the Institution and their respective successors and assigns.
8. 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 or as to any act other than that
specifically waived.
9. REQUIRED REGULATORY PROVISIONS.
------------------------------
(a) Any payments made to Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
(S)1828(k) and any rules and regulations promulgated thereunder, including 12
C.F.R. Part 359.
10. 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.
11. 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. In addition, references to the
masculine shall apply equally to the feminine.
6
<PAGE>
12. GOVERNING LAW.
-------------
The validity, interpretation, performance, and enforcement of this
Agreement shall be governed by the laws of the State of New York.
13. 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 Executive within fifty
(50) miles from the location of the Institution's main office, in accordance
with the rules of the American Arbitration Association then in effect. Judgment
may be entered on the arbitrator's award in any court having jurisdiction;
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.
14. PAYMENT OF COSTS AND LEGAL FEES.
-------------------------------
All reasonable costs and 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 Institution (which payments are guaranteed by the
Holding Company pursuant to Section 5 hereof) if Executive is successful
pursuant to a legal judgment, arbitration or settlement.
15. INDEMNIFICATION.
---------------
The Institution 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 New
York 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 director or officer of the
Institution (whether or not he continues to be a 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.
16. SUCCESSOR TO THE INSTITUTION.
----------------------------
The Institution 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 Institution, expressly and
unconditionally to assume and agree to perform the Institution's obligations
under this Agreement, in the same manner and to the same extent that the
Institution would be required to perform if no such succession or assignment had
taken place.
7
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, The Roslyn Savings Bank and Roslyn Bancorp, Inc. have
caused this Agreement to be executed by their duly authorized officers, and
Executive has signed this Agreement, on the ___th day of __________, 1996.
ATTEST: THE ROSLYN SAVINGS BANK
______________________________ By: ___________________________
Mary M. Ehrich Joseph L. Mancino
Secretary President and Chief Executive Officer
SEAL
ATTEST: Roslyn Bancorp, Inc.
(Guarantor)
______________________________ By: ___________________________
Mary M. Ehrich Joseph L. Mancino
Secretary Chairman of the Board and
Chief Executive Officer
SEAL
WITNESS:
______________________________ ___________________________
[Name]
Executive
8
<PAGE>
EXHIBIT 10.5
FORM OF
ROSLYN BANCORP, INC.
TWO YEAR CHANGE IN CONTROL AGREEMENT
This AGREEMENT is made effective as of __________, 1996, by and between
Roslyn Bancorp, Inc. (the "Holding Company"), a corporation organized under the
laws of the State of Delaware, with its office at 1400 Old Northern Boulevard,
Roslyn, New York and _________________ ("Executive"). The term "Institution"
refers to The Roslyn Savings Bank, the wholly-owned subsidiary of the Holding
Company or any successor thereto.
WHEREAS, the Holding Company recognizes the substantial contribution
Executive has made to the Holding Company and wishes to protect his position
therewith for the period provided in this Agreement; and
WHEREAS, Executive has agreed to serve in the employ of the Holding Company
or an affiliate thereof.
NOW, THEREFORE, in consideration of the contribution and responsibilities
of Executive, and upon the other terms and conditions hereinafter provided, the
parties hereto agree as follows:
1. TERM OF AGREEMENT.
-----------------
The period of this Agreement shall be deemed to have commenced as of the
date first above written and shall continue for a period of twenty-four (24)
full calendar months thereafter. Commencing on the date of the execution of this
Agreement, the term of this Agreement shall be extended for one day each day
until such time as the board of directors of the Holding Company (the "Board")
or Executive elects not to extend the term of the Agreement by giving written
notice to the other party in accordance with Section 4 of this Agreement, in
which case the term of this Agreement shall be fixed and shall end on the third
anniversary of the date of such written notice.
2. CHANGE IN CONTROL.
-----------------
(a) Upon the occurrence of a Change in Control of the Holding Company
(as herein defined) followed at any time during the term of this Agreement by
the termination of Executive's employment, the provisions of Section 3 shall
apply. Upon the occurrence of a Change in Control, Executive shall have the
right to elect to voluntarily terminate his employment at any time during the
term of this Agreement following any demotion, loss of title, office or
significant authority, material reduction in annual compensation or material
reduction in benefits, or relocation of his principal place of employment by
more than 25 miles from its location immediately prior to the Change in Control
unless such termination is because of death or termination for Cause.
<PAGE>
(b) For purposes of this Agreement, a "Change in Control" of the Holding
Company or the Institution shall mean an event 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 Holding Company within the meaning of the
Change in Bank Control Act and the Rules and Regulations promulgated by the
Federal Deposit Insurance Corporation ("FDIC") at 12 C.F.R. (S) 303.4(a), with
respect to the Institution and the Rules and Regulations promulgated by the
Office of Thrift Supervision ("OTS") (or its predecessor agency), as in effect
on the date hereof with respect to the Holding Company; 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 voting securities of the
Institution or the Holding Company representing 20% or more of the Institution's
or the Holding Company's outstanding voting securities or right to acquire such
securities except for any voting securities of the Institution purchased by the
Holding Company and any voting securities purchased by any employee benefit plan
of the Holding Company or its Subsidiaries, 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 a
Nominating Committee solely composed of members which are Incumbent Board
members, 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 Institution or
the Holding Company or similar transaction occurs or is effectuated in which the
Institution or Holding Company is not the resulting entity; or (D) a proxy
statement has been distributed soliciting proxies from stockholders of the
Holding Company, by someone other than the current management of the Holding
Company, seeking stockholder approval of a plan of reorganization, merger or
consolidation of the Holding Company or Institution 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 Institution or
the Holding Company shall be distributed, or (E) a tender offer is made for 20%
or more of the voting securities of the Institution or Holding Company then
outstanding.
(c) Executive shall not have the right to receive termination benefits
pursuant to Section 3 hereof upon Termination for Cause. The term "Termination
for Cause" shall mean termination because of: 1) Executive's personal
dishonesty, willful misconduct, breach of fiduciary duty involving personal
profit, intentional failure to perform stated duties, willful violation of any
law, rule, regulation (other than traffic violations or similar offenses), final
cease and desist order or material breach of any provision of this Agreement
which results in a material loss to the Institution or the Holding Company, or
2) Executive's conviction of a crime or act involving moral turpitude or a final
judgement rendered against Executive based upon actions of Executive which
involve moral turpitude. For the purposes of this Section,
2
<PAGE>
no act, or the failure to act, on Executive's part shall be "willful" unless
done, or omitted to be done, not in good faith and without reasonable belief
that the action or omission was in the best interests of the Bank or its
affiliates. 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.
Executive shall not have the right to receive compensation or other benefits for
any period after Termination for Cause. During the period beginning on the
date of the Notice of Termination for Cause pursuant to Section 4 hereof through
the Date of Termination, stock options and related limited rights granted to
Executive under any stock option plan shall not be exercisable nor shall any
unvested awards granted to Executive under any stock benefit plan of the
Institution, the Holding Company or any subsidiary or affiliate thereof, vest.
At the Date of Termination, such stock options and related limited rights and
any such unvested awards shall become null and void and shall not be exercisable
by or delivered to Executive at any time subsequent to such Termination for
Cause.
3. TERMINATION BENEFITS.
--------------------
(a) Upon the occurrence of a Change in Control, followed at any time during
the term of this Agreement by the voluntary or involuntary termination of
Executive's employment, other than for Termination for Cause, the Holding
Company shall be obligated to pay Executive, or in the event of his subsequent
death, his beneficiary or beneficiaries, or his estate, as the case may be, a
sum equal to two (2) times Executive's average annual compensation for the five
most recent taxable years that Executive has been employed by the Institution or
such lesser number of years in the event that Executive shall have been employed
by the Institution for less than five years. Such annual compensation shall
include base salary, commissions, bonuses, any other cash compensation,
contributions or accruals on behalf of Executive to any pension and profit
sharing plan, severance payments, director or committee fees and fringe benefits
paid or to be paid to the Executive during such years. At the election of
Executive which election is to be made prior to a Change in Control, such
payment shall be made in a lump sum. In the event that no election is made,
payment to Executive will be made on a monthly basis in approximately equal
installments during the remaining term of this Agreement.
(b) Upon the occurrence of a Change in Control of the Institution or the
Holding Company followed at any time during the term of this Agreement by
Executive's termination of employment, other than for Termination for Cause, the
Holding Company shall cause to be continued life, medical and disability
coverage substantially identical to the coverage maintained by the Institution
for Executive prior to his severance, except to the extent such coverage may be
changed in its application to all Institution employees. Such coverage and
payments shall cease upon expiration of twenty-four (24) full calendar months
following the Date of Termination.
3
<PAGE>
(c) Notwithstanding the preceding paragraphs of this Section 3, in the
event that:
(i) the aggregate payments or benefits to be made or afforded to
Executive, which are deemed to be parachute payments as defined in
Section 280G of the Internal Revenue Code of 1986, as amended (the
"Code") or any successor thereof, (the "Termination Benefits")
would be deemed to include an "excess parachute payment" under
Section 280G of the Code; 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 three (3) times Executive's "base amount,"
as determined in accordance with said Section 280G and the Non-
Triggering Amount less the product of the marginal rate of any
applicable state and federal income tax and the Non Triggering
Amount would be greater than the aggregate value of the
Termination Benefits (without such reduction) minus (i) the amount
of tax required to be paid by the Executive thereon by Section
4999 of the Code and further minus (ii) the product of the
Termination Benefits and the marginal rate of any applicable state
and federal income tax,
then the Termination Benefits shall be reduced to the Non-Triggering Amount.
The allocation of the reduction required hereby among the Termination Benefits
shall be determined by the Executive.
4. NOTICE OF TERMINATION.
---------------------
(a) Any purported termination by the Holding Company, 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 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 the date specified in the Notice of
Termination (which, in the case of Termination for Cause, shall not be less than
thirty (30) days from the date such Notice of Termination is given); provided,
however, that if a dispute regarding the Executive's termination exists, the
"Date of Termination" shall be determined in accordance with Section 4(c) of
this Agreement.
(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, the Date of Termination shall be the
date on which the dispute is finally
4
<PAGE>
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 therefrom 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 in
connection with a Change in Control, in the event that the Executive is
terminated for reasons other than Termination for Cause, the Institution will
continue to pay Executive the payments and benefits due under this Agreement in
effect when the notice giving rise to the dispute was given (including, but not
limited to his annual salary) until the earlier of: (1) the resolution of the
dispute in accordance with this Agreement; or (2) the expiration of the
remaining term of this Agreement as determined as of the Date of Termination.
5. SOURCE OF PAYMENTS.
------------------
It is intended by the parties hereto that all payments provided in this
Agreement shall be paid in cash or check from the general funds of the Holding
Company. Further, the Holding Company guarantees such payment and provision of
all amounts and benefits due hereunder to Executive and, if such amount and
benefits due from the Institution are not timely paid or provided by the
Institution, such amounts and benefits shall be paid and provided by the Holding
Company.
6. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS.
-----------------------------------------------------
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior agreement between the Holding Company and Executive,
except that this Agreement shall not affect or operate to reduce any benefit or
compensation inuring to 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.
Nothing in this Agreement shall confer upon Executive the right to continue
in the employ of the Holding Company or shall impose on the Holding Company any
obligation to employ or retain Executive in its employ for any period.
7. 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, the Holding Company and their respective successors and assigns.
5
<PAGE>
8. 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 or as to any act other than that
specifically waived.
9. EFFECT OF ACTION UNDER INSTITUTION AGREEMENT.
---------------------------------------------
Notwithstanding any provision herein to the contrary, to the extent that
payments and benefits are paid to or received by Executive under the Institution
Agreement between Executive and Institution, the amount of such payments and
benefits paid by the Institution will be subtracted from any amount due
simultaneously to Executive under similar provisions of this Agreement.
10. 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.
11. 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. In addition, references herein to the
masculine shall apply to both the masculine and the feminine.
12. GOVERNING LAW.
-------------
The validity, interpretation, performance, and enforcement of this
Agreement shall be governed by the laws of the State of Delaware.
6
<PAGE>
13. 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 Executive within fifty
(50) miles from the location of the Holding Company, in accordance with the
rules of the American Arbitration Association then in effect. Judgment may be
entered on the arbitrator's award in any court having jurisdiction; 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.
14. PAYMENT OF COSTS AND 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 Holding Company if Executive is successful pursuant to a
legal judgment, arbitration or settlement.
15. INDEMNIFICATION.
---------------
The Holding Company shall provide Executive (including his heirs, executors
and administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense, or in lieu thereof, shall indemnify
Executive (and his heirs, executors and administrators) to the fullest extent
permitted under Delaware law and as provided in the Holding Company's
certificate of incorporation 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 director
or officer of the Holding Company (whether or not he continues to be a 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.
16. SUCCESSOR TO THE HOLDING COMPANY.
--------------------------------
The Holding Company 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 Institution or the Holding
Company, expressly and unconditionally to assume and agree to perform the
Holding Company's obligations under this Agreement, in the same manner and to
the same extent that the Holding Company would be required to perform if no such
succession or assignment had taken place.
7
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, Roslyn Bancorp, Inc. has caused this Agreement to be
executed by its duly authorized officer, and Executive has signed this
Agreement, on the __th day of ________, 1996.
ATTEST: ROSLYN BANCORP, INC.
__________________________________ By: ___________________________
Mary M. Ehrich Joseph L. Mancino
Secretary Chairman of the Board and Chief
Executive Officer
WITNESS:
__________________________________ ________________________________
[NAME]
Executive
Seal
8
<PAGE>
EXHIBIT 10.6
D R A F T
FORM OF PROPOSED
THE ROSLYN SAVINGS BANK
EMPLOYEE SEVERANCE COMPENSATION PLAN
PLAN PURPOSE
The purpose of The Roslyn Savings Bank Employee Severance Compensation
Plan is to assure for The Roslyn Savings Bank (the "Bank") the services of
Employees of the Bank in the event of a Change in Control (capitalized terms are
defined in section 2.1) of the Bank. The benefits contemplated by the Plan
recognize the value to the Bank of the services and contributions of the
Employees of the Bank and the effect upon the Bank resulting from the
uncertainties of continued employment, reduced Employee benefits, management
changes and relocations that may arise in the event of a Change in Control of
the Bank. The Bank's Board of Directors believes that it is in the best
interests of the Bank to provide Employees of the Bank who have been with the
Bank for a minimum of five years with such benefits in order to defray the costs
and changes in Employee status that could follow a Change in Control. The Board
of Directors believes that the Plan will also aid the Bank in attracting and
retaining highly qualified individuals who are essential to its success and the
Plan's assurance of fair treatment of the Bank's Employees will reduce the
distractions and other adverse effects on Employees' performance in the event of
a Change in Control.
ARTICLE I
ESTABLISHMENT OF PLAN
1.1 Establishment of Plan
---------------------
As of the Effective Date of the Plan as defined herein, the Bank
hereby establishes an employee severance compensation plan to be known as "The
Roslyn Savings Bank Employee Severance Compensation Plan." The purposes of the
Plan are as set forth above.
1.2 Applicability of Plan
---------------------
The benefits provided by this Plan shall be available to all Employees
of the Bank, who, at or after the Effective Date, meet the eligibility
requirements of Article III, except for those executive officers who have
entered into, or who enter into in the future, and continue to be subject to an
employment or change in control agreement with the Employer.
<PAGE>
1.3 Contractual Right to Benefits
-----------------------------
This Plan establishes and vests in each Participant a contractual right to
the benefits to which each Participant is entitled hereunder, enforceable by the
Participant against the Employer, Bank, or both.
ARTICLE II
DEFINITIONS AND CONSTRUCTION
2.1 Definitions
-----------
Whenever used in the Plan, the following terms shall have the meanings set
forth below.
(a) "Annual Compensation" of a Participant means and includes all
wages, salary, bonus, and cash compensation, if any, paid (including accrued
amounts) by an Employer as consideration for the Participant's service during
the 12 months ended the date as of which Annual Compensation is to be
determined, which are or would be includable in the gross income of the
Participant receiving the same for federal income tax purposes.
(b) "Bank" means The Roslyn Savings Bank or any successor as provided
for in Article VII hereof.
(c) "Change in Control" shall mean an event 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 Change in
Bank Control Act and the Rules and Regulations promulgated by the Federal
Deposit Insurance Corporation ("FDIC") at 12 C.F.R. (S) 303.4(a) with respect to
the Bank and the Board of Governors of the Federal Reserve System ("FRB") at 12
C.F.R. (S) 225.41(b) with respect to the Holding Company, as in effect on the
date hereof; or (iii) results in a transaction requiring prior FRB approval
under the Bank Holding Company Act of 1956 and the regulations promulgated
thereunder by the FRB at 12 C.F.R. (S) 225.11, as in effect on the date hereof
except for the Holding Company's acquisition of the Bank; or (iv) 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 Holding Company representing 20% or more of the Bank's or the Holding
Company's outstanding securities except for any securities of the Bank purchased
by the Holding Company in connection with the conversion of the Bank to the
stock form and any securities purchased by any tax qualified employee benefit
plan of the Bank; or (B) individuals who constitute the Board of Directors on
the date hereof (the "Incumbent Board") cease for any reason to constitute at
least a majority thereof, provided that any person becoming a director
subsequent to the date hereof whose election was approved by a vote of at least
three-quarters of the directors comprising the Incumbent Board, or whose
nomination for election by the Holding Company's stockholders was approved by
the same Nominating Committee serving under an Incumbent Board, shall be, for
purposes of
2
<PAGE>
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 Holding Company or similar
transaction occurs in which the Bank or Holding Company is not the resulting
entity; or (D) solicitations of shareholders of the Holding Company, by someone
other than the current management of the Holding Company, seeking stockholder
approval of a plan of reorganization, merger or consolidation of the Holding
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 the
plan or transaction are exchanged for or converted into cash or property or
securities not issued by the Bank or the Holding Company shall be distributed;
or (E) a tender offer is made for 20% or more of the voting securities of the
Bank or the Holding Company.
(d) "Disability" means the permanent and total inability by reason of
mental or physical infirmity, or both, of an employee to perform the work
customarily assigned to him . Additionally, a medical doctor selected or
approved by the Board of Directors must advise the Board that it is either not
possible to determine if or when such Disability will terminate or that it
appears probable that such Disability will be permanent during the remainder of
said employees lifetime.
(e) "Effective Date" means the date the Plan is approved by the Board
of Directors of the Bank, or such other date as the Board shall designate in its
resolution approving the Plan.
(f) "Employee" means any Employee of the Bank or any subsidiary
thereof who has completed at least one year of service with the Bank, or any
subsidiary thereof, provided, however, that any Employee who is covered or
hereinafter becomes covered by an employment contract or change in control
agreement with the Employer shall not be considered to be an Employee for
purposes of this Plan.
(g) "Expiration Date" means a date ten (10) years from the Effective
Date unless earlier terminated pursuant to Section 8.2 or extended pursuant to
Section 8.1.
(h) "Employer" means the Bank or a subsidiary of the Bank or a parent
of the Bank which has adopted the Plan pursuant to Article VI hereof.
(i) "Just Cause" shall mean termination because of Participant's
personal dishonesty, incompetence, willful misconduct, any breach of fiduciary
duty involving personal profit, intentional failure or unjustified neglect to
perform stated duties, conviction of or pleading guilty or nolo contendere to
any crime or offense punishable as a felony or to any crime or offense involving
moral turpitude, or violation of any final cease-and desist order. In
determining incompetence, the acts or omissions shall be measured against
standards generally prevailing in the savings institutions industry.
(j) "Payment" means the payment of severance compensation as provided
in Article IV hereof.
3
<PAGE>
(k) "Participant" means an Employee who meets the eligibility
requirements of Article III.
(l) "Plan" means the Roslyn Savings Bank Employee Severance
Compensation Plan.
2.2 Applicable Law
--------------
The laws of the State of New York shall be the controlling law in all
matters relating to the Plan to the extent not preempted by Federal law.
2.3 Severability
------------
If a provision of this Plan shall be held illegal or invalid, the
illegality or invalidity shall not affect the remaining parts of the Plan and
the Plan shall be construed and enforced as if the illegal or invalid provision
had not been included.
ARTICLE III
ELIGIBILITY
3.1 Participation
-------------
The term Participant shall include all Employees of the Bank who have
completed at least five years of service with the Bank at the time of any
termination pursuant to Section 4.2 herein. Notwithstanding the foregoing,
persons who have entered into and continue to be covered by an employment
contract or change in control agreement with the Employer shall not be entitled
to participate in this Plan.
3.2 Duration of Participation
-------------------------
A Participant shall cease to be a Participant in the Plan when the
Participant ceases to be an Employee of an Employer, unless such Participant is
entitled to a Payment as provided in the Plan. A Participant entitled to
receipt of a Payment shall remain a Participant in this Plan until the full
amount of such Payment has been paid to the Participant.
ARTICLE IV
PAYMENTS
4.1 Right to Payment
----------------
A Participant shall be entitled to receive from its respective Employer a
Payment in the amount provided in Section 4.3 if there has been a Change in
Control of the Bank or the Holding Company and if, within one (1) year
thereafter, the Participant's employment by an Employer shall terminate for any
reason specified in Section 4.2, whether the termination is voluntary or
involuntary. A Participant shall not be entitled to a Payment if termination
occurs by reason of death, voluntary retirement, voluntary termination other
than for reasons specified in Section 4.2, Disability, or for Just Cause.
4
<PAGE>
4.2 Reasons for Termination
-----------------------
Following a Change in Control, a Participant shall be entitled to a
Payment if employment by an Employer is terminated, voluntarily or
involuntarily, for any one or more of the following reasons:
(a) The Employer reduces the Participant's base salary or rate of
compensation as in effect immediately prior to the Change in Control.
(b) The Employer materially changes Participant's function, duties or
responsibilities which would cause Participant's position to be one of lesser
responsibility, importance or scope with the Employer than immediately prior to
the change in control.
(c) The Employer requires the Participant to change the location of
the Participant's job or office, so that such Participant will be based at a
location more than thirty (30) miles from the location of the Participant's job
or office immediately prior to the Change in Control provided that such new
location is not closer to Participant's home.
(d) The Employer materially reduces the benefits and perquisites
available to the Participant immediately prior to the Change in Control,
provided, however, that a material reduction in benefits and perquisites
generally provided to all Employees of the Bank on a nondiscriminatory basis
would not trigger a payment pursuant to this Plan.
(e) A successor to the Bank fails or refuses to assume the Bank's
obligations under this Plan, as required by Article VII.
(f) The Bank or any successor to the Bank breaches any other
provisions of this Plan.
(g) The Employer terminates the employment of a Participant at or
after a Change in Control other than for Just Cause.
4.3 Amount of Payment
-----------------
(a) Each Participant entitled to a Payment under this Plan shall
receive from the Bank, a lump sum cash payment equal to one-twelfth of Annual
Compensation for each year of service up to a maximum of 199% of Annual
Compensation.
(b) Notwithstanding the provisions of (a) above, if a Payment to a
Participant who is a Disqualified Individual shall be in an amount which
includes an Excess Parachute Payment, the Payment hereunder to that Participant
shall be reduced to the maximum amount which does not include an Excess
Parachute Payment. The terms "Disqualified Individual" and "Excess Parachute
Payment" shall have the same meaning as defined in Section 280G of the Internal
Revenue Code of 1986, as amended, or any successor section thereof.
5
<PAGE>
The Participant shall not be required to mitigate damages on the amount of
the Payment by seeking other employment or otherwise, nor shall the amount of
such Payment be reduced by any compensation earned by the Participant as a
result of employment after termination of employment hereunder.
4.4 Time of Payment
---------------
The Payment to which a Participant is entitled shall be paid to the
Participant by the Employer or the successor to the Employer, in cash and in
full, not later than twenty (20) business days after the termination of the
Participant's employment. If any Participant should die after termination of
the employment but before all amounts have been paid, such unpaid amounts shall
be paid to the Participant's named beneficiary, if living, otherwise to the
personal representative on behalf of or for the benefit of the Participant's
estate.
ARTICLE V
OTHER RIGHTS AND BENEFITS NOT AFFECTED
5.1 Other Benefits
--------------
Neither the provisions of this Plan nor the Payment provided for
hereunder shall reduce any amounts otherwise payable, or in any way diminish the
Participant's rights as an Employee of an Employer, whether existing now or
hereafter, under any benefit, incentive, retirement, stock option, stock bonus,
stock ownership or any employment agreement or other plan or arrangement.
5.2 Employment Status
-----------------
This Plan does not constitute a contract of employment or impose on the
Participant or the Participant's Employer any obligation to retain the
Participant as an Employee, to change the status of the Participant's
employment, or to change the Employer's policies regarding termination of
employment.
6
<PAGE>
ARTICLE VI
PARTICIPATING EMPLOYERS
6.1 Upon approval by the Board of Directors of the Bank, this Plan may be
adopted by the Bank. Upon such adoption, the Subsidiary or Parent shall become
an Employer hereunder and the provisions of the Plan shall be fully applicable
to the Employees of that Subsidiary or Parent. The term "Subsidiary" means any
corporation in which the Bank, directly or indirectly, holds a majority of the
voting power of its outstanding shares of capital stock. The term "Parent" means
any corporation which holds a majority of the voting power of the Bank's
outstanding shares of capital stock.
ARTICLE VII
SUCCESSOR TO THE BANK
7.1 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, expressly and
unconditionally to assume and agree to perform the Bank's obligations under this
plan, 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.
ARTICLE VIII
DURATION, AMENDMENT AND TERMINATION
8.1 Duration
--------
If a Change in Control has not occurred, this Plan shall expire as of the
Expiration Date, unless sooner terminated as provided in Section 8.2, or unless
extended for an additional period or periods by resolution adopted by the Board
of Directors of the Bank.
Notwithstanding the foregoing, if a Change in Control occurs this Plan
shall continue in full force and effect, and shall not terminate or expire until
such date as all Participants who become entitled to Payments hereunder shall
have received such Payments in full.
8.2 Amendment and Termination
-------------------------
The Plan may be terminated or amended in any respect by resolution
adopted by a majority of the Board of Directors of the Bank, unless a Change in
Control has previously occurred. If a Change in Control occurs, the Plan no
longer shall be subject to amendment, change, substitution, deletion, revocation
or termination in any respect whatsoever.
8.3 Form of Amendment
-----------------
The form of any proper amendment or termination of the Plan shall be a
written instrument signed by a duly authorized officer or officers of the Bank,
certifying that the amendment or termination has been approved by the Board of
Directors. A proper amendment of the Plan automatically shall effect a
corresponding amendment to each
7
<PAGE>
Participant's rights hereunder. A proper termination of the Plan automatically
shall effect a termination of all Participants' rights and benefits hereunder.
8.4 No Attachment
-------------
(a) Except as required by law, no right to receive payments under
this Plan 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 such action shall be null, void,
and of no effect.
(b) This Plan shall be binding upon, and inure to the benefit of,
Employee and the Bank and their respective successors and assigns.
ARTICLE IX
LEGAL FEES AND EXPENSES
9.1 All reasonable legal fees and other expenses paid or incurred by a
party hereto pursuant to any dispute or question of interpretation relating to
this Plan shall be paid or reimbursed by the prevailing party in any legal
judgment, arbitration or settlement.
ARTICLE X
REQUIRED PROVISIONS
10.1 The Bank may terminate the Employee's employment at any time,
but any termination by the Bank, other than Termination for Cause, shall not
prejudice Employee's right to compensation or other benefits under this
Agreement. Employee shall not have the right to receive compensation or other
benefits for any period after termination for Just Cause as defined in Section
2.1 hereinabove.
10.2 If the Employee is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice served under
Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
(S)1818(e)(3) or (g)(1), the Bank's obligations under this contract shall be
suspended as of the date of service, unless stayed by appropriate proceedings.
If the charges in the notice are dismissed, the Bank may in its discretion (i)
pay the Employee all or part of the compensation withheld while their contract
obligations were suspended and (ii) reinstate (in whole or in part) any of the
obligations which were suspended.
10.3 If the Employee is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
(S)1818(e)(4) or (g)(1), all obligations of the Bank under this contract shall
terminate as of the effective date of the order, but vested rights of the
contracting parties shall not be affected.
10.4 If the Bank is in default as defined in Section 3(x)(1) of the
Federal Deposit Insurance Act, 12 U.S.C. (S)1813(x)(1), all obligations of the
Bank under this contract shall
8
<PAGE>
terminate as of the date of default, but this paragraph shall not affect any
vested rights of the contracting parties.
9
<PAGE>
EXHIBIT 10.7
THE ROSLYN SAVINGS BANK
MANAGEMENT SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
<S> <C>
ARTICLE I.................................................................. 1
Purpose of the Plan................................................... 1
ARTICLE II................................................................. 1
Definitions........................................................... 1
2.1 Bank......................................................... 2
----
2.2 Board........................................................ 2
-----
2.3 Code......................................................... 2
----
2.4 Company...................................................... 2
-------
2.5 Company Stock................................................ 2
-------------
2.6 Eligible Employee............................................ 2
-----------------
2.7 Employee..................................................... 2
--------
2.8 ERISA........................................................ 2
-----
2.9 ESOP......................................................... 2
----
2.10 Former Participant.......................................... 2
------------------
2.11 Nonqualified Plan........................................... 2
-----------------
2.12 Participant................................................. 2
-----------
2.13 Period of Participation..................................... 2
-----------------------
2.14 SERP Benefit................................................ 3
------------
2.15 SERP........................................................ 3
----
2.16 Termination of Service...................................... 3
----------------------
ARTICLE III................................................................ 3
Participation......................................................... 3
3.1 Eligibility for Participation................................ 3
----------------------------
3.2 Commencement of Participation................................ 3
-----------------------------
3.3 Vesting...................................................... 3
-------
3.4 Termination of Participation................................. 3
----------------------------
ARTICLE IV................................................................. 4
Benefits to Participation............................................. 4
4.2 SERP Benefits................................................ 4
-------------
4.2 Form of Benefits............................................. 4
----------------
ARTICLE V.................................................................. 6
Administration........................................................ 6
5.1 Duties of the Board.......................................... 6
-------------------
5.2 Liabilities of the Board..................................... 6
------------------------
5.3 Expenses..................................................... 6
--------
5.4 Unfunded Character of Plan................................... 6
-------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
ARTICLE VI................................................................ 6
- ----------
Amendment and Termination............................................ 6
6.1 Amendment and Termination................................... 6
-------------------------
6.2 Preservation of Benefits on Amendment....................... 6
-------------------------------------
6.3 Distribution of Benefits on Termination..................... 6
---------------------------------------
ARTICLE VII............................................................... 6
- -----------
Miscellaneous Provisions............................................. 6
------------------------
7.1 Governing Law............................................... 6
-------------
7.2 No Right to Continued Employment............................ 6
--------------------------------
7.3 Construction of Language.................................... 6
------------------------
7.4 Non-alienation of Benefits.................................. 7
--------------------------
7.5 Operation as Unfunded Nonqualified Plan..................... 7
---------------------------------------
</TABLE>
(ii)
<PAGE>
THE ROSLYN SAVINGS BANK
MANAGEMENT SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
Effective ______________, 1996
WHEREAS, effective January 1, 1996, the employees of the Roslyn Savings
Bank are to be provided with benefits under the Roslyn Savings Bank Employee
Stock Ownership Plan (the "ESOP"), a tax-qualified leveraged ESOP; and
WHEREAS, the term of the ESOP loan and the period under which the shares of
Employer Stock acquired by the ESOP with the proceeds of the ESOP loan will be
allocated to the account of ESOP Participants is 30 years;
WHEREAS, certain key management employees will retire from the employ of
the Bank prior to final repayment of the ESOP loan and final allocation of stock
acquired with the proceeds of the ESOP loan;
WHEREAS, the Board of Directors of the Bank desires to implement a plan to
provide certain employees with benefits to replace benefits to which they would
be entitled under the ESOP had they remained in the employ of the Bank until the
final repayment of the ESOP loan and the final allocation of stock acquired with
the proceeds of the ESOP loan;
THEREFORE, by resolution of the Board of Directors, the Management
Supplemental Executive Retirement Plan has been established.
ARTICLE I
Purpose of the Plan
-------------------
The purpose of the Roslyn Savings Bank Management Supplemental Executive
Retirement Plan ("SERP") is to provide certain key management employees of the
Bank who retire prior to final repayment of the ESOP loan and the final
allocation of stock acquired with the proceeds of the ESOP loan, with a benefit
to make up lost benefits they would otherwise be entitled under the terms of the
ESOP had such employees continued their employment until the final repayment of
the ESOP loan.
1
<PAGE>
ARTICLE II
Definitions
-----------
Wherever appropriate to the purposes of the SERP, capitalized terms shall
have the meanings assigned to them under the Retirement Plan and the ESOP.
Notwithstanding the preceding, the following definitions shall apply for the
purposes of this SERP unless a different meaning is clearly indicated by the
context.
2.1 Bank means The Roslyn Savings Bank, having its principal office at
----
1400 Old Northern Boulevard, Roslyn, New York 11576, and its successors or
assigns.
2.2 Board means the Personnel Committee of the Board of Directors of the
-----
Bank.
2.3 Code means the Internal Revenue Code of 1986, as amended from time to
----
time (including the corresponding provisions of any succeeding law).
2.4 Company means Roslyn Bancorp, Inc., the holding company of the Bank.
-------
2.5 Company Stock means the common stock of Roslyn Bancorp, Inc.
-------------
2.6 Eligible Employee means an Employee who is eligible for participation
-----------------
in the SERP in accordance with the provisions of Article III of this SERP.
2.7 Employee means any person, including an officer, who is employed by
--------
the Bank.
2.8 ERISA means the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time (including the corresponding provisions of any
succeeding law).
2.9 ESOP means the Roslyn Savings Bank Employee Stock Ownership Plan.
----
2.10 Former Participant means a person whose participation in the SERP has
------------------
terminated as provided under section 3.4.
2.11 Nonqualified Plan means a plan of deferred compensation which does
-----------------
not meet the requirements of Section 401(a) of the Code.
2.12 Participant means any person who is participating in the SERP in
-----------
accordance with its terms.
2.13 Period of Participation means the period during which a person is a
-----------------------
Participant.
2
<PAGE>
2.14 SERP Benefit means the benefit payable to a Participant pursuant to
------------
the terms of this SERP.
2.15 SERP means this Management Supplemental Executive Retirement Plan as
----
amended from time to time.
2.16 Termination of Service means an Employee's separation from the
----------------------
service of the Bank, whether by resignation, discharge, death, disability,
retirement or otherwise.
ARTICLE III
-----------
Participation
-------------
3.1 Eligibility for Participation.
------------------------------
Only Eligible Employees may be or become Participants.
(a) An Employee shall become an Eligible Employee for SERP Benefits if:
(1) The Board, in its sole discretion, designates him as an
Eligible Employee; and
(2) He is a participant in the ESOP.
3.2 Commencement of Participation.
-----------------------------
An Eligible Employee shall become a Participant on the date determined by
the Board. However, in no event will an Employee become a Participant prior to
January 1, 1996.
3.3 Vesting. A participant shall vest in his or her SERP benefit
-------
according to the following schedule:
<TABLE>
<CAPTION>
Years of SERP Participation Vested %
--------------------------- --------
<S> <C>
1 20%
2 40%
3 60%
4 80%
5 100%
</TABLE>
3
<PAGE>
3.4 Termination of Participation.
----------------------------
Participation in the Plan shall cease on the of (a) the date of the
Participant's Termination of Service or (b) the date on which he ceases to be an
Eligible Employee.
ARTICLE IV
----------
Benefits to Participants
------------------------
4.1 SERP Benefits.
-------------
A Participant who satisfies Section 3.1 shall be entitled, upon his
Termination of Service upon or after attaining Normal Retirement Age or being
eligible for an Early Retirement Benefit under the terms of ESOP, shall be
entitled to an unfunded, unsecured promise from the Bank to receive a SERP
Benefit, subject in all events to the terms of Section 3.3 of this Plan.
The SERP Benefit shall be determined by:
(i) projecting the total number of shares of Company Stock that
would have been allocated to the Participant's account under the
terms of the ESOP had the Participant continued in the employ of the
Bank measured from the date the Participant was first eligible to
participate in the ESOP until the ESOP loan was repaid in full and
the final allocation of shares of Company Stock acquired with the
ESOP loan was made;and then
(ii) reducing the number of shares projected in (i), above, by the
actual number of shares of Company Stock allocated to the Participant
under the terms of the ESOP as of the last day of the final Plan Year
in which the Participant was an Active Participant as defined in the
ESOP; and
(iii) multiplying the number of shares of Company Stock determined
in (ii), above by the average fair market value of the Company Stock
for the 5 year period immediately preceding (or such fewer years as
the Participant has been a SERP Participant) to the Participant's
Retirement.
The projection of shares required by (i) above shall be performed by a public
accountant based on assumptions which the Committee has approved a reasonable at
the time the calculation for the SERP Benefit is performed.
4
<PAGE>
4.2 Form of Benefits.
----------------
(a) SERP benefits shall be payable in a lump sum payment as soon as
practicable after the Participant's Termination of Service. However, the
Committee reserves the right to make payments in a series of periodic payments.
(b) SERP benefits, at the discretion of the Committee, shall be paid in
cash, Company Stock or some combination thereof.
ARTICLE V
---------
Administration
--------------
5.1 Duties of the Board.
-------------------
The Board shall have full responsibility for the management, operation,
interpretation and administration of the Plan in accordance with its terms,
and shall have such authority as is necessary or appropriate in carrying out
its responsibilities. Actions taken by the Board pursuant to this section
5.1 shall be conclusive and binding upon the Bank, Participants, Former
Participants, Beneficiaries, and other interested parties.
5.2 Liabilities of the Board.
-------------------------
Neither the Board nor its individual members shall be deemed to be a
fiduciary with respect to this Plan; nor shall any of the foregoing individuals
or entities be liable to any Participant, Former Participant or Beneficiary in
connection with the management, operation, interpretation or administration of
the Plan, any such liability being solely that of the Bank.
5.3 Expenses.
--------
Any expenses incurred in the management, operation, interpretation or
administration of the Plan shall be paid by the Bank. In no event shall the
benefits otherwise payable under this Plan be reduced to offset the expenses
incurred in managing, operating, interpreting or administering the Plan.
5.4 Unfunded Character of Plan.
--------------------------
The SERP shall be unfunded. Neither the Bank nor the Board nor its
individual members shall segregate or otherwise identify specific assets to be
applied to the purposes of the Plan, nor shall any of them be deemed to be a
trustee of any amounts to be paid under the Plan. Any liability of the Bank to
any person with respect to benefits payable under the Plan shall be based solely
upon such contractual obligations, if any, as shall be created by the Plan, and
shall give rise only to a claim against the general assets of the Bank. No such
liability
5
<PAGE>
shall be deemed to be secured by any pledge or any other encumbrance on any
specific property of the Bank.
ARTICLE VI
----------
Amendment and Termination
-------------------------
6.1 Amendment and Termination.
--------------------------
Subject to the provisions of Sections 6.2 and 6.3, the Board shall have the
right to amend or terminate the Plan, in whole or in part.
6.2 Preservation of Benefits on Amendment.
-------------------------------------
No amendment or termination of this SERP shall reduce the vested and
accrued benefits, if any, of a Participant under this SERP.
6.3 Distribution of Benefits on Termination.
---------------------------------------
In the event of termination or partial termination of the SERP, the Bank
shall pay to affected Participants, Former Participants or Beneficiaries
supplemental benefits, if any, to which they are entitled under section 3.1.
These benefits shall continue to be payable as provided in section 3.1.
ARTICLE VII
-----------
Miscellaneous Provisions
------------------------
7.1 Governing Law.
-------------
The SERP shall be construed, administered, and enforced according to laws
of the State of New York, except to the extent that such laws are pre-empted by
the federal laws of the United States of America.
7.2 No Right to Continued Employment.
--------------------------------
Neither the establishment of the SERP, nor any provisions of the SERP, nor
any action of the Board shall be held or construed to confer upon any Employee
the right to a continuation of employment by the Bank. Subject to any
employment contract, the Bank reserves the right to dismiss any Employee or
otherwise deal with any Employee to the same extent as though the SERP had not
been adopted.
<PAGE>
7.3 Construction of Language.
------------------------
Wherever appropriate in the SERP, words used in the singular may be read in
the plural, words in the plural may be read in the singular, and words importing
the masculine gender shall be deemed equally to refer to the feminine and the
neuter. Any reference to any Article or section shall be to an Article or
section of this SERP, unless otherwise indicated.
7.4 Non-alienation of Benefits.
--------------------------
The right to receive a benefit under the SERP shall not be subject in any
manner to anticipation, alienation, or assignment, nor shall such right be
liable for or subject to debts, contracts, liabilities. Should any Participant,
Former Participant, Beneficiary or other person attempt to anticipate, alienate
or assign his interest in or right to a benefit, or should any person claiming
against him seem to subject such interest or right to legal or equitable
process, all the interest or right of such Participant or Former Participant,
Beneficiary or other person entitled to benefits under the SERP shall cease,
and in that event, such interest or right shall be held or applied, at the
direction of the Board, for or to the benefit of such Participant, Former
Participant, Beneficiary or other person or his spouse, children or other
dependents in such manner and in such proportions as the Board may deem proper.
7.5 Operation as Unfunded Nonqualified Plan.
---------------------------------------
The SERP is intended to be an unfunded, nonqualified plan maintained
primarily for the purpose of providing deferred compensation for a select group
of management or highly compensated employees. The SERP is not intended to
comply with the requirements of section 401(a) of the Code. The SERP shall be
administered and construed so as to effectuate this intent.
Approved by the Compensation Committee on ___________________.
Approved by the Board of Directors at the meeting held on ________________.
----------------------------------
Secretary
7
<PAGE>
EXHIBIT 23.1
Consent of Independent Auditors
-------------------------------
The Board of Trustees
The Roslyn Savings Bank:
We consent to the use of our report dated March 8, 1996 (relating to the
consolidated financial statements of The Roslyn Savings Bank), and our report
dated September 15, 1995 (relating to the financial statements of The Roslyn
Savings Bank 401(k) Savings Plan), and the references to our firm under the
headings "Experts" and "Consolidated Statements of Income" in the Registration
Statement on Form S-1 and related Prospectus and Prospectus Supplement of Roslyn
Bancorp, Inc. Our report relating to the consolidated financial statements of
The Roslyn Savings Bank includes an explanatory paragraph related to changes in
accounting principles.
KPMG PEAT MARWICK LLP
Jericho, New York
August 20, 1996
<PAGE>
EXHIBIT 23.2
[LETTERHEAD OF MULDOON, MURPHY & FAUCETTE APPEARS HERE]
CONSENT
We hereby consent to the references to this firm and our opinions in: the
Registration Statement on Form S-1 filed by Roslyn Bancorp, Inc., Roslyn, New
York, and all amendments thereto; in the Form H-(e)1-S for Roslyn Bancorp, Inc.,
and all amendments thereto; and in the Applications for Conversion on Form 86-AC
filed by The Roslyn Savings Bank (the "Bank"), and all amendments thereto, and
in the Notice and Application for The Roslyn Savings Bank filed with the Federal
Deposit Insurance Corporation and all amendments thereto, relating to the
conversion of the Bank from a New York chartered mutual savings bank to an New
York chartered stock savings bank, the concurrent issuance of the Bank's
outstanding capital stock to Roslyn Bancorp, Inc., a holding company formed for
such purpose, and the offering of Roslyn Bancorp Inc.'s common stock.
MULDOON, MURPHY & FAUCETTE
/s/Muldoon, Murrphy & Faucette
Dated this 15th day of
August, 1995
<PAGE>
EXHIBIT 23.3
[LETTERHEAD OF MORRIS, NICHOLS, ARSHT & TUNNELL APPEARS HERE]
August 15, 1996
Muldoon, Murphy & Faucette
5101 Wisconsin Avenue, N.W.
Washington, DC 20016
Ladies and Gentlemen:
We hereby consent to the references to this firm and our opinions
in the Registration Statement on Form S-1 by Roslyn Bancorp, Inc. and all
amendments thereto, the Application for Conversion on the Form 86-AC filed
by The Roslyn Savings Bank (the "Bank") and all amendments thereto, and the
Notice and Application for Conversion for The Roslyn Savings Bank, Roslyn,
New York filed by The Roslyn Savings Bank filed with the Federal Deposit
Insurance Corporation and all amendments thereto, relating to the
conversion of the Bank from a New York chartered mutual savings bank to a
New York chartered stock savings bank, the concurrent issuance of the
Bank's outstanding capital stock to Roslyn Bancorp, Inc., a holding company
formed for such purpose, and the offering of Roslyn Bancorp, Inc.'s common
stock.
Very truly yours,
/s/ Morris, Nichols, Arsht & Tunnell
<PAGE>
EXHIBIT 23.4
[LETTERHEAD OF FINPRO APPEARS HERE]
August 15, 1996
Board of Directors
The Roslyn Savings Bank
1400 Old Northern Boulevard
Roslyn, New York 11576
Dear Board Members:
We hereby consent to the use of our firm's name, FinPro, Inc. ("FinPro") in the
Application for Conversion on Form 86-AC filed by The Roslyn Savings Bank, and
any amendments thereto, for permission to convert to a stock savings institution
and references to the Conversion Valuation Appraisal Report ("Report") and the
valuation of The Roslyn Savings Bank provided by FinPro, and our opinion
regarding subscription rights filed as an exhibit to the applications referred
to below. We also consent to the use of our firm's name and the inclusion of,
summary of and references to our Report in the Form S-1 Registration Statement
filed by The Roslyn Bancorp, Inc., and any amendments thereto, the Form 86-AC
Application filed by The Roslyn Savings Bank, and any amendments thereto, and
the notice and Application for Conversion for the Roslyn Savings Bank, Roslyn,
New York filed by the Roslyn Savings Bank and any amendments thereto.
Very Truly Yours,
/s/ Donald J. Musso
Donald J. Musso
Basking Ridge, New Jersey
August 15, 1996
________________________________________________________________________________
"BUSINESS SOLUTIONS, NOT BUSINESS BURDENS"
<PAGE>
[LETTERHEAD OF FINPRO APPEARS HERE]
August 15, 1996
Board of Directors
The Roslyn Savings Bank
1400 Old Northern Boulevard
Roslyn, New York 11576
Dear Board Members:
All capitalized terms not otherwise defined in this letter have the meanings
given such terms in the Plan of Conversion (the "Plan") adopted by the Board of
Directors of The Roslyn Savings Bank (the "Bank"), whereby the Bank will convert
from a federally chartered mutual savings bank to a federally chartered stock
savings association and issue all of the Bank's outstanding capital stock to The
Roslyn Bancorp, Inc. (the "Company"). Simultaneously, the Company will issue
shares of common stock.
We understand that in accordance with the Plan, Subscription Rights to purchase
shares of the Conversion Stock are to be issued to (i) Eligible Account Holders;
(ii) the ESOP; (iii) Supplemental Eligible Account Holders; and (iv) Other
Members, collectively referred to as the "Recipients". 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 the Recipients the right only to purchase shares of Conversion Stock at
the same price as will be paid by members of the general public in the Community
Offering, but without undertaking any independent investigation of state or
federal law or the position of the Internal Revenue Service with respect to this
issue, we are of the belief that:
(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 Company's value alone. Accordingly, no assurance can
be given that persons who subscribe to shares of Conversion Stock in the
conversion will thereafter be able to buy or sell such shares at the same price
paid in the Subscription Offering.
Very Truly Yours,
FinPro, Inc.
/s/ Donald J. Musso
Donald J. Musso
President
________________________________________________________________________________
"BUSINESS SOLUTIONS, NOT BUSINESS BURDENS"
<PAGE>
EXHIBIT 23.5
[LETTERHEAD OF O'REILLY, MARSH & CORTESELLI P.C. APPEARS HERE]
CONSENT
We hereby consent to the references to this firm and our opinions in
the Registration Statement on Form S-1 filed by Roslyn Bancorp, Inc. and
all amendments thereto and the Application for Conversion on the Form 86-AC
filed by The Roslyn Savings Bank (the "Bank") and all amendments thereto,
and the Notice and Application for Conversion for The Roslyn Savings Bank,
Roslyn, New York filed by The Roslyn Savings Bank with the Federal Deposit
Insurance Corporation and all amendments thereto relating to the conversion
of the Bank from a New York chartered mutual savings bank to a New York
chartered stock savings bank, the concurrent issuance of the Bank's
outstanding capital stock to Roslyn Bancorp, Inc., a holding company formed
for such purpose, and the offering of Roslyn Bancorp, Inc.'s common stock.
/s/ O'Reilly, Marsh & Corteselli P.C.
------------------------------------
O'REILLY, MARSH & CORTESELLI P.C.
DATED THIS 16TH DAY OF AUGUST, 1996
<PAGE>
EXHIBIT 24.1
CONFORMED
POWERS OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that each person whose signature appears
below constitutes and appoints Joseph L. Mancino and Michael P. Puorro as the
true and lawful attorneys-in-fact and agents with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities to sign any or all amendments to the Application for Conversion on
Form 86-AC and the Form S-1 Registration Statement, and to file the same, with
all exhibits thereto, and other documents in connection therewith, with the New
York State Banking Department or the U.S. Securities and Exchange Commission,
respectively, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and things requisite and
necessary to be done as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents or his substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the New York State Banking Department
regulations and the Securities Act of 1933, as amended, and any rules and
regulations promulgated thereunder, the foregoing Powers of Attorney prepared in
conjunction with the Application for Conversion on Form 86-AC and the Form S-1
Registration Statement have been duly signed by the following persons in the
capacities and on the dates indicated.
NAME DATE
---- ----
/s/ Joseph L. Mancino August 15, 1996
- -----------------------------------------
Joseph L. Mancino
Chairman of the Board,
Chief Executive Officer and
President
(principal executive officer)
Roslyn Bancorp, Inc.
Chairman of the Board, Chief
Executive Officer and President
(principal executive officer)
The Roslyn Savings Bank
/s/ Michael P. Puorro August 15, 1996
- -----------------------------------------
Michael P. Puorro
Vice President and Chief Financial Officer
(principal accounting and financial officer)
Roslyn Bancorp, Inc.
Vice President and Chief Financial Officer
(principal accounting and financial officer)
The Roslyn Savings Bank
<PAGE>
/s/ Mary M.Ehrich August 15, 1996
- ----------------------------------------
Mary M. Ehrich
Senior Vice President and Secretary
The Roslyn Savings Bank
/s/ Floyd N. York August 15, 1996
- -----------------------------------------
Floyd N. York
Director
Roslyn Bancorp, Inc.
Trustee
The Roslyn Savings Bank
/s/ Victor C. McCuaig August 15, 1996
- -----------------------------------------
Victor C. McCuaig
Director
Roslyn Bancorp, Inc.
Trustee
The Roslyn Savings Bank
/s/ John P. Nicholson August 15, 1996
- ----------------------------------------
John P. Nicholson
Director
Roslyn Bancorp, Inc.
Trustee
The Roslyn Savings Bank
/s/ James E. Swiggett August 15, 1996
- -----------------------------------------
James E. Swiggett
Director
Roslyn Bancorp, Inc.
Trustee
The Roslyn Savings Bank
/s/ Robert G. Freese August 15, 1996
- -----------------------------------------
Robert G. Freese
Director
Roslyn Bancorp, Inc.
Trustee
The Roslyn Savings Bank
<PAGE>
/s/ Thomas J. Calabrese, Jr. August 15, 1996
- ----------------------------------------
Thomas J. Calabrese, Jr.
Director
Roslyn Bancorp, Inc.
Trustee
The Roslyn Savings Bank
/s/ Dr. Edwin W. Martin, Jr. August 15, 1996
- -----------------------------------------
Dr. Edwin W. Martin, Jr.
Director
Roslyn Bancorp, Inc.
Trustee
The Roslyn Savings Bank
/s/ Richard C. Webel August 15, 1996
- -----------------------------------------
Richard C. Webel
Director
Roslyn Bancorp, Inc.
Trustee
The Roslyn Savings Bank
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9 EXHIBIT 27
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE FORM S-1 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 5-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAY-31-1996
<CASH> 9,921
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 18,500
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 951,331
<INVESTMENTS-CARRYING> 314,163
<INVESTMENTS-MARKET> 311,154
<LOANS> 436,061
<ALLOWANCE> 22,312
<TOTAL-ASSETS> 1,772,175
<DEPOSITS> 1,441,845
<SHORT-TERM> 69,598
<LIABILITIES-OTHER> 38,488
<LONG-TERM> 0
0
0
<COMMON> 0
<OTHER-SE> 222,244
<TOTAL-LIABILITIES-AND-EQUITY> 1,772,175
<INTEREST-LOAN> 15,249
<INTEREST-INVEST> 34,227
<INTEREST-OTHER> 587
<INTEREST-TOTAL> 50,063
<INTEREST-DEPOSIT> 26,198
<INTEREST-EXPENSE> 27,128
<INTEREST-INCOME-NET> 22,935
<LOAN-LOSSES> 300
<SECURITIES-GAINS> (257)
<EXPENSE-OTHER> 13,544
<INCOME-PRETAX> 12,045
<INCOME-PRE-EXTRAORDINARY> 8,391
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,391
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 7.39
<LOANS-NON> 11,832
<LOANS-PAST> 113
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 2,357
<ALLOWANCE-OPEN> 23,350
<CHARGE-OFFS> 1,340
<RECOVERIES> 2
<ALLOWANCE-CLOSE> 22,312
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 22,312
</TABLE>
