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As filed with the Securities and Exchange Commission on May 1, 1997
Registration No. 333-23573
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SECURITIES AND EXCHANGE COMISSION
Washington, D.C. 20549
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PRE-EFFECTIVE AMENDMENT ONE TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
GSB FINANCIAL CORPORATION
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(Exact Name of Registrant as Specified in Its Charter)
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<S> <C> <C>
Delaware 6035 06-1481061
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(State or Other Jurisdiction (Primary Standard Industry (I.R.S. Employer
of Incorporation or Organization) Classification Code Number) Identification No.)
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One South Church Street, Goshen, New York 10924. Tel No. (914) 294-6151.
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(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
Clifford E. Kelsey, Jr.
President and Chief Executive Officer
Goshen Savings Bank
One South Church Street, Goshen, New York 10924
(914) 294-6151
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(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
Please send copies of all communications to:
Jay L. Hack, Esq.
Clifford S. Weber, Esq.
Serchuk & Zelermyer, LLP
81 Main Street, White Plains, New York 10601
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this registration statement becomes effective.
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462
(cc) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If the delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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Title of Each Class of Amount to be Proposed Proposed Maximum Amount of
Securities Being Registered Registered Offering Price Aggregate Offering Price(1) Registration Fee
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Common Stock, 2,248,250 $10.00 $22,482,500 $6,812.88(2)
$0.01 Par Value
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(1) Estimated solely for purposes of calculating the registration fee.
(2) Previously paid
The registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
Cross Reference Sheet Showing Location in the 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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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 and Number of
Shares to be Issued
6. Dilution Not Applicable
7. Selling Security Holders Not Applicable
8. Plan of Distribution Front Cover Page; The Conversion - Subscription
Offering; -Public Offering; -Community Offering
9. Description of Securities to be Registered The Conversion - Restrictions on Transferability of
Subscription Rights and Common Stock; Restrictions
on Acquisition of the Company and the Bank;
Description of the Capital Stock of the Company
10. Interests of Named Experts and Counsel Not Applicable
11. Information with Respect Front Cover Page; GSB Financial Corporation;
to the Registrant Goshen Savings Bank; Regulatory Capital
Compliance; Dividend Policy; Goshen Savings Bank
Statements of Income; Management's Discussion and
Analysis of Financial Condition and Results of
Operations; Business of the Bank; Regulation;
Management of the Company; Management of the Bank;
The Conversion; Description of the Capital Stock of
the Company; Financial Statements
12. Disclosure of Commission Position on Not Applicable
Indemnification for Securities Act Liabilities
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<PAGE>
GSB FINANCIAL CORPORATION
(PROPOSED HOLDING COMPANY FOR GOSHEN SAVINGS BANK)
1,955,000 SHARES OF COMMON STOCK - $10.00 PER SHARE
GSB Financial Corporation (the "Company"), a Delaware Corporation, recently
formed to own all the stock of Goshen Savings Bank (the "Bank"), is offering up
to 1,955,000 of its common stock, par value $.01 per share (the "Common Stock"),
for a purchase price of $10.00 per share (the "Purchase Price") in connection
with the conversion of the Bank from a mutual savings bank to a stock savings
bank pursuant to the Bank's plan of conversion (the "Plan" or "Plan of
Conversion"). In certain circumstances, the Company may increase the amount of
Common Stock offered to 2,248,250 shares. See footnote 4 to the table below.
The conversion of the Bank to stock form, the issuance of the Bank's stock to
the Company and the sale of the Common Stock by the Company are referred to as
the "Conversion." Consummation of the Conversion is subject to, among other
things, (i) the approval of the Plan of Conversion by a majority of the votes
eligible to be cast by members (depositors) of the Bank, (ii) the receipt of all
required federal (Continued on following page)
FOR INFORMATION ON HOW TO PURCHASE COMMON STOCK, CALL (914) ___________.
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BEFORE PURCHASING
COMMON STOCK, SEE "RISK FACTORS" BEGINNING ON PAGE ______.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, THE OFFICE OF THRIFT SUPERVISION OR ANY
OTHER FEDERAL AGENCY OR ANY STATE SECURITIES COMMISSION, NOR HAS SUCH
COMMISSION, OFFICE OR 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.
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=====================================================================================================
Estimated Underwriting Fees Estimated Net
Purchase Price(1) and Other Expenses(2) Conversion Proceeds(3)
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<S> <C> <C> <C>
Per Share $10.00 $0.48 $9.52
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Minimum Total(1) $14,450,000 $771,000 $13,679,000
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Midpoint Total(1) $17,000,000 $818,000 $16,182,000
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Maximum Total(1) $19,550,000 $865,000 $18,685,000
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Minimum Total
As Adjusted(4) $22,482,500 $917,500 $21,565,000
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(1) Determined in accordance with an independent appraisal (the "Appraisal") by
Capital Resources Group, Inc. ("CRG") dated March 14, 1997, which states that
the aggregate estimated pro forma market value of the Common Stock to be
outstanding immediately after the Conversion ranges from $14,450,000 to
$19,550,000 with a midpoint of $17,000,000 (the "Valuation Range"). The
Appraisal is based upon estimates and projections that may change. The Appraisal
is not a recommendation to purchase Common Stock nor any assurance that a
purchaser will be able to sell Common Stock at prices equal to or greater than
the Purchase Price. See "The Conversion--Stock Pricing and Number of Shares to
be Issued."
(2) Consists of the estimated costs to the Bank and the Company arising from the
Conversion, including estimated fixed expenses of approximately $517,000 and
marketing fees to be paid to Capital Resources Inc. ("Capital Resources," an
affiliate of CRG), which fees are estimated to be $254,000 and $348,000,
respectively, at the minimum and the maximum of the Valuation Range. See "The
Conversion--Marketing Arrangements." Such fees may be deemed to be underwriting
fees, and Capital Resources may be deemed to be an underwriter. See "Pro Forma
Data" for the assumptions used to arrive at these estimates. Actual fees and
expenses may vary from the estimates.
(3) Actual net proceeds may vary substantially from estimated amounts depending
on the number of shares sold and other factors. Includes the purchase of shares
of Common Stock by the GSB Financial Corporation Employee Stock Ownership Plan
and Trust (the "ESOP"), funded by a loan which the Company intends to make to
the ESOP, which initially will be deducted from the Company's stockholders'
equity. See "Use of Proceeds" and "Pro Forma Data."
(4) As adjusted to give effect to the sale of up to an additional 15% of the
shares which may be offered, without resolicitation of subscribers or any right
of cancellation, due to regulatory or market considerations and general
financial and economic conditions. See "Pro Forma Data" and "The
Conversion--Stock Pricing and Number of Shares to Be Issued." For a discussion
of the distribution and allocation of the additional shares, if any, see "The
Conversion--Subscription Offering."
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR
DEPOSITS AND ARE NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR BY ANY OTHER GOVERNMENT AGENCY.
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CAPITAL RESOURCES, INC.
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The date of this Prospectus is May ___, 1997.
<PAGE>
(Continued from previous page)
approvals for the issuance of the Common Stock, and (iii) the sale of at least
$14,450,000 of Common Stock, which is the minimum of the estimated pro forma
market value of the Common Stock to be issued in the Conversion (the "Valuation
Range," which has been established as a range of from $14,450,000 to
$19,550,000, with a midpoint of $17,000,000). In addition, the consummation of
the Conversion is also conditioned on the receipt of an opinion of counsel or a
satisfactory Internal Revenue Service ("IRS") ruling regarding the federal tax
consequences of the Conversion. See "The Conversion--Conditions and
Termination."
The right to subscribe for the Common Stock has been granted, in the
following order of priority, to:
First Priority - Depositors of the Bank on December 31, 1995 ("Eligible
Account Holders").
Second Priority - Tax-qualified employee benefit plans of the Bank or
the Company ("Employee Plans").
Third Priority - Depositors of the Bank on March 31, 1997 ("Supplemental
Eligible Account Holders").
Fourth Priority - Depositors of the Bank on ____________, 1997
("Other Members").
The offer of Common Stock by the Company to the four priority groups is referred
to as the "Subscription Offering". Subscription rights granted in the
Subscription Offering may not be transferred by the holders of those rights.
Persons violating this prohibition against transfer may lose their right to
purchase stock in the Subscription Offering and may be subject to other
penalties.
Subject to the prior rights of holders of subscription rights and
market conditions at or near the completion of the Subscription Offering, the
Bank may also offer unsold shares of Common Stock for sale through Capital
Resources, Inc. ("Capital Resources"), as marketing agent on a best efforts
basis, to certain persons to whom this Prospectus is delivered (the "Public
Offering"). The Subscription Offering and the Public Offering are referred to,
together, as the "Offerings." See "The Conversion--Public Offering." The Company
may also elect to conduct a community offering to sell any remaining unsold
shares, with a preference given to natural persons residing in Orange County,
New York. See "The Conversion -- Community Offering.
The GSB Financial Corporation Employee Stock Ownership Plan and Trust
(the "ESOP") intends to subscribe for 8% of the total number of shares of Common
Stock issued in the Conversion. However, the ESOP may purchase some or all of
such shares in the open market after the Conversion. Shares purchased by the
ESOP in the Subscription Offering are anticipated to be funded by a loan from
the Company to be repaid over a period of up to ten years (the "ESOP Loan").
Except for the ESOP, no person may subscribe in the Subscription
Offering for more than $150,000 of the Common Stock offered in the Conversion
and no person, together with associates of and persons acting in concert with
such person, may purchase in the Offerings more than $150,000 of Common Stock.
The maximum purchase limitation may be increased in the sole discretion of the
Bank or the Company. The minimum purchase is 25 shares. See "The
Conversion--Additional Purchase Restrictions."
The Bank has engaged Capital Resources to consult with and advise the
Company and the Bank in the Offerings, and Capital Resources 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. Capital
Resources is not obligated to take or purchase any shares of Common Stock in the
Offerings. The Company and the Bank have agreed to indemnify Capital Resources
against certain liabilities arising under the Securities Act of 1933, as
amended. See "The Conversion--Marketing Arrangements."
The Subscription Offering will terminate at 12:00 noon, eastern time,
on ______________, 1997 (the "Subscription Offering Expiration Date") unless
extended by the Bank and the Company, with the approval of the Office of Thrift
Supervision (the "OTS"), if necessary. To subscribe for shares in the
Subscription Offering, the Company must receive an executed order form and
certification form with payment in full at $10.00 per share (or appropriate
instructions authorizing withdrawal from a deposit account). Subscriptions paid
by cash, check, bank draft, or money order will be placed in a segregated
account at the Bank and will earn interest at the Bank's passbook rate from the
date of receipt until the completion or termination of the Conversion. Payments
authorized to be withdrawn from deposit accounts at the Bank will continue to
earn interest at the contractual rate until the Conversion is completed or
terminated, but these funds will be unavailable to the depositor for any other
purpose. See "The Conversion--Subscription Offering" and "--Purchasing Common
Stock."
The Company has received conditional approval from The Nasdaq Stock
Market, Inc. to have the Common Stock quoted on the Nasdaq National Market under
the symbol "GOSB" upon completion of the Conversion. 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 the Common Stock will trade at or above the Purchase Price. See
"Risk Factors--Absence of Market for Common Stock."
2
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MAP TO BE ADDED
3
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SUMMARY
THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION AND
FINANCIAL STATEMENTS INCLUDED IN THIS PROSPECTUS.
GSB Financial Corporation
The Company is a Delaware corporation recently organized by the Bank to
own all of the capital stock of the Bank to be issued in the Conversion.
Immediately after the Conversion, the only significant assets of the Company
will be (1) the capital stock of the Bank, (2) the loan that the Company intends
to make to the ESOP and (3) the net proceeds from the sale of the Company's
stock remaining after acquiring the capital stock of the Bank and funding the
ESOP Loan. The net proceeds from the sale of the Common Stock in the Offerings
are estimated to be from $13,679,000 to $18,685,000, subject to a possible
increase to $21,564,000 in the event of an increase of up to 15% in the Common
Stock to be issued in the Conversion. The Company will buy all the stock to be
issued by the Bank in the Conversion for a price equal to 50% of the net
proceeds. The remaining net proceeds will be retained by the Company and used
for general corporate purposes. The 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. See "Use of
Proceeds." The business of the Company will initially consist of overseeing its
investment in the Bank. See "Business of the Company," "Business of the Bank"
and "Regulation--Holding Company Regulation."
Goshen Savings Bank
General. The Bank was originally founded in 1871 as a New York mutual
savings bank. On March 18, 1997, the Bank became a federal mutual savings bank.
The Bank is extensively regulated, supervised and examined by the OTS and the
Federal Deposit Insurance Corporation ("FDIC"). The Bank has a main office in
Goshen, New York, a nearby drive-up facility, and a branch in an elder care
facility in Goshen which opened in March 1997. The Bank's market area consists
of the village of Goshen and surrounding communities to a radius of 12 miles,
including most of Orange County, New York. The Bank gathers deposits primarily
from its market area and makes loans primarily to persons or businesses in its
market area. See "Business of the Bank--Market Area" and "--Competition." Most
of the Bank's loans are mortgage loans secured by one-to-four family
owner-occupied residences in its market area. To a lesser extent, the Bank makes
commercial mortgage loans, construction loans and consumer loans. The Bank also
invests in U.S. Treasury and agency securities, corporate debt securities,
mortgage-backed securities, certain mutual fund and equity securities, and other
liquid assets.
At December 31, 1996, the Bank had total assets of $97.0 million, of
which $61.0 million were loans and $27.2 million were investment and
mortgage-backed securities, total deposits of $82.6 million and total equity
(retained earnings) of $12.1 million. At that same date, the Bank satisfied all
capital requirements of the FDIC which then applied to it. The Bank's tangible,
core and total risk-based capital ratios at such date, calculated in accordance
with OTS regulations that have applied to it since it became a federal savings
bank on March 18, 1997, were 12.30%, 12.30% and 21.85%, respectively. The Bank
satisfied the capital ratio requirements to be classified as "well capitalized"
by the OTS. See "Regulatory Capital Compliance," "Capitalization," "Pro Forma
Data" and "Regulation--Regulation of Federal Savings Associations." The Bank's
deposits are insured up to the maximum allowable amount by the Bank Insurance
Fund (the "BIF") of the FDIC.
The Bank's net income (loss) was $295,000 for the three months ended
December 31, 1996 and was $558,000, ($462,000) and $311,000 for the 1996, 1995
and 1994 fiscal years, respectively. The Bank's net loss in fiscal 1995 resulted
in part from a $279,000 provision for losses related to the failure of Nationar,
then the Bank's principal correspondent bank, and a charge of $394,000
representing the cumulative after tax effect of an accounting change. See
"Selected Financial Information," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business of the Bank."
Business Strategy. The Bank's principal business strategy has been to
maintain its focus as a traditional local-oriented institution by concentrating
its lending activities in one-to-four family residential mortgage loans,
4
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primarily first mortgage loans, but also including residential second mortgages
and home equity line of credit loans. The Bank seeks to maintain a high level of
credit quality with low delinquencies in order to minimize loan losses. See
"Business of the Bank--Lending Activities" and "--Asset Quality." The Bank's
non-loan investments are also concentrated in highly-rated debt securities. See
"Business of the Bank--Investment Activities."
The Conversion and the Sale of Company Stock
The Bank's Board of Directors has adopted the Plan of Conversion which
provides that the Bank will become a federal stock savings bank. All of the
capital stock of the Bank issued in the Conversion will be acquired by the
Company in exchange for 50% of the net proceeds from the sale of the Company's
stock. The Conversion cannot be completed unless, among other things, it is
approved by the Bank's members (depositors) at a special meeting (the "Special
Meeting") to be held on ______________, 1997. See "The Conversion--General."
The purpose of the Conversion is to increase the Bank's capital and so
that it will be structured as a stock institution like commercial banks, most
major business corporations and a growing number of savings institutions. The
Conversion will enhance the Bank's ability to raise additional capital, expand
its current operations, acquire other financial institutions or branch offices,
and provide additional funds for home financing in its market area. The holding
company form of organization in which the Company owns all the stock of the Bank
provides additional flexibility to diversify through newly-formed subsidiaries
or through acquisitions of or mergers with other financial institutions. There
are no current arrangements, understandings or agreements regarding any such
opportunities. See "The Conversion--Reasons for the Conversion." The holding
company form of organization also provides certain protections against hostile
takeovers. See "Risk Factors--Certain Anti-takeover Provisions."
The Company's Common Stock will be offered in the Subscription
Offering, in order of priority, to Eligible Account Holders, Employee Plans of
the Bank or the Company, Supplemental Eligible Account Holders and Other
Members. If the amount of Common Stock to be issued is increased as a result of
an increase of up to 15% in the maximum of the Valuation Range, the ESOP will
have a first priority right to purchase such additional shares. Subscription
rights will expire at 12:00 noon, eastern time, on the Subscription Offering
Expiration Date, unless extended by the Bank and the Company, with the approval
of the OTS, if necessary. If available after the Subscription Offering, Common
Stock is expected to be offered in a Public Offering. The Plan of Conversion
also permits the Bank and the Company to sell any remaining Common Stock in a
Community Offering with a preference to natural persons residing in Orange
County, New York. See "The Conversion--Subscription Offering," "--Public
Offering," and "--Community Offering."
The Bank and the Company have retained Capital Resources as consultant
and advisor in connection with the Offerings and to assist in soliciting
subscriptions and purchase orders in the Offerings. The Bank and the Company
will pay a fee to Capital Resources based on the aggregate purchase price of the
Common Stock sold in the Offerings. Capital Resources is affiliated with Capital
Resources Group, Inc. ("CRG"), which has prepared the appraisal of the estimated
pro forma market value of the Common Stock to be issued in the Conversion (the
"Appraisal"). See "The Conversion--Marketing Arrangements."
5
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Purchase Procedure
In order to purchase Common Stock in the Subscription Offering, a
purchaser must submit a fully completed stock order form, a signed certification
form required by the OTS, and payment in full either by check, money order, bank
draft, cash or an authorization to withdraw funds from an account at the Bank.
Wire transfers will not be accepted. Orders in excess of $25,000 must be paid
for by bank check, certified check or withdrawal authorization from an account
with sufficient collected funds. The Company and the Bank are not obligated to
accept or process orders which are submitted on facsimile or copied stock order
forms. The Bank is prohibited from lending funds to any person or entity for the
purpose of purchasing Common Stock in the Conversion. All persons with
subscription rights must list all their accounts on the stock order form, giving
all names on each account and the account numbers. Failure to do so may reduce
the number of shares allocated to the subscriber if there is an oversubsription
in any priority category. See "The Conversion--Purchasing Common Stock."
Restrictions on Transfer of Subscription Rights
Subscription rights may not be transferred and no agreement to transfer
subscription rights will be valid. Each person exercising subscription rights
must certify that any purchase of Common Stock will be solely for the
purchaser's own account and that there is no agreement or understanding
regarding the sale or transfer of any shares purchased as a result of the
exercise of those rights. The Company and the Bank will pursue any and all legal
and equitable remedies if they become aware of the transfer of subscription
rights and will not honor orders known by them to involve the transfer of such
rights. See "The Conversion--Restrictions on Transferability of Subscription
Rights and Common Stock."
Purchase Limitations
The minimum purchase is 25 shares. The maximum purchase limit is
$150,000, except that the ESOP will be permitted to purchase 8% of the shares of
Common Stock issued in the Conversion. At any time during the Conversion, the
Company and the Bank may increase the maximum purchase limitation, and increase
the amount that may be subscribed for in the Offerings, to up to 5% of the
shares offered. The Company may further increase the maximum purchase limit to
9.99% of the shares offered, but the amount by which each order exceeds 5% of
the shares offered may not, in the aggregate, exceed 10% of the total shares
offered. If the maximum purchase limit is increased, subscribers who submit
orders for $150,000 of Common Stock will be resolicited and given an opportunity
to increase their orders. See "The Conversion--Additional Purchase
Restrictions."
Stock Pricing and Number of Shares to be Issued
The aggregate purchase price of the Common Stock to be issued in the
Conversion will be based upon the Appraisal. CRG has advised the Bank that in
its opinion, dated March 14, 1997, the aggregate estimated pro forma market
value of such Common Stock, representing the estimated market value of such
Common Stock upon consummation of the Conversion and after the receipt of the
net proceeds by the Company, ranged from $14,450,000 to $19,550,000, with a
midpoint of $17,000,000. See "The Conversion--Stock Pricing and Number of Shares
to Be Issued." The Company has established a Purchase Price of $10.00 per share,
and, therefore, the Company intends to sell between 1,445,000 and 1,955,000
shares of Common Stock in the Conversion, subject to a possible increase by up
to 15% as described below. The Appraisal is not a recommendation of any kind as
to the advisability of purchasing Common Stock nor can any assurance be given
that purchasers of the Common Stock in the Conversion will be able to sell such
shares at or above the Purchase Price.
The actual number of shares of Common Stock to be issued in the
Conversion will be determined by the Company and the Bank based upon an updated
appraisal by CRG of the estimated pro forma market value of the Common Stock,
giving effect to the Conversion, at the completion of the Offerings. If approved
by the OTS, the Valuation Range may be increased or decreased to reflect market
and economic conditions prior to the completion of the Conversion, and under
such circumstances the Company may increase or decrease the number of shares of
Common Stock to be issued in the Conversion. The maximum of the Valuation Range
may be increased by up to 15% and the number of shares of Common Stock to be
issued in the Conversion may be increased to 2,248,250 shares due to regulatory
considerations, changes in the market and general financial and economic
conditions. Subscribers will be resolicited and allowed to modify or cancel
their subscriptions if the updated appraisal by CRG reflects an estimated pro
forma market value of the Common Stock to be issued in the Conversion of more
than $22,482,500 or less than $14,450,000. Subscribers will also be permitted to
modify or cancel their subscriptions
6
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if the Conversion is not completed within 45 days after the Subscription
Offering Expiration Date. See "Pro Forma Data," "Risk Factors--Possible Increase
in the Valuation Range and Number of Shares to be Issued" and "The
Conversion--Stock Pricing and Number of Shares to be Issued."
Dividends
Upon completion of the Conversion, the Board of Directors of the
Company will have the authority to declare dividends on the Common Stock. The
Board of Directors does not presently intend to declare dividends on the Common
Stock but will consider doing so in the future. In the future, declarations of
dividends, if any, by the Board of Directors will depend upon a number of
factors, including the amount of the net proceeds from the Offerings retained by
the Company, investment opportunities available to the Company or the Bank,
capital requirements, regulatory limitations, the Company's and the Bank's
financial condition and results of operations, tax considerations, general
economic conditions, industry standards and other factors. The Company has
committed to the OTS that it will not pay or undertake any action that will
further the payment of a return of capital or other extraordinary dividend for
one year after the consummation of the Conversion. As the principal asset of the
Company, the Bank will provide the principal source of funds for payment of
dividends by the Company. See "Dividend Policy."
Benefits to Management and Directors
The Board of Directors of the Company has adopted the ESOP and,
following the Conversion, expects to adopt a stock option plan (the "Stock
Option Plan") and a restricted stock award plan (the "Incentive Stock Award
Plan" or "ISAP"). These plans are available to provide benefits to officers,
employees and, except for the ESOP, to non-employee directors of the Bank and
the Company. The ESOP is also expected to purchase 8% of the Common Stock issued
in the Conversion. The Stock Option Plan will permit the issuance of options to
purchase, in the aggregate, shares of Common Stock equal to 10% of the number of
shares issued in the Conversion, and the ISAP will provide for the grant of
restricted stock awards, in the aggregate, of up to 4% of the shares of stock
issued in the Conversion.
Stock Option Plan. If, as the Company intends, the Stock Option Plan is
implemented within one year after the Conversion, it must be approved first by
stockholders at a meeting to be held at least six months after the Conversion.
OTS regulations provide that the Stock Option Plan may permit the grant of
options to purchase, in the aggregate, a number of shares equal to not more than
10% of the Common Stock issued in the Conversion, with no more than 25% of such
aggregate number of options to be awarded to any officer of the Bank and not
more than 5% of such aggregate to be awarded to a non-employee director. It is
expected that the exercise price of options granted under the Stock Option Plan
will be equal to the fair market value of the Common Stock on the date the
option is granted. Shares issued to satisfy the exercise of options under the
Stock Option Plan may come from authorized but unissued shares or from shares
repurchased by the Company. See "Risk Factors--Possible Dilution From Stock
Options and the ISAP" and "Management of the Bank--Benefits--Stock Option Plan."
Incentive Stock Award Plan. The ISAP is subject to the same approval
requirements as the Stock Option Plan. If implemented, the ISAP is expected to
be funded with Common Stock repurchased by the Company. Based upon the $10.00
Purchase Price, such repurchased shares would cost the Company from $578,000 to
$899,300 at the minimum and 15% above the maximum of the Valuation Range. The
ISAP is expected to provide for the award of shares of Common Stock to directors
and officers which will vest 20% per year for five years after the date of the
award. Under the anticipated terms of the ISAP, recipients will receive shares
without any cost but cannot vote shares of stock awarded until the shares are
vested. OTS regulations provide that the ISAP may permit the award of shares, in
the aggregate, equal to not more than 4% of the Common Stock issued in the
Conversion, with no more than 25% of such aggregate number of shares to be
awarded to any officer of the Bank and not more than 5% of such aggregate to be
awarded to a non-employee director. Based upon the $10.00 Purchase Price, the
aggregate market value of the restricted stock intended to be awarded under the
ISAP to Clifford E. Kelsey, Jr., President and Chief Executive Officer and for
the five non-employee directors as a group is from $144,500 to $224,825, based
upon the minimum and 15% above the maximum of the Valuation Range, respectively.
For financial reporting purposes, the Company will record compensation expense
on account of the ISAP during periods in which awards vest in an amount equal to
the fair market value of the stock on the date of vesting. If the fair market
value on that date is greater than $10.00 per share, compensation expense will
increase correspondingly. See "Management of the Bank--Benefits--Incentive Stock
Award Plan."
Employee Stock Ownership Plan. The ESOP intends to purchase up to 8% of
the Common Stock issued in the Conversion and to finance its subscription with
the ESOP Loan from the Company with a term of up to ten years at an interest
rate of 7.75% per annum. The Bank intends to make contributions to the ESOP to
pay principal and interest on the ESOP Loan. If shares are unavailable for
purchase by the ESOP in the Subscription Offerings, then the ESOP intends to
purchase such shares in the open market after the Conversion. The Common Stock
acquired by the ESOP will be allocated to eligible employees as the ESOP Loan is
repaid. The ESOP provides for accelerated vesting in the event of a change of
control. See "Management of the Bank--Benefits--Employee Stock Ownership Plan."
7
<PAGE>
Executive Officer Employment Contracts. The Bank and the Company have
entered into employment contracts ("Employment Contracts") with four executive
officers that will provide for, among other benefits, cash payments to them if
their employment is terminated following a change of control of the Bank or the
Company. Based on current compensation and benefit costs, cash payments to be
made in the event of a change of control of the Bank or the Company pursuant to
the terms of the Employment Contracts would be approximately $460,000 to Mr.
Kelsey and $1,276,000 to the four executive officers as a group. However, the
actual amount payable cannot be estimated at this time because it will be based
on facts existing at the time of the change of control. See "Management of the
Bank--Employment Contracts."
The Bank and the Company also intend to enter into employee retention
agreements ("Retention Agreements"), effective on the Conversion, with four
other officers. Based on current compensation and benefits, cash payments to be
made in the event of a change of control of the Bank or the Company would be
approximately $533,000. However, the actual amount payable cannot be estimated
at this time because it will be based on facts existing at the time of the
change of control. See "Management of the Bank--Employee Retention Agreements."
Subscriptions By Executive Officers and Directors. The Bank's executive
officers and directors intend to purchase $576,450 of Common Stock in the
Offerings, or from 3.99% to 2.56% of the Common Stock to be sold in the
Conversion based on the minimum and 15% above the maximum of the Valuation
Range, respectively. Subscriptions by executive officers will receive the same
priority, based upon their status among the subscription priority categories, as
all other depositors, except that, in the event of an oversubscription, their
subscription rights based upon deposits made during the one year prior to
December 31, 1995 will be subordinate to the subscription rights of other
Eligible Account Holders. See "The Conversion-Participation by the Board and
Senior Management."
Anti-takeover Aspects of Conversion
The certificate of incorporation and bylaws of the Company, the charter
and bylaws of the Bank, the compensation plans and arrangements, and certain
provisions of federal law, can be expected to have an adverse effect on the
willingness or ability of a person or group to acquire control of the Company,
which, in turn could have an adverse effect on the market price of the Common
Stock. For example, the certificate of incorporation of the Company provides
that shares owned in excess of 10% of the shares outstanding cannot be voted and
the Employment Contracts, Retention Agreements and benefit plans provide for
potentially material payments to officers and employees if there is a change in
control of the Company. Provisions of federal law and the Plan of Conversion
also restrict attempts to acquire control of the Company or the Bank in the
years immediately following the Conversion. See "Restrictions on Acquisition of
the Company and the Bank," "Management of the Bank--Employment Contracts" and
"--Employee Retention Agreements."
Risk Factors
See "Risk Factors" for a discussion of certain factors that should be
considered by prospective investors.
8
<PAGE>
RISK FACTORS
The following risk factors should be considered by prospective investors in
deciding whether to purchase the common stock offered in the Offerings
Interest Rate Risk
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 savings deposits and borrowed money. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Analysis of Net
Interest Income." Differences in the period to repricing of assets and
liabilities can affect net interest income if market interest rates change. At
December 31, 1996, $18.3 million, or 29.9% of the Bank's total loans, were
fixed-rate one-to-four family mortgage loans. In addition, at December 31, 1996,
the Bank had $22.3 million in investment and mortgage-backed securities with
fixed rates of interest. The Bank generally accepts savings deposits for
considerably shorter terms than its fixed-rate mortgage loans. Furthermore,
although at December 31, 1996, $34.8 million, or 56.8%, of total loans, were
adjustable rate one-to-four family mortgage loans, the interest rate on most of
these loans adjusts only annually, and on some loans as infrequently as once
every five years. These loans are often also subject to annual and lifetime
limits on interest rate adjustments. As a consequence, an increase in general
market interest rate conditions could have an adverse effect on the Bank's
results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Management of Interest Rate Risk."
Management seeks to limit interest rate risk by originating, when customer
demand permits, adjustable rate loans. However, during certain periods, such as
at the present time when interest rates are perceived to be relatively low,
customers tend to prefer fixed rate mortgage loans to lock in the lower rates.
During periods of perceived higher interest rates, customers tend to prefer
adjustable rate loans with rates that they expect to adjust downward as market
interest rates decline. Therefore, there can be no assurance that the Bank will
be able to limit the adverse effects of fluctuating interest rates by
originating sufficient adjustable rate loans.
Allowance for Loan Losses
At December 31, 1996, the Bank's allowance for loan losses was $133,000
or 0.2% of total loans. The allowance as a percentage of total loans is
relatively low when compared with other savings institutions in New York.
Although management of the Bank believes that the allowance for loan losses is
adequate in light of the quality of the Bank's loan portfolio and current
economic conditions, future events may require additions to the allowance for
loan losses above those reasonably anticipated. These events 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 and (iv) future review
and evaluation of the Bank's loan portfolio, internally or by regulators. The
amount of the allowance for loan losses represents estimates made by management
that are susceptible to significant changes due to changes in 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. See "Business of the Bank--Asset
Quality."
Lending Concentration
The Bank has historically employed an operating strategy which
emphasized the origination of one-to-four family residential mortgage loans in
Orange County, New York. At December 31, 1996, 90.4% of the Bank's total loans
were owner-occupied one-to-four family residential mortgage loans, primarily
first liens on properties located in Orange County. See "Business of the
Bank--Lending Activities." This lack of geographic diversification could have an
adverse impact on the Bank and the Bank's profitability if Orange County were to
suffer a substantial economic decline. Furthermore, a material decline in local
housing values could have an adverse effect on the ability of the Bank to
recover the full amount due on mortgage loans in default. In addition, the
profitability of the Bank's one-to-four family residential lending business
could be adversely impacted by competitive market forces and technological
advances of its competitors.
9
<PAGE>
Competition
The Bank faces intense and increasing competition both in making loans
and in attracting savings deposits. The Bank's market area has many financial
institutions, including some which have greater financial resources, name
recognition and market presence than the Bank, and all of which are competitors
of the Bank to varying degrees. The Bank's competition for loans comes
principally from commercial banks, other savings banks, savings and loan
associations, mortgage banking companies, finance companies and credit unions.
The Bank's most direct competition for deposits historically has come from other
savings banks, savings and loan associations, commercial banks and credit
unions. In addition, the Bank faces increasing competition for deposits from
non-bank institutions such as brokerage firms, insurance companies, money market
mutual funds, other mutual funds (such as corporate and government securities
funds) and annuities. Trends toward the consolidation of the banking industry
and the lifting of interstate banking and branching restrictions may make it
more difficult for smaller institutions, such as the Bank, to compete
effectively with large national and regional banking institutions. See "Business
of the Bank--Market Area" and "--Competition."
Impact of Technological Advances
The banking industry is undergoing rapid technological changes with
frequent introductions of new technology-driven products and services. The
Company's future success may depend, in part, on its ability to address the
needs of its customers by using technology to provide products and services that
will satisfy customer demands for convenience and create additional efficiencies
in the Bank's operations. Many of the Bank's competitors have substantially
greater resources than the Bank to invest in technological improvements. There
can be no assurance that the Bank will be able to effectively implement new
technology-driven products and services or be successful in marketing such
products and services to the public.
Additional Capital; Return on Equity
As a result of the Conversion, the Company will have, on a consolidated
basis, total equity that is substantially more than the equity of the Bank prior
to the Conversion. Loan demand is not expected to increase correspondingly, and
thus the Company is likely to be faced with the choice of either investing
capital in lower yielding debt securities or making higher risk investments to
increase yields. Furthermore, the Company is not expected to be able to
immediately leverage the new capital, and therefore the increase in equity may
adversely affect return on equity (net income divided by average equity), absent
a corresponding increase in net income. The Bank's return on equity was 7.68%
(annualized) and 1.01% (annualized) for the three months ended December 31, 1996
and 1995, respectively and was 4.88%, (4.04)% and 2.72% for the years ended
September 30, 1996, 1995 and 1994, respectively. The Company initially intends
to invest the net proceeds in short and medium term investments which generally
have lower yields than loans. There can be no assurance that the Company will be
able to increase net income in future periods in amounts commensurate with the
increase in equity resulting from the Conversion. See "Pro Forma Data."
Furthermore, current OTS policy on stock repurchases by the Company could limit
the Company's flexibility in utilizing the net proceeds. See "The Conversion --
Restrictions on Repurchase of Stock."
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 stock charter
and bylaws, as well as certain federal regulations, assist the Company in
maintaining its status as an independent publicly owned corporation. These
provisions include, among other things, supermajority voting on certain matters,
staggered boards of directors, noncumulative voting for directors, limits on the
calling of special meetings, certain uniform price provisions for certain
business combinations and limits on voting shares in excess of 10% of the
outstanding shares. Any person owning in excess of 10% of the outstanding shares
of voting stock will not be permitted to cast any votes with respect to shares
in excess of the 10% limit. The Bank's Stock Charter also prohibits, for five
years, the acquisition of, or the offer to acquire, directly or indirectly, the
beneficial ownership of more than 10% of the Bank's equity securities, except
for the acquisition of stock of the Bank by the Company. 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 Company's Board of Directors and, thus, generally
may serve to perpetuate current management and could have an adverse effect on
the market price of the Common Stock.
Voting Control of Officers and Directors. Directors and executive
officers of the Bank and the Company expect to purchase approximately 3.99% or
2.56% of the shares of Common Stock to be sold in the Conversion, based upon the
minimum and 15% above the maximum of the Valuation Range, respectively. In
addition, the ESOP intends
10
<PAGE>
to purchase 8% of the Common Stock. As a result, assuming the Stock Option Plan
and the ISAP are implemented, directors, executive officers and employees have
the potential to control the voting of approximately 25.99% and 24.56% of the
Company's Common Stock (based on the minimum and 15% above the maximum,
respectively of the Valuation Range and assuming that ISAP Shares are awarded
from, and all stock options are exercised and satisfied with, shares repurchased
by the Company), thereby enabling them to prevent or render more difficult the
approval of transactions and other corporate actions requiring a supermajority
vote of stockholders, such as certain business combinations and the amendment of
certain charter provisions. 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."
Provisions in Management Contracts and Benefit Plans. Certain
provisions contained in the proposed Employment Contracts, Retention Agreements,
the ESOP, the Stock Option Plan and the ISAP that provide for cash payments or
the vesting of benefits upon a change of control of the Company or the Bank may
make it less likely, or more costly, for a person to seek to acquire the Company
or the Bank and could result in stockholders receiving less for their Common
Stock than otherwise might be paid in the event of an acquisition of the
Company. See "Management of the Bank--Employment Contracts," and "--Employee
Retention Agreements" and "Management of the Bank--Benefits--Employee Stock
Ownership Plan," "--Stock Option Plan" and "--Incentive Stock Award Plan."
Absence of Market for Common Stock
The Company and the Bank have not previously issued capital stock and,
consequently, there is no established market for the Common Stock at this time.
The Company has received conditional approval from the Nasdaq Stock Market to
have its Common Stock approved for quotation on the Nasdaq National Market under
the symbol "GOSB" upon completion of the Conversion. One of the requirements for
continued listing of the Common Stock on the Nasdaq National Market is that
there be at least two market makers for the Common Stock and the NASD has
proposed, among other things, increasing this requirement to three market
makers. The Company will seek to encourage and assist sufficient market makers
to make a market in its Common Stock to satisfy Nasdaq requirements. Capital
Resources will assist the Company in such efforts and expects that it will be a
market maker in the Common Stock. While the Company anticipates that there will
be other broker-dealers who will act as market makers for the Common Stock,
there can be no assurance that there will be sufficient market makers for the
Common Stock.
Making a market in securities involves maintaining bid and asked
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. The development of a public trading market depends upon
the existence of willing buyers and sellers, the presence of which is not within
the control of the Company, the Bank or any market maker. Accordingly, there can
be no assurance that an active and liquid trading market for the Common Stock
will develop, or, once developed, will continue, nor can there be any assurances
that purchasers of the Common Stock will be able to sell their shares at or
above the Purchase Price. The absence or discontinuance of a market for the
Common Stock may have an adverse impact on both the price and liquidity of the
Common Stock and if a market for the Common Stock does not develop, it may be
difficult for investors to sell their shares of Common Stock. See "Market for
the Common Stock."
Possible Increase in the Valuation Range and Number of Shares to be Issued
The number of shares to be sold in the Conversion may be increased as a
result of an increase in the maximum of the Valuation Range of up to 15% to
reflect changes in market and financial conditions following the commencement of
the Subscription Offering. If the Valuation Range is so increased, it is
expected that the Company will issue up to 2,248,250 shares of Common Stock in
the Conversion for aggregate proceeds of up to $22,482,500. An increase in the
number of shares issued would decrease the pro forma net earnings per share and
stockholders' equity per share but would increase the Company's pro forma
consolidated stockholders' equity and net earnings.
Possible Dilution From Stock Options and the ISAP
Common Stock equal to 10% of the shares issued in the Conversion will
be reserved for issuance under the Stock Option Plan, the implementation of
which will be subject to the approval of the stockholders of the Company. If all
of the options were to be exercised and satisfied using authorized but unissued
shares of Common Stock, the voting interests of
11
<PAGE>
existing stockholders would be diluted by approximately 9.09%, and,
assuming that all options were granted at the Purchase Price, the effect on pro
forma net earnings per share and stockholders' equity per share would be as set
forth under "Pro Forma Data." Also, following the Conversion, the ISAP, if
implemented, will provide for the grant of shares in an amount equal to 4% of
the shares of Common Stock issued in the Conversion. The Company expects to
acquire the shares used to fund the ISAP through open market purchases, subject
to OTS approval, if necessary. However, if the ISAP is funded with authorized
but unissued shares, the interests of existing stockholders would be diluted by
approximately 3.85% (assuming no exercise of any options). See "Pro Forma Data"
for the effect on pro forma net earnings per share and stockholders' equity per
share. Stockholders will not have preemptive rights to acquire shares issued to
satisfy the exercise of stock options or to fund the ISAP. If the ISAP is funded
by open market purchases, the voting interests of existing stockholders would
not be diluted, and the effect on pro forma net earnings per share and
stockholders' equity per share would be as set forth under "Pro Forma Data." A
dilution of the interests of existing stockholders could be expected to have an
adverse effect on the market price of the Common Stock.
Possible Adverse Income Tax Consequences of the Distribution of Subscription
Rights
The Bank has received an opinion from CRG that subscription rights
granted to Eligible Account Holders, Supplemental Eligible Account Holders and
Other Members have no value. However, this opinion is not binding on the IRS. If
the subscription rights granted to Eligible Account Holders, Supplemental
Eligible Account Holders or Other Members are deemed to have an ascertainable
value, such Eligible Account Holders, Supplemental Eligible Account Holders or
Other Members could be taxed upon the receipt or exercise of the subscription
rights in an amount equal to such value. Additionally, the Bank could recognize
a gain for tax purposes on the distribution of the subscription rights. Although
the IRS is not known to have taken the position that subscription rights
constitute taxable income in similar conversions, the IRS may change its
position in the future. See "The Conversion--Effects of Conversion to Stock Form
on Depositors and Borrowers of the Bank."
Regulation of Financial Institutions
The Bank is subject to extensive regulation and supervision as a
federal savings bank. Federal regulatory authorities have extensive discretion
in connection with their supervision and enforcement activities and their
examination policies, including the imposition of restrictions on the operation
of a federal savings bank, the classification of its assets and the imposition
of an increase in its allowance for loan losses. In addition, the Company, as a
savings association holding company, will be subject to extensive regulation and
supervision. Any change in the regulatory structure or the applicable statutes
or regulations, whether by the OTS, the FDIC or the Congress, could have a
material impact on the Company, the Bank, its operations and the Conversion. See
"Regulation."
Congress has considered various proposals to consolidate and reorganize
the regulatory functions of the four federal banking agencies: the OTS, the
FDIC, the Office of the Comptroller of the Currency and the Board of Governors
of the Federal Reserve System. Legislation has also been introduced that would
limit the activities of unitary savings association holding companies to those
permitted to be engaged in by multiple savings association holding companies,
being principally those activities permitted of bank holding companies. See
"Regulation--Holding Company Regulation." The outcome of efforts to effect
regulatory consolidation and reorganization and to change the permitted
activities of holding companies is uncertain. Therefore, the Bank is unable to
determine the extent to which such legislation, if enacted, would affect its
business.
Risk of Delay in Consummation of the Conversion
The successful consummation of the Conversion will depend, in part,
upon market conditions, both generally and with respect to the Common Stock, and
upon the operating results of the Bank. If, following completion of the
Offerings, various factors (including the market demand for the Common Stock as
reflected by the level of subscriptions received in such Offerings) result in
the estimated pro forma market value of the Common Stock (as determined by
Capital Resources) being outside the Valuation Range (other than an increase of
up to 15% above the maximum of the Valuation Range, as discussed elsewhere in
this prospectus), a resolicitation of subscribers would likely be required. This
would delay completion of the Conversion, increase expenses and delay the
ability of the Company to commence deploying and leveraging the net proceeds.
Developments other than market conditions could also delay the Conversion;
however, management is currently unaware of any such developments.
12
<PAGE>
FORWARD-LOOKING STATEMENTS
When used in this prospectus, in future filings by the Company with the
SEC, in the Company's press releases or other public or stockholder
communications, or in oral statements made with the approval of an authorized
executive officer, the words or phrases "will likely result," "are expected to,"
"will continue," "is anticipated," "estimate," "project," or similar expressions
are intended to identify "forward-looking statements". In addition, certain
disclosures and information contained in this prospectus of a type customarily
provided by financial institutions, such as an analysis of the adequacy of the
loan loss allowance or an analysis of the interest rate sensitivity of the
Company's assets and liabilities, are inherently based upon predictions of
future events and circumstances.
The Company notes that a variety of factors could cause the Company's
actual results and experience to differ materially from the anticipated results
or other expectations expressed in the Company's forward-looking statements.
Some of the risks and uncertainties that may affect the operations, performance,
development and results of the Company's business, the interest rate sensitivity
of its assets and liabilities, and the adequacy of its loan loss allowance,
include but are not limited to: (i) deterioration in local, regional, national
or global economic conditions which could result, among other things, in an
increase in loan delinquencies, a decrease in property values, or a change in
the housing turnover rate; (ii) changes in market interest rates or changes in
the speed at which market interest rates change; (iii) changes in laws and
regulations affecting the financial service industry; (iv) changes in
competition; and (v) changes in consumer preferences.
The Company wishes to caution readers not to place undue reliance on
any forward-looking statements, which speak only as of the date made, and to
advise readers that various factors, including those described above, could
affect the Company's financial performance and could cause the Company's actual
results or circumstances for future periods to differ materially from those
anticipated or projected.
13
<PAGE>
SELECTED FINANCIAL INFORMATION
Set forth below are selected financial and other data of the Bank. This
financial data is derived in part from, and should be read in conjunction with,
the Financial Statements and Notes to Financial Statements of the Bank presented
elsewhere in this Prospectus. In the opinion of management of the Bank, all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair statement of results for or as of the periods indicated have been included.
Selected Financial Condition Data:
<TABLE>
<CAPTION>
At December 31, At September 30,
---------------- ------------------------------------------------------
1996(1) 1996 1995 1994 1993 1992
------- ---- ---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Total assets........................... $96,966 $96,323 $101,041 $100,222 $100,290 $96,041
Loans receivable, net (2).............. 61,013 58,727 57,919 57,171 47,561 47,027
Mortgage-backed securities (3) ........ 6,173 6,474 4,404 2,226 1,753 2,224
Investment securities (3).............. 21,016 23,081 27,844 34,714 45,516 41,123
Cash and cash equivalents.............. 5,479 4,684 7,195 2,370 1,707 1,892
Deposits............................... 82,583 83,442 88,093 86,396 88,803 85,383
Borrowings............................. 1,000 - 1,000 2,000 - -
Total equity........................... 12,106 11,747 11,097 11,508 11,197 10,391
Selected Operations Data:
</TABLE>
<TABLE>
<CAPTION>
Three Months
Ended December 31, Year Ended September 30,
------------------- ------------------------------------------------------
1996(1) 1995(1) 1996 1995 1994 1993 1992
------- ------- -------- ------ ------ ------ ------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest income .................................. $ 1,676 $ 1,534 $6,235 $ 5,715 $ 5,747 $ 6,414 $ 7,069
Interest expense ................................. 781 913 3,448 3,289 2,689 3,026 4,072
------ ------- ------- ------- ------- ------- -------
Net interest income ............................ 895 621 2,787 2,426 3,058 3,388 2,997
Provision for loan losses ........................ -- 13 24 29 25 10 40
------ ------- ------- ------- ------- ------- -------
Net interest income after
provision for loan losses ................... 895 608 2,763 2,397 3,033 3,378 2,957
Non-interest income .............................. 162 179 489 450 377 425 916
Non-interest expense ............................. 637 626 2,343 2,931 2,798 2,599 2,382
------ ------- ------- ------- ------- ------- -------
Income (loss) before income taxes and cumulative
effect of changes in accounting principles ..... 420 161 909 (84) 612 1,204 1,491
Income tax expense (benefit) ..................... 125 63 351 (16) 301 398 651
------ ------- ------- ------- ------- ------- -------
Income (loss) before cumulative effect of changes
in accounting principles ...................... 295 98 558 (68) 311 806 840
Cumulative effect of changes
in accounting principles (4) .................. -- -- -- (394) -- -- --
Net income (loss)............................ $ 295 $ 98 $ 558 $ (462) $ 311 $ 806 $ 840
====== ======= ======= ======= ======= ======= =======
</TABLE>
Notes appear after following page.
14
<PAGE>
Selected Financial Ratios and Other Data (5):
<TABLE>
<CAPTION>
At or for the Three
Months Ended
December 31, At or for the Year Ended September 30,
------------------ ---------------------------------------------
1996(1) 1995(1) 1996 1995 1994 1993 1992
------- ------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Performance Ratios:
Return on average assets (net income
to average total assets)(6).............. 0.95% 0.11% 0.56% (0.46)% 0.31% 0.82% 0.89%
Return on average equity (net income
to average equity)(6).................... 7.68 1.01 4.88 (4.04) 2.72 7.47 8.42
Average interest-earnings assets to
average interest-bearing liabilities..... 112.73 108.09 109.57 109.91 112.69 110.73 109.75
Net interest rate spread (7)(8)........... 3.37 2.28 2.71 2.27 2.85 3.28 2.88
Net interest margin (8)(9)................ 3.81 2.60 3.08 2.62 3.21 3.64 3.31
Net interest income after provision
for loan losses to total other expenses.. 1.41x 0.97x 1.18x 0.82x 1.08x 1.30x 1.24x
Capital and Asset Quality Ratios:
Average equity to average total assets.... 12.33 11.15 11.53 11.40 11.34 10.99 10.66
Total equity to assets end of period...... 12.48 11.13 12.20 10.98 11.48 11.16 10.82
Non-performing assets to total assets..... 0.003 - 0.02 0.22 0.26 0.27 0.15
Non-performing loans to total loans....... 0.005 - 0.03 0.39 0.45 0.56 0.17
Allowance for loan losses to total loans.. 0.22 0.22 0.21 0.20 0.19 0.19 0.20
Allowance for loan losses to
non-performing loans................... 44.33x NM(10) 7.69x 0.51x 0.41x 0.34x 1.15x
Other Data:
Number of real estate loans outstanding 891 911 876 913 951 922 992
Number of deposit accounts............. 11,603 12,616 11,695 12,556 12,106 12,040 12,284
Full service offices (11) ............. 1 1 1 1 1 1 1
</TABLE>
Notes appear on following page.
15
<PAGE>
(1) The data presented above and elsewhere in this prospectus at or for the
three months ended December 31, 1996 and 1995 are unaudited and reflect, in the
opinion of management, all adjustments (consisting of only normal recurring
adjustments, except as described in Note 6 below) which are necessary to present
fairly the results for such interim periods.
(2) Shown net of deferred fees and the allowance for loan losses.
(3) At December 31, 1996, all of the Bank's mortgage-backed securities are
classified as held to maturity and all investment securities are classified as
available for sale. See Notes 2, 3 and 4 of Notes to Financial Statements. For
1994, investment securities include $2,172,000 of trading securities.
(4) Reflects the recognition, in one lump sum, of the transition obligation for
post-retirement pension benefits recognized in accordance with Statement of
Financial Accounting Standards ("SFAS") 106. See Note 12 of Notes to Financial
Statements.
(5) Asset quality and capital ratios are at end of period. Other ratios are
based upon month end average balances. Ratios for the three-month periods have
been annualized where appropriate.
(6) For the purpose of disclosing the annualized return on average assets and
return on average equity, 75% (net of tax) of the lump sum distributions
received annually in December on the Bank's investment in the Institutional
Investors Mutual Fund and 75% of the net tax benefit resulting from a change in
New York State law regarding bad debt deductions has been excluded. See Note 5
to "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Average Balances, Interest Rates and Yields" and "--Comparison of
Operating Results for the Three Months Ended December 31, 1996 and December 31,
1995--Income Tax Expense."
(7) The net interest rate spread represents the difference between the weighted
average yield on interest earning assets and the weighted average cost of
interest-bearing liabilities.
(8) Reported spread and margin have been adjusted for the three month periods as
set forth in Note 5 to "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Average Balances, Interest Rates and
Yields."
(9) The net interest margin, also known as the net yield on average
interest-earning assets, represents net interest income as a percentage of
average interest-earning assets.
(10) Not Meaningful. The denominator (non-performing loans) is zero.
(11) In March 1997, the Bank opened a branch in Goshen, New York.
16
<PAGE>
SUMMARY OF RECENT DEVELOPMENTS
The following tables summarize certain financial and operational
information and other data for the Bank as of or for the periods ended March 31,
1997 and 1996 and September 30, 1996 and, in the opinion of management, all
adjustments (consisting of normal recurring accruals) necessary for a fair
presentation of the results for the unaudited periods have been made. This
information is derived in part from and should be read in conjunction with the
Financial Statements of the Bank and Notes thereto presented elsewhere herein.
The results of operations for the three and six months ended March 31, 1997 are
not necessarily indicative of the results that may be expected for the entire
year or any other period.
<TABLE>
<CAPTION>
Selected Financial Data
At March 31, 1997 At September 30, 1996
----------------- ---------------------
(In Thousands)
Total Amount of:
<S> <C> <C>
Assets............................................... $ 95,617 $ 96,323
Loans receivable, net................................ 61,734 58,727
Mortgage-backed securities........................... 5,925 6,474
Investment securities................................ 21,386 23,081
Cash and cash equivalents............................ 2,970 4,684
Deposits............................................. 82,501 83,442
Borrowings........................................... -- --
Total equity......................................... 12,125 11,747
Number of:
Real estate loans outstanding........................ 884 876
Deposit accounts..................................... 11,558 11,695
Full service offices................................. 2 1
</TABLE>
<TABLE>
<CAPTION>
Selected Operations Data
Three Months Ended Six Months Ended
March 31, March 31,
1997 1996 1997 1996
---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C>
Interest income................................ $ 1,621 $1,546 $3,297 $3,080
Interest expense............................... 767 859 1,547 1,772
------ ------ ----- -----
Net interest income......................... 854 687 1,750 1,308
Provision for loan losses...................... -- -- -- 13
------ ------ ------ -------
Net interest income after
provision for loan losses.................. 854 687 1,750 1,295
Non-interest income............................ 55 175 216 354
Non-interest expenses.......................... 737 682 1,374 1,308
------ ------ ----- -----
Income before income taxes..................... 172 180 592 341
Provision for income taxes..................... 68 72 193 135
------- ------- ------ ------
Net income (loss)........................... 104 108 399 206
</TABLE>
<PAGE>
Selected Financial Ratios
<TABLE>
<CAPTION>
At or for the At or for the
Three Months Ended Six Months Ended
March 31, March 31,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Return on average assets (net income to
average total assets)................................ 0.43% 0.44% 0.83% 0.41%
Return on average equity (net
income to average equity)............................ 3.42% 3.85% 6.63% 3.67%
Average interest-earning assets to average
interest-bearing liabilities...................... 115.05% 109.32% 113.89% 108.70%
Average equity to average total assets............... 12.72% 11.40% 12.52% 11.28%
Equity to assets at period end....................... 12.68% 12.20% 12.68% 12.20%
Net interest rate spread............................. 3.26% 2.67% 3.35% 2.50%
Net interest margin.................................. 3.77% 3.02% 3.82% 2.83%
Net interest income after provision for loan
losses to total other expenses.................... 1.16% 1.01% 1.27% 0.99%
Non-performing assets to total assets,
end of period..................................... 0.07% 0.00% 0.07% 0.00%
Non-performing loans to total loans,
end of period..................................... 0.11% 0.00% 0.11% 0.00%
Allowance for loan losses to total
loans, end of period ............................. 0.21% 0.21% 0.21% 0.21%
Allowance for loan losses to
non-performing loans, end of period............... 188.46% NM(2) 188.46% NM(2)
- ---------------------
(1) Ratios for three and six month periods are stated on an annualized basis.
Such ratios and results are not necessarily indicative of results that may
be expected for the full year.
(2) NM - Not meaningful, the denominator is zero.
</TABLE>
<PAGE>
Comparison of Financial Condition at March 31, 1997 and September 30, 1996
Total assets decreased by $707,000, or 0.7%, from $96.3 million at
September 30, 1996 to $95.6 million at March 31, 1997. Net loans increased by
$3.0 million from $58.7 million at September 30, 1996 to $61.7 million at March
31, 1997, as the Bank continued to emphasize the origination of loans. The
increase in loans was funded principally by declines in the Bank's securities
investments and federal funds sold. Mortgage-backed securities declined by
$549,000 from $6.5 million to $5.9 million while investment securities declined
by $1.7 million from $23.1 million to $21.4 million and federal funds sold
declined by $1.5 million from $1.7 million to $200,000.
Deposits declined by $941,000 from $83.4 million to $82.5 million from
September 30, 1996 to March 31, 1997. The decline resulted from management's
continuing efforts to reduce the Bank's cost of funds by moderating the rates
paid on certificates of deposit.
The Bank's equity increased by $378,000 from $11.7 million at September
30, 1996 to $12.1 million at March 31, 1997. The increase resulted from $399,000
of retained earnings, partially offset by a $21,000 decline in net unrealized
gains on securities available for sale.
Comparison of Operating Results for the Three Months Ended March 31, 1997 and
March 31, 1996
General. Net income for the three month period ended March 31, 1997 was
$104,000, a decrease of $4,000 from net income of $108,000 for the three months
ended March 31, 1996. The decrease was represented principally by a $115,000
decline in realized gains on the sale of securities and $50,000 of environmental
remediation costs recorded during the three months ended March 31, 1997,
substantially offset by a $167,000 increase in net interest income after
provision for loan losses.
Interest Income. Interest income for the three months ended March 31,
1997 increased $75,000 from $1.5 million for the three months ended March 31,
1996 to $1.6 million for the comparable period in 1997. The yield on average
interest-earning assets increased from 6.79% to 7.16% between the periods as
yields increased on all major asset categories. The increase in overall average
yield was due to the combined effect of generally higher interest rate
conditions coupled with the repricing to market rates of teaser rate adjustable
mortgage loans originated during 1994 which did not adjust to fully indexed
rates until July 1996 or January 1997. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Analysis of Net Interest
Income--Teaser Rate Loans."
Contributing to the increase in interest income was a shift in the mix
of assets as the average balance of loans, the Bank's highest yielding asset
category, increased by 6.3% while the average balance of investment and
mortgage-backed securities declined by 9.7% and 6.4%, respectively. Average
interest-earning assets declined by $545,000 from $91.1 million for the three
months ended March 31, 1996 to $90.6 million for the comparable period in 1997,
which partially offset the increase in interest income.
Interest Expense. Interest expense declined by $92,000 from $859,000
for the three months ended March 31, 1996 to $767,00 for the three months ended
March 31, 1997, due principally to a decline in the average cost of funds of 22
basis points from 4.12% for the three months ended March 31, 1996 to 3.90% for
the three months ended March 31, 1997 and a decline in the average balance of
interest-bearing liabilities of $4.6 million from $83.3 million to $78.7
million. These declines were caused principally by declines in both the average
rates paid and average balances of certificates of deposit. The average rate
paid on certificates of deposit declined from 5.42% for the three months ended
March 31, 1996 to 4.88% for the three months ended March 31, 1997 and the
average balance of such accounts declined from $41.1 million
<PAGE>
to $38.0 million between the periods as the Bank continued to seek to reduce its
average cost of funds by moderating the rates paid on those accounts.
Furthermore, as the Bank received payment of substantially all of its claims
against Nationar, the Bank no longer needed high cost certificates of deposit to
fund non-earning assets frozen at Nationar. The Bank also elected not to match
rate increases offered by other local banks on money market accounts during the
latter part of calendar year 1996 and early 1997, resulting in a decline in the
average balance of money market accounts of $655,000, or 6.1%. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Analysis of Net Interest Income--Efforts to Reduce Cost of Funds"
and "--The Closing and Liquidation of Nationar."
Net Interest Income. Net interest income increased by $167,000 from
$687,000 for the three months ended March 31, 1996 to $854,000 for the three
months ended March 31, 1997 as a result of the combined effect of the increase
in interest income and the decrease in interest expense discussed above. The
Bank's spread, representing the difference between the average rate paid on
interest-earning assets and the average rate paid on interest-bearing
liabilities, increased 59 basis points from 2.67% for the three months ended
March 31, 1996 to 3.26% for the three months ended March 31, 1997. The repricing
of teaser rate loans and the moderation of rates offered on certificate accounts
both had positive affects on net interest income.
The Bank's net interest margin increased from 3.02% during the three
months ended March 31, 1996 to 3.77% for the three months ended March 31, 1997.
The 75 basis point increase was caused by the combined effect of the increase in
spread and an increase in the ratio of interest-earning assets to
interest-bearing liabilities from 109.3% to 115.0% between the periods. Average
interest-bearing liabilities decreased by $4.6 million compared to a decrease in
average interest-earning assets of $545,000, caused in part by the resolution of
the Nationar matter which resulted in the release to the Bank of frozen assets
that had not been earning interest. The ratio was also positively affected by
the retention of earnings which increased the Bank's capital.
Provision for Loan Losses. The Bank did not record a provision for loan
losses during either of the periods due to the Bank's low levels of past due and
non-performing loans. Loans past due 90 days or more were $68,000 at March 31,
1997, represented by one residential one-to-four family mortgage loan. The Bank
had no other non-performing assets at that date. See "Business of the
Bank--Asset Quality."
Non-interest Income. Non-interest income decreased by $120,000 from
$175,000 for the three months ended March 31, 1996 to $55,000 for the three
months ended March 31, 1997. The decrease resulted principally from the fact
that the Bank had $115,000 of realized gains on the sale of securities ($69,000
net of tax effect) during the three months ended March 31, 1996, compared to no
such gains during the like period in 1997.
Non-interest Expense. Non-interest expense increased by $55,000 from
$682,000 for the three months ended March 31, 1996 to $737,000 for the three
months ended March 31, 1997. The principal cause of the increase was a $50,000
expense recorded during the three months ended March 31, 1997 on account of
costs incurred or anticipated for the removal of environmental contamination on
property adjoining the Bank's main office. See "Business of the
Bank--Properties." The remainder of the increase resulted from normal
fluctuations in expenses, as the Bank did not experience significant changes in
any principal non-interest expense categories. Compensation and benefits expense
increased by 1.0% from $394,000 to $398,000 while occupancy expense decreased by
15.4% from $58,000 to $49,000 principally because snow removal expense declined
by $10,000 as the extremely harsh winter of 1996 was followed by the relatively
mild winter of 1997.
<PAGE>
Income Tax Expense. Income tax expense declined from $72,000 for the
three months ended March 31, 1996 to $68,000 for the three months ended March
31, 1997 due to the decrease in net income between the periods.
Comparison of Operating Results for the Six Months Ended March 31, 1997 and
March 31, 1996
General. Net income for the six month ended March 31, 1997 was
$399,000, an increase of $193,000 over net income of $206,000 for the six months
ended March 31, 1996. The improvement resulted principally from improved yields
on assets and reductions in the cost of funds, partially offset by a decline in
gains on sales of securities and $50,000 of environmental remediation costs
recorded during the six months ended March 31, 1997.
Interest Income. Interest income increased $216,000 from $3.1 million
for the six months ended March 31, 1996 to $3.3 million for the six months ended
March 31, 1997 as the average yield on the Bank's interest-earning assets
increased from 6.72% to 7.26% due to increasing general interest rate conditions
and the upward repricing of the Bank's teaser rate mortgage loans. An increase
in the percentage of average interest-earning assets represented by loans from
63.3% for the six months ended March 31, 1996 to 67.6% for the six months ended
March 31, 1997 also had a positive effect on interest income, while a decrease
in the average volume of interest-earning assets between the periods from $91.2
million to $90.1 million adversely affected interest income. See "--Comparison
of Operating Results for the Three Months Ended March 31, 1997 and March 31,
1996--Interest Income."
Interest Expense. Interest expense declined by $225,000 from $1.8
million for the six months ended March 31, 1996 to $1.5 for the six months ended
March 31, 1997. The decline resulted from a reduction in the average rate paid
on interest-bearing assets of 31 basis points, from 4.22% to 3.91% as the Bank
moderated the rates offered on certificates of deposit and money market
accounts. Average interest-bearing liabilities also declined from $83.9 million
to $79.1 million between the periods.
Net Interest Income. Net interest income increased by $441,000 from
$1.3 million for the six months ended March 31, 1996 to $1.7 million for the six
months ended March 31, 1997. The increase resulted from the combined effect of
the increase in interest income and the decrease in interest expense. The Bank's
spread increased from 2.50% for the six months ended March 31, 1996 to 3.35% for
the six months ended March 31, 1997 as the rates earned on interest earning
assets increased while the rates paid on interest-bearing liabilities declined.
The Bank's net interest margin increased from 2.83% for the six months ended
March 31, 1996 to 3.82% for the six months ended March 31, 1997. The increase in
the net interest margin corresponded to the increase in spread, also positively
affected by an increase in the excess of interest earning assets over
interest-bearing liabilities due to the resolution of the Nationar matter.
Provision for Loan Losses. The provision for loan losses declined from
$13,500 for the six months ended March 31, 1996 to zero for the six months ended
March 31, 1997. The Bank did not provide additional amounts for loan losses
during the six months ended March 31, 1997 due to its low level of
non-performing loans and its low level of charge-offs.
Non-interest Income. Non-interest income declined by $138,000 from
$354,000 for the six months ended March 31, 1996 to $216,000 for the six months
ended March 31, 1997. The principal cause of the decline was $115,000 of gains
on the sale of securities during the six months ended March 31, 1996 compared to
no such gains during the comparable period in 1997 and a $26,000 decline in
capital gains distributions from the Bank's mutual fund investments.
<PAGE>
Non-interest Expense. Non-interest expense increased $66,000 from $1.3
million for the six months ended March 31, 1996 to $1.4 million for the six
months ended March 31, 1997. The increase was caused principally by $50,000 in
environmental remediation expenses which the Bank recorded during the latter
period.
Income Tax Expense. Income tax expense increased from $135,000 for the
six months ended March 31, 1996 to $193,000 for the six months ended March 31,
1997. The increase was caused by an increase in income before taxes from
$341,000 to $592,000. The increase was partially offset by a $60,000 reduction
in deferred tax liabilities due to changes in New York law regarding tax bad
debt deductions. See "Taxation--New York State Taxation."
Regulatory Capital Ratios at March 31, 1997
The following table sets forth the Bank's regulatory captial ratios at
March 31, 1997 as compared to the minimum regulatory capital requirements
imposed by the OTS (dollars in thousands).
Requirement Actual Excess
----------- ------ ------
Tangible capital $1,432 1.50% $12,003 12.57% $10,571 11.07%
Core capital $2,865 3.00% $12,003 12.57% $ 9,138 9.57%
Risk-based capital $4,392 8.00% $12,130 22.10% $ 7,738 14.10%
<PAGE>
GSB FINANCIAL CORPORATION
GSB Financial Corporation (the "Company") was recently organized at the
direction of the Board of Directors of the Bank for the purpose of acquiring all
of the capital stock of the Bank to be issued in the Conversion. The Company has
received approval from the 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--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 ESOP
Loan, and will have no significant liabilities. The Company intends to use a
portion of the net proceeds it retains to make the ESOP Loan to enable the ESOP
to purchase 8% of the Common Stock issued in the Conversion. See "Use of
Proceeds." The management of the Company is as 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 its business activities through
existing or newly formed subsidiaries, or through acquisitions of or mergers
with other financial institutions and financial services related companies.
There are no current arrangements, understandings or agreements regarding any
such opportunities. However, subsequent to the Conversion, the Company will be
in a position, subject to regulatory limitations and the Company's financial
position, to take advantage of any such acquisition and expansion opportunities
that may arise. The initial activities of the Company are anticipated to be
funded by the proceeds of the Offerings to be retained by the Company, income
thereon and dividends from the Bank.
The Company's executive office is located at the administrative offices
of the Bank, One South Church Street, Goshen, New York 10924. Its telephone
number is (914) 294-6151.
GOSHEN SAVINGS BANK
The Bank was organized in 1871 as a New York State chartered mutual
savings bank. The Bank converted to a federal mutual savings bank on March 18,
1997. The Bank's deposit accounts are insured to the maximum allowable amount by
the BIF as administered by the FDIC. The Bank services its customers from its
main office in Goshen, an adjacent drive-up facility, and a branch opened in
March 1997 at an elder care facility in Goshen. At December 31, 1996, the Bank
had total assets of $97.0 million, total deposits of $82.6 million and total
equity of $12.1 million. The Bank's market area consists of the Village of
Goshen, New York and the surrounding communities to a radius of approximately 12
miles, representing most of Orange County, New York. Based upon data as of June
30, 1996 published by the FDIC, the Bank's share of total FDIC-insured deposits
within its market area was less than 5%.
The Bank is a community-oriented savings bank whose businesses
primarily consist of accepting deposits from customers and investing those funds
in residential mortgage loans in its local market area. To a lesser degree, the
Bank makes commercial mortgage loans and consumer loans and invests in
investment and mortgage-backed securities. At December 31, 1996, the Bank's loan
portfolio, net, totaled $61.0 million, or 62.9% of total assets. All of the
Bank's loan origination and related loan servicing activities are conducted
internally by Bank personnel.
The Bank's investment activities primarily consist of investing in debt
securities issued by the United States Government and its agencies, corporate
debt securities, mortgage-backed securities and certain limited equity
securities. At December 31, 1996, the Bank had $21.0 million in U.S. Government,
agency, municipal and corporate debt securities, mutual fund shares, and
corporate equity securities, representing 21.7% of total assets, all of which
were classified as available for sale. At December 31, 1996, the Bank's equity
securities represented $2.8 million of the investment securities and consisted
of stock of the Federal Home Loan Bank of New York ("FHLBNY") and the Student
Loan Marketing Association, Inc. ("SLMA") and mutual fund shares issued by the
Institutional Investors Capital Appreciation Fund, Inc. (referred to herein,
with other related funds, as the Institutional Investors Mutual Fund, or
"IIMF"). At December 31, 1996, the Bank had $6.2 million in mortgage-backed
securities, or 6.4% of total assets, all of which were issued by
governmental-sponsored and federal agencies such as the Federal National
Mortgage
17
<PAGE>
Association ("FNMA"), the Federal Home Loan Mortgage Corporation ("FHLMC") and
the Government National Mortgage Association ("GNMA"). All mortgage-backed
securities were classified as held to maturity.
The Bank's executive office is located at One South Church Street,
Goshen, New York 10924. Its telephone number is (914) 294-6151.
18
<PAGE>
REGULATORY CAPITAL COMPLIANCE
At December 31, 1996, the Bank was subject to FDIC minimum capital
requirements and satisfied all such requirements. Set forth below is a summary
of the Bank's compliance with the OTS capital standards now applicable to it, on
an historical basis at December 31, 1996, and on a pro forma basis assuming that
the indicated number of shares were sold as of such date and assuming the
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 shares expected
to be acquired by the ISAP are deducted from pro forma regulatory capital. See
"Pro Forma Data".
<TABLE>
<CAPTION>
Pro Forma Based Upon Net Proceeds at December 31, 1996
----------------------------------------------------------------------------------------------------------
Historical at Minimum of Midpoint of Maximum of 15% Above Maximum
December 31, 1996 Valuation Range Valuation Range Valuation Range of Valuation Range(1)
-------------------- ------------------- -------------------- -------------------- ----------------------
Percent of Percent of Percent of Percent of Percent of
Applicable Applicable Applicable Applicable Applicable
Amount Assets(2) Amount Assets(2) Amount Assets(2) Amount Assets(2) Amount Assets(2)
------ --------- ------ ---------- ------ ---------- ------ ---------- ------ ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GAAP Capital (3).. $12,106 12.48% $ 17,212 16.6% $ 18,157 17.3% $ 19,103 18.0% $ 20,191 18.7%
======== ====== ======== ===== ======== ===== ======== ===== ======== =====
Tangible Capital:
Capital Level (4). $11,899 12.30% $ 17,005 16.4% $ 17,950 17.1% $ 18,896 17.8% $ 19,984 18.6%
Requirement (5)... 1,451 1.50% 1,554 1.5% 1,573 1.5% $ 1,592 1.5% 1,613 1.5%
------- ------ -------- ----- -------- ----- -------- ----- -------- -----
Excess........... $10,448 10.80% $ 15,451 14.9% $ 16,377 15.6% $ 17,304 16.3% $ 18,371 17.1%
======== ====== ======== ===== ======== ===== ======== ===== ======== =====
Core Capital:
Capital Level (4) $11,899 12.30% $ 17,005 16.4% $ 17,950 17.1% $ 18,896 17.8% $ 19,984 18.6%
Requirement (5).. 2,903 3.00% 3,108 3.0% 3,146 3.0% 3,183 3.0% 3,226 3.0%
------- ------ -------- ----- -------- ----- -------- ----- -------- -----
Excess........... $ 8,996 9.30% $ 13,897 13.4% $ 14,804 14.1% $ 15,713 14.8% $ 16,758 15.6%
======== ====== ======== ===== ======== ===== ======== ===== ======== =====
Risk-based capital:(6)
Capital level (4) $12,032 21.85% $ 17,138 29.1% $ 18,083 30.3% $ 19,029 31.5% $ 20,117 32.9%
Requirement (5).. 4,405 8.00% 4,716 8.0% 5,053 8.0% 5,153 8.0% 5,268 8.0%
------- ------ -------- ----- -------- ----- -------- ----- -------- -----
Excess........... $ 7,627 13.85% $ 12,422 21.1% $ 13,030 22.3% $ 13,876 23.5% $ 14,849 24.9%
======== ====== ======== ===== ======== ===== ======== ===== ======== =====
</TABLE>
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the maximum of the Valuation Range of up to
15% as a result of regulatory considerations or changes in market conditions or
general financial and economic conditions following the commencement of the
Subscription Offering.
(2) Tangible and core capital ratios are shown as a percentage of tangible
assets. Risk-based capital ratios shown as a percentage of risk-weighted assets.
(3) The difference between capital under generally accepted accounting
principles ("GAAP") and regulatory tangible and core capital is an adjustment to
GAAP capital by the amount of the net unrealized gain/loss, if any, on
available-for-sale securities recognized only for GAAP purposes, and other
adjustments not pertinent to the Bank. Regulatory risk-based capital reflects
these adjustments and includes the allowance for loan losses. See
"Regulation--Regulation of Federal Savings Associations--Capital Requirements."
(4) Pro forma capital levels assume receipt by the Bank of 50% of the net
proceeds from the sale of Common Stock in the Offerings. These levels also
assume funding by the Bank of the ISAP equal to 4% of the Common Stock issued
and repayment of the ESOP Loan in level principal installments over a period of
10 years. See "Management of the Bank--Benefits" for a discussion of the ISAP
and ESOP.
(5) In order to be classified as "well-capitalized," a federal savings bank
must, in addition to other requirements, have ratios of core and total capital
to risk-weighted assets of at least 6.0% and 10.0%, respectively, and its ratio
of core capital to total assets must be at least 5.0%. See
"Regulation--Regulation of Federal Savings Associations--Capital Requirements"
and "--Prompt Corrective Action."
(6) Pro forma risked-based capital data assumes net proceeds are invested in
assets that carry a risk-weighting equal to 56.8%, being the average risk
weighting of the Bank's assets at December 31, 1996.
19
<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 $13,679,000 and $18,685,000 million (or $21,565,000 if the Valuation
Range is increased by 15%). See "Pro Forma Data" and "The Conversion--Stock
Pricing and Number of Shares to be Issued" as to the assumptions used to arrive
at such amounts. The 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 $13.7 million to $18.7 million, the Company
expects to utilize between $6.85 million and $9.35 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 to
increase its levels of one-to-four family real estate lending and, to a lesser
extent, other lending, depending on market conditions as suitable opportunities
arise. The Bank also intends to utilize the net proceeds for investments in
short- and medium-term, investment grade debt securities and mortgage-backed
securities. The Company may use net proceeds from the Conversion to purchase
stock to fund the ISAP or to satisfy the exercise of options issued under the
Stock Option Plan. See "Management of the Bank--Benefits--Stock Option Plan" and
"--Benefits--Incentive Stock Award Plan."
The Company intends to use a portion of the net proceeds it retains to
make the ESOP Loan 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 the Conversion. Based upon the
sale of from 1,445,000 shares to 1,955,000 shares at the minimum and maximum of
the Valuation Range, the amount of the ESOP Loan would be $1,156,000 or
$1,564,000, respectively (or $1,798,600 if the maximum of the Valuation Range is
increased by 15%), with a term of ten years at an interest rate of 7.75% per
year. 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--Benefits--Employee Stock Ownership Plan." The remaining net
proceeds retained by the Company will initially be invested in short- and
medium-term debt obligations, mortgage-backed securities and other investment
grade marketable equity securities, and may be invested in deposits in or loans
to the Bank.
The net proceeds 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, savings banks and commercial banks or
their assets, or diversification into other banking related businesses. The
Company and the Bank have no current arrangements, understandings or agreements
regarding any such transactions. The Company, upon the Conversion, will be a
unitary savings and loan holding company, which under existing laws would not be
restricted as to the types of business activities in which it may engage. See
"Regulation--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 OTS, the Company
may not repurchase any Common Stock in the first year after the 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 repurchase would cause the
Bank to become "undercapitalized" within the meaning of the OTS's prompt
corrective action regulation. See "Regulation--Regulation of Federal Savings
Associations--Prompt Corrective 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 are not limited to: (i) market and economic
factors such as the price at which the stock is trading in the market, the
volume of trading, the attractiveness of other investment alternatives in terms
of the rate of return and risk involved in the investment, the ability to
increase the book value and/or earnings per share of the remaining outstanding
shares, and the opportunity to improve the Company's return on equity; (ii) the
avoidance of dilution to stockholders by not having to issue additional shares
to cover the exercise of stock options or to fund employee stock benefit plans;
and (iii) any other circumstances in which repurchases would be in the best
interests of the Company and its stockholders. If the Company determines to
repurchase stock, such repurchases may be made at
20
<PAGE>
prices in excess of the Purchase Price. To the extent that the Company
repurchases stock at market prices in excess of the Purchase Price, 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 "Regulation--Regulation
of Federal Savings Associations--Limitations on Capital Distributions."
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 may
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. In
the future, declarations of dividends by the Board of Directors, if any, will
depend upon a number of factors, including the amount of net proceeds retained
by the Company in the Conversion, investment opportunities available to the
Company or the Bank, capital requirements, regulatory limitations, the Company's
and the Bank's financial condition, results of operations, tax considerations,
general economic conditions, industry standards and other factors. No assurances
can be given, however, that any dividends will be paid or, if payment is
commenced, will continue to be paid.
The Bank will not be permitted to pay dividends on its common stock or
repurchase shares of its common stock if its stockholders' equity would be
reduced below the amount required for the liquidation account required to be
created as part of the Conversion for the benefit of certain depositors. See
"The Conversion--Liquidation Account." For information concerning federal
regulations which apply to the Bank regarding its ability to make capital
distributions, including payment of dividends to its holding company, see
"Regulation--Regulation of Federal Savings Associations--Limitations on Capital
Distributions" and "Taxation--Federal Taxation--Distributions." Assuming the
sale of Common Stock at the maximum of the Valuation Range, at December 31,
1996, after giving pro forma effect to (i) the Conversion and related expenses,
(ii) the deduction from capital of the amount expected to be borrowed by the
ESOP and the cost of shares of Common Stock to be acquired in connection with
the ISAP and (iii) the retention by the Bank of 50% of the net proceeds of the
Conversion, the Bank would be permitted to make capital distributions of up to
approximately $6.5 million to the Company without prior OTS approval.
Unlike the Bank, the Company is not generally subject to OTS regulatory
restrictions on the payment of dividends to its stockholders, although the
source of such dividends will be dependent on the net proceeds retained by the
Company and earnings thereon and may be dependent, in part, upon dividends from
the Bank. The Company has committed to the OTS that it will not be permitted to
pay or undertake any action that will further the payment of a return of capital
or other extraordinary dividend for one year after the consummation of the
Conversion. The Company is subject 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 "GOSB" 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
21
<PAGE>
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 after the Conversion. See
"Risk Factors--Absence of Market for Common Stock."
22
<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 $13.7 million and $21.6 million based upon the
following assumptions: (i) the ESOP will purchase 8% of the Common Stock issued
in the Conversion and the remaining shares will be sold in the Offerings; (ii)
Capital Resources will receive a fee equal to 2% of the aggregate purchase price
of the shares sold in the Offerings, except that no fee will be paid with
respect to shares purchased by the ESOP, and by officers, employees, and
directors of the Bank and Company and members of their immediate families, which
purchases are estimated at $600,000; and (iii) Conversion expenses, excluding
the marketing fees paid to Capital Resources, will be approximately $517,000.
Actual Conversion expenses may vary from those estimated.
Pro forma consolidated net income of the Company for the three months
ended December 31, 1996 and for the year ended September 30, 1996 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 5.55% (the one year
U.S. Treasury constant maturity index for the week which included December 31,
1996). The yield on a one year U.S. Treasury bill, rather than an arithmetic
average of the average yield on interest-earning assets and average rate paid on
deposits, has been used to estimate income on net proceeds because it is
believed that the one year U.S. Treasury bill rate is a more accurate estimate
of the rate that would be obtained on an investment of net proceeds from the
Offerings. 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 3.33% (based on an assumed tax rate of
40.0%). 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.
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 amounts 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 and for the three months ended December 31, 1996,
and at and for the year ended September 30, 1996, 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 ISAP, which is expected to be adopted by the Company
following the Conversion and presented to stockholders for approval. See
"Management of the Bank--Benefits--Incentive Stock Award Plan." No effect has
been given in the tables to the possible issuance of additional shares reserved
for future issuance pursuant to the Stock Option Plan expected to be adopted by
the Board of Directors of the Company and presented to stockholders for
approval, nor does book value as presented give any effect to the liquidation
account to be established in the Conversion. See "The Conversion--Effects of
Conversion on Depositors and Borrowers--Liquidation Rights" and "Management of
the Bank--Benefits--Stock Option Plan."
23
<PAGE>
<TABLE>
<CAPTION>
At or For the Three Months Ended December 31, 1996
------------------------------------------------------------------------------
1,445,000 1,700,000 1,955,000 2,248,250
Shares (Minimum) Shares (Midpoint) Shares (Maximum) Shares (15% Above
at $10.00 at $10.00 at $10.00 Maximum) at
Per Share Per Share Per Share $ 10.00 Per Share
---------------- ------------------- ------------------- -------------------
(Dollars in Thousands, Except Per Share Amount)
<S> <C> <C> <C> <C>
Gross Proceeds ..................................... $ 14,450 $ 17,000 $ 19,550 $ 22,483
Less offering expenses and commissions ............. (771) (818) (865) (919)
----------- ----------- ----------- -----------
Estimated net conversion proceeds ............... 13,679 16,182 18,685 21,564
Less ESOP and ISAP funding ......................... (1,734) (2,040) (2,346) (2,698)
----------- ----------- ----------- -----------
Estimated proceeds available for investment (1) . $ 11,945 $ 14,142 $ 16,339 $ 18,866
=========== =========== =========== ===========
Net income:
Historical ...................................... $ 295 $ 295 $ 295 $ 295
Pro forma adjustments:
Net -earnings from proceeds ..................... 99 118 136 157
ESOP expense (2) ................................ (17) (20) (23) (27)
ISAP expense (3) ................................ (17) (20) (23) (27)
----------- ----------- ----------- -----------
Pro forma net income .......................... $ 360 $ 373 $ 385 $ 398
=========== =========== =========== ===========
Net income per share:
Historical ...................................... $ 0.22 $ 0.19 $ 0.16 $ 0.14
Pro forma adjustments:
Net earnings from proceeds ...................... 0.07 0.08 0.08 0.08
ESOP expense .................................... (0.01) (0.01) (0.01) (0.01)
ISAP expense .................................... (0.01) (0.01) (0.01) (0.01)
----------- ----------- ----------- -----------
Pro forma net income per share ................ $ 0.27 $ 0.25 $ 0.22 $ 0.20
=========== =========== =========== ===========
Weighted average shares used in
calculation ................................... 1,330,845 1,565,700 1,800,555 2,070,638
Ratio of offering price to pro forma
net income per share (annualized).............. 9.26x 10.00x 11.36x 12.50x
=========== =========== =========== ===========
Stockholders' equity (book value)(5):
Historical ...................................... $ 12,106 $ 12,106 $ 12,106 $ 12,106
Pro forma adjustments:
Estimated net conversion proceeds ............. 13,679 16,182 18,685 21,564
Less Common Stock acquired by:
ESOP........................................ (1,156) (1,360) (1,564) (1,799)
ISAP ....................................... (578) (680) (782) (899)
----------- ----------- ----------- -----------
Pro forma book value ................... $ 24,051 $ 26,248 $ 28,445 $ 30,972
=========== =========== =========== ===========
Stockholders' equity (book value) per share:
Historical ...................................... $ 8.38 $ 7.12 $ 6.19 $ 5.38
Pro forma per share adjustments:
Estimated net conversion proceeds ............. 9.47 9.52 9.56 9.59
Less Common Stock acquired by:
ESOP ....................................... (0.80) (0.80) (0.80) (0.80)
ISAP ....................................... (0.40) (0.40) (0.40) (0.40)
----------- ----------- ----------- -----------
Pro forma book value per share ......... $ 16.65 $ 15.44 $ 14.55 $ 13.77
=========== =========== =========== ===========
Shares used in calculation ............. 1,445,000 1,700,000 1,955,000 2,248,250
Offering price per share as a percentage
of pro forma book value per share ............... 60.06% 64.77% 68.73% 72.62%
=========== =========== =========== ===========
</TABLE>
Notes appear after following page
24
<PAGE>
<TABLE>
<CAPTION>
At or For the Year Ended September 30, 1996
---------------------------------------------------------------------------------
2,248,250
1,445,000 1,700,000 1,955,000 Shares (15% Above
Shares (Minimum) Shares (Midpoint) Shares (Maximum) Maximum)
at $10.00 Per Share at $10.00 Per Share at $10.00 Per Share at $10.00 Per Share
------------------- ------------------- ------------------- -------------------
(Dollars in Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Gross proceeds ....................................... $ 14,450 $ 17,000 $ 19,550 $ 22,483
Less offering expenses and commissions ............... (771) (818) (865) (919)
----------- ----------- ----------- -----------
Estimated net conversion proceeds ............... 13,679 16,182 18,685 21,564
Less ESOP and ISAP funding ........................... (1,734) (2,040) (2,346) (2,698)
----------- ----------- ----------- -----------
Estimated proceeds available for investment (1).. $11,945 $ 14,142 $ 16,339 $ 18,866
=========== =========== =========== ===========
Net income:
Historical ...................................... $ 558 $ 558 $ 558 $ 558
Pro forma adjustments:
Net earnings from proceeds ...................... 398 471 544 628
ESOP expense (2) ................................ (69) (82) (94) (108)
ISAP expense (3) ................................ (69) (82) (94) (108)
----------- ----------- ----------- -----------
Pro forma net income ......................... $ 818 $ 865 $ 914 $ 970
=========== =========== =========== ===========
Net income per share:
Historical ...................................... $ 0.42 $ 0.36 $ 0.31 $ 0.27
Pro forma adjustments:
Net earnings from proceeds ...................... 0.30 0.30 0.30 0.30
ESOP expense .................................... (0.05) (0.05) (0.05) (0.05)
ISAP expense .................................... (0.05) (0.05) (0.05) (0.05)
----------- ----------- ----------- -----------
Pro forma net income per share ............... $ 0.62 $ 0.56 $ 0.51 $ 0.47
=========== =========== =========== ===========
Weighted average shares used in
calculation .................................. 1,335,180 1,570,800 1,806,420 2,077,383
Ratio of offering price to pro forma
net income per share ......................... 16.13x 17.76x 19.61x 21.28x
=========== =========== =========== ===========
Stockholders' equity (book value)(5):
Historical ...................................... $ 11,747 $ 11,747 $ 11,747 $ 11,747
Pro forma adjustments:
Estimated net conversion proceeds ............ 13,679 16,182 18,685 21,564
Less Common Stock acquired by:
ESOP ..................................... (1,156) (1,360) (1,564) (1,799)
ISAP ..................................... (578) (680) (782) (899)
----------- ----------- ----------- -----------
Pro forma book value ................. $ 23,692 $ 25,889 $ 28,086 $ 30,613
=========== =========== =========== ===========
Stockholders' equity (book value) per share:
Historical ...................................... $ 8.13 $ 6.91 $ 6.01 $ 5.22
Pro forma per share adjustments:
Estimated net conversion proceeds ............ 9.47 9.52 9.56 9.59
Less Common Stock acquired by:
ESOP ..................................... (0.80) (0.80) (0.80) (0.80)
ISAP ..................................... (0.40) (0.40) (0.40) (0.40)
----------- ----------- ----------- -----------
Pro forma book value per share ....... $ 16.40 $ 15.23 $ 14.37 $ 13.61
=========== =========== =========== ===========
Shares used in calculation ........... 1,445,000 1,700,000 1,955,000 2,248,250
Offering price per share as a percentage
of pro forma book value per share ............... 60.98% 65.66% 69.59% 73.48%
=========== =========== =========== ===========
</TABLE>
Notes appear on following page.
25
<PAGE>
(1) No effect has been given to withdrawals from deposit accounts to purchase
Common Stock in the Conversion.
(2) It is assumed that 8% of the Common Stock issued in the Conversion will be
purchased by the ESOP. The funds used to acquire such shares are assumed to have
been borrowed by the ESOP from the Company. The amount 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 payments due on the ESOP Loan. The Bank's total annual payment on the
ESOP Loan is based upon ten equal annual installments of principal, with an
assumed interest rate at 7.75%. The pro forma net earnings assumes: (i) that the
Bank's contribution to the ESOP is equivalent to the debt service requirement
for the period and was made at the end of the period; (ii) that 2,890, 3,400,
3,910, and 4,497 shares were committed to be released during the three months
ended December 31, 1996, and that 11,560, 13,600, 15,640 and 17,986 shares were
committed to be released during the year ended September 30, 1996, in each case
at the minimum, midpoint, maximum and 15% above the maximum of the Valuation
Range, respectively, 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--Benefits--Employee
Stock Ownership Plan."
(3) Gives effect to the ISAP expected to be adopted by the Company following the
Conversion. The Company intends to acquire an amount of Common Stock equal to 4%
of the shares of Common Stock sold in the Conversion to fund the ISAP or 57,800,
68,000, 78,200 and 89,930 shares of Common Stock at the minimum, midpoint,
maximum and 15% above the maximum of the Valuation Range, respectively. In
calculating the pro forma effect of the ISAP, it is assumed that the shares were
acquired at the beginning of the period presented in open market purchases at
the Purchase Price and that 5% and 20% of the purchase price of such shares was
an amortized expense during the three month period ended December 31, 1996 and
the year ended September 30, 1996, respectively, based upon a vesting period
under the ISAP of five years. The issuance of authorized but unissued shares of
the Company's Common Stock to fund the ISAP instead of open market purchases
would dilute the interests of existing stockholders by approximately 3.85%. In
such event, pro forma net earnings per share would be $0.26, $0.23, $0.20 and
$0.18, and pro forma stockholders' equity per share would be $16.39, $15.23,
$14.23 and $13.63 at the minimum, midpoint, maximum and 15% above the maximum of
the Valuation Range, respectively, for the three months ended December 31, 1996.
Pro forma net earnings per share would be $0.59, $0.53, $0.49 and $0.45 and pro
forma stockholders equity per share would be $16.15, $15.03, $14.20 and $13.48
at the minimum, midpoint, maximum and 15% above the maximum of the Valuation
Range, respectively, for the year ended September 30, 1996. There can be no
assurance that the actual purchase price of the shares used to fund the ISAP
will be equal to the Purchase Price. See "Management of the
Bank--Benefits--Incentive Stock Award Plan."
(4) No effect has been given to the issuance of additional shares of Common
Stock pursuant to the Stock Option Plan expected to be adopted by the Company
following the Conversion. Under the Stock Option Plan, an amount equal to 10% of
the Common Stock issued in connection with the Conversion or 145,500, 170,000,
195,550 and 224,825 shares at the minimum, midpoint, maximum and 15% above the
maximum of the Valuation Range, respectively, will be reserved for future
issuance upon the exercise of options to be granted under the Stock Option Plan.
The issuance of Common Stock to satisfy the exercise of options under the Stock
Option Plan will result in the dilution of existing stockholders' interests.
Assuming all options were exercised at the beginning of the period at an
exercise price of $10.00 per share, and further assuming the reinvestment of the
proceeds received by the Company upon the same assumptions as the reinvestment
of the net proceeds of the Offerings, for the three months ended December 31,
1996, the pro forma net earnings per share would be $0.26, $0.23, $0.20 and
$0.18, respectively, and the pro forma stockholders' equity per share would be
$15.81, $14.75, $13.97 and $13.29, respectively, and for the year ended
September 30, 1996, the pro forma net earnings per share would be $0.58, $0.53,
$0.48 and $0.45, respectively, and the pro forma stockholders' equity per share
would be $16.04, 14.95, 14.14 and 13.43, respectively. See "Management of the
Bank--Benefits --Stock Option Plan."
(5) The retained earnings of the Bank will be substantially restricted after the
Conversion. See "Dividend Policy," and "The Conversion--Effects of Conversion on
Depositors and Borrowers--Liquidation Rights."
26
<PAGE>
CAPITALIZATION
The following table presents the historical capitalization of the Bank
at December 31, 1996, including deposits and borrowings and the pro forma
consolidated capitalization of the Company after giving effect to the
Conversion, 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>
15% Above
Minimum Midpoint Maximum Maximum
1,445,000 1,700,000 1,955,000 2,248,250
Goshen Savings Shares at Shares at Shares at Shares at
Historical $10 Per Share $10 Per Share $10 Per Share $10 Per Share (1)
---------- ------------- ------------- ------------- -----------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Deposits (2).................................... $ 82,583 $ 82,583 $ 82,583 $ 82,583 $ 82,583
Borrowings...................................... 1,000 1,000 1,000 1,000 1,000
-------- -------- -------- -------- --------
Total deposits and borrowings................... 83,583 83,583 83,583 83,583 83,583
======== ======== ======== ======== ========
Capital Stock :
Preferred Stock:
500,000 shares authorized; none outstanding. - - - - -
Common Stock, $ 0.01 par value(3)
5,000,000 shares authorized;
shares outstanding as shown................. - 14 17 20 22
Additional paid-in capital.................. - 13,665 16,165 18,665 21,543
Equity - substantially restricted (4)........... 12,106 12,106 12,106 12,106 12,106
-------- -------- -------- -------- --------
Less:
Common Stock acquired by ESOP(5).............. - (1,156) (1,360) (1,564) (1,799)
Common Stock acquired by ISAP(6).............. - (578) (680) (782) (899)
-------- -------- -------- -------- --------
Total stockholders' equity...................... $ 12,106 $ 24,051 $ 26,248 $ 28,445 $ 30,973
======== ======== ======== ======== ========
</TABLE>
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the maximum of the Valuation 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
Offering.
(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) No effect has been given to the issuance of additional shares of Common
Stock pursuant to the Stock Option Plan intended to be adopted by the Company
and presented for approval of stockholders at a meeting of stockholders
following the Conversion. The Stock Option Plan 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--Benefits--Stock Option Plan."
(4) The equity of the Bank will be substantially restricted after the
Conversion. See "The Conversion--Effects of Conversion on Depositors and
Borrowers--Liquidation Rights."
(5) Assumes that 8% of the shares issued in connection with the Conversion 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--Benefits--Employee Stock Ownership Plan."
(6) Assumes that, subsequent to the Conversion, shares equal to 4% of the shares
of Common Stock issued in the Conversion are purchased by the Company through
open market purchases for use to fund the ISAP. The Common Stock purchased by
the ISAP is reflected as a reduction of stockholders' equity. See "Risk
Factors--Possible Dilution from Stock Options and the ISAP," "Pro Forma Data"
and "Management of the Bank--Benefits--Incentive Stock Award Plan."
27
<PAGE>
GOSHEN SAVINGS BANK
STATEMENTS OF INCOME
The following Statements of Income of the Bank for each of the years in
the three-year period ended September 30, 1996 have been audited by Nugent &
Haeussler, P.C., independent certified public accountants, whose report thereon
appears elsewhere in this Prospectus. With respect to information for the three
months ended December 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
three months ended December 31, 1996 are not necessarily indicative of the
results that may be expected for the year ended September 30, 1997. These
statements should be read in conjunction with the Financial Statements and Notes
thereto and Management's Discussion and Analysis of Financial Condition and
Results of Operations included elsewhere in this Prospectus. Prior to March 18,
1997, the Bank was a New York chartered mutual savings bank operating under the
same name.
<TABLE>
<CAPTION>
Three Months Ended December 31, Years Ended September 30,
------------------------------- -------------------------
1996 1995 1996 1995 1994
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
Interest income:
Loans $1,154,728 $1,015,808 $4,327,786 $3,882,416 $3,360,217
Mortgage-backed securities 112,825 75,336 396,257 197,792 171,451
Federal funds sold 21,947 30,045 122,586 99,101 43,942
Investment securities:
U.S. Treasury and other
government agencies 104,393 139,885 529,275 500,473 571,934
Corporate bonds 195,678 197,856 691,502 900,754 1,454,023
Other 86,020 75,154 167,053 134,413 145,748
---------- ---------- ---------- ---------- ----------
Total interest income 1,675,591 1,534,084 6,234,459 5,714,949 5,747,315
--------- --------- --------- --------- ---------
Interest expense:
Deposit accounts 764,180 913,063 3,364,566 3,260,266 2,685,867
Other borrowing 15,888 0 82,900 28,443 3,193
---------- ----------- ---------- ---------- ----------
Total interest expense 780,068 913,063 3,447,466 3,288,709 2,689,060
---------- ---------- ---------- ---------- ---------
Net interest income before
provision for loan losses 895,523 621,021 2,786,993 2,426,240 3,058,255
Provision for loan losses 0 13,500 23,500 29,000 25,000
---------- ---------- ---------- ---------- ----------
Net interest income after
provision for loan losses 895,523 607,521 2,763,493 2,397,240 3,033,255
---------- ---------- ---------- ---------- ----------
Non-interest income:
Realized gains on sale of
investment securities 0 0 114,681 13,861 19,727
Capital gain distributions 93,139 119,260 119,260 180,964 198,904
Unrealized gain (loss) on trading
securities 0 0 0 0 (86,672)
Service charges on deposit accounts 36,705 37,036 147,247 148,460 85,434
Other income 31,759 23,179 107,547 106,354 159,447
---------- ---------- ---------- ---------- ----------
Total non-interest income 161,603 179,475 488,735 449,639 376,840
---------- ---------- ---------- ---------- ----------
Continued on following page
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
Statements of Income continued from preceding page.
Three Months Ended December 31, Years Ended September 30,
------------------------------- -------------------------
1996 1995 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Non-interest expense:
Compensation and employee benefits 355,120 337,974 1,506,787 1,485,753 1,455,631
Office occupancy 43,628 45,853 191,011 177,207 213,253
Federal deposit insurance
premiums 0 8,708 10,708 142,302 200,194
Advertising 17,644 11,796 60,412 30,594 74,982
Data processing fees 51,244 49,886 222,671 192,461 177,744
Depreciation 38,060 36,567 142,406 141,884 147,928
Office supplies 21,781 21,280 90,306 82,252 78,883
Other 109,747 113,872 350,793 400,025 449,607
Nationar writedown (recovery) 0 0 (232,223) 278,623 0
---------- ---------- ---------- ---------- ----------
Total non-interest expense 637,224 625,936 2,342,871 2,931,101 2,798,222
Income (loss) before income tax
expense and cumulative effect
of accounting change 419,902 161,060 909,357 (84,222) 611,873
Income tax expense 124,600 63,000 351,400 (16,000) 301,000
---------- ---------- ---------- ---------- ----------
Net income (loss) before cumulative
effect of accounting change 295,302 98,060 557,957 (68,222) 310,873
Cumulative effect of accounting
change - Postretirement benefits 0 0 0 (393,750) 0
---------- ---------- ---------- ---------- ----------
Net Income (loss) $ 295,302 $98,060 $557,957 $(461,972) $310,873
========== ======= ======== ========== ========
</TABLE>
See accompanying notes to financial statements
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
The Company has only recently been formed and, therefore, has no
results of operations. The Bank's results of operations are dependent
principally on its net interest income, representing the difference between the
income earned on its loan and securities portfolios and its cost of funds,
represented principally by interest paid on its deposit accounts. Results of
operations are also affected by the Bank's provision for loan losses. In
addition to net interest income, other sources of income for the Bank include
deposit account fees, loan and loan servicing fees, gains on the sale of
securities, capital gain distributions on mutual fund investments, and fees for
banking services such as safe deposit boxes.
The largest category of non-interest expense is compensation and
benefits expense. Other principal categories of non-interest expense include
occupancy expense, data processing costs, advertising and marketing expenses,
and insurance costs. Through the fiscal year ended September 30, 1995, deposit
insurance premiums payable to the FDIC also represented a significant category
of non-interest expense, but have not been significant since the BIF reached its
required reserve ratio and insurance premiums were reduced beginning with the
quarter ended September 30, 1995. See "Regulation--Regulation of Federal Savings
Associations--Insurance of Deposit Accounts."
Management Strategy
The Bank operates as a traditional savings bank, obtaining deposits
from its local community and investing those deposits principally in one-to-four
family residential mortgage loans and, to a lesser degree, in securities issued
by the United States government or its agencies, corporate debt securities rated
in the three highest grades by nationally recognized rating agencies, and
mortgage-backed securities. Management seeks to maintain a high quality loan
portfolio with low levels of delinquencies and non-performing assets by
concentrating on residential mortgage loans in its local community.
The Bank seeks to avoid loans perceived to be speculative or to present
significantly increased risk, regardless of whether the yields on such loans may
be higher than the average yields on loans in the Bank's portfolio. As a result,
at December 31, 1996, 86.8% of the Bank's loan portfolio represented loans
secured by first mortgages on owner-occupied one-to-four family residential real
estate, 3.6% represented home equity loans (including lines of credit and
conventional second mortgages) secured by junior liens on residential real
estate, and 3.6% represented loans secured by one-to-four family residential
real estate used for rental purposes. The Bank does not make loans to finance
the acquisition, subdivision and development of vacant land, loans to builders
and developers, or any material loans for commercial purposes other than those
secured by real estate.
When appropriate and based upon customer demand, the Bank may make
residential mortgage loans that do not fit within its current portfolio and
asset/liability management needs. These loans are generally sold on the
secondary market, with the Bank retaining servicing rights. However, the Bank
has not made any such loans since fiscal 1994 nor has the Bank sold loans since
fiscal 1994.
Analysis of Net Interest Income
Net interest income, the principal source of income for the Bank,
represents the difference between the income on interest-earning assets and the
expense of interest-bearing liabilities. Net interest income depends principally
upon (i) the balance of interest-earning assets that the Bank can maintain based
upon its funding sources; (ii) the relative amounts of interest-earning assets
versus interest-bearing liabilities; and (iii) the difference between the yields
earned on those assets and the rates paid on those liabilities. Net interest
income can also be adversely affected by non-performing loans because they must
still be funded by interest-bearing liabilities, but they do not provide
interest income. Furthermore, when an asset is designated as non-performing, all
accrued but unpaid interest is reversed against current period income, further
reducing net interest income.
30
<PAGE>
During the period from October 1, 1993 (the beginning of the 1994
fiscal year) through December 31, 1996, three principal factors had substantial
effects on the financial condition and results of operations of the Bank. These
three factors were (i) the closing and subsequent liquidation of Nationar, which
was then the Bank's principal correspondent bank; (ii) the origination of
adjustable rate mortgage loans ("ARMs") by the Bank at interest rates which were
substantially discounted from the value of the index plus the margin used for
determining interest rate adjustments ("teaser rate loans"); and (iii) the
decision of the Bank to try to reduce its cost of funds.
The Closing and Liquidation of Nationar. On February 6, 1995, Nationar,
which was then the Bank's principal correspondent bank and also its investment
advisor, was closed by the New York Superintendent of Banks (the
"Superintendent"). Nationar was a commercial bank formed in order to provide
commercial banking services to savings banks. The deposit accounts at Nationar
were not insured by the FDIC. When Nationar was closed, the Bank had total
deposits and federal funds sold at Nationar of approximately $2,930,000, which
were frozen pending the liquidation of Nationar by the Superintendent. The Bank
also had a $1,000,000 borrowing relationship with Nationar in the form of a
repurchase agreement, and the Bank owned capital stock and capital debentures of
Nationar with a book value on the date of closure of $47,000. The deposits and
federal funds sold which were frozen at Nationar ceased earning interest after
Nationar was closed, and thus have not been considered interest-earning assets
for the purpose of calculating yields on applicable asset categories and the
Bank's spread (the difference between the average yield earned on
interest-earning assets and the average rate paid on interest-bearing
liabilities).
The closing of Nationar had a number of effects on the Bank's net
interest income. No interest was earned by the Bank on the deposits and federal
funds sold while the Superintendent processed the Nationar liquidation.
Furthermore, unavailability of the liquid assets at Nationar created a liquidity
shortage which the Bank met by offering a high interest rate certificate of
deposit program in February 1995 to attract additional funds. The program
generated approximately $2.6 million of certificates of deposit at a nominal
interest rate of 6.80% and a yield after compounding of 7.04%, of which
approximately 96% had terms of twelve months. Although these deposits solved
immediate liquidity needs, they increased the Bank's average cost of funds.
Furthermore, one of the Bank's competitors, also facing Nationar-related
liquidity problems, offered high-rate certificates of deposit after the Bank's
own program expired. The Bank believes some of its depositors with lower rate
savings deposits may have moved their deposits to higher yielding accounts at
the competitor, which would also increase the average cost of funds. Finally,
after Nationar was closed, the Bank temporarily shifted the mix of its
investment portfolio away from corporate debt securities with higher yields in
favor of United States Treasury and agency obligations with lower yields, which
shift was subsequently reversed.
In addition, due to the uncertainties of the liquidation process,
during the year ended September 30, 1995, the Bank recorded a $279,000 provision
for possible Nationar losses which did not directly affect net interest income.
In fiscal 1996, the Bank recovered $232,000 of its provision for possible
Nationar losses as it became apparent that the Bank would recover substantially
all of its Nationar claims. The repurchase agreement with Nationar was also
liquidated during fiscal 1996.
Teaser Rate Loans. From April 1993 to December 1994, the Bank offered
ARMs with low initial interest rates. This was done due to customer preferences
and to maintain the Bank's competitive position when a nearby bank, which had
recently converted to the stock form of ownership and had substantial funds to
invest in local mortgage loans, offered mortgage loan programs with low initial
interest rates. The Bank offered initial rates from 4.25% to 5.00% coupled with
a delay of up to 18 months until the first interest adjustment, with annual
adjustments thereafter. Loans originated during the first half of a calendar
year did not have their first interest rate adjustment until July of the
following year, while loans originated during the second half of the calendar
year did not have their first interest rate adjustment until January of the
second year after the closing. Therefore, loans originated during the latter
half of 1993 did not have their first interest rate adjustment until January
1995 and loans originated in 1994 did not have their first interest rate
adjustments until July 1995 or January 1996. Interest rates are then adjusted
based upon changes in the one year Treasury Bill constant maturity index,
subject to a 2% per year maximum rate adjustment and a lifetime maximum interest
rate adjustment, measured from the initial teaser rate, of from 5.5% to 6.0%.
General market interest rate conditions, notably including the one year
Treasury Bill index used to calculate interest rate adjustments on the teaser
rate loans, increased throughout 1994. The combined effect of the low initial
31
<PAGE>
interest rates, the increase in the value of the index, and the 2% per period
cap on interest rate adjustments, caused the teaser rate loans not to reach a
fully indexed interest rate until July 1995 at the earliest, with some loans not
reaching a fully indexed rate until January 1, 1997. Therefore, the yields
earned on the Bank's loans, and consequently the Bank's net interest income, was
adversely affected. As the interest rates on the teaser rate loans increased,
the Bank experienced an increase in spread and interest income. At December 31,
1996, the Bank had approximately $16.9 million of such loans remaining in its
portfolio, representing approximately 27.6% of total loans. Of these loans, $5.2
million had interest rates of 7.00% or less at December 31, 1996, most of which
were expected to adjust during fiscal 1997 to fully-indexed interest rates based
upon the one year Treasury Bill constant maturity index plus 200 basis points.
Efforts to Reduce Cost of Funds. As market interest rate conditions
rose during calendar year 1994, the Bank, to meet its competition, increased the
rates it offered on its certificates of deposit. This increase caused the Bank
to pay higher rates on new certificates of deposit and roll-overs from existing
certificates of deposit. In addition, the spread between the rates paid on
certificates of deposit versus passbook and other deposit programs widened,
making certificates of deposit more attractive to existing customers and causing
a shift in the mix of deposits away from lower-rate accounts and towards
certificates of deposit. The high interest rate certificate of deposit program
offered by the Bank to increase liquidity after the Nationar closure, coupled
with competitive pressures and the general effects of the high market interest
rate conditions which pertained in the latter part of calendar year 1994 and the
early part of calendar year 1995, increased the Bank's cost of funds,
principally reflected by an increase in the rates paid on certificates of
deposit. The rate paid on savings accounts remained constant, but lower cost
savings accounts declined as a percentage of total deposits, indirectly
increasing the average cost of funds.
During fiscal 1996, the Bank determined to seek to reduce its cost of
funds. When the high rate certificates of deposit offered after the closing of
Nationar matured in February 1996, the Bank did not offer premium rates to
retain such deposits. In addition, as general market interest rates declined,
the Bank did not aggressively pursue the retention of maturing high-rate
certificates of deposit by offering above-market rates at renewal. Instead, the
Bank offered moderate rates in line with the average rates being offered in its
market area. In addition, the Bank did not offer premium rates for certificates
of deposit of $100,000 or more, as do many financial institutions, resulting in
a low level of such deposits. Certificates of deposit of $100,000 or more
represented only $1.7 million, or 2.1%, of total deposits, at December 31, 1996.
32
<PAGE>
Average Balances, Interest Rates and Yields
The following tables present, for the periods indicated, the total
dollar amount of interest income from average interest-earning assets and the
resultant yields, as well as the interest expense on average interest-bearing
liabilities, expressed both in dollars and rates. Also set forth is information
regarding outstanding balances and yields or costs, with related information, at
December 31, 1996. No tax equivalent adjustments were made. All average balances
are monthly average balances. Non-accruing loans have been included in the
tables as loans with interest earned recognized on a cash basis only.
Non-interest-bearing checking accounts are included in the tables as a
component of non-interest-bearing liabilities.
<TABLE>
<CAPTION>
For the Three Months Ended December 31,
-------------------------------------------------------------------
At December 31, 1996 1996 1995
--------------------- ------------------------------ ------------------------------------
Average Average Average
Yield/ Average Yield/ Average Yield/
Balance Cost Balance Interest Cost(4)(5) Balance Interest Cost(4)(5)
------- ---- ------- -------- ---------- ------- -------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earnings assets:
Loans receivable (1) $61,013 7.68% $ 60,323 $1,155 7.66% $ 57,519 $ 1,016 7.07%
Mortgage-backed securities........... 6,173 6.85 6,226 113 7.26 5,146 75 5.83
Investment securities................ 21,016 6.51 21,295 386 6.48 26,325 413 5.87
Federal funds sold................... 3,400 6.47 1,720 22 5.12 2,323 30 5.17
------- -------- ----- --------- -----
Total interest-earning assets....... 91,602 7.31 89,564 1,676 7.30 91,313 1,534 6.60
Non-interest-earning assets.......... 5,364 7,192 ----- 8,844 -----
------- -------- ---------
Total assets........................ $96,966 $ 96,756 $ 100,157
======= ======== =========
Interest-bearing liabilities:
Savings accounts..................... $26,134 3.00% $25,994 196 3.02 $26,896 202 3.00
Certificate accounts................. 37,959 4.91% 37,850 467 4.94 42,498 601 5.66
Money market......................... 10,587 3.00% 10,439 78 2.99 10,773 89 3.30
NOW accounts......................... 4,025 2.50% 3,736 24 2.57 3,178 21 2.64
Other................................ 1,133 6.30% 1,431 16 4.47 1,134 - 0.00
----- -------- ----- ----- ----
Total interest-bearing liabilities.. 79,838 3.93% 79,450 781 3.93 84,479 913 4.32
Non-interest-bearing liabilities..... 5,022 ---- 5,379 ----- ---- 4,509 ---- -----
------- -------- ---------
Total liabilities................... 84,860 84,829 88,988
Equity.... .......................... 12,106 11,927 11,169
------- -------- ---------
Total liabilities and equity........ $96,966 $ 96,756 $ 100,157
======= ======== =========
Net interest income/spread (2)....... 3.38% $ 895 3.37% $ 621 2.28%
==== ===== ==== ===== ====
Net earning assets/net interest margin(3) $11,764 NA $ 10,114 3.81% $ 6,834 2.60%
======= ======== ==== ========= ====
Ratio of average interest-earning assets
to average interest-bearing liabilities.. 1.15x 1.13x 1.08x
==== ===== ====
</TABLE>
Notes appear on following page.
33
<PAGE>
<TABLE>
<CAPTION>
For the Year Ended September 30,
------------------------------------------------------------------------------------
1996 1995 1994
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>
Interest-earnings assets:
Loans receivable(1) ................. $57,794 $ 4,328 7.49% $ 58,433 $ 3,882 6.64% $ 51,069 $ 3,360 6.58%
Mortgage-backed securities........... 6,334 396 6.25 2,910 198 6.80 2,311 171 7.40
Investment securities................ 24,136 1,388 5.75 29,409 1,536 5.22 40,638 2,172 5.34
Federal funds sold................... 2,310 123 5.32 1,740 99 5.69 1,211 44 3.63
------- ------ -------- -------- -------- -------
Total interest-earning assets....... 90,574 6,235 6.88 92,492 5,715 6.18 95,229 5,747 6.03
------ -------- -------
Non-interest-earning assets ......... 8,505 7,929 5,425
------ -------- --------
Total assets........................ $99,079 $100,421 $100,654
======= ======== ========
Interest-bearing liabilities:
Savings accounts..................... $27,154 814 3.00 $ 29,533 891 3.02 $ 34,615 1,037 3.00
Certificate accounts................ 40,284 2,130 5.29 38,195 1,886 4.94 32,838 1,153 3.51
Money market......................... 10,800 333 3.08 11,779 397 3.37 13,821 421 3.05
NOW accounts......................... 3,376 88 2.61 3,290 86 2.61 2,992 74 2.47
Other................................ 1,051 83 7.90 1,358 29 2.14 242 4 1.65
------- ------ -------- ----- -------- ------
Total interest-bearing liabilities.. 82,665 3,448 4.17 84,155 3,289 3.91 84,508 2,689 3.18
Non-interest-bearing liabilities..... 4,987 ------ ---- 4,819 ----- ---- 4,731 ------ ----
------- -------- --------
Total liabilities................... 87,652 88,974 89,239
Equity............................... 11,427 11,447 11,415
------- -------- --------
Total liabilities and equity...... $99,079 $100,421 $100,654
======= ======== ========
Net interest income/spread (2)...... $ 2,787 2.71% $ 2,426 2.27% $ 3,058 2.85%
== ======= ==== ======= ==== ======= ====
Net earning assets/net interest margin (3) $ 7,909 3.08% $8,337 2.62% $ 10,721 3.21%
======= ==== ====== ==== ======== ====
Ratio of average interest-earning assets
to average interest-bearing liabilities... 1.10x 1.10x 1.13x
==== ==== ====
</TABLE>
(1) Average balances include non-accrual loans, with respect to which interest
is recognized on a cash basis only.
(2) The spread represents the difference between the weighted average yield on
interest earning assets and the weighted average cost of interest-bearing
liabilities.
(3) The net interest margin, also known as the net yield on average
interest-earning assets, represents net interest income as a percentage of
average interest-earning assets.
(4) Yields and related ratios for the three month periods have been annualized
when appropriate.
(5) During the three months ended December 31, 1996 and 1995, the Bank received
$55,000 and $36,000, respectively, in annual non-capital distributions on
account of IIMF shares which are shown as interest earned on such shares. For
the purpose of reporting the yields, spreads and net interest margin for such
periods, only one-quarter of such amounts have been taken into account so that
yields, spreads and margins are comparable to those shown for the annual
periods. If the such amounts had been included in full for the respective fiscal
quarters, the interest rate spreads for the three months ended December 31, 1996
and 1995 would have been 3.55% and 2.40%, respectively, and the net interest
margins would have been 4.00% and 2.72%, respectively, for such periods.
34
<PAGE>
Rate/Volume Analysis of Net Interest Income
One method of analyzing net interest income is to consider the effect
of changes in the average balance and changes in the average rate on different
categories of assets and liabilities. The following table presents the dollar
amount of changes in interest income and interest expense for major components
of interest-earning assets and interest-bearing liabilities. It distinguishes
between the changes related to outstanding balances and changes due to the
changes in interest rates. Information is provided on changes attributable to
(i) changes in volume (i.e., changes in average balance (volume) multiplied by
old rate) and (ii) changes in rate (i.e., changes in rate multiplied by old
volume). For purposes of this table, changes attributable to both rate and
volume, which cannot be segregated, have been allocated proportionately to the
change due to volume and the change due to rate.
<TABLE>
<CAPTION>
Three Months Ended
December 31, Year Ended September 30,
----------------------------- ------------------------------------------------------
1996 vs. 1995 1996 vs. 1995 1995 vs. 1994
------------- ------------- -------------
Increase (Decrease) Due To: Increase (Decrease) Due To: Increase (Decrease) Due To:
--------------------------- --------------------------- ---------------------------
Rate Volume Total Rate Volume Total Rate Volume Total
---- ------ ----- ---- ------ ----- ---- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets: (In Thousands)
Loans .................................. $ 88 $ 51 $ 139 $ 489 $ (43) $ 446 $ 33 $ 489 $ 522
Mortgage-backed securities ............. 20 18 38 (17) 215 198 (15) 42 27
Investment securities .................. 59 (86) (27) 145 (293) (148) (48) (588) (636)
Federal funds sold and other ........... (0) (8) (8) (7) 31 24 31 24 55
----- ----- ----- ----- ----- ----- ----- ----- -----
Total interest-earning assets .......... $ 167 $ (25) $ 142 $ 610 $ (90) $ 520 $ 1 $ (33) $ (32)
===== ===== ===== ===== ===== ===== ===== ===== =====
Interest-bearing liabilities:
Savings accounts ....................... 1 (7) (6) (6) (71) (77) 7 (153) (146)
Certificate accounts ................... (72) (62) (134) 138 106 244 523 210 733
Money market accounts .................. (8) (3) (11) (32) (32) (64) 42 (66) (24)
NOW accounts ........................... (1) 4 3 (1) 3 2 4 8 12
Other .................................. 16 - 16 62 (8) 54 1 24 25
----- ----- ----- ----- ----- ----- ----- ----- -----
Total interest-bearing liabilities ..... $ (64) $ (68) $(132) $ 161 $ (2) $ 159 $ 577 $ 23 $ 600
===== ===== ===== ===== ===== ===== ===== ===== =====
Net change in net interest income ...... $ 231 $ 43 $ 274 $ 449 $ (88) $ 361 $(576) $ (56) $(632)
===== ===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
Management of Interest Rate Risk
The principal objective of the Bank's interest rate risk policy is to
avoid taking undue interest rate risk while continuing to satisfy customer
demand for loans. Management seeks to limit, but not eliminate, interest rate
risk by offering adjustable rate loans. However, during periods of low interest
rates when customers prefer fixed-rate loan products, the Bank is willing to
make those loans, which can often be made at interest rates higher than those
which must then be offered to attract borrowers willing to accept adjustable
rate loans. To balance against the interest rate risk which accompanies the
making of such loans, the Bank has from time to time offered adjustable rate
loan products at low initial interest rates and in the past sold portions of its
fixed rate mortgage portfolio to FNMA, while retaining the servicing of those
loans.
Interest rate pricing and interest rate risk strategy objectives are
implemented, in the first instance, by the Bank's Asset/Liability Committee,
consisting of five officers of the Bank. The committee meets weekly to review
the pricing of the Bank's loan and deposit products. The Board of Directors of
the Bank receives and reviews a report on the Bank's estimated interest rate
sensitivity every month. When appropriate based upon its need to manage interest
rate risk, the Bank may emphasize adjustable rate loans or short term debt
securities investments, or may seek to lengthen the maturities of its
liabilities. The Bank also seeks to cushion itself against interest rate
fluctuations by preserving a loyal customer base with core deposits that are
less prone to gravitate to high rate deposit products as interest rates rise.
For example, at September 30, 1994, 1995 and 1996, and at December 31, 1996, the
Bank had passbook and statement
35
<PAGE>
savings deposits of $34.4 million, $27.2 million, $26.8 million and $26.1
million, respectively, reflecting a significant level of deposits with interest
rates that did not change for more than three years. After the decline from 1994
to 1995 due to a shift in customer preference caused by an increase in the rates
paid on certificates of deposit, the level of passbook and statement savings
deposits has remained stable and the slight decline has been less than the
percentage decline in total deposits.
Gap Analysis. The matching of assets and liabilities may be analyzed by
examining the extent to which such assets and liabilities are "interest
sensitive" and by monitoring the Bank's estimated interest sensitivity "gap." An
asset or liability is said to be interest sensitive within a specific time
period if it will mature or reprice within that time period. The interest
sensitivity gap is defined as the difference between the amount of
interest-earning assets estimated to mature or reprice within a specific time
period and the amount of interest-bearing liabilities estimated to mature or
reprice within that same time period. At December 31, 1996, the Bank's one year
gap position, the difference between the estimated amount of interest-earning
assets maturing or repricing within one year and interest-bearing liabilities
maturing or repricing within one year, was estimated to be a positive 19.10%, as
shown on the table below.
A gap is considered positive for any period when the amount of
interest-sensitive assets exceeds the amount of interest sensitive liabilities
estimated to reprice within such period. A gap is considered negative when the
amount of interest sensitive liabilities exceeds the amount of interest
sensitive assets estimated to reprice within a given period. Accordingly, during
a period of rising interest rates, the net interest income of an institution
with a positive gap for such period could be positively affected as the cost of
its interest-bearing liabilities may rise more slowly than the yield on its
interest-earning assets. Net interest income of such an institution could be
negatively affected during a period of falling interest rates. The effect could
be the reverse for an institution with a negative gap. However, the repricing of
most assets and liabilities is discretionary and subject to customer preference.
Thus, for example, during periods of rising interest rates, loan customers may
delay the sales of their homes, resulting in reduced loan turnover. At the same
time, deposit customers with low-rate savings, demand and NOW accounts may
accelerate the migration of deposits into higher rate certificates of deposit as
the rates on certificates of deposit become more attractive.
The following table sets forth the amounts of interest-earning assets
and interest-bearing liabilities outstanding at December 31, 1996, which are
estimated by the Bank, based upon certain assumptions, to reprice or mature in
each of the future time periods shown. 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. Loans and mortgage-backed
securities with adjustable rates are reflected during the period in which
repricing is scheduled. Fixed-rate mortgage loans and fixed rate mortgage-backed
securities are included in the table without regard to scheduled principal
payments or assumed voluntary prepayments. Federal funds sold are assumed to be
immediately interest sensitive. Prior to approximately December 1994, the Bank's
adjustable rate loan documentation for new loans provided that the loans would
reprice either on January 1 or July 1 of each year, depending upon when during
the year the loan was made. Thus, at December 31, 1996, a disproportionate
portion of the Bank's adjustable-rate mortgage portfolio was scheduled to
reprice the following day. Therefore, the one year gap information may be more
meaningful.
The Bank assumes that 70% of savings accounts, money market accounts
and NOW accounts are core deposits and therefore are expected to reprice beyond
five years. The remainder of such deposits are assumed to reprice ratably over
the first five years. Certificates of deposit are included based upon their
contractual maturities.
Estimates of loan prepayment rates and deposit turnover rates can have
a significant impact on the Bank's estimated gap. While the Bank believes the
assumptions used to prepare the following table are reasonable, there can be no
assurance that such estimates will approximate actual future loan repayment and
deposit withdrawal activity. See "Business of the Bank--Lending Activities,"
"--Investment Activities" and "--Sources of Funds."
36
<PAGE>
<TABLE>
<CAPTION>
At December 31, 1996
--------------------------------------------------------------------------
Less Three Over Ten
Than Months Over One Over Three Over Five Through Over
Three Through Through Through Through Twenty Twenty
Months One Year Three Years Five Years Ten Years Years Years Total
----- -------- ----------- ---------- --------- ----- ----- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earnings assets:
Mortgage loans............................ $24,759 $14,008 $ 2,554 $1,386 $773 $ 4,229 $ 10,417 $ 58,126
Mortgage backed securities................ 695 1,233 1,949 910 775 611 - 6,173
Other loans............................... 1,622 66 227 305 756 - 65 3,041
Federal funds sold........................ 3,400 - - - - - - 3,400
Investment securities..................... 4,074 5,044 7,115 3,270 1,513 - - 21,016
-------- ------ ----- ----- -------- ------- -------- --------
Total interest-earning assets............. 34,550 20,351 11,845 5,871 3,817 4,840 10,482 91,756
-------- ------ ----- ----- -------- ------- -------- --------
Interest-bearing liabilities:
NOW accounts.............................. 60 180 482 482 2,821 - - 4,025
Savings accounts.......................... 392 1,176 3,136 3,136 18,294 - - 26,134
Money market accounts..................... 159 477 1,270 1,270 7,411 - - 10,587
Certificates of deposits.................. 12,428 20,508 4,548 475 - - - 37,959
Borrowings................................ 1,000 - - - - - - 1,000
-------- ------ ----- ----- -------- ------- -------- --------
Total interest-bearing liabilities........ 14,039 22,341 9,436 5,363 28,526 - - 79,705
-------- ------ ----- ----- -------- ------- -------- --------
Interest-earning assets less
less interest-bearing liabilities......... $20,511 $ (1,990) $ 2,409 $508 $(24,709) $ 4,840 $ 10,482 $ 12,051
======== ======= ======= ======= ======== ======= ======== ========
Cumulative interest sensitivity gap........ $20,511 $ 18,521 $20,930 $21,438 $ (3,271) $ 1,569 $ 12,051
======== ======= ======= ======= ======== ======= ========
Cumulative gap to total assets............. 21.15% 19.10% 21.58% 22.11% (3.37)% 1.62% 12.43%
======== ======= ======= ======= ======== ====== ========
Cumulative gap to interest-earning assets.. 22.35% 20.19% 22.81% 23.36% (3.56)% 1.71% 13.13%
======== ======= ======= ======= ======== ====== ========
Cumulative interest-earning assets to
cumulative interest-bearing liabilities... 246.10% 150.91% 145.68% 141.89% 95.90% 101.97% 115.12%
======== ======= ======= ======= ======== ====== ========
</TABLE>
Upon consummation of the Conversion, the Company, on a consolidated
basis, will initially experience an increase in investable assets approximately
equal to the net proceeds from the sale of the Common Stock in the Conversion
less the amount of the ESOP Loan. The investment of these net proceeds can be
expected to increase any positive gap and reduce any negative gap because such
investment will add assets estimated to mature or reprice within each period
while there will be no immediate corresponding increase in liabilities estimated
to mature or reprice during the same period.
Comparison of Financial Condition at December 31, 1996 and September 30, 1996.
Total assets at December 31, 1996 were $97.0 million, an increase of
$643,000, or 0.7%, from total assets of $96.3 million at September 30, 1996. The
increase is represented principally by an increase in loans of $2.3 million, or
3.9%, from $58.7 million at September 30, 1996 to $61.0 million at December 31,
1996, as management continued to emphasize the origination of one-to-four family
residential mortgage loans. This increase was substantially offset by a decrease
in investment securities available for sale of $2.1 million, or 8.9%, from $23.1
million at September 30, 1996 to $21.0 million at December 31, 1996. The
increase in assets was funded principally through a $1.0 million advance from
the FHLBNY. The Bank elected to fund asset growth with the borrowing from the
FHLBNY to avoid the need to increase the rates offered on deposits to attract
funds. Certificates of deposit decreased $379,000 from $38.3 million at
September 30, 1996 to $38.0 million at December 31, 1996 and total deposits
decreased $859,000, or 1.0%, from $83.4 million to $82.6 million between the
same dates.
37
<PAGE>
The Bank's total equity at December 31, 1996 was $12.1 million, an
increase of $359,000 from $11.7 million at September 30, 1996. The increase
resulted principally from net income during the quarter of $295,000 and an
increase in the unrealized gain on securities available for sale, net of taxes,
of $64,000.
Comparison of Financial Condition at September 30, 1996 and September 30, 1995.
Total assets at September 30, 1996 were $96.3 million compared to
$101.0 million at September 30, 1995, a decrease of $4.7 million, or 4.7%. The
decrease resulted principally from the deliberate attempt by the Bank to reduce
its cost of funds, as discussed above. Total deposits also decreased $4.7
million between the same dates from $88.1 million to $83.4 million. Furthermore,
the liquidation of Nationar by the Superintendent resulted in the termination of
the Bank's $1.0 million repurchase agreement borrowing with Nationar, which
reduced the Bank's total assets by that amount.
The deposit outflow was funded principally by a reduction in the Bank's
portfolio of investment securities, which totaled $27.8 million at September 30,
1995 and decreased by $4.8 million to $23.1 million at September 30, 1996.
Federal funds sold also decreased by $2.1 million, principally because assets
classified as federal funds sold, which had been frozen at Nationar, were repaid
to the Bank as Nationar was liquidated. Due to the active solicitation of new
residential mortgage loans, the Bank was able to maintain its loan portfolio
despite the reduction in overall size, as loans receivable, net, increased by
$808,000, or 1.4%, from $57.9 million at September 30, 1995 to $58.7 million at
September 30, 1996.
The Bank's total equity at September 30, 1996 was $11.7 million, an
increase of $650,000, or 5.9%, over the September 30, 1995 level. This increase
was composed of 1996 net income of $558,000 and a $92,000 increase in the net
unrealized gain in securities available for sale.
In December 1995, in accordance with an interpretation by the Financial
Accounting Standard Board (the "FASB"), the Bank reclassified its entire
investment securities portfolio from "held to maturity" to "available for sale."
This was done in order to provide the Bank with additional flexibility in
dealing with liquidity and funding requirements, although the Bank has generally
not engaged in the sale of securities classified as available for sale. See
Notes 1 and 2 of Notes to Financial Statements.
Comparison of Operating Results for the Three Months Ended December 31, 1996 and
December 31, 1995
General. Net income for the three months ended December 31, 1996 was
$295,000, an increase of $197,000 from net income of $98,000 during the three
months ended December 31, 1995. The improvement in net income resulted
principally from an increase in net interest income of $274,000 caused by both
an increase in the yield on interest-earning assets and a decrease in the cost
of funds. The Bank also experienced a $26,000 decline in capital gain
distributions on its investment in IIMF due to fluctuations in securities
trading activities by IIMF. Net income was also positively affected by a
reduction in the effective income tax rate due to changes in New York tax laws.
Interest Income. Interest income increased by $142,000, or 9.2%, from
$1.5 million for the quarter ended December 31, 1995 to $1.7 million for the
quarter ended December 31, 1996. The increase was caused principally by an
improvement in the yield on loans, the Bank's largest category of
interest-earning assets, by 59 basis points from 7.07% to 7.66%. This
improvement in loan yield resulted principally from two factors. First, the
yield on many of the Bank's teaser rate residential mortgage loans adjusted
upward, despite declining market interest rates, as the interest rates on the
loans reached the value of the interest rate index plus the margin. Second,
since late 1994, customer preferences had shifted away from ARMs and towards
fixed-rate mortgage loans which generally provide for higher initial interest
rates than adjustable-rate loans, thus improving the yields available on
newly-originated loans. The yields on the Bank's investment and mortgage-backed
securities portfolios also increased by 61 basis points and 143 basis points,
respectively. The increase in the yield on investment securities resulted from
an increased emphasis on corporate debt securities rather than U.S. Government
and agency securities, while the yield on mortgage-backed securities increased
principally due to upward rate adjustments in adjustable rate securities.
38
<PAGE>
Also contributing to the improvement in interest income was a shift in
the mix of assets between the two quarters as loans, the highest yielding asset
category, increased as a percentage of average interest-earning assets from
63.0% for the quarter ended December 31, 1995 to 67.4% for the quarter ended
December 31, 1996. At the same time, average investment securities, which
generally have lower yields than loans, decreased as a percentage of average
interest-earning assets from 28.8% during the quarter ended December 31, 1995 to
23.8% for the quarter ended December 31, 1996. The change in the mix of assets
represented the implementation of management's strategy to maintain a high level
of assets invested in loans in order to maximize yields and provide credit
facilities in the Bank's local market while not investing a high percentage of
the Bank's assets in loan types perceived to have greater risks. In July 1996,
the Bank hired a full time loan solicitor who travels throughout the Bank's
market area, meeting with potential applicants, real estate brokers and other
real estate professionals in order to increase loan orginations.
Partially offsetting the improvements due to yield increases and
changes in the mix of assets was a reduction in average interest-earning assets
of $1.7 million, or 1.9%, from $91.3 million during the quarter ended December
31, 1995 to $89.6 million for the quarter ended December 31, 1996 due to the
Bank's decision to reduce its cost of funds, which resulted in a reduction in
funding sources and a consequent reduction in earning assets.
Interest Expense. Interest expense decreased by $132,000 from $913,000
for the quarter ended December 31, 1995 to $781,000 for the quarter ended
December 31, 1996. The decrease resulted principally from a decrease of 72 basis
points, from 5.66% to 4.94%, in the rate paid on certificates of deposit, as the
Bank realized the effects of its program to decrease its cost of funds. The
average balance of certificates of deposit also declined by $4.6 million, or
10.9%, from an average of $42.5 million during the quarter ended December 31,
1995 to $37.9 million during the quarter ended December 31, 1996, and also
declined as a percentage of average interest-bearing liabilities from 50.3%
during the 1995 quarter to 47.6% during the 1996 quarter. The average cost of
money market accounts decreased by 31 basis points as the Bank reduced its
interest rates on such accounts as market rates declined. The Bank's overall
average cost of funds decreased by 39 basis points from 4.32% for fiscal 1995 to
3.93% for fiscal 1996.
Net Interest Income. The combined effect of the increase in the yield
on interest-earning assets and the decrease in the cost of funds was a 109 basis
point increase in the Bank's spread, from 2.28% for the quarter ended December
31, 1995 to 3.37% for the quarter ended December 31, 1996. The change in the
rates earned and paid, evidenced by the change in spread, is estimated to have
accounted for approximately 85% of the $274,000 increase in net interest income.
The net yield on average interest-earning assets increased by 121 basis points,
from 2.60% to 3.81%, which was greater than the 109 basis point improvement in
spread. The net yield increased more than the spread principally due to an
increase in the excess of interest-earning assets over interest bearing
liabilities by $3.3 million. This improvement was caused by the release of the
frozen Nationar assets which the Bank was able to invest in earning assets, an
increase in average equity of $758,000, and an increase in non-interest bearing
liabilities, principally checking accounts. Non-performing assets were at low
levels during both periods and changes in the level of average non-performing
assets did not have a material effect on the change in net interest income.
Provision for Loan Losses. The provision for loan losses results from
management's analysis of the adequacy of the Bank's allowance for loan losses.
If management determines that an increase in the allowance is warranted, then
the increase is accomplished through a provision for loan losses which is
charged as an expense on the Bank's income statement. The provision for loan
losses was zero for the three months ended December 31, 1996, compared to a
provision of $13,500 for the three months ended December 31, 1995. The decrease
in the provision resulted from management's assessment of the adequacy of the
allowance for loan losses, the level of non-performing, delinquent and
classified loans, and the Bank's historical experience. No provision was
recorded during the quarter ended December 31, 1996 because during the quarter
the Bank had recoveries of $10,000 and no charge-offs, while at quarter-end, the
Bank had only $3,000 of non-performing assets, represented by three consumer
loans that were more than 90 days past due.
The Bank periodically reviews its loan portfolio, levels of charge-offs
and recoveries, general economic conditions and other factors to determine
whether the allowance for loan losses is at a level which management believes is
adequate. Any determination of the adequacy of the allowance for loan losses is
necessarily speculative based upon estimates of the future performance of the
Bank's loan portfolio. Unanticipated events, either generally or with respect to
particular borrowers, could materially and adversely affect the adequacy of the
allowance and could require material
39
<PAGE>
additional provisions for loan losses in the future. For example, a downturn in
the economy in the Bank's market area could increase loan defaults and reduce
the value of the collateral for existing loans. There can be no assurance that
material future provisions for loan losses to replenish or increase the
allowance will not be necessary. Furthermore, state and federal bank regulatory
agencies can, as part of the examination process, require that the Bank
adversely classify certain assets and insist that additional provisions be taken
so the allowance is increased to cover perceived risks of such classified
assets. See "Business of the Bank--Asset Quality."
Non-interest Income. The Bank's non-interest income is comprised
principally of service fees on loans and deposit accounts, net securities gains
or losses, capital gain distributions from the Bank's investment in IIMF, and
miscellaneous other income. Non-interest income declined by $18,000, principally
due to a decline of $26,000 in capital gain distributions on the Bank's
investment in IIMF from $119,000 for the three months ended December 31, 1995 to
$93,000 for the three months ended December 31, 1996. IIMF capital gain
distributions are made annually in December of each year, and shifts in trading
by IIMF due to market conditions caused a reduction in realized gains which were
distributed by IIMF to its shareholders.
Non-interest Expense. Non-interest expense increased by $11,000 from
$626,000 during the quarter ended December 31, 1995 to $637,000 during the
quarter ended December 31, 1996. The increase was principally due to a $17,000
increase in compensation and employee benefits expense caused by normal
inflation and merit increases. FDIC insurance premiums declined from $9,000
during the quarter ended December 31, 1995 to zero during the quarter ended
December 31,1996 as the BIF reserve reached statutorily required levels. See
"Regulation--Regulation of Federal Savings Associations--Insurance of Deposit
Accounts." Management believes that compensation and benefits expense will
increase after the Conversion due to the ESOP and, if adopted, other stock
benefit plans. Furthermore, the Company expects other expenses will increase as
a result of the costs associated with operating as a publicly-traded stock
institution.
Income Tax Expense. Income tax expense increased from $63,000 for the
quarter ended December 31, 1995 to $125,000 for the quarter ended December 31,
1996. The increase was principally the result of the increase in the Bank's
pre-tax income from $161,000 to $420,000. The Bank's effective tax rate
decreased from 39.1% to 29.7% principally due to a $60,000 reduction in deferred
tax liabilities caused by changes in New York State law regarding the tax bad
debt deduction. See "Taxation--New York State Taxation." After the Conversion,
the Company will be required to pay a State of Delaware annual franchise tax.
See "Taxation--Delaware State Taxation."
Comparison of Operating Results for the Years Ended September 30, 1996 and
September 30, 1995
General. Net income for the year ended September 30, 1996 was $558,000,
compared to a loss of $462,000 for the year ended September 30, 1995. The
improvement in net income resulted principally from the following factors.
First, the Bank received payment of a substantial portion of its claims against
Nationar in fiscal 1996, allowing the Bank to recover $232,000 of the $279,000
provision for possible Nationar losses recorded in fiscal 1995. Second, in
fiscal 1995, the Bank recognized in one lump sum its entire estimated accrued
expense of post-retirement benefits other than pensions for its employees in
accordance with SFAS No. 106. See Note 12 of Notes to Financial Statements.
Third, the Bank's FDIC insurance premium was substantially reduced from 1995 to
1996 as the BIF of the FDIC reached its required reserve ratio and FDIC
insurance premiums for BIF-insured institutions were virtually eliminated.
However, in the future, the Bank will incur expenses associated with the
repayment of the bonds (the "FICO bonds") issued in the late 1980s to
recapitalize the now defunct Federal Savings and Loan Insurance Corporation. See
"Regulation--Regulation of Federal Savings Associations-Insurance of Deposit
Accounts." Finally, the Bank's net interest income before the provision for loan
losses increased $361,000 as the Bank's spread increased, which increase more
than offset a decline in the average balance of interest-earning assets.
Interest Income. Interest income increased $520,000, or 9.1%, from $5.7
million in fiscal 1995 to $6.2 million in fiscal 1996. The principal cause of
this increase was an increase in the average rate earned on loans of 85 basis
points from 6.64% to 7.49% and the average rate earned on investment securities
of 53 basis points from 5.22% to 5.75%, which more than offset decreases in the
rates earned on mortgage-backed securities and federal funds sold. The increase
in the rate earned on loans resulted from the upward adjustment of the interest
rates on the Bank's teaser rate residential mortgage. These upward adjustments,
which brought the yields on the loans closer to market rates,
40
<PAGE>
more than outweighed the declining and then level general market interest rate
conditions during fiscal 1996 which was the principal cause of a decline in
yields on other assets. The increase in yields on investment securities resulted
from the combined effect of an increase in the proportion of corporate debt
securities in the investment portfolio and the rollover of maturing investment
securities with lower yields acquired during fiscal 1994 into new investment
securities with higher yields as market interest rates were, in general,
slightly higher. The decline in the yield on mortgage-backed securities was
partially caused by the Bank's decision to increase its mortgage-backed
securities portfolio to increase yields. Although the new mortgage-backed
securities generally had higher yields than new investment securities, the
yields were lower than the Bank's older mortgage-backed securities, resulting in
a reduction in the average yield on that portfolio.
In addition, as interest rates generally rose throughout 1994, customer
preference gradually shifted from ARMs to fixed-rate mortgage loans, apparently
due to borrower fears that rates would continue to rise and rates on ARMs would
continue to adjust upward. Although in 1994 and before, the Bank occasionally
sold fixed rate residential mortgage loans to FNMA with servicing retained by
the Bank, since 1995 the Bank has retained in its portfolio all fixed-rate
residential mortgage loans it has originated. During fiscal 1996, virtually all
of the Bank's residential mortgage loan originations were fixed-rate loans. The
customer preference for fixed-rate loans positively affected interest income
during fiscal 1996 in two ways. First, newly-originated fixed-rate loans
generally have higher interest rates than even the fully-indexed initial rate on
a newly-originated ARMs. In addition, with the waning of customer interest in
ARMs, the Bank no longer originated teaser rate ARMs with low initial interest
rates.
These factors which increased interest income from fiscal 1995 to
fiscal 1996 far outweighed the adverse effect on interest income of a $1.9
million or 2.1% reduction in average interest-earning assets from $92.5 million
in fiscal 1995 to $90.6 million in fiscal 1996. The average balance of loans,
the Bank's largest interest-earning asset category, decreased by $639,000, or
1.1%, between the periods. Investment securities, the next largest category of
interest-earning assets, declined by $5.3 million, or 17.9%, which decline was
partially offset by an increase in mortgage-backed securities of $3.4 million,
or 117.7%, between the periods. The decline in the average balance of
interest-earning assets was a direct result of management's decision to try to
decrease the Bank's cost of funds, which reduced funding sources for asset
maintenance or growth.
Interest Expense. Interest expense increased $159,000 from $3.3 million
in fiscal 1995 to $3.4 million in fiscal 1996. The principal cause of the
increase was an increase in the average balance of certificates of deposit by
$2.1 million, or 5.5%, from fiscal 1995 to fiscal 1996, coupled with an increase
in the average rate paid on such accounts by 35 basis points. The increase in
both the average balance and rate paid on certificates of deposit was caused by
the combined effect of the post-Nationar special promotion (which generated
certificates of deposit that did not begin to mature until late-February 1996)
and the generally rising interest rates during 1994. As market interest rate
conditions peaked in early calendar year 1995, some customers sought
certificates of deposit with maturities in excess of 18 months to lock in the
high interest rates. These high rate certificates of deposit continued to
increase interest expense through fiscal 1996.
In addition, during fiscal 1996, the Bank recognized $39,000 of
interest expense representing interest allocable to fiscal 1995 related to a
repurchase agreement with Nationar. When the assets of Nationar were frozen, the
Bank believed that it would be permitted to offset the repurchase agreement
against its frozen deposit accounts at Nationar so no interest cost should be
accrued on the repurchase agreement. However, when the Superintendent made his
first distribution to the Bank on account of its Nationar claim in fiscal 1996,
the Bank was charged $83,000 of interest on the repurchase agreement, of which
$39,000 was on account of interest during fiscal 1995. This amount is included
as interest on other liabilities in 1996.
Net Interest Income. Net interest income before the provision for loan
losses increased by $361,000 from fiscal 1995 to fiscal 1996, representing the
net effect of the $520,000 increase in interest income partially offset by the
$159,000 increase in interest expense. The overall increase in net interest
income was caused principally by an increase in the Bank's spread by 44 basis
points from 2.27% to 2.71%. While management continued to concentrate its asset
investments in loans to increase average overall yields, management also sought
to reduce its cost of funds by reducing its emphasis on certificates of deposit
as funding sources. The average yield on interest earning assets increased by 70
basis points compared to an increase in the average cost of funds of 26 basis
points.
41
<PAGE>
During both fiscal 1996 and 1995, non-performing assets were at low
levels and changes in the level of average non-performing assets from fiscal
1995 to fiscal 1996 did not have a material effect on the change in net interest
income.
Provision for Loan Losses. From fiscal 1995 to fiscal 1996, the
provision for loan losses was reduced by $5,500 from $29,000 to $23,500. The
decrease in the provision resulted from management's assessment of the adequacy
of the allowance for loan losses, the level of non-performing, delinquent and
classified loans, and the Bank's historical experience. Throughout 1995 and
1996, the Bank had low levels of non-performing, delinquent and classified
loans, and net charge-offs amounted to only $21,000 in fiscal 1995 and $15,000
in fiscal 1996. All charge-offs during both periods were on non-real estate
secured consumer loans. More than 85% of the Bank's loans throughout fiscal 1995
and 1996 were secured by first mortgages on owner-occupied one-to-four family
residences, which, when compared to unsecured loans or commercial mortgage
loans, tend to have lower default rates and, even after default, tend to result
in lower charge-offs as a percentage of total loan amount. Therefore, the
provision for loan losses in both periods represented principally the
replenishment of amounts charged against the allowance. See also "--Comparison
of Operating Results for the Three Months Ended December 31, 1996 and December
31, 1995--Provision for Loan Losses."
Provision for Nationar Losses. After Nationar was closed in February
1995, there was substantial uncertainty regarding the amounts which claimants
would be able to recover as the Superintendent proceeded with the liquidation
process. Various estimates of the ability to recover assets at Nationar
circulated among government officials and others involved in the process. The
Bank determined that the appropriate course, based upon information then
available, was to create an allowance for losses on its Nationar claim by
recognizing a provision for such losses. As a result, during fiscal 1995, the
Bank recorded a $279,000 provision for losses on its Nationar claims.
During fiscal 1996, the Superintendent began to make liquidating
distributions on Nationar claims and the uncertainty regarding the recovery of
the Bank's Nationar assets was alleviated. As a result, the Bank determined that
its existing allowance exceeded the uncertainties associated with its remaining
claim, and the Bank recovered $232,000 of the allowance. The remainder of the
allowance in the amount of $47,000 is considered to be unrecoverable and
represents the Nationar capital stock and capital debentures owned by the Bank.
Non-interest Income. Non-interest income increased from $450,000 in
fiscal 1995 to $489,000 in fiscal 1996. The principal cause of the increase was
an increase in net gains on the sale of securities by $101,000 recognized when
the Bank sold a portion of its investment in SLMA stock during fiscal 1996 at a
gain of $120,000. Capital gain distributions decreased by $62,000 from fiscal
1995 to fiscal 1996 because of fluctuations in the realization of gains by IIMF.
IIMF pays regular dividends and traditionally pays a capital gain dividend each
year in December. The amount of the capital gain dividend depends upon the
market value of the securities owned by IIMF and the timing of IIMF's securities
trading activities, which, depending upon market conditions, result in realized
gains which are distributed each December.
Non-interest Expense. Non-interest expense, excluding the effect of the
Nationar-related provision discussed above, declined by $77,000 from fiscal 1995
to fiscal 1996. The principal cause of the decline was a $132,000 decline in
FDIC insurance premiums. During the quarter ended June 30, 1995, the BIF of the
FDIC reached its required reserve ratio of 1.25% of insured deposits. As a
result, FDIC insurance premiums for BIF-insured institutions, such as the Bank,
were reduced beginning with the quarter ended September 30, 1995. Prior to the
reduction in the premium rate, the Bank was paying deposit insurance premiums
equal to 0.23% of deposits. During the quarter ended September 30, 1995, the
rate was reduced to 0.04% and beginning January 1, 1996, the rate was reduced to
the statutory minimum of $2,000 per year regardless of deposit levels.
After Nationar was closed, and in anticipation of the adverse effects
of having $2.7 million in non-earning assets frozen for an indefinite period of
time while the Nationar liquidation was completed, the Bank undertook a program
of cost containment to seek to mitigate the loss of interest income. As a
result, other categories of non-interest expense remained relatively constant
from fiscal 1995 to fiscal 1996, increasing $19,000, or 2.3%. Compensation and
benefits expense increased 1.4% due to normal fluctuations in salary and benefit
costs, while occupancy expense
42
<PAGE>
increased 7.8% due to normal increases in the cost of occupying the Bank's
headquarters in Goshen. Other operating expenses, representing regular expenses
of banking operations such as depreciation, insurance, data processing,
advertising, stationary and postage, increased by $19,000 or 2.3% from fiscal
1995 to 1996. The largest increase was in advertising expense, which
approximately doubled from $31,000 to $60,000 as the Bank aggressively
advertised for new loans and increased general advertising in connection with
its 125th anniversary.
Effect of SFAS 106. SFAS 106, "Employer's Accounting for
Post-retirement Benefits Other Than Pensions," issued in December 1990, requires
that the cost of post-retirement benefits, other than pensions, be recognized on
an accrual basis as employees perform the services which earn the
post-retirement benefits. This departed from prior practice in which the costs
of such benefits were recognized as and when paid. Prior to the adoption of SFAS
106, the Bank offered all its retired employees health, dental and life
insurance coverage. After the adoption of SFAS 106, the Bank reduced
post-retirement non-pension benefits for employees who are not yet retired so
current employees are now entitled to post-retirement health and dental benefits
only if they have 23 years of service and their age plus years of service equals
at least 75. SFAS 106 permits employers to accrue the additional liability for
pre-adoption service credit either in one lump sum or gradually over a period of
years. During fiscal 1995, the Bank adopted SFAS 106 and elected to recognize
its entire estimated accrued obligation for post-retirement non-pension benefits
in one lump sum in the year of adoption. Therefore, in fiscal 1995, the Bank
recognized a net expense of $394,000 as the cumulative effect of an accounting
change, representing estimated accrued liability of $656,000, net of related
taxes of $262,000. In fiscal 1996, the Bank recognized $108,000 as a component
of compensation and benefits expense representing accrued liability for
post-retirement benefits on account of services rendered during the year. See
Note 12 of Notes to Financial Statements.
Income Tax Expense. Income tax expense increased from a tax benefit of
$16,000 in fiscal 1995 to a tax expense of $351,000 in 1996. This increase was
principally the result of the increase in the Bank's income before taxes and
before the cumulative effect of accounting changes from a loss of $84,000 in
fiscal 1995 to income of $909,000 in fiscal 1996. Most of the Bank's income is
taxable under both federal and New York state income tax laws. Tax-exempt
municipal bonds were not a material income producing factor in either year. The
dividends the Bank receives on investments in equity securities is subject to a
70% dividend received deduction on common stock and 42% on preferred stock of
public utilities, which amounted to $48,000 on dividends of $72,000 in 1995 and
$42,000 on dividends of $60,000 in 1996.
Comparison of Operating Results for the Years Ended September 30, 1995 and
September 30, 1994
General. The Bank reported a net loss for the year ended September 30,
1995 of $462,000, compared to net income of $311,000 for the year ended
September 30, 1994. The decline in net income resulted principally from the
following factors. First, the Bank's spread decreased during a period of rising
interest rates as the rates on the Bank's loans increased more slowly than its
cost of funds, which adversely affected net interest income. Second, the Bank's
excess of interest-earning assets over interest-bearing liabilities,
representing interest-earning assets funded by demand deposits and capital,
decreased, which also exerted downward pressure on net interest income. Finally,
the closure of Nationar in February 1995 caused the Bank to record a provision
for possible losses on its Nationar claims.
Interest Income. Interest income declined $32,000, or 0.6%, from fiscal
1994 to fiscal 1995, despite generally rising market interest rates during
calendar year 1994. The principal cause of the decline was a $2.7 million, or
2.9%, decline in average interest-earning assets, which was partially offset by
a 15 basis point increase in average yield. The decline in average
interest-earning assets was principally caused the $2.9 million of assets at
Nationar which earned no interest for most of fiscal 1995.
The average balance of loans increased by $7.4 million or 14.4%, from
fiscal 1994 to fiscal 1995, while the average yield on those loans increased by
6 basis points. The yield did not increase more dramatically, despite the
increase in market interest rates, because teaser rate ARMs continued to be
originated through the end of fiscal 1994, and the rates on all such loans
originated during fiscal 1994 did not adjust upward for the first time until
July 1, 1995 or January 1, 1996.
The average balance of investment securities declined by $11.2 million,
or 27.6%, from fiscal 1994 to fiscal 1995, which decline exceeded the increase
in loans. The decline in investment securities was caused by the Bank's
43
<PAGE>
desire to increase overall yields by increasing loans as a percentage of total
assets. The reduction in interest income from the decline in the average balance
of investment securities outweighed the increase caused by the increase in the
average balance of loans. The yield on investment securities also declined 12
basis points, from 5.34% to 5.22%, despite higher market interest rate
conditions, because of a temporary shift in new purchases of investment
securities in favor of U.S. Government and agency securities and away from
corporate debt securities with higher yields.
Interest Expense. Interest expense increased $600,000, or 22.3%, from
fiscal 1994 to fiscal 1995. The principal causes of the increase were increases
in both the average balance and the rate on certificates of deposit resulting in
an increase in the Bank's average cost of funds from 3.18% in fiscal 1994 to
3.91% in fiscal 1995. New certificates of deposit and those which rolled over
during the period earned interest at increasing rates due to generally higher
average market interest rate conditions as interest rates began to increase in
approximately January 1994 and continued to increase until approximately January
1995. As market interest rates increased, customer preference is believed to
have shifted towards certificates of deposit as the yields became more
attractive. In addition, the Bank received $2.6 million of high rate
certificates of deposit as the result of the deposit program offered after
Nationar closed. Overall, the average cost of certificates of deposit increased
from 3.51% in fiscal 1994 to 4.94% in fiscal 1995. Deposits in lower costing
savings and money market accounts declined, which management believes resulted
from the shift in depositor preference as certificates of deposit became more
attractive.
Net Interest Income. Net interest income before the provision for loan
losses declined by $632,000, or 20.7%, from fiscal 1994 to fiscal 1995. The
yields earned on interest-earning assets increased more slowly than the rates
paid on interest-bearing liabilities, so the Bank's spread decreased by 58 basis
points. In addition, as assets were tied up in connection with the Nationar
liquidation, average interest-earning assets declined by $2.7 million, or 2.9%,
while average interest-bearing liabilities declined by only $353,000 or 0.4%.
The excess of interest-earning assets over interest-bearing liabilities thus
declined by $2.4 million, which is estimated to have caused approximately a
$147,000 reduction in net interest income, assuming that such $2.4 million of
assets would have earned interest at a rate equal to 6.18%, the average yield on
interest earning assets in fiscal 1995. Changes in the level of average
non-performing assets from fiscal 1994 to fiscal 1995 did not have a material
effect on the change in net interest income.
Provision for Loan Losses. The provision for loan losses was $25,000 in
fiscal 1994 and increased to $29,000 in fiscal 1995. Throughout both years, the
Bank experienced low levels of non-performing, delinquent and classified loans,
with net charge-offs totaling only $10,000 in fiscal 1994 and $21,000 in fiscal
1995. The provision for loan losses replenished the allowance after these
charge-offs. See "Business of the Bank--Asset Quality."
Provision for Nationar Losses. As described, the Bank recorded a
$279,000 provision for losses on its Nationar claims during fiscal 1995 due to
the uncertainties that existed regarding the liquidation of Nationar by the
Superintendent.
Non-interest Income. Non-interest income increased by $73,000 from
$377,000 in fiscal 1994 to $450,000 in fiscal 1995. The increase was principally
the result of $87,000 of losses on trading securities which were recorded in
1994. Prior to the adoption of SFAS 115, the Bank maintained a trading
securities portfolio consisting principally of its IIMF and SLMA securities.
Trading securities were reported at fair value, with unrealized gains and losses
being recognized as a component of other income. The value of the Bank's trading
securities portfolio declined during fiscal 1994 because of normal fluctuations
in the value of the securities. When the Bank adopted SFAS 115 during fiscal
1994, the trading securities were classified as available for sale, so
thereafter they were reported at fair value, with unrealized gains and losses,
net of applicable taxes, being included as a separate component of retained
earnings.
In addition, service fees on deposits increased by $63,000 from $85,000
in fiscal 1994 to $148,000 in fiscal 1995. This increase resulted principally
from an increase in fees on checking accounts. The increase was offset by
reductions of $53,000 in other non-interest income principally because in 1994
the Bank earned income in 1994 in connection with the sale of mortgage loans and
there were no sales of loans in 1995, and, to a lesser extent, small reductions
in capital gain distributions and gains on the sale of securities.
Non-interest Expense. Non-interest expense, excluding the effect of the
Nationar provision, declined by $146,000 from fiscal 1994 to fiscal 1995. The
principal cause of the decline was a $58,000 decline in FDIC insurance premiums
because during the quarter ended
44
<PAGE>
September 30, 1995, the Bank began paying reduced deposit insurance premiums at
the rate of 0.4% of insured deposits instead of the 0.23% rate during fiscal
1994 and the rest of fiscal 1995. Compensation and benefits expense increased
$30,000, or 2.1%, between the periods due to normal inflation-based raises while
occupancy expense decreased by $36,000 and other operating expenses decreased by
$82,000 due to the careful monitoring of expenses during fiscal 1995 as
discussed above in relation to the Nationar matter.
Effect of SFAS 106. As discussed above, in fiscal 1995, the Bank
recognized its entire estimated accrued obligation for post-retirement
non-pension benefits in one lump sum in the amount of $394,000 as the cumulative
effect of an accounting change, representing estimated accrued liability of
$656,000, net of related taxes of $262,000.
Income Tax Expense. Income tax expense decreased from $301,000 in
fiscal 1994 to a tax benefit of $16,000 in fiscal 1995. This decrease was
principally the result of the decrease in the Bank's income before taxes from
$612,000 in fiscal 1994 to a loss of $84,000 in fiscal 1995. Tax-exempt bond
interest did not materially effect the Bank's combined effective tax rate in
either year. The Bank was entitled to a dividend received deduction of $35,000
on dividends of $55,000 in 1994 and $48,000 on dividends of $72,000 in 1995.
Liquidity and Capital
The Bank's primary sources of funds are deposits, proceeds from the
principal and interest payments on loans, mortgage-backed and debt securities,
capital gain distributions on its IIMF investment, and, during certain periods,
proceeds from the sale of loans. While maturities and scheduled amortization of
loans and securities are predictable sources of funds, deposit outflows,
mortgage prepayments and mortgage loan and securities sales are greatly
influenced by general interest rates, economic conditions and competition.
The primary investing activity of the Bank is the origination of
residential one-to-four family mortgage loans and the purchase of
mortgage-backed and debt securities. During the three months ended December 31,
1996 and the years ended September 30, 1996, 1995 and 1994, the Bank's loan
originations totaled $3.8 million, $10.2 million, $7.8 million and $18.7
million, respectively. Loans, net, after payments and charge-offs, increased by
$2.3 million, $823,000, $759,000 and $9.6 million during such periods,
respectively, while investment and mortgage-backed securities, excluding the
effect of unrealized gains and losses, declined by $2.5 million, $2.9 million,
$4.9 million and $10.2 million, respectively, during the same periods. New loan
and securities investments were funded primarily by principal repayments on
loans, mortgage-backed and debt securities. Loan sales of $1.9 million provided
additional liquidity to the Bank during fiscal 1994, but loan sales did not
provide materials funds during fiscal 1995, and 1996 or the three months ended
December 31, 1996.
From September 30, 1994 to September 30, 1995, deposits and other
interest-bearing funding sources increased $697,000, or 0.8%, from $88.4 million
to $89.1 million, and then declined by $5.7 million, or 6.3%, from September 30,
1995 to September 30, 1996. Deposits increased from 1994 to 1995 only slightly,
and less than the interest credited on deposits during the year, as customers
sought non-bank investment vehicles when the equity markets improved and market
interest rates rose. Deposits decreased from 1995 to 1996 as part of
management's efforts to reduce the Bank's cost of funds. Deposit flows are also
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 regular basis.
Excess short-term liquidity is invested in overnight federal funds sold. If the
Bank requires funds beyond its ability to generate them internally, additional
sources of funds are available through the use of borrowings. At December 31,
1996, the Bank had available lines of credit with the FHLBNY of $9.8 million.
The Bank had outstanding borrowings of $1.0 million from the FHLBNY at December
31, 1996. The Bank decided to use such borrowings to satisfy funding needs at
the time rather than increase the rates paid on new deposits, which could have
had a greater adverse effect on the cost of funds. The Bank does not generally
use borrowings as a major source of funds. After the closure of Nationar, the
Bank borrowed funds on a short term basis from other financial institutions
until it was able to generate additional deposits to satisfy liquidity needs.
Loan commitments totaled $2.2 million at December 31, 1996, and the
Bank had $1.2 million of unused home equity lines of credit and $180,000 of
unused consumer overdraft checking lines of credit.
45
<PAGE>
Management anticipates that the Bank 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 December 31, 1996 totaled $32.9 million. The
Bank may elect to allow some of those deposits to leave the Bank if it can
reduce its cost of funds by doing so without adversely affecting liquidity.
However, management anticipates that the Bank will be able to retain
substantially all of such deposits if the Bank needs to do so to fund loans and
other investments.
At December 31, 1996, the Bank exceeded all regulatory capital
requirements of the FDIC then applicable to it, with a leverage capital level of
$11.9 million, or 12.3% of adjusted assets; total risk-based capital of $12.0
million, or 21.85% of risk-weighted assets, and Tier 1 risk-based capital of
$11.9 million, or 21.61% of risk-weighted assets. The Bank was classified as
"well capitalized" at December 31, 1996 under FDIC regulations applicable to it
on that date and its capital ratios were sufficient for it to be classified as
"well capitalized" under OTS regulations had the Bank been a federal savings
bank on that date. See "Regulatory Capital Compliance" and
"Regulation--Regulation of Federal Savings Associations--Capital Requirements"
for a discussion of the Bank's compliance with OTS capital requirements.
Prior to its conversion to a federal savings bank on March 18, 1997,
the Bank was not subject to any mandatory liquidity ratio requirements under the
regulations of the FDIC or the New York State Banking Department. The Bank is
now subject to the minimum liquidity ratio regulations of the OTS, which
currently require that the Bank must maintain liquid assets equal to at least
5%, of its net withdrawable accounts plus short term borrowings, measured on a
monthly basis. The Bank satisfies this OTS requirement. At December 31, 1996,
the Bank's liquid assets totaled 29.3% of net withdrawable accounts plus short
term borrowings.
Impact of Inflation and Changing Prices
The Financial Statements and Notes thereto presented herein have been
prepared in accordance with Generally Accepted Accounting Principals ("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, although interest rates generally increase during
periods when the rate of inflation is increasing and decrease during periods of
decreasing inflation. See "--Management of Interest Rate Risk" for a discussion
of the effect of changing interest rates on the Bank.
Impact of New Accounting Standards
Accounting for Long Lived Assets. In 1995, the FASB issued SFAS No.
121, "Accounting for Impairment of Long-Lived Assets and for Long Lived Assets
to be Disposed of" ("SFAS 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 for the Bank on October 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 SFAS No. 123, "Accounting for Stock Based Compensation" ("SFAS 123").
SFAS 123 establishes financial accounting standards for stock-based employee
compensation plans. SFAS 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 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 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 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
46
<PAGE>
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 123 for companies choosing to adopt the new fair value based
method of 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 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities" ("SFAS 125"). SFAS 125 provides accounting and reporting
standards for transfers and servicing of financial assets and extinguishments of
liabilities, addressing, for example, the financial statement effect of
transactions such as the sale of loans with full or partial recourse. After a
transfer of financial assets, an entity recognizes all financial and servicing
assets it controls and liabilities it has incurred. The entity ceases to
recognize financial assets it no longer controls and liabilities that have been
extinguished. If a transfer does not meet the criteria for a sale, the transfer
is accounted for as a secured borrowing with pledge of collateral. SFAS 125 is
effective for transfers and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996, and may only be applied
prospectively. The Company has not yet determined the impact that SFAS 125 will
have on the Company's Financial Statements.
47
<PAGE>
BUSINESS OF THE COMPANY
General
The Company was organized as a Delaware corporation on March 17, 1997
at the direction of the Board of Directors of the Bank for the purpose acquiring
all of the outstanding capital stock of the Bank upon consummation of the
Conversion. Upon completion of the Conversion, the Company will become a unitary
savings association holding company subject to regulation by the OTS. See
"Regulation--Holding Company Regulation."
Business
The Company is not an operating company. After the Conversion, in
addition to directing, planning and coordinating the business activities of the
Bank, the Company expects that it will invest the net proceeds of the Offerings
remaining after acquiring the stock of the Bank primarily in federal funds,
government and federal agency mortgage-backed securities, other debt securities,
high-grade short-term marketable securities, deposits of or loans to the Bank,
or a combination thereof. The Company also intends to make the ESOP Loan to
enable the ESOP to purchase up to 8% of the Common Stock in the Conversion. In
the future, the Company may acquire or organize other operating subsidiaries,
including other financial institutions, or it may merge with or acquire other
financial institutions and financial services related companies, although there
are no current arrangements, understandings or agreements regarding any such
expansion. See "Use of Proceeds." Initially, the Company will neither own nor
lease any property but will instead use the premises, equipment and furniture of
the Bank. The Company does not presently intend to employ any persons other than
certain officers of the Bank who will not be separately compensated by the
Company. The Company may utilize the support staff of the Bank from time to
time, if needed. Additional employees may be hired as appropriate if the Company
expands its business.
BUSINESS OF THE BANK
General
The Bank's principal business consists of gathering deposits from the
general public within its market area and investing those deposits primarily in
one-to-four family residential first mortgage loans, debt obligations issued by
the U.S. Government, its agencies, and business corporations, and
mortgage-backed securities. To a lesser extent, the Bank makes home equity line
of credit and other second mortgage loans on one-to-four family residential
properties, commercial mortgage loans, construction loans and consumer loans.
The Bank's revenues are derived principally from interest on mortgage loans and
securities investments. The Bank's primary sources of funds are deposits,
proceeds from principal and interest payments on loans, mortgage-backed and
investment securities and borrowings.
Market Area
The Bank's market area is the Village of Goshen, New York and its
surrounding communities to a distance of approximately 12 miles, representing
most of Orange County, New York. The Village of Goshen is the county seat of
Orange County and lies 60 miles northwest of New York City. Although
predominantly rural with many small towns, many residents of the market area
work in New York City and other communities to the south and east, commuting by
train or automobile. They tend to reside in Orange County due to lower housing
costs and the quieter, more rural atmosphere. Principal occupations of residents
in the community include retail trades, manufacturing, professional services
(including health, education and other professional fields) and government
administration.
The Bank's market area grew significantly in population during the
1980s as rising housing prices closer to New York City, coupled with an
abundance of vacant land in Orange County, led to a boom in housing
construction. As the economy throughout the region declined in the late 1980s
and early 1990s, communities surrounding the Bank continued to experience
growth, but more slowly. According to U.S. census data, approximately 18% of the
residents of Goshen and its surrounding zip code area who were over 5 years of
age resided outside Orange County only five
48
<PAGE>
years earlier. The conversion of Stewart International Airport, 12 miles to the
northeast of Goshen, into a full-service commercial airport in 1990, gave the
Bank's market area an additional boost. However, the health of the economy in
the New York City metropolitan area has, and will continue to have, a direct
effect on the economic well being of residents and businesses in the Bank's
market area.
Competition
The Bank's principal competitors for deposits are other savings banks,
savings and loan associations, commercial banks and credit unions in the Bank's
market area, money market mutual funds, insurance companies, brokerage firms and
other financial institutions, many of which are substantially larger in size
than the Bank. The Bank's competition for loans comes principally from savings
banks, savings and loan associations, commercial banks, mortgage bankers,
finance companies and other institutional lenders. The Bank's principal methods
of competition include loan and deposit pricing, maintaining close ties with its
local community, advertising and marketing programs and the types of services
provided.
The Bank is subject to competition from other financial institutions
which may have much greater financial and marketing resources. However, the Bank
believes it benefits from its community bank orientation as well as its
relatively high core deposit base. The relative economic stability of the Bank's
lending area is reflected in the small number of mortgage delinquencies
experienced by the Bank.
Lending Activities
Loan Portfolio Composition. The Bank's loan portfolio consists
primarily of conventional first mortgage loans secured by one-to-four family
residences. At December 31, 1996, the Bank had total loans receivable of $61.2
million, of which $53.1 million, or 86.8%, were owner-occupied one-to-four
family residential first mortgage loans. The remainder consisted of $4.3 million
of commercial mortgage loans, or 7.1% of total loans (which include $2.2 million
of loans secured by one-to-four family residential property used for rental
purposes); $2.2 million of home equity lines of credit and other loans secured
by junior liens on one-to-four family owner-occupied residential properties; or
3.6% of total loans; $708,000 of construction loans, or 1.2% of total loans;
$807,000 of consumer loans which are not secured by real estate, or 1.3% of
total loans; and $15,000 of other loans, or 0.02% of total loans.
The Bank may originate loans as permitted by federal laws and
regulations. Interest rates on loans are affected by the demand for loans, the
supply of money available for lending and the rates offered by competitors.
These factors are in turn affected by, among other things, economic conditions,
monetary policies of the federal government, and legislative tax policies. The
Bank seeks to compete successfully for loan opportunities in its market area
through hands-on local originations, community involvement, responsiveness to
customer and community needs, competitive pricing, and low origination fees.
49
<PAGE>
Loan Portfolio Composition Table
The following table sets forth the composition of the Bank's mortgage and other
loan portfolios in dollar amounts and in percentages at the dates indicated.
<TABLE>
<CAPTION>
At December 31, At September 30,
------------------- -----------------------------------------
1996 1996 1995
------------------- ------------------- -------------------
Percent Percent Percent
Amount of Total Amount of Total Amount of Total
------ -------- ------ -------- ------ --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Residential 1-4 family (1):
Home purchase and refinance...... $ 53,074 86.77% $ 50,377 85.57% $ 49,552 85.36%
Construction..................... 708 1.16% 1,003 1.71% 352 0.61%
Home equity...................... 2,219 3.63% 2,197 3.73% 2,122 3.66%
-------- ------ -------- ------ -------- ------
Total residential 1-4 family.. 56,001 91.55% 53,577 91.01% 52,026 89.63%
Commercial real estate:
1-4 family rental property...... 2,178 3.56% 2,202 3.74% 2,465 4.25%
Other commercial mortgages...... 2,166 3.54% 2,255 3.83% 2,660 4.58%
-------- ------ -------- ------ -------- ------
Total commercial real estate.. 4,344 7.10% 4,457 7.57% 5,125 8.83%
-------- ------ -------- ------ -------- ------
Total mortgage loans........ 60,345 98.65% 58,034 98.58% 57,151 98.46%
Consumer and other loans:
Savings account loans........... 144 0.24% 148 0.25% 209 0.36%
Home improvement loans.......... 85 0.14% 103 0.17% 100 0.17%
Automobile loans................ 120 0.20% 125 0.21% 92 0.16%
Other consumer loans............ 458 0.75% 447 0.76% 477 0.82%
Commercial business loans....... 15 0.02% 15 0.03% 20 0.03%
-------- ------ -------- ------ -------- ------
Total non-real estate loans... 822 1.35% 838 1.42% 898 1.54%
-------- ------ -------- ------ -------- ------
Total loans................ 61,167 100.00% 58,872 100.00% 58,049 100.00%
-------- ======= -------- ======= -------- =======
Less:
Deferred loan fees, net......... 21 22 16
Allowance for loan losses....... 133 123 114
-------- -------- --------
Total loans, net................. $ 61,013 $ 58,727 $ 57,919
======== ======== =========
</TABLE>
<TABLE>
<CAPTION>
At December 31, At September 30,
------------------- -----------------------------------------
1994 1993 1992
------------------- ------------------- -------------------
Percent Percent Percent
Amount of Total Amount of Total Amount of Total
------ -------- ------ -------- ------ --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Residential 1-4 family (1):
Home purchase and refinance...... $ 49,279 86.01% $ 41,214 86.46% $ 39,702 84.24%
Construction..................... 1,316 2.30% 15 0.03% 64 0.14%
Home equity...................... 2,141 3.74% 2,542 5.33% 3,422 7.26%
-------- ------ -------- ------ -------- ------
Total residential 1-4 family.. 52,736 92.05% 43,771 91.83% 43,188 91.63%
Commercial real estate:
1-4 family rental property...... 2,406 4.20% 2,052 4.30% 1,805 3.83%
Other commercial mortgages...... 1,402 2.45% 1,133 2.38% 1,321 2.80%
-------- ------ -------- ------ -------- ------
Total commercial real estate.. 3,808 6.65% 3,185 6.68% 3,126 6.63%
-------- ------ -------- ------ -------- ------
Total mortgage loans........ 56,544 98.70% 46,956 98.51% 46,314 98.26%
Consumer and other loans:
Savings account loans........... 176 0.31% 215 0.45% 214 0.46%
Home improvement loans.......... 79 0.14% 116 0.24% 99 0.21%
Automobile loans................ 26 0.04% 42 0.09% 77 0.16%
Other consumer loans............ 439 0.77% 335 0.70% 417 0.89%
Commercial business loans....... 26 0.04% 2 0.01% 11 0.02%
-------- ------ -------- ------ -------- ------
Total non-real estate loans... 746 1.30% 710 1.49% 818 1.74%
-------- ------ -------- ------ -------- ------
Total loans................ 57,290 100.00% 47,666 100.00% 47,132 100.00%
-------- ======= -------- ======= -------- ======
Less:
Deferred loan fees, net......... 13 14 13
Allowance for loan losses....... 106 91 92
-------- -------- --------
Total loans, net................. $ 57,171 $ 47,561 $ 47,027
======== ======== ========
</TABLE>
(1) Includes owner-occupied one-to-four family residences. Loans secured by
one-to four family residences which are used as rental property are classified
as commercial real estate loans.
50
<PAGE>
The following table presents the Bank's loan portfolios by fixed and adjustable
rates at the dates indicated.
<TABLE>
<CAPTION>
At December 31, At September 30,
------------------ ------------------------------------------
1996 1996 1995
------------------ ---------------- -----------------
Percent Percent Percent
Amount of Total Amount of Total Amount of Total
------ -------- ------ -------- ------ --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Fixed rate loans
Real estate:
Residential 1-4 family .........$18,318 29.95% $15,040 25.55% $ 9,507 16.38%
Home equity .................... 832 1.36% 717 1.22% 295 0.51%
Commercial real estate ......... 1,122 1.83% 1,125 1.91% 920 1.58%
Construction ................... 708 1.16% 1,003 1.70% 352 0.61%
------- ----- ------ ----- ------ -----
Total real estate loans ...... 20,980 34.30% 17,885 30.38% 11,074 19.08%
Consumer and other ............... 718 1.17% 737 1.25% 779 1.34%
------- ----- ------ ----- ------ -----
Total fixed rate loans ....... 21,698 35.47% 18,622 31.63% 11,853 20.42%
Adjustable rate loans:
Real estate:
Residential 1-4 family ......... 34,756 56.82% 35,337 60.03% 40,045 68.99%
Home equity .................... 1,387 2.27% 1,480 2.51% 1,827 3.15%
Commercial real estate ......... 3,222 5.27% 3,332 5.66% 4,205 7.24%
------- ----- ------ ----- ------ -----
Total real estate ........... 39,365 64.36% 40,149 68.20% 46,077 79.38%
Consumer and other ............... 104 0.17% 101 0.17% 119 0.20%
------- ----- ------ ----- ------ -----
Total adjustable rate loans . 39,469 64.53% 40,250 68.37% 46,196 79.58%
------- ----- ------ ----- ------ -----
Total loans ............... 61,167 100.00% 58,872 100.00% 58,049 100.00%
------- ====== ------ ====== ------ ======
Less:
Deferred loan fees, net ........ 21 22 16
Allowance for loan losses ...... 133 123 114
------- -------- --------
Total loans, net .................$61,013 $ 58,727 $ 57,919
======= ======== ========
</TABLE>
RESTUBBED TABLE
<TABLE>
<CAPTION>
At September 30,
-------------------------------------------------------------------
1994 1993 1992
--------------------- -------------------- --------------------
Percent Percent Percent
Amount of Total Amount of Total Amount of Total
------ -------- ------ -------- --------- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Fixed rate loans:
Real estate:
Residential 1-4 family ......... $10,749 18.76% $ 11,516 24.16% $12,838 27.24%
Home equity .................... - 0.00% - 0.00% 5 0.01%
Commercial real estate ......... 479 0.84% 572 1.20% 958 2.03%
Construction ................... 1,316 2.30% 15 0.03% 64 0.14%
------- ----- -------- ----- -------- -----
Total real estate loans ...... 12,544 21.90% 12,103 25.39% 13,865 29.42%
Consumer and other ............... 656 1.14% 647 1.36% 755 1.60%
------- ----- -------- ----- -------- -----
Total fixed rate loans ....... 13,200 23.04% 12,750 26.75% 14,620 31.02%
Adjustable rate loans:
Real estate:
Residential 1-4 family ......... 38,530 67.25% 29,698 62.31% 26,864 57.00%
Home equity .................... 2,141 3.74% 2,542 5.33% 3,417 7.25%
Commercial real estate ......... 3,329 5.81% 2,613 5.48% 2,168 4.60%
------- ----- -------- ----- -------- -----
Total real estate ........... 44,000 76.80% 34,853 73.12% 32,449 68.85%
Consumer and other ............... 90 0.16% 63 0.13% 63 0.13%
------- ----- -------- ----- -------- -----
Total adjustable rate loans . 44,090 76.96% 34,916 73.25% 32,512 68.98%
------- ----- -------- ----- -------- -----
Total loans ............... 57,290 100.00% 47,666 100.00% 47,132 100.00%
------- ====== -------- ====== -------- ======
Less:
Deferred loan fees, net ........ 13 14 13
Allowance for loan losses ...... 106 91 92
-------- ------- ------
Total loans, net ................. $ 57,171 $47,561 $ 47,027
======== ======= ========
</TABLE>
51
<PAGE>
Residential Mortgage Loans. The primary focus of the Bank's lending
activities are mortgage loans secured by first liens on one-to-four family
owner-occupied residential real estate. At December 31, 1996, approximately
$53.1 million, or 86.8% of the Bank's total loan portfolio, consisted of such
loans. The Bank offers both ARMs and fixed-rate mortgage loans. The relative
proportions of fixed-rate loans versus ARMs originated by the Bank depends
principally upon current customer preference, which is generally driven by
general economic and interest rate conditions and the pricing offered by the
Bank's competitors. At December 31, 1996, approximately 65.5% of the Bank's
residential one-to-four family owner-occupied first mortgage portfolio were ARMs
and approximately 34.5% were fixed rate loans. The ARMs generally carry annual
caps and life-of-the-loan ceilings which limit interest rate adjustments.
The Bank's residential loan underwriting criteria are generally
comparable to those required by the FNMA and other major secondary market loan
purchasers. Generally, ARM credit risks are somewhat greater than fixed-rate
loans primarily because, as interest rates rise, the borrowers' payments rise,
increasing the potential for default. Although the Bank offers teaser rate ARMs
with low initial interest rates that are not based upon the index plus the
margin for determining future rate adjustments, the Bank underwrites such loans
based on the payment due at the fully-indexed rate.
In addition to verifying income and assets of borrowers, the Bank
obtains independent appraisals on all residential first mortgage loans and title
insurance is required at closing. Private mortgage insurance is required on all
loans with a loan to value ratio in excess of 80% and the Bank requires real
estate tax escrows on such loans. Real estate tax escrows are voluntary on
residential mortgage loans with loan to value ratios of 80% or less.
The Bank has offered ARMs since the early 1980s. In the early years,
the Bank's ARMs provided for interest rate adjustments based upon the Contract
Interest Rate Index, (the "CIRI") and the Monthly Median Cost of Funds Index,
(the "COFI"), both as originally published by the Federal Home Loan Bank Board.
These indexes have proved to be unsatisfactory because the COFI generally reacts
slowly to interest rate changes and the CIRI no longer reflects the same spread
against market interest rates due to changes in mortgage lending patterns. As a
result, at December 31, 1996, the Bank had approximately $7.0 million of ARMs
based upon the COFI and CIRI with current interest rates from 3.80% to 7.00%.
ARMs originated in recent years have interest rates that adjust annually based
upon the movement of the one year treasury bill constant maturity index, plus a
margin of from 2% to 2.75%. These loans generally have a maximum interest rate
adjustment of 2% per year, with a lifetime maximum interest rate adjustment,
measured from the initial interest rate, of 5.5% or 6%.
From approximately April 1993 to December 1994, the Bank originated
teaser rate ARMs with discounted initial interest rates as low as 4.25%. During
that period, it was also the Bank's policy to bunch the interest rate
adjustments on its new ARMs so that the interest rate on loans originated from
January through June did not first adjust until July 1 of the following year,
while the interest rate on loans originated from July through December did not
first adjust until January 1 of the second calendar year after origination.
Because of the low initial interest rates and the increase in the one year
treasury bill index throughout 1994, many of these loans did not adjust to a
fully indexed interest rate until July 1996 or January 1997.
Fixed-rate residential mortgage loans are generally originated by the
Bank for terms of 15 or 30 years. Although 30 year fixed-rate mortgage loans may
adversely affect the Bank's net interest income in periods of rising interest
rates, the Bank originates such loans to satisfy customer demand. Such loans are
generally originated at initial interest rates which exceed the fully indexed
rate on ARMs offered at the same time. Fixed-rate residential mortgage loans
originated by the Bank generally include due-on-sale clauses which permit the
Bank to demand payment in full if the borrower sells the property without the
Bank's consent. Due-on-sale clauses are an important means of adjusting the
rates of the Bank's fixed-rate mortgage loan portfolio, and the Bank has
generally exercised its rights under these clauses.
After the Conversion, management intends to continue to emphasize the
origination of mortgage loans secured by one-to-four family owner-occupied
residences.
Home Equity Loans. The Bank makes home equity loans, representing loans
secured by second mortgages on one-to-four family owner-occupied residences.
These loans are of two types. The Bank offers a home equity line of credit
secured by a residential mortgage, normally a second lien. These loans have
adjustable rates of interest and generally provide for an initial advance period
of five or ten years, during which the borrower pays interest only, or
52
<PAGE>
interest plus a nominal principal amount, and can borrow, repay, and reborrow
the principal balance. This is followed by a repayment period, generally ten
years, during which the balance of the loan is repaid in principal and interest
installments. The Bank also offers regular amortizing home equity loans. These
loans are fully advanced at closing and repayable in monthly principal and
interest installments over a period not to exceed 10 years. Second mortgage
loans are limited to a maximum loan to value ratio, including prior liens, of
not more than 80%. At December 31, 1996, the Bank had $1.4 million in
outstanding advances on home equity lines of credit and $832,000 in regular
amortizing home equity loans.
Commercial Mortgage Loans. The Bank originates fixed and adjustable
rate mortgage loans secured by office buildings, retail establishments,
one-to-four family non-owner occupied residential real estate used for rental
purposes, and other types of commercial property, almost always secured by
property located in the Bank's market area. At December 31, 1996, the Bank's
commercial mortgage loan portfolio was $4.3 million, or 7.1% of total loans. At
December 31, 1996, the Bank's largest such loan was a participation loan with a
local savings bank in which the Bank's participation was $489,000, or 44% of the
total loan. The loan is secured by a mixed use office and retail center located
in the Village of Goshen.
The Bank makes commercial mortgage loans with loan to value ratios up
to 75%, terms up to 15 years, and amortization periods up to 15 years. At
December 31, 1996, $3.2 million of the Bank's commercial mortgage loans had
adjustable rates and $1.1 million had fixed rates.
Loans secured by commercial properties generally involve a greater
degree of risk than one-to-four family residential mortgage loans. Because
payments on such loans are often dependent on successful operation or management
of the properties, repayment 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. In reaching its decision on
whether to make a commercial mortgage 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.
The Bank generally requires a debt service coverage ratio of a minimum
of 120% and the personal guarantee of the borrower. The Bank also requires an
appraisal on the property conducted by an independent appraiser and title
insurance. When evaluating the qualifications of the borrower for a commercial
mortgage 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
policies require that the borrower be able to demonstrate management skills and
the ability to maintain the property from current rental income or from the
borrower's operations on the property. 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.
Construction Loans. The Bank offers residential single family
construction loans to persons who intend to occupy the property upon completion
of construction. Upon completion of construction, these loans are automatically
converted into permanent residential mortgage loans and classified as such. The
proceeds of the construction loan are advanced in stages on a percentage of
completion basis as construction progresses. The loans generally provide for a
construction period of not more than six months during which the borrower pays
interest only. In recognition of the risks involved in such loans, the Bank
carefully monitors construction through regular inspections and the borrower
must qualify for the permanent mortgage loan before the construction loan is
made. At December 31, 1996, the Bank had eight construction loans with an
outstanding principal balance of $708,000. The Bank's delinquency experience
with its construction loans has been favorable. At the end of each fiscal year
since September 30, 1992, and at December 31, 1996, the Bank had no
non-performing construction loans. See "--Asset Quality."
Consumer Loans. The Bank also makes short-term fixed-rate consumer
loans either unsecured or secured by savings accounts, automobiles or other
consumer assets. Consumer loans, excluding these secured by real estate, totaled
$807,000, or 1.3% of total loans, at December 31, 1996. These loans generally
have an average term of not more than
53
<PAGE>
five years and have interest rates higher than mortgage loans. The shorter terms
to maturity are helpful in managing the Bank's interest rate risk. These loans
are generally underwritten based upon the borrower's ability to repay and the
value of the collateral for the loan. Collateral value, except for loans secured
by bank deposits or marketable securities, is a secondary consideration because
personal property collateral generally rapidly depreciates in value, is
difficult to repossess, and rarely generates close to full value at a forced
sale.
Origination of Loans. Loan originations come from a number of sources.
Residential loan originations can be attributed to depositors, retail customers,
telephone inquiries, advertising, the efforts of the Bank's loan officers, and
referrals from other borrowers, real estate brokers and builders. The Bank
originates loans through its own efforts and does not use mortgage brokers,
mortgage bankers or other fee paid loan finders.
All of the Bank's lending is subject to its written, nondiscriminatory
underwriting standards and to loan origination procedures prescribed by the
Bank's Board of Directors. Officers of the Bank have the authority to approve
loans at differing levels established by the Board of Directors based upon the
position and expertise of the officer. All loans up to $250,000 must be approved
by at least two senior loan officers and all loans from $250,000 to $500,000
must be approved by Mr. Kelsey and Mr. Durland. Loans over $500,000, of which
the Bank had none at December 31, 1996, must be approved in advance by the
Bank's ad hoc loan review committee. All other mortgage loans are reviewed by
the Bank's ad hoc loan committee after approval.
As a federal savings bank, the aggregate amount of loans that the Bank
is permitted to make to any one borrower is generally limited to 15% of
unimpaired capital and surplus (25% if the security for such loan has a "readily
ascertainable" value or 30% for certain residential development loans). At
December 31, 1996, 15% of the Bank's capital and surplus was approximately $1.8
million. On that date, the Bank's largest aggregate loan relationship was
$792,000, represented by three loans to affiliated borrowers. One of the three
component loans, a participation loan with a balance owed to the Bank at
December 31, 1996 of $489,000, is the Bank's largest loan and is secured by
mixed use commercial property in Goshen. The two related loans include a
residential mortgage loan on the primary residence of a principal of the
commercial loan borrower and a mortgage loan on a small mixed-use commercial
property to a related entity. The Bank had two other loan relationships at
December 31, 1996 with balances in excess of $500,000. One relationship, in the
amount of $668,000, included a commercial mortgage loan on medical offices in
the amount of $424,000 and a residential mortgage loan to a principal of the
commercial loan borrower. The other relationship, in the amount of $658,000,
included the same mortgage loan on the medical facility, a residential mortgage
loan on another principal's home, and a small overdraft checking line of credit.
At December 31, 1996, the Bank had three loans outstanding with principal
balances in excess of $250,000 and an additional 11 loans with principal
balances from $200,000 to $250,000. None of these loans were past due 90 days or
more on December 31, 1996 or otherwise classified as non-performing.
54
<PAGE>
The following table sets forth the Bank's loan originations, loan sales
and principal repayments for the periods indicated. All loans sold were whole
loans.
<TABLE>
<CAPTION>
Three Months Ended
December 31, Year Ended September 30,
------------------ ------------------------------
1996 1996 1995 1994
---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C>
Total loans, beginning of period............ $ 58,872 $ 58,049 $ 57,290 $47,666
-------- -------- -------- -------
Loans originated:
Residential 1 to 4 family................... 2,915 6,198 3,557 14,238
Commercial real estate...................... 17 334 1,195 1,649
Construction loans.......................... 453 1,652 1,271 1,489
Consumer loans (1).......................... 408 2,030 1,780 1,317
-------- -------- -------- -------
Total loans originated.................. 3,793 10,214 7,803 18,693
Loans purchased............................. - - - -
Loans sold.................................. - - - (1,903)
Principal repayments........................ (1,498) (9,373) (7,022) (7,152)
Total charge-offs........................... - (18) (22) (14)
-------- -------- -------- -------
Net loan activity........................... 2,295 823 759 9,624
-------- -------- -------- -------
Total loans, end of period................ $ 61,167 $ 58,872 $ 58,049 $ 57,290
======== ======== ======== ========
</TABLE>
(1) Includes home equity loans secured by subordinate liens on one-to-four
family owner-occupied residences.
The Bank does not purchase loans. Prior to fiscal 1995, the Bank sold
part of its fixed rate residential mortgage loan production to FNMA and retained
the right to service those loans. At December 31, 1996, the Bank's portfolio of
loans serviced for FNMA totaled $7.3 million. The Bank did not service loans for
any other investors at that date. The Bank has never purchased loan servicing
rights.
55
<PAGE>
Loan Maturity. The following table shows the contractual maturity of
the Bank's loan portfolio at December 31, 1996. Loans are shown as due based on
their contractual terms to maturity. Loans which have adjustable or renegotiable
interest rates are shown as maturing in the period during which the final loan
payment is due without regard to rate adjustments. The table does not reflect
the effects of loan amortization, possible prepayments or enforcement of
due-on-sale clauses. Non-performing loans are shown as being due based upon
their contractual maturity without regard to acceleration due to default.
<TABLE>
<CAPTION>
Residential Home
1-4 Family Equity Consumer Commercial Construction Total
---------- ------ -------- ---------- ------------ -----
(In Thousands)
Amounts due:
<S> <C> <C> <C> <C>
Within 3 months................. $ 3 $ - $146 $ - $ - $ 149
3 months to 1 year.............. 17 - 70 5 708 800
1 to 3 years.................... 228 - 292 31 - 551
3 to 5 years.................... 1,246 88 246 719 - 2,299
5 to 1O years................... 2,189 744 68 304 - 3,305
10 to 20 years.................. 16,460 1,387 - 3,285 - 21,132
Over 20 years................... 32,931 - - - - 32,931
------ ----- --- ----- --- ------
Total loans..................... 53,074 2,219 822 4,344 708 61,167
Less:
Allowance for loan loss......... 112 - 21 - - 133
Deferred loan fees, net......... 21 - - - - 21
------ ----- --- ----- --- --------
Total loans, net............ $52,941 $ 2,219 $801 $4,344 $ 708 $ 61,013
======= ======= ==== ====== ===== ========
</TABLE>
The following table sets forth at December 31, 1996, the dollar amount
of loans due after December 31, 1997, and whether such loans have fixed
interest rates or adjustable interest rates.
<TABLE>
<CAPTION>
Floating or
Fixed Rates Adjustable Rates Total
----------- ---------------- -----
(In Thousands)
<S> <C> <C> <C>
Residential 1-4 family..... $ 18,300 $34,754 $ 53,054
Home equity................ 832 1,387 2,219
Commercial................. 1,120 3,219 4,339
Consumer................... 522 84 606
-------- ------- --------
Total.................. $ 20,774 $39,444 $ 60,218
======== ======= ========
</TABLE>
56
<PAGE>
Asset Quality
Delinquency Procedures. When a borrower fails to make a required
payment on a loan, the Bank attempts to cause the deficiency to be cured by
contacting the borrower. Late notices are sent when a payment is more than 15
days past due and a late charge is generally assessed at that time. The Bank
attempts to contact personally any borrower who is more than 30 days past due.
In most cases, deficiencies are cured promptly. All loans past due 60 days or
more, and all loans in which the borrower is delinquent in the payment of real
estate taxes regardless of payment status, are added to a watch list and a loan
officer of the Bank contacts the borrower on a regular basis to seek to cure the
delinquency. If a loan becomes past due 90 days, the Bank refers the matter to
an attorney, who first seeks to obtain payment without litigation and, if
unsuccessful, generally commences a foreclosure action or other appropriate
legal action to collect the loan. A foreclosure action, if the default is not
cured, generally leads to a judicial sale of the mortgaged real estate. The
judicial sale is normally delayed if the borrower files a bankruptcy petition
because the foreclosure action cannot be continued unless the Bank first obtains
relief from the automatic stay provided by the Bankruptcy Code.
If the Bank acquires the mortgaged property at foreclosure sale or
accepts a voluntary deed in lieu of foreclosure, the acquired property is then
classified as Real Estate Owned ("REO") until it is sold. At December 31, 1996,
the Bank had no REO. When REO is acquired, the property is recorded at the lower
of the principal balance of the loan or fair value less costs of sale of the
property and any shortfall between the recorded value of the property and the
carrying value of the loan is charged to the allowance for loan losses.
Thereafter, changes in the value of the REO are reflected as a valuation
allowance. The Bank is permitted to finance sales of REO by "loans to
facilitate," which may involve a lower down payment or a longer repayment term
or other more favorable features than generally would be granted under the
Bank's underwriting guidelines. Currently, the Bank has no "loans to
facilitate."
The following table sets forth the Bank's loan delinquencies by type,
by amount and by percentage of type at December 31, 1996.
<TABLE>
<CAPTION>
Loans Delinquent For:
-------------------------------------------------------
60-89 Days 90 Days and Over Total Loans Delinquent
-------------------------- --------------------------- -----------------------------
Percent Percent Percent
of Loan of Loan of Loan
Number Amount Category Number Amount Category Number Amount Category
------ ------ -------- ------ ------ -------- ------ ------ --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate loans:
Residential 1-4 family.... 11 $748 1.39% - $ - 0.00% 11 $ 748 1.39%
Home equity .............. 1 42 1.89% - - 0.00% 1 42 1.89%
Commercial................ - - 0.00% - - 0.00% - - 0.00%
Consumer and other loans.... 18 12 1.46% 3 3 0.36% 21 15 1.82%
-- ---- - ------ -- -----
Total................ 30 $802 1.31% 3 $ 3 0.005% 33 $ 805 1.32%
== ==== = ====== == =====
</TABLE>
57
<PAGE>
The following table sets forth information with respect to the Bank's
non-performing assets (which generally includes loans that are delinquent for 90
days or more and real estate owned) at the dates indicated. At December 31,
1996, there were no loans other than those included in the table below with
regard to which management had information about possible credit problems of the
borrower that caused management to seriously doubt the ability of the borrower
to comply with present loan repayment terms.
<TABLE>
<CAPTION>
At December 31, At September 30,
-----------------------------------------------
1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
(In Thousands)
Non-accrual loans:
<S> <C> <C> <C> <C> <C> <C>
Residential 1-4 family real estate.............. $ - $ 16 $ 157 $ 42 $ - $ -
Non-mortgage loans:............................. - - - - - -
----- ---- ----- ----- ----- ----
Total non-accrual loans....................... - 16 157 42 - -
===== ==== ===== ===== ===== ====
Accruing loans past due 90 days or more:
Residential 1-4 family.......................... - - 68 160 264 80
Home equity..................................... - - - 51 - -
Consumer........................................ 3 - - 4 5 -
----- ---- ----- ----- ----- ----
Total loans past due 90 days
or more and still accruing................. 3 - 68 215 269 80
----- ---- ----- ----- ----- ----
Total non-performing loans.................. 3 16 225 257 269 80
Real estate owned.................................. - - - - - 65
Other non-performing assets........................ - - - - - -
----- ---- ----- ----- ----- ----
Total non-performing assets........................ $ 3 $ 16 $ 225 $ 257 $ 269 $145
===== ==== ===== ===== ===== ====
Non-performing loans
as a percent of total loans..................... 0.005% 0.03% 0.39% 0.45% 0.56% 0.17%
Non-performing assets
as a percent of total assets.................... 0.003% 0.02% 0.22% 0.26% 0.27% 0.15%
</TABLE>
It is the Bank's policy to discontinue accruing interest on a loan when
it becomes 90 days or more delinquent unless the Bank determines that the nature
of the delinquency and the collateral are such that collection of the principal
and interest on the loan in full is reasonably assured. Once the accrual of
interest is discontinued, the Bank records interest as and when received until
the loan is restored to accruing status.
For the three months ended December 31, 1996 and the years ended
September 30, 1996, 1995 and 1994, the amount of interest income that would have
been recorded on non-accrual loans was $0, $1,400, $6,700 and $1,300,
respectively, of which $0, $1,400, $0 and $0 was actually collected by the Bank
and recorded as income during each such period. Interest earned on loans 90 days
or more delinquent and still accruing interest amounted to $123, $0, $7,600 and
$7,000 for such periods, respectively.
Classified Assets. OTS regulations require that federal savings banks
classify their assets on a regular basis and establish prudent valuation
allowances based on such classifications. In addition, in connection with
examinations of savings associations, OTS examiners have authority to identify
problem assets and, if appropriate, require them to be classified. FDIC and New
York State Banking Department examiners had similar authority before the Bank
converted to a federal savings bank. OTS regulations provide for three adverse
classifications for problem assets: Substandard, Doubtful and Loss. Substandard
assets have one or more defined weaknesses and are characterized by the distinct
58
<PAGE>
possibility that the Bank will sustain some loss if the deficiencies are not
corrected. Doubtful assets have the weaknesses of Substandard assets, with the
additional characteristics that the weaknesses make collection or liquidation in
full on the basis of currently existing facts, conditions and values
questionable, and there is a high probability of loss. An asset classified Loss
is considered uncollectible and of such little value that its continuance as an
asset of the Bank is not warranted. The regulations have also created a Special
Mention category, consisting of assets which do not currently expose the Bank to
a sufficient degree of risk to warrant classifications, but do possess credit
deficiencies or potential weaknesses deserving management's close attention.
Assets classified as Substandard or Doubtful require the Bank to
establish prudent valuation allowances. If an asset or portion thereof is
classified as Loss, the Bank must either establish specific allowances for
losses in the amount of 100% of the portion of the asset classified Loss or
charge off such amount. If an Bank does not agree with an examiner's
classification of an asset, it may appeal this determination to the District
Director of the OTS. On the basis of management's review of its loans at
December 31, 1996, the Bank had no classified assets and no loans categorized by
management as "Special Mention."
Allowance for Loan Losses. The allowance for loan losses is established
through a provision for loan losses based on management's evaluation of the
risks inherent in the Bank's loan portfolio and the general economy. The
allowance for loan losses is maintained at an amount management considers
adequate to cover loan losses which are deemed probable and can be estimated.
The allowance is based upon a number of factors, including asset
classifications, economic trends, industry experience and trends, industry and
geographic concentrations, estimated collateral values, management's assessment
of the credit risk inherent in the portfolio, historical loan loss experience
and the Bank's underwriting policies. The Bank evaluates on a loan by loan basis
each calendar quarter all loans which are at least sixty days past due or for
which there are unpaid real estate taxes and considers whether the allowance
should be adjusted to protect against risks associated with such loans. The
analysis of the adequacy of the allowance is reported to and reviewed by the
Board of Directors quarterly. Although management believes it uses the best
information available to make determinations with respect to the allowance for
loan losses, future adjustments may be necessary if economic conditions and the
Bank's actual experience differ substantially from the conditions and experience
used in the assumptions upon which the initial determinations are based.
While the Bank believes that it has established an adequate allowance
for loan losses based upon its low level of prior charge-offs, there can be no
assurance that regulators, in reviewing the Bank's loan portfolio as part of a
future regulatory examination, will not request the Bank to materially increase
its allowance for loan losses, thereby negatively affecting the Bank's financial
condition and earnings at that time. Moreover, no assurance can be made that
future additions to the allowance will not be necessary based on changes in
economic and real estate market conditions, further information obtained
regarding existing loans, identification of additional problem loans and other
factors, both within and outside of management's control. The directors of the
Bank and the Company have reviewed the provision for loan losses and the
allowance for loan losses and the assumptions utilized by management as to their
reasonableness and adequacy.
59
<PAGE>
The following table analyzes activity in the Bank's allowance for loan
losses during the fiscal years indicated.
<TABLE>
<CAPTION>
Three Months Ended
December 31, Year Ended September 30,
------------------ -------------------------------------------------
1996 1996 1995 1994 1993 1992
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Allowance, beginning of period........... $123 $114 $106 $ 91 $ 92 $ 71
Provision:
Residential 1-4 family.................. - - 15 20 10 40
Commercial real estate.................. - - - - - -
Consumer................................ - 24 14 5 - -
---- ---- ----- ---- ---- ----
Total provision....................... - 24 29 25 10 40
Charge-offs:
Residential 1-4 family.................. - - - - (6) (25)
Consumer................................ - (18) (22) (14) (7) (7)
---- ---- ----- ---- ---- ----
Total charge-offs .................... - (18) (22) (14) (13) (32)
---- ---- ----- ---- ---- ----
Recoveries:
Residential 1-4 family.................. - - - - 2 13
Consumer................................ 10 3 1 4 - -
---- ---- ----- ---- ---- ----
Total recoveries ................... l0 3 1 4 2 13
---- ---- ----- ---- ---- ----
Net charge-offs (recoveries)............. 10 (15) (21) (10) (11) (19)
---- ---- ----- ---- ---- ----
Allowance, end of period................. $133 $123 $ 114 $106 $ 91 $ 92
==== ==== ===== ==== ==== ====
Allowance as a percent of total loans.... 0.22% 0.21% 0.20% 0.19% 0.19% 0.20%
</TABLE>
The following table sets forth the breakdown of the allowance for loan
losses by loan category at the dates indicated. The allocation of the
allowance to each category is not necessarily indicative of future losses and
does not restrict the use of the allowance to absorb losses in any category.
<TABLE>
<CAPTION>
At December 31, At September 30,
----------------- -----------------------------------------------------------------
1996 1996 1995 1994
--------------- ------------------ ----------------- -------------------
Percent Percent Percent Percent
of Loans of Loans of Loans of Loans
to Total to Total to Total to Total
Amount Loans Amount Loans Amount Loans Amount Loans
------ ----- ------ ----- ------ ----- ------ -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Allowance allocated to:
Residential 1-4 family...... $ 112 90.39% $ 112 89.30% $ 112 89.02% $97 89.75%
Commercial real estate...... - 7.10% - 7.57% - 8.83% - 6.65%
Construction................ - 1.16% - 1.71% - 0.61% - 2.30%
Consumer and other.......... 21 1.35% 11 1.42% 2 1.54% 9 1.30%
----- ------ ----- ------ ----- ------ ----- ------
Total allowance............. $ 133 100.00% $ 123 100.00% $ 114 100.00% $ 106 100.00%
===== ====== ===== ====== ===== ====== ===== ======
</TABLE>
60
<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 presence of hazardous materials may have a
substantial adverse effect on the value of such property as collateral and may
cause economic difficulties for the borrower, causing the loan to go into
default. Although environmental risks are usually associated with loans secured
by commercial real estate, risks also may exist for loans secured by residential
real estate if, for example, there is nearby commercial contamination or if the
residence was constructed on property formerly used for commercial purposes. The
Bank attempts to control its risk by requiring a phase one environmental
assessment by a Bank-approved engineer as part of its underwriting review for
all mortgage loans other than those secured by one-to-three family residences.
The Bank believes its procedures regarding the assessment of
environmental risk are adequate and, as of December 31, 1996, the Bank was
unaware of any environmental issues with respect to any of its mortgage loans
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. See "--Properties" for a discussion of environmental matters regarding
the Bank's main office.
Investment Activities
General. The investment policy of the Bank, which is approved by the
Board of Directors, is based upon its asset/liability management goals and is
designed primarily to provide satisfactory yields while maintaining adequate
liquidity, a balance of high quality, diversified investments, and minimal risk.
The investment policy is implemented by the Chief Executive Officer.
As required by SFAS 115, securities are classified into three
categories: trading, held-to-maturity and available-for-sale. Securities that
are bought and held principally for the purpose of selling them in the near term
are classified as trading securities and are reported at fair value with
unrealized gains and losses included in trading account activities in the
statement of earnings. Securities that the Bank has the positive intent and
ability to hold to maturity are classified as held-to-maturity and reported at
amortized cost. All other securities are classified as available-for-sale.
Available-for-sale securities are reported at fair value with unrealized gains
and losses included, on an after-tax basis, as a separate component of retained
earnings. The Bank has not had a trading securities portfolio since 1994 and has
no current plans to maintain such a portfolio in the future. At December 31,
1996, $21.0 million of investment securities were classified as
available-for-sale and none were classified as held to maturity. At December 31,
1996, $6.2 million of mortgage-backed securities were classified as
held-to-maturity with a fair value of $6.3 million, and none were classified as
available for sale. In 1995, the FASB issued a special report allowing the
transfer of securities from held-to-maturity to the available-for-sale
classification during the period from November 15, 1995 to December 31, 1995,
with no recognition of any related unrealized gain or loss in current earnings.
In December 1995, the Bank transferred investment securities held-to-maturity
with an amortized cost of approximately $20.9 million to the available-for-sale
classification. The gross unrealized gain related to the transferred securities
was approximately $121,000.
Investment Securities. The Bank's investment securities portfolio
totaled $21.0 million at December 31, 1996. It is the policy of the Bank to
invest in debt securities issued by the United States Government, its agencies,
municipalities and corporations. In order to benefit from higher yields, the
Bank concentrates its investment securities portfolio in corporate debt
securities, which totaled $11.6 million, or 55.4% of investment securities, at
December 31, 1996. Such securities have greater risks than U.S. Government
securities, and to control these risks, the Bank limits its investment in
corporate debt securities to those rated in the three highest grades by a
nationally recognized rating organization. The Bank also invests in IIMF, a
group of mutual funds all of whose investments would qualify as direct
investments for a New York chartered savings bank. The only IIMF fund in which
the Bank held investments at December 31, 1996 was the Institutional Investors
Capital Appreciation Fund, Inc., which invests principally in common stocks of
companies listed on the New York Stock Exchange that have paid regular dividends
for at least ten consecutive fiscal years. At December 31, 1996, the Bank's
investment in IIMF shares totaled $1.9 million.
61
<PAGE>
At December 31, 1996, the Bank had an investment of $599,000 in stock
of the FHLBNY, which investment was necessary for the Bank to maintain its
membership in the FHLBNY and to utilize FHLBNY borrowing facilities. If the Bank
increases its FHLBNY borrowings, the Bank may have to increase its investment in
FHLBNY stock because the Bank must own FHLBNY stock at least equal to 5% of its
borrowings. The Bank's yield on FHLBNY stock was 5.90% for the fiscal year ended
September 30, 1996 and was 6.61% (annualized) for the three months ended
December 31, 1996.
Mortgage-Backed Securities. The Bank invests in mortgage-backed
securities to supplement the yields on it loan portfolio. At December 31, 1996,
the Bank's mortgage-backed securities portfolio totaled $6.2 million, all of
which was classified as held to maturity. At December 31, 1996, all of the
Bank's mortgage-backed securities were issued or guaranteed by FNMA, FHLMC or
GNMA and all were pass through securities. The Bank's mortgage-backed securities
portfolio had a weighted average yield of 6.85% at December 31, 1996.
Mortgage-backed securities generally have higher yields than investment
securities because of the longer terms and the uncertainties associated with the
timing of mortgage repayments. In addition, mortgage-backed securities are more
liquid than individual mortgage loans and may be used to collateralize
borrowings of the Bank. However, these securities generally yield less than the
loans that underlie them because of the cost of payment guarantees or credit
enhancements that reduce credit risk. Mortgage-backed securities of the type
held by the Bank are generally weighted at 20%, rather than the 50% weighting
for performing residential one-to-four family mortgage loans, in determining
risk-based capital ratios.
While investment and mortgage-backed securities carry a reduced credit
risk as compared to loans, such securities remain subject to the risk that a
fluctuating interest rate environment, along with other factors such as the
geographic distribution of the underlying mortgage loans, may alter the
prepayment rate of such mortgage loans and so affect both the prepayment speed,
and value, of such securities. See "Risk Factors--Interest Rate Risk."
62
<PAGE>
The following table sets forth certain information regarding the
amortized cost and fair value of the Bank's available for sale, held to maturity
and trading securities portfolios at the dates indicated.
<TABLE>
<CAPTION>
At December 31, At September 30,
-------------------- -----------------------------------------------------------------------
1996 1996 1995 1994
--------------------- --------------------- ------------------------ ---------------------
Amortized Fair Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value Cost Value
---- ----- ---- ----- ---- ----- ---- -----
Securities Available for Sale:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities...... $ 3,012 $ 3,023 $ 4,718 $ 4,714 $ 2,051 $ 2,054 $ - $ -
U.S. Government agencies...... 2,972 3,015 2,967 2,984 - - - -
Corporate debt obligations.... 11,570 11,649 12,043 12,075 - - - -
Other securities.............. 506 506 506 505 - - - -
------ --------- --------- --------- --------- --------- ------- --------
Total...................... 18,060 18,193 20,234 20,278 2,051 2,054 - -
------ --------- --------- --------- --------- --------- ------- --------
FHLBNY stock.................. 599 599 599 599 - - - -
Corporate equity securities... 2,002 2,224 2,002 2,204 1,956 2,040 - -
------ --------- --------- --------- --------- --------- ------- --------
Total equity securities.... 2,601 2,823 2,601 2,803 1,956 2,040 - -
------ --------- --------- --------- --------- --------- ------- --------
Total available for sale. 20,661 21,016 22,835 23,081 4,007 4,094 - -
------ --------- --------- --------- --------- --------- ------- --------
Securities Held to Maturity:
U.S. Treasury................. - - - - 5,834 5,801 9,570 9,397
U.S. Government agencies...... - - - - 2,933 2,965 504 504
Corporate debt obligations.... - - - - 13,964 13,934 21,432 21,117
Other......................... - - - - 1,019 1,011 1,036 1,001
Mortgage-backed securities.... 6,173 6,252 6,474 6,529 4,404 4,492 2,226 2,230
------ --------- --------- --------- --------- --------- -------- -------
Total held to maturity..... 6,173 6,252 6,474 6,529 28,154 28,203 34,768 34,249
------ --------- --------- --------- --------- --------- -------- --------
Trading Account Securities:
Equity securities............. - - - - - - 2,259 2,172
------ --------- --------- --------- --------- --------- -------- --------
Total Securities........... $ 26,834 $ 27,268 $ 29,309 $ 29,610 $ 32,161 $ 32,297 $ 37,027 $ 36,421
======= ========= ========= ========= ========= ========= ========= =========
</TABLE>
The table below sets forth certain information regarding the carrying
value, weighted average yields and stated maturity of the Bank's securities at
December 31, 1996. There were no securities (exclusive of obligations of the
U.S. Government and any federal agencies) issued by any one entity with a total
carrying value in excess of 10% of the Bank's equity at December 31, 1996,
except that at December 31, 1996, the Bank's IIMF shares had a carrying value of
$1.9 million. Securities with no stated maturity are shown as having a maturity
of more than ten years.
<TABLE>
<CAPTION>
At December 31, 1996
-----------------------------------------------------------------------------------------------------
One Year One to Five to More than Total
or Less Five Years Ten Years Ten Years Securities
----------------- ----------------- ----------------- ----------------- -------------------------
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average Market
Value Yield Value Yield Value Yield Value Yield Value Yield Value
-------- ------- -------- ------- -------- ------- -------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities .. $ - - $ 3,023 5.96% $ - - $ 3,023 5.96% $ 3,023
Municipal obligations ..... 101 5.00% - - - - 101 5.00% 101
Corporate debt obligations. 5,793 6.30% 5,856 6.74% - - 11,649 6.52% 11,649
Mortgage-backed securities. - - 2,858 6.35% 775 7.48% 2,540 7.21% 6,173 6.85% 6,252
Other debt securities ..... 400 5.25% 5 5.50% - - 405 5.25% 405
FHLBNY stock .............. - - - - 599 6.61% 599 6.61% 599
Other equity securities ... - - - - 2,224 6.98% 2,224 6.98% 2,224
------ ------- ------ ------- -------
Total ................... $6,294 6.24% $14,757 6.52% $ 775 7.48% $5,363 7.05% $27,189 6.59% $27,268
====== ======= ======= ====== ======= =======
</TABLE>
63
<PAGE>
Sources of Funds
General. The Bank's primary source of funds is deposits. In addition,
the Bank derives funds for loans and investments from loan and security
repayments and prepayments, from net revenues from operations and, to a lesser
extent, from borrowings. Scheduled payments on loans and mortgage-backed and
investment securities are a relatively stable source of funds, while savings
inflows and outflows and loan and mortgage-backed and investment securities
prepayments are significantly influenced by general interest rates and money
market conditions. Borrowings are occasionally used to compensate for reductions
in other sources of funds.
Deposits. The Bank offers several types of deposit programs to its
customers, including passbook and statement savings accounts, NOW accounts,
money market deposit accounts, checking accounts and certificates of deposit.
Deposit account terms vary according to the minimum balance required, the time
periods the funds must remain on deposit and the interest rate, among other
factors. The Bank's deposits are obtained predominantly from its Orange County
market area. The Bank relies primarily on customer service and long-standing
relationships with customers to attract and retain these savings deposits;
however, market interest rates and rates offered by competing financial
institutions significantly affect the Bank's ability to attract and retain
savings deposits. The Bank does not pay premium rates for certificates of
deposit in excess of $100,000 nor does the Bank use brokers to obtain deposits.
At December 31, 1996, the Bank had $82.6 million of deposits outstanding.
The Bank prices its deposit offerings based upon market and competitive
conditions in its market area. During fiscal 1996 and the three months ended
December 31, 1996, the Bank took steps to decrease its cost of funds by
moderating the rates it offered on certificates of deposit accounts.
Certificates of deposit as a percentage of total deposits decreased from 48.9%
at September 30, 1995 to 45.9% at September 30, 1996 and remained at 46.0% at
December 31, 1996. Due to declining market interest rates and the Bank's efforts
to reduce its cost of funds, certificates of deposits with rates of 6.00% or
more totaled $1.3 million, or 3.3%, of the Bank's certificates of deposit at
December 31, 1996 compared to $15.8 million, or 36.8%, at September 30, 1995.
Total deposits decreased by $5.2 million during the twelve months ended December
31, 1996, principally as a result of management's efforts to reduce the cost of
funds. The deposit outflow was funded principally by a reduction in investment
securities of $4.6 million, a reduction in federal funds sold of $1.6 million,
and a reduction of $1.6 million in cash and due from banks. The reductions in
cash and due from banks and federal funds sold was enabled by the receipt of a
substantial portion of the Bank's Nationar claim.
64
<PAGE>
The following table sets forth the distribution of the Bank's deposit
accounts at the dates indicated. Interest rates shown for non-time accounts are
the rates in effect at December 31, 1996.
<TABLE>
<CAPTION>
At December 31, At September 30,
------------------- --------------------------------------------------------------
1996 1996 1995 1994
---- ---- ---- ----
Percent of Percent of Percent of Percent of
Amount Total Amount Total Amount Total Amount Total
------ ----- ------ ----- ------ ----- ------ -----
(Dollars in Thousands)
Non-time accounts:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Savings accounts (3.00%)...... $26,134 31.65% $26,805 32.12% $27,198 30.87% $34,354 39.76%
NOW accounts (2.50%).......... 4,025 4.87% 3,636 4.36% 3,308 3.76% 3,491 4.04%
Checking accounts............. 3,878 4.70% 4,206 5.04% 3,796 4.31% 3,667 4.25%
Money market accounts (3.00%). 10,587 12.82% 10,457 12.53% 10,756 12.21% 13,255 15.34%
------- ----- ------- ----- ------- ----- ------- -----
Total non-time accounts.... 44,624 54.04% 45,104 54.05% 45,058 51.15% 54,767 63.39%
------- ----- ------- ----- ------- ----- ------- -----
Time accounts:
3.00-3.99%.................... 346 0.42% 501 0.60% 1,759 2.00% 27,222 31.51%
4.00-4.99%.................... 24,569 29.75% 25,479 30.53% 4,595 5.22% 2,653 3.07%
5.00-5.99%.................... 11,785 14.27% 9,736 11.67% 20,853 23.67% 1,640 1.90%
6.00-6.99%.................... 923 1.12% 2,291 2.75% 15,517 17.61% 114 0.13%
7.00-7.99%.................... 336 0.40% 331 0.40% 311 0.35% - 0.00%
------- ----- ------- ----- ------- ----- ------- -----
Total time accounts........ 37,959 45.96% 38,338 45.95% 43,035 48.85% 31,629 36.61%
------- ----- ------- ----- ------- ----- ------- -----
Total deposits......... $82,583 100.0% $83,442 100.0$ $88,093 100.0% $86,396 100.0%
======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
The following table sets forth the deposit flows at the bank during the
periods indicated.
Three Months Ended
December 31, Year Ended September 30,
---------------- ---------------------------------
1996 1996 1995 1994
------- ------ -------- -------
(In Thousands)
Net deposits (withdrawals)... $(1,623) $(8,016) $(1,563) $(5,093)
Interest credited............ 764 3,365 3,260 2,686
------- ------- ------- -------
Net increase (decrease)
in deposits ............... $ (859) $(4,651) $ 1,697 $(2,407)
======= ======= ======= =======
65
<PAGE>
The following table sets forth the amount of certificates of deposit
outstanding and the remaining period to maturity of such deposits at December
31, 1996.
<TABLE>
<CAPTION>
Amount Due During the Due After
Twelve Months Ended December 31, December 31,
----------------------------------------- ------------
Interest Rate 1997 1998 1999 1999 Total
------------- ---- ---- ---- ---- -----
(In Thousands)
<S> <C> <C> <C> <C> <C>
3.00-3.99%................ $ 346 $ - $ - $ - $ 346
4.00-4.99%................ 22,984 1,527 27 31 24,569
5.00-5.99%................ 8,967 2,035 642 141 11,785
6.00-6.99%................ 640 45 222 16 923
7.00-7.99%................ - - 51 285 336
-------- ------- -------- ------- --------
Total..................... $ 32,937 $ 3,607 $ 942 $ 473 $ 37,959
======== ======= ======== ======= ========
</TABLE>
At December 31, 1996, the Bank had $1.7 million in certificates of
deposit with balances of $100,000 or more ("jumbo deposits"), representing
2.09% of all deposits, as follows:
<TABLE>
<CAPTION>
Original Minimum Interest Percentage of Percentage of
Term Balance Rate (1) Balance Total Deposits Jumbo Deposits
---- ------- -------- ------- -------------- --------------
(In Thousands)
<C> <C> <C> <C> <C> <C>
1-3 months.................. $100,000 3.60% $334 0.40% 19.33%
4-6 months.................. $100,000 4.90% 301 0.37% 17.42%
6-12 months................. $100,000 5.10% 670 0.81% 38.77%
Over twelve months.......... $100,000 5.10% 423 0.51% 24.48%
------ ---- ------
Total ................................. $1,728 2.09% 100.00%
====== ==== ======
</TABLE>
(1) Interest rate offered as of December 31, 1996.
Borrowings. Although deposits are the primary source of funds for the
Bank's lending and investment activities and for its general business purposes,
the Bank has in the past relied upon borrowed funds or repurchase agreements to
supplement its available funds. The Bank has borrowed funds, either through
direct borrowings or through the sale of securities under agreements to
repurchase, on an infrequent basis when the cost of borrowings were attractive
when compared to the rate required to be paid on deposits plus the deposit
insurance premium required to be paid. Furthermore, immediately after the
closure of Nationar, the Bank availed itself of borrowed funds for a short time
to satisfy its immediate liquidity needs until it was able to replace its funds
at Nationar with the proceeds of new deposits. In the future, the Bank may use
borrowings to provide funds in order to assist in the leveraging of the
additional capital anticipated to be received in the Conversion. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital."
Total borrowings at December 31, 1996 were $1.0 million, represented by
an advance from the FHLBNY. The Bank undertook this borrowing in order to
provide needed funds at a time when the Bank did not want to increase the rates
paid on certificates of deposit to attract funds. At no time have the Bank's
short term borrowings exceeded 30% of equity.
66
<PAGE>
Subsidiary Activities
As a federal savings bank, the Bank may invest up to 2% of its assets
in subsidiaries, with an additional investment of 1% of assets if the investment
serves primarily community, inner city and community development. The may also
invest an unlimited amount in operating subsidiaries engaged solely in
activities which a federal savings bank may engage in directly. The Bank does
not have any subsidiaries.
Properties
The Bank conducts its business through its headquarters in Goshen, a
nearby public accommodation drive-up facility, and a branch opened in March 1997
at an elder care facility in Goshen, as shown in the following table. The elder
care facility is operated by a non-profit corporation of which Mr. Kelsey is a
director. The following table sets forth certain information regarding the
Bank's deposit-taking offices.
<TABLE>
<CAPTION>
Approximate Net Book
Location Date acquired Owned/Leased Square Feet Value
(In Thousands)
<S> <C> <C> <C> <C>
One South Church Street 1971 Owned 10,680 $2,003
Goshen, NY 10924 with
adjacent drive-up facility
at 50 South Church Street
214 Harriman Drive March 1997 Leased 105 N/A
Goshen, NY 10924
</TABLE>
In late 1996, an underground petroleum tank on property adjoining the
Bank's main office was discovered to be leaking and the leakage seeped
underground to the property on which the Bank's headquarters office is located.
This contamination is being remediated by the adjoining land owner and the Bank
does not believe that it poses any continuing risks. The Bank has agreed to
share in the cost of remediation. The Bank estimates that its share of the cost
will be approximately $50,000, which amount was recorded as an expense during
the quarter ended March 31, 1997. See "Summary of Recent Developments --
Comparison of Operating Results for the Three Months Ended March 31, 1997 and
March 31, 1996 -- Non-interest Expense."
Personnel
At December 31, 1996, the Bank employed 31 full-time and 1 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--Benefits" for a description of certain compensation and
benefit programs offered to the Bank's employees.
Legal Proceedings
In the ordinary course of its operations, the Bank is a party to
routine litigation involving claims incidental to the savings bank business.
Management believes that no current litigation, threatened or pending, to which
the Bank or its assets is or may become a party, poses a substantial likelihood
of potential loss or exposure which would have a material adverse effect on the
financial condition or results of operations of the Bank or the Company.
67
<PAGE>
REGULATION
Set forth below is a brief summary of certain laws which relate to the
regulation and supervision of the Bank. The Bank became a federally chartered
savings bank on March 18, 1997 and prior to that date was, as a New
York-chartered mutual savings bank, subject to the rules and regulations of the
New York State Banking Department and the FDIC.
General
The Bank is subject to extensive regulation, examination, and
supervision by the OTS, as its chartering agency, and the FDIC, as its deposit
insurer. The Bank's deposit accounts are insured up to applicable limits by the
BIF of the FDIC, and the Bank is a member of the FHLBNY. The Bank must file
reports with the OTS and the FDIC concerning its activities and financial
condition, and it must obtain regulatory approvals prior to entering into
certain transactions, such as mergers with, or acquisitions of, other depository
institutions. The OTS and the FDIC have the authority to conduct periodic
examinations to assess the Bank's compliance with various regulatory
requirements. Prior to becoming a federal savings bank, these examinations were
conducted by the New York State Banking Department and the FDIC. This regulation
and supervision establishes a comprehensive framework of activities in which a
savings association (which term includes federal savings banks such as the Bank)
can engage and is intended primarily for the protection of the FDIC insurance
fund and depositors. For a discussion of the Bank's history, see "Goshen Savings
Bank." The Company, as a savings association holding company, will also be
required to file certain reports with, and otherwise comply with, the rules and
regulations of the OTS and of the SEC under the federal securities laws.
The OTS and the FDIC have discretion in 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 policies, whether by the
OTS, the FDIC or the Congress, could have a material adverse impact on the
Company, the Bank and the operations of both.
The following discussion is intended to be a summary of the material
statutes and regulations applicable to savings associations and their holding
companies, and it does not purport to be a comprehensive description of all such
statutes and regulations.
Regulation of Federal Savings Associations
Business Activities. The Bank's lending and investment powers come from
the Home Owners' Loan Act, as amended (the "HOLA"), and the regulations of the
OTS. Under these laws and regulations, the Bank may invest in mortgage loans
secured by residential and commercial real estate, commercial and consumer
loans, certain types of debt securities, and certain other assets. The Bank may
also establish service corporations that may engage in activities not otherwise
permissible for the Bank, including certain real estate equity investments and
securities and insurance brokerage. The Bank's powers are subject to limits,
including, among others, (a) a prohibition against acquiring any corporate debt
security that is not rated in one of the four highest rating categories; (b) a
limit of 400% of capital that can be invested in loans secured by
non-residential real estate property; (c) a limit of 10% of assets that can be
invested in commercial loans; (d) a limit of 35% of assets that can be invested
in consumer loans and acquisitions of certain debt securities; (e) a limit of 5%
of assets which can be invested in non-conforming loans (loans in excess of the
specific limitations of the HOLA); and (f) a limit of the greater of 5% of
assets or an association's capital which can be invested in certain construction
loans made for the purpose of financing what is or is expected to become
residential property.
Loans to One Borrower. Under the HOLA, savings associations are
generally subject to the same limits on loans to one borrower as are imposed on
national banks. Generally, a savings association may not make a loan or extend
credit to a single or related group of borrowers in excess of 15% of its
unimpaired capital and surplus. Up to an additional 10% of unimpaired capital
and surplus can be lent if the additional amount is fully secured by
readily-marketable collateral. Such collateral may consist of cash, certain debt
and equity securities and bullion but generally does not include real estate. If
the Bank had been a federal savings bank at December 31, 1996, its regulatory
limit on loans to one borrower would have been in excess of $1.8 million. At
December 31, 1996, the Bank's largest aggregate loans to one borrower was
$792,000. The Bank is in compliance with all applicable limitations on loans to
one borrower.
68
<PAGE>
QTL Test. The HOLA requires a savings association to meet a qualified
thrift lender, or "QTL" test. Under the QTL test, a savings association must
maintain at least 65% of its "portfolio assets" in certain "qualified thrift
investments" in at least nine months of the most recent 12-month period.
"Portfolio assets" means, in general, total assets less (a) specified liquid
assets up to 20% of total assets, (b) certain intangibles, including goodwill
and credit card and purchased mortgage servicing rights, and (c) the value of
property used to conduct the association's business. "Qualified thrift
investments" include various types of loans made for residential and housing
purposes, investments related to such purposes, such as certain mortgage-backed
securities, education, small business and credit card loans, and consumer loans
and certain other loans and investments up to, in the aggregate, 20% of
portfolio assets. At December 31, 1996, more than 85% of the Bank's assets were
qualified thrift investments, and the Bank would have satisfied the QTL test at
that date had it been subject to such requirement.
A savings association that fails the QTL test must either restrict its
activities or convert to a bank charter. The initial restrictions include
prohibitions against (a) engaging in any new activity not permissible for a
national bank, (b) paying dividends not permissible under national bank
regulations, (c) obtaining new advances from any Federal Home Loan Bank and (d)
establishing any new branch office in a location not permissible for a national
bank in the association's home state. In addition, within one year after a
savings association ceases to meet the QTL test, any company controlling the
association must register under, and become subject to the requirements of, the
Bank Holding Company Act of 1956, as amended (the "BHC Act"). If the savings
association does not requalify under the QTL test within three years after it
fails the QTL test, it must terminate any activity and dispose of any investment
not permissible for a national bank and must repay as promptly as possible any
outstanding advances from a Federal Home Loan Bank. A savings association that
has failed the QTL test may requalify under the QTL test and be free of such
limitations, but it may do so only once.
Capital Requirements. OTS regulations require savings associations to
maintain tangible capital equal to 1.5% of total assets as adjusted under the
OTS regulations, a core capital equal to 3% of such adjusted total assets and a
total capital (core capital plus supplementary capital) equal to 8% of
risk-weighted assets. Tangible capital is defined, generally, as common
stockholders' equity (including the Bank's equity as a mutual institution),
certain noncumulative perpetual preferred stock and related earnings and
minority interests in equity accounts of fully consolidated subsidiaries, less
intangibles (other than certain purchased mortgage servicing rights) and
investments in and loans to subsidiaries engaged in activities not permissible
for a national bank. The Bank's tangible capital at December 31, 1996 was $11.9
million. Core capital is equal to tangible capital plus certain qualifying
supervisory goodwill and certain purchased credit card relationships. At
December 31, 1996, the Bank had no core capital which was not also tangible
capital.
In determining compliance with the risk-based capital requirement, a
savings association computes its risk-weighted assets by multiplying its assets
and certain off-balance sheet items by risk-weights, which range from 0% for
cash and obligations issued by the United States Government or its agencies to
100% for consumer and commercial loans, as established by the OTS based on the
perceived risks inherent in the type of asset. Supplementary capital for
determining compliance with the risk-based capital requirement includes
cumulative and other perpetual preferred stock, mandatory convertible
securities, subordinated debt and intermediate preferred stock and the allowance
for loan and lease losses. The allowance for loan and lease losses includable in
supplementary capital is limited to 1.25% of risk-weighted assets, and
supplementary capital cannot exceed the amount of core capital. The Bank has no
supplementary capital except for its allowance for loan losses, which totaled
$133,000 at December 31, 1996, and which did not exceed the 1.25% limit.
The OTS has adopted but deferred enforcement of a regulation that
requires a savings association with "above normal" interest rate risk to hold
additional capital to account for such risk when determining compliance with the
risk-based capital requirements. The regulation does not apply to institutions,
such as the Bank, which have risk-based capital ratios in excess of 12% and have
total assets less than $300,000,000. A savings association's interest rate risk
is measured by the decline in the net portfolio value of its assets (i.e.,
generally, the difference between the present value of payments to be received
on its assets and the present value of payments to be made on its liabilities.
If a savings association's interest rate risk exposure exceeds 2% of the
economic value of its assets (calculated in the same manner), it would be
considered to have "above normal" risk. The additional capital required would
equal one-half of the difference between the association's measured interest
rate risk and 2%, multiplied by the economic value of the
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association's assets. That dollar amount is deducted from an association's total
capital in calculating compliance with its risk-based capital requirement.
Due to the Bank's recent conversion to a federal savings bank, the OTS
has not calculated the Bank's interest rate risk under the model described
above. Management believes that if the regulation is implemented in its current
form by the OTS, and even if the exemption for small institutions is deleted,
there will be no material effect on the ability of the Bank to be classified as
"well capitalized" for regulatory purposes. See "Regulatory Capital Compliance."
Limitations on Capital Distributions. OTS regulations impose limits on
capital distributions by savings associations, such as cash dividends, payments
to repurchase or otherwise acquire its shares, payments to stockholders of
another institution in a cash-out merger and other distributions charged against
capital. These regulations apply to distributions by the Bank, but not to
distributions by the Company. At least 30-days written notice must be given to
the OTS of a proposed capital distribution by a savings association, and capital
distributions in excess of specified earnings or by certain institutions must
first be approved by the OTS. An association such as the Bank that satisfies all
regulatory capital requirements and that is not otherwise restricted in making
capital distributions, may, after notifying the OTS, and provided that the
capital distribution will not cause the association to fail to meet any
regulatory capital requirement, make capital distributions during a calendar
year equal to the greater of (a) 100% of its net earnings during the current
calendar year plus the amount that would reduce by one-half the excess of its
capital over its capital requirements at the beginning of the calendar year, or
(b) 75% of its net earnings for the previous four quarters. Any additional
capital distributions would require prior OTS approval. The OTS can prohibit a
proposed capital distribution if the OTS has determined that the association is
in need of more than normal supervision or if it determines that a proposed
distribution would constitute an unsafe or unsound practice. Furthermore, the
Bank would be prohibited from making any capital distribution if, after the
distribution, the Bank failed to meet its minimum capital requirements. See
"--Prompt Corrective Action."
The OTS has proposed to simplify its capital distribution rules. Under
the proposal, the approval of the OTS would be required only for capital
distributions by associations that are deemed to be in troubled condition or
that are undercapitalized or would be undercapitalized after the capital
distribution. If the proposal is adopted, the Bank, as a subsidiary of a savings
association holding company, would still be required to give the OTS notice of a
proposed capital distribution. See "--Prompt Corrective Action" for the
definition of undercapitalized.
Liquidity. The Bank must maintain an average daily balance of liquid
assets (cash, certain time deposits, bankers' acceptances, specified United
States Government, state or federal agency obligations, shares of certain mutual
funds and certain corporate debt securities and commercial paper) equal to a
monthly average of a percentage of its net withdrawable deposit accounts plus
short-term borrowings. The applicable percentage, currently 5%, may be changed
from time to time by the OTS within the range of 4% to 10% depending upon
economic conditions and the savings flows of member institutions. OTS
regulations also require each savings association (other than mutual savings
banks such as the Bank prior to the Conversion) to maintain an average daily
balance of short-term liquid assets at a percentage (currently 1%) of the total
of its net withdrawable deposit accounts and borrowings payable in one year or
less. Monetary penalties may be imposed for failure to meet these liquidity
requirements. These requirements did not apply to the Bank prior to becoming a
federal savings bank in March 1997. However, the Bank's liquidity and short term
liquidity ratios, at December 31, 1996, calculated in accordance with OTS
regulations, were 29.3% and 10.3%, respectively.
Assessments. Savings associations must pay assessments to the OTS to
fund the operations of the OTS. The general assessment, paid on a semi-annual
basis, is computed upon the savings association's total assets, including
consolidated subsidiaries. The Bank was not subject to the assessment prior to
January 1, 1997, because it was not a federal savings bank until March 18, 1997.
The Bank estimates that its pro forma annual assessment based upon assets at
December 31, 1996, would be approximately $42,000, compared to $21,600 paid to
the New York State Banking Department during calendar year 1996.
Branching. The Bank is permitted to open branches throughout New York
State. Subject to certain limitations, the Bank may also establish branches in
any state of the United States if either (a) the state expressly authorizes
branches of savings associations located in another state or (b) the Bank
satisfies certain requirements under
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the Internal Revenue Code of 1986 similar to those for a "qualified thrift
lender" under the HOLA. See "--QTL Test." This authority preempts any state law
purporting to regulate branching by federal savings associations. The Bank has
no present plans to open a branch outside New York State.
Community Reinvestment. Under the Community Reinvestment Act (the
"CRA"), a savings association must, consistent with its safe and sound
operation, help meet the credit needs of its entire community, including low and
moderate income neighborhoods. The CRA does not establish specific lending
requirements or programs for financial institutions nor does it limit an
institution's discretion to develop products and services that it believes are
best suited to its particular community. The OTS, in connection with its
examination of a savings association, must assess the association's record of
meeting the credit needs of its community and must take such record into account
in its evaluation of certain applications by such association. The CRA also
requires all institutions to make public disclosure of their CRA ratings. Prior
to becoming a federal savings bank, the Bank was subject to comparable CRA
regulations implemented by the FDIC and the Bank received a "Satisfactory" CRA
rating in its most recent FDIC examination.
In April 1995, the OTS and the other federal banking agencies amended
their CRA regulations. Among other things, the amended CRA regulations
substitute a new evaluation system that rates an institution based on its actual
performance in meeting community needs. In particular, the new system focuses on
three tests: (a) a lending test, to evaluate the institution's record of making
loans in its assessment areas; (b) an investment test, to evaluate the
institution's record of investing in community development projects, affordable
housing, and programs benefiting low or moderate income individuals and
businesses; and (c) a service test, to evaluate the institution's delivery of
services through its branches, ATMs and other offices. The amended CRA
regulations also clarify how an institution's CRA performance would be
considered in the application process. The Bank has not been examined for CRA
compliance under the amended regulations.
Transactions With Related Parties. The Bank's authority to engage in
transactions with its "affiliates" is limited by the OTS regulations and by
Sections 23A and 23B of the Federal Reserve Act (the "FRA"). In general, an
affiliate of the Bank is any company that controls the Bank or any other company
that is controlled by a company that controls the Bank, excluding the Bank's
subsidiaries other than those that are insured depository institutions. OTS
regulations prohibit a savings association (a) from lending to any of its
affiliates that is engaged in activities that are not permissible for bank
holding companies under Section 4(c) of the BHC Act and (b) from purchasing the
securities of any affiliate other than a subsidiary. Section 23A limits the
aggregate amount of transactions with any individual affiliate to 10% of the
capital and surplus of the savings association and also limits the aggregate
amount of transactions with all affiliates to 20% of the savings association's
capital and surplus. Extensions of credit to affiliates must be secured by
certain specified collateral, and the purchase of low quality assets from
affiliates is generally prohibited. Section 23B provides that certain
transactions with affiliates, including loans and asset purchases, must be on
terms and under circumstances, including credit standards, that are at least as
favorable to the association as those prevailing at the time for comparable
transactions with nonaffiliated companies. In the absence of comparable
transactions, such transactions may only occur under terms and circumstances,
including credit standards, that in good faith would be offered to or would
apply to nonaffiliated companies.
The Bank's authority to extend credit to its directors, executive
officers, and 10% stockholders, as well as to entities controlled by such
persons, is currently governed by the requirements of Sections 22(g) and 22(h)
of the Federal Reserve Act and Regulation O of the Federal Reserve Board. Among
other things, these provisions require that extensions of credit to insiders (a)
be made on terms that are substantially the same as, and follow credit
underwriting procedures that are not less stringent than, those prevailing for
comparable transactions with unaffiliated persons and that do not involve more
than the normal risk of repayment or present other unfavorable features and (b)
not exceed certain limitations on the amount of credit extended to such persons,
individually and in the aggregate, which limits are based, in part, on the
amount of the association's capital. In addition, extensions of credit in excess
of certain limits must be approved by the association's board of directors.
However, recent legislation permits the Bank to make loans to executive
officers, directors and principal shareholders ("insiders") on preferential
terms, provided the extension of credit is made pursuant to a benefit or
compensation program of the Bank that is widely available to employees of the
Bank or its affiliates and does not give preference to any insider over other
employees of the Bank or affiliate. The Bank has no such benefit or compensation
programs. It is the Bank's policy not to make loans to directors, officers and
employees.
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Enforcement. The OTS has primary enforcement responsibility over
savings associations and has the authority to bring enforcement action against
all "institution-affiliated parties," including any controlling stockholder or
any stockholder, attorney, appraiser or accountant who knowingly or recklessly
participates in any violation of applicable law or regulation or breach of
fiduciary duty or certain other wrongful actions that causes or is likely to
cause more than a minimal loss or other significant adverse effect on an insured
savings association. Civil penalties range from $5,000 for each day during which
violations of law, regulations, orders, and certain written agreements and
conditions continue, up to $1 million per day for such violations if the person
obtained a substantial pecuniary gain as a result of such violation or knowingly
or recklessly caused a substantial loss to the institution. Criminal penalties
for certain financial institution crimes include fines of up to $1 million and
imprisonment for up to 30 years. In addition, regulators may take enforcement
action against an institution that fails to comply with its regulatory
requirements. Possible enforcement actions range from the imposition of a
capital plan and capital directive to receivership, conservatorship, or the
termination of deposit insurance. The FDIC may recommend to the OTS that
enforcement action be taken with respect to a particular savings association. If
action is not taken by the Director of the OTS, the FDIC has authority to take
such action under certain circumstances.
Standards for Safety and Soundness. The OTS, together with the other
federal bank regulatory agencies, has prescribed guidelines, effective August 9,
1995, which establish minimal general standards relating to internal controls
and information systems, internal audit systems, loan documentation, credit
underwriting, interest rate exposure, asset growth, and compensation, fees and
benefits. In general, the guidelines require, among other things, appropriate
systems and practices to identify and manage the risks and exposures specified
in the guidelines. Effective October 1, 1996, these guidelines were expanded to
cover asset quality and earnings evaluation and monitoring as well. The
guidelines prohibit excessive compensation as an unsafe and unsound practice and
describe compensation as excessive when the amounts paid are unreasonable or
disproportionate to the services performed by an executive officer, employee,
director or principal stockholder. In addition, the OTS may order an institution
that has been given notice by the OTS that it is not satisfying any of such
safety and soundness standards to submit a compliance plan. If an institution
then fails to submit an acceptable plan or fails in any material respect to
implement an accepted compliance plan, the OTS must issue an order directing
action to correct the deficiency and may issue an order directing other actions
of the types to which an undercapitalized association is subject under the
"prompt corrective action" requirements described below. If an institution fails
to comply with such an order, the OTS may seek enforcement in judicial
proceedings and civil money penalties. The OTS and the federal bank regulatory
agencies also proposed guidelines for asset quality and earnings standards which
have not yet been adopted.
Prompt Corrective Action. Under federal law, the OTS is required to
take prompt action to correct deficiencies in undercapitalized savings
associations. A savings association is categorized as "well capitalized" or
"adequately capitalized" if its ratio of total capital to risk-weighted assets
is at least 10.0% or 8.0%, respectively, its ratio of core capital to
risk-weighted assets is at least 6.0% or 4.0%, respectively, its ratio of core
capital to total assets is at least 5.0% or 4.0% (3.0% if the institution has
the best supervisory rating), respectively, and it is not subject to any order
or directive by the OTS to meet a specific capital level. Savings associations
that do not meet these standards are classified as "undercapitalized." A savings
association with a total risk-based capital ratio of less than 6.0% or a core
capital ratio of less than 3.0% is considered to be "significantly
undercapitalized." A savings association with a tangible capital to assets ratio
of 2% or less is deemed to be "critically undercapitalized." See "--Capital
Requirements."
Dividends, other capital distributions or the payment of management
fees to any controlling person are prohibited if, following such distribution or
payment, an association would be undercapitalized. An undercapitalized
association must file a plan to restore its capital within 45 days after being
notified that it is undercapitalized. Undercapitalized, significantly
undercapitalized and critically undercapitalized institutions are subject to
increasing prohibitions on permitted activities, and increasing levels of
regulatory supervision, based upon the severity of their capital problems. The
OTS is required to monitor closely the condition of an undercapitalized
association. Enforcement action taken by the OTS can escalate to the appointment
of a conservator or receiver of a critically undercapitalized institution. When
appropriate, the OTS can also require corrective action by a savings association
holding company under the "prompt corrective action" requirements.
Based upon its existing capital ratios and regulatory classification,
the Bank qualifies as "well capitalized" and the OTS prompt corrective action
regulations are not expected to have a material effect on the Bank or the
Company.
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Insurance of Deposit Accounts. The Bank is a member of the BIF, and the
Bank pays its deposit insurance assessments to the BIF. The FDIC also maintains
another insurance fund, the SAIF, which primarily insures the deposits of
savings and loan associations and certain other federal savings banks.
Deposit insurance premiums payable to the FDIC are based upon a system
which categorizes insured institutions based upon their perceived risks to the
FDIC insurance fund. The FDIC assigns an institution to one of three capital
categories: (a) well capitalized, (b) adequately capitalized or (c)
undercapitalized. The FDIC also assigns an institution to one of three
supervisory categories based on an evaluation by the institution's primary
federal regulator and information that the FDIC considers relevant to the
institution's financial condition and the risk posed to the deposit insurance
funds. Deposit insurance premiums depend on an institution's capital and
supervisory categories.
During May 1995, the amount of the BIF reserve reached 1.25% of total
deposits insured by the BIF. As a result, the FDIC reduced BIF assessment rates.
The rate for "well capitalized" institutions without any significant supervisory
concerns, such as the Bank, was $2,000 per year beginning with the first half of
1996, and the rates for higher risk institutions range upwards to 0.27% of
deposits. In September 1996, the $2,000 minimum was abolished and the Bank now
pays no deposit insurance premium. If the Bank maintains its regulatory and
capital status and the BIF reserve does not fall below 1.25%, the Bank would
continue to pay no FDIC deposit insurance premiums under current law.
However, effective January 1, 1997, institutions with BIF-insured
deposits will be required to pay a share of the cost of the bonds (the "FICO
bonds") issued in the late 1980s by the Financing Corporation to recapitalize
the now defunct Federal Savings and Loan Insurance Corporation. Until December
31, 1999, or such earlier date on which the last savings association ceases to
exist, institutions with BIF-assessable deposits, such as the Bank, will be
subject to a FICO bond premium equal to one-fifth of the rate on SAIF-assessable
deposits. It has been estimated that the FICO bonds premium will be
approximately 1.3 basis points (1.3 cents per $100 of insured deposits) for
BIF-assessable deposits and approximately 6.5 basis points for SAIF-assessable
deposits.
FDIC insurance of deposits may be terminated by the FDIC upon a finding
that an institution has engaged in unsafe or unsound practices, is in an unsafe
or unsound condition or has violated any applicable law, regulation, rule, order
or condition imposed by the FDIC or the OTS. The management of the Bank does not
know of any practice, condition or violation that might lead to termination of
deposit insurance.
Federal Home Loan Bank System. The Bank is a member of the FHLBNY,
which is one of the regional Federal Home Loan Banks composing the Federal Home
Loan Bank System. Each Federal Home Loan Bank acts as a central credit facility
for its member institutions. At December 31, 1996, the Bank had $1.0 million of
advances (borrowings) from the FHLBNY. The Bank must own shares of capital stock
in the FHLBNY at least equal to the greater of 1% of the principal amount of its
unpaid residential mortgage loans and similar obligations at the beginning of
each year or 5% of its advances from the FHLBNY. At December 31, 1996, the Bank
held $599,000 of capital stock of the FHLBNY, which satisfied this requirement.
During the twelve months ended December 31, 1996, the FHLBNY paid a 6.47%
dividend on its capital stock. If the Bank materially increases its residential
mortgage loans, or obtains significant advances from the FHLBNY, the Bank would
be required to increase its investment in FHLBNY capital stock. Advances from
the FHLBNY must be secured by specified types of collateral, and all long-term
advances may be obtained only for the purpose of providing funds for residential
housing finance.
The Federal Home Loan Banks are required to provide funds for the
resolution of insolvent thrifts and to contribute funds for affordable housing
programs. These requirements could reduce the amount of earnings that the FHLBNY
can pay as dividends to its members and could also result in the FHLBNY imposing
a higher rate of interest on advances. Further, there can be no assurance that
the impact of current or future federal laws on the FHLBNY will not also cause a
decrease in the value of FHLBNY capital stock.
The Federal Reserve System. The Bank is required, under the regulations
of the Federal Reserve Board ("FRB"), to maintain non-interest-earning reserves
against its transaction accounts (primarily NOW and regular checking accounts).
Reserves must be maintained in the amount of 3% of the first $52.0 million of
transaction accounts.
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Transaction accounts in excess of $52.0 million are subject to a 10% reserve
requirement, which the FRB may adjust between 8% and 12%. The first $4.3 million
of transaction accounts are exempt from the reserve requirements, which
exemption is adjusted by the FRB at the end of each year. The Bank is in
compliance with these reserve requirements. Because required reserves must be
either vault cash or certain non-interest-bearing accounts, the reserve
requirement reduces interest-earning assets. The balances maintained to meet the
reserve requirements may be used to satisfy liquidity requirements imposed by
the OTS. Federal Home Loan Bank System members are also authorized to borrow
from the Federal Reserve "discount window," but FRB regulations require such
institutions to exhaust all Federal Home Loan Bank sources before borrowing from
a Federal Reserve Bank.
Holding Company Regulation.
The Company will be a unitary savings association holding company. As
such, the Company must 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
association subsidiaries, if any. Among other things, this authority permits the
OTS to restrict or prohibit activities that are determined to be a serious risk
to the financial safety, soundness, or stability of a subsidiary savings
association.
A savings association holding company may not, directly or indirectly,
or through one or more subsidiaries, acquire another savings association or
holding company thereof without prior written approval of the OTS; acquire or
retain, with certain exceptions, more than 5% of a savings association or
holding company that is not a subsidiary, a non-subsidiary holding company, or a
non-subsidiary company engaged in activities other than those permitted by the
HOLA; or acquire or retain control of a depository institution that is not
insured by the FDIC. In evaluating an application by a holding company to
acquire a savings association, the OTS must consider the financial and
managerial resources and future prospects of the company and savings association
involved, the effect of the acquisition on the risk to the insurance funds, the
convenience and needs of the community and competitive factors.
As a unitary savings association holding company, the Company generally
will not be restricted under existing laws as to the types of business
activities in which it may engage, provided that the Bank continues to satisfy
the QTL test. See "--Regulation of Federal Savings Associations--QTL Test" for a
discussion of the QTL requirements. If the Company acquires another savings
association as a separate subsidiary (except for certain supervisory
acquisitions of troubled institutions), the Company would become a multiple
savings association holding company and would be subject to limits on its
business activities. The activities of a multiple savings association holding
company and its non-insured association subsidiaries are limited primarily to
activities permissible for bank holding companies under Section 4(c)(8) of the
Bank Holding Company Act, subject to the prior approval of the OTS, and to other
activities authorized by OTS regulation.
A multiple savings association holding company may not acquire savings
associations in more than one state, except (a) in a supervisory transaction or
(b) if the laws of the state of the association to be acquired specifically
permit such acquisitions. The conditions imposed by the various states on
interstate acquisitions vary. The Company has no present plans to engage in the
acquisition of a savings association outside New York State.
Federal Securities Laws
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.
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 (a) 1% of the
outstanding shares of the Company or (b) the average weekly volume of trading in
such shares during the preceding
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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.
TAXATION
General
The following is a discussion of material tax matters and does not
purport to be a comprehensive description of the federal and state income tax
rules applicable to the Bank or the Company. For a discussion of the tax
consequences of the Conversion, see "The Conversion--Effects of Conversion on
Depositors and Borrowers -- Tax Effects."
Federal Taxation
General. The Bank is taxed for federal income tax purposes in
accordance with the Internal Revenue Code of 1986, as amended (the "Code"), in
substantially the same manner as all other business corporations, subject to
certain special provisions applicable to financial institutions. The Bank files
its federal tax returns on a calendar year basis. The Bank has not been audited
by the Internal Revenue Service ("IRS") during the last five years. For federal
income tax purposes, after the Conversion, the Company and the Bank may file
consolidated income tax returns and report their income on a calendar year basis
using the accrual method of accounting and will be subject to federal income
taxation in the same manner as other corporations, but generally subject, as to
the Bank, to the same special provisions applicable to financial institutions
filing tax returns on an unconsolidated basis.
Bad Debt Deduction. In 1996, the Internal Revenue Code (the "Code") was
amended, effective for tax years beginning in 1996, to change the method by
which the Bank may take tax deductions for bad debts. Under previous law, the
Bank was permitted, subject to the satisfaction of various standards and
requirements, to elect between a number of different methods for accounting for
its bad debts for tax purposes. One method, the percentage of taxable income
method, or PTI method, permitted the Bank to establish a reserve for bad debts
and make additions to the reserve based upon a percentage of its taxable income,
regardless of whether it actually experienced losses from bad debts equal to the
amount of the deduction. Additions to the bad debt reserve were deductible in
determining federal income tax. The PTI method has been abolished for tax years
beginning in 1996.
As a result of the abolition of the PTI method, the Bank will now be
required, for federal income tax purposes, to use the experience method in
determining its tax bad debt deduction, which method generally permits tax
deductions for bad debts based upon a six year moving average of actual loan
loss experience. Furthermore, the 1996 amendment to the Code provides that
institutions which had previously used the PTI method must recapture (i.e.,
treat as taxable income) a part of the institution's existing tax bad debt
reserve. For the Bank, the amount required to be recaptured is $207,000,
representing the excess of its tax bad debt reserve at December 31, 1995 over
the level of the reserve at December 31, 1987, referred to as the "excess
reserve." This amount must be recaptured over a period of from six to eight
years, beginning with calendar year 1996. However, in accordance with the
requirements of SFAS 109 regarding the establishment of deferred tax assets and
liabilities for financial statement purposes, the Bank had already established a
deferred tax liability representing the tax effect of the recapture of its
excess reserve. See Note 13 of Notes to Financial Statements. Therefore, the
recapture is not expected to have a material effect on the Bank's financial
condition or results of operations.
Distributions. If the Bank makes certain types of distributions
("non-dividend distributions") to the Company which are not in the nature of
dividends, such distributions will be considered to have been made first from
the Bank's unrecaptured tax bad debt reserves (including the balance of its
reserves as of December 31, 1987 which are not part of excess reserves). An
amount based on the non-dividend distribution will be included in the Bank's
income for tax purposes. Non-dividend distributions subject to this rule include
distributions in excess of the Bank's current and accumulated earnings and
profits, as calculated for federal income tax purposes, distributions in
redemption of stock, and distributions in partial or complete liquidation.
Dividends paid out of the Bank's current or accumulated earnings and profits are
not subject to this rule.
The amount of additional taxable income caused by a non-dividend
distribution is an amount that, when reduced by the tax attributable to the
income, is equal to the amount of the distribution. Thus, if, after the
Conversion,
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the Bank makes a non-dividend distribution to the Company, approximately one and
one-half times the amount of such non-dividend distribution would be includable
in income for federal income tax purposes, assuming a 34% federal corporate
income tax rate. The Company and the Bank do not anticipate that the Bank will
pay any non-dividend distributions to the Company after the Conversion. See
"Regulation" 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 tax bad debt reserves.
Corporate Alternative Minimum Tax. The Code imposes a tax ("AMT") on
alternative minimum taxable income ("AMTI") at a rate of 20%. Only 90% of AMTI
can be offset by net operating loss carryovers of which the Bank currently has
none. AMTI is also adjusted by determining the tax treatment of certain items in
a manner that negates the deferral of income resulting from the regular tax
treatment of those items. Thus, the Bank's AMTI is increased by an amount equal
to 75% of the amount by which the Bank's adjusted current earnings exceeds its
AMTI (determined without regard to this adjustment and prior to reduction for
net operating losses). The Bank does not expect to be subject to the AMT.
Dividends Received. The Company may exclude from its income 100% of
dividends received from the Bank as a member of the same affiliated group of
corporations. A 70% dividends received deduction generally applies with respect
to dividends received from domestic corporations that are not members of such
affiliated group, except that an 80% dividends received deduction applies if the
Company and the Bank own more than 20% of the stock of a corporation paying a
dividend. Under pending legislative proposals, the 70% dividends received
deduction would be reduced to 50% with respect to dividends paid after enactment
of such legislation.
New York State 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. In
addition, New York also imposed a tax surcharge at the rate of 2.5% on the
Bank's New York State Franchise Tax which surcharge expired at the end of 1996.
In 1996, New York tax laws were amended, after the PTI method was
abolished for federal income tax purposes, to retain the PTI method for
determining tax bad debt deductions for New York State income tax purposes for
certain qualifying thrift institutions, such as the Bank. As a result, provided
that the Bank continues to satisfy the qualification requirements under New York
law, the Bank will be permitted to continue to use the PTI method for
determining its state tax bad debt deduction. The amendment to New York law also
prevented the recapture of any excess reserve created for New York state tax
purposes. As a result of this provision, the Bank has reduced its deferred tax
liability for financial reporting purposes under SFAS 109 as it relates to the
tax bad debt reserve for state purposes. Therefore, during the three months
ended December 31, 1996, the Bank's income tax expense for financial reporting
purposes was reduced by $60,000 to recognize the reduction in the deferred tax
liability.
The Bank's state income tax returns have not been audited for at least
the past five years.
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.
The minimum tax is generally equal to $5,000 for each 1,000,000 shares of
authorized capital stock, regardless of whether such stock has been issued.
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<PAGE>
MANAGEMENT OF THE COMPANY
Directors and Executive Officers
The Board of Directors of the Company currently consists of seven
members, each of whom is also a director of the Bank. Each director of the
Company has served as such since the Company's incorporation in March 1997. The
Board of Directors of the Company is divided into three classes, each of which
contains approximately one-third of the Board. The directors are 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
directors Gengel and Guarino, has a term of office expiring at the first annual
meeting of stockholders; a second class, consisting of directors Durland and
Hopkins has a term of office expiring at the second annual meeting of
stockholders; and a third class, consisting of directors Kelsey, Mueller and
Lippincott, has a term of office expiring at the third annual meeting of
stockholders. See "Management of the Bank--Directors."
The executive officers of the Company are Mr. Clifford E. Kelsey, Jr.
President and Chief Executive Officer and Mr. Richard C. Durland, Executive Vice
President and Treasurer, who are directors of the Company, and Mr. Stephen W.
Dederick, Chief Financial Officer, Ms. Diane D. King, Senior Vice President and
Assistant Treasurer, and Ms. Jenny M. Ford, Vice President and Secretary. See
"Management of the Bank--Executive Officers." 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 or removal by the
Board of Directors. Information concerning the principal occupations, employment
and compensation of the directors and officers of the Company during the past
five years is set forth under "Management of the Bank--Biographical
Information."
Committees of The Company
The Company has established or plans to establish the following
committees of its Board of Directors:
The Compensation Committee. The Compensation Committee, consisting
of directors Kelsey, Mueller and Lippincott, will review and make
recommendations to the Board regarding compensation of the executive officers
and employees of the Company.
The Audit Committee. The Audit Committee, consisting of directors
Mueller, Gengel and Guarino, will meet periodically with the Company's
independent Certified Public Accountants to arrange for the Company's annual
financial statement audit and to review and evaluate recommendations made during
the annual audit. The Audit Committee will also review and approve the internal
auditing procedures of the Company.
The Stock Plans Committee. The Stock Plans Committee, not yet
established, will be responsible for administering and making grants or awards
under the Stock Option Plan and the ISAP. The Stock Plans Committee will also
oversee the Company's activities related to the ESOP.
No decision has been made as to whether a nominating committee will be
established or the procedure for submitting stockholder suggestions for
nominations. See "Restrictions on Acquisition of the Company and the
Bank--Restrictions in the Company's Certificate of Incorporation and
Bylaws--Certain Bylaw Provisions."
Directors' Compensation
It is anticipated that directors of the Company who are not employees
of the Company or the Bank or any of their subsidiaries shall receive an
attendance fee of $500 for each Board of Directors meeting and $300 for each
committee meeting, other than meetings which are joint or contemporaneous
meetings with the Board or Committees of the Bank, for which separate
compensation will not be paid. Directors will also be eligible for participation
in the Stock Option Plan and ISAP expected to be implemented by the Company. See
"Management of the Bank--Benefits--Stock Option Plan" and "--Incentive Stock
Award Plan."
Executive Compensation
Since the formation of the Company, none of the officers of the Company
have received remuneration from the Company. It is currently expected that,
unless and until the Company becomes actively involved in business activities
separate from those conducted by the Bank, no separate compensation will be paid
to the officers of the
77
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Company. However, the Company has entered into employment contracts with four of
its executive officers. See "Management of the Bank-Employment Contracts."
Decisions regarding the Company's executive compensation will be made by the
Company's Board of Directors, acting upon the recommendations of the
Compensation Committee. Executive Officers of the Company who are directors will
not vote on their own compensation.
Indemnification and Liability of Directors
The certificate of incorporation of the Company provides that a
director of the Company shall be indemnified by the Company to the fullest
extent authorized by the General Corporation Law of the State of Delaware
against all expenses, liability and loss reasonably incurred or suffered by such
person in connection with his or her activities as a director or officer of the
Company or as a director or officer of another company, if the director or
officer held such position at the request of the Company. Delaware law requires
that such director, officer, employee or agent, in order to be indemnified, must
have acted in good faith and in a manner reasonably believed to be not opposed
to the best interest of the Company and, with respect to any criminal action or
proceeding, did not have reasonable cause to believe his or her conduct was
unlawful.
The certificate of incorporation of the Company and Delaware law also
provide that the indemnification provisions of such certificate and the statute
are not exclusive of any other right which a person seeking indemnification may
have or later acquire under any statute, provision of the certificate of
incorporation or bylaws of the Company, agreement, vote of stockholders or
disinterested directors, or otherwise. The certificate of incorporation of the
Company also provides that a director shall not be personally liable to the
Company or its stockholders for monetary damages for breach of fiduciary duty as
a director except for breaches of duty of loyalty, acts or omissions in bad
faith or involving intentional misconduct or violation of law, liability for the
unlawful payment of dividends or unlawful stock purchase or receptions or
transactions where the director derives improper personal benefit.
These provisions may have the effect of deterring stockholder
derivative actions, since the Company may ultimately be responsible for expenses
for both parties to the action.
In addition, the certificate of incorporation of the Company and
Delaware law also provide that the Company may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
Company or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the Company
has the power to indemnify such person against such expense, liability or loss
under the Delaware General Corporation Law. The Company intends to obtain such
insurance.
MANAGEMENT OF THE BANK
Directors
The following table sets forth certain information regarding the Board
of Directors of the Bank. Ages are as of May 1, 1997. The service of directors
includes their service as trustees of the Bank prior to its conversion from a
state mutual savings bank to a federal mutual savings bank.
<TABLE>
<CAPTION>
Director Term
Name Age Position(s) Held with the Bank Since Expires
- ---- --- ------------------------------ ----- -------
<S> <C> <C> <C> <C>
Clifford E. Kelsey, Jr. 64 President & Chief Executive
Officer, Director 1973 2000
Richard C. Durland 53 Executive Vice President
& Treasurer, Director 1980 1999
Herbert C. Mueller 70 Director 1973 2000
Roy L. Lippincott 56 Director 1978 2000
Stephen O. Hopkins 58 Director 1980 1999
Gene J. Gengel 55 Director 1995 1998
Thomas V. Guarino 43 Director 1996 1998
</TABLE>
78
<PAGE>
Executive Officers
The following table sets forth certain information regarding the
executive officers of the Bank. Ages are as of May 1, 1997.
<TABLE>
<CAPTION>
Name Age Position(s) Held with the Bank
- ---- --- ------------------------------
<S> <C> <C>
Clifford E. Kelsey, Jr. 64 President, Chief Executive Officer and Director
Richard C. Durland 53 Executive Vice President, Treasurer and Director
Stephen W. Dederick 40 Chief Financial Officer
Diane D. King 47 Senior Vice President, Assistant Treasurer and Head Teller
Jenny M. Ford 48 Vice President and Secretary
</TABLE>
Each of the executive officers of the Bank is expected to retain his
and her office after the Conversion until the next annual meeting of the Board
of Directors of the Bank and their successors are elected and qualified or until
they are removed or replaced. Officers are re-elected by the Board of Directors
annually.
Biographical Information
The following biographical information is provided for the directors
and executive officers of the Bank. Professional background and employment
history are provided for at least the past five years.
Directors
CLIFFORD E. KELSEY, JR. serves as the President, Chief Executive
Officer and a director of the Bank. Mr. Kelsey has been involved in the
financial institutions industry for more than 30 years and has served as
President, Chief Executive Officer and director of the Bank since 1973. He also
has served as a director of the Institutional Investors Capital Appreciation
Fund, Inc. (an IIMF mutual fund), the Arden Hill Hospital, the Arden Hill Life
Care Center and the Arden Hill Life Care Retirement Community since 1994.
RICHARD C. DURLAND serves as the Executive Vice President, Treasurer
and a director of the Bank. Mr. Durland joined the Bank in 1970 and has served
as the Executive Vice President, Treasurer and a director since 1980. He is
presently the Treasurer of the Goshen Rotary Club.
HERBERT C. MUELLER has been a director of the Bank since 1973. Dr.
Mueller is a retired veterinarian, past owner of the Orange County Veterinary
Hospital and past president of the Hudson Valley Veterinary Association. He also
serves as the Treasurer and director of the Black Meadow Club, a local hunting
club. Dr. Mueller served in the 11th Airborne Division from 1946 to 1947.
ROY L. LIPPINCOTT has been a director of the Bank since 1978. Mr.
Lippincott is the President of Lippincott Funeral Chapel, Inc. in Goshen, New
York and of Lippincott Funeral Home Inc., in Chester, New York. From 1968 until
1996, Mr. Lippincott was President of Ralston Lippincott Hasbrouck Ingrasia
Funeral Home, Inc. located in Middletown, New York. Mr. Lippincott served as the
Orange County Coroner from 1971 until 1985.
STEPHEN O. HOPKINS has been a director of the Bank since 1980. Mr.
Hopkins has been the regional representative for the Sutphen Corporation and
S.V.I. Trucks since 1992, supplying fire and rescue apparatus to fire stations.
From 1981 to 1983, Mr. Hopkins served as the President of the Cataract Engine &
Hose Co. Mr. Hopkins presently serves on the Board of Directors for the Goshen
Historic Track and has served is this capacity since its inception. He has been
the Town Supervisor for the Town of Goshen since 1996. Mr. Hopkins served as the
Mayor of the Village of Goshen from 1983 until 1989 and as the Chief of the
Goshen Fire District from 1975 to 1978.
GENE J. GENGEL has been a director of the Bank since 1995. Mr. Gengel
is the Executive Director of the Orange County Cerebral Palsy Association
Rehabilitation Center, a position he has held since 1992. From 1971 to 1992, Mr.
Gengel held various
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<PAGE>
management positions, culminating in General Manager, of the Highland Telephone
Company. Mr. Gengel is a member of the Goshen Rotary Club and the Elks Club and
has served as the Chairperson of the Human Resource Committee of the New York
State Telephone Association.
THOMAS V. GUARINO has been a director of the Bank since 1996. Mr.
Guarino is the President and Senior Portfolio Manager of the Hudson Valley
Investment Advisors, Inc., an investment management and advisory company, since
1995. Prior to that, he had been a Vice President of Fleet Investment Advisors,
Inc., since 1988 and was Vice President in charge of investments of Norstar Bank
of the Hudson Valley from 1981 to 1988. Mr. Guarino was an Adjunct Assistant
Professor of finance for the Orange County Community College from 1983 until
1995. He has served as the past president of the Goshen Rotary Club, the
Mid-Hudson Chapter of the American Institute of Banking and the Hudson Valley
Estate Planning Council. Mr. Guarino also serves as a trustee of the Goshen
Rotary Scholarship Foundation, Inc.
Executive Officers Who Are Not Directors
STEPHEN W. DEDERICK joined the Bank in February 1997 as its Chief
Financial Officer. Prior to joining the Bank, he was the Vice President and
Controller of MSB Bank, where he also served on the Asset/Liability Committee
and the Investment Committee. Mr. Dederick joined MSB Bank in 1985. He is
active in scouting and is a member and past treasurer of the Pine Bush Lions
Club.
DIANE D. KING has served as the Bank's Senior Vice President and
Assistant Treasurer since January 1997. Ms. King has been with the Bank for 29
years and has served in various positions, including as the Bank's Head Teller
beginning in 1977, Assistant Treasurer since 1984 and Secretary from 1986
through 1996.
JENNY M. FORD has served as the Bank's Vice President and Secretary
since January 1997. Ms. Ford joined the Bank in 1972 and has served in various
capacities since that time including bookkeeper, administrative assistant and
Assistant Secretary.
Committees and Meetings of the Board of Directors of the Bank
The Board of Directors of the Bank meets on a monthly basis and may
have additional special meetings from time to time. During the fiscal year ended
September 30, 1996, the Board of Directors met 12 times. No current director
attended fewer than 75% of the total number of Board meetings and meeting of
committees of which such director was a member during fiscal 1996.
The Bank has established the following committees of its Board of
Directors:
The Executive and Finance Committee consists of Messrs. Kelsey,
Durland, Mueller, Hopkins and Lippincott. The Executive and Finance Committee
meets as necessary between meetings of the full Board of Directors and generally
has the full authority of the Board of Directors. The Executive and Finance
Committee did not meet during fiscal 1996.
The Examining Committee consists of Messrs. Mueller, Gengel and
Guarino. The Examining Committee meets periodically with the Bank's independent
Certified Public Accountants to arrange for the Bank's annual financial
statement audit and to review and evaluate recommendations made during the
annual audit. The Examining Committee also reviews the regulatory reports of
examination and reviews and approves the Bank's internal auditing procedures.
The Examining Committee met four times during fiscal 1996.
The Salary Committee consists of Messrs. Kelsey, Mueller and
Lippincott. The Salary Committee reviews and makes recommendations to the Board
regarding the compensation of the executive officers and employees of the Bank.
The Salary Committee met twice in fiscal 1996.
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<PAGE>
The Real Estate Appraisal Committee consists of Messrs. Mueller and
Lippincott. The members of the committee conduct drive-by re-appraisals of the
real estate collateral for existing loans. The Appraisal Committee met once in
fiscal 1996.
The Ad Hoc Loan Review Committee consists of two directors on a
rotating basis and meets as need to review mortgage loans approved by officers
of the Bank. The Ad Hoc Loan Review Committee met 31 times in fiscal 1996.
Directors' Compensation
Each director of the Bank who is not an employee of the Company or the
Bank or any of their subsidiaries, receives an attendance fee of $500 for each
Board of Directors meeting, $300 for each committee meeting and an appraisal fee
of $250 for a half day and $475 for a full day of collateral re-appraisals. The
aggregate amount of fees paid to all directors for the year ended September 30,
1996 was approximately $49,875. Directors may defer the receipt of their fees
until retirement or reaching a specified age. The deferrals are unfunded and
when due are paid either in a lump sum or installments. Interest accrues on the
deferred fees until paid. The deferral plan will also apply to fees earned by
directors of the Company. It is anticipated that directors will also receive
benefits under the Stock Option Plan and ISAP expected to be implemented by the
Company. See "--Benefits--Stock Option Plan" and "--Incentive Stock Award Plan."
Executive Compensation
Decisions regarding the Bank's executive compensation are made by the
Bank's Board of Directors, upon the recommendations made by the Salary
Committee. Executive officers of the Bank who are directors do not vote on their
own compensation.
The following table sets forth the cash compensation paid by the Bank
for services rendered in all capacities during the fiscal year ended September
30, 1996, to the Chief Executive Officer and all executive officers of the Bank
who received compensation in excess of $100,000 (the "Named Executive
Officers").
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Summary Compensation Table
- ---------------------------------------------------------------------------------------------------------------------
Annual Compensation (1)
----------------------------------------------------------------------------
Other Annual All Other
Name and Principal Position Year Salary($) Bonus($) Compensation($) Compensation
=====================================================================================================================
<S> <C> <C> <C> <C> <C>
Clifford E. Kelsey, Jr., President 1996 $123,610 $--- $--- 4,717
and Chief Executive Officer
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) In accordance with the transitional provisions applicable to the revised
rules on executive officer and director compensation disclosure adopted by the
SEC, as informally interpreted by the SEC's Staff, Summary Compensation
information is excluded for the fiscal years ended September 30, 1995 and 1994
because neither the Bank nor the Company were public companies during such
years. For 1996 there were no: (a) perquisites with an aggregate value in excess
of the lesser of $50,000 or 10% of the total of the individual's 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; or (d) preferential discounts
on stock. For 1996, the Bank had no restricted stock or stock related plans in
existence. All other compensation includes life insurance premiums of $1,023 and
matching contributions under the 401(k) plan of $3,694.
Transactions With Certain Related Persons
The directors and executive officers of the Bank maintain normal
deposit account relationships with the bank on terms and conditions no more
favorable than those available to the general public. The Bank does not make
loans to directors, officers and employees. If a lending relationship exists
when a person becomes a director or officer, the Bank makes arrangements to sell
such loans to another financial institution when the individual joins the Bank.
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<PAGE>
Mr. Kelsey is a member of the board of directors of the non-profit
elder care facility where the Bank maintains its recently-opened branch office.
Mr. Kelsey has no ownership interest in the facility. Mr. Kelsey is also a
member of the board of directors of IIMF, the mutual fund in which the Bank
invests. IIMF was established as a mutual fund to invest in securities in which
a savings bank is permitted to invest and the board of directors consists
principally of chief executive officers of savings institutions.
Employment Contracts
The Company and (subject to non-objection by the OTS) the Bank have
entered into employment agreements (the "Employment Contracts") with Mr. Kelsey,
Mr. Durland, Ms. King and Ms. Ford (each a "Senior Executive" and collectively
the "Senior Executives"). The Employment Contracts establish the respective
duties and compensation of each Senior Executive and 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
Senior Executives.
The Employment Contracts provide for three-year terms beginning on
April 1, 1997. Each of the Employment Contracts provide that, commencing on the
first anniversary date and continuing each anniversary date thereafter, the
Board of Directors may, provided that the Senior Executive does not object,
extend the applicable Employment Contract for an additional year, so that the
remaining term shall be three years, after conducting a performance evaluation
of the Senior Executive. The Employment Contracts provide that the Senior
Executive's base salary will be reviewed annually. It is anticipated that this
review will be performed by the Salary Committee of the Bank and the
Compensation Committee of the Company, and approved by non-employee members of
the Board. The base salary for Mr. Kelsey as of April 1, 1997 is $128,622, which
was his salary as set by the Board of Directors effective January 1, 1997. The
Employment Contracts also provide for, among other things, entitlement to
participation in such stock, retirement and welfare benefit plans as the Bank
may maintain from time to time. The Employment Contracts provide for termination
by the Bank or the Company at any time for cause as defined in the Employment
Contracts.
If the Bank or the Company terminates the Senior Executive's employment
for reasons other than for cause, or if the Senior Executive resigns from the
Bank and the Company for certain specified reasons, the Senior Executive would
be entitled to a lump sum cash payment in an amount equal to the sum of (a) the
present value of the remaining cash compensation (salary plus bonus at the
highest rate at which bonuses had been paid during the five year period prior to
such termination) due to the Senior Executive, (b) the additional contributions
or benefits that would have been earned under any employee benefit plans of the
Bank or the Company during the remaining term of the Employment Contract and (c)
payments that would have been made under any incentive compensation plan during
the remaining term of the Employment Contracts. If permitted by applicable law,
provision will also be made for the cash out of stock options, appreciation
rights or restricted stock as if the Senior Executive was fully vested. The Bank
and the Company would also continue the Senior Executive's life, health and any
disability insurance or other benefit plan coverage for specified periods.
Reasons specified as grounds for resignation for purposes of the Employment
Contracts include, in general, material breach by the Company or the Bank or
adverse change in salary or other compensation and benefits, function, title or
working conditions, or, in the event of a change in control (as defined in the
Employment Contracts), the failure to provide such stock-based compensation and
benefits as are at least as favorable as those usually and customarily provided
to similarly situated officers. In general, for purposes of the Employment
Contracts and the plans maintained by the Company or the Bank, a "change in
control" will generally be deemed to occur when a person or group of persons
acting in concert acquires beneficial ownership of 25% or more of any class of
equity security of the Company or the Bank, upon stockholder approval of a
merger or consolidation unless certain conditions are met, or a change of the
majority of the Board of Directors of the Company or the Bank or upon
liquidation or sale of substantially all the assets of the Company or the Bank.
Based on current compensation and benefit costs, cash payments to be made in the
event of a change in control of the Bank or the Company pursuant to the terms of
the Employment Contracts would approximately $460,000 payable to Mr. Kelsey and
$816,000 to the other three executive officers in the aggregate. However, the
actual amount that may be paid cannot be estimated at this time, because the
actual amount will be based on the compensation and benefit costs applicable to
these individuals and other factors existing at the time of the change in
control which cannot be determined at this time.
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<PAGE>
Payments to the Senior Executives under the Bank's Employment Contracts
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 Contracts would be made
by the Company. To the extent that payments under the Company's Employment
Contracts and the Bank's Employment Contracts are duplicative, payments due
under the Company's Employment Contracts would be offset by amounts actually
paid by the Bank. Senior Executives would be entitled to reimbursement of
certain costs incurred in interpreting or enforcing the Employment Contracts.
Cash and benefits paid to a Senior Executive under the Employment
Contracts together with payments under other benefit plans following a "change
in control" of the Bank or the Company may constitute an "excess parachute"
payment under Section 280G of the Code, resulting in the imposition of a 20%
excise tax on the recipient and the denial of the deduction for such excess
amounts to the Company and the Bank. The Company's Employment Contracts include
a provision indemnifying each Senior Executive on an after-tax basis for any
such excise taxes.
Employee Retention Agreements
Effective upon the Conversion, the Bank (subject to the non-objection
of the OTS) and the Company intend to enter into Retention Agreements with four
key employees (the "Other Officers"). The purpose of the Retention Agreements is
to secure the Other Officers' continued availability and attention to the Bank's
affairs, relieved of distractions arising from the possibility of a corporate
change in control. The Retention Agreements do not impose an immediate
obligation on the Bank to continue the Other Officers' employment but provide
for a period of assured employment ("Assurance Period") following a change in
control of the Bank or Company. The Retention Agreements provide for an initial
Assurance Period of three years commencing on the date of a change in control.
In general, the applicable Assurance Periods will be automatically extended on a
daily basis under the Retention Agreements until written notice of non-extension
is given by the Bank or the Other Officer, in which case an Assurance Period
would end on the third anniversary of the date such notice is given.
If, upon a change in control, or within 12 months of, and in connection
with, a change of control, an Other Officer is discharged without "cause" (as
defined in the Retention Agreements) or the Other Officer voluntarily resigns
within one year following a material adverse change in such employee's position,
duties, salary or due to a material breach of the Retention Agreement by the
Bank or Company, the Other Officer (or, in the event of such employee's death,
such employee's estate) would be entitled to a lump sum cash payment equal to
the present value of the remaining base salary due during the Assurance Period
plus any additional contributions and benefits that the Other Officer would have
earned under the Bank's or Company's employee benefit plans during the Assurance
Period. Each Other Officer's life, health and disability coverage would also be
continued during the Assurance Period. The total amount of termination benefits
payable to each Other Officer under the Retention Agreements is limited to three
times the Other Officer's average total compensation for the prior five calendar
years. Payments to the Other Officers under their respective Retention
Agreements will be guaranteed by the Company to the extent that the required
payments are not made by the Bank. Based on current compensation and benefit
costs applicable to the Other Officers expected to be covered by the Retention
Agreements, cash payments to be made in the event of a change in control of the
Bank or the Company would be approximately $533,000. However, the actual amount
that may be paid under the Retention Agreements in the event in a change of
control of the Bank or the Company cannot be estimated at this time because it
will be based on the compensation and benefit costs applicable to the Other
Officers and other factors existing at the time of the change in control which
cannot be determined at this time.
Benefits
Pension Plan. The Bank maintains a non-contributory, tax-qualified
defined benefit pension plan (the "Pension Plan") for eligible employees. All
employees and officers with more than 1,000 hours of service per year who have
attained age 21 and completed one year of service are eligible to participate in
the Pension Plan. The Pension Plan provides a benefit for each participant. The
annual benefit is equal to 2% of the participant's average annual compensation
multiplied by the participant's number of years of service. A participant is
entitled to a maximum of 30 years of service under the Pension Plan.
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<PAGE>
Average annual compensation is the average annual compensation for the
three years prior to retirement. A participant is fully vested in his or her
pension after five years of service. The Pension Plan is funded by the Bank on
an actuarial basis, and all assets are held in trust by the Pension Plan
trustee. The following table illustrates the annual benefit payable upon normal
retirement at age 65 in the normal form of benefit under the Pension Plan at
various levels of average annual compensation and years of service under the
Pension Plan. The amounts in the table are subject to social security benefit
offset allowance. For the plan year ended September 30, 1996, the maximum
permitted average annual compensation for determining pension benefits under the
Bank's Pension Plan was $150,000 and the maximum annual pension benefit was
$90,000.
<TABLE>
<CAPTION>
Pension Plan Table
-------------------------------------------------------------------------------
Years of Credited Service
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Remuneration 15 20 25 30
------------ ------ ------ ------ ------
$75,000 $22,500 $30,000 $37,500 $45,000
------- ------- ------- ------- -------
100,000 30,000 40,000 50,000 60,000
------- ------ ------ ------ ------
125,000 37,500 50,000 62,500 75,000
------- ------ ------ ------ ------
150,000 45,000 60,000 75,000 90,000
------- ------ ------ ------ ------
175,000 45,000 60,000 75,000 90,000
------- ------ ------ ------ ------
200,000 45,000 60,000 75,000 90,000
------- ------ ------ ------ ------
225,000 45,000 60,000 75,000 90,000
------- ------ ------ ------ ------
</TABLE>
At December 31, 1996, Mr. Kelsey had 30 years of credited service under
the Pension Plan and Mr. Durland had 26 years of credited service.
401(k) Plan. The Bank maintains a tax-qualified savings and profit
sharing plan under Section 401(k) of the Code (the "401(k) Plan"). Salaried
employees with at least one year of service may make pretax salary deferrals and
after tax contributions under the 401(k) Plan. Salary deferrals are made by
election and are limited to 10% of compensation up to $150,000 (for 1996), or to
a limit imposed under the Code ($9,500 for 1996). The Bank makes matching
contributions equal to 100% of the amount of salary contributions, up to 3% of
salary. Employees are fully vested in their salary deferrals and after tax
contributions, and become incrementally vested in the Bank's contribution after
one year and fully vested in the Bank's contributions after five years.
Employee Stock Ownership Plan. The Company has established, and the
Bank has adopted, an ESOP and related trust to become effective upon completion
of the Conversion. Substantially all employees of the Bank or the Company who
have attained age 21 and have completed one year of service are eligible to
become participants in the ESOP. The ESOP intends to purchase eight percent (8%)
of the Common Stock issued in the Conversion using the proceeds of the ESOP Loan
from the Company. Although contributions to the ESOP will be discretionary, the
Company and the Bank intend to make annual contributions to the ESOP in an
aggregate amount at least equal to the payments due under the ESOP Loan. It is
expected that this loan will be for a term of up to ten years, will bear
interest at the rate of 7.75% per annum and will call for level annual payments
of principal and interest designed to amortize the loan over its term. It is
anticipated that the loan will also permit optional pre-payment. The Company and
the Bank may contribute amounts to the ESOP in excess of the amounts necessary
to service the ESOP Loan.
Shares purchased by the ESOP will initially be pledged as collateral
for the ESOP Loan and will be allocated among participants in the ESOP 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, and any subsequently acquired shares that are
not pledged to secure a loan, will be allocated among ESOP participants on the
basis of the participant's total taxable compensation for the year of
allocation. Benefits generally become vested at the rate of 20% per year
beginning after the participant's first year of service, with 100% vesting after
five years of service.
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Employees will receive credit for service prior to the Conversion for vesting
purposes. Participants also become immediately vested upon termination of
employment due to death, retirement at age 65 or older, permanent disability or
upon the occurrence of a change of control. Forfeitures (shares allocated to an
employee which are not yet vested when such employee's employment terminates)
will be reallocated among remaining participating employees, in the same
proportion as contributions. Vested benefits may be paid in a single sum or
installment payments and are payable upon death, retirement at age 65 or older,
disability or termination of employment.
A corporate trustee for the ESOP not affiliated with the Bank or the
Company will be appointed prior to the Conversion and will continue thereafter.
The ESOP trustee, subject to its fiduciary duty, must vote all allocated shares
held in the ESOP and all allocated shares for which no instructions have been
received in accordance with the voting instructions received with respect to
allocated shares. Under the ESOP, shares not yet allocated to ESOP participants
will be voted generally in the same proportion as allocated shares for which
voting instructions are received.
The ESOP may purchase additional shares of Common Stock in the future,
in the open market or otherwise, and may do so either on with borrowed funds or
with cash dividends, periodic employer contributions or other cash flow.
Stock Option Plan. Following the Conversion, the Board of Directors of
the Company intends to adopt the Stock Option and Incentive Plan (the "Stock
Option Plan"). If implemented prior to the first anniversary of the Conversion,
OTS regulations require that the adoption of the Stock Option Plan be subject to
stockholder approval obtained at a meeting of stockholders to be held no earlier
than six months after the completion of the Conversion. An amount of shares of
Common Stock equal to 10% of the shares of Common Stock to be issued in the
Conversion is expected to be reserved for issuance under the Stock Option Plan.
No determinations have been made by the Board of Directors as to the specific
terms of the Stock Option Plan or the amount of awards thereunder. However, OTS
regulations provide that no individual officer or employee may receive more than
25% of the options granted and that non-employee directors may not receive more
than 5% individually or more than 30% in the aggregate of the options granted,
under option plans implemented within one year after the Conversion.
The purpose of the anticipated adoption of the Stock Option Plan will
be to attract and retain qualified personnel in key positions, provide
directors, officers and key employees with a proprietary interest in the Company
as an incentive to contribute to the success of the Company and its subsidiaries
and reward directors, officers and key employees for outstanding performance.
Although the terms of the Stock Option Plan have not yet been determined, it is
expected that the Stock Option Plan will provide for the grant of: (i) options
to purchase the Company's Common Stock intended to qualify as incentive stock
options under Section 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 of control of the
Bank or the Company. Unless sooner terminated, the Stock Option Plan is expected
to be in effect for a period of 10 years. All options granted to non-employee
directors will be Non-Statutory Stock Options. If implemented, the Company
currently intends to grant to President and Chief Executive Officer Clifford E.
Kelsey, Jr., the maximum number of options so permitted (options for from 36,125
to 56,206 shares at the minimum and 15% above the maximum of the Valuation
Range) and also to grant to each non-employee director (five persons) the
maximum permitted number of options (options for from 7,225 to 11,241 shares at
the minimum and 15% above the maximum of the Valuation Range, respectively).
However, a final determination of the amount of options to be granted to such
persons has not been made. No determination regarding the amount of options
which may be granted to other officers and employees of the Bank has been made
and such determination is not currently expected to be made until just prior to
the solicitation of proxies for the anticipated stockholders' meeting at which
the Stock Option Plan is expected to be presented for approval.
The Stock Option Plan will be administered by a Committee of the Board
of Directors (the "Stock Plans Committee"), and such committee will determine
which officers and employees will be granted options and Limited Rights, whether
such options will be Incentive Stock Options 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 Stock Option Plan will permit options to be granted for terms
of up to 10 years (5 years in the case of Incentive Stock Options granted to
employees who are 10% stockholders) and at exercise prices no less than the fair
market value at date of
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grant (110% of fair market value in the case of Incentive Stock Options granted
to employees who are 10% stockholders).
The Stock Option Plan is expected to provide for the exercisability and
vesting of options granted thereunder in the manner specified by the Stock Plans
Committee. OTS regulations generally require that options granted under plans
implemented within one year after the Conversion begin vesting no earlier than
one year from the date of stockholder approval of the plan and thereafter vest
at a rate of no more than 20% per year. It is also expected that, in the event
of death or disability, grants would be 100% vested, and options would
terminate upon or within a fixed period after termination of employment of an
officer or employee, or upon termination of service as a director.
It is anticipated that the Stock Option Plan, to the extent permitted
by OTS regulations, and subject to applicable OTS vesting requirements, will
also provide for Limited Rights which, upon a change of control, will allow the
holder to exercise such Limited Rights and thereby 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.
An employee will not be deemed to have received taxable income upon
grant or exercise of any Incentive Stock Option; unless shares received through
the exercise of such option are disposed of within one year after the date the
stock is received in connection with the option exercise or within two years
after the date of grant of the option. No compensation deduction may 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 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 may be a
deductible expense for tax purposes for the Company. In the case of Limited
Rights, upon exercise, the option holder would be required to include the amount
paid to him or her upon exercise in his or her gross income for federal income
tax purposes in the year in which the payment is made and the Company may be
entitled to a deduction for federal income tax purposes of the amount paid.
Incentive Stock Award Plan (the "ISAP"). Following the Conversion, the
Company also intends to establish the Incentive Stock Award Plan 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 and the Company at no cost to the
recipients of such awards. The ISAP will provide for the award of shares of
Common Stock ("ISAP Shares"), the full ownership of which will gradually vest in
the person to whom the shares are awarded over a five year period. If
implemented prior to the first anniversary of the Conversion, OTS regulations
require that the adoption of the ISAP and awards thereunder be subject to
stockholder approval obtained at a meeting of stockholders held no earlier than
six months after the completion of the Conversion.
If the ISAP is implemented, the Company expects to make available
Common Stock in an amount up to 4% of the shares of Common Stock issued in the
Conversion to fund awards under the ISAP. These shares be acquired through open
market purchases, if permitted, or from authorized but unissued shares. No
determinations have been made as to the specific terms of the ISAP or the amount
of awards thereunder. Although no specific award determinations have been made,
the Company anticipates that, if the ISAP is implemented, the Company will
provide awards to eligible officers, employees and directors to the extent
permitted by applicable regulations. Current OTS regulations provide that no
individual employee may receive more than 25% of the shares of any plan and that
non-employee directors may not receive more than 5% of the shares individually
or 30% in the aggregate for all directors, in the case of plans implemented
within one year following the Conversion. If implemented, the Company currently
intends to award to President and Chief Executive Officer Clifford E. Kelsey,
Jr., the maximum number of shares so permitted (from 14,450 to 22,482 shares at
the minimum and 15% above the maximum of the Valuation Range) and also to award
to each non-employee director (five persons) the maximum permitted (from 2,890
to 4,496 shares at the minimum and 15% above the maximum of the Valuation Range,
respectively). Based upon the $10.00 Purchase Price, the aggregate market value
of the restricted stock intended to be awarded under the ISAP to Mr. Kelsey and
the five
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non-employee directors is from $289,000 to $449,620 at the minimum and 15% above
the maximum of the Valuation Range, respectively. However, a final determination
of the amount of shares to be awarded to such persons has not been made. No
determination regarding the amount of awards which may be made to other officers
and employees of the Bank has been made and such determination is not currently
expected to be made until just prior to the solicitation of proxies for the
anticipated stockholders' meeting at which the ISAP is expected to be presented
for approval.
Any ISAP adopted shall be administered by the Stock Plans Committee.
Awards of ISAP Shares to non-employee directors are expected to be
self-executing. The ISAP is expected to provide for the vesting of awards
granted thereunder in the manner specified by the Stock Plans Committee and
consistent with OTS regulations, which currently require that awards under plans
implemented within one year following the Conversion begin vesting no earlier
than one year from the date of stockholder approval and thereafter vest at a
rate of no more than 20% per year. It is also expected that, in the event of
death or disability, grants would be 100% vested upon termination of employment
of an officer or employee, or upon termination of service as a director.
When ISAP Shares become vested in accordance with the ISAP, the
participants will recognize income equal to the fair market value of the Common
Stock at that time. The amount of income recognized by the participants may be a
deductible expense for tax purposes for the Company. For financial reporting
purposes, the Company will record compensation expense on account of the ISAP
during the periods in which awards vest in an amount equal to the fair market
value of the stock on the date of vesting. If the fair market value on that date
is greater than the Purchase Price in the Offerings, compensation expense will
increase correspondingly. Prior to vesting, dividends paid by the Company on any
ISAP Shares will be held pending the vesting of the shares on which the
dividends were paid. The participants will receive payment of such dividends as
and when ISAP Shares vest. Subject to limitations which may be imposed by the
OTS, persons awarded shares under the ISAP will be permitted to vote those
shares prior to the vesting of the shares.
If authorized but unissued shares are used to fund the ISAP after the
Conversion, the interests of existing stockholders will be diluted. See "Pro
Forma Data."
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THE CONVERSION
The Board of Directors of the Bank and the OTS have approved the Plan
of Conversion. OTS approval does not constitute a recommendation or endorsement
of the Plan of Conversion. Certain terms used in the following summary of the
pertinent aspects of the Conversion are defined in the Plan of Conversion, a
copy of which may be obtained from the Bank.
General
On February 6, 1997 the Board of Directors of the Bank adopted the
Plan, pursuant to which the Bank would be converted from a federally chartered
mutual savings bank to a federally chartered stock savings bank, with the
concurrent formation of the Company. It is currently intended that all of the
capital stock of the Bank will be held by the Company. The OTS has approved the
Plan subject to its approval by the members of the Bank entitled to vote at the
Special Meeting to be held on June _____, 1997 and subject to the satisfaction
of certain other conditions imposed by the OTS in its approval.
The OTS has approved the Company's application to become a savings and
loan holding company and to acquire all of the Common Stock of the Bank, which
will become a wholly owned subsidiary of the Company. Pursuant to such OTS
approval, 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 issued and
outstanding capital stock of the Bank.
The Conversion will be accomplished through adoption of the proposed
federal stock charter which will authorize the issuance of capital stock by the
Bank. The Conversion will be accounted for as a pooling of interests. Under the
Plan, the Common Stock is being offered for sale by the Company. As part of the
Conversion, the Company is conducting a Subscription Offering of the Common
Stock for holders of subscription rights. Subscription rights have been granted
to Eligible Account Holders (depositors on December 31, 1995), the Tax-Qualified
Employee Benefit Plans of the Bank or the Company, Supplemental Eligible Account
Holders (depositors on March 31, 1997, who are not Eligible Account Holders) and
Other Members (depositors of the Bank on __________, 1997). Depending upon
market conditions at or near the completion of the Subscription Offering, the
Company may also conduct a Public Offering through Capital Resources. The Plan
also allows the Bank to conduct a Community Offering with preference given to
natural person rending in Orange County, New York. The Plan provides that the
Conversion must be completed within 24 months after the date of the approval of
the Plan by the depositors of the Bank. See "--Risk of Delayed Offering."
Reasons for the Conversion
The Bank has several business purposes for the Conversion. The sale of
the Company's Common Stock will provide the Bank with additional equity capital
to support its existing operations, subject to applicable regulatory
restrictions. At December 31, 1996, the Bank had core and tangible capital equal
to 12.30% of applicable assets and risk-based capital equal to 21.85% of
risk-weighted assets. See "Regulatory Capital Compliance" for discussion of the
pro forma effects of the Offering on the Bank's capital ratios. The sale of the
Common Stock is the most effective means of increasing the Bank's permanent
capital and does not involve the high interest cost and repayment obligation of
subordinated debt. In addition, investment of the net proceeds of the sale of
Common Stock is expected to provide additional operating income to further
increase the Bank's capital on a continuing basis.
The Conversion will structure the Bank in the stock form used in the
United States by all commercial banks, most major business corporations and the
majority of savings institutions. The Conversion will give many of the Bank's
depositors the opportunity to become stockholders of the Company, thereby
allowing them to own stock in the financial organization in which they maintain
deposit accounts. Such ownership should encourage depositors who become
stockholders to promote the Bank to others, thereby further contributing to the
Bank's earnings potential. The Bank also expects that the ESOP, the Stock Option
Plan and the ISAP will assist it in attracting and retaining qualified personnel
and successfully competing with other financial institutions in its principal
market area. If the Stock Option Plan and the ISAP which the Board of Directors
of the Company intends to adopt are implemented within one year after the
Conversion, which is presently intended, then such plans must first be approved
at a meeting of the Company's stockholders to be held no earlier than six months
after the Conversion. See "Management of the Bank-Benefit Plans--Stock Option
Plan" and "-Incentive Stock Award Plan."
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The Board of Directors of the Bank believes that the holding company
structure will facilitate the diversification of the Bank's business activities
and the acquisition of other savings institutions as well as other companies.
The holding company structure will enable an acquired savings institution to
operate on a more autonomous basis as a wholly-owned subsidiary of the Company,
rather than as a division of the Bank. For example, the acquired savings
institution could retain its own directors, officers and corporate name as well
as have representation on the Board of Directors of the Company. As of the date
hereof, the Company has no plans or understandings to acquire any other
institution or engage in any activities other than holding the Bank's stock.
Effects of Conversion on Depositors and Borrowers
Voting Rights. Upon Conversion, the Bank's depositors will have no
voting rights in the Bank and will therefore not be able to elect directors or
to otherwise participate in the conduct of the affairs of the Bank or the
Company unless they own Common Stock. Currently, these rights are accorded to
the Bank's depositors. Following the Conversion, the Bank will become a
wholly-owned subsidiary of the Company, which will hold all voting rights in the
Bank. Voting rights in the Company will be held exclusively by the Company's
stockholders. Stockholders will be entitled to vote on any matter to be
considered by the stockholders of the Company and will generally be entitled to
one vote for each share of the Common Stock owned. See "Restrictions on
Acquisition of the Company and the Bank-Restrictions in the Company's
Certificate of Incorporation and Bylaws-Limitations on Voting Rights" for a
discussion of limitations applicable to the voting rights of the Company's
stockholders.
Deposit Accounts and Loans. The Bank's deposit accounts, balances of
the individual accounts, and the existing FDIC insurance coverage of deposit
accounts will not be affected by the Conversion. Furthermore, the Conversion
will not affect the loan accounts, the balances owed, or the obligations of the
borrowers under their individual contractual arrangements with the Bank.
Tax Effects. The Bank has received an opinion from its counsel, Serchuk
& Zelermyer, LLP, covering those tax matters that are material to the Conversion
and stating that the Conversion will constitute a nontaxable reorganization
under Section 368(a)(1)(F) of the Code. Among other things, the opinion, filed
as an exhibit to the registration statement of which this prospectus is a part,
provides that: (i) the Conversion will qualify as a reorganization under Section
368(a)(1)(F) of the Code, and no gain or loss will be recognized by the Bank in
either its mutual form or its stock form, or by the Company, by reason of the
proposed Conversion; (ii) no gain or loss will be recognized by the Bank upon
the receipt of money from the Company for stock of the Bank, and no gain or loss
will be recognized by the Company upon the receipt of money for the Common
Stock; (iii) the assets of the Bank in either its mutual or its stock form will
have the same basis before and after the Conversion; (iv) the holding period of
the assets of the Bank will include the period during which the assets were held
by the Bank in its mutual form prior to the Conversion; (v) no gain or loss will
be recognized by the Eligible Account Holders, Supplemental Eligible Account
Holders, and Other Members upon the issuance to them of withdrawable deposit
accounts in the Bank after the Conversion in the same dollar amount as their
savings accounts in the Bank plus an interest in the liquidation account of the
Bank after the Conversion in exchange for their savings accounts in the Bank
prior to the Conversion; (vi) the receipt by Eligible Account Holders,
Supplemental Eligible Account Holders, and Other Members of nontransferable
subscription rights to purchase shares of the Common Stock under the Plan is
taxable to Eligible Account Holders, Supplemental Eligible Account Holders, and
Other Members to the extent the subscription rights have value; (vii) the basis
of each account holder's savings accounts in the Bank after the Conversion will
be the same as the basis of his or her savings accounts in the Bank prior to the
Conversion, decreased by the fair market value of the non-transferable
subscription rights received and increased by the amount, if any, of gain
recognized on the exchange; (viii) the basis of each account holder's interest
in the liquidation account will be zero; (ix) the holding period of the Common
Stock acquired through the exercise of subscription rights shall begin on the
date on which the subscription rights are exercised; (x) the Bank in its stock
form will succeed to and take into account the earnings and profits or deficit
in earnings and profits of the Bank, in its mutual form, as of the date of
Conversion; (xi) the Bank, immediately after Conversion, will succeed to the bad
debt reserve accounts of the Bank, in its mutual form, and the bad debt reserves
will have the same character in the hands of the Bank after Conversion as if no
distribution or transfer had occurred; and (xii) the creation of the liquidation
account will have no effect on the Bank's taxable income, deductions, or
addition to reserve for bad debts either in its mutual or stock form.
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The opinion of Serchuk & Zelermyer, LLP is based in part on the
assumption that the exercise price of the subscription rights to purchase Common
Stock will be approximately equal to the fair market value of that stock at the
time of the completion of the proposed Conversion. With respect to the
subscription rights, the Bank has received an opinion of CRG, which, based on
certain assumptions, concludes that the subscription rights to be received by
Eligible Account Holders, Supplemental Eligible Account Holders, and Other
Members do not have any economic value at the time of distribution or at the
time the subscription rights are exercised, whether or not a Public Offering or
other purchase arrangement takes place. Such opinion is based on the fact that
such rights are: (i) acquired by the recipients without payment therefor, (ii)
non-transferable, (iii) of short duration, and (iv) afford the recipients the
right only to purchase Common Stock at a price equal to its estimated fair
market value, which will be the same price at which shares of Common Stock for
which no subscription right is received in the Subscription Offering may be
offered in the Public Offering. If the subscription rights granted to Eligible
Account Holders, Supplemental Eligible Account Holders, or Other Members are
deemed to have an ascertainable value, receipt of such rights would be taxable
probably only to those Eligible Account Holders, Supplemental Eligible Account
Holders, or Other Members who exercise the subscription rights in an amount
equal to such value (either as a capital gain or ordinary income), and the Bank
could recognize gain on the distribution of subscription rights.
The Bank is subject to New York taxation and has received the opinion
of Serchuk & Zelermyer, LLP that the Conversion will be treated for New York
state tax purposes similar to the Conversion's treatment for federal tax
purposes.
Unlike a private letter ruling, the opinions of Serchuk & Zelermyer,
LLP and CRG have no binding effect or official status, and no assurance can be
given that the conclusions reached in any of those opinions would be sustained
by a court if contested by the IRS or the New York tax authorities. Eligible
Account Holders, Supplemental Eligible Account Holders, and Other Members are
encouraged to consult with their own tax advisers as to the tax consequences in
the event the subscription rights are deemed to have an ascertainable value.
Liquidation Rights. The Bank has no plans to liquidate. However, if
there is ever a complete liquidation of the Bank, either before or after the
Conversion, deposit account holders will receive the protection of FDIC
insurance up to applicable limits. Additional liquidation rights before and
after the Conversion are described below.
In the event of a complete liquidation prior to the Conversion, each
holder of a deposit account in the Bank in its present mutual form would receive
his or her pro rata share of any assets of the Bank remaining after payment of
claims of all creditors (including the claims of all depositors in the amount of
the withdrawal value of their accounts). Such holder's pro rata share of
remaining assets, if any, would be in the same proportion of such assets as the
balance in his or her deposit account was to the aggregate balance in all
deposit accounts in the Bank at the time of liquidation.
After the Conversion, each deposit account holder, in the event of a
complete liquidation, would have a claim of the same general priority as the
claims of all other general creditors of the Bank. Therefore, except as
described below, the deposit account holder's claim would be solely in the
amount of the balance in his or her deposit account plus accrued interest. The
holder would have no interest in the value of the Bank above that amount.
The Plan of Conversion provides that there shall be established, upon
the completion of the Conversion, a "liquidation account" for the benefit of
Eligible Account Holders and Supplemental Eligible Account Holders in an amount
equal to the net worth of the Bank as of the latest practicable date prior to
the Conversion. Each Eligible Account Holder and Supplemental Eligible Account
Holder will have an initial interest in such liquidation account for each
deposit account held in the Bank on the applicable record date. An Eligible
Account Holder's and Supplemental Eligible Account Holder's interest as to each
deposit account will be in the same proportion to the total liquidation account
as the balance in his or her account on the Eligibility Record Date (December
31, 1995) and the Supplemental Eligibility Record Date (March 31, 1997),
respectively, was to the aggregate balance in all deposit accounts of Eligible
Account Holders and Supplemental Eligible Account Holders on such date. However,
if the amount in any Eligible Account Holder's or Supplemental Eligible Account
Holder's deposit account at the close of business on any annual closing date of
the Bank is less than the lowest amount in such account on the Eligibility
Record Date and/or the Supplemental Eligibility Record Date, as the case may be
or at the close of business on any previous annual closing date after the
Eligibility Record Date and/or the Supplemental Eligibility Record Date, then
the account holder's
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interest in the liquidation account will be reduced by an amount proportionate
to any such reduction. The interest of an account holder in the liquidation
account will never increase despite any increase in the balance of the account
holder's related accounts after the Conversion. The account holder's interest
will cease to exist if such deposit account is closed. Certificates of deposit
will be deemed closed when they mature.
Any assets remaining after the above liquidation rights of Eligible
Account Holders and Supplemental Eligible Account Holders are satisfied would be
distributed to the Company as the sole stockholder of the Bank.
No merger, consolidation, purchase of bulk assets with assumption of
deposit accounts and other liabilities, or similar transaction, whether the
Bank, as converted, or another insured savings institution is the surviving
institution, is deemed to be a complete liquidation for purposes of distribution
of the liquidation account and, in any such transaction, the liquidation account
would be assumed to the full extent required by regulations of the OTS as then
in effect.
Subscription Offering.
In accordance with OTS regulations, nontransferable Subscription Rights
have been granted under the Plan to the following persons and entities in the
following order of priority: (i) Eligible Account Holders; (ii) Employee Plans;
(iii) Supplemental Eligible Account Holders; and (iv) Other Members. 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, and to the maximum and minimum purchase limitations set
forth in the Plan. The subscription priority categories are more fully described
below.
First Priority: Eligible Account Holders. Each Eligible Account Holder
(depositors of the Bank on December 31, 1995) will receive non-transferable
subscription rights on a priority basis to purchase that number of shares of
Common Stock which is equal to the greater of (i) 15,000 shares ($150,000), (ii)
one-tenth of one percent (0.10%) of the total offering, or (iii) 15 times the
product (rounded down to the next whole number) obtained by multiplying the
total number of shares of Common Stock to be issued by a fraction of which the
numerator is the amount of the qualifying deposit of the Eligible Account Holder
and the denominator is the total amount of qualifying deposits of all Eligible
Account Holders, subject to the $150,000 maximum and 25 share minimum purchase
limitations specified in the Plan. If Eligible Account Holders exercise
subscription rights for more shares of Common Stock than the total number of
shares available, shares of Common Stock shall be allocated to permit each
subscribing Eligible Account Holder, to the extent possible, to purchase 100
shares of Common Stock or the total amount of his or her subscription, whichever
is less. Any shares of Common Stock not so allocated shall be allocated among
the subscribing Eligible Account Holders on an equitable basis, in the
proportion that the amounts of their respective qualifying deposits bear to the
total qualifying deposits of all subscribing Eligible Account Holders. If the
amount so allocated exceeds the amount subscribed for by any one or more
Eligible Account Holders, the excess shall be reallocated (one or more times as
necessary) among those Eligible Account Holders whose subscriptions are still
not fully satisfied on the same principle until all available shares have been
allocated or all subscriptions satisfied. Subscription rights received by
officers and directors in this category based on their increased deposits in the
Bank in the one-year period preceding December 31, 1995, are subordinated to the
subscription rights of other Eligible Account Holders.
Second Priority: Employee Plans. Tax-qualified employee benefit plans
of the Bank or the Company have been granted subscription rights to purchase up
to 10% of the total shares issued in the Conversion. The ESOP is an Employee
Plan and intends to purchase up to 8% of the Common Stork issued in the
Conversion.
The right of Employee Plans to purchase the Common Stock is subordinate
to the right of the Eligible Account Holders to purchase the Common Stock.
However, if the maximum of the Valuation Range is increased by up to 15%, the
Employee Plans have a first priority right to fill their subscription out of any
additional shares sold as a result of such increase. The Employee Plans may,
however, determine to purchase some or all of the shares covered by their
subscriptions after the Conversion in the open market or, if approved by the
OTS, out of authorized but unissued shares.
Third Priority: Supplemental Eligible Account Holders. Each
Supplemental Eligible Account Holder (depositors of the Bank on March 31, 1997
who are not Eligible Account Holders) will receive non-transferable
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subscription rights to purchase that number of shares of Common Stock which is
equal to the greater of 15,000 shares ($150,000) sold in the Conversion, one
tenth of one percent (0.10%) of the total offering, or 15 times the product
(rounded down to the next whole number) obtained by multiplying the total number
of shares of Common Stock to be issued by a fraction of which the numerator is
the amount of the qualifying deposit of the Supplemental Eligible Account Holder
and the denominator is the total amount of qualifying deposits of all
Supplemental Eligible Account Holders subject to the $150,000 maximum and 25
share minimum purchase limitations specified in the Plan. If Supplemental
Eligible Account Holders exercise subscription rights for more shares of Common
Stock than the total number of shares remaining after satisfying higher priority
subscription rights, shares of Common Stock shall be allocated to permit each
subscribing Supplemental Eligible Account Holder, to the extent possible, to
purchase a number of shares of Common Stock sufficient to make his or her total
allocation equal to 100 shares of Common Stock or the total amount of his or her
subscription, whichever is less. Any shares of Common Stock not so allocated
shall be allocated among the subscribing Supplemental Eligible Account Holders
on an equitable basis, related to the amounts of their respective qualifying
deposits as compared to the total qualifying deposits of all subscribing
Supplemental Eligible Account Holders.
The rights of Supplemental Eligible Account Holders to subscribe for
the Common Stock are subordinate to the rights of the Eligible Account Holders
and Employee Plans to subscribe for the Common Stock.
Fourth Priority: Other Members. Other Members (depositors who are
entitled to vote at the Special Meeting who are not Eligible Account Holders or
Supplemental Eligible Account Holders) will receive non-transferable
subscription rights to purchase up to the greater of 15,000 shares ($150,000),
or one tenth of one percent (0.10%) of the total offering, subject to the
$150,000 maximum and 25 share minimum purchase limitations specified in the Plan
to the extent such stock is available following subscriptions by Eligible
Account Holders, Employee Plans, and Supplemental Eligible Account Holders. If
the allocation made pursuant to this paragraph results in an oversubscription
when added to the shares of Common Stock subscribed for by the Eligible Account
Holders, the Employee Plans, and the Supplemental Account Holders, the shares
available will be allocated among the subscribing Other Members so as to permit
each subscribing Other Member, to the extent possible, to purchase a number of
shares of Common Stock sufficient to make his or her total allocation equal to
100 shares of Common Stock or the total number of shares covered by the
subscription of the Other Member. Any remaining shares will be allocated among
the subscribing Other Members whose subscriptions remain unsatisfied on a 100
shares (or whatever lesser amount is available) per order basis until all orders
have been filled or the remaining shares have been allocated.
Subscription Offering Expiration Date. The Subscription Offering will
expire at 5:00 p.m., Eastern Time, on June ____, 1997, unless the Subscription
Offering is extended, at the discretion of the Board of Directors, up to an
additional 45 days with the approval of the OTS, if necessary, but without
additional notice to subscribers (the "Subscription Offering Expiration Date").
Subscription rights will become void if not exercised on or prior to the
Subscription Offering Expiration Date. See "Purchasing Common Stock" for a
description of how to subscribe for Common Stock.
Public Offering
To the extent that shares remain available, and subject to market
conditions at or near the completion of the Subscription Offering, the Company
may offer shares of Common Stock pursuant to the Plan, to selected persons in a
Public Offering on a best-efforts basis through Capital Resources in such a
manner as to promote a wide distribution of the Common Stock. Orders received in
connection with the Public Offering, if held, will receive a lower priority than
orders properly made in the Subscription Offering by persons exercising
subscription rights. Common Stock sold in the Public Offering will be sold at
$10.00 per share, the same price as all other shares sold in the Conversion.
Depending on market conditions, Capital Resources may utilize selected
broker-dealers for the sale of Common Stock in the Public Offering. If selected
broker-dealers are used, the Bank will pay the selling commissions of such
selected broker-dealers and the fee payable to Capital Resources on account of
shares sold by such selected broker-dealers shall be reduced to 1.0% of the
amount so sold.
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No person, together with any associate or group of persons acting in
concert, will be permitted to purchase more than 15,000 shares or $150,000 of
Common Stock in the Public Offering. The date by which orders must be received
in the Public Offering ("Public Offering Expiration Date") will be set by the
Company at the time of commencement of the Public Offering; provided however, if
the Public Offering is extended beyond ___________, 1997, each subscriber in the
Public Offering will have the opportunity to maintain, modify, or rescind his or
her order. All funds received in the Public Offering will be promptly returned
with interest to each subscriber unless he or she affirmatively indicates
otherwise in the event of such a resolicitation.
In the event the Company determines to conduct a Public Offering,
persons to whom a Prospectus is delivered may order shares of Common Stock by
submitting a completed stock order and an executed certification along with
payment in immediately available funds or a duly executed withdrawal
authorization from an existing brokerage account to Capital Resources by not
later than the Public Offering Expiration Date. Promptly upon receipt of
available funds, together with a properly executed stock order and account
withdrawal authorization, if applicable, and certification, Capital Resources
will forward such funds to the Bank to be deposited in a subscription escrow
account.
If an order in the Public Offering is accepted, promptly after the
completion of the Conversion, a certificate for the appropriate amount of shares
will be forwarded to Capital Resources as nominee for the beneficial owner. In
the event that an order is not accepted or the Conversion is not consummated,
the Bank will promptly refund with interest the funds received to Capital
Resources, which will then return the funds to the subscriber.
If a Public Offering is held, the opportunity to order shares of Common
Stock in the Public Offering is subject to the right of the Bank and the
Company, in their sole discretion, to accept or reject any such orders in whole
or in part at the time of receipt of an order or as soon as practicable
following the Public Offering Expiration Date.
Community Offering
The Plan of Conversion provides that the Company may offer Common Stock
remaining after the Subscription Offering in a Community Offering with a
preference given to natural persons residing in Orange County, New York. Any
order received in the Community Offering, if held, will receive a lower priority
than orders in the Subscription Offering by persons exercising Subscription
Rights. If a Community Offering is held, Common Stock sold in the Community
Offering will be sold at the same price as shares sold in the Subscription
Offering. The Company and the Bank have the right to reject, in whole or in
part, in their sole discretion, any orders for Common Stock in a Community
Offering.
Additional Purchase Restrictions
The Plan provides for certain additional limitations on the purchase of
the Common Stock by eligible subscribers and others in the Conversion. Each
purchaser must purchase a minimum of 25 shares. No person (or persons through a
single account), together with any associate or group of persons acting in
concert, may subscribe for or purchase more than 15,000 shares of Common Stock
($150,000), except for the Employee Plans which may purchase up to 10% of the
Common Stock issued in the Conversion, but currently intend to purchase 8% of
the Common Stock issued in the Conversion. Depending on market conditions and
the results of the Offerings, the Board of Directors, in its sole discretion,
may increase or decrease the purchase limitation without the approval of the
depositors of the Bank and without resoliciting subscribers except as described
below, provided that the maximum purchase limitation may not be increased to a
percentage in excess of 5%. The maximum purchase limitation can be further
increased to 9.99% if the amount by which subscriptions exceed 5% does not, in
the aggregate, exceed 10%. If the maximum purchase limit is increased,
subscribers who submit orders for $150,000 of Common Stock will be resolicited
and given an opportunity to increase their orders.
The OTS regulations governing the Conversion limit the number of shares
that officers and directors and their associates may purchase. In the aggregate,
the officers and directors of the Bank or their associates may not purchase more
than 34% of the shares of the Common Stock issued in the Conversion. The
directors and officers of the Bank and the Company are not deemed to be acting
in concert solely by reason of their being directors and officers of the Bank or
the Company.
In the event of an increase in the total number of shares offered in
the Conversion due to an increase in the Valuation Range of up to 15% (the
"Adjusted Maximum"), the additional shares will be allocated in the following
order
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of priority: (i) to fill the Employee Plans' subscription of up to 8% of the
Adjusted Maximum number of shares; (ii)to satisfy other unfilled subscriptions
in the order of priority set forth above.
The term "associate" of a person is defined in the Plan to mean (i) any
corporation or organization (other than the Bank, the Company or a
majority-owned subsidiary of the Bank) of which such person is an officer or
partner or is, directly or indirectly, the beneficial owner of 10% or more of
any class of equity securities, (ii) any trust or other estate in which such
person has a substantial beneficial interest or as to which such person serves
as trustee or in a similar fiduciary capacity (excluding tax-qualified employee
stock benefit plans or non-tax-qualified employee stock benefit plans in which a
person has a substantial beneficial interest or serves as a trustee or in a
similar fiduciary capacity and except that, for purposes of aggregating total
shares that may be held by senior officers and directors of the Bank or the
Company, the term "Associate" does not include any tax-qualified employee
benefit plan or non-tax-qualified employee 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 director or officer of the Bank or the Company, or
any of its parents or subsidiaries. For example, a corporation of which a person
serves as an officer would be an associate of such person, and therefore, all
shares purchased by such corporation would be included with the number of shares
which such person individually could purchase under the above limitations.
Each person purchasing shares of the Common Stock in the Conversion
will be deemed to confirm that such purchase does not conflict with the maximum
purchase limitation. In the event that such purchase limitation is violated by
any person (including any associate or group of persons affiliated or otherwise
acting in concert with such persons), the Company will have the right to
purchase from such person at the Purchase Price per share all shares acquired by
such person in excess of such purchase limitation or, if such excess shares have
been sold by such person, to receive the difference between the Purchase Price
per share paid for such excess shares and the price at which such excess shares
were sold by such person. This right of the Company to purchase such excess
shares will be assignable by the Company.
Common Stock purchased pursuant to the Conversion will be freely
transferable, except for shares purchased by directors and officers of the Bank.
For certain restrictions on the Common Stock purchased by directors and
officers, see "--Restrictions on Transferability of Subscription Rights and
Common Stock." In addition, under guidelines of the NASD, members of the NASD
and their associates are subject to certain restrictions on the transfer of
securities purchased in accordance with subscription rights and to certain
reporting requirements upon purchase of such securities.
Purchasing Common Stock
In order to exercise subscription rights in the Subscription Offering,
an eligible subscriber must deliver to the Bank, on or prior to the Subscription
Offering Expiration Date, (i) a Subscription Offering stock order form (a
"Subscription Order Form") fully completed and signed, (ii) a certification form
properly signed, and (iii) payment in full as described below. See "--Payment
for Shares". In order to subscribe in the Public Offering, if held, subscribers
must deliver to the Bank, on or prior to the Public Offering Expiration Date,
(i) a Public Offering stock order form (a "Public Order Form" and together with
the "Subscription Order Form, an "Order Form") with an account withdrawal
authorization, if applicable, and (ii) payment in full as described below. See
"--Payment for Shares." The Employee Plans will not be required to pay for the
shares at the time they subscribe in the Subscription Offering but rather may
pay for the shares upon consummation of the Conversion. All subscription rights
under the Plan will expire on the Subscription Offering Expiration Date, whether
or not the Bank has been able to locate each person entitled to such
subscription rights. The Bank and Company shall have the right, in their sole
discretion, to permit institutional investors to submit contractually
irrevocable orders in the Public Offering without payment in full. Once
tendered, subscription orders cannot be revoked without the consent of the Bank
and the Company unless the Conversion is not completed within 45 days after the
Subscription Offering Expiration Date.
If a Subscription Order Form (i) is not delivered to the addressee by
the United States Postal Service or the Bank is otherwise unable to locate the
addressee; (ii) is not received by the Bank or is received after the
Subscription Offering Expiration Date; (iii) is defectively completed or
executed; (iv) is not accompanied by the full required payment for the shares
subscribed for (including instances where a savings account or certificate of
deposit balance
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from which withdrawal is authorized is insufficient to fund the amount of such
required payment, but excluding subscriptions by the Employee Plans) or, in the
case of an institutional investor in the Public Offering, by delivering
irrevocable orders together with a legally binding commitment to pay the full
purchase price prior to 48 hours before the completion of the Conversion; or (v)
is not mailed pursuant to a "no mail" order placed in effect by the account
holder, then in any such event the related subscription rights will lapse as
though the person holding such rights failed to return the completed
Subscription Order Form within the time period specified. The Company may, but
will not be required to, waive any irregularity on any Order Form or require the
submission of corrected Order Forms or the remittance of full payment for
subscribed shares by such date as the Company may otherwise specify. The waiver
of an irregularity on an Order Form in no way obligates the Company to waive any
other irregularity on any other Order Form. Waivers will be considered on a case
by case basis. The Bank and the Company reserve the right in their sole
discretion to accept or reject orders received on photocopies or facsimile Order
Forms, or whose payment is to be made by wire transfer or payment from private
third parties. The interpretation by the Bank or Company of the terms and
conditions of the Plan and of the acceptability of the Order Forms will be
final, subject to the authority of the OTS.
To ensure that each purchaser receives a Prospectus at least 48 hours
before the Subscription Offering Expiration Date or, if applicable, the Public
Offering 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 an Order Form
will confirm receipt or delivery in accordance with Rule 15c2-8. Order Forms
will only be distributed with a Prospectus.
For subscriptions to be valid, payment for all subscribed shares, at
$10.00 per share, will be required to accompany all properly completed Order
Forms, on or prior to the applicable expiration date, unless such date is
extended by the Bank or the Company. Employee Plans subscribing for shares in
the Subscription Offering may pay for such shares upon consummation of the
Conversion. Payment for shares of Common Stock may be made (i) in cash, if
delivered in person, (ii) by check or money order, or (iii) for shares of Common
Stock subscribed for in the Subscription Offering, by authorization of
withdrawal from savings accounts (including certificates of deposit) maintained
with the Bank. For orders or subscriptions of $25,000 or more, payments must be
made by bank check, money order or withdrawal authorization, if applicable, from
an account with sufficient collected funds. Payments made in cash or by check or
money order will be placed in a segregated account and interest will be paid by
the Bank at the passbook savings account rate as of the date of this prospectus,
from the date payment is received until the Conversion is completed or
terminated. An executed Order Form, once received by the Company, may not be
modified, amended, or rescinded without the consent of the Bank, unless the
Conversion is not completed within 45 days after the conclusion of the
Subscription Offering, in which event subscribers may be given the opportunity
to increase, decrease, or rescind their subscription for a specified period of
time. In the event that the Conversion is not consummated for any reason, all
funds submitted pursuant to the Offerings will be promptly refunded with
interest as described above.
Appropriate means by which withdrawals from deposit accounts may be
authorized are provided in the Subscription Order Form. Once such a withdrawal
has been authorized, none of the designated withdrawal amount may be used by a
subscriber for any purpose other than to purchase the Common Stock for which a
subscription has been made until the Conversion has been completed or
terminated. In the case of payments authorized to be made through withdrawal
from savings or certificates of deposit, all sums authorized for withdrawal will
continue to earn interest at the contract rate until the Conversion has been
completed or terminated. Interest penalties for early withdrawal applicable to
certificates of deposit will not apply to withdrawals authorized for the
purchase of shares, however, if a partial withdrawal results in a certificate of
deposit with a balance less than the applicable minimum balance requirement, the
certificate shall be canceled at the time of withdrawal, without penalty, and
the remaining balance will earn interest at the passbook savings account rate
subsequent to the withdrawal.
Owners of self-directed IRAs may use the assets of such IRAs to purchase
shares of Common Stock in the Offerings, provided that such IRAs are not
maintained at the Bank. Persons with IRAs maintained at the Bank must have their
accounts transferred to an unaffiliated institution or broker to purchase shares
of Common Stock in the Offerings. Instructions on how to transfer self-directed
IRAs maintained at the Bank can be obtained from the Stock Center located at the
Bank's main office.
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Federal regulations prohibit the Bank from lending funds or extending
credit to any person to purchase the Common Stock in the Conversion.
Delivery of Stock Certificates. Certificates representing Common Stock
issued in the Conversion will be mailed to the persons entitled thereto at the
address noted on the Order Form, as soon as practicable following consummation
of the Conversion. Any certificates returned as undeliverable will be held until
claimed by persons legally entitled thereto or otherwise disposed of in
accordance with applicable law. Until certificates for the Common Stock are
available and delivered to subscribers, subscribers may not be able to sell the
shares of stock for which they subscribed.
Marketing Arrangements
The Company and the Bank have retained Capital Resources, a
broker-dealer registered with the SEC and a member of the NASD to consult with
and advise the Company and the Bank and to assist, on a best efforts basis, in
the distribution of the Common Stock in the Conversion. The services Capital
Resources will perform include: (i) training and educating the Company's and the
Bank's employees regarding the mechanics and regulatory requirements of the
stock conversion process; (ii) conducting information meetings for potential
subscribers, if necessary; (iii) managing the sales efforts in the Offerings;
(iv) assisting in the collection of proxies from depositors for use at the
Special Meeting; and (v) keeping records of subscriptions and orders for Common
Stock. Capital Resources will receive for its services a fee of 2.0% of the
total dollar amount of Common Stock sold in the Offerings, excluding purchases
by directors, officers and employees of the Bank and the Company and their
immediate family members, and the ESOP. Capital Resources will also be
reimbursed for its legal fees and for reasonable out-of-pocket expenses. The
Bank and the Company have agreed to indemnify Capital Resources, to the extent
allowed by law, for reasonable costs and expenses in connection with certain
claims or liabilities, including certain liabilities under the Securities Act.
Capital Resources has received fees totaling $45,000 for consulting and advisory
services relating to the Conversion, which fees will be credited against
marketing fees payable to Capital Resources. See "Pro Forma Data" for further
information regarding expenses of the Conversion. Capital Resources is
affiliated with CRG.
The Common Stock will be offered in the Offerings principally by the
distribution of this prospectus and through activities conducted at a Stock
Center located at the Bank's main office, in an area that is not publicly
accessible. The Stock Center is expected to operate during normal business hours
throughout the Offerings. It is expected that a registered representative
employed by Capital Resources will be working at, and supervising the operation
of, the Stock Center. Capital Resources will be responsible for overseeing the
mailing of materials relating to the Offerings, responding to questions
regarding the Conversion and the Offerings and processing Order Forms. It is
expected that Bank and Company personnel will be present in the Stock Center to
assist Capital Resources with clerical matters and to answer questions related
solely to the business of the Bank.
Directors and executive officers of the Company may participate in the
solicitation of offers to purchase Common Stock in jurisdictions where such
participation is not prohibited. Other employees of the Company and the Bank may
participate in the Offerings in ministerial capacities or providing clerical
work in effecting a sales transaction. Such other employees have been instructed
not to solicit offers to purchase Common Stock or provide advice regarding the
purchase of Common Stock. Questions of prospective purchasers will be directed
to executive officers of the Company or registered representatives of Capital
Resources. The Company will rely on Rule 3a4-1 promulgated under the Exchange
Act, and sales of Common Stock will be conducted in accordance with Rule 3a4-1,
so as to permit officers, directors, and employees to participate in the sale of
Common Stock. No officer, director, or employee of the Company or the Bank will
be compensated in connection with such person's solicitations or other
participation in the Offerings by the payment of commissions or other
remuneration based either directly or indirectly on transactions in the Common
Stock.
The Company will make reasonable efforts to comply with the securities
laws of all states in the United States in which persons entitled to subscribe
for the Common Stock pursuant to the Plan reside. However, no person will be
offered or allowed to purchase any Common Stock under the Plan if he or she
resides (a) in a foreign country or (b) in a state of the United States with
respect to which any of the following apply: (i) a small number of persons
otherwise eligible to subscribe for shares under the Plan reside in such state;
(ii) the granting of subscription rights or offer or sale
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of shares of Common Stock to such persons would require the Bank, the Company,
or its employees to register, under the securities laws of such state, as a
broker or dealer or to register or otherwise qualify its securities for sale in
such state; or (iii) such registration or qualification would be impracticable
for reasons of cost or otherwise. No payments will be made in lieu of the
granting of subscription rights to any such person.
Participation by the Board and Senior Management
The following table sets forth certain information as to the intended
purchases of Common Stock by each director and executive officer of the Bank and
by all directors and executive officers as a group, including their
"associates." The directors and executive officers of the Bank have expressed
their intentions to purchase an aggregate of approximately $576,450 of Common
Stock in the Subscription Offering, representing 3.99% and 2.56% at the minimum
and 15% above the maximum of the Valuation Range, respectively. For purposes of
the following table, it has been assumed that 1,700,000 shares (the midpoint of
the Valuation Range) of the Common Stock will be sold at $10.00 per share and
that sufficient shares will be available to satisfy subscriptions in all
categories. Shares purchased by the ESOP which may be allocated to executive
officers are excluded.
<TABLE>
<CAPTION>
Number Aggregate
of Purchase Percent
Name Position Shares Price of Shares
- ---- -------- --------- --------- ---------
<S> <C> <C> <C> <C>
Clifford E. Kelsey, Jr. President, Chief Executive 10,000 $100,000 0.59%
Officer and Director
Richard C. Durland Executive Vice President 5,000 50,000 0.29%
and Director
Gene J. Gengel Director 10,000 100,000 0.59%
Thomas V. Guarino Director 12,000 120,000 0.70%
Stephen O. Hopkins Director 2,000 20,000 0.12%
Roy L. Lippincott Director 10,000 100,000 0.59%
Herbert C. Mueller Director 7,500 75,000 0.44%
Stephen W. Dederick Chief Financial Officer 25 250 -
Diane D. King Senior Vice President 1,000 10,000 0.06%
Jenny M. Ford Vice President and Secretary 120 1,200 0.01%
-------- ------------ -----
Total executive officers
and directors (10 persons) 57,645 $576,450 3.39%
====== ======== ====
</TABLE>
Risk of Delay in Consummating the Conversion.
The completion of the sale of the Common Stock will be dependent, in
part, upon the Bank's operating results and market conditions at the time of the
Offerings. Under the Plan, all shares offered in the Conversion must be sold and
the Conversion be completed within 24 months after the date of the Special
Meeting. While the Bank and the Company anticipate completing the Conversion
within this period, if the Boards of Directors of the Bank and the Company are
of the opinion that economic conditions generally or the market for publicly
traded thrift institution stocks make undesirable a sale of the Common Stock,
then the Offerings may be delayed until such conditions improve.
A material delay in the completion of the sale of shares with an
aggregate purchase price equal to at least the minimum of Valuation Range may
result in a significant increase in the costs of completing the Conversion.
Significant changes in the Bank's operations and financial condition, the
aggregate market value of the shares to be issued in the Conversion and general
market conditions may occur during such material delay. In the event the
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Conversion is not consummated within 24 months after the date of the Special
Meeting, the Bank would charge accrued Conversion costs to then current period
operations.
Stock Pricing and Number of Shares to be Issued
Capital Resources Group, Inc. ("CRG") a financial consulting and
appraisal firm that is experienced in the evaluation and appraisal of business
entities, including thrift institutions involved in the conversion process, was
retained by the Bank to prepare an appraisal (the "Appraisal") of the estimated
pro forma market value of the Common Stock to be sold pursuant to the
Conversion. CRG will receive a fee of $30,000 for its appraisal and to assist in
the preparation of other material and will be reimbursed for reasonable
out-of-pocket expenses, up to $5,000. CRG will receive a fee of $5,000 for any
appraisal update. In addition, CRG will receive a fee of $30,000 plus up to an
additional $10,000 in expenses for its assistance with record management and
proxy solicitation services in connection with the Conversion. The Bank has
agreed to indemnify CRG under certain circumstances against liabilities and
expenses (including certain legal fees) arising out of or based on any
misstatement or untrue statement of a material fact contained in the information
supplied by the Bank to CRG, except where CRG is determined to have been
negligent or failed to exercise due diligence in the preparation of the
appraisal. CRG is independent of the Company and the Bank but is affiliated with
Capital Resources.
The Appraisal contains an analysis of a number of factors including,
but not limited to, the Bank's financial condition and operating trends, the
competitive environment within which the Bank operates, operating trends of
certain thrift institutions and savings and loan holding companies, relevant
economic conditions, both nationally and in the State of New York which affect
the operations of thrift institutions, and stock market values of certain
institutions. In addition, CRG has advised the Bank that it has considered and
will consider the effect of the additional capital raised by the sale of the
Common Stock on the estimated aggregate pro forma market value of such shares.
The Board of Directors has reviewed the Appraisal, including the stated
methodology of CRG and the assumptions used in the preparation of the Appraisal.
The Board of Directors is relying upon the expertise, experience and
independence of CRG and is not qualified to determine the appropriateness of the
assumptions or the methodology. The Appraisal has been filed as an exhibit to
the registration statement of which this prospectus is a part. See "Additional
Information."
On the basis of the above, CRG has determined, in its opinion, that as
of March 14, 1997 the estimated aggregate pro forma market value of the Common
Stock to be issued in the Conversion was within the Valuation Range of from
$14,450,000 to $19,550,000 with a midpoint of $17,000,000. The Company has
determined to offer the shares in the Conversion at a price of $10.00 per share.
Therefore, the Company expects to issue, and is offering in the Offerings, from
1,445,000 to 1,955,000 shares of Common Stock, subject to increase to up to
2,248,250 shares of Common Stock as described below.
CRG will update the Appraisal prior to consummation of the Conversion.
If the final estimated aggregate pro forma market value of the Common Stock to
be issued in the Conversion is between $19,550,000 (the maximum of the Valuation
Range) and $22,482,500 (15% above the maximum of the Valuation Range), the total
number of shares being offered will be adjusted and a new Valuation Range may be
established without resolicitation of subscribers and without a new vote of
Bank's depositors, unless required by the OTS. Any adjustments to the Valuation
Range as a result of market and financial conditions would be subject to OTS
review. If the final estimated value is less than $14,450,000 or more than
$22,482,500, then subscribers will be resolicited and, unless the OTS permits
otherwise, a new vote of the Bank's depositors to approve the Conversion will be
required. No sale of the shares will take place unless prior thereto CRG
confirms to the OTS that, to the best of CRG's knowledge and judgment, nothing
of a material nature has occurred which would cause it to conclude that the
aggregate Purchase Price of all shares to be sold in the Conversion is
incompatible with its estimate of the aggregate pro forma market value of the
Common Stock at the time of the sale.
The Appraisal is not intended, and must not be construed, as a
recommendation of any kind as to the advisability of purchasing the Common
Stock. In preparing the Appraisal, CRG has relied upon and assumed the accuracy
and completeness of financial and statistical information provided by the Bank.
CRG did not independently verify the financial statements and other information
provided by the Bank, nor did CRG value independently the assets and liabilities
of the Bank. The Appraisal considers the Bank only as a going concern
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and should not be considered as an indication of the liquidation value of the
Bank. Moreover, because the 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 the Common Stock will
thereafter be able to sell such shares at prices within the estimated range at
the time of the Offerings.
An increase in the total number of shares to be issued in the
Conversion would decrease both a subscriber's ownership interest and the pro
forma equity and net income on a per share basis while increasing the pro forma
equity and net income on an aggregate basis. In the event of a material
reduction in the valuation, the Bank may decrease the number of shares to
reflect the reduced valuation. A decrease in the number of shares to be issued
in the Conversion would increase both a subscriber's ownership interest and the
pro forma equity on a per share basis while decreasing equity on an aggregate
basis.
Restrictions on Repurchase of Stock
Generally, within one year following the Conversion, the Company may
not repurchase Common Stock, and in the second and third year following the
Conversion, the Company may only repurchase Common Stock as part of an
open-market stock repurchase program in an amount up to 5% of the outstanding
stock during each of those two years, provided the repurchase does not cause the
Bank to become undercapitalized and at least 10 days prior notice of the
repurchase is provided to the OTS. The OTS may disapprove the repurchase program
upon a determination that (1) the repurchase program would adversely affect the
financial condition of the Bank, (2) the information submitted is insufficient
upon which to base a conclusion as to whether the financial condition would be
adversely affected, or (3) a valid business purpose was not demonstrated.
However, the Regional Director of the OTS, on a case by case basis, may permit
repurchases after six months following the Conversion and may permit additional
repurchases during the second and third year. In addition, SEC rules also
restrict the method, time, price, and number of shares of Common Stock that may
be repurchased by the Company and affiliated purchasers. If, in the future, the
rules and regulations regarding the repurchase of stock are liberalized, the
Company may utilize the rules and regulations then in effect.
Restrictions on Transferability of Subscription Rights and Common Stock
The OTS conversion regulations prohibit any person with subscription
rights, including Eligible Account Holders, Supplemental Eligible Account
Holders, and Other Members of the Bank, 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 subscribing
for shares will be required to certify that such person is purchasing shares
solely for his or her own account and that such person 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 if they become aware of the transfer of subscription rights and will
not honor orders known by them to involve the transfer of such rights.
Shares of the Common Stock purchased by directors and officers of the
Company shall be subject to the restriction that said shares shall not be sold
for a period of one year following completion of the Conversion, except for a
disposition of shares in the event of the death of the stockholder or in any
exchange of the Common Stock in connection with a merger or acquisition of the
Company approved by the regulatory authorities. Accordingly, shares of the
Common Stock issued by the Company to directors and officers shall bear a legend
giving appropriate notice of the foregoing restriction, and, in addition, the
Company will give appropriate instructions to the transfer agent for the Common
Stock with respect to the applicable restriction relating to the transfer of any
restricted stock. Any shares issued to directors and officers as a stock
dividend, stock split, or otherwise with respect to restricted stock shall be
subject to the same restrictions.
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For a period of three years following the Conversion, no director or
officer of the Bank, the Company or their associates may, without the prior
approval of the OTS, purchase any shares of Common Stock other than from or
through a broker or dealer registered with the SEC unless the purchase involves
more than 1% of the outstanding shares of Common Stock through an arm's length
transaction.
Interpretation and Amendment of the Plan
To the extent permitted by law, all interpretations of the Plan by the
Board of Directors of the Bank will be final, however, such interpretations
shall have no binding effect on the OTS. The Plan provides that, if deemed
necessary or desirable by the Board of Directors, the Plan may be substantively
amended by the Board of Directors as a result of comments from the OTS or
otherwise, prior to the solicitation of proxies from the Bank's depositors and
at any time thereafter with the concurrence of the OTS, except that in the event
that the regulations under which the Plan was adopted are liberalized subsequent
to the approval of the Plan by the OTS and the Bank's depositors at the Special
Meeting, the Board of Directors may amend the Plan to conform to the regulations
without further approval of the OTS or the depositors of the Bank to the extent
permitted by law. An amendment to the Plan that would result in a material
adverse change in the terms of the Conversion would require a resolicitation.
Conditions and Termination
Completion of the Conversion requires the approval of the Plan by the
affirmative vote of not less than a majority of the total number of votes of the
depositors of the Bank eligible to be cast at the Special Meeting and the sale
of all shares of Common Stock within 24 months following such approval of the
Plan. If these conditions are not satisfied, the Plan will be terminated and the
Bank will continue its business in the mutual form of organization. The Plan may
be terminated by the Board of Directors at any time prior to the Special Meeting
and, with the approval of the OTS, by the Board of Directors at any time
thereafter.
Other
All statements made in this prospectus are qualified by the contents of
the Plan, the material terms of which are set forth in this prospectus. The Plan
(without exhibits) is attached to the Proxy Statement distributed in connection
with the Special Meeting. Copies of the Plan are also available from the Bank
and it should be consulted for further information.
Adoption of the Plan by the Bank's depositors authorizes the Board of
Directors to amend or terminate the Plan.
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RESTRICTIONS ON ACQUISITION OF THE COMPANY AND THE BANK
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 stock charter 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
General. 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 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 acting in such capacity, 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 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 (referred to as the "Whole Board"). 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 division of
the Board into three classes 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 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
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may be removed by the stockholders 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 holder's choice.
Cumulative Voting, Special Meetings and Action by Written Consent. The
certificate of incorporation expressly provides that there shall not be
cumulative voting, which makes it more difficult for stockholders with a
minority interest in the Company to obtain representation on the Board of
Directors. 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. The certificate of incorporation also provides that any action
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 4,500,000 shares of Common Stock and 500,000 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 flexibility 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 shares in the Conversion and the issuance of additional shares
upon exercise of stock options or to fund the ISAP if the ISAP is not funded
through the purchase of shares on the open market.
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) unless (i) 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) the proposed transaction meets certain conditions which are
designed to afford the stockholders a fair price in consideration for their
shares. 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,
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recapitalization, merger or consolidation of the Company with any of its
subsidiaries which has the effect of increasing the proportionate share of
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.
Evaluation of Offers. The Certificate of Incorporation of the Company
further provides that the Board of Directors of the Company, when evaluating any
offer 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 savings and
loan holding company; and the ability of the Bank to fulfill the objectives of a
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 of 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 of the Company, 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 who intends to bring on any business to be conducted at an annual
stockholders' meeting to give at least 90 days' advance notice to the Secretary
of the Company. The notice provision requires a stockholder who desires to raise
such 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 Management Compensation Arrangements
The Company and the Bank have entered into agreements with key officers
which will provide such officers 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 Contracts," and "--Retention
Agreements." Furthermore, in the future, the Stock Option Plan and ISAP
may 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
but such provisions are currently not permitted under OTS regulations. See
"Management of the Bank--Benefit Plans--Stock Option Plan," and "--Benefit
Plans--Incentive Stock Award Plan." These provisions 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 Directors and executive officers of the Bank intend to purchase in
the aggregate approximately 3.99% or 2.56% of the shares of the Common Stock
based on the minimum and 15% above the maximum, respectively, of the Valuation
Range. In addition, the ESOP intends to purchase 8% of the Common Stock issued
in the Conversion. The
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Company anticipates that it will acquire 4% of the Common
Stock issued in the Conversion to fund the ISAP and expects to grant options to
purchase shares equal to 10% of the Common Stock issued in the Conversion under
the Stock Option Plan to Directors and executive officers. As a result, assuming
that the ISAP awards and stock options are satisfied out of shares repurchased
by the Company, Directors, executive officers and employees have the potential
to control the voting of approximately 25.99% of the Company's Common Stock at
the minimum and 24.56% at 15% above the maximum of the Valuation Range, thereby
enabling them to prevent transactions requiring the approval of at least 80% of
the Company's outstanding shares of voting stock described above.
The Company's Board of Directors believes that the provisions of the
Certificate of Incorporation and Bylaws 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
Business Combinations. In general, Section 203 of the Delaware General
Corporation Law ("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, 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 Stock Charter and New Bylaws
Although the Board of Directors of the Bank is not aware of any effort
that might be made to obtain control of the Bank after Conversion, the Board of
Directors believes that it is appropriate to adopt certain provisions 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 Bank's Stock Charter 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), other than the Company or a
tax-qualified employee benefit plan such as the ESOP, 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. If 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
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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 Stock Charter 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 Stock Charter, 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.
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.
For three years following the Conversion, OTS regulations prohibit any
person from acquiring or making an offer to acquire more than 10% of the stock
of any converted savings institution, except for: (i) offers that, if
consummated, would not result in the acquisition by such person during the
preceding 12-month period of more than 1% of such stock; (ii) offers for up to
25% in the aggregate by the ESOP or other tax qualified plans of the Bank or the
Company; or (iii) offers which are not opposed by the Board of Directors of the
Bank and which receive the prior approval of the OTS. Such prohibition is also
applicable to the acquisition of the stock of the Company. Such acquisition may
be disapproved by OTS if it is found, among other things, that the proposed
acquisition (a) would frustrate the purposes of the provisions of the
regulations regarding conversions, (b) would be manipulative or deceptive, (c)
would subvert the fairness of the conversion, (d) would be likely to result in
injury to the savings institution, (e) would not be consistent with economical
home financing, (f) would otherwise violate law or regulation, or (g) would not
contribute to the prudent deployment of the savings institution's conversion
proceeds. If any person, directly or indirectly, violates this regulation, the
securities beneficially owned by such person in excess of 10% 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 a vote of
stockholders. The definition of beneficial ownership for this regulation extends
to persons holding revocable or irrevocable proxies for the Company's stock
under circumstances that give rise to a conclusive or rebuttable determination
of control under the 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, directly or indirectly through control of 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 "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 by the OTS if it is determined, among
other things, that (i) the acquisition would substantially lessen 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; or (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 Company stock are not limited to three years after the Conversion 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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DESCRIPTION OF CAPITAL STOCK OF THE COMPANY
General
The Company is authorized to issue 4,500,000 shares of Common Stock
having a par value of $.01 per share and 500,000 shares of preferred stock
having a par value of $.01 per share (the "Preferred Stock"). The Company
currently expects to issue up to 1,955,000 shares of Common Stock (based on the
maximum of the Valuation Range, or 2,248,250 shares in the event of an increase
of 15% in the maximum of the Valuation Range) 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, except for
shares that may be issued upon the exercise of stock options which may be
granted pursuant to the Stock Option Plan. The Company may also elect to fund
awards under the ISAP with authorized but unissued 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 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
or any other government agency.
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." 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.
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 federal mutual savings bank, corporate powers and control of the
Bank are vested in its Board of Directors, who elect the officers of the Bank
and who fill any vacancies on the Board of Directors 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 liquidation account (see
"The Conversion--Effects of Conversion on Depositors and Borrowers--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.
106
<PAGE>
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.
Indemnification and Limit on Liability. The Company's Certificate of
Incorporation contains provisions which limit the liability of directors,
officers and employees of the Company and indemnify such individuals. See
"Management of the Company--Indemnification and Liability of Directors."
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.
DESCRIPTION OF CAPITAL STOCK OF THE BANK
General
The Federal Stock Charter of the Bank, to be effective upon the
Conversion authorizes the issuance of capital stock consisting of 4,500,000
shares of common stock, par value $0.01 per share, and 500,000 shares of
preferred stock, par value $0.01 per share, which Preferred Stock may be issued
in series and classes having such rights, preferences, privileges and
restrictions as the Board of Directors may determine. Each share of common stock
of the Bank will have the same relative rights as, and will be identical in all
respects with, each other share of common stock. After the Conversion, the Board
of Directors will be authorized to approve the issuance of common stock of the
Bank up to the amount authorized by the Federal Stock Charter without the
approval of the Bank's stockholders, except to the extent that such approval is
required by governing law. All of the issued and outstanding common stock of the
Bank (which is currently expected to be 1,000 shares) will be held by the
Company as the Bank's sole stockholder. The capital stock of the Bank will
represent non-withdrawable capital, will not be an account of an insurable type,
and will not be insured by the FDIC.
Common Stock
Dividends. The Company as the holder of the Bank's common stock will be
entitled to receive such dividends as may be declared by the Board of Directors
of the Bank out of funds legally available therefor. See "Dividend Policy" for
certain restrictions on the payment of dividends and "Federal and State
Taxation--Federal Taxation" for a discussion of the consequences of the payment
of cash dividends from income appropriated to bad debt reserves.
Voting Rights. Immediately after the Conversion, the Company as the
holder of the Bank's common stock, will possess exclusive voting rights in the
Bank. Each holder of shares of common stock will be entitled to one vote for
each share held. Stockholders of the Bank will not be permitted to cumulate
votes for the election of directors. See "Restrictions on Acquisition of the
Company and the Bank--Restrictions in the Company's Certificate of Incorporation
and Bylaws."
Liquidation. In the event of any liquidation, dissolution, or winding
up of the Bank, the holders of its common stock will be entitled to receive,
after payment of all debts and liabilities of the Bank (including all deposit
accounts and accrued interest thereon), and distribution of the balance in the
liquidation account, all assets of the Bank available for distribution in cash
or in kind. If additional preferred stock is issued subsequent to Conversion,
the holders thereof may also have priority over the holders of common stock in
the event of liquidation or dissolution.
107
<PAGE>
Preemptive Rights and Redemption. Holders of the common stock of the
Bank will not be entitled to preemptive rights with respect to any shares of the
Bank which may be issued. The common stock will not be subject to redemption.
Upon receipt by the Bank of the full specified purchase price therefor, the
common stock will be fully paid and nonassessable.
Preferred Stock
None of the shares of the Bank's authorized preferred stock will be
issued in the Conversion. Such stock may be issued with such preferences and
designations 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.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Registrar and
Transfer Company.
EXPERTS
The consolidated financial statements of the Bank and its subsidiaries
as of September 30, 1996 and 1995, and for each of the years in the three-year
period ended September 30, 1996, have been included herein in reliance upon the
report of Nugent & Haeussler, P.C., 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.
CRG 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
Serchuk & Zelermyer, LLP, White Plains, New York, counsel to the Bank and
Company. Certain legal matters will be passed upon for Capital Resources by
Malizia, Spidi, Sloane & Fisch, P.C., Washington, D.C.
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. In
addition, the SEC maintains a web site (http: //www.sec.gov) that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the SEC, including the Company. The
Conversion Valuation Appraisal Report may also be inspected by Eligible Account
Holders and Supplemental 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 conversion with the OTS with
respect to the Conversion. Pursuant to the rules and regulations of the OTS,
this Prospectus omits certain information contained in that application. The
application may be examined at the principal office of the OTS, 1700 G Street,
N.W., Washington, D.C. 20552 and at the Office of the Regional Director of the
OTS located at 10 Exchange Place, Jersey City, New Jersey 07302.
108
<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 directors, officers and greater than 10% stockholders,
the annual and periodic reporting and certain other requirements of the Exchange
Act. Under the Plan of Conversion, the Company has undertaken that it will not
terminate such registration for a period of at least three years following the
Conversion.
Copies of the Certificate of Incorporation and the Bylaws of the
Company and the Federal Stock Charter and Bylaws of the Bank are available
without charge from the Bank upon written or oral request.
109
<PAGE>
GOSHEN SAVINGS BANK
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Independent Auditors' Report ................................................. F-2
Balance Sheets at September 30, 1995 and 1996
and at December 31, 1996 ................................................ F-3
Statements of Income for the Years Ended September 30, 1994, 1995 and 1996 and
for the three months ended December 31, 1995 and 1996 ................... 29
Statements of Equity for the Years Ended September 30, 1994, 1995 and 1996
and the three months ended December 31, 1996 ............................ F-4
Statements of Cash Flows for the Years Ended September 30, 1994, 1995 and 1996
and the three months ended December 31, 1995 and 1996 ................... F-5
Notes to Financial Statements ................................................ F-9
</TABLE>
All data as of and for the three month periods ended December 31, 1995 and 1996
are unaudited
All schedules are omitted because the required information is not applicable or
is included in the Financial Statements and related Notes.
The Financial Statements of the Holding Company have been omitted because the
Holding Company has not yet issued any stock, has no assets, no liabilities and
has not conducted any business other than of an organizational nature.
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Examining Committee
Goshen Savings Bank
1 South Church Street
Goshen, New York 10924
We have audited the accompanying balance sheets of the Goshen Savings
Bank (the "Bank") as of September 30, 1996 and 1995, and the related statements
of income, changes in equity and cash flows for each of the years in the
three-year period ended September 30, 1996. These financial statements are the
responsibility of the Bank'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 financial position of the Goshen Savings
Bank at September 30, 1996 and 1995, and the results of its operations and its
cash flows for each of the years in the three year period ended September
30,1996 in conformity with generally accepted accounting principles.
Respectfully submitted,
/s/ Nugent & Haeussler, P.C.
- ---------------------------------
NUGENT & HAEUSSLER, P. C.
December 13, 1996
Newburgh, New York
F-2
<PAGE>
GOSHEN SAVINGS BANK
BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
December 31 September 30,
1996 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Assets
------
Cash and due from banks (net of Nationar
loss reserve of $232,223 at
September 30, 1995) $ 2,078,800 $ 2,963,955 $ 3,394,554
Federal funds sold 3,400,000 1,720,000 3,800,000
------------ ------------ ------------
Cash and cash equivalents 5,478,800 4,683,955 7,194,554
Investment securities:
Held to maturity (approximate market
value of $23,710,629 at
September 30, 1995) (Note 2) 0 0 23,749,441
Available for sale (Notes 3 and 4) 21,015,886 23,080,708 4,094,239
Mortgage backed securities, held to
maturity (approximate market value of
$6,252,401 at December 31, 1996 and
$6,529,210 in 1996 and
$4,492,219 in 1995) (Note 5) 6,173,152 6,473,727 4,403,974
Loans receivable, net (Notes 6 and 7) 61,013,334 58,726,543 57,919,411
Banking house and equipment (Note 8) 2,226,595 2,261,456 2,325,766
Accrued income (Note 9) 647,381 664,818 803,078
Prepaid expenses and other assets 411,285 432,282 550,473
------------ ------------ ------------
Total Assets $ 96,966,433 $ 96,323,489 $101,040,936
============ ============ ============
Liabilities and Equity
----------------------
Liabilities:
Deposits (Note 10) $ 82,583,319 $ 83,441,831 $ 88,092,701
Advance payments by borrowers 132,645 53,863 98,584
Accrued expenses and other liabilities 1,144,277 1,080,614 752,626
Other borrowings (Note 11) 1,000,000 0 1,000,000
------------ ------------ ------------
Total Liabilities 84,860,241 84,576,308 89,943,911
------------ ------------ ------------
Commitments and Contingent Liabilities
(Note 15)
Equity:
Retained earnings 11,899,037 11,603,735 11,045,778
Net unrealized gain on securities
available for sale (net of tax) 207,155 143,446 51,247
------------ ------------ ------------
Total Equity 12,106,192 11,747,181 11,097,025
------------ ------------ ------------
Total Liabilities and Equity $ 96,966,433 $ 96,323,489 $101,040,936
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
GOSHEN SAVINGS BANK
STATEMENTS OF EQUITY
<TABLE>
<CAPTION>
Unrealized Gain
On Investment
Retained Securities Available
Earnings For Sale, Net Total
-------- ------------- -----
<S> <C> <C> <C>
Balance, October 1, 1993 $11,196,877 $ 0 $11,196,877
Net income 310,873 0 310,873
----------- -------- -----------
Balance, September 30, 1994 11,507,750 0 11,507,750
Effect of adoption of SFAS 115 0 51,247 51,247
Net (loss) (461,972) 0 (461,972)
----------- -------- -----------
Balance, September 30, 1995 11,045,778 51,247 11,097,025
Net income 557,957 0 557,957
Net change in unrealized gain
on investment securities
available for sale, net of 0 92,199 92,199
---------- -------- -----------
income taxes
Balance, September 30, 1996 11,603,735 143,446 11,747,181
Net income (unaudited) 295,302 0 295,302
Net change in unrealized gain
on investment securities
available for sale, net of
income taxes (unaudited) 0 63,709 63,709
----------- -------- -----------
Balance, December 31, 1996 $11,899,037 $207,155 $12,106,192
=========== ======== ===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
GOSHEN SAVINGS BANK
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended September 30,
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 557,957 $ (461,972) $ 310,873
Adjustments to reconcile
net income to net cash provided
by operating activities:
Depreciation 142,406 141,884 147,928
Provision for loan losses 23,500 29,000 25,000
Provision for Nationar
loss contingency (232,223) 232,223 0
Write-down on Nationar stock
and debentures 0 46,400 0
Net gain on sale of other
real estate owned (4,579) (2,614) 0
Gain on sale of investment
securities (114,681) (13,861) (19,727)
Unrealized loss on trading
securities 0 0 86,672
Other assets 256,451 (23,211) 129,564
Net amortization on investment
securities 222,033 559,935 842,684
Net amortization (accretion) on
mortgage-backed securities 1,977 (4,787) (1,195)
Increase (decrease) in accrued
expenses and other liabilities 261,606 496,675 (27,040)
Increase (decrease) in advances
from borrowers for taxes
and insurance (44,721) 442 55,302
------------ ------------ ------------
Net cash provided by operating
activities 1,069,726 1,000,114 1,550,061
------------ ------------ ------------
Cash flows from investing activities:
Purchases of mortgage-backed
securities (3,652,592) (2,578,114) (982,881)
Proceeds from principal
paydowns of mortgage-backed
securities 1,580,861 404,739 511,090
Proceeds from maturity and
redemption of investment securities 11,510,633 14,319,522 16,555,000
Purchase of investment securities (7,400,887) (8,990,519) (10,215,774)
Proceeds from sale of investment
securities 701,456 1,035,509 3,553,460
Net increase (decrease) in loans (988,053) (819,600) (9,635,438)
Capital expenditures (78,096) (56,777) (265,371)
Proceeds from sale of other
real estate owned 165,000 45,000 0
------------ ------------ ------------
Net cash provided by
investing activities 1,838,322 3,359,760 (479,914)
------------ ------------ ------------
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
GOSHEN SAVINGS BANK
STATEMENTS OF CASH FLOWS
(continued)
<TABLE>
<CAPTION>
Years Ended September 30,
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Cash flow from financing activities:
Net increase (decrease) in demand,
statement passbook, money market and
NOW deposit accounts (4,650,870) 1,696,678 (2,407,369)
Net increase (decrease) in
other borrowings (1,000,000) (1,000,000) 2,000,000
------------ ------------ ------------
Net cash provided by (used in)
financing activities (5,650,870) 696,678 (407,369)
------------ ------------ ------------
Net increase (decrease) in cash
and cash equivalents (2,742,822) 5,056,552 662,778
Cash and cash equivalents at
beginning of year 7,426,777 2,370,225 1,707,447
------------ ------------ ------------
Cash and cash equivalents
and end of year $ 4,683,955 $ 7,426,777 $ 2,370,225
============ ============ ============
Additional Disclosures:
Supplemental disclosures of cash flows information-cash
paid during year for:
Interest on other borrowings $ 82,900 $ 28,443 $ 3,193
Income taxes 119,523 (56,629) 370,537
Supplemental schedule of non-cash investing activities:
Reduction in loans receivable
resulting from the transfer
to real estate owned 157,421 42,386 0
Transfers of equity investment
securities to investment
securities trading portfolio 0 0 2,259,097
Transfers of investment
securities - held to maturity
to investment securities -
available for sale 20,912,562 0 0
Transfers of investment securities
- trading portfolio to investment
securities - available for sale 0 2,172,009 0
Change in unrealized gains
in investment securities -
available for sale 92,199 51,247 0
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
GOSHEN SAVINGS BANK
STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
December 31,
1996 1995
----------- -----------
Cash flows from operating activities:
Net income $ 295,302 $ 98,060
Adjustments to reconcile
net income to net cash provided
by operating activities:
Depreciation 38,060 36,567
Provision for loan losses 0 13,500
Provision for Nationar
loss contingency 0 0
Write-down on Nationar stock
and debentures 0 0
Net gain on sale of other
real estate owned 0 (4,579)
Gain on sale of investment
securities 0 0
Unrealized loss on trading
securities 0 0
Other assets 38,434 250,250
Net accretion on investment
securities 21,295 82,236
Net accretion on mortgage-backed
securities (2,353) (3,947)
Increase (decrease) in accrued
expenses and other liabilities 18,125 (9,441)
Increase (decrease) in advances
from borrowers for taxes
and insurance 78,782 63,121
----------- -----------
Net cash provided by operating
activities 487,645 525,767
----------- -----------
Cash flows from investing activities:
Purchases of mortgage-backed securities 0 (1,107,534)
Proceeds from principal paydowns of
mortgage-backed securities 302,930 199,833
Proceeds from maturity and
redemption of investment securities 3,234,638 3,299,587
Purchase of investment securities (1,081,866) (1,108,220)
Proceeds from sale of investment securities 0 0
Net increase (decrease) in loans (2,286,791) (388,011)
Capital expenditures (3,199) (957)
Proceeds from sale of other
real estate owned 0 165,000
----------- -----------
Net cash provided by
investing activities 165,712 1,059,698
----------- -----------
See accompanying notes to financial statements.
F-7
<PAGE>
GOSHEN SAVINGS BANK
STATEMENTS OF CASH FLOWS
(continued)
<TABLE>
<CAPTION>
(Unaudited)
Three Months Ended
December 31,
1996 1995
------------ ------------
<S> <C> <C>
Cash flow from financing activities:
Net increase (decrease in
demand, statement, passbook,
money market and NOW
deposit accounts (858,512) (312,729)
Net increase (decrease) in
other borrowings 1,000,000 0
------------ ------------
Net cash provided by (used in)
financing activities 141,488 (312,729)
------------ ------------
Net increase (decrease) in cash
and cash equivalents 794,845 1,272,736
Cash and cash equivalents at
beginning of year 4,683,955 7,426,777
------------ ------------
Cash and cash equivalents
and end of year $ 5,478,800 $ 8,699,513
============ ============
Additional Disclosures:
Supplemental disclosures of cash flows information-cash paid during
year for:
Interest on other borrowings $ 15,888 $ 0
Income taxes 39,050 0
Supplemental schedule of non-cash investing activities
Reduction in loans receivable
resulting from the transfer
to real estate owned 0 157,421
Transfers of equity investment securities
to investment securities
trading portfolio 0 0
Transfers of investment
securities-held to maturity to
investment securities - available for sale 0 20,912,562
Transfers of investment securities-trading
portfolio to investment securities-
available for sale 0 2,172,009
Change in unrealized gains in investment
securities available for sale 63,709 45,386
</TABLE>
See accompanying notes to financial statements.
F-8
<PAGE>
GOSHEN SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
A. Organization
The Goshen Savings Bank (the "Bank"), is a mutual thrift. The
Bank is chartered under the laws of the State of New York. The
Bank provides banking services to individual and corporate
customers, with its business activities concentrated in Orange
County, New York.
A substantial portion of the Bank's loans are secured by real
estate located in Orange County in New York State. Accordingly,
the ultimate collectibility of a substantial portion of the
Bank's loan portfolio is dependent upon market conditions in
these market areas. In addition, other real estate owned, if
any, is also generally located in Orange County in New York
State.
B. Basis of Financial Statement Presentation
The accounting and reporting policies of the Bank conform in all
material respects to generally accepted accounting principles
and to general practice within the thrift industry.
The balance sheet as of December 31, 1996 and the related
statements of income and cash flows for the three month periods
ended December 31, 1996 and 1995 and changes in equity for the
three month period ended December 31, 1996 are unaudited and, in
the opinion of management, all adjustments (consisting of normal
recurring accruals) necessary for a fair presentation as of
December 31, 1996 and for the results for the unaudited periods
have been made.
C. Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to
significant change relate to the determination of the allowance
for losses on loans and the valuation of real estate acquired in
connection with foreclosures or in satisfaction of loans in
connection with the determination of the allowances for losses
on loans and foreclosed real estate, management obtains
independent appraisals for significant properties.
F-9
<PAGE>
GOSHEN SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. (Continued)
C. Use of Estimates (Continued)
While management uses available information to recognize losses
on loans and foreclosed real estate, future additions to the
allowances may be necessary based on changes in local economic
conditions. In addition, regulatory agencies, as an integral
part of their examination process, periodically review the
Bank's allowance for losses on loans and foreclosed real estate.
Such agencies may require the Bank to recognize additions to the
allowances based on their judgments about information available
to them at the time of their examination. Because of these
factors, it is reasonably possible that the allowance for losses
on loans and foreclosed real estate may change materially in the
near term.
D. Cash and Cash Equivalents
For purposes of the statements of cash flows, cash and cash
equivalents include cash on hand and in banks, interest-earning
deposits and Federal funds sold with original maturities of
ninety days or less.
E. Investment Securities
Securities Held to Maturity
Government, Federal Agency, and Corporate debt securities that
management has the positive intent and ability to "hold until
maturity" are stated at cost, adjusted for premium amortization
and discount accretion, computed on a basis which approximates
the interest method over the period to maturity.
Mortgage-backed securities represent participating interests in
pools of long-term first mortgage loans originated and serviced
by issuers of the securities. Mortgage-backed securities are
carried at unpaid principal balances, adjusted for unamortized
premiums and unearned discounts. Premiums and discounts are
amortized using methods approximating the interest method over
the remaining period to contractual maturity, adjusted for
anticipated prepayments.
Securities Available for Sale
Securities to be held for indefinite periods of time including
securities that management intends to use as part of its
asset-liability strategy, or that may be sold in response to
changes in interest rates, changes in prepayment risk, or other
similar factors are classified as "available for sale" and are
recorded at fair value with the unrealized appreciation or
depreciation, net of taxes reported separately as a component of
equity.
F-10
<PAGE>
GOSHEN SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. (Continued)
E. Investment Securities
Trading Securities
The third classification are "trading securities" which include
debt securities and equity securities purchased in connection
with the Bank's trading activities and as such are expected to
be sold in the near term. There are no investments in trading
securities on the books of the Bank at December 31, 1996,
September 30, 1996 and 1995.
Gains and losses on the sale of securities are determined using
the specific identification method.
F. Reclassification of Investment Securities
In November 1995, the Financial Accounting Standards Board
released its special report, "A Guide to Implementation of
Statement 115 on Accounting for Certain Investments in Debt and
Equity Securities". This special report contained a provision
that allowed entities to, as of November 15, 1995, but no later
than December 31, 1995, to reassess the appropriateness of the
classifications of all securities held at that time. At the
Board of Trustees meeting December 14, 1995, approval was
granted to management to reclassify "all" investment securities
as available for sale.
G. Loans Receivable and Allowance for Loan Losses
Loans receivable are stated at the amount of unpaid principal,
less net deferred loan fees and the allowance for loan losses.
The allowance for loan losses is established through a provision
for loan losses charged to expense. Loans are charged against
the allowance for loan losses when management believes that the
collectibility of the principal is unlikely. The allowance is an
amount that management believes will be adequate to absorb
possible losses on existing loans that may become uncollectible,
based on evaluations of the collectibility of loans and prior
loan loss experience. The evaluations take into consideration
such factors as changes in the nature and volume of the loan
portfolio, overall portfolio quality, review of specific problem
loans and current economic conditions that may affect the
borrowers' ability to pay.
Accrual of interest is discontinued on a loan when management
believes that the borrowers' financial condition is such that
collection of interest is doubtful. This generally occurs when
payment of principal or interest is past due three months or
more and there is no insurance or guaranty as to payment.
F-11
<PAGE>
GOSHEN SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. (Continued)
G. Loans Receivable and Allowance for Loan Losses (Continued)
Effective January 1, 1995, the Bank adopted SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan. "Under the
provision of SFAS No 114, a loan is considered impaired when
based on current information and events, it is probable that a
creditor will be unable to collect all amounts due according to
the contractual terms of the loan agreement. SFAS No. 114
requires creditors to measure impairment of a loan based on the
present value of expected future cash flows discounted at the
loan's effective interest rate or at the loan's observable
market price or the fair value of the collateral if the loan is
collateral dependent. If the measure of the impaired loan is
less than the recorded investment in the loan, a creditor shall
recognize an impairment by recording a valuation allowance with
a corresponding charge to bad debt expense. This statement also
applies to restructured loans and eliminates the requirement to
classify loans that are in-substance foreclosures as foreclosed
assets except for loans where the creditor has physical
possession of the underlying collateral, but not legal title.
Effective January 1, 1996, the Bank also adopted SFAS No. 118,
"Accounting by Creditors for Impairment of a Loan-Income
Recognition and Disclosures," which amends SFAS No. 114 to allow
a creditor to use existing methods for recognizing interest
income on impaired loans. SFAS No. 114 is applicable to all
loans that are identified for evaluation of impairment, except
for, among other, large groups of smaller-balance homogenous
loans, such as residential mortgage loans and consumer
installment loans, that are collectively evaluated for
impairment and loans that are measured at fair value or the
lower of cost or fair value.
An insignificant payment delay, which is defined by the Bank as
up to 90 days, will not cause a loan to be classified as
impaired. In addition, a loan is not considered impaired when
payments are delayed but the Bank expects to collect all amounts
due, including accrued interest for the period of delay. All
loans identified as impaired are evaluated independently. The
Bank does not aggregate impaired loans for evaluation purposes.
Payments received on impaired loans are applied first to accrued
interest, if any, and then to principal.
H. Banking House and Equipment
Land is carried at cost. Banking house, furniture, fixtures and
equipment are stated at cost, less depreciation. Depreciation is
calculated using the straight-line method based upon the
estimated life of the related assets.
F-12
<PAGE>
GOSHEN SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. (Continued)
I. Investments in Real Estate (Real Estate Owned)
Real estate investments include properties acquired through
legal foreclosure and the properties secured by loans classified
as in-substance foreclosures. These properties are initially
recorded at the lower of cost or the fair value of the property
less estimated selling cost. Any resulting write-downs are
charged to the allowance for loan losses. Thereafter, these
properties are carried at the lower of cost or estimated fair
value less estimated selling cost, with any adjustments recorded
in a valuation allowance. There are no investments in real
estate on the books of the Bank at December 31, 1996, September
30, 1996 and 1995.
J. Income Taxes
In February 1992, the Financial Accounting Standards Board
issued SFAS No. 109, "Accounting for Income Taxes." Under the
asset and liability method of SFAS No. 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 basis. 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. Under SFAS No. 109, the
effect of deferred tax assets and liabilities of a change in tax
rates is recognized as income or expense in the period that
includes the enactment date.
Effective September 30, 1994, the Bank implemented Statement No.
109 with no material effects to the financial condition. The
Bank did not need to report any cumulative effect concerning
this change in the method of accounting.
K. Reclassifications
Amounts in the prior periods' financial statements are
reclassified whenever necessary to conform to current period
presentations.
F-13
<PAGE>
GOSHEN SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
NOTE 2. INVESTMENT SECURITIES - HELD TO MATURITY.
As a result of the Board of Trustees resolution dated December 14,
1995, the Bank has no investment securities held to maturity at
December 31, 1996 or September 30, 1996. A summary comparison of
securities held to maturity by type as of September 30, 1995 is as
follows:
<TABLE>
<CAPTION>
September 30, 1995
------------------
Gross Gross Estimated
Unrealized Unrealized Fair
Description Cost Gains Losses Value
----------- ----------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
United States Treasury $ 5,833,552 $ 561 $ 33,214 $ 5,800,899
United States Government
Agencies 2,933,346 31,545 0 2,964,891
Corporate Debt
Obligations 13,963,912 45,417 75,451 13,933,878
Other 1,018,631 2,433 10,103 1,010,961
----------- ---------- ---------- -----------
$23,749,441 $ 79,956 $ 118,768 $23,710,629
=========== ========== ========== ===========
</TABLE>
On the basis of estimated market values at September 30, 1995, there
is a net depreciation of $38,812 in investment securities.
The amortized cost and approximate fair value of investment
securities held to maturity at September 30, 1995, by contractual
maturity are shown below. Expected maturities will differ from
contractual maturities because certain issuers may have the right to
call or prepay obligations with or without call or prepayment
penalties.
September 30, 1995
------------------
Amortized Approximate
Cost Fair Value
----------- -----------
Due within one year $ 9,469,074 $ 9,666,468
Due one year to five years 14,280,367 14,044,161
----------- -----------
$23,749,441 $23,710,629
=========== ===========
NOTE 3. INVESTMENT SECURITIES - AVAILABLE FOR SALE.
A summary comparison of securities available for sale as of December
31, 1996, September 30, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
December 31, 1996 (Unaudited)
-----------------------------------------------------
Carrying Gross Gross Estimated
Value Unrealized Unrealized Fair
Description (Cost) Gains Losses Value
----------- ----------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
United States Treasury $ 3,012,178 $ 10,741 $ 99 $ 3,022,820
United States Government
Agencies 2,972,372 42,243 0 3,014,615
Corporate Debt Obligations 11,569,417 87,105 6,828 11,649,694
Other Debt Obligations 505,473 128 0 505,601
Equity Securities 2,601,119 222,037 0 2,823,156
----------- ----------- ----------- -----------
$20,660,559 $ 362,254 $ 6,927 $21,015,886
=========== =========== ========== ===========
</TABLE>
F-14
<PAGE>
GOSHEN SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
NOTE 3. INVESTMENT SECURITIES - AVAILABLE FOR SALE. (Continued)
<TABLE>
<CAPTION>
September 30, 1996
------------------
Carrying Gross Gross Estimated
Value Unrealized Unrealized Fair
Description (Cost) Gains Losses Value
----------- ----------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
United States Treasury $ 4,717,714 $ 4,808 $ 8,335 $ 4,714,187
United States Government
Agencies 2,967,353 18,507 2,120 2,983,740
Corporate Debt Obligations 12,042,427 47,229 14,750 12,074,906
Other Debt Obligations 506,046 1,451 2,937 504,560
Equity Securities 2,601,119 202,196 0 2,803,315
----------- ---------- ---------- -----------
$22,834,659 $ 274,191 $ 28,142 $23,080,708
=========== ========== ========== ===========
September 30, 1995
------------------
Carrying Gross Gross Estimated
Value Unrealized Unrealized Fair
Description (Cost) Gains Losses Value
----------- ----------- ----------- ---------- ---------
United States Treasury $ 2,050,796 $ 4,366 $ 1,332 $ 2,053,830
Corporate Equity Securities 1,956,584 116,697 32,872 2,040,409
----------- ----------- ---------- -----------
$ 4,007,380 $ 121,063 $ 34,204 $ 4,094,239
=========== =========== ========== ===========
</TABLE>
The amortized cost and approximate fair value of securities
available for sale at December 31, 1996, September 30, 1996 and
1995, by contractual maturity, are shown below. Expected maturities
will differ from contractual maturities because certain issuers may
have the right to call or prepay obligations with or without call or
prepayment penalties.
(Unaudited)
December 31, 1996
-----------------
Amortized Approximate
Cost Fair Value
----------- -----------
Due within one year $ 6,279,294 $ 6,294,723
Due one year to five years 11,780,146 11,898,007
Due over five years 2,601,119 2,823,156
----------- -----------
Total $20,660,559 $21,015,886
=========== ===========
September 30, 1996
------------------
Amortized Approximate
Cost Fair Value
----------- -----------
Due within one year $ 8,796,071 $ 8,793,412
Due one year to five years 11,437,469 11,483,981
Due over five years 2,601,119 2,803,315
----------- -----------
Total $22,834,659 $23,080,708
=========== ===========
F-15
<PAGE>
GOSHEN SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
NOTE 3. INVESTMENT SECURITIES - AVAILABLE FOR SALE. (Continued)
September 30, 1995
------------------
Amortized Approximate
Cost Fair Value
----------- -----------
Due within one year $ 506,525 $ 506,015
Due one year to five years 1,544,271 1,547,815
Due over five years 1,956,584 2,040,409
----------- -----------
Total $ 4,007,380 $ 4,094,239
=========== ===========
Proceeds from the sale of securities available for sale were
approximately $700 thousand and $1 million during the years ended
September 30, 1996 and 1995 respectively, which resulted in gross
realized gains of approximately $120 thousand and $14 thousand,
respectively and gross realized losses of approximately $5 thousand
and $0 thousand, respectively. There were no sales of securities
available for sale during the three months ended December 31, 1996
and 1995, respectively.
NOTE 4. FEDERAL HOME LOAN BANK STOCK.
As a member of the Federal Home Loan Bank ("FHLB") system, the Bank
is required to maintain a minimum investment in FHLB stock. The
current investment exceeds (unaudited) the required level at
December 31, 1996. Any excess may be redeemed by the Bank or called
by the FHLB at par. At its discretion, the FHLB may declare
dividends on this stock. The Bank has $598,900 invested in FHLB
stock at December 31, 1996, which is included in Equity Securities
in Note 3.
NOTE 5. MORTGAGE BACKED SECURITIES - HELD TO MATURITY.
Mortgage backed securities held to maturity at December 31, 1996,
September 30, 1996 and 1995, consists of Federal National Mortgage
Association (FNMA), Federal Home Loan Mortgage Corporation (FHLMC)
and Government National Mortgage Association (GNMA) and are
summarized as follows:
<TABLE>
<CAPTION>
December 31, 1996 (Unaudited)
-----------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair Market
Cost Gains Losses Value
--------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Mortgage Backed
Securities $6,173,152 $128,653 $ 49,404 $6,252,401
========== ======== ======== ==========
September 30, 1996
-----------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair Market
Cost Gains Losses Value
--------- ---------- ---------- -----------
Mortgage Backed
Securities $6,473,727 $84,082 $ 28,599 $6,529,210
========== ======= ======== ==========
</TABLE>
F-16
<PAGE>
GOSHEN SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
NOTE 5. MORTGAGE BACKED SECURITIES - HELD TO MATURITY (Continued).
<TABLE>
<CAPTION>
September 30, 1995
------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair Market
Cost Gains Losses Value
--------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Mortgage Backed
Securities $ 4,403,974 $ 114,581 $ 26,336 $ 4,492,219
=========== ========= ========== ===========
</TABLE>
The amortized cost and approximate fair market value of mortgage
backed securities at December 31, 1996, September 30, 1996 and 1995,
by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because certain issuers may have
the right to call or prepay obligations with or without call or
prepayment penalties.
(Unaudited)
December 31, 1996
-----------------
Amortized Approximate
Cost Fair Value
--------- -----------
Due within one year $ 0 $ 0
Due one year to five years 2,873,553 2,843,401
Due five to ten years 781,121 792,000
Due after ten years 2,518,478 2,617,000
----------- -----------
Total $ 6,173,152 $ 6,252,401
=========== ===========
September 30, 1996
------------------
Amortized Approximate
Cost Fair Value
--------- -----------
Due within one year $ 24,098 $ 29,582
Due one year to five years 2,987,645 2,928,628
Due five to ten years 798,074 800,000
Due after ten years 2,663,910 2,771,000
----------- -----------
Total $ 6,473,727 $ 6,529,210
=========== ===========
September 30, 1995
------------------
Amortized Approximate
Cost Fair Value
--------- -----------
Due within one year $ 0 $ 0
Due one year to five years 2,195,603 1,751,965
Due five to ten years 1,347,158 1,347,666
Due after ten years 861,213 1,392,588
----------- -----------
Total $ 4,403,974 $ 4,492,219
=========== ===========I
F-17
<PAGE>
GOSHEN SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
NOTE 6. LOANS RECEIVABLE, NET.
Loans receivable are summarized as follows:
<TABLE>
<CAPTION>
(Unaudited)
December 31, September 30, September 30,
1996 1996 1995
------------ ----------- -----------
<S> <C> <C> <C>
Loans Secured by Real Estate
----------------------------
One to four family residential $ 53,782,067 $51,380,248 $49,903,937
Commercial real estate 4,344,464 4,456,876 5,125,311
Home equity line of credit loans 2,219,274 2,196,588 2,122,015
------------ ----------- -----------
Total Loans Secured by Real Estate 60,345,805 58,033,712 57,151,263
------------ ----------- -----------
Other Loans
-----------
Loans on savings accounts 144,066 148,156 209,486
Property improvement loans 84,608 103,253 100,360
Education loans 0 0 954
Commercial loans 14,980 14,980 20,114
Consumer and other loans 577,829 571,715 567,634
------------ ----------- -----------
Total Other Loans 821,483 838,104 898,548
------------ ----------- -----------
Total Loans Receivable 61,167,288 58,871,816 58,049,811
Less:
Deferred loan fees 20,835 22,258 15,831
Allowance for losses-loans 133,119 123,015 114,569
------------ ----------- -----------
Loans Receivable, Net $ 61,013,334 $58,726,543 $57,919,411
============ =========== ===========
</TABLE>
The Bank entered into an agreement with the Federal National
Mortgage Association to sell on a loan-by-loan basis, the current
fixed rate mortgage loan originations with the Bank retaining the
servicing for such loans. The Bank sold no loans during the three
months ended December 31, 1996 and the year ended September 30, 1996
and 1995. As a result of sales in prior years, loans which are
serviced by the Bank, which are not included in the statement of
condition, were $7,272,578 at December 31, 1996, $7,350,208 at
September 30, 1996 and $7,977,643 at September 30, 1995.
NOTE 7. ALLOWANCE FOR LOAN LOSSES.
Activity in the allowance for loan losses for the three months ended
December 31, 1996 and 1995 and the years ended September 30, 1996,
1995 and 1994 are summarized as follows:
<TABLE>
<CAPTION>
(Unaudited)
Three Months Ended Years Ended
December 31, September 30,
--------------------- -----------------------
1996 1995 1996 1995 1994
--------- ---------- ---------- ---------- ------
<S> <C> <C> <C> <C> <C>
Balance at Beginning
of Year $ 123,015 $ 114,569 $ 114,569 $ 106,241 $ 91,470
Provision charged to
operations 0 13,500 23,500 29,000 25,000
Loans charged off
Real estate 0 0 0 0 0
Other loans 0 (2,333) (17,962) (22,289) (13,779)
Recoveries
Real estate 0 0 0 0 0
Other loans 10,104 659 2,908 1,617 3,550
--------- ---------- ---------- --------- ---------
Balance at end of period $ 133,119 $ 126,395 $ 123,015 $ 114,569 $ 106,241
========= ========== ========== ========= =========
</TABLE>
F-18
<PAGE>
GOSHEN SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
NOTE 7. ALLOWANCE FOR LOAN LOSSES. (Continued)
The following table sets forth information with regard to
non-performing loans:
<TABLE>
<CAPTION>
(Unaudited)
December 31, September 30,
1996 1996 1995
---------- ----------- -----------
<S> <C> <C> <C>
Loans in non-accrual status $ 0 $ 15,526 $ 157,421
======= ======== =========
</TABLE>
There were no troubled debt restructurings at December 31, 1996,
September 30, 1996, or 1995.
Accumulated interest on non-accrual loans, as shown above, collected
and recognized as interest income for the three months December 31,
1996 and 1995, and the years ended September 30, 1996, 1995 and
1994, was not material to equity or total interest income.
NOTE 8. BANKING HOUSE AND EQUIPMENT.
Banking House and equipment at December 31, 1996, September 30, 1996
and 1995 are summarized by major classification as follows:
<TABLE>
<CAPTION>
(Unaudited)
December 31, September 30,
1996 1996 1995
---------- ----------- -----------
<S> <C> <C> <C>
Land $1,111,997 $1,111,997 $1,111,997
Buildings and improvements 891,058 901,769 946,576
Furniture, fixtures and equipment 223,540 247,690 267,193
---------- ---------- ----------
Banking House and Equipment, Net $2,226,595 $2,261,456 $2,325,766
========== ========== ==========
</TABLE>
The Bank records depreciation expense directly against the cost of
the related asset and does not utilize an accumulated depreciation
account. Amounts charged to depreciation expense were $38,060 for
the three months ended December 31, 1996, and $142,406 and $141,884
for the years ended September 30, 1996 and 1995, respectively.
NOTE 9. ACCRUED INTEREST RECEIVABLE.
A summary of accrued interest receivable as of December 31, 1996,
September 30, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
(Unaudited)
December 31, September 30,
1996 1996 1995
---------- ----------- -----------
<S> <C> <C> <C>
Securities available for sale $ 298,719 $ 326,364 $ 48,229
Investment securities held to
maturity 0 0 429,851
Loans receivable 348,662 338,454 324,998
--------- --------- --------
Total Accrued Interest Receivable $ 647,381 $ 664,818 $803,078
========= ========= ========
</TABLE>
F-19
<PAGE>
GOSHEN SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
NOTE 10. SAVINGS DEPOSITS.
Savings deposits are summarized as follows:
<TABLE>
<CAPTION>
(Unaudited)
December 31, 1996 September 30, 1996 September 30, 1995
----------------- ------------------ ------------------
Type of No. of No. of No. of
Accounts Accounts Amount Accounts Amount Accounts Amount
-------- -------- ------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
Regular savings 5286 $26,134,273 5304 $26,804,675 5886 $27,198,034
Certificates of deposit 2442 37,959,268 2476 38,337,637 2725 43,035,042
Demand 3875 18,489,778 3915 18,299,519 3945 17,859,625
-----------------------------------------------------------
11603 $82,583,319 11695 $83,441,831 12556 $88,092,701
===== =========== ===== =========== ===== ===========
</TABLE>
The approximate amount of contractual maturities of certificate of
deposit accounts for the twelve month periods subsequent to December
31, 1996, are as follows:
Twelve month periods ended December 31,
---------------------------------------
1997 $ 32,937,233
1998 3,607,024
1999 942,007
2000 453,003
2001 20,001
------------
$ 37,959,268
============
The approximate amount of contractual maturities of certificate of
deposit accounts for the twelve month periods subsequent to
September 30, 1996, are as follows:
Twelve month periods ended September 30,
----------------------------------------
1997 $ 33,298,554
1998 3,682,061
1999 733,012
2000 612,010
2001 12,000
------------
$ 38,337,637
============
The approximate amount of contractual maturities of certificate of
deposit accounts for the twelve month periods subsequent to
September 30, 1995, are as follows:
Twelve month periods ended September 30,
----------------------------------------
1996 $ 36,915,042
1997 4,163,000
1998 804,000
1999 593,000
2000 560,000
------------
$ 43,035,042
============
At December 31, 1996, September 30, 1996 and 1995, the aggregate of
time deposit accounts with balances equal to or in excess of
$100,000 was approximately $1.7 million, $1.5 million and $2.5
million, respectively. Deposits in excess of $100,000 are not
Federally insured.
F-20
<PAGE>
GOSHEN SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
NOTE 10. SAVINGS DEPOSITS. (Continued)
Interest expense on deposits for the three months ended December 31,
1996 and 1995, and the years ended September 30, 1996, 1995, and
1994 is summarized as follows:
<TABLE>
<CAPTION>
(Unaudited)
Three Months Ended Years Ended
December 31, September 30,
------------------ -----------
1996 1995 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Regular savings $196,042 $201,917 $ 814,000 $ 886,756 $1,036,739
Certificates of deposit 466,581 601,273 2,126,326 1,883,494 1,152,489
Demand 101,538 109,873 421,133 486,612 495,135
Escrow 19 0 3,107 3,404 1,504
-------- -------- ---------- ---------- ----------
$764,180 $913,063 $3,364,566 $3,260,266 $2,685,867
======== ======== ========== ========== ==========
</TABLE>
NOTE 11. BORROWED FUNDS.
As of December 31, 1996, the Bank has a line of credit in the amount
of $4,900,600 from the Federal Home Loan Bank. The Bank has used
$1,000,000 of this line of credit. Interest paid on these borrowed
funds for the three months ended December 31, 1996 was approximately
$16,000.
Borrowed funds at September 30, 1995, are $1,000,000 related to a
repurchase agreement with Nationar. The interest paid on the reverse
repurchase agreement through September 30, 1995 was approximately
$22,000. Interest was not accrued on this debt after the New York
State Banking Department seized the operations of Nationar on
February 6, 1995. The Bank also paid interest on line of credit
advances during 1995 which totaled $6,443.
In addition, at September 30, 1996, the Bank recognized $38,700 of
interest expense representing interest allocable to fiscal 1995
related to a repurchase agreement with Nationar. When the assets of
Nationar were frozen, the Bank believed that it would be permitted
to offset the repurchase agreement, against its frozen deposit
accounts at Nationar so no interest cost should be accrued on the
repurchase agreement. However, when the Superintendent made his
first distribution to the Bank on account of its Nationar claim in
fiscal 1996, the Bank was charged $82,900 for interest on the
repurchase agreement, of which $38,700 was on account of interest
during fiscal year 1995.
NOTE 12. EMPLOYEE BENEFITS.
Retirement Plans:
A. Pension Plan
The Bank has a non-contributory defined benefit pension plan
covering substantially all of its employees. Current and past
service pension costs are funded as accrued. The Bank has recorded
pension expense for this period in accordance with SFAS #87.
F-21
<PAGE>
GOSHEN SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
NOTE 12. EMPLOYEE BENEFITS. (Continued)
A. Pension Plan (Continued)
The following table sets forth the plan's funded status and amounts
recognized in the Bank's statement of financial condition as of
December 31, 1996 and December 31, 1995. (The plan's funded status
as of September 30, 1996 and 1995 were not available.)
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Actuarial present value of benefit
obligations:
Accumulated benefit obligation $ 1,966,800.00 $ 1,846,829.00
============== ==============
Projected benefit obligation for service
rendered to date $(2,553,400.00) $(2,397,727.00)
Plan assets at fair value 2,928,200.00 2,496,122.00
-------------- --------------
Plan assets in excess of projected benefit 374,800.00 98,395.00
Amount contributed during fourth quarter 22,700.00 38,722.00
Unrecognized net (gain) loss from past
experience different from that assumed
and effects of changes in assumptions (46,500.00) 209,288.00
Prior service cost not yet recognized in
net periodic pension cost 19,500.00 23,430.00
Unrecognized net asset being
recognized over 11.81 years (70,200.00) (87,345.00)
-------------- --------------
(Accrued) prepaid pension cost $ 300,300.00 $ 282,490.00
============== ==============
Net pension cost for 1996 and 1995 included the following
components:
December 31, December 31,
1996 1995
-------------- ----------
Service cost - benefits earned during
the period $ 109,482.00 $ 99,791.00
Interest cost on projected benefit
obligation 177,770.00 161,901.00
Actual return on plan assets (364,532.00) (430,730.00)
Amortization of unrecognized transition
asset (17,159.00) (17,159.00)
Amortization of unrecognized loss 0.00 9,342.00
Amortization of past service liability 3,965.00 3,965.00
Amortization of deferred investment loss
liability 163,474.00 270,046.00
-------------- --------------
Net Pension Expense $ 73,000.00 $ 97,156.00
============== ==============
</TABLE>
F-22
<PAGE>
GOSHEN SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
NOTE 12. EMPLOYEE BENEFITS. (Continued)
A. Pension Plan (Continued)
The weighted average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value
of the projected benefits obligation for both years were 7.0 percent
and 5.5 percent respectively. The expected long-term rate of return
on assets was 8.0 percent.
The pension expense was $73,000 and $97,156 for the years ended
December 31, 1996 and 1995 respectively.
B. Profit Sharing Plan
On May 1, 1993, the Bank placed in effect a profit sharing trust
retirement plan (a defined contribution plan) which covers all
eligible employees and includes an employees' thrift savings plan
established under the provisions of Internal Revenue Code Section
401(k). Profit sharing contributions will be made as a matching of
the employees voluntary before-tax contributions up to a maximum of
three percent of the individual employees' salary. The employer may,
from time to time, change the plan to provide for a different
matching contribution. Employees will be notified of any change
made. The Bank's contributions to the profit sharing retirement plan
amounted to $6,065 and $5,716 for the three months ended December
31, 1996 and 1995, respectively and $28,295 and $27,185 for the
fiscal years ended September 30, 1996 and 1995, respectively.
The Bank has every intention of continuing to offer the plan to all
eligible employees. However, the Bank reserves the right to change,
amend, modify, or even terminate the plan, if necessary. Termination
of the plan is unlikely, but should it happen, the eligible
employees will receive the full value of their plan accounts.
C. Other Retirement Benefits
In addition to pension benefits, the Bank provides certain health
care and life insurance benefits for retired employees and their
spouses. Employees will become eligible for these benefits if they
reach normal retirement age (60) and have worked for the Bank for 23
years.
SFAS No. 106, issued in December 1990, requires that the cost of
postretirement benefits other than pensions be recognized on an
accrual basis as employees perform services to earn the benefits.
This is a significant change from the prevalent current practice of
accounting for these benefits on a pay-as-you-go (cash) basis. The
cumulative postretirement benefit obligation (APBO) at the date of
adoption (the "transition obligation") may be recognized in income
as the cumulative effect of an accounting change in the period of
adoption or over future periods as a component of the postretirement
benefit cost. During the year ended September 30, 1995, the Bank
adopted SFAS No. 106. At the adoption date, the transition
obligation amounted to $655,750. The Bank recorded this charge to
earnings as the cumulative effect of an accounting change, net of
related taxes $262,000.
F-23
<PAGE>
GOSHEN SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
NOTE 12. EMPLOYEE BENEFITS. (Continued)
C. Other Retirement Benefits (Continued)
The following is a reconciliation of the funded status of the plan
at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
----------------- -----------------
Accumulated Postretirement Benefit Obligation
<S> <C> <C>
Retirees $ 262,100 $ 280,317
Active employees fully eligible for benefits 202,300 193,188
Other active employees 495,200 457,874
---------- -----------
Total 959,600 931,379
Unrecognized gain (loss) (177,900) (224,451)
Fair value of plan assets 0 0
---------- -----------
Accrued postretirement benefits $ 781,700 $ 706,928
========== ===========
</TABLE>
The components of the net periodic postretirement benefit cost for 1996 and
1995 are as follows:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
----------------- -----------------
<S> <C> <C>
Service cost $ 24,300 $ 24,260
Interest cost 74,900 70,450
Amortization of unrecognized gain (loss) 8,300 13,237
---------- -----------
Postretirement benefit cost $ 107,500 $ 107,947
========== ===========
</TABLE>
A discount rate of 7.75%, an annual rate of salary increases of 6.5%
and a 9.5% increase in the assumed health care costs reducing
linearly to 5.5% in the year 2005, were used to determine the APBO
at December 31, 1996 and a discount rate of 8.25%, an annual rate of
salary increases of 6.5% and a 10% increase in the assumed health
care costs reducing linearly to 5.5% in the year 2005, were used to
determine the APBO at December 31, 1995.
NOTE 13. INCOME TAXES.
The following is a summary of the components of income tax expense
for the three months ended December 31, 1996 and 1995, and the years
ended September 30, 1995 and 1994:
The components of income tax expense as of September 30, 1996, are
as follows:
<TABLE>
<CAPTION>
(Unaudited)
Three Months Ended Years Ended
December 31, September 30,
---------------------- ----------------------
1996 1995 1996 1995 1994
---------- --------- --------- ---------- -------
<S> <C> <C> <C> <C> <C>
Current tax:
Expense $ 204,000 $ 66,500 $ 395,000 $ 209,000 $ 167,000
Deferred tax (benefit):
Expense (79,400) (3,500) (43,600) (225,000) 134,000
--------- -------- --------- --------- ---------
Income tax expense $ 124,600 $ 63,000 $ 351,400 $ (16,000) $ 301,000
========= ======== ========= ========= =========
</TABLE>
F-24
<PAGE>
GOSHEN SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
NOTE 13. INCOME TAXES. (Continued)
Income tax expense for financial reporting purposes is less than the
amount computed by applying the statutory federal income tax rate of
34% to income taxes for the reasons noted in the table below:
<TABLE>
<CAPTION>
(Unaudited)
Three Months Ended Years Ended
December 31, September 30,
---------------------- ----------------------
1996 1995 1996 1995 1994
---------- --------- --------- ---------- -------
<S> <C> <C> <C> <C> <C>
Expense at statutory
federal tax rate $ 142,800 $ 54,800 $ 309,000 $ (28,600) $ 208,000
Tax-exempt income (850) (850) (1,700) (1,700) (1,700)
State income taxes, net
of federal tax benefit 29,200 11,200 60,400 (5,600) 42,500
Other, net (46,550) (2,150) (16,300) 19,900 52,200
--------- -------- --------- --------- ---------
Income tax expense $ 124,600 $ 63,000 $ 351,400 $ (16,000) $ 301,000
========= ======== ========= ========= =========
Effective tax rate 29.7% 39.1% 38.6% (19.0%) 49.2%
</TABLE>
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and liabilities at
December 31, 1996, September 30, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
December 31, September 30,
1995 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Deferred tax assets:
Postretirement employee benefits $ 322,500 $ 313,800 $ 262,000
Allowance for loan losses 54,500 50,400 46,900
Mark to market securities tax 90,900 82,800 34,600
Other 23,900 24,500 51,000
--------- --------- ---------
Total deferred tax assets 491,800 471,500 394,500
--------- --------- ---------
Deferred tax liabilities:
Depreciation 67,600 87,500 101,200
Prepaid pension costs 123,000 121,300 92,700
Tax bad debt reserve over the base year 114,200 155,100 136,600
--------- --------- ---------
Total deferred tax liabilities 304,800 363,900 330,500
--------- --------- ---------
Net deferred tax asset (liability)
at the end of period 187,000 107,600 64,000
Net deferred tax asset (liability)
at the beginning of period 107,600 64,000 (289,000)
--------- --------- ---------
Deferred tax benefit for the period $ (79,400) $ (43,600) $(225,000)
========= ========= =========
</TABLE>
F-25
<PAGE>
GOSHEN SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
NOTE 13. INCOME TAXES. (Continued)
In addition to the deferred tax amounts described above, the Bank
also had a deferred tax liability of approximately $148 thousand,
$103 thousand and $36 thousand at December 31, 1996, September 30,
1996 and September 30, 1995, respectfully related to the net
unrealized gain on securities available for sale.
As a qualifying thrift institution under IRS guidelines, the Bank is
allowed a special bad debt deduction which has not been subject to
deferred taxes through December 31, 1987 in accordance with SFAS No.
109. Accordingly, no deferred tax liability has been recorded for
the tax bad debt reserve at December 31, 1987. This reserve, along
with the "supplemental" reserve was approximately $921 thousand at
December 31, 1987, will not be subject to tax as long as the Bank
continues to qualify as a thrift for IRS purposes.
NOTE 14. NATIONAR LIQUIDATION.
At the close of business, February 6, 1995, the Superintendent of
Banks of the State of New York took possession of Nationar. Nationar
is a bank wholly-owned by Savings Banks in New York State and is
regulated by the New York State Banking Department. Nationar
provides banks with item processing, deposit accounts, securities
safekeeping, trust services, credit, cash and investment management
services.
Goshen Savings Bank at September 30, 1995, had recorded a provision
for losses in the amount of $278,623. The provision is allocated as
$232,223 netted against the demand account balance and $46,400
against Nationar debentures and stock. The liquidation of Nationar
by the New York State Banking Department has reflected that the
losses were less than originally anticipated and the Bank was able
to reverse the provision for losses on Nationar accounts by the
amount of $232,223 during the year ended September 30, 1996.
NOTE 15. COMMITMENTS AND CONTINGENCIES.
The Bank is a party to certain financial instruments with
off-balance sheet risk in the normal course of business to meet the
financing needs of its customers. These financial instruments
include commitments to extend credit. Those instruments involve, to
varying degrees, elements of credit risk in excess of the amount
recognized on the statement of financial condition. The contract
amounts of those instruments reflect the extent of involvement the
Bank has in particular classes of financial instruments.
F-26
<PAGE>
GOSHEN SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
NOTE 15. COMMITMENTS AND CONTINGENCIES. (Continued)
The Bank's exposure to credit loss in the event of nonperformance by
the other party to the commitments to extend credit is represented
by the contractual notional amount of those instruments. The Bank
uses the same credit policies in making commitments as it does for
on-balance-sheet instruments.
Unless otherwise noted, the Bank does not require collateral or
other security to support off-balance-sheet financial instruments
with credit risk.
A. Commitments Pending
Contract amounts of financial instruments that represent credit risk
are as follows:
<TABLE>
<CAPTION>
(Unaudited) (Unaudited) (Unaudited)
December 30, September 30, September 30,
Commitments Pending 1996 1996 1995
------------------- ------------ ------------- ---------
<S> <C> <C> <C>
Mortgage Loans $ 2,195,700 $ 2,525,875 $ 702,490
Equity Line of Credit:
Available Draw 1,196,962 1,104,587 1,156,083
Overdraft Checking 180,358 176,823 168,993
----------- ----------- -----------
$ 3,573,020 $ 3,807,285 $ 2,027,566
=========== =========== ===========
</TABLE>
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of
the commitments are expected to expire without being fully drawn
upon, the total commitment amounts do not necessarily represent
future cash requirements. The Bank evaluates each customer's credit
worthiness on a case-by-case basis. The amount of collateral, if
any, required by the Bank upon the extension of credit is based on
management's credit evaluation of the customer. Mortgage and
construction loan commitments are secured by a first lien on real
estate. Collateral on extensions of credit for commercial loans
varies but may include accounts receivable, inventory, property,
plant and equipment and income producing commercial property.
B. Environmental Contingency
Subsequent to the audit date of September 30, 1996, the Bank
determined that there were underground oil tanks on the Village of
Goshen property that had contaminated the soil on the Bank's
property. This resulted in the Bank, with the assistance of the
Village, to properly plan for the removal of both the tanks and the
contaminated soil to correct this environmental problem. At December
31, 1996, time, the cost for this cleanup was not available,
however, the Bank does not anticipate this to be material.
F-27
<PAGE>
GOSHEN SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
NOTE 16. BANK INSURANCE FUND.
The Bank is a member of the Bank Insurance Fund (BIF) of the Federal
Deposit Insurance Corporation (FDIC), and the Bank pays all of its
deposit insurance assessments to the BIF of the FDIC.
For the first three quarters of 1995, BIF member institutions paid
deposit insurance premiums based on a schedule ranging from $0.23 to
$0.31 per $100.00 of deposits. Applicable law requires that the BIF
be recapitalized to a ratio of 1.25% of reserves to deposits.
In August 1995, the FDIC, in anticipation of the BIF's imminent
achievement of the 1.25% reserve ratio, reduced the deposit
insurance premium rates paid by BIF insured banks from a range of
$0.23 to $0.31 per $100.00 of deposits to a range of $0.04 to $0.31
per $100.00 of deposits. The new rate schedule for the BIF was made
effective June 1, 1995. The FDIC refunded to BIF insured
institutions the premium they had paid for the period beginning on
June 1, 1995, and the Bank received a refund in the amount of
$53,716. The refunded premium amount was recorded as an offset to
the FDIC assessment expense. For the three months ended December 31,
1996 and 1995, the net FDIC assessment expense amounted to $0 and
$8,708, respectively and for the years ended September 30, 1996,
1995, and 1994, net FDIC assessment expense amounted to $10,708,
$142,402 and $200,194, respectively.
NOTE 17. INSURANCE OF ACCOUNTS AND REGULATORY CAPITAL.
FDICIA was signed into law on December 19, 1991. Regulations
implementing the prompt corrective action provisions of FDICIA
became effective on December 19, 1992. In addition to the prompt
corrective action requirements, FDICIA includes significant changes
to the legal and regulatory environment for insured depository
institutions, including reductions in insurance coverage for certain
kinds of deposits, increased supervision by the federal regulatory
agencies, increased reporting requirements for insured institutions,
and new regulations concerning internal controls, accounting, and
operations.
The prompt corrective action regulations define specific capital
categories based on an institution's capital ratios. The capital
categories, in declining order are "well capitalized", "adequately
capitalized", "undercapitalized", "significantly undercapitalized",
and "critically undercapitalized". Institutions categorized
as"undercapitalized" or worse are subject to certain restrictions,
including the requirement to file a capital plan with their primary
federal regulator, prohibitions on the payment of dividends and
management fees, restrictions on executive compensation, and
increased supervisory monitoring, among other things. Other
restrictions may be imposed on the institution either by its primary
federal regulator, the New York State Banking Department or by the
Federal Deposit Insurance Corporation (FDIC), including requirements
to raise additional capital, sell assets, or sell the entire
institution. Once an institution becomes "critically
undercapitalized", it must generally be placed in receivership or
conservatorship within 90 days.
F-28
<PAGE>
GOSHEN SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
NOTE 17. INSURANCE OF ACCOUNTS AND REGULATORY CAPITAL. (Continued)
FIRREA was signed into law on August 9, 1989; regulations for
savings institutions' minimum capital requirements went into effect
on December 7, 1989. In addition to its capital requirements,
FIRREA includes provisions for changes in the federal regulatory
structure for institutions, including a new deposit insurance
system, increased deposit insurance premiums, and restricted
investment activities with respect to noninvestment grade corporate
debt and certain other investments. FIRREA also increases the
required ratio of housing-related assets in order to qualify as a
savings institution.
Current regulations require savings institutions to have a minimum
regulatory tangible capital equal to 1.5% of adjusted total assets,
a minimum 4% core/ leverage capital ratio, a minimum 4% tier 1
risk-based ratio, and a minimum 8% total risk-based capital ratio
to be considered "adequately capitalized". An institution is deemed
to be "critically undercapitalized" if it has a tangible equity
ratio of 2% or less.
At December 31, 1996, the Bank complied with all the capital
requirements described above as shown below:
<TABLE>
<CAPTION>
Unaudited - Regulatory
----------------------
Core/ Tier I Total
GAAP Tangible Leverage Risk Based Risk Based
Capital Capital Capital Capital Capital
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Per GAAP $12,106,192 $12,106,192 $12,106,192 $12,106,192 $12,106,192
=========== =========== =========== =========== ===========
Supplemental Capital Items:
General valuation
allowance 0 0 0 133,119
Unrealized (gains) on
securities available
for sale (207,155) (207,155) (207,155) (207,155)
----------- ----------- ----------- -----------
Regulatory Capital $11,899,037 $11,899,037 $11,899,037 $12,032,156
=========== =========== =========== ===========
Total Assets $96,966,433
===========
Adjusted Total Assets $96,759,278 $96,759,278
=========== ===========
Risk Weighted Assets $55,067,000 $55,067,000
=========== ===========
Capital Ratio 12.30% 12.30% 21.61% 21.85%
===== ===== ===== =====
Regulatory Capital Categories
Well Capitalized if Equal
to or Greater Than 6.0%
===
Adequately Capitalized if Equal
to or Greater Than 1.5%
===
Undercapitalized if Less Than 4.0% 8.0%
=== ===
</TABLE>
F-29
<PAGE>
GOSHEN SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
NOTE 18. FAIR VALUE OF FINANCIAL INSTRUMENTS.
SFAS No. 107, "Disclosures about Fair Value of Financial
Instruments", requires the Bank to disclose estimated fair values
for its financial instruments. Whenever possible, quoted market
prices are used to estimate the fair value of a financial
instrument. An active market does not exist, however, for many
financial instruments. As a result, fair value estimates are made,
as of a specific date, based on judgments regarding future expected
cash flows, current economic conditions, risk factors and other
characteristics of the financial instrument. These estimates are
subjective in nature and involve uncertainties. Changes in these
judgments often have a material impact on the fair value estimates.
In addition, since these estimates are made as of a specific date,
they are susceptible to material changes in the near future. The
information presented is based on pertinent information available
to management as of each period presented. Although management is
not aware of any factors, other than changes in interest rates,
that would significantly affect the estimated fair values, the
current estimated value of these instruments may have changed
significantly since that point in time.
While these estimated fair value amounts are designed to represent
estimates of the amounts at which these instruments could be
exchanged in a current transaction between willing parties
(excluding the value of customer relationships), many of the Bank's
financial instruments lack an available trading market as
characterized by willing parties engaged in an exchange
transaction. In addition, it is the Bank's intent to hold most of
its financial instruments to maturity, therefore, it is not
probable that the fair values shown will be realized in a current
transaction. The estimated fair values disclosed do not reflect the
value of assets and liabilities that are not considered financial
instruments. In addition, the value of long-term relationships with
depositors (core deposit intangibles) and other customers are not
reflected. The value of these items is significant.
The following describes the methodology and assumptions used to
estimate fair value of financial instruments required by SFAS 107.
Cash and short-term investments. Cash and short-term investments
are by definition short-term and do not present any unanticipated
credit issues. Therefore, the carrying amount is a reasonable
estimate of fair value.
Securities. The estimated fair values of securities by type are
provided in Note 3 to the financial statements. These are based on
quoted market prices, when available. If a quoted market price is
not available, fair value is estimated using quoted market prices
for similar securities.
F-30
<PAGE>
GOSHEN SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
NOTE 18. FAIR VALUE OF FINANCIAL INSTRUMENTS. (Continued)
Mortgage-backed Securities
The fair value of mortgage-backed securities is estimated based on
bid prices published in financial newspapers or bid quotations
received from securities dealers.
Loans. The Bank's management has determined that the carrying
amounts of the loan portfolio approximates the estimated fair
value. Quoted market prices are not available for the loan
portfolio. The cost of determining the fair values of the loan
portfolio would be excessive.
Deposits. Under SFAS 107, the fair value of deposits with no stated
maturity is equal to the amount payable on demand. Therefore, the
fair value estimates for these products do not reflect the benefits
that the Bank receives from the low-cost, long-term funding they
provide. These benefits are significant. Quoted market prices are
not available for fixed rate time deposits. The estimated fair
value of these financial instruments has not been determined
through an independent valuation because the cost to do so would be
excessive. Management feels that the carrying amount of fixed rate
deposits are reasonable estimates of the fair values of these
financial instruments.
The following is a summary of the carrying values and estimated
fair values of the Bank's financial instruments at December 31,
1996 and September 30, 1996:
<TABLE>
<CAPTION>
(Unaudited)
December 31, 1996 September 30, 1996
----------------- ------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Financial Assets:
Cash and Cash Equivalents $ 5,478,800 $ 5,478,800 $ 4,683,955 $ 4,683,955
Securities Available
for Sale 21,015,886 21,015,886 23,080,708 23,080,708
Mortgage Backed Securities -
Held to Maturity 6,173,152 6,252,401 6,473,726 6,529,210
Loans Receivable 61,013,334 61,013,334 58,726,543 58,726,543
Financial Liabilities:
Deposits 82,583,319 82,583,319 83,441,831 83,441,831
</TABLE>
F-31
<PAGE>
GOSHEN SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
NOTE 19. SUBSEQUENT EVENT - ADOPTION OF PLAN OF CONVERSION. (Unaudited)
On February 6, 1997, the Board of Trustees of the Bank, subject to
regulatory approval and approval by members of the Bank,
unanimously adopted a Plan of Conversion to convert from a New York
State chartered mutual savings bank to a federally chartered
capital stock savings bank with the concurrent formation of a
holding company. The transaction is expected to be accomplished
through the conversion of the Bank's New York State charter to a
federal charter and the sale of the holding company's common stock
in an amount equal to the pro forma market value of the stock after
giving effect to the conversion. A subscription offering of the
sale of the holding company's common stock will be offered on a
priority basis to the Bank's depositors and to a tax-qualified
employee stock ownership plan. Any shares of the holding company's
common stock not sold in the subscription offering are expected to
be offered for sale to the general public. At the time of the
conversion, the Bank will establish a liquidation account in an
amount equal to its total net worth as of the date of the latest
balance sheet appearing in the final prospectus. The liquidation
account will be maintained for the benefit of eligible depositors
who continue to maintain their accounts at the Bank after the
conversion. The liquidation account will be reduced annually to the
extent that eligible depositors have reduced their qualifying
deposits. Subsequent increases will not restore a depositor's
interest in the liquidation account. In the event of a complete
liquidation, each depositor with an interest in the liquidation
account will be entitled to receive a distribution in an amount
proportionate to the current adjusted qualifying balances for
accounts then held. The Bank may not pay dividends that would
reduce stockholders' equity below the required liquidation account
balance.
Under Office of Thrift Supervision (OTS) regulations, limitations
have been imposed on all "capital distributions" by savings
institutions, including cash dividends. The regulation establishes
a three-tiered system of restrictions, with the greatest
flexibility afforded to thrifts which are both well-capitalized and
given favorable qualitative examination ratings by the OTS. For
example, a thrift which is given one of the two highest examination
ratings and has "capital" equal to its fully phased-in regulatory
capital requirements could, after prior notice but without the
prior approval of the OTS, make capital distributions in any year
that would reduce by one-half the amount of its capital which
exceeds its fully phased-in capital requirement, as adjusted to
reflect net income to date during the year. Other thrifts would be
subject to more stringent procedural and substantive requirements,
the most restrictive being prior OTS approval of any capital
distribution.
Conversion costs will be deferred and deducted from the proceeds of
the shares sold in the conversion. If the conversion is not
completed, all costs will be charged to expense. No conversion
costs were incurred as of December 31, 1996.
F-32
<PAGE>
No dealer, salesperson or any other person 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 GSB Financial Corporation or Goshen Savings Bank. 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 GSB
Financial Corporation or Goshen Savings Bank since any of the dates as of which
information is furnished herein or since the date hereof.
TABLE OF CONTENTS
Page
----
Summary .................................................................. 4
Risk Factors ............................................................. 9
Forward-Looking Statements ............................................... 13
Selected Financial Information ........................................... 14
Summary of Recent Developments............................................
GSB Financial Corporation ................................................ 17
Goshen Savings Bank ...................................................... 17
Regulatory Capital Compliance ............................................ 19
Use of Proceeds .......................................................... 20
Dividend Policy .......................................................... 21
Market for the Common Stock .............................................. 21
Pro Forma Data ........................................................... 23
Capitalization ........................................................... 27
Goshen Savings Bank Statements of Income ................................. 28
Management's Discussion and Analysis of Financial
Condition and Results of Operations ..................................... 30
Business of the Company .................................................. 48
Business of the Bank ..................................................... 48
Regulation ............................................................... 68
Taxation ................................................................. 75
Management of the Company ................................................ 77
Management of the Bank ................................................... 78
The Conversion ........................................................... 88
Restrictions on Acquisition of the Company and the Bank .................. 101
Description of Capital Stock of the Company .............................. 106
Description of Capital Stock of the Bank ................................. 107
Transfer Agent and Registrar ............................................. 108
Experts .................................................................. 108
Legal and Tax Opinion .................................................... 108
Additional Information ................................................... 108
Index to Financial Statements ............................................ F-1
Until the later of _____________________, 1997, or 25 days after the
commencement of the Subscription Offering, all dealers effecting transactions in
the registered securities, whether or not participating in this distribution,
may be required to deliver a prospectus. This is in addition to the obligation
of dealers to deliver a prospectus when acting as underwriters and with respect
to their unsold allotments or subscriptions.
1,955,000
Shares
GSB Financial
Corporation
Common Stock
PROSPECTUS
Capital Resources, Inc.
May ___, 1997
<PAGE>
PART II INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
OTS application fee.............................................. $ 8,400
OTS Charter Conversion application............................... 5,200
SEC registration fee(1).......................................... 6,813
NASD filing fee(1)............................................... 2,749
NASDAQ National Market Listing Fee(1)............................ 11,242
Printing, postage and mailing.................................... 58,000
Legal fees and expenses ........................................ 150,000
Financial advisor management fee and expenses.................... 401,678
Accounting fees and expenses .................................. 125,000
Appraiser's fees and expenses (including business plan).......... 30,000
Transfer agent and registrar fees and expenses................... 8,000
Conversion agent fees and expenses ............................. 30,000
Certificate printing............................................. 1,000
Underwriter's legal fees ...................................... 35,000
Blue Sky fees and expenses (including fees of counsel)........... 5,000
Miscellaneous.................................................... 39,418
---------
TOTAL............................................................ $ 917,500
(1) Actual expenses based upon the registration of 2,248,250 shares at $10.00
per share. All other expenses are estimated.
(2) Estimated based upon the sale of 2,248,250 shares at $10.00 per share, with
no commission payable on 8% of the shares purchased by the ESOP and $600,000
estimated to be purchased by directors, officers and employees.
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 11 and 12 of the
Registrant's Certificate of Incorporation provide as follows:
"ARTICLE ELEVEN
INDEMNIFICATION
"A. Each person who was or is made a party or is threatened to be made a party
to or is otherwise involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she is or was a Director or an Officer of the
Corporation or, while a Director or Officer of the Corporation, 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 or in any other capacity while serving shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the General Corporation Law of the State of Delaware, 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, excise taxes or penalties under the Employee
Retirement Income Security Act, and amounts paid in settlement) reasonably
incurred or suffered by such indemnitee in connection therewith; provided,
however, that, except as provided in Section C of this Article the Corporation
shall indemnify any such indemnitee in connection with a proceeding (or part
thereof) initiated by such indemnitee only if such proceeding (or part thereof)
was authorized by the Board of Directors of the Corporation.
"B. The right to indemnification conferred in Section A of this Article shall
include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition (hereinafter
an "advancement of expenses"); provided, however, that, if the General
Corporation Law of the State of Delaware 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 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.
<PAGE>
"C. If a claim under Section A or B of this Article is not paid in full by the
Corporation within sixty days after a written claim has been received by the
Corporation, except in the case of a claim for an advancement of expenses, in
which case the applicable period shall be twenty days, the indemnitee may at any
time thereafter bring suit against the Corporation to recover the unpaid amount
of the claim. If successful in whole or in part in any such suit, or in a suit
brought by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the indemnitee shall 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 General Corporation Law of the State of Delaware. 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 General Corporation Law of the State of Delaware, 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 or otherwise shall be on the Corporation.
"D. The rights to indemnification and to the advancement of expenses conferred
in this Article shall not be exclusive of any other right which any person may
have or hereafter acquire under any statute, the Corporation's Certificate of
Incorporation, 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 General Corporation Law of the State of Delaware.
"F. To the extent that any person who is or was or has agreed to become a
Director or officer of the Corporation is made a witness to any action, suit or
proceeding to which he or she is not a party by reason of the fact that he or
she was, is or has agreed to become a Director or Officer of the Corporation,
or, while a Director or Officer of the Corporation, is or was serving or has
agreed to serve as a Director, Officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, at the
request of the Corporation, such person shall be indemnified against all costs,
charges and expenses actually and reasonable incurred by such person or on such
person's behalf in connection therewith. To the extent that any person who is or
was or has agreed to become an employee or agent of the Corporation is made a
witness to any action, suit or proceeding to which he or she is not a party by
reason of the fact that he or she was, is or has agreed to become an employee or
agent of the Corporation, or is or was serving or has agreed to serve as a
Director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, at the request of the Corporation, such
person may be indemnified against all costs, charges and expenses actually and
reasonable incurred by such person or on such person's behalf in connection
therewith.
"G. 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 with respect to the indemnification and advancement
of expenses of Directors and Officers of the Corporation.
"H. If this Article or any portion shall be invalidated on any ground by any
court of competent jurisdiction, the Corporation shall nevertheless indemnify
each Director or officer, and may indemnify each employee or agent, of the
Corporation as to any costs, charges, expenses (including attorneys' fees and
expenses), judgments, fines and amounts paid in settlement with respect to any
action, suit or proceeding, whether civil, criminal, administrative or
investigative (including an action by or in the right of the Corporation), to
the full extent permitted by any applicable portion of this Article that shall
not have been invalidated and to the fullest extent permitted by applicable law.
<PAGE>
"ARTICLE TWELVE
LIABILITY OF DIRECTORS
"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 General Corporation Law of the
State of Delaware; or (iv) for any transaction from which the Director derived
an improper personal benefit. If the General Corporation Law of the State of
Delaware 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 General Corporation Law of the State of Delaware, 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."
Goshen Savings Bank currently maintains directors' and officers
liability insurance and the Company expects to purchase directors' and officers'
liability insurance consistent with the provisions of the Certificate of
Incorporation as soon as practicable.
The Company expects to enter into employment agreements with certain
executive officers, which agreements are expected to require that the Company
will obtain a directors' and officers' liability policy for the benefits of such
officers or that the Company will indemnify such officers to the fullest extent
provided by law.
The Articles of Incorporation of the Company are filed as Exhibit 3.1.
In addition to said provisions of the Certificate of Incorporation of
the Registrant, Section 145 of the General Corporation Law of the State of
Delaware also provides that a director, officer, employee or agent of the
Registrant who has been successful in defense of any action, suit or proceeding
as described in Section 145(a) or (b) of such law, or in defense of any claim,
issue or matter therein, shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection
therewith.
Item 15. Recent Sales of Unregistered Securities.
None.
<PAGE>
Item 16. Exhibits and Financial Statement Schedules.
The exhibits filed as a part of this Registration Statement are as follows:
(a). List of Exhibits. (Filed herewith unless otherwise noted.)
Exhibit No. Description
1.1 Engagement Letter (Proposal for Marketing Agent Services), dated
January 7, 1997, between Goshen Savings Bank and Capital Resources,
Inc.*
1.2 Form of Agency Agreement between Goshen Savings Bank and Capital
Resources, Inc.
2.1 Plan of Conversion of Goshen Savings Bank (amended)
3.1 Certificate of Incorporation of GSB Financial Corporation*
3.2 Bylaws of GSB Financial Corporation*
3.3 Proposed Federal Stock Charter of Goshen Savings Bank (amended)
3.4 Proposed Federal Stock Bylaws of Goshen Savings Bank (amended)
4.1 Form of Stock Certificate of GSB Financial Corporation*
5.1 Opinion of Serchuk & Zelermyer, LLP regarding legality
8.1 Opinion of Serchuk & Zelermyer, LLP regarding federal and state
taxation
8.2 Opinion of Capital Resources Group, Inc. regarding Subscription Rights*
10.1 Form of Employment Agreement between GSB Financial Corporation and
certain executive officers (amended)
10.2 Form of Employment Agreement between Goshen Savings Bank and certain
executive officers (amended)
10.3 Form of Employee Retention Agreement between Goshen Savings Bank and
certain officers (amended)
10.4 Engagement Letter, dated February 6, 1997, between Goshen Savings Bank
and Capital Resources Group, Inc. for conversion appraisal services and
for services related to the preparation of the business plan*
10.5 Engagement Letter, dated January 7, 1997, between Goshen Savings Bank,
and Capital Resources Group, Inc. for consulting and records management
services*
10.6 Form of Employee Stock Ownership Plan
10.7 Form of Supplementary Retention Agreement between GSB Financial
Corporation and certain officers
23.1 Consent of Nugent & Haeussler, P.C.
23.2 Consent of Serchuk & Zelermyer, LLP
23.3 Consent of Capital Resources Group, Inc.*
24.1 Powers of Attorney*
27.1 Financial Data Schedule (Submitted only with filing in electronic
format)*
99.1 (P) Appraisal Report of Capital Resources Group, Inc, dated March 14,
1997**
99.2 Form of Marketing Materials to be used in connection with the
Offerings
99.3 Pre-Effective Amendment Number 1 filing letter and response to comments
* Previously filed as Exhibit to Registration Statement on Form S-1 as filed
with the Securities and Exchange Commission under Reg. No. 333-23573.
** Filed in paper format pursuant to exemption letter of the Securities and
Exchange Commission dated April 10, 1997.
(b). Financial Statement Schedules.
All schedules have been omitted as not applicable or not required under the
rules of Regulation S-X.
<PAGE>
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.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective 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 provide to the agent at
the closing specified in the Agency Agreement, certificates in such
denominations and registered in such names as required by the agent to permit
prompt delivery to each purchaser.
Insofar as indemnification by the Registrant for liabilities arising
under the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Amendment One Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
Village of Goshen, State of New York, on April 30, 1997.
GSB Financial Corporation
By: /s/ Clifford E. Kelsey, Jr.
-----------------------------------
Clifford E. Kelsey, Jr., President and
Chief Executive Officer
(duly authorized officer)
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.
<TABLE>
<CAPTION>
Name and Signature Title Date
- ------------------ ----- ----
<S> <C> <C>
/s/ Clifford E. Kelsey, Jr. President, Chief Executive Officer April 30, 1997
- --------------------------- and Director (principal executive officer)
Clifford E. Kelsey, Jr.
/s/ Richard C. Durland Executive Vice President, April 30, 1997
- ---------------------- Treasurer and Director
Richard C. Durland
/s/ Stephen W. Dederick Principal Financial and Accounting April 30, 1997
- ----------------------- Officer
Stephen W. Dederick
* Pursuant to Power of Attorney previously filed as Exhibit 24.1 to the
Registration Statement on Form S-1.
/s/ Clifford E. Kelsey, Jr. Attorney for named directors April 30, 1997
- ---------------------------
Clifford E. Kelsey, Jr.,
as attorney for* Directors
Herbert C. Mueller, Stephen O.
Hopkins, Thomas V. Guarino,
Gene J. Gengel and
Roy L. Lippincott
</TABLE>
<PAGE>
TABLE OF EXHIBITS
1.1 Engagement Letter (Proposal for Marketing Agent Services), dated
January 7, 1997, between Goshen Savings Bank and Capital Resources,
Inc.*
1.2 Form of Agency Agreement between Goshen Savings Bank and Capital
Resources, Inc.
2.1 Plan of Conversion of Goshen Savings Bank (amended)
3.1 Certificate of Incorporation of GSB Financial Corporation*
3.2 Bylaws of GSB Financial Corporation*
3.3 Proposed Federal Stock Charter of Goshen Savings Bank (amended)
3.4 Proposed Federal Stock Bylaws of Goshen Savings Bank (amended)
4.1 Form of Stock Certificate of GSB Financial Corporation*
5.1 Opinion of Serchuk & Zelermyer, LLP regarding legality
8.1 Opinion of Serchuk & Zelermyer, LLP regarding federal and state
taxation
8.2 Opinion of Capital Resources Group, Inc. regarding Subscription Rights*
10.1 Form of Employment Agreement between GSB Financial Corporation and
certain executive officers (amended)
10.2 Form of Employment Agreement between Goshen Savings Bank and certain
executive officers (amended)
10.3 Form of Employee Retention Agreement between Goshen Savings Bank and
certain officers (amended)
10.4 Engagement Letter, dated February 6, 1997, between Goshen Savings Bank
and Capital Resources Group, Inc. for conversion appraisal services and
for services related to the preparation of the business plan*
10.5 Engagement Letter, dated January 7, 1997, between Goshen Savings Bank,
and Capital Resources Group, Inc. for consulting and records management
services*
10.6 Form of Employee Stock Ownership Plan
10.7 Form of Supplementary Retention Agreement between GSB Financial
Corporation and certain officers
23.1 Consent of Nugent & Haeussler, P.C.
23.2 Consent of Serchuk & Zelermyer, LLP
23.3 Consent of Capital Resources Group, Inc.*
24.1 Powers of Attorney*
27.1 Financial Data Schedule (Submitted only with filing in electronic
format)*
99.1 (P) Appraisal Report of Capital Resources Group, Inc, dated March 14,
1997**
99.2 Form of Marketing Materials to be used in connection with the
Offerings
99.3 Pre-Effective Amendment Number 1 filing letter and response to comments
* Previously filed as Exhibit to Registration Statement on Form S-1 as filed
with the Securities and Exchange Commission under Reg. No. 333-23573.
** Filed in paper format pursuant to exemption letter of the Securities and
Exchange Commission dated April 10, 1997.
<PAGE>
Exhibit 1.2 - Form of Agency Agreement
1,955,000 Shares
(subject to increase up to 2,248,250 shares
in the event of an oversubscription)
GSB FINANCIAL CORPORATION
(a Delaware corporation)
COMMON STOCK
($0.01 Par Value Per Share)
Subscription Price: $10.00 Per Share
AGENCY AGREEMENT
May __, 1997
Capital Resources, Inc.
1211 Connecticut Avenue
Suite 200
Washington, D.C. 20036
Ladies and Gentlemen:
GSB Financial Corporation (the "Company") and Goshen Savings
Bank, a federally chartered mutual savings bank ("Bank"), with its deposit
accounts insured by the Bank Insurance Fund ("BIF") administered by the Federal
Deposit Insurance Corporation ("FDIC"), hereby confirm their agreement with
Capital Resources, Inc. ("Capital Resources") as follows:
SECTION 1. The Offering. The Bank, in accordance with and
pursuant to its plan of conversion adopted by the Board of Directors of the Bank
(the "Plan"), intends to be converted from a federally-chartered mutual savings
bank to a federally-chartered stock savings bank and will sell all of its issued
and outstanding stock to the Company. The Company will offer and sell its common
stock (the "Common Stock") in a subscription offering ("Subscription Offering")
to (1) depositors of the Bank as of December 31, 1995 ("Eligible Account
Holders"), (2) tax qualified employee benefit plans of the Bank, (3) depositors
of the Bank as of March 31, 1997 ("Supplemental Eligible Account Holders") and
(4) certain other deposit account holders of the Bank ("Other Members"),
pursuant to rights to subscribe for shares of Common Stock (the "Shares").
Subject to the prior subscription rights of the above-listed parties, the
Company may offer for sale in a public offering (the "Public Offering," and when
referred to together with the Subscription Offering, the "Subscription and
Public Offerings") conducted after the Subscription Offering, the Shares not so
subscribed for or ordered in the Subscription Offering to the general public
(all such offerees being referred to in the aggregate as "Eligible Offerees").
It is acknowledged that the purchase of Shares in the Subscription and Public
Offerings is subject to maximum and minimum purchase limitations as described in
the Plan and that the Company may reject in whole or in part any subscriptions
received from subscribers in the Public Offering.
<PAGE>
The Company and the Bank desire to retain Capital Resources to
assist the Company with its sale of the Shares in the Subscription and Public
Offerings. By and through this Agreement, the Company and the Bank confirm the
retention of Capital Resources to assist the Company and the Bank during the
Subscription and Public Offerings.
The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-l (File No.
333-23573) containing an offering prospectus relating to the Subscription and
Public Offerings for the registration of the Shares under the Securities Act of
1933, as amended (the "1933 Act"), and has filed such amendments thereto, if
any, and such amended prospectuses as may have been required to the date hereof
(the "Registration Statement"). The prospectus, as amended, included in the
Registration Statement at the time it initially becomes effective, is
hereinafter called the "Offering Prospectus", except that if any prospectus is
filed by the Company pursuant to Rule 424(b) or (c) of the rules and regulations
of the Commission under the 1933 Act (the "1933 Act Regulations") differing from
the offering prospectus included in the Registration Statement at the time it
initially becomes effective, the term "Offering Prospectus" shall refer to the
offering prospectus filed pursuant to Rule 424(b) or (c) from and after the time
said offering prospectus is filed with or mailed to the Commission for filing.
In accordance with Title 12, Part 563b of the Code of Federal
Regulations (the "Conversion Regulations"), the Bank has filed with the Office
of Thrift Supervision (the "OTS") an Application for Approval of Conversion on
Form AC (the "Conversion Application") including the Offering Prospectus and has
filed such amendments thereto, if any, as may have been required by the OTS. The
Conversion Application has been approved by the OTS. The Company has filed with
the OTS its application on Form H-(e)1-S (the "Holding Company Application") to
acquire the Bank under the Home Owners' Loan Act, as amended (12 U.S.C. ss.
1467a) ("HOLA").
SECTION 2. Retention of Capital Resources; Compensation; Sale
and Delivery of the Shares. Subject to the terms and conditions herein set
forth, the Company and the Bank hereby appoint Capital Resources as their agent
to advise and assist the Company and the Bank with the Company's sale of the
Shares in the Subscription and Public Offerings.
On the basis of the representations, warranties, and
agreements herein contained, but subject to the terms and conditions herein set
forth, Capital Resources accepts such appointment and agrees to consult with and
advise the Company and the Bank as to matters relating to the Conversion and the
Subscription and Public Offerings. It is acknowledged by the Company and the
Bank that Capital Resources shall not be required to purchase any Shares and
shall not be obligated to take any action which is inconsistent with any
applicable laws, regulations, decisions or orders. The obligations of Capital
Resources pursuant to this Agreement shall terminate upon the completion or
termination or abandonment of the Plan by the Company or the Bank or upon
termination of the Subscription and Public Offerings, or if the terms of the
Conversion are substantially amended so as to materially and adversely change
the role of Capital Resources, but in no event later than 45 days after the
completion of the Subscription and Public Offerings (the "End Date"). All fees
due to Capital Resources but unpaid will be payable to Capital Resources in next
day funds at the earlier of the Closing Date (as hereinafter defined) or the End
Date. In the event the Subscription and Public Offerings are extended beyond the
End Date, the Company, the Bank and Capital Resources may mutually agree to
renew this Agreement under mutually acceptable terms.
-2-
<PAGE>
In the event the Company is unable to sell a minimum of
1,445,000 Shares within the period herein provided, this Agreement shall
terminate, and the Company shall refund to any persons who have subscribed for
any of the Shares, the full amount which it may have received from them plus
accrued interest as set forth in the Offering Prospectus; and none of the
parties to this Agreement shall have any obligation to the other parties
hereunder, except as set forth in this Section 2 and in Sections 7, 9 and 10
hereof.
In the event the closing does not occur, the Conversion is
terminated or otherwise abandoned, or the terms of the Conversion are
substantially amended so as to materially and adversely change the role of
Capital Resources, Capital Resources shall be reimbursed for all reasonable
legal fees and out-of-pocket expenses for rendering financial advice to the Bank
concerning the structure of the Conversion, preparing a market and financial
analysis, performing due diligence and assisting in the preparation of the
Application for Conversion and the Registration Statement, which shall be paid
upon such termination, abandonment or amendment or within five days of such
event.
If all conditions precedent to the consummation of the
Conversion, including, without limitation, the sale of all Shares required by
the Plan to be sold, are satisfied, the Company agrees to issue or have issued
the Shares sold in the Subscription and Public Offerings and to release for
delivery certificates for such Shares on the Closing Date (as hereinafter
defined) against payment to the Company by any means authorized by the Plan,
provided, however, that except as otherwise required by law, no certificates
shall be released for such shares until the conditions specified in Sections
2(a) and 7 hereof shall have been complied with. The release of Shares against
payment therefor shall be made on a date and at a time and place acceptable to
the Company, the Bank and Capital Resources. The date upon which the Company
shall release or deliver the Shares sold in the Subscription and Public
Offerings, in accordance with the terms hereof, is herein called the "Closing
Date."
Capital Resources shall receive the following compensation for
its services hereunder:
(a) a marketing fee in the amount of two percent (2.0%) of the
aggregate dollar amount of all Shares sold in the Subscription and Public
Offerings, excluding shares sold to the Bank's or the Company's Employee Stock
Ownership Plan, directors, officers or employees of the Bank or the Company, and
any member of such person's immediate family (defined to include children,
spouse, parents, grandparents and grandchildren);
(b) Capital Resources shall be reimbursed for all reasonable
out-of-pocket expenses, including, but not limited to, legal fees, travel,
communications and postage, incurred by it whether or not the Conversion is
successfully completed as set forth in Section 7 hereof. Reimbursement for
Capital Resources' legal and other expense hereunder shall not exceed $35,000
and $20,000 respectively, unless the Bank has approved such expense prior to its
incurrence. Capital Resources shall be reimbursed promptly for all out-of-pocket
expenses upon receipt by the Company or the Bank of a monthly itemized bill
summarizing such expenses since the date of the last bill, if any, to the date
of the current bill.
All subscription funds received by Capital Resources (and if
by check shall be made payable to the Company) shall be transmitted (either by
U.S. Mail or similar type of transmittal) to the Company by noon of the
following business day.
-3-
<PAGE>
SECTION 3. Offering Prospectus; Subscription and Public
Offerings. The Shares are to be initially offered in the Subscription and Public
Offerings at the Purchase Price as set forth on the cover page of the Offering
Prospectus.
SECTION 4. Representations and Warranties. The Company and the
Bank jointly and severally represent and warrant to Capital Resources as
follows:
(a) The Registration Statement was declared effective by the
Commission on May __, 1997. At the time the Registration Statement, including
the Offering Prospectus contained therein (including any amendment or supplement
thereto), became effective, the Registration Statement complied in all material
respects with the requirements of the 1933 Act and the 1933 Act Regulations and
the Registration Statement, including the Offering Prospectus contained therein
(including any amendment or supplement thereto), any Blue Sky Application or any
Sales Information (as such terms are defined previously herein or in Section 9
hereof) authorized by the Company or the Bank for use in connection with the
Subscription and Public Offerings did not contain an untrue statement of a
material fact or except as to any Blue Sky Application, omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading, and at
the time any Rule 424(b) or (c) Offering Prospectus was filed with or mailed to
the Commission for filing and at the Closing Date referred to in Section 2, the
Registration Statement including the Offering Prospectus contained therein
(including any amendment or supplement thereto), any Blue Sky Application or any
Sales Information (as such terms are defined previously herein or in Section 9
hereof) authorized by the Company or the Bank for use in connection with the
Subscription and Public Offerings will not contain an untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that the representations and warranties
in this Section 4(a) shall not apply to statements in or omissions from such
Registration Statement or, Offering Prospectus, made in reliance upon and in
conformity with written information furnished to the Company or the Bank by
Capital Resources expressly and specifically regarding Capital Resources for use
under the captions "The Conversion-Marketing Arrangements, - "Plan of
Distribution," or - "Public Offering" or for inclusion in any Blue Sky
Application or Sales Information, as such terms are defined herein.
(b) The Conversion Application, including the Offering
Prospectus, was approved by the OTS on May __, 1997. At the time of the approval
of the Conversion Application, including the Offering Prospectus, by the OTS
(including any amendment or supplement thereto) and at all times subsequent
thereto until the Closing Date, the Conversion Application, including the
Offering Prospectus, will comply in all material respects with the Conversion
Regulations and any other rules and regulations of the OTS. The Conversion
Application, including the Offering Prospectus (including any amendment or
supplement thereto), does not include any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading; provided, however, that representations or warranties in
this Section 4(b) shall not apply to statements in or omissions from such
Conversion Application or Offering Prospectus made in reliance upon and in
conformity with written information furnished to the Bank by Capital Resources
expressly and specifically regarding Capital Resources for use in the Offering
Prospectus contained in the Conversion Application under the captions "The
Conversion- Marketing Arrangements, " - Public Offering", or "Plan of
Distribution."
-4-
<PAGE>
(c) The Company has filed with the OTS the Holding Company
Application and will have received, as of the Closing Date, approval of its
acquisition of the Bank from the OTS.
(d) No order has been issued by the OTS, the Commission, the
FDIC (and hereinafter reference to the FDIC shall include the BIF), or to the
best knowledge of the Company or the Bank any State regulatory or Blue Sky
authority, preventing or suspending the use of the Offering Prospectus and no
action by or before any such government entity to revoke any approval,
authorization or order of effectiveness related to the Conversion is, to the
best knowledge of the Bank or the Company, pending or threatened.
(e) At the Closing Date referred to in Section 2, the Plan
will have been adopted by the Board of Directors of both the Company and the
Bank, the Company and the Bank will have completed all material conditions
precedent to the Conversion and the offer and sale of the Shares will have been
conducted in accordance with the Plan, the Conversion Regulations and all other
applicable laws, regulations, and all written terms, conditions, requirements
and provisions precedent to the Conversion imposed upon the Company or the Bank
by the OTS (including the OTS approval order described in paragraph (b) of this
Section 4), the Commission or any other regulatory authority and in the manner
described in the Offering Prospectus. At the Closing Date, no person will have
sought to obtain review of the final action of the OTS, to the knowledge of the
Company or the Bank, in approving the Plan or in approving the Conversion or the
Company's application to acquire all of the capital stock and control of the
Bank pursuant to the HOLA or any other statute or regulation.
(f) The Bank is now an organized and validly existing
federally-chartered savings bank in mutual form of organization and upon the
Conversion will become a duly organized and validly existing federally-chartered
savings bank in capital stock form of organization, in both instances duly
authorized to conduct its business and own its property as described in the
Registration Statement and the Offering Prospectus; the Company and the Bank
have obtained all material licenses, permits and other governmental
authorizations currently required for the conduct of their respective
businesses; all such licenses, permits and governmental authorizations are in
full force and effect, and the Company and the Bank are in all material respects
complying with all material laws, rules, regulations and orders applicable to
the operation of their businesses; and the Bank is duly qualified as a foreign
corporation to transact business in each jurisdiction in which its ownership of
property or leasing of properties or the conduct of its business requires such
qualification, unless the failure to be so qualified in one or more of such
jurisdictions would not have a material adverse effect on the condition,
financial or otherwise, or the business, operations or income of the Bank. The
Bank does not own equity securities or any equity interest in any other business
enterprise except as described in the Offering Prospectus. Upon the completion
of the Conversion of the Bank pursuant to the Plan to a federally-chartered
stock savings bank, (i) all of the authorized and outstanding capital stock of
the Bank will be owned by the Company, and (ii) the Company will have no direct
subsidiaries other than the Bank. The Conversion will have been effected in all
material respects in accordance with all applicable statutes, regulations,
decisions and orders except to the extent compliance therewith shall have been
waived by OTS; and except with respect to the filing of certain post-sale,
post-conversion reports and documents in compliance with the 1933 Act
Regulations or the OTS's resolutions or letters of approval. All terms,
conditions, requirements and provisions with respect to the Conversion imposed
by the Commission, the OTS and the FDIC, if any, will have been complied with by
the Company and the Bank in all material
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<PAGE>
respects or appropriate waivers will have been obtained and all material notice
and waiting periods will have been satisfied, waived or elapsed.
(g) The Company has been incorporated and is validly existing
as a corporation in good standing under the laws of the State of Delaware with
corporate power and authority to own, lease and operate its properties and to
conduct its business as described in the Registration Statement and the Offering
Prospectus, and the Company is qualified to do business as a foreign corporation
in any jurisdiction in which the conduct of its business requires such
qualification, except where the failure to so qualify would not have a material
adverse effect on the financial condition or the business operations or income
of the Company.
(h) The Bank is a member of the Federal Home Loan Bank of New
York ("FHLBNY"); and the deposit accounts of the Bank are insured by the FDIC up
to the applicable limits. Upon consummation of the Conversion, the liquidation
account for the benefit of Eligible Account Holders and Supplemental Eligible
Account Holders will be duly established in accordance with the requirements of
the Conversion Regulations.
(i) The Company and the Bank have good and marketable title to
all assets owned by them which are material to the business of the Company and
the Bank and to those assets described in the Registration Statement and
Offering Prospectus as owned by them, free and clear of all liens, charges,
encumbrances or restrictions, except such as are described in the Registration
Statement and Offering Prospectus or are not materially significant or important
in relation to the business of the Company and the Bank; and all of the leases
and subleases material to the business of the Company and the Bank under which
the Company or the Bank holds properties, including those described in the
Registration Statement and Offering Prospectus, are in full force and effect.
(j) The Bank has received an opinion of its counsel, Serchuck
& Zelermyer, with respect to the federal and state income tax consequences of,
and other matters relating to the Conversion of the Bank from mutual to stock
form as described in the Registration Statement and the Offering Prospectus; all
material aspects of the opinion of Serchuck & Zelermyer are accurately
summarized in the Offering Prospectus; and the facts and representations upon
which such opinion is based are truthful, accurate and complete, and neither the
Bank nor the Company will take any action inconsistent therewith.
(k) The Company and the Bank have all such power, authority,
authorizations, approvals and orders as may be required to enter into this
Agreement, to carry out the provisions and conditions hereof and to issue and
sell the Capital Stock of the Bank to the Company and Shares to be sold by the
Company as provided herein and as described in the Offering Prospectus. The
consummation of the Conversion, the execution, delivery and performance of this
Agreement and the consummation of the transactions herein contemplated have been
duly and validly authorized by all necessary corporate action on the part of the
Company and the Bank and this Agreement has been validly executed and delivered
by the Company and the Bank and is the valid, legal and binding agreement of the
Company and the Bank enforceable in accordance with its terms (except as the
enforceability thereof may be limited by bankruptcy, insolvency, moratorium,
reorganization or similar laws relating to or affecting the enforcement of
creditors' rights generally or the rights of creditors of savings and loan
holding companies, the accounts of whose subsidiaries are insured by the FDIC or
by general equity principles regardless of whether such enforceability
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<PAGE>
is considered in a proceeding in equity or at law, and except to the extent, if
any, that the provisions of Sections 9 and 10 hereof may be unenforceable as
against public policy).
(l) The Company and the Bank are not in violation of any
written directive which has been delivered to the Company or the Bank or of
which management of the Company or the Bank has actual knowledge from the OTS,
the Commission, the FDIC or any other agency to make any material change in the
method of conducting their businesses so as to comply in all material respects
with all applicable statutes and regulations (including, without limitation,
regulations, decisions, directives and orders of the OTS, the Commission and the
FDIC) and except as set forth in the Registration Statement and the Offering
Prospectus there is no suit or proceeding or, to the knowledge of the Company or
the Bank, charge, investigation or action before or by any court, regulatory
authority or governmental agency or body, pending or, to the knowledge of the
Company or the Bank, threatened, which might materially and adversely affect the
Conversion, the performance of this Agreement or the consummation of the
transactions contemplated in the Plan and as described in the Registration
Statement or which might result in any material adverse change in the condition
(financial or otherwise), earnings, capital, properties, business affairs or
business prospects of the Company or the Bank or which would materially affect
their properties and assets.
(m) The financial statements which are included in the
Registration Statement and which are part of the Offering Prospectus fairly
present the financial condition, results of operations, retained earnings and
cash flows of the Bank at the respective dates thereof and for the respective
periods covered thereby, and comply as to form in all material respects with the
applicable accounting requirements of Title 12 of the Code of Federal
Regulations and generally accepted accounting principles ("GAAP") (including
those requiring the recording of certain assets at their current market value).
To the knowledge of the Company and the Bank, such financial statements have
been prepared in accordance with generally accepted accounting principles
consistently applied through the periods involved, present fairly in all
material respects the information required to be stated therein and are
consistent with the most recent financial statements and other reports filed by
the Bank with the OTS and the FDIC, except that accounting principles employed
in such filings conform to requirements of such authorities and not necessarily
to generally accepted accounting principles. The other financial, statistical
and pro forma information and related notes included in the Offering Prospectus
present fairly the information shown therein on a basis consistent with the
audited and unaudited financial statements, if any, of the Bank included in the
Offering Prospectus, and as to the pro forma adjustments, the adjustments made
therein have been properly applied on the basis described therein.
(n) Since the date as of which the Registration Statement was
declared effective by the SEC: (i) there has not been any material adverse
change, financial or otherwise, in the condition of the Company or the Bank, or
of the Company and the Bank considered as one enterprise, or in the earnings,
capital or properties of the Company or the Bank, whether or not arising in the
ordinary course of business, (ii) there has not been any other material change
which would require an amendment to the Offering Prospectus; (iii) the Bank has
not issued any securities or incurred any liability or obligation for borrowing
other than in the ordinary course of business; (iv) there have not been any
material transactions entered into by the Company or the Bank, except with
respect to those transactions entered into in the ordinary course of business;
and (v) the capitalization, liabilities, assets, properties and business of the
Company and the Bank conform in all material respects to the descriptions
thereof contained in the Offering Prospectus, and neither
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<PAGE>
the Company nor the Bank have any material liabilities of any kind, contingent
or otherwise, except as set forth in the Offering Prospectus.
(o) As of the date hereof and as of the Closing Date, neither
the Company nor the Bank is in violation of its certificate of incorporation or
charter, respectively, or its bylaws (and the Bank will not be in violation of
its charter or bylaws in capital stock form as of the Closing Date) or in
default in the performance or observance of any material obligation, agreement,
covenant, or condition contained in any material contract, lease, loan
agreement, indenture or other instrument to which it is a party or by which it,
or any of its property may be bound which would result in a material adverse
change in the condition (financial or otherwise), earnings, capital, properties,
business affairs or business prospects of the Company or Association or which
would materially affect their properties or assets. The consummation of the
transactions herein contemplated will not (i) conflict with or constitute a
breach of, or default under, the certificate of incorporation and bylaws of the
Company, the charter and bylaws of the Bank (in either mutual or capital stock
form), or any material contract, lease or other instrument to which the Company
or the Bank has a beneficial interest, or any applicable law, rule, regulation
or order; (ii) violate any authorization, approval, judgment, decree, order,
statute, rule or regulation applicable to the Company or the Bank; or (iii) with
the exception of the Liquidation Account established in the Conversion, result
in the creation of any material lien, charge or encumbrance upon any property of
the Company or the Bank.
(p) No material default exists, and no event has occurred
which with notice or lapse of time, or both, would constitute a material default
on the part of the Company or the Bank, in the due performance and observance of
any term, covenant or condition of any indenture, mortgage, deed of trust, note,
bank loan or credit agreement or any other material instrument or agreement to
which the Company or the Bank is a party or by which any of them or any of their
property is bound or affected in any respect which, in any such cases, is
material to the Company or the Bank on a consolidated basis; such agreements are
in full force and effect; and no other party to any such agreements has
instituted or, to the best knowledge of the Company or the Bank, threatened any
action or proceeding wherein the Company or the Bank would or might be alleged
to be in default thereunder.
(q) Upon consummation of the Conversion, the authorized,
issued and outstanding equity capital of the Company will be within the range
set forth in the Registration Statement under the caption "Capitalization," and
no shares of Common Stock have been or will be issued and outstanding prior to
the Closing Date referred to in Section 2; the Shares will have been duly and
validly authorized for issuance and, when issued and delivered by the Company
pursuant to the Plan against payment of the consideration calculated as set
forth in the Plan and in the Offering Prospectus, will be duly and validly
issued and fully paid and non-assessable; the issuance of the Shares will not
violate any preemptive rights; and the terms and provisions of the Shares will
conform in all material respects to the description thereof contained in the
Registration Statement and the Offering Prospectus. To the knowledge of the Bank
and the Company, upon the issuance of the Shares, good title to the Shares will
be transferred from the Company to the purchasers thereof against payment
therefor, subject to such claims as may be asserted against the purchasers
thereof by third party claimants.
(r) No approval of any regulatory or supervisory or other
public authority is required in connection with the execution and delivery of
this Agreement or the issuance of the
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<PAGE>
Shares, except for the approval of the OTS, the Commission and any necessary
qualification or registration under the securities or blue sky laws of the
various states in which the Shares are to be offered and as may be required
under the regulations-of the National Association of Securities Dealers, Inc.
("NASD") and the National Association of Securities Dealers Automated Quotation
("NASDAQ") Stock Market.
(s) Nugent & Haeussler, P.C. ("NH") has certified the
financial statements of the Bank included in the Registration Statement at and
for the three years ended September 30, 1996, and NH is with respect to the
Company and the Bank an independent public accountant within the meaning of the
Code of Professional Ethics of the American Institute of Certified Public
Accountants and Title 12 of the Code of Federal Regulations, Section 571.2(c)(3)
and the 1933 Act and the 1933 Act Regulations.
(t) The Company and the Bank have (subject to all properly
obtained extensions) timely filed all required federal and state tax returns,
have paid all taxes that have become due and payable in respect of such returns,
have made adequate reserves for similar future tax liabilities and no deficiency
has been asserted with respect thereto by any taxing authority.
(u) Appropriate arrangements have been made for placing the
funds received from subscriptions for Shares in special interest-bearing
accounts with the Bank until all Shares are sold and paid for as described in
the Offering Prospectus, with provision for refund to the purchasers in the
event that the Conversion is not completed for whatever reason or for delivery
to the Company if all Shares are sold.
(v) The Company and the Bank are in compliance in all material
respects with the applicable financial record keeping and reporting requirements
of the Currency and Foreign Transactions Reporting Act of 1970, as amended, and
the regulations and rules thereunder.
(w) To the knowledge of the Company and the Bank, none of the
Company, the Bank nor directors or employees of the Company or the Bank have
made any payment of funds of the Company or the Bank as a loan to any person
other than the Employee Stock Ownership Plan Trust for the purchase of the
Shares.
(x) Prior to the Conversion, the Bank was not authorized to
issue shares of capital stock and neither the Company nor the Bank has: (i)
issued any securities within the last 18 months (except for notes to evidence
other bank loans and reverse repurchase agreements or other liabilities); (ii)
had any material dealings within the twelve months prior to the date hereof with
any member of the NASD, or any person related to or associated with such member,
other than discussions and meetings relating to the proposed Subscription and
Public Offerings and routine purchases and sales of U.S. government and agency
securities and other investment securities; (iii) entered into a financial or
management consulting agreement except as contemplated hereunder; and (iv)
engaged any intermediary between Capital Resources and the Company and the Bank
in connection with the offering of Common Stock, and no person is being
compensated in any manner for such service.
(y) All pending legal proceedings to which the Company or the
Bank is a party or of which any of their property is the subject which are not
described in the Registration Statement
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<PAGE>
and the Offering Prospectus, including ordinary routine litigation incidental to
the business are, considered in the aggregate, not material.
(z) To the knowledge of the Company and the Bank, the Company
and the Bank comply in all material respects with all laws, rules and
regulations relating to environmental protection, and neither the Company nor
the Bank has been notified or is otherwise aware that any of them is potentially
liable, or is considered potentially liable in any material respect, under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, or any similar state or local laws. There are no actions, suits,
regulatory investigations or other proceedings pending or, to the knowledge of
the Company or the Bank, threatened against the Company or the Bank relating to
environmental protection, nor does the Company or the Bank have any reason to
believe any such proceedings may be brought against any of them.
Any certificates signed by an officer of the Company or the
Bank and delivered to Capital Resources or its counsel that refer to this
Agreement shall be deemed to be a representation and warranty by the Company or
the Bank to Capital Resources as to the matters covered thereby with the same
effect as if such representation and warranty were set forth herein.
SECTION 5. Capital Resources represents and warrants to the
Company and the Bank that:
(a) Capital Resources is a corporation and is validly existing
in good standing under the laws of the District of Columbia with full power and
authority to provide the services to be furnished to the Company and the Bank
hereunder.
(b) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and validly
authorized by all necessary action on the part of Capital Resources, and this
Agreement has been duly and validly executed and delivered by Capital Resources
and is the legal, valid and binding agreement of Capital Resources, enforceable
in accordance with its terms.
(c) Each of Capital Resources and its employees, agents and
representatives who shall perform any of the services hereunder shall be duly
authorized and empowered, and shall have all licenses, approvals and permits
necessary, to perform such services and Capital Resources is a registered
selling agent in the jurisdictions listed in Exhibit A hereto and will remain
registered in such jurisdictions in which the Company is relying on such
registration for the sale of the Shares, until the Conversion is consummated or
terminated.
(d) The execution and delivery of this Agreement by Capital
Resources, the consummation of the transactions contemplated hereby and
compliance with the terms and provisions hereof will not conflict with, or
result in a breach of, any of the terms, provisions or conditions of, or
constitute a default (or event which with notice or lapse of time or both would
constitute a default) under, the certificate of incorporation of Capital
Resources or any agreement, indenture or other instrument to which Capital
Resources is a party or by which its property is bound, or law or regulation by
which Capital Resources is bound.
(e) Funds received by Capital Resources to purchase Common
Stock will be handled in accordance with Rule 15c2-4 under the Securities
Exchange Act of 1934, as amended.
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<PAGE>
(f) Capital Resources will comply with all applicable laws and
regulations in the performance of its obligations hereunder.
SECTION 6. Covenants of the Company and Bank. The Company and
the Bank hereby jointly and severally covenant with Capital Resources as
follows:
(a) The Company has filed the Registration Statement with the
Commission. The Company will not, at any time after the date the Registration
Statement is declared effective, file any amendment or supplement to the
Registration Statement without providing Capital Resources and its counsel
reasonable time to review such amendment or file any amendment or supplement to
which amendment Capital Resources or its counsel shall reasonably object.
(b) The Bank has filed the Conversion Application and the
Holding Company Application with the OTS. The Bank will not, at any time after
the date the Conversion Application is approved, file any amendment or
supplement to the Conversion Application without providing Capital Resources and
its counsel an opportunity to review such amendment or supplement or file any
amendment or supplement to which amendment or supplement Capital Resources or
its counsel shall reasonably object.
(c) The Company and the Bank will use their best efforts to
cause any post-effective amendment to the Registration Statement to be declared
effective by the Commission and any post-effective amendment to the Conversion
Application to be approved by the OTS and will immediately upon receipt of any
information concerning the events listed below notify Capital Resources and
promptly confirm the notice in writing: (i) when the Registration Statement, as
amended, has become effective; (ii) when the Conversion Application, as amended,
has been approved by the OTS; (iii) of the receipt of any comments from the
Commission, the OTS or the FDIC or any other governmental entity with respect to
the Conversion or the transactions contemplated by this Agreement; (iv) of the
request by the Commission, the OTS or the FDIC or any other governmental entity
for any amendment or supplement to the Registration Statement or for additional
information; (v) of the issuance by the Commission, the OTS, the FDIC or any
other governmental entity of any order or other action suspending the
Subscription or Public Offerings or the use of the Registration Statement or the
Offering Prospectus or any other filing of the Company and the Bank under the
Conversion Regulations or other applicable law, or the threat of any such
action; (vi) the issuance by the Commission, the OTS or the FDIC, or any other
state authority, of any stop order suspending the effectiveness of the
Registration Statement or of the initiation or threat of initiation or threat of
any proceedings for that purpose; or (vii) of the occurrence of any event
mentioned in paragraph (h) below. The Company and the Bank will make every
reasonable effort to prevent the issuance by the Commission, the OTS or the
FDIC, or any other state authority of any such order and, if any such order
shall at any time be issued, to obtain the lifting thereof at the earliest
possible time.
(d) The Company and the Bank will provide Capital Resources
and its counsel notice of its intention to file, and reasonable time to review
prior to filing any amendment or supplement to the Conversion Application or the
Holding Company Application and will not file any such amendment or supplement
to which Capital Resources shall reasonably object or which shall be reasonably
disapproved by its counsel.
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<PAGE>
(e) The Company and the Bank will deliver to Capital Resources
and to its counsel two conformed copies of each of the following documents, with
all exhibits: the Conversion Application and the Holding Company Application, as
originally filed and of each amendment or supplement thereto, and the
Registration Statement, as originally filed and each amendment thereto. Further,
the Company and the Bank will deliver such additional copies of the foregoing
documents to counsel for Capital Resources as may be required for any NASD and
blue sky filings. In addition, the Company and the Bank will also deliver to
Capital Resources such number of copies of the Offering Prospectus, as amended
or supplemented, as Capital Resources or its counsel may reasonably request.
(f) The Company will furnish to Capital Resources, from time
to time during the period when the Offering Prospectus (or any later prospectus
related to this Offering) is required to be delivered under the 1933 Act or the
Securities Exchange Act of 1934 (the "1934 Act"), such number of copies of such
prospectus (as amended or supplemented) as Capital Resources or its counsel may
reasonably request for the purposes contemplated by the 1933 Act or the 1934 Act
or the respective applicable rules and regulations of the Commission thereunder.
The Company authorizes Capital Resources to use the Offering Prospectus (as
amended or supplemented, if amended or supplemented) for any lawful manner in
connection with the sale of the Shares by Capital Resources.
(g) The Company and the Bank will comply in all material
respects with any and all terms, conditions, requirements and provisions with
respect to the Conversion and the transactions contemplated thereby imposed by
the Commission, by applicable Blue Sky laws and regulations, and by the 1933
Act, the 1934 Act and the rules and regulations of the Commission promulgated
under such statutes, to be complied with prior to or subsequent to the Closing
Date and when the Offering Prospectus is required to be delivered, the Company
and the Bank will comply in all material respects, at their own expense, with
all requirements imposed upon them by the OTS, the Conversion Regulations, the
FDIC, the Commission, by applicable state law and regulations and by the 1933
Act, the 1934 Act and the rules and regulations of the Commission promulgated
under such statutes, including, without limitation, Rule 10b-6 under the 1934
Act, in each case as from time to time in force, so far as necessary to permit
the continuance of sales or dealing in shares of Common Stock during such period
in accordance with the provisions hereof and the Offering Prospectus.
(h) If, at any time during the period when the Offering
Prospectus relating to the Shares is required to be delivered, any event
relating to or affecting the Company or the Bank shall occur, as a result of
which it is necessary or appropriate, in the reasonable opinion of counsel for
the Company and the Bank to amend or supplement the Registration Statement or
Offering Prospectus in order to make the Registration Statement or Offering
Prospectus not misleading in light of the circumstances existing at the time it
is delivered to a purchaser, the Company and the Bank will, at their sole
expense, forthwith prepare, file with the Commission and the OTS and furnish to
Capital Resources a reasonable number of copies of any amendment or amendments
of, or a supplement or supplements to, the Registration Statement or Offering
Prospectus (in form and substance reasonably satisfactory to Capital Resources
and its counsel after a reasonable time for review) which will amend or
supplement the Registration Statement or Offering Prospectus so that as amended
or supplemented it will not contain an untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements therein,
in light of the circumstances existing at the time the Offering Prospectus
reasonably is delivered to a purchaser, not misleading.
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<PAGE>
For the purpose of this Agreement, the Company and the Bank each will timely
furnish to Capital Resources such information with respect to itself as Capital
Resources may from time to time request.
(i) The Company and the Bank will take all necessary actions,
in cooperation with Capital Resources, and furnish to whomever Capital Resources
may direct, such information as may be required to qualify or register the
Shares for offering and sale by the Company under the applicable securities or
blue sky laws of such jurisdictions in which the shares are required under the
Conversion Regulations to be sold or as Capital Resources may reasonably
designate and as reasonably agreed to by the Bank; provided, however, that the
Company shall not be obligated to file any general consent to service of process
or to qualify to do business in any jurisdiction in which it is not so
qualified. In each jurisdiction where any of the Shares shall have been
qualified or registered as above provided, the Company will make and file such
statements and reports in each fiscal period as are or may be required by the
laws of such jurisdiction.
(j) The liquidation account for the benefit of account holders
with account balances of $50 or more as of the applicable record dates will be
duly established and maintained in accordance with the requirements of the OTS.
(k) The Company and the Bank will not sell or issue, contract
to sell or otherwise dispose of, for a period of 180 days after the date hereof,
without Capital Resources' prior written consent, any shares of Common Stock
other than in connection with any plan or arrangement described in the Offering
Prospectus.
(l) The Company shall register its Common Stock under Section
12(g) of the 1934 Act concurrent with the stock offering pursuant to the Plan
and shall request that such registration be effective upon completion of the
Conversion. The Company shall maintain the effectiveness of such registration
for not less than three years or such shorter period as permitted by the OTS.
(m) During the period during which the Company's common stock
is registered under the 1934 Act or for three years from the date hereof,
whichever period is greater, the Company will furnish to its stockholders as
soon as practicable after the end of each fiscal year an annual report
(including a balance sheet and statements of income, stockholders' equity and
changes in financial position or cash flow statement of the Company as at the
end of and for such year, certified by independent public accountants and
prepared in accordance with Regulation S-X under the 1934 Act).
(n) During the period of three years from the date hereof, the
Company will furnish to Capital Resources: (i) a copy of each public report of
the Company furnished to or filed with the Commission under the 1934 Act or any
national securities exchange or system on which any class of securities of the
Company is listed or quoted (including but not limited to, reports on Form 10-K,
10-Q and 8-K and all proxy statements and annual reports to stockholders), a
copy of each public report of the Company mailed to its stockholders or filed
with the Commission or the OTS or any other supervisory or regulatory authority
or any national securities exchange or system on which any class of securities
of the Company is listed or quoted, each press release and material news items
and additional public documents and information with respect to the Company or
the Bank as Capital Resources may reasonably request, and (ii) from time to
time, such other publicly
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available information concerning the Company and the Bank as Capital Resources
may reasonably request.
(o) The Company and the Bank will use the net proceeds from
the sale of the Shares in the manner set forth in the Offering Prospectus under
the caption "Use of Proceeds."
(p) Other than as permitted by the Conversion Regulations, the
1933 Act, the 1933 Act Regulations and the laws of any state in which the Shares
are qualified for sale, neither the Company nor the Bank will distribute any
prospectus, offering circular or other offering material in connection with the
offer and sale of the Shares.
(q) The Company will make generally available to its security
holders as soon as practicable, but not later than 90 days after the close of
the period an earnings statement (in form complying with the provisions of Rule
158 under the 1933 Act) covering a twelve-month period beginning not later than
the first day of the Company's fiscal quarter next following the effective date
(as defined in said Rule 158) of the Registration Statement.
(r) The Company will file with the Commission such reports on
Form SR as may be required pursuant to Rule 463 under the 1933 Act.
(s) The Company will use its best efforts to obtain approval
for quotation of the shares on the NASDAQ Stock Market effective on or prior to
the Closing Date.
(t) The Bank will maintain appropriate arrangements for
depositing all funds received from persons mailing subscriptions for or orders
to purchase Shares in the Subscription and Public Offerings on an
interest-bearing basis at the rate described in the Offering Prospectus until
the Closing Date and satisfaction of all conditions precedent to the release of
the Bank's obligation to refund payments received from persons subscribing for
or ordering Shares in the Subscription and Public Offerings in accordance with
the Plan as described in the Offering Prospectus or until refunds of such funds
have been made to the persons entitled thereto or withdrawal authorizations
canceled in accordance with the Plan and as described in the Offering
Prospectus. The Bank will maintain such records of all funds received to permit
the funds of each subscriber to be separately insured by the FDIC (to the
maximum extent allowable) and to enable the Bank to make the appropriate refunds
of such funds in the event that such refunds are required to be made in
accordance with the Plan and as described in the Offering Prospectus.
(u) The Company will register as a savings and loan holding
company under the HOLA within the period required by applicable law.
(v) The Company and the Bank will take such actions and
furnish such information as are reasonably requested by Capital Resources in
order for Capital Resources to ensure compliance with the "Interpretation of the
Board of Governors of the NASD on Free Riding and Withholding."
(w) The Company and the Bank have conducted their businesses
in compliance in all material respects with all applicable federal and state
laws, rules, regulations, decisions, directives and orders, including all
decisions, directives and orders of the OTS and the FDIC.
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(x) The Bank will not amend the Plan of Conversion without
Capital Resources' prior written consent in any manner that, in the reasonable
opinion of Capital Resources, would materially and adversely affect the sale of
the Shares or the terms of this Agreement except to comply with any regulatory
requirement.
SECTION 7. Payment of Expenses. Whether or not this Agreement
becomes effective, the Conversion is completed or the sale of the Shares by the
Company is consummated, the Company and Association jointly and severally agree
to pay directly for or to reimburse Capital Resources for (to the extent that
such expenses have been reasonably incurred by Capital Resources) (a) all filing
fees and expenses incurred in connection with the qualification or registration
of the Shares for offer and sale by the Company under the securities or blue sky
laws of any jurisdictions Capital Resources and the Company may agree upon
pursuant to subsection (i) of Section 6 above, including counsel fees paid or
incurred by the Company, the Bank or Capital Resources in connection with such
qualification or registration or exemption from qualification or registration;
(b) all filing fees in connection with all filings with the NASD; (c) any stock
issue or transfer taxes which may be payable with respect to the sale of the
Shares to purchasers in the Conversion; (d) reasonable and necessary expenses of
the Conversion, including but not limited to, attorneys' fees, transfer agent,
registrar and other agent charges, fees relating to auditing and accounting or
other advisors and costs of printing all documents necessary in connection with
the Conversion; and (e) out-of-pocket expenses incurred by Capital Resources in
connection with the Conversion or any of the transactions contemplated hereby,
including, without limitation, the fees of its attorneys, and reasonable
communication and travel expenses, as limited by Section 2 hereof.
SECTION 8. Conditions to Capital Resources' Obligations.
Capital Resources' obligations hereunder, as to the Shares to be delivered at
the Closing Date, are subject to the condition that all representations and
warranties and other statements of the Company and the Bank herein are, at and
as of the commencement of the Subscription and Public Offerings and at and as of
the Closing Date, true and correct in all material respects, the condition that
the Company and the Bank shall have performed in all material respects all of
their obligations hereunder to be performed on or before such dates, and to the
following further conditions:
(a) At the Closing Date, the Company and the Bank will have
completed the conditions precedent to, and shall have conducted the Conversion
in all material respects in accordance with, the Plan, the Conversion
Regulations and all other applicable laws, regulations, decisions and orders,
including all terms, conditions, requirements and provisions precedent to the
Conversion imposed upon them by the OTS.
(b) The Registration Statement shall have been declared
effective by the Commission and the Conversion Application approved by the OTS
not later than 5:30 p.m. (eastern time) on the date of this Agreement, or with
Capital Resources' consent at a later time and date; and at the Closing Date no
stop order suspending the effectiveness of the Registration Statement shall have
been issued under the 1933 Act or proceedings therefore initiated or threatened
by the Commission or any state authority, and no order or other action
suspending the authorization of the Offering Prospectus or the consummation of
the Conversion shall have been issued or proceedings therefore initiated or, to
the Company's or Association's knowledge, threatened by the Commission, the OTS,
the FDIC or any state authority.
(c) At the Closing Date, Capital Resources shall have
received:
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(1) The favorable opinion, dated as of the Closing Date
addressed to Capital Resources and for its benefit, of Serchuk & Zelermyer,
("S&Z") counsel for the Company and the Bank as to issues of law set forth
below. The opinion of S&Z shall in form and substance be to the effect that:
(i) The Company has been incorporated and is validly existing
as a corporation in good standing under the laws of the State of Delaware.
(ii) The Company has corporate power and authority to own,
lease and operate its properties and to conduct its business as described in the
Registration Statement and the Offering Prospectus; and the Company is qualified
to do business as a foreign corporation in New York, to such counsel's
knowledge, the only state in which it is doing business.
(iii) The Bank was organized and is a validly existing
federally-chartered savings and loan association in mutual form of organization
and upon the Conversion will become an organized and validly existing
federally-chartered savings bank in capital stock form of organization, in both
instances duly authorized to conduct its business and own its property as
described in the Registration Statement and the Bank has corporate existence
under the laws of the United States. The activities of the Bank as described in
the Offering Prospectus, insofar as they are material to the operations and
financial condition of the Bank, are permitted by the rules and regulations of
the OTS.
(iv) The Bank is a member of the FHLBNY, and the deposit
accounts of the Bank are insured by the FDIC up to the maximum amount allowed
under law and to such counsel's knowledge no proceedings for the termination or
revocation of such insurance are pending or threatened; and the description of
the liquidation account as set forth in the Registration Statement and the
Offering Prospectus under the caption "The Conversion - Effects of Conversion to
Stock Form on Depositors and Borrowers of the Bank - Liquidation Account" to the
extent that it constitutes matters of law, summaries of legal matters,
documents, proceedings or legal conclusions has been reviewed by such counsel
and is accurate in all material respects.
(v) On the Closing Date, the authorized, issued and
outstanding capital stock of the Company will be as set forth in the
Registration Statement and the Offering Prospectus under the caption
"Capitalization," and to such counsel's knowledge no shares of Common Stock have
been issued prior to the Closing Date; at the time of the Conversion, the Shares
subscribed for pursuant to the Offerings will have been duly and validly
authorized for issuance, and when issued and delivered by the Company pursuant
to the Plan against payment of the consideration calculated as set forth in the
Plan, will be duly and validly issued and fully paid and non-assessable; and the
issuance of the Shares is not subject to preemptive rights.
(vi) The issuance and sale of the common stock of the Bank to
the Company have been duly and validly authorized by all necessary corporate
action on the part of the Company and the Bank and, upon payment therefor in
accordance with the terms of the Plan of Conversion, will be duly and validly
issued, fully paid and non-assessable and will be owned of record by the Company
to such counsel's knowledge, free and clear of any mortgage, pledge, lien,
encumbrance or claim (legal or equitable).
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(vii) The execution and delivery of this Agreement, and the
performance by the Bank and the Company of their respective obligations
hereunder, have been validly authorized by all necessary corporate action on the
part of the Company and the Bank; and this Agreement is a valid and binding
obligation of the Company and the Bank, enforceable in accordance with its terms
(except as the enforceability thereof may be limited by bankruptcy, insolvency,
moratorium, reorganization or similar laws relating to or affecting the
enforcement of creditors' rights generally or the rights of creditors of savings
associations or savings and loan holding companies, or by general equity
principles, regardless of whether such enforceability is considered in a
proceeding in equity or at law, and except as the obligations of the Bank and
the Company under the indemnification provisions of Sections 9 and 10 hereof may
be limited by law or unenforceable as against public policy, as to which, no
opinion need be expressed).
(viii) The Plan has been duly adopted by the required vote of
the Directors and members of the Bank.
(ix) Subject to the satisfaction of the conditions to the
OTS's approval of the Conversion and the Holding Company Application, no further
approval, registration, authorization, consent or other order of any regulatory
agency, public board or body is required in connection with the execution and
delivery of this Agreement, the issuance of the Shares and the consummation of
the Conversion, except as may be required under Blue Sky laws or the regulations
of the NASD and the NASDAQ Stock Market. The Conversion has been consummated in
all material respects in accordance with all applicable provisions of the HOLA
and the Conversion Regulations.
(x) The Conversion Application including the Offering
Prospectus as filed with the OTS was complete in all material respects and has
been approved by the OTS. The OTS has issued its order of approval under the
savings and loan holding company provisions of the HOLA, and the purchase by the
Company of all of the issued and outstanding capital stock of the Bank has been
authorized by the OTS and to such counsel's knowledge, no action has been taken,
or to counsel's knowledge is pending or threatened, to revoke any such
authorization or approval.
(xi) The Registration Statement is effective under the 1933
Act and to such counsel's knowledge, no stop order suspending the effectiveness
has been issued under the 1933 Act or proceedings therefor initiated or,
threatened by the Commission.
(xii) At the time the Conversion Application, including the
Offering Prospectus contained therein, was approved, the Conversion Application
including the Offering Prospectus contained therein (as amended or supplemented,
if so amended or supplemented) complied as to form in all material respects with
the requirements of all rules and regulations of the OTS (except as to the
financial statements, other financial and statistical data and stock valuation
and pro forma information included therein as to which such counsel need express
no opinion); to such counsel's knowledge, all material documents and exhibits
required to be filed with the Conversion Application (as amended or
supplemented, if so amended or supplemented) have been so filed. The description
in the Conversion Application and the Offering Prospectus contained therein of
such documents and exhibits is accurate in all material respects.
(xiii) At the time that the Registration Statement became
effective, (i) the Registration Statement (as amended or supplemented if so
amended or supplemented) (other than the financial statements and other
financial and statistical data and stock valuation and pro forma
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information included therein, as to which no opinion need be rendered), complied
as to form in all material respects with the requirements of the 1933 Act and
the 1933 Act Regulations and (ii) the Offering Prospectus (other than the
financial statements and other financial and statistical data and the stock
valuation and pro forma information included therein, as to which no opinion
need be rendered) complied as to form in all material respects with the
requirements of the 1933 Act and the 1933 Act Regulations. To such counsel's
knowledge, all material documents and exhibits required to be filed with the
Registration Statement (as amended or supplemented, if so amended or
supplemented) have been so filed. The description in the Registration Statement
and the Offering Prospectus of such documents and exhibits is accurate in all
material respects. To such counsel's knowledge, no person has sought to obtain
regulatory or judicial review of the final action of the OTS approving the
Conversion Application or in approving the Holding Company Application.
(xiv) The terms and provisions of the Common Stock of the
Company conform to the description thereof contained in the Registration
Statement and the Offering Prospectus, and the form of certificate used to
evidence the Shares is in due and proper form.
(xv) To such counsel's knowledge, there are no legal or
governmental proceedings pending or threatened which are required to be
disclosed in the Registration Statement and the Offering Prospectus, other than
those disclosed therein, provided that for this purpose, any litigation or
governmental proceeding is not considered to be "threatened" unless the
potential litigant or governmental authority has manifested to the management of
the Company or the Bank, or to such counsel, a present intention to initiate
such litigation or proceeding.
(xvi) To such counsel's knowledge, the Company the Bank have
obtained all licenses, permits and other governmental authorizations required
for the conduct of their respective businesses, except where the failure to have
such licenses, permits or authorizations would not have a material adverse
effect on the business, financial condition, operations or income of the Company
and the Bank on a consolidated basis, and, to such counsel's knowledge, all such
licenses, permits and other governmental authorizations are in full force and
effect.
(xvii) To such counsel's knowledge neither the Company nor the
Bank is in contravention of its certificate of incorporation or its charter,
respectively, or its bylaws (and the Bank will not be in contravention of its
charter or bylaws in stock form upon consummation of the Conversion) or, to such
counsel's knowledge, in default or violation of any material obligation,
agreement, covenant or condition contained in any material contract, indenture,
mortgage, loan agreement, note, lease or other instrument to which it is a party
or by which it or its property may be bound which default or violation would be
material to the business of the Company and the Bank considered as one
enterprise; to such counsel's knowledge, the execution and delivery of this
Agreement by the Company and the Bank, the incurring of the obligations herein
set forth and the consummation of the transactions contemplated herein have been
duly authorized by all necessary corporate action of the Company and the Bank,
and, to such counsel's knowledge, will not constitute a material breach of, or
default under, or result in the creation or imposition of any material lien,
charge or encumbrance upon any property or assets of the Company or the Bank
which are material to their business considered as one enterprise, pursuant to
any material contract, indenture, mortgage, loan agreement, note, lease or other
instrument to which the Company or the Bank is a party or by which any of them
may be bound, or to which any of the property or assets of the Company or the
Bank is subject. In addition to such counsel's knowledge , such action will not
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result in any material violation of the provisions of the certificate of
incorporation or bylaws of the Company or the charter and bylaws of the Bank.
(xviii) To such Counsel's knowledge the Company and the Bank
are not in violation of any directive from the OTS or the FDIC requiring them to
make any material change in the method of conducting their business.
(xix) The information in the Registration Statement and
Offering Prospectus under the captions "Regulation," "Certain Restrictions on
Acquisitions of the Company," "The Conversion-Tax Effects", "Taxation", and
"Description of Capital Stock" to the extent that it constitutes matters of law,
summaries of legal matters, documents or proceedings, or legal conclusions, has
been reviewed by such counsel and is correct in all material respects (except as
to the financial statements and other financial and statistical data and stock
valuation and pro forma data included therein as to which such counsel need
express no opinion).
In rendering such opinion, such counsel may rely (A) as to
matters involving the application of laws of any jurisdiction other than the
United States, to the extent such counsel deems proper and specified in such
opinion satisfactory to Capital Resources, upon the opinion of other counsel of
good standing (providing that such counsel states that Capital Resources is
justified in relying upon such specified opinion or opinions), and (B) as to
matters of fact, to the extent such counsel deems proper, on certificates of
responsible officers of the Company and the Bank and public officials (but not
on conclusions of law which may be set forth in said certificates); provided
copies of any such opinion(s) or certificates are delivered pursuant hereto or
to Capital Resources together with the opinion to be rendered hereunder by
special counsel to the Company and the Bank. Such counsel may assume that any
agreement is the valid and binding obligation of any parties to such agreement
other than the Company or the Bank.
(2) The letter of S&Z, counsel for the Company and the Bank
addressed to Capital Resources, dated the Closing Date, in form and substance to
the effect that:
During the preparation of the Registration Statement and the
Offering Prospectus, such counsel participated in conferences with officers,
directors and representatives of the Bank and the Company, representatives of
the independent public accountants for the Company and the Bank and
representatives of Capital Resources, at which the contents of the Registration
Statement and Offering Prospectus were discussed. Based upon such conferences
and a review of corporate records of the Company and the Bank as such counsel
conducted in connection with the preparation of the Registration Statement and
Conversion Application, and on the basis of the foregoing (relying as to factual
matters on officers' certificates and other statements of fact made by the Bank
and the Company), nothing has come to such counsel's attention that would lead
them to believe that the Registration Statement at the time it was declared
effective or, the Offering Prospectus as of its date, contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading (it being understood
that such counsel need express no opinion with respect to the financial
statements schedules and other financial, statistical, valuation and pro forma
data included or statistical methodology employed in the Registration Statement
or Prospectus).
(3) The favorable opinion, dated as of the Closing Date, of
Malizia, Spidi, Sloane & Fisch, P.C., Capital Resources' counsel, with respect
to such matters as Capital Resources may reasonably require. Such opinion may
rely upon the opinions of counsel to the Company and the Bank, and as to matters
of fact, upon certificates of officers and directors of the Company and the
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Bank delivered pursuant hereto or as such counsel shall reasonably request.
(d) At the Closing Date, counsel to Capital Resources shall
have been furnished with such documents and opinions as they may reasonably
require for the purpose of enabling them to render the opinion as herein
contemplated and related proceedings or in order to evidence the occurrence or
completeness of any of the representations or warranties, or the fulfillment of
any of the conditions, herein contained.
(e) At the Closing Date, Capital Resources shall receive a
certificate of the Chief Executive Officer and the Chief Financial Officer of
the Company and of the Chief Executive Officer and Chief Financial Officer of
the Bank, dated as of such Closing Date, to the effect that: (i) they have
carefully examined the Offering Prospectus and, in their opinion, at the time
the Offering Prospectus became authorized for final use, the Offering Prospectus
did not contain an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading; (ii) since the date
the Offering Prospectus became authorized for final use, in their opinion no
event has occurred which should have been set forth in an amendment or
supplement to the Offering Prospectus which has not been so set forth, including
specifically, but without limitation, any material adverse change in the
condition, financial or otherwise, or in the earnings, financial condition,
capital, properties, business prospects or business affairs of the Company or
the Bank, and the conditions set forth in this Section 8 have been satisfied;
(iii) to their knowledge since the respective dates as of which information is
given in the Registration Statement and the Offering Prospectus, there has been
no material adverse change in the condition, financial or otherwise, or in the
earnings, capital, properties, business affairs or business prospects of the
Company or the Bank, independently, or of the Company and the Bank considered as
one enterprise, whether or not arising in the ordinary course of business; (iv)
to the knowledge of such officers the representations and warranties in Section
4 are true and correct with the same force and effect as though expressly made
at and as of the Closing Date; (v) to their knowledge, the Company and the Bank
have complied with all material agreements and satisfied, in all material
respects at or prior to the Closing Date, all obligations required to be met by
such date and will in all material respects comply with all obligations to be
satisfied by them after Conversion; (vi) to their knowledge no stop order
suspending the effectiveness of the Registration Statement has been initiated
or, to their knowledge, threatened by the Commission or any state authority;
(vii) no order suspending the Subscription or Public Offerings, the Conversion,
the acquisition of all of the shares of the Bank by the Company or the
effectiveness of the Offering Prospectus has been issued and to the best
knowledge of the Company or Association, no proceedings for that purpose have
been initiated or threatened by the OTS, the Commission, the FDIC, or any state
authority; and (viii) to their knowledge, no person has sought to obtain review
of the final action of the OTS approving the Plan.
(f) Prior to and at the Closing Date: (i) in the reasonable
opinion of Capital Resources, there shall have been no material adverse change
in the condition, financial or otherwise, or in the earnings, or the business
affairs or business prospects of the Company or the Bank independently, or of
the Company or the Bank, considered as one enterprise, since the latest dates as
of which such condition is set forth in the Offering Prospectus, except as
referred to therein; (ii) there shall have been no material transaction entered
into by the Company or the Bank from the latest date as of which the financial
condition of the Company or the Bank is set forth in the Offering Prospectus
other than transactions referred to or contemplated therein; (iii) the Company
or the Bank shall not have received from the OTS or the FDIC any direction (oral
or written) to
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make any material change in the method of conducting their business with which
it has not complied (which direction, if any, shall have been disclosed to
Capital Resources) and which would reasonably be expected to have a material and
adverse effect on the business, operations or financial condition or income of
the Company or the Bank taken as a whole; (iv) neither the Company nor the Bank
shall have been in default (nor shall an event have occurred which, with notice
or lapse of time or both, would constitute a default) under any provision of and
agreement or instrument relating to any material outstanding indebtedness; (v)
no action, suit or proceedings, at law or in equity or before or by any federal
or state commission, board or other administrative agency, shall be pending, or,
to the knowledge of the Company or the Bank, threatened against the Company or
the Bank or affecting any of their properties wherein an unfavorable decision,
ruling or finding would reasonably be expected to have a material and adverse
effect on the business, operations, financial condition or income of the Company
or the Bank, taken as a whole; and (vi) the Shares have been qualified or
registered for offering and sale under the securities or blue sky laws of the
jurisdictions as Capital Resources shall have requested and as agreed to by the
Company.
(g) Concurrently with the execution of this Agreement, Capital
Resources shall receive a letter from NH, dated the date hereof and addressed to
Capital Resources: (i) confirming that NH is a firm of independent public
accountants within the meaning of the 1933 Act and the 1933 Act Regulations and
12 C.F.R. ss. 571.2(c)(3) and no information concerning its relationship with or
interests in the Company and the Bank is required to be disclosed in the
Offering Prospectus by the Conversion Regulations or Item 10 of the Registration
Statement, and stating in effect that in NH's opinion the financial statements
of the Bank as are included in the Offering Prospectus comply as to form in all
material respects with the applicable accounting requirements of the 1933 Act
and the related published rules and regulations of the Commission thereunder and
the Conversion Regulations and generally accepted accounting principles; (ii)
stating in effect that, on the basis of certain agreed upon procedures (but not
an audit examination in accordance with generally accepted auditing standards)
consisting of a reading of the latest available unaudited interim financial
statements of the Bank prepared by the Bank, a reading of the minutes of the
meetings of the Board of Directors and members of the Bank and consultations
with officers of the Bank responsible for financial and accounting matters,
nothing came to their attention which caused them to believe that: (A) such
unaudited financial statements are not in conformity with generally accepted
accounting principles applied on a basis substantially consistent with that of
the audited financial statements included in the Offering Prospectus; or (B)
during the period from the date of the latest audited financial statements
included in the Offering Prospectus to a specified date not more than ten
business days prior to the date hereof, there has been (1) any increase in the
long term debt of the Bank or (2) an increase of greater than $100,000 in non
performing assets (consisting of accruing loans past due 90 days or more,
non-accruing loans and foreclosed assets) or (3) any decrease in the allowance
for loan losses or (4) any decrease in total equity or (5) a decrease in net
income when compared to the like period in 1996 or (6) any change in total
assets of the Bank in an amount greater than $5,000,000; and (iii) stating that,
in addition to the audit examination referred to in its opinion included in the
Offering Prospectus and the performance of the procedures referred to in clause
(ii) of this subsection (g), they have compared with the general accounting
records of the Company and/or the Bank, as applicable, which are subject to the
internal controls of the Company and/or the Bank, as applicable, accounting
system and other data prepared by the Company and/or the Bank, as applicable,
directly from such accounting records, to the extent specified in such letter,
such amounts and/or percentages set forth in the Offering Prospectus as Capital
Resources may reasonably request; and they have found such amounts and
percentages to be in agreement therewith (subject to rounding).
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(h) At the Closing Date, Capital Resources shall receive a
letter from NH, dated the Closing Date, addressed to Capital Resources,
confirming the statements made by its letter delivered by it pursuant to
subsection (g) of this Section 8, except that the "specified date" referred to
in clause (ii)(B) thereof to be a date specified in such letter, which shall not
be more than three business days prior to the Closing Date.
(i) The Company and the Bank shall not have sustained since
the date of the latest audited financial statements included in the Registration
Statement and Offering Prospectus any loss or interference with its business
from fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action, order or
decree, otherwise than as set forth or contemplated in the Registration
Statement and Offering Prospectus, and since the respective dates as of which
information is given in the Registration Statement and Offering Prospectus,
there shall not have been any material change in the long term debt of the
Company or the Bank other than debt incurred in relation to the purchase of
Shares by the Company's Tax-Qualified Employee Plans, or any change, or any
development involving a prospective change, in or affecting the general affairs,
management, financial position, stockholders' equity or results of operations of
the Company or the Bank, otherwise than as set forth or contemplated in the
Registration Statement and Offering Prospectus, the effect of which, in any such
case described above, is in Capital Resources' reasonable judgment sufficiently
material and adverse as to make it impracticable or inadvisable to proceed with
the Subscription or Public Offerings or the delivery of the Shares on the terms
and in the manner contemplated in the Offering Prospectus.
(j) At or prior to the Closing Date, Capital Resources shall
receive (i) a copy of the letter from the OTS authorizing the use of the
Offering Prospectus, (ii) a copy of the order from the Commission declaring the
Registration Statement effective, (iii) a copy of a certificate from the OTS
evidencing the corporate existence of the Bank, (iv) certificates of good
standing from the States of Delaware and New York evidencing the good standing
of the Company and from the State of New York evidencing that the Company is
duly qualified to do business and in good standing in New York and (v) a copy of
the letter from the OTS approving the Company's Holding Company Application.
(k) As soon as available after the Closing Date, Capital
Resources shall receive a certified copy of the Bank's stock charter.
(1) Subsequent to the date hereof, there shall not have
occurred any of the following: (i) a suspension or limitation in trading in
securities generally on the New York Stock Exchange or American Stock Exchange
or in the over-the-counter market, or quotations halted generally on the NASDAQ
Stock Market, or minimum or maximum prices for trading being fixed, or maximum
ranges for prices for securities being required by either of such exchanges or
the NASD or by order of the Commission or any other governmental authority; (ii)
a general moratorium on the operations of commercial banks or federal savings
banks or general moratorium on the withdrawal of deposits from commercial banks
or federal savings banks declared by either federal or state authorities; (iii)
the engagement by the United States in hostilities which have resulted in the
declaration, on or after the date hereof, of a national emergency or war; or
(iv) a material decline in the price of equity or debt securities if, as to
clauses (iii) or (iv), the effect of such hostilities or decline, in Capital
Resources' reasonable judgment, makes it impracticable or inadvisable to proceed
with the Subscription or Public Offerings or the delivery of the Shares on the
terms and in the manner contemplated in the Registration Statement and the
Offering Prospectus.
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All such opinions, certifications, letters and documents shall
be in compliance with the provisions hereof only if they are, in the reasonable
opinion of Capital Resources and its counsel, satisfactory to Capital Resources
and its counsel. Any certificates signed by an officer or director of the
Company or the Bank and delivered to Capital Resources or its counsel shall be
deemed a representation and warranty by the Company or the Bank to Capital
Resources as to the statements made therein.
If any of the conditions specified in this Section shall not
have been fulfilled when and as required by this Agreement, this Agreement and
all of Capital Resources' obligations hereunder may be canceled by Capital
Resources by notifying the Bank of such cancellation in writing or by telegram
at any time at or prior to the Closing Date, and any such cancellation shall be
without liability of any party to any other party except as otherwise provided
in Sections 2, 7, 9 and 10 hereof. Notwithstanding the above, if this Agreement
is canceled pursuant to this paragraph, the Company and the Bank jointly and
severally agree to reimburse Capital Resources for all out-of-pocket expenses,
(including without limitation the fees and expenses of Capital Resources'
counsel) reasonably incurred by Capital Resources and Capital Resources' counsel
at its normal rates, in connection with the preparation of the Registration
Statement and the Offering Prospectus, and in contemplation of the proposed
Subscription or Public Offerings to the extent provided for in Sections 2 and 7
hereof.
SECTION 9. Indemnification.
(a) The Company and the Bank jointly and severally agree to
indemnify and hold harmless Capital Resources, its officers, directors, agents
and employees and each person, if any, who controls or is under common control
with Capital Resources within the meaning of Section 15 of the 1933 Act or
Section 20(a) of the 1934 Act, against any and all loss, liability, claim,
damage or expense whatsoever (including but not limited to settlement expenses),
joint or several, that Capital Resources or any of them may suffer or to which
Capital Resources and any such persons upon written demand for any expenses
(including fees and disbursements of counsel) incurred by Capital Resources or
any of them in connection with investigating, preparing or defending any
actions, proceedings or claims (whether commenced or threatened) to the extent
such losses, claims, damages, liabilities or actions (i) arise out of or are
based upon any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement (or any amendment or supplement
thereto), Offering Prospectus (or any amendment or supplement thereto), the
Conversion Application or any Blue Sky application or other instrument or
document of the Company or the Bank or based upon written information supplied
by the Company or the Bank filed in any state or jurisdiction to register or
qualify any or all of the Shares or the subscription rights applicable thereto
under the securities laws thereof (collectively, the "Blue Sky Application"), or
any application or other document, advertisement, oral statement, or
communication ("Sales Information") prepared, made or executed by or on behalf
of the Company with its consent or based upon written or oral information
furnished by or on behalf of the Company or the Bank, whether or not filed in
any jurisdiction in order to qualify or register the Shares under the securities
laws thereof; (ii) arise out of or are based upon the omission or alleged
omission to state in any of the foregoing documents or information, a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading; or,
(iii) arise from any theory of liability whatsoever relating to or arising from
or based upon the Registration Statement (or any amendment or supplement
thereto), Offering Prospectus (or any amendment or supplement thereto), the
Conversion Application, any Blue Sky Application or Sales Information or other
documentation distributed in connection with the Conversion;
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<PAGE>
provided, however, that no indemnification is required under this paragraph (a)
to the extent such losses, claims, damages, liabilities or actions arise out of
or are based upon any untrue material statements or alleged untrue material
statements in, or material omission or alleged material omission from, the
Registration Statement (or any amendment or supplement thereto), the Conversion
Application, any Blue Sky Application, the Offering Prospectus (or any amendment
or supplement thereto), or Sales Information made in reliance upon and in
conformity with written information furnished to the Company or the Bank by
Capital Resources regarding Capital Resources expressly for use under the
captions "The Conversion - Marketing Arrangements" - "Public Offering," or -
"Plan of Distribution" in the Offering Prospectus nor is indemnification
required for material oral misstatements made by Capital Resources, which are
not based upon information provided by the Bank or the Company orally or in
writing or based on information contained in the Registration Statement (or any
amendment or supplement thereto), preliminary or final Offering Prospectus (or
any amendment or supplement thereto), the Conversion Application, any Blue Sky
Application or Sales Information distributed in connection with the Conversion.
In addition, the Bank and the Company will not be liable under the foregoing
provisions to the extent that the loss, claim, damage, liability or action is
expressly found in a final judgment by a court of competent jurisdiction to have
resulted from Capital Resources' bad faith or gross negligence.
(b) Capital Resources agrees to indemnify and hold harmless
the Company and the Bank, their directors and officers, agents, servants and
employees and each person, if any, who controls the Company or the Bank within
the meaning of Section 15 of the 1933 Act or Section 20(a) of the 1934 Act
against any and all loss, liability, claim, damage or expense whatsoever
(including but not limited to settlement expenses), joint or several which they,
or any of them, may suffer or to which they, or any of them, may become subject
under all applicable federal and state laws or otherwise, and to promptly
reimburse the Company, the Bank and any such persons upon written demand for any
expenses (including fees and disbursements of counsel) incurred by them, or any
of them, in connection with investigating, preparing or defending any actions,
proceedings or claims (whether commenced or threatened) to the extent such
losses, claims, damages, liabilities or actions arise out of or are based upon
any untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement (or any amendment or supplement thereto), or the
preliminary or final Offering Prospectus (or any amendment or supplement
thereto), or the Conversion Application or any Blue Sky Application or Sales
Information or are based upon the omission or alleged omission to state in any
of the foregoing documents a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; provided, however, that Capital
Resources obligations under this Section 9(b) shall exist only if and only to
the extent that such untrue statement or alleged untrue statement was made in,
or such material fact or alleged material fact was omitted from, the
Registration Statement (or any amendment or supplement thereto), the Offering
Prospectus (or any amendment or supplement thereto), or the Conversion
Application, any Blue Sky Application or Sales Information in reliance upon and
in conformity with written information furnished to the Company or the Bank by
Capital Resources regarding Capital Resources expressly for use under the
caption "The Conversion - Marketing Arrangements" - "Public Offering," or -
"Plan of Distribution" in the Offering Prospectus or in the event of oral
misstatements made by Capital Resources, which are not based upon information
provided by the Bank or the Company orally or in writing or based on information
contained in the Registration Statement (or any amendment or supplement
thereto), Offering Prospectus (or any amendment or supplement thereto), the
Conversion Application, any Blue Sky Application or Sales Information
distributed in connection with the Conversion. In addition, Capital Resources
will not be liable under the foregoing provisions to the extent that the
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<PAGE>
loss, claim, damage, liability or action is expressly found in a final
judgment by a court of competent jurisdiction to have resulted from the Bank's
or the Company's bad faith or gross negligence.
(c) Each indemnified party shall give prompt written notice to
each indemnifying party of any action, proceeding, claim (whether commenced or
threatened), or suit instituted against it in respect of which indemnity may be
sought hereunder, but failure to so notify an indemnifying party shall not
relieve it from any liability which it may have on account of this Section 9 or
otherwise. An indemnifying party may participate at its own expense in the
defense of such action. In addition, if it so elects within a reasonable time
after receipt of such notice, an indemnifying party, jointly with any other
indemnifying parties receiving such notice, may assume defense of such action
with counsel chosen by it and approved by the indemnified parties that are
defendants in such action, unless such indemnified parties reasonably object to
such assumption on the ground that there may be legal defenses available to them
that are different from or in addition to those available to such indemnifying
party. If an indemnifying party assumes the defense of such action, the
indemnifying parties shall not be liable for any fees and expenses of counsel
for the indemnified parties incurred thereafter in connection with such action,
proceeding or claim, other than reasonable costs of investigation. In no event
shall the indemnifying parties be liable for the fees and expenses of more than
one separate firm of attorneys (and any special counsel that said firm may
retain) for all indemnified parties in connection with any one action,
proceeding or claim or separate but similar or related actions, proceedings or
claims in the same jurisdiction arising out of the same general allegations or
circumstances.
(d) This Section 9 and Section 10 hereof and the
representations and warranties of the Company and the Bank set forth in this
Agreement shall survive, remain operative and in full force and effect
regardless of any termination of this Agreement.
(e) No indemnification by the Bank under Section 9(a) hereof
nor contribution under Section 10 hereof shall be effective if the same shall be
deemed to be in violation of any law, rule or regulation applicable to the Bank
including, without limitation, Section 23A of the Federal Reserve Act. If the
indemnification or contribution by the Bank is not effective pursuant to the
preceding sentence, then the indemnification by Capital Resources pursuant to
Section 9(b) shall be given only to the Company, its directors and officers,
agents, servants and employees and not to the Bank, its directors and officers,
agents, servants and employees and the Bank shall not be entitled to any
contribution from Capital Resources pursuant to Section 10.
SECTION 10. Contribution. In order to provide for just and
equitable contribution in circumstances in which the indemnification provided
for in Section 9 is due in accordance with its terms but is for any reason
unavailable as a result of Section 9(e) or held by a court to be unavailable
from the Company, the Bank or Capital Resources, the Company, the Bank and
Capital Resources shall contribute to the aggregate losses, claims, damages and
liabilities (including any investigation, legal and other expenses incurred in
connection with, and any amount paid in settlement of any action, suit or
proceeding of any claims asserted, but after deducting any contribution received
by the Company or the Bank or Capital Resources from persons other than the
other party thereto, who may also be liable for contribution) in such proportion
so that Capital Resources is responsible for that portion represented by the
percentage that the fees paid to Capital Resources pursuant to Section 2 of this
Agreement (not including expenses) bears to the gross proceeds received by the
Company from the sale of the Shares in the Subscription and Public Offerings
and the Company and the Bank shall be responsible for the balance. If, however,
the allocation provided above is not permitted by applicable law or if the
indemnified party failed to give
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<PAGE>
the notice required under Section 9 above, then each indemnifying party shall
contribute to such amount paid or payable by such indemnified party in such
proportion as is appropriate to reflect not only such relative fault of the
Company and the Bank on the one hand and Capital Resources on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions, proceedings or claims in respect
thereof), but also the relative benefits received by the Company and Association
on the one hand and Capital Resources on the other from the offering as well as
any other relevant equitable considerations. The relative benefits received by
the Company and the Bank on the one hand and Capital Resources on the other
shall be deemed to be in the same proportion as the total gross proceeds from
the Subscription and Public Offerings (before deducting expenses) received by
the Company bear to the total fees (not including expenses) received by Capital
Resources. The relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company and/or the Bank on the one hand or Capital Resources on
the other and the parties' relative intent, good faith, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company, the Bank and Capital Resources agree that it would not be just and
equitable if contribution pursuant to this Section 10 were determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to above in this Section 10. The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages or liabilities (or action, proceedings or claims in respect thereof)
referred to above in this Section 10 shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action, proceeding or claim. It is expressly
agreed that Capital Resources shall not be liable for any loss, liability,
claim, damage or expense or be required to contribute any amount which in the
aggregate exceeds the amount paid (excluding reimbursable expenses) to Capital
Resources under this Agreement. It is understood that the above-stated
limitation on Capital Resources' liability is essential to Capital Resources and
that Capital Resources relied upon such limitation and would not have entered
into this Agreement if such limitation had not been agreed to by the parties to
this Agreement. No person found guilty of any fraudulent misrepresentation
(within the meaning of Section 11(f) of the 1933 Act) shall be entitled to
contribution from any person who was not found guilty of such fraudulent
misrepresentation. The obligations of the Company and the Bank under this
Section 10 and under Section 9 shall be in addition to any liability which the
Company and the Bank may otherwise have. For purposes of this Section 10, each
of Capital Resources', the Company's or the Bank's officers and directors and
each person, if any, who controls Capital Resources or the Company or the Bank
within the meaning of the 1933 Act and the 1934 Act shall have the same rights
to contribution as the Company and the Bank. Any party entitled to contribution,
promptly after receipt of notice of commencement of any action, suit, claim or
proceeding against such party in respect of which a claim for contribution may
be made against another party under this Section 10, will notify such party from
whom contribution may be sought, but the omission to so notify such party shall
not relieve the party from whom contribution may be sought from any other
obligation it may have hereunder or otherwise than under this Section 10. This
Section 10 is subject to and limited by the provisions of Section 23A of the
Federal Reserve Act, as applicable.
SECTION 11. Survival of Agreements, Representations and
Indemnities. The respective indemnities of the Company, the Bank and Capital
Resources and the representations and warranties and other statements of the
Company and the Bank set forth in or made pursuant to this Agreement shall
remain in full force and effect, regardless of any termination or cancellation
of this Agreement or any investigation made by or on behalf of Capital
Resources, the Company, the Bank
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<PAGE>
or any indemnified person referred to in Section 9 hereof, and shall survive the
issuance of the Shares, and any legal representative, successor or assign of
Capital Resources, the Bank, and any such indemnified person shall be entitled
to the benefit of the respective agreements, indemnities, warranties and
representations.
SECTION 12. Termination. Capital Resources may terminate this
Agreement by giving the notice indicated below in this Section at any time after
this Agreement becomes effective as follows:
(a) In the event the Company fails to sell all of the Shares
within the period specified, and in accordance with the provisions of the Plan
or as required by the Conversion Regulations and applicable law, this Agreement
shall terminate upon refund by the Bank to each person who has subscribed for or
ordered any of the Shares the full amount which it may have received from such
person, together with interest as provided in the Offering Prospectus, and no
party to this Agreement shall have any obligation to the other hereunder, except
as set forth in Sections 2, 7, 9 and 10 hereof.
(b) If any of the conditions specified in Section 8 shall not
have been fulfilled when and as required by this Agreement, or by the Closing
Date, or waived in writing by Capital Resources, this Agreement and all of
Capital Resources obligations hereunder may be canceled by Capital Resources by
notifying the Bank of such cancellation in writing or by telegram at any time at
or prior to the Closing Date, and, any such cancellation shall be without
liability of any party to any other party except as set forth in Sections 2, 7,
9 and 10 hereof.
(c) If Capital Resources elects to terminate this Agreement as
provided in this section, the Company and the Bank shall be notified as provided
in Section 13 hereof, promptly by Capital Resources by telephone or telegram,
confirmed by letter.
SECTION 13. Notices. All communications hereunder, except as
herein otherwise specifically provided, shall be mailed in writing and if sent
to Capital Resources shall be mailed, delivered or telegraphed and confirmed to
Capital Resources, Inc., 1211 Connecticut Avenue, N.W., Suite 700, Washington,
D.C. 20036 Attention: Catherine K. Rochester (with a copy to Malizia, Spidi,
Sloane & Fisch, P.C., 1301 K. Street, N.W., Suite 700 East Washington, D.C.
20005, Attention: John J. Spidi, Esq.) and, if sent to the Company and the Bank,
shall be mailed, delivered or telegraphed and confirmed to the Company and the
Bank at 1 South Church Street, Goshen, New York, 10924, (Attention: Clifford E.
Kelsey, Jr. (with a copy to Serchuk & Zelermyer, LLP, 81 Main Street, White
Plains, NY 10601, Attention: Jay Hack, Esq.)
SECTION 14. Parties. The Company and the Bank shall be
entitled to act and rely on any request, notice, consent, waiver or agreement
purportedly given on behalf of Capital Resources when the same shall have been
given by the undersigned. Capital Resources shall be entitled to act and rely on
any request, notice, consent, waiver or agreement purportedly given on behalf or
the Company or the Bank, when the same shall have been given by the undersigned
or any other officer of the Company or the Bank. This Agreement shall inure
solely to the benefit of, and shall be binding upon, Capital Resources and the
Company, the Bank and the controlling persons referred to in Section 9 hereof,
and their respective successors, legal representatives and assigns, and no other
person shall have or be construed to have any legal or equitable right, remedy
or claim under or in respect of or by virtue of this Agreement or any provision
herein contained.
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<PAGE>
SECTION 15. Closing. The closing for the sale of the Shares
shall take place on the Closing Date at the offices of Serchuk & Zelermyer, LLP
or such other location as mutually agreed upon by Capital Resources, the Company
and the Bank. At the closing, the Bank shall deliver to Capital Resources in
next day funds the commissions, fees and expenses due and owing to Capital
Resources as set forth in Sections 2 and 7 hereof and the opinions and
certificates required hereby and other documents deemed reasonably necessary by
Capital Resources shall be executed and delivered to effect the sale of the
Shares as contemplated hereby and pursuant to the terms of the Offering
Prospectus.
SECTION 16. Partial Invalidity. In the event that any term,
provision or covenant herein or the application thereof to any circumstances or
situation shall be invalid or unenforceable, in whole or in part, the remainder
hereof and the application of said term, provision or covenant to any other
circumstance or situation shall not be affected thereby, and each term,
provision or covenant herein shall be valid and enforceable to the full extent
permitted by law.
SECTION 17. Construction. This Agreement shall be construed in
accordance with the laws of the District of Columbia.
SECTION 18. Counterparts. This Agreement may be executed in
separate counterparts, each of which so executed and delivered shall be an
original, but all of which together shall constitute but one and the same
instrument.
SECTION 19. Headings. Section headings are not to be
considered part of this Agreement, are for convenience and reference only and
are not to be deemed to be full or accurate descriptions of the contents of any
paragraph or subparagraph.
SECTION 20. Entire Agreement: Amendment. This Agreement
represents the entire understanding of the parties hereto with reference to the
transactions contemplated hereby and supersedes any and all other oral or
written agreements heretofore made, except for (i) the engagement letter, dated
January 7, 1997, by and between Capital Resources and the Bank relating to
Capital Resources providing marketing agent services to the Company and the Bank
in connection with the Conversion and (ii) the engagement letter, dated January
7, 1997, by and between Capital Resources Group, Inc. and the Bank, relating to
Capital Resources Group, Inc. providing proxy solicitation and records
management services and appraisal services to the Company and the Bank in
connection with the Conversion. In the event of a conflict between any provision
of this Agreement and any provision of any of the other writings identified in
the preceding sentence, the provisions of this Agreement shall control. No
waiver, amendment or other modification of this Agreement shall be effective
unless in writing and signed by the parties hereto.
Time shall be of the essence of this Agreement.
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<PAGE>
If the foregoing correctly sets forth the arrangement among
the Company, the Bank and Capital Resources, please indicate acceptance thereof
in the space provided below for that purpose, whereupon this letter and Capital
Resources' acceptance shall constitute a binding agreement.
Very truly yours,
GSB FINANCIAL CORPORATION
By:
--------------------------------------------
Clifford E. Kelsey, Jr., President and
Chief Executive Officer
GOSHEN SAVINGS BANK
By:
--------------------------------------------
Clifford E. Kelsey, Jr., President and
Chief Executive Officer
Accepted as of the date first above written.
CAPITAL RESOURCES, INC.
By:
----------------------------------------
Catherine K. Rochester, President
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Exhibit 2.1
PLAN OF CONVERSION
FOR
GOSHEN SAVINGS BANK
GOSHEN, NEW YORK
1. INTRODUCTION
This Plan of Conversion ("Plan") provides for the conversion
("Conversion") of Goshen Savings Bank ("Bank") into a federal capital stock
savings institution. The purpose of the Conversion is to increase the Bank's
capital, thereby enhancing its ability to pursue lending and investment
opportunities, diversification and growth, which may include the acquisition of
other financial institutions. The Conversion will also provide a more flexible
operating structure which will enable the Bank to compete more effectively with
other financial institutions.
The Bank is currently a mutual savings bank organized and existing
under the laws of the State of New York. In connection with the adoption of this
Plan and prior to the consummation of the Conversion, the Bank will convert to a
federal mutual savings institution. The references in this Plan to the Board of
Trustees of the Bank apply to the Bank as a New York chartered mutual savings
bank and the references to Directors, Board of Directors and Members of the Bank
apply to the Bank as a federal mutual savings institution.
The Board of Trustees of the Bank currently contemplates that all of
the stock of the Bank shall be held by a business corporation ("Holding
Company"). Shares of capital stock of the Bank will be sold to the Holding
Company and the Holding Company will offer the Conversion Stock upon the terms
and conditions set forth herein to Eligible Account Holders, the tax-qualified
employee stock benefit plans ("Employee Plans") established by the Bank or the
Holding Company, which Employee Plans may be funded by the Holding Company,
Supplemental Eligible Account Holders, and Other Members 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 Bank and the Holding Company
through a Community Offering or a Syndicated Public Offering, or in a Public
Offering. In the event that the Bank decides not to utilize the Holding Company
in the Conversion, Conversion Stock of the Bank, in lieu of the Holding Company,
will be sold as set forth above and in the respective priorities set forth in
this Plan. Following the completion of the Conversion, the Bank and the Holding
Company, pursuant to applicable Office of Thrift Supervision ("OTS") regulations
("Conversion Regulations"), intend to implement stock option and other stock
benefit plans and may provide employment or severance agreements to certain
management employees and certain other benefits to the directors, officers and
employees of the Bank as described in the prospectus for the Conversion Stock.
This Plan, which has been unanimously approved by the Board of Trustees
of the Bank, also must be approved by the affirmative vote of a majority of the
total number of votes entitled to be cast by Voting Members of the Bank at a
special meeting ("Special Meeting") to be called for that purpose. Prior to the
submission of this Plan to the Voting Members for consideration, the Plan must
be approved by the OTS.
Upon the Conversion, each Account Holder having a Savings Account at
the Bank prior to Conversion will continue to have a Savings Account, without
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 the Conversion, the Bank will succeed to all the rights,
interests, duties and obligations of the Bank before the Conversion, including
but not limited to all rights and interests of the Bank in and to its assets and
properties, whether real, personal or mixed. The Bank will continue to be a
<PAGE>
member of the Federal Home Loan Bank System and all its insured savings deposits
will continue to be insured by the Bank Insurance Fund of Federal Deposit
Insurance Corporation (the "FDIC") to the extent provided by applicable law.
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
Savings Account in the Bank.
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 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 will not be deemed to be acting in
concert with its trustee or a Person who serves in a similar capacity solely for
the purpose of determining whether stock held by the trustee and stock held by
the plan will be aggregated. Directors and Officers of the Bank and the Holding
Company shall not be deemed to be Associates or a group affiliated with each
other or otherwise Acting in Concert solely as a result of their being Directors
or Officers of the Bank or the Holding Company.
Associate - The term Associate when used to indicate a relationship
with any person, means (i) any corporation or organization (other than the Bank,
the Holding Company or a majority-owned subsidiary of the Bank) 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 for the purposes of Sections 8 and 14 hereof, the term "Associate" does not
include any Tax-Qualified Employee Stock Benefit Plan or any Non-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 except
that, for purposes of aggregating total shares that may be held by Officers and
Directors the term "Associate" does not include any 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 Director or
Officer of the Bank or the Holding Company, or any of its parents or
subsidiaries.
Bank - The term Bank means Goshen Savings Bank, Goshen, New York.
Community Offering - The term Community Offering means the offering for
sale to certain members of the general public directly by the Holding Company of
any shares not subscribed for in the Subscription Offering.
Conversion - The term Conversion means a) the restatement of the Bank's
charter to authorize the issuance of capital stock in accordance with the
Conversion Regulations and b) the issuance of the Bank's capital stock in
accordance with this Plan.
Conversion Regulations - The term Conversion Regulations means Part
563b of the Rules and Regulations of the OTS.
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<PAGE>
Conversion Stock - The term Conversion Stock means the $.01 par value
common stock offered and issued by the Holding Company upon the Conversion.
Director - The term Director means a member of the Board of Directors
of the Bank and, where applicable, a member of the Board of Directors of the
Holding Company.
Eligible Account Holder - The term Eligible Account Holder means any
person holding a Qualifying Deposit in a Savings Account at the Bank on the
Eligibility Record Date.
Eligibility Record Date - The term Eligibility Record Date means the
date for determining Eligible Account Holders in the Bank and is the close of
business on December 31, 1995.
Employees - The term Employees means all Persons who are employed by
the Bank, the Holding Company, or a wholly owned subsidiary of either of them.
Employee Plans - The term Employee Plans means the Tax-Qualified
Employee Stock Benefit Plans approved by the Board of Directors of the Bank or
the Board of Directors of the Holding Company.
Estimated Valuation Range. The term Estimated Valuation Range means the
range of 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.
Holding Company - The term Holding Company means the business
corporation to be formed under the laws of the State of Delaware for the purpose
of acquiring all of the shares of capital stock of the Bank to be issued upon
its conversion to stock form unless the Holding Company form of organization is
not utilized.
Independent Appraiser - The term Independent Appraiser means an
appraiser retained by the Bank to prepare an appraisal of the pro forma market
value of the Conversion Stock.
Local Community - The term local community means Orange County, New
York.
Member - The term Member means any Person or entity who qualifies as a
member of the Bank pursuant to its charter and bylaws.
Non-Tax-Qualified Employee Stock Benefit Plan - The term
Non-Tax-Qualified Employee Stock Benefit Plan means any pension, profit sharing,
stock option, stock bonus or other plan maintained by the Bank or the Holding
Company for the benefit of Officers or Employees that is not a Tax-Qualified
Employee Stock Benefit Plan.
OTS - The term OTS means the Office of Thrift Supervision of the
Department of the Treasury.
Officer - The term Officer means an executive officer of the Bank or
Holding Company and may include the Chairman of the Board, Chief Executive
Officer, President, Senior Vice Presidents, Vice Presidents in charge of
principal business functions, Secretary and Treasurer and any Person performing
functions similar to those performed by the foregoing persons.
3
<PAGE>
Order Form - The term Order Form means the form provided by the Bank or
the Holding Company that Persons must use to order Conversion Stock in the
Subscription and Community Offerings.
Other Member - The term Other Member means any Person who is a Member
of the Bank (other than Eligible Account Holders or Supplemental Eligible
Account Holders) at the close of business on the Voting Record Date.
Participants - The term Participants means the Eligible Account
Holders, Employee Plans, Supplemental Eligible Account Holders and Other
Members.
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 Bank as it
exists on the date hereof and as it may hereafter be amended in accordance with
its terms.
Public Offering - The term Public Offering means the offering for sale
through the Underwriter to the general public of any shares of Conversion Stock
not subscribed for in the Subscription Offering or Community Offering, if held.
Purchase Order - The term Purchase Order means the form provided by the
Underwriter that Persons must use to purchase Conversion Stock in the Public
Offering.
Purchase Price - The term Purchase Price means the per share price at
which the Conversion Stock will be sold in accordance with the terms hereof.
Qualifying Deposit - The term Qualifying Deposit means a Savings
Account in the Bank at the close of business on the Eligibility Record Date or
Supplemental Eligibility Record Date.
SEC - The term SEC refers to the Securities and Exchange Commission.
Savings Account - The term Savings Account includes savings accounts as
defined in Section 561.42 of the Rules and Regulations of the OTS and includes
time deposits and certificates of deposit. The term shall also include demand
accounts as defined in Section 561.16 of such OTS Rules and Regulations.
Special Meeting of Members - The term Special Meeting of Members means
the special meeting 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 to Participants.
Supplemental Eligibility Record Date - The term Supplemental
Eligibility Record Date means the close of business on the last day of the
calendar quarter preceding the approval of the Plan by the OTS.
4
<PAGE>
Supplemental Eligible Account Holder - The term Supplemental Eligible
Account Holder means a holder of a Qualifying Deposit in the Bank (other than an
officer or director or their Associates) at the close of business on the
Supplemental Eligibility Record Date.
Syndicated Public Offering - The term Syndicated Public Offering means
a Public Offering through a syndicate of broker-dealers.
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,
stock option plan, profit-sharing plan or other plan maintained by the Bank or
the Holding Company for the benefit of the Officers or Employees which, with its
related trust, meets the requirements to be "qualified" under Section 401 of the
Internal Revenue Code.
Underwriter - The term Underwriter means the investment banking firm or
firms through which the Conversion Stock will be offered and sold in the Public
Offering.
Voting Members - The term Voting Members means those persons qualifying
as voting Members of the Bank pursuant to its charter and bylaws.
Voting Record Date - The term Voting Record Date means the date fixed
by the Directors in accordance with the Conversion Regulations for determining
eligibility to vote at the Special Meeting of Members.
3. PROCEDURE FOR CONVERSION
After approval of the Plan by the Board of Trustees of the Bank, the
Plan shall be submitted together with all other requisite material to the OTS
for its approval. Notice of the adoption of the Plan by the Board of Trustees of
the Bank will be published in a newspaper having general circulation in each
community in which an office of the Bank is located and copies of the Plan will
be made available at each office of the Bank for inspection. Upon filing the
application with the OTS, the Bank also will cause to be published a notice of
the filing with the OTS of an application to convert in accordance with the
provisions of the Plan. Following approval by the OTS, the Plan will be
submitted to a vote of the Voting Members at the Special Meeting of Members.
Upon approval of the Plan by a majority of the total outstanding votes of the
Voting Members, the Bank will take all other necessary steps pursuant to
applicable laws and regulations to convert the Bank to stock form. The
Conversion must be completed within 24 months of the approval of the Plan by the
Voting Members, unless a longer time period is permitted by the Conversion
Regulations.
The period for the Subscription Offering and Community Offering, if
held, will be not less than 20 days nor more than 45 days unless extended by the
Bank. Upon completion of the Subscription Offering and the Community Offering,
if held, any unsubscribed shares of Conversion Stock will, if feasible, be sold
through the Underwriter to the general public in the Public Offering. If for any
reason the Public Offering of all shares not sold in the Subscription Offering
and Community Offering cannot be effected, the Holding Company and the Bank will
use their best efforts to obtain other purchasers, subject to OTS approval.
Completion of the sale of all shares of Conversion Stock not sold in the
Subscription Offering and Community Offering, if held, is required within 45
days after termination of the Subscription Offering, subject to extension of
such 45-day period by the Holding Company and the Bank with the approval of the
OTS. The Holding Company and the Bank may jointly seek one or more extensions of
such 45-day period if necessary to complete the sale of all shares of Conversion
Stock. In connection with such extensions, subscribers and other purchasers will
be permitted to increase, decrease or rescind their subscriptions or purchase
orders to the extent required by the OTS in approving the extensions.
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The Board of Directors of the Bank intends to take all necessary steps
to form the Holding Company, including the filing of an application therefor,
with the OTS. In the Conversion, the Bank 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 Directors of the Bank 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 on Form S-1 will be withdrawn from the SEC, the
Bank 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 OTS and will issue and sell the Conversion Stock in 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 Bank without any further action by the Bank or the
subscribers for the Conversion Stock. Any references to the Holding Company in
this Plan shall mean the Bank in the event the Holding Company is eliminated in
Conversion.
The Conversion Stock will not be insured by the FDIC. The Bank 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 on Form H-(e)1 or an H-(e)1-S, if
available to the Holding Company, to be filed with the OTS and a Registration
Statement on Form S-1 to be filed with the SEC. The Bank 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, Supplemental Eligible
Account Holders and Other Members in the respective priorities set forth in
Sections 8 through 11 this Plan. The Subscription Offering may be commenced as
early as the mailing of the Proxy Statement for the Special Meeting of Members
and must be commenced in time to complete the Conversion within the time period
specified in Section 3.
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 12 of this Plan and may be offered in a Public Offering or Syndicated
Public Offering, as provided in Section 13, if necessary and feasible. The
Subscription Offering may be commenced prior to the Special Meeting of Members
and, in that event, the Community Offering, if any, may also be commenced prior
to the Special Meeting of Members. The offer and sale of Conversion Stock, prior
to the Special Meeting of Members shall, however, be conditioned upon approval
of the Plan by the Voting Members.
Shares of Conversion Stock may be sold in a Public Offering, or in a
Syndicated Public Offering, as provided in Section 13 of this Plan in a manner
that will achieve the widest distribution of the Conversion Stock as determined
by the Bank. In the event of a Syndicated Public Offering, or Public Offering,
the sale of all Conversion Stock subscribed for will be consummated only if all
unsubscribed for Conversion Stock is sold.
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The Bank may elect to pay fees on either a fixed fee or commission
basis or combination thereof to an investment banking firm which assists it in
the sale of the Conversion Stock in the offerings and may also elect to offer to
pay fees on a per share basis to brokers who assist Persons in determining to
purchase shares in the 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 by the Boards of Directors of
the Bank and the Holding Company, immediately prior to the commencement of the
Subscription Offering, subject to adjustment thereafter if necessitated by a
change in the appraisal due to changes in market or financial conditions, with
the approval of the OTS, if necessary.
All shares sold in the Conversion will be sold at a uniform price per
share referred to in this Plan as the Purchase Price. The aggregate Purchase
Price for all shares of Conversion Stock will not be inconsistent with the
estimated consolidated pro forma market value of the Bank. The estimated
consolidated pro forma market value of the Bank will be determined for such
purpose by the Independent Appraiser. Prior to the commencement of the
Subscription Offering, an Estimated Valuation Range will be established, which
range will vary within 15% above to 15% below the midpoint of such range. The
number of shares of Conversion Stock to be issued and/or the Purchase Price per
share may be increased or decreased by the Bank. In the event that the aggregate
Purchase Price of the Conversion Stock is below the minimum of the Estimated
Valuation Range, or materially above the maximum of the Estimated Valuation
Range, resolicitation of purchasers may be required, provided that an increase
of up to 15% above the maximum of the Estimated Valuation Range will not be
deemed material so as to require a resolicitation. Any such resolicitation shall
be effected in such manner and within such time as the Bank shall establish,
with the approval of the OTS, 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 Bank or in order to fill the order by the Employee
Plans will not be deemed to be material so as to require a resolicitation of
subscriptions. Based upon the independent valuation as updated prior to the
consummation of the Subscription Offering and Community Offering, if held, the
Boards of Directors of the Bank and the Holding Company will fix the Purchase
Price.
Notwithstanding the foregoing, no sale of Conversion Stock may be
consummated unless, prior to such consummation, the Independent Appraiser
confirms to the Bank and Holding Company and to the OTS 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 sold at the Purchase Price is incompatible with its estimate of the
aggregate consolidated pro forma market value of the Bank. If such confirmation
is not received, the Bank may cancel the Subscription and Community Offerings,
the Public Offering and/or the Syndicated Public Offering, reopen or hold new
Subscription and Community Offerings, the Public Offering and/or the Syndicated
Public Offering or take such other action as the OTS may permit.
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 BANK
Upon the consummation of the sale of all of the Conversion Stock, the
Holding Company will purchase from the Bank all of the capital stock of the Bank
to be issued by the Bank in the Conversion in exchange for the Conversion
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proceeds that are not retained by the Holding Company. The Holding Company will
apply to the OTS to retain up to 50% of such proceeds, but may retain a lesser
percentage.
8. SUBSCRIPTION RIGHTS OF ELIGIBLE ACCOUNT HOLDERS
(FIRST PRIORITY)
A. Each Eligible Account Holder shall receive, without payment,
nontransferable subscription rights to subscribe for shares of Conversion Stock
equal to the greater of: (i) the maximum established for the Community Offering,
which amount is currently equal to $150,000 of the Conversion stock; (ii)
one-tenth of one percent of the Conversion Stock offered; or (iii) 15 times the
product (rounded down to the next whole number) obtained by multiplying the
total number of shares of Conversion Stock offered by a fraction of which the
numerator is the amount of the Qualifying Deposit of such Eligible Account
Holder and the denominator is the total amount of Qualifying Deposits of all
Eligible Account Holders, but in no event greater than the maximum purchase
limitation specified in Section 14 hereof. All such purchases are subject to the
maximum and minimum purchase limitations specified in Section 14.
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 Eligible Account Holder whose subscription remains unsatisfied bears to
the total amount of the Qualifying Deposits of all Eligible Account Holders
whose subscriptions remain unsatisfied. If the amount so allocated exceeds the
amount subscribed for by any one or more Eligible Account Holders, the excess
shall be reallocated (one or more times as necessary) among those Eligible
Account Holders whose subscriptions are still not fully satisfied on the same
principle until all available shares have been allocated or all subscriptions
satisfied.
C. Subscription rights as Eligible Account Holders received by
Directors and Officers and their Associates which are based on deposits made by
such persons during the twelve (12) months preceding the Eligibility Record Date
shall be subordinated to the Subscription Rights of all other Eligible Account
Holders.
9. SUBSCRIPTION RIGHTS OF EMPLOYEE PLANS (SECOND PRIORITY)
Subject to the availability of sufficient shares after filling
subscription orders of Eligible Account Holders under Section 8, the Employee
Plans shall receive without payment nontransferable subscription rights to
purchase in the Subscription Offering the number of shares of Conversion Stock
requested by such Plans, subject to the purchase limitations set forth in
Section 14.
The Employee Plans shall not be deemed to be Associates or affiliates
of or Persons Acting in Concert with any Director or Officer of the Holding
Company or the Bank.
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10. SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS (THIRD PRIORITY)
A. In the event that the Eligibility Record Date is more than 15 months
prior to the date of the latest amendment to the Application filed prior to OTS
approval, then, and only in that event, each Supplemental Eligible Account
Holder shall receive, without payment, nontransferable subscription rights
entitling such Supplemental Eligible Account Holder to purchase that number of
shares of Conversion Stock which is equal to the greater of: (i) the maximum
purchase limitation established for the Community Offering, which amount is
currently equal to $150,000 of the Conversion stock; (ii) one-tenth of 1% of the
Conversion Stock Offered; and (iii) or 15 times the product (rounded down to the
next whole number) obtained by multiplying the total number of shares of
Conversion Stock to be issued by a fraction of which the numerator is the amount
of the Qualifying Deposit of the Supplemental Eligible Account Holder and the
denominator is the total amount of the Qualifying Deposits of all Supplemental
Eligible Account Holders. All such purchases are subject to the maximum and
minimum purchase limitations in Section 14.
B. Subscription rights received pursuant to this Category shall be
subordinated to the subscription rights received by Eligible Account Holders and
by the Employee Plans.
C. Any subscription rights to purchase shares of Conversion Stock
received by an Eligible Account Holder in accordance with Section 8 shall reduce
to the extent thereof the subscription rights to be distributed pursuant to this
Section.
D. In the event of an oversubscription for shares of Conversion Stock
pursuant to this Section, shares of Conversion Stock shall be allocated among
the subscribing Supplemental Eligible Account Holders as follows:
(1) Shares of Conversion Stock shall be allocated so as to
permit each such Supplemental Eligible Account Holder, to the extent
possible, to purchase a number of shares of Conversion Stock sufficient
to make his total allocation (including the number of shares of
Conversion Stock, if any, allocated in accordance with Section 8) equal
to 100 shares of Conversion Stock or the total amount of his
subscription, whichever is less.
(2) Any shares of Conversion Stock not allocated in accordance
with subparagraph (1) above shall be allocated among the subscribing
Supplemental Eligible Account Holders on an equitable basis, related to
the amounts of their respective Qualifying Deposits as compared to the
total Qualifying Deposits of all subscribing Supplemental Eligible
Account Holders.
11. SUBSCRIPTION RIGHTS OF OTHER MEMBERS (FOURTH PRIORITY)
A. Each Other Member shall receive, without payment, nontransferable
subscription rights to subscribe for shares of Conversion Stock in an amount
equal to the greater of the maximum purchase limitation established for the
Community Offering, which amount is currently equal to $150,000 of Conversion
Stock or one-tenth of one percent of the Conversion Stock offered, subject to
the maximum and minimum purchase limitations specified in Section 14. Shares of
Conversion Stock will be allocated only after first allocating to Eligible
Account Holders, the Employee Plans and Supplemental Eligible Account Holders
all shares of Conversion Stock subscribed for pursuant to Sections 8, 9 and 10
above.
B. In the event that Other Members subscribe for a number of shares of
Conversion Stock which, when added to the shares of Conversion Stock subscribed
for by the Eligible Account Holders, the Employee Plans and the Supplemental
Eligible Account Holders is in excess of the total number of shares of
Conversion Stock being issued, the subscriptions of Other Members will be
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allocated among the subscribing Other Members so as to permit each subscribing
Other Member, to the extent possible, to purchase a number of shares sufficient
to make his total allocation of Conversion Stock equal to the lesser of 100
shares or the number of shares subscribed for by the Other Member. Any shares
remaining will be allocated among the subscribing Other Members whose
subscriptions remain unsatisfied on a 100 shares (or whatever lesser amount is
available) per order basis until all orders have been filled or the remaining
shares have been allocated.
12. COMMUNITY OFFERING
If less than the total number of shares of Conversion Stock to be
subscribed for in the Conversion are sold in the Subscription Offering, shares
remaining unsubscribed may be made available for purchase in the Community
Offering to certain members of the general public, who may subscribe together
with any Associate or group of Persons Acting in Concert for up to that number
of shares of Conversion Stock as shall equal $150,000 divided by the Purchase
Price per share, subject to the maximum and minimum purchase limitations
specified in Section 14. 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 institution securities. In the
Community Offering, if held, shares will be available for purchase by the
general public with preference given to natural persons residing in the Local
Community. The Bank shall make distribution of the Conversion Stock to be sold
in the Community Offering in such a manner as to promote the widest distribution
of Conversion Stock.
If the purchasers in the Community Offering, whose orders would
otherwise be accepted, subscribe for more shares than are available for
purchase, the shares available to them will be allocated among persons
submitting orders in the Community Offering in an equitable manner as determined
by the Board of Directors, provided that orders for stock shall be filled first
up to a maximum of two percent of the stock sold in the Conversion and remaining
shares shall be allocated on an equal number of shares per order basis. The
Bank may establish all terms and conditions of such offer.
The Community Offering, if held, may commence simultaneously with,
during or subsequent to the completion of the Subscription Offering and if
commenced simultaneously with or during the Subscription Offering the Community
Offering may be limited to Local Community Purchasers. If commenced, the
Community Offering must be completed within 45 days after the completion of the
Subscription Offering unless otherwise extended by the OTS.
The Bank and the Holding Company, in their absolute discretion, reserve
the right to reject any or all orders in whole or in part which are received in
the Community Offering, at the time of receipt or as soon as practicable
following the completion of the Community Offering.
13. PUBLIC OFFERING AND SYNDICATED PUBLIC OFFERING
Any shares of Conversion Stock not sold in the Subscription Offering or
in the Community Offering, if held, may then be sold through the Underwriter to
the general public at the Purchase Price in the Public Offering, subject to such
terms, conditions and procedures as may be determined by the Boards of Directors
of the Bank and the Holding Company, in a manner that will achieve the widest
distribution of the Conversion Stock and subject to the right of the Bank and
the Holding Company, in their absolute discretion, to accept or reject in whole
or in part all subscriptions in the Public Offering. In the Public Offering, if
any, any Person together with any Associate or group of Persons Acting in
Concert may purchase up to the maximum purchase limitation established for the
Community Offering, which currently is $150,000 of Conversion Stock subject to
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the maximum and minimum purchase limitations specified in Section 14. Shares
purchased by any Person together with any Associate or group of Persons Acting
in Concert pursuant to Section 12 shall be counted toward meeting the maximum
purchase limitation specified for this Section. Provided that the Subscription
Offering has commenced, the Bank may commence the Public Offering at any time
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
Voting Members. It is expected that the Public Offering, if any, will commence
just prior to, or as soon as practicable after, the termination of the
Subscription Offering and the Community Offering, if held. The Public Offering
shall be completed within 45 days after the termination of the Subscription
Offering, unless such period is extended as provided in Section 3, above.
Shares of Conversion Stock not subscribed for in the Subscription
Offering and Community Offering, if held, or the Public Offering, may be sold in
a Syndicated Public Offering, subject to such terms, conditions and procedures
as may be determined by the Boards of Directors of the Bank and the Holding
Company, in a manner that will achieve a wide distribution of the Conversion
Stock and subject to the right of the Bank and the Holding Company, in their
absolute discretion, to accept or reject in whole or in part all subscriptions
in the Syndicated Public Offering. In the Syndicated Public Offering, any Person
together with any Associate or group of persons Acting in Concert may purchase
up to the maximum purchase limitation established for the Community Offering,
which currently is $150,000 of Conversion Stock, subject to the maximum and
minimum purchase limitations specified in Section 14. Shares purchased by any
Person together with any Associate or group of Persons Acting in Concert
pursuant to Section 12 shall be counted toward meeting the maximum purchase
limitation specified for this Section. Provided that the Subscription Offering
has commenced, the Bank may commence the Syndicated Public Offering at any time
after the mailing to the Members of the Proxy Statement to be used in connection
with the Special Meeting of Members, provided that the completion of the offer
and sale of the Conversion Stock shall be conditioned upon the approval of this
Plan by the Voting Members. If the Syndicated Public Offering is not sooner
commenced pursuant to the provisions of the preceding sentence, the Syndicated
Public Offering will be commenced as soon as practicable following the date upon
which the Subscription Offering and Community Offering, if held, terminate.
If any Public Offering or Syndicated Public Offering results in
accepted orders for shares in excess of the number of shares available, then
shares shall be allocated so that orders for stock shall be filled first up to a
maximum of two percent of the stock sold in the Conversion and remaining shares
shall be allocated on an equal number of shares per order basis.
If for any reason a Public Offering of shares of Conversion Stock not
sold in the Subscription Offering and Community Offering, if held, cannot be
effected, other purchase arrangements will be made for the sale of unsubscribed
shares by the Bank, if possible. Such other purchase arrangements will be
subject to the approval of the OTS.
14. LIMITATION ON PURCHASES
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 persons through a single account) or Participant together with any Associate
or group of persons Acting in Concert shall not exceed such number of shares as
shall equal $150,000 divided by the Purchase Price per share, except for
Employee Plans, which in the aggregate may subscribe for up to 10% of the
Conversion Stock issued.
B. The maximum number of shares of Conversion Stock which may be
purchased in all categories in the Conversion by Officers and Directors of the
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Bank and their Associates in the aggregate shall not exceed 34% of the total
number of shares of Conversion Stock issued.
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 the minimum number of shares requirement will
not apply if the number of shares of Conversion Stock purchased times the price
per share exceeds $500.
If the number of shares of Conversion Stock otherwise allocable
pursuant to Sections 8 through 13 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 Directors
of the Bank and the Holding Company, without further approval of the Members,
may decrease or increase the purchase limitations in this Plan, provided that
the maximum purchase limitations may not be increased to a percentage in excess
of 5% of the shares being offered. Notwithstanding the foregoing, the maximum
purchase limitation may be increased up to 9.99% of the shares being offered
provided that orders for Conversion Stock exceeding 5% of the shares being
offered shall not exceed, in the aggregate, 10% of the total offering. If the
Bank and the Holding Company increase the maximum purchase limitations, the Bank
and the Holding Company are only required to resolicit Persons who subscribed
for the maximum purchase amount and may, in the sole discretion of the Bank and
the Holding Company, resolicit certain other large subscribers.
In the event of an increase in the total number of shares offered in
the Conversion due to an increase in the maximum of the Estimated Valuation
Range of up to 15% (the "Adjusted Maximum") the additional shares will be used
in the following order of priority: (i) to fill the Employee Plan's subscription
to up to 10% of 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 according to Section 8; (iii) in the
event that there is an oversubscription at the Supplemental Eligible Account
Holder level, to fill unfilled subscriptions of Supplemental Eligible Account
Holders according to Section 10; (iv) in the event that there is an
oversubscription at the Other Member level, to fill unfilled subscriptions of
Other Members in accordance with Section 11; and (v) to fill unfilled
Subscriptions in the Community Offering, with preference given to Local
Community Purchasers.
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,
Director or their Associates shall purchase, without the prior written approval
of the OTS, any outstanding shares of common stock of the Holding Company,
except from a broker-dealer registered with the SEC. This provision shall not
apply to negotiated transactions involving more than 1% of the outstanding
shares of common stock of the Holding Company, the exercise of any options
pursuant to a stock option plan or purchases of common stock of the Holding
Company, made by or held by any Tax-Qualified Employee Stock Benefit Plan or
Non-Tax Qualified Employee Stock Benefit Plan of the Bank or the Holding Company
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(including the Employee Plans) which may be attributable to any Officer or
Director. As used herein. the term "negotiated transaction" means a transaction
in which the securities are offered and the terms and arrangements relating to
any sale are arrived at through direct communications between the seller or any
person acting on its behalf and the purchaser or his investment representative.
The term "investment representative" shall mean a professional investment
advisor acting as agent for the purchaser and independent of the seller and not
acting on behalf of the seller in connection with the transaction.
15. PAYMENT FOR CONVERSION STOCK
All payments for Conversion Stock subscribed for in the Subscription,
Community, Syndicated Public and Public Offerings must be delivered in full to
the Bank, together with a properly completed and executed Order Form, or
Purchase Order in the case of the Syndicated Public or Public Offering, on or
prior to the expiration date specified on the Order Form or Purchase Order, as
the case may be, unless such date is extended by the Bank; provided, however,
that if the Employee Plans subscribe for shares during the Subscription
Offering, the Employee Plans will not be required to pay for the shares at the
time they subscribe but rather may pay for such shares of Conversion Stock upon
consummation of the Conversion. The Bank and the Holding Company shall have the
right to require that payments in excess of $25,000 for Conversion Stock be made
by bank check, certified check or withdrawal authorization from an account at
the Bank with collected funds sufficient to pay for the shares ordered.
Notwithstanding the foregoing, the Bank and the Holding Company shall
have the right, in their sole discretion, to permit institutional investors to
submit contractually irrevocable orders in the Community or Syndicated Public
Offering and to thereafter submit payment for the Conversion Stock for which
they are subscribing in the Community Offering, Public Offering or Syndicated
Public Offering at any time prior to the completion of the Conversion.
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 Bank on the Order Form or Purchase Order to make a
withdrawal from the subscriber's Savings Account at the Bank in an amount equal
to the purchase price of such shares. Such authorized withdrawal, whether from a
savings passbook or certificate account, shall be without penalty as to
premature withdrawal. If the authorized withdrawal is from a certificate
account, and the remaining balance does not meet the applicable minimum balance
requirement, the certificate shall be canceled at the time of withdrawal,
without penalty, and the remaining balance will earn interest at the passbook
rate. Funds for which a withdrawal is authorized will remain in the subscriber's
Savings Account but may not be used by the subscriber until the Conversion Stock
has been sold or the 45-day period (or such longer period as may be approved by
the OTS) following the Subscription Offering has expired, whichever occurs
first. Thereafter, the withdrawal will be given effect only to the extent
necessary to satisfy the subscription (to the extent it can be filled) at the
Purchase Price per share. Interest will continue to be earned on any amounts
authorized for withdrawal until such withdrawal is given effect. Interest will
be paid by the Bank at not less than the passbook rate as of the date the
Subscription Offering is commenced on payments for Conversion Stock received in
cash or by money order or check. Such interest will be paid from the date
payment is received by the Bank 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, Syndicated Public and Public
Offerings will be refunded to them with interest. In case of amounts authorized
for withdrawal from Savings Accounts, refunds will be made by canceling the
authorization for withdrawal.
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16. MANNER OF EXERCISING SUBSCRIPTION RIGHTS THROUGH ORDER FORMS
As soon as practicable after the prospectus prepared by the Holding
Company and Bank has been declared effective by the OTS and the SEC, Order Forms
will be distributed to the Participants at their last known addresses appearing
on the records of the Bank for the purpose of subscribing to shares of
Conversion Stock in the Subscription Offering and will be made available for use
in the Community Offering, if held. Notwithstanding the foregoing, the Bank may
elect to send Order Forms only to those Persons who request them after such
notice as is approved by the OTS and is adequate to apprise the Participants of
the pendency of the Subscription Offering has been given. Such notice may be
included with the proxy statement for the Special Meeting and may also be
included in a notice of the pendency of the Conversion and the Special Meeting
sent to all Eligible Account Holders in accordance with the Conversion
Regulations.
Each Order Form or Purchase Order will be preceded or accompanied by a
prospectus (if a holding company form of organization is utilized) or an
offering circular (if the holding company form of organization is not utilized)
describing the Holding Company (if utilized), the Bank, the Conversion Stock and
the Subscription, Community, Public and Syndicated Public Offerings. Each Order
Form and Purchase Order will contain, among other things, the following:
A. A specified date by which all Order Forms and Purchase Orders must
be received by the Bank, which date shall be not less than twenty (20), nor more
than forty-five (45) days, following the date on which the Order Forms are
mailed by the Bank, and which date will constitute the termination of the
Subscription Offering;
B. The purchase price per share for shares of Conversion Stock to be
sold in the Subscription, Community, Public and Syndicated Public 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, Public or
Syndicated Public Offerings;
D. Instructions as to how the recipient of the Order Form or Purchase
Order 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 or Purchase
Order has received a final copy of a prospectus or offering circular, as the
case may be, prior to execution of the Order Form or Purchase Order;
F. A statement to the effect that all subscription rights are
nontransferable, will be void at the end of the Subscription Offering, and can
only be exercised by delivering to the Bank within the subscription period such
properly completed and executed Order Form or Purchase Order, 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 Bank withdraw said amount from the
subscriber's Savings Account at the Bank); and
G. A statement to the effect that the executed Order Form or Purchase
Order, once received by the Bank, may not be modified or amended by the
subscriber without the consent of the Bank.
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Notwithstanding the above, the Bank and the Holding Company reserve the
right in their sole discretion to accept or reject orders received on
photocopied or facsimile order forms or whose payment is to be made by wire
transfer.
17. UNDELIVERED, DEFECTIVE OR LATE ORDER FORMS: INSUFFICIENT PAYMENT
In the event Order Forms or Purchase Orders (a) are not delivered and
are returned to the Bank by the United States Postal Service or the Bank is
unable to locate the addressee, (b) are not received back by the Bank or are
received by the Bank after the expiration date specified thereon, (c) are
defectively filled out or executed, (d) are not accompanied by the full required
payment, or, in the case of institutional investors in the Community Offering,
Public Offering or Syndicated Public 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 for the shares of Conversion Stock subscribed for
(including cases in which Savings Accounts from which withdrawals are authorized
are insufficient to cover the amount of the required payment), or (e) are not
mailed pursuant to a "no mail" order placed in effect by the account holder, the
subscription rights of the person to whom such rights have been granted will
lapse as though such person failed to return the completed Order Form or
Purchase Order within the time period specified thereon; provided, however, that
the Bank may, but will not be required to, waive any immaterial irregularity on
any Order Form or Purchase Order or require the submission of corrected Order
Forms or Purchase Orders or the remittance of full payment for subscribed shares
by such date as the Bank may specify. The interpretation of the Bank of terms
and conditions of the Plan and of the Order Forms or Purchase Orders will be
final, subject to the authority of the OTS.
18. RESTRICTIONS ON RESALE OR SUBSEQUENT DISPOSITION
A. All shares of Conversion Stock purchased by Directors or Officers of
the Bank or the Holding Company in the Conversion shall be subject to the
restriction that, except as provided in Section 18B, below, or as may be
approved by the OTS, no interest in such shares may be sold or otherwise
disposed of for value for a period of one (1) year following the date of
purchase.
B. The restriction on disposition of shares of Conversion Stock set
forth in Section 18A above shall not apply to the following:
(i) Any exchange of such shares in connection with a merger or
acquisition involving the Bank or the Holding Company, which has been
approved by the OTS; and
(ii) Any disposition of such shares following the death of the
person to whom such shares were initially sold under the terms of the
Plan.
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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 18A, above, shall bear a legend prominently stamped
on its face giving notice of the restriction;
(ii) Instructions shall be issued to the stock transfer agent
for the Holding Company not to recognize or effect any transfer of any
certificate or record of ownership of any such shares in violation of
the restriction on transfer; and
(iii) Any shares of capital stock of the Holding Company
issued with respect to a stock dividend, stock split, or otherwise with
respect to ownership of outstanding shares of Conversion Stock subject
to the restriction on transfer hereunder shall be subject to the same
restriction as is applicable to such Conversion Stock.
19. VOTING RIGHTS OF STOCKHOLDERS
Upon Conversion, the holders of the capital stock of the Bank shall
have the exclusive voting rights with respect to the Bank as specified in its
charter. The holders of the common stock of the Holding Company shall have the
exclusive voting rights with respect to the Holding Company.
20. 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 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 at
the Eligibility Record Date and Supplemental Eligibility Record Date or to such
balance as it may be subsequently reduced, as hereinafter provided.
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 transactions with an FDIC
insured 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.
The initial subaccount balance for a Savings Account held by an
Eligible Account Holder or Supplemental Eligible Account Holder shall be
determined by multiplying the opening balance in the liquidation account by a
fraction, the numerator of which is the amount of such Eligible Account Holder's
and Supplemental Eligible Account Holder's Qualifying Deposit and the
denominator of which is the total amount of all Qualifying Deposits of all
Eligible Account Holders and Supplemental Eligible Account Holders in the Bank.
Such initial subaccount balance shall not be increased, but shall be subject to
downward adjustment as described below.
If, at the close of business on any annual closing date, commencing on
or after the effective date of the Conversion, the deposit balance in the
Savings Account of an Eligible Account Holder or Supplemental Eligible Account
Holder is less than the lesser of (i) the balance in the Savings Account at the
close of business on any other annual closing date subsequent to the Eligibility
Record Date or Supplemental Eligibility Record Date, as applicable, or (ii) the
amount of the Qualifying Deposit in such Savings Account, the subaccount balance
of such Savings Account shall be adjusted by reducing such subaccount balance in
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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 Savings Account. If any such Savings Account is closed, the related
subaccount shall be reduced to zero.
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 Bank.
21. TRANSFER OF SAVINGS ACCOUNTS
Each Person holding a Savings Account at the Bank at the time of
Conversion shall retain an identical Savings Account at the Bank following the
Conversion in the same amount and subject to the same terms and conditions
applicable to such Savings Account at the time of Conversion (except as to
voting and liquidation rights).
22. RESTRICTIONS ON ACQUISITION OF THE BANK AND HOLDING COMPANY
A. In accordance with OTS regulations, for a period of three years from
the date of consummation of the Conversion, no Person, other than the Holding
Company, 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 Bank
without the prior written consent of the OTS.
B.1. The charter of the Bank contains a provision stipulating that no
person, except the Holding Company, for a period of five years following the
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 Bank, without the prior written approval of the OTS. In addition, such
charter may also provide that for a period of five years following the
Conversion, shares beneficially owned in violation of the above-described
charter provision shall not be entitled to vote and shall not be voted by any
person or counted as voting stock in connection with any matter submitted to
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 shall
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 may provide for staggered terms
of the directors, noncumulative voting for directors, limitations on the calling
of special meetings and the removal of directors, a fair price provision for
certain business combinations and certain notice requirements.
C. For the purposes of Section 22, B.1.:
(i) The term "person" includes an individual, a group acting
in concert, a corporation, a partnership, an association, a joint
venture, a pool, a joint stock company, a trust, an unincorporated
organization or similar company, a government or political subdivision,
a syndicate or any other group formed for the purpose of acquiring,
holding or disposing of securities of an insured institution;
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(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;
(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. ss.78c(a)(10).
23. PAYMENT OF DIVIDENDS AND REPURCHASES OF STOCK
The Bank 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 (i) the amount required for the Liquidation Account or (ii)
the federal regulatory capital requirement in Section 567.2 of the Rules and
Regulations of the OTS. Otherwise, the Bank and the Holding Company may declare
dividends, repurchase capital stock or make capital distributions in accordance
with applicable law and regulations.
24. AMENDMENT OF PLAN
If deemed necessary or desirable, the Plan may be substantively amended
at any time prior to solicitation of proxies from Members to vote on the Plan by
a two-thirds vote of the Bank's Board of Directors, and at any time thereafter
by such vote of such Board of Directors with the concurrence of the OTS. Any
amendment to the Plan made after approval by the Members with the approval of
the OTS shall not necessitate further approval by the Members unless otherwise
required by the OTS. The Plan may be terminated by majority vote of the Bank's
Board of Directors at any time prior to the Special Meeting and at any time
thereafter with the concurrence of the OTS.
By adoption of the Plan, the Members of the Bank authorize the Board of
Directors to amend or terminate the Plan under the circumstances set forth in
this Section.
25. CHARTER AND BYLAWS
By voting to adopt the Plan, members of the Bank will be voting to
adopt a charter and bylaws to read in the form of charter and bylaws for a
federally chartered stock institution. The effective date of the Bank's amended
charter and bylaws shall be the date of issuance and sale of the Conversion
Stock as specified by the OTS.
26. CONSUMMATION OF CONVERSION
The Conversion shall be deemed to take place and be effective upon the
completion of all requisite organizational procedures for obtaining the federal
stock charter for the Bank and sale of all Conversion Stock.
27. REGISTRATION AND MARKETING
Within the time period required by applicable laws and regulations, the
Holding Company 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,
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except that such three year registration maintenance requirement may be
fulfilled by any successor to the Holding Company. In addition, the Holding
Company will use its best efforts to encourage and assist market-makers 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.
28. RESIDENTS OF FOREIGN COUNTRIES AND CERTAIN STATES
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 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 any of
the following apply: (i) a small number of Persons otherwise eligible to
subscribe for shares under the Plan reside in such state; (ii) the issuance of
subscription rights or the offer or sale of shares of Conversion Stock to such
Persons would require the Bank or the Holding Company, 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;
or (iii) such registration or qualification would be impracticable for reasons
of cost or otherwise.
29. EXPENSES OF CONVERSION
The Bank shall use its best efforts to assure that expenses incurred by
it in connection with the Conversion shall be reasonable.
30. CONDITIONS TO CONVERSION
The Conversion is expressly conditioned upon the following:
(a) Prior receipt by the Bank of rulings of the United States Internal
Revenue Service and the State of New York taxing authorities, or opinions of
counsel, substantially to the effect that the Conversion will not result in any
adverse federal or state tax consequences to Eligible Account Holders or the
Bank and the Holding Company before or after the conversion;
(b) The sale of Conversion Stock with an aggregate purchase price at
least equal to the minimum of the Estimated Valuation Range; and
(c) The completion of the Conversion within the time period specified
in Section 3 of this Plan.
31. CONTRIBUTION TO EMPLOYEE PLANS
The Bank may make scheduled discretionary contributions to
Tax-Qualified Employee Stock Benefit Plans provided that such contributions do
not cause the Bank to fail to meet its regulatory capital requirements.
32. INTERPRETATION
All interpretations of this Plan and application of its provisions to
particular circumstances by a majority of the Board of Directors of the Bank
shall be final, subject to the authority of the OTS.
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Exhibit 3.3
Federal Stock Charter
GOSHEN SAVINGS BANK
SECTION 1. Corporate title. The full corporate title of the savings
bank is "Goshen Savings Bank."
SECTION 2. Office. The home office shall be located in the Village of
Goshen, County of Orange, in the 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 Federal savings bank chartered
under section 5 of the Home Owners' Loan Act and to exercise all of the express,
implied, and incidental powers conferred thereby and by all acts amendatory
thereof and supplemental thereto, subject to the Constitution and laws of the
United States as they are now in effect, or as they may hereafter be amended and
subject to all lawful and applicable rules, regulations, and orders of the
Office of Thrift Supervision ("Office").
SECTION 5. Capital stock. The total number of shares of all classes of
the capital stock that the savings bank has the authority to issue is five
million (5,000,000) of which four million five hundred thousand (4,500,000)
shall be common stock of par value of $.01 per share, and of which five hundred
thousand (500,000) shall be serial preferred stock of par value $.01 per share.
The shares may be issued from time to time as authorized by the board of
directors without further approval of 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 retained earnings of the savings bank that is transferred to common stock
or paid in capital accounts upon the issuance of shares as a stock dividend
shall be deemed to be the consideration for their issuance.
Except for shares issued in the initial organization of the savings
bank or 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 of a series of capital stock to
vote as a separate class or series or to more than one vote per share except as
to the cumulation of votes for the election of directors, unless the charter
otherwise provides that there shall be no cumulative voting; provided, that this
restriction on voting separately by class or series shall not apply:
<PAGE>
(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 exchange for securities of such other corporation, provided,
that no provision may require such approval for transactions
undertaken with the assistance or pursuant to the direction of
the Office or the Federal Deposit Insurance Corporation;
(iii) To any amendment which would adversely change the specific terms
of any class or series of capital stock as set forth in this
section 5 (or in any supplementary sections hereto), including
any amendment which would create or enlarge any class or series
ranking prior thereto in rights and preferences. An amendment
which increases the number of authorized shares of any class or
series of capital stock, or substitutes the surviving savings
bank 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 and
series (if any) of capital stock are as follows:
A. Common stock. Except as provided in this section 5 (or in any
supplementary sections thereto) the holders of the common stock shall
exclusively possess all voting power. Each holder of shares of common stock
shall be entitled to one vote for each share held by each holder, and there
shall be no right to cumulate votes in an election of directors.
Whenever there shall have been paid, or declared and set aside for
payment, to the holders of the outstanding shares of any class of stock having
preference over the common stock as to the payment of dividends, the full amount
of dividends and of sinking fund, retirement fund, or other retirement payments,
if any, to which such holders are respectively entitled in preference to the
common stock, then dividends may be paid on the common stock and on any class or
series of stock entitled to participate therewith as to dividends out of any
assets legally available for the payment of dividends.
In the event of any liquidation, dissolution, or winding up of the
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 debt and liabilities;
(ii) distributions or provision for distributions in settlement of its
liquidation account; and (iii) distributions or provisions for distributions to
holders of any class or series of stock having preference over the common stock
in the liquidation, dissolution, or winding up of the 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 charter for one or more classes of preferred stock, which shall
be separately identified. The shares of any class may be divided into and issued
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in series, with each series separately designated so as to distinguish the
shares thereof from the shares of all other series and classes. The terms of
each series shall be set forth in a supplementary section to the charter. All
shares of the same class shall be identical except as to the following relative
rights and preferences, as to which there may be variations between different
series:
(a) The distinctive serial designation and the number of shares constituting
such series;
(b) The dividend rate or the amount of dividends to be paid on the shares of
such series, whether dividends shall be cumulative and, if so, from which
date(s), the payment date(s) for dividends, and the participating or other
special rights, if any, with respect to dividends;
(c) The voting powers, full or limited, if any, of shares of such series;
(d) Whether the shares of such series shall be redeemable and, if so, the
price(s) at which, and the terms and conditions on which such shares may
be redeemed;
(e) The amount(s) payable upon the shares of such series in the event of
voluntary or involuntary liquidation, dissolution, or winding up of the
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.
The board of directors shall have authority to divide, by the adoption
of supplementary charter sections, any authorized class of preferred stock into
series, and, within the limitations set forth in this section and the remainder
of this charter, fix and determine the relative rights and preferences of the
shares of any series so established.
Prior to the issuance of any preferred shares of a series established by
a supplementary charter section adopted by the board of directors, the savings
bank shall file with the Secretary to the Office a dated copy of that
supplementary section of this charter established and designating the series and
fixing and determining the relative rights and preferences thereof.
SECTION 6. Preemptive rights. Holders of the capital stock of the
savings bank shall not be entitled to preemptive rights with respect to any
shares of the savings bank which may be issued.
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SECTION 7. Liquidation account. Pursuant to the requirements of the
Office's regulations (12 C.F.R. Part 563b) the savings bank shall establish and
maintain a liquidation account for the benefit of its savings account holders as
of December 31, 1995 and March 31, 1997 (collectively, "eligible savers"). 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 saver's inchoate interest in the liquidation
account, to the extent it is still in existence, provided, that an eligible
saver's inchoate interest in the liquidation account shall not entitle such
eligible saver to any voting rights at meetings of the savings bank's
stockholders.
SECTION 8. Certain provisions applicable for five years.
Notwithstanding anything contained in the savings bank's charter or bylaws to
the contrary, for a period of five years from the date of completion 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 offer to acquire or acquire the beneficial ownership of more than 10%
of any class of an equity security of the savings bank. This limitation shall
not apply to a transaction in which the savings bank forms a holding company
without change in the respective beneficial ownership interests of its
stockholders other than pursuant to the exercise of any dissenter and appraisal
rights, the purchase of shares by underwriters in connection with a public
offering, or the purchase of shares by a tax-qualified employee stock benefit
plan which is exempt from the approval requirements under Section
574.3(c)(1)(vi) of the Office's regulations.
In the event shares are acquired in violation of this Section 8, all
shares beneficially owned by any person in excess of 10% shall be considered
"excess shares" and shall not be counted as shares entitled to vote and shall
not be voted by any person or counted as voting shares in connection with any
matters submitted to the stockholders for a vote.
For purposes of this section 8, the following definitions apply:
(1) The term "person" includes an individual, a group acting in concert,
a corporation, a partnership, a bank, a joint stock company, a trust, an
unincorporated organization or similar company, a syndicate or any other group
formed for the purpose of acquiring, holding or disposing of the equity
securities of the savings bank.
(2) The term "offer" includes every offer to buy or otherwise acquire,
solicitation of an offer to sell, tender offer for, or request or invitation for
tenders of, a security or interest in a security for value.
(3) The term "acquire" includes every type of acquisition, whether
effected by purchase, exchange, operation of law or otherwise.
(4) The term "acting in concert" means (a) knowing participation in a
joint activity or conscious parallel action towards a common goal whether or not
pursuant to an express agreement, or (b) a combination or pooling of voting or
other interests in the securities of an issuer for a common purpose pursuant to
any contract, understanding, relationship, agreement or other arrangements,
whether written or otherwise.
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B. Cumulative voting limitation. Stockholders shall not be permitted to
cumulate their votes for election of directors.
C. Call for special meetings. Special meetings of stockholders relating
to changes in control of the savings bank or amendments to its charter shall be
called only upon direction of the board of directors.
SECTION 9. 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 fewer than five nor more than fifteen except when a
greater or lesser number is approved by the Director of the Office or his or her
delegate.
SECTION 10. Amendment of charter. Except as provided in section 5, no
amendment, addition, alteration, change or repeal of this charter shall be made,
unless such is proposed by the board of directors of the savings bank, approved
by the shareholders by a majority of the votes eligible to be cast at a legal
meeting unless a higher vote is otherwise required, and approved or preapproved
by the Office.
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GOSHEN SAVINGS BANK
ATTEST: By:
---------------------------- --------------------------------------
Clifford E. Kelsey, Jr., President and
Chief Executive Officer
OFFICE OF THRIFT SUPERVISION
ATTEST: By:
---------------------------- --------------------------------------
Secretary of the Office of Director of the Office of
Thrift Supervision Thrift Supervision
Declared effective this day of 1997.
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Exhibit 3.4
BYLAWS OF
GOSHEN SAVINGS BANK
ARTICLE I
HOME OFFICE
The home office of the savings bank shall be in the Village of Goshen,
in the County of Orange, in the State of New York.
ARTICLE II
SHAREHOLDERS
Section 1. 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 convenient place as the board of directors may determine.
Section 2. Annual Meeting. A meeting of 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 150 days after the end of the
savings bank's fiscal year on the second Thursday of February if not a legal
holiday, and if a legal holiday, then on the next day following which is not a
legal holiday, at 4:00 p.m., or at such other date and time within such 150-day
period as the board of directors may determine.
Section 3. Special Meetings.Special meetings of the shareholders for any
purpose or purposes, unless otherwise prescribed by the regulations of the
Office of Thrift Supervision ("Office"), may be called at any time by the
chairman of the board, the president, or a majority of the board of directors,
and shall be called by the chairman of the board, the president, or the
secretary upon the written request of the holders of not less than one-tenth of
all of the outstanding capital stock of the savings bank entitled to vote at the
meeting. Such written request shall state the purpose or purposes of the meeting
and shall be delivered to the home office of the savings bank addressed to the
chairman of the board, the president, or the secretary.
Section 4. Conduct of Meetings. Annual and special meetings shall be
conducted in accordance with the most current edition of Robert's Rules of Order
unless otherwise prescribed by regulations of the Office or these bylaws or the
board of directors adopts another written procedure for the conduct of meetings.
The board of directors shall designate, when present, either the chairman of the
board or president to preside at such meetings.
Section 5. Notice of Meetings. Written notice stating the place, day and
hour of the meeting and the purpose(s) for which the meeting is called shall be
delivered not fewer than 20 nor more than 50 days before the date of the
meeting, either personally or by mail, by or at the direction of the chairman of
the board, the president, or the secretary, or the directors calling the
meeting, to each shareholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the mail,
addressed to the shareholder at the address as it appears on the stock transfer
books or records of the savings bank as of the record date prescribed in Section
6 of this Article II with postage prepaid. When any shareholders' meeting,
either annual or special, is adjourned for 30 days or more, notice of the
adjourned meeting shall be given as in the case of an original meeting. It shall
not be necessary to give any notice of the time and place of any meeting
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adjourned for less than 30 days or of the business to be transacted at the
meeting, other than an announcement at the meeting at which such adjournment is
taken.
Section 6. Fixing of Record Date. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment, or shareholders entitled to receive payment of any dividend, or
in order to make a determination of shareholders for any other proper purpose,
the board of directors shall fix in advance a date as the record date for any
such determination of shareholders. Such date in any case shall be not more than
60 days and, in case of a meeting of shareholders, not fewer than 10 days prior
to the date on which the particular action, requiring such determination of
shareholders, is to be taken. When a determination of shareholders entitled to
vote at any meeting of shareholders has been made as provided in this section,
such determination shall apply to any adjournment.
Section 7. Voting Lists. At least 20 days before each meeting of the
shareholders, the officer or agent having charge of the stock transfer books for
shares of the savings bank shall make a complete list of the shareholders of
record entitled to vote at such meeting, or any adjournment thereof, arranged in
alphabetical order, with the address and the number of shares held by each. This
list of shareholders shall be kept on file at the home office of the savings
bank and shall be subject to inspection by any shareholder of record or the
shareholder's agent at any time during usual business hours for a period of 20
days prior to such meeting. Such list shall also be produced and kept open at
the time and place of the meeting and shall be subject to inspection by any
shareholder of record or any shareholder's agent during the entire time of the
meeting. The original stock transfer book shall constitute prima facie evidence
of the shareholders entitled to examine such list or transfer books or to vote
at any meeting of shareholders. In lieu of making the shareholder list available
for inspection by shareholders as provided in the preceding paragraph, the board
of directors may elect to follow the procedures prescribed in Section 552.6(d)
of the Office's regulations as now or hereafter in effect.
Section 8. Quorum. A majority of the outstanding shares of the savings
bank entitled to vote, represented in person or by proxy, shall constitute a
quorum at a meeting of shareholders. If less than a majority of the outstanding
shares is represented at a meeting, a majority of the shares so represented may
adjourn the meeting from time to time without further notice. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. The shareholders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
shareholders to constitute less than a quorum. If a quorum is present, the
affirmative vote of the majority of the shares represented at the meeting and
entitled to vote on the subject matter shall be the act of the shareholders,
unless the vote of a greater number of shareholders voting together or voting by
classes is required by law or the charter. Directors, however, are elected by a
plurality of the votes cast at an election of directors.
Section 9. Proxies. At all meetings of shareholders, a shareholder may
vote by proxy executed in writing by the shareholder or by his or her duly
authorized attorney in fact. Proxies may be given telephonically or
electronically, as long as the holder uses a procedure for verifying the
identity of the shareholder. Proxies solicited on behalf of the management shall
be voted as directed by the shareholder or, in the absence of such direction, as
determined by a majority of the board of directors. No proxy shall be valid more
than eleven months from the date of its execution except for a proxy coupled
with an interest.
Section 10. Voting of Shares in the Name of Two or More Persons. When
ownership stands in the name of two or more persons, in the absence of written
directions to the savings bank to the contrary, at any meeting of the
shareholders of the savings bank any one or more of such shareholders may cast,
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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 stock and present in person or by proxy at such meeting, but
no votes shall be cast for such stock if a majority cannot agree.
Section 11. Voting of Shares by Certain Holders. Shares standing in the
name of another corporation may be voted by any officer, agent, or proxy as the
bylaws of such corporation may prescribe, or, in the absence of such provision,
as the board of directors of such corporation may determine. Shares held by an
administrator, executor, guardian, or conservator may be voted by him or her,
either in person or by proxy, without a transfer of such shares into his or her
name. Shares standing in the name of a trustee may be voted by him or her,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him or her without a transfer of such shares into his or her name.
Shares held in trust by an IRA or Keogh Account, however, may be voted by the
savings bank if no other instructors are received. Shares standing in the name
of a receiver may be voted by such receiver, and shares held by or under the
control of a receiver may be voted by such receiver without the transfer into
his or her name if authority to do so is contained in an appropriate order of
the court or other public authority by which such receiver was appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Neither treasury shares of its own stock held by the 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. Inspectors of Election. In advance of any meeting of
shareholders, the board of directors may appoint any person other than nominees
for office as inspectors of election to act at such meeting or any adjournment.
The number of inspectors shall be either one or three. Any such appointment
shall not be altered at the meeting. If inspectors of election are not so
appointed, the chairman of the board or the president may, or on the request of
not fewer than 10 percent of the votes represented at the meeting shall, make
such appointment at the meeting. If appointed at the meeting, the majority of
the votes present shall determine whether one or three inspectors are to be
appointed. In case any person appointed as inspector fails to appear or fails or
refuses to act, the vacancy may be filled by appointment by the board of
directors in advance of the meeting or at the meeting by the chairman of the
board or the president.
Unless otherwise prescribed by regulations of the Office, the duties of
such inspectors shall include: determining the number of shares and the voting
power of each share, the shares represented at the meeting, the existence of a
quorum, and the authenticity, validity and effect of proxies: receiving votes,
ballots, or consents; hearing and determining all challenges and questions in
any way arising in connection with the rights to vote; counting and tabulating
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all votes or consents; determining the result; and such acts as may be proper to
conduct the election or vote with fairness to all shareholders.
Section 13. Nominating Committee. The board of directors shall act as a
nominating committee for selecting the management nominees for election as
directors. Except in the case of a nominee substituted as a result of the death
or other incapacity of a management nominee, the nominating committee shall
deliver written nominations to the secretary at least 20 days prior to the date
of the annual meeting. Upon delivery, such nominations shall be posted in a
conspicuous place in each office of the savings bank. 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 five days prior to
the date of the annual meeting. Upon delivery, such nominations shall be posted
in a conspicuous place in each office of the savings bank. Ballots bearing the
names of all the persons nominated by the nominating committee and by
shareholders shall be provided for use at the annual meeting. However, if the
nominating committee shall fail or refuse to act at least 20 days prior to the
annual meeting, nominations for directors may be made at the annual meeting by
any shareholder entitled to vote and shall be voted upon.
Section 14. New Business. Any new business to be taken up at the annual
meeting shall be stated in writing and filed with the secretary of the savings
bank at least five days before the date of the annual meeting, and all business
so stated, proposed, and filed shall be considered at the annual meeting; but no
other proposal shall be acted upon at the annual meeting. Any shareholder may
make any other proposal at the annual meeting and the same may be discussed and
considered, but unless stated in writing and filed with the secretary at least
five days before the meeting, such proposal shall be laid over for action at an
adjourned, special, or annual meeting of the shareholders taking place 30 days
or more thereafter. This provision shall not prevent the consideration and
approval or disapproval at the annual meeting of the reports of officers,
directors and committees; but in connection with such reports, no new business
shall be acted upon at such annual meeting unless stated and filed as herein
provided.
Section 15. Informal Action by Shareholders. Any action required to be
taken at a meeting of the shareholders, or any other action which may be taken
at a meeting of shareholders, may be taken without a meeting if consent in
writing, setting forth the action so taken, shall be given by all of the
shareholders entitled to vote with respect to the subject matter.
ARTICLE III
BOARD OF DIRECTORS
Section 1. General Powers. The business and affairs of the savings bank
shall be under the direction of its board of directors. The board of directors
shall annually elect a chairman of the board and a president from among its
members and shall designate, when present, either the chairman of the board or
the president to preside at its meetings.
Section 2. Number and Term. The board of directors shall consist of
seven members, and shall be divided into three classes as nearly equal in number
as possible. The members of each class shall be elected for a term of three
years and until their successors are elected and qualified. One class shall be
elected by ballot annually.
Section 3. Regular Meetings. A regular meeting of the board of directors
shall be held without other notice than this bylaw following the annual meeting
of shareholders. The board of directors may provide, by resolution, the time and
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place, for the holding of additional regular meetings without other notice than
such resolution. Directors may participate in a meeting by means of a conference
telephone or similar communications device through which all persons
participating can hear each other at the same time. Participation by such means
shall constitute presence in person for all purposes.
Section 4. Qualification. Each director shall at all times be the
beneficial owner of not less than 100 shares of capital stock of the savings
bank unless the savings bank is a wholly owned subsidiary of a holding company.
Section 5. Special Meetings. Special meetings of the board of directors
may be called by or at the request of the chairman of the board, the president,
or one-third of the directors. The persons authorized to call special meetings
of the board of directors may fix any place, within the savings bank's normal
lending territory, as the place for holding any special meeting of the board of
directors called by such persons.
Members of the board of directors may participate in special meetings by
means of conference telephone or similar communications equipment by which all
persons participating in the meeting can hear each other. Such participation
shall constitute presence in person for all purposes.
Section 6. Notice. Written notice of any special meeting shall be given
to each director at least 24 hours prior thereto when delivered personally or by
telegram or at least five days prior thereto when delivered by mail at the
address at which the director is most likely to be reached. Such notice shall be
deemed to be delivered when deposited in the mail so addressed, with postage
prepaid if mailed when delivered to the telegraph company if sent by telegram,
or when the savings bank receives notice of delivery if electronically
transmitted. Any director may waive notice of any meeting by a writing filed
with the secretary. The attendance of a director at a meeting shall constitute a
waiver of notice of such meeting, except where a director attends a meeting for
the express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any meeting of the board of directors need be
specified in the notice or waiver of notice of such meeting.
Section 7. Quorum. A majority of the number of directors fixed by
Section 2 of this Article III shall constitute a quorum for the transaction of
business at any meeting of the board of directors; but if less than such
majority is present at a meeting, a majority of the directors present may
adjourn the meeting from time to time. Notice of any adjourned meeting shall be
given in the same manner as prescribed by Section 6 of this Article III.
Section 8. Manner of Acting. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the board
of directors, unless a greater number is prescribed by regulation of the Office
or by these bylaws.
Section 9. Action Without a Meeting. Any action required or permitted to
be taken by the board of directors at a meeting may be taken without a meeting
if a consent in writing, setting forth the action so taken, shall be signed by
all of the directors.
Section 10. Resignation. Any director may resign at any time by sending
a written notice of such resignation to the home office of the savings bank
addressed to the chairman of the board or the president. Unless otherwise
specified, such resignation shall take effect upon receipt by the chairman of
the board or the president. More than three consecutive absences from regular
meetings of the board of directors, unless excused by resolution of the board of
directors, shall automatically constitute a resignation, effective when such
resignation is accepted by the board of directors.
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Section 11. Vacancies. Any vacancy occurring on the board of directors
may be filled by the affirmative vote of a majority of the remaining directors
although less than a quorum of the board of directors. A director elected to
fill a vacancy shall be elected to serve until the next election of directors by
the shareholders. Any directorship to be filled by reason of an increase in the
number of directors may be filled by election by the board of directors for a
term of office continuing only until the next election of directors by the
shareholders.
Section 12. Compensation. Directors, as such, may receive a stated
salary for their services. By resolution of the board of directors, a reasonable
fixed sum, and reasonable expenses of attendance, if any, may be allowed for
attendance at each regular or special meeting of the board of directors. Members
of either standing or special committees may be allowed such compensation for
attendance at committee meetings as the board of directors may determine.
Section 13. Presumption of Assent. A director of the savings bank who is
present at a meeting of the board of directors at which action on any savings
bank matter is taken shall be presumed to have assented to the action taken
unless his or her dissent or abstention shall be entered in the minutes of the
meeting or unless he or she shall file a written dissent to such action with the
person acting as the secretary of the meeting before the adjournment thereof or
shall forward such dissent by registered mail to the secretary of the savings
bank within five days after the date a copy of the minutes of the meeting is
received. Such right to dissent shall not apply to a director who voted in favor
of such action.
Section 14. Removal of Directors. (1) At a meeting of shareholders
called expressly for that purpose, any director may be removed only for cause by
a vote of the holders of a majority of the shares then entitled to vote at an
election of directors. Whenever the holders of the shares of any class are
entitled to elect one or more directors by the provisions of the charter or
supplemental sections thereto, the provisions of this section shall apply, in
respect to the removal of a director or directors so elected, to the vote of the
holders of the outstanding shares of that class and not to the vote of the
outstanding shares as a whole.
(2) If less than the entire board is to be removed, no one of the
directors may be removed if the votes cast against removal would be sufficient
to elect a director if then cumulatively voted at an election of the class of
directors of which such director is a part.
ARTICLE IV
EXECUTIVE AND OTHER COMMITTEES
Section 1. Appointment. The board of directors, by resolution adopted by
a majority of the full board, may designate the chief executive officer and two
or more of the other directors to constitute an executive committee. The
designation of any committee pursuant to this Article IV and the delegation of
authority shall not operate to relieve the board of directors, or any director,
of any responsibility imposed by law or regulation.
Section 2. Authority. The executive committee, when the board of
directors is not in session, shall have and may exercise all of the authority of
the board of directors except to the extent, if any, that such authority shall
be limited by the resolution appointing the executive committee; and except also
that the executive committee shall not have the authority of the board of
directors with reference to: the declaration of dividends; the amendment of the
charter or bylaws of the 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.
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Section 3. Tenure. Subject to the provisions of Section 8 of this
Article IV, each member of the executive committee shall hold office until the
next regular annual meeting of the board of directors following his or her
designation and until a successor is designated as a member of the executive
committee.
Section 4. Meetings. Regular meetings of the executive committee may be
held without notice at such times and places as the executive committee may fix
from time to time by resolution. Special meetings of the executive committee may
be called by any member thereof upon not less than one day's notice stating the
place, date, and hour of the meeting, which notice may be written or oral. Any
member of the executive committee may waive notice of any meeting and no notice
of any meeting need be given to any member thereof who attends in person. The
notice of a meeting of the executive committee need not state the business
proposed to be transacted at the meeting.
Section 5. Quorum. A majority of the members of the executive committee
shall constitute a quorum for the transaction of business at any meeting
thereof, and action of the executive committee must be authorized by the
affirmative vote of a majority of the members present at a meeting at which a
quorum is present.
Section 6. Action Without a Meeting. Any action required or permitted to
be taken by the executive committee at a meeting may be taken without a meeting
if a consent in writing, setting forth the action so taken, shall be signed by
all of the members of the executive committee.
Section 7. Vacancies. Any vacancy in the executive committee may be
filled by a resolution adopted by a majority of the full board of directors.
Section 8. Resignations and Removal. Any member of the executive
committee may be removed at any time with or without cause by resolution adopted
by a majority of the full board of directors. Any member of the executive
committee may resign from the executive committee at any time by giving written
notice to the president or secretary of the savings bank. Unless otherwise
specified, such resignation shall take effect upon its receipt; the acceptance
of such resignation shall not be necessary to make it effective.
Section 9. Procedure. The executive committee shall elect a presiding
officer from its members and may fix its own rules of procedure which shall not
be inconsistent with these bylaws. It shall keep regular minutes of its
proceedings and report the same to the board of directors for its information at
the meeting held next after the proceedings shall have occurred.
Section 10. Other Committees. The board of directors may by resolution
establish an audit, loan or other committee composed of directors as they may
determine to be necessary or appropriate for the conduct of the business of the
savings bank and may prescribe the duties, constitution and procedures thereof.
ARTICLE V
OFFICERS
Section 1. Positions. The officers of the savings bank shall be a
president, one or more vice presidents, a secretary and a treasurer or
comptroller, each of whom shall be elected by the board of directors. The board
of directors may also designate the chairman of the board as an officer. The
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offices of the secretary and treasurer or comptroller may be held by the same
person and a vice president may also be either the secretary or the treasurer or
comptroller. The board of directors may designate one or more vice presidents as
executive vice president or senior vice president. The board of directors may
also elect or authorize the appointment of such other officers as the business
of the savings bank may require. The officers shall have such authority and
perform such duties as the board of directors may from time to time authorize or
determine. In the absence of action by the board of directors, the officers
shall have such powers and duties as generally pertain to their respective
offices.
Section 2. Election and Term of Office. The officers of the savings bank
shall be elected annually at the first meeting of the board of directors held
after each annual meeting of the shareholders. If the election of officers is
not held at such meeting, such election shall be held as soon thereafter as
possible. Each officer shall hold office until a successor has been duly elected
and qualified or until the officer's death, resignation, or removal in the
manner hereinafter provided. Election or appointment of an officer, employee or
agent shall not of itself create contractual rights. The board of directors may
authorize the savings bank to enter into an employment contract with any officer
in accordance with regulations of the Office; but no such contract shall impair
the right of the board of directors to remove any officer at any time in
accordance with Section 3 of this Article V.
Section 3. Removal. Any officer may be removed by the board of directors
whenever in its judgment the best interests of the 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 office because of death,
resignation, removal, disqualification, or otherwise may be filled by the board
of directors for the unexpired portion of the term.
Section 5. Remuneration. The remuneration of the officers shall be fixed
from time to time by the board of directors.
ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. Contracts. To the extent permitted by regulations of the
Office, and except as otherwise prescribed by these bylaws with respect to
certificates of shares, the board of directors may authorize any officer,
employee, or agent of the savings bank to enter into any contract or execute and
deliver any instrument in the name of and on behalf of the savings bank. Such
authority may be general or confined to specific instances.
Section 2. Loans. 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 3. Checks, Drafts, etc. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the savings bank shall be signed by one or more officers, employees or
agents of the savings bank in such manner as shall from time to time be
determined by the board of directors.
Section 4. Deposits. All funds of the savings bank not otherwise
employed shall be deposited from time to time to the credit of the savings bank
in any duly authorized depositories as the board of directors may select.
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ARTICLE VII
CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 1. Certificates for Shares. Certificates representing shares of
capital stock of the savings bank shall be in such form as shall be determined
by the board of directors and approved by the Office. Such certificates shall be
signed by the chief executive officer or by any other officer of the savings
bank authorized by the board of directors, attested by the secretary or an
assistant secretary, and sealed with the corporate seal or a facsimile thereof.
The signatures of such officers upon a certificate may be facsimiles if the
certificate is manually signed on behalf of a transfer agent or a registrar
other than the savings bank itself or one of its employees. Each certificate for
shares of capital stock shall be consecutively numbered or otherwise identified.
The name and address of the person to whom the shares are issued, with the
number of shares and date of issue, shall be entered on the stock transfer books
of the savings bank. All certificates surrendered to the savings bank for
transfer shall be canceled and no new certificate shall be issued until the
former certificate for a like number of shares has been surrendered and
canceled, except that in the case of a lost or destroyed certificate, a new
certificate may be issued upon such terms and indemnity to the savings bank as
the board of directors may prescribe.
Section 2. Transfer of Shares. Transfer of shares of capital stock of
the saving bank shall be made only on its stock transfer books. Authority for
such transfer shall be given only by the holder of record or by his or her legal
representative, who shall furnish proper evidence of such authority, or by his
or her attorney authorized by a duly executed power of attorney and filed with
the savings bank. Such transfer shall be made only on surrender for cancellation
of the certificate for such shares. The person in whose name shares of capital
stock stand on the books of the savings bank shall be deemed by the savings bank
to be the owner for all purposes.
ARTICLE VIII
FISCAL YEAR
The fiscal year of the savings bank shall end on the thirtieth (30th) of
September of each year. The appointment of accountants shall be subject to
annual ratification by the shareholders.
ARTICLE IX
DIVIDENDS
Subject to the terms of the savings bank's charter and the regulations
and orders of the Office, 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 X
CORPORATE SEAL
The board of directors shall provide a savings bank seal which shall be
two concentric circles between which shall be the name of the savings bank. The
year of incorporation or an emblem may appear in the center.
ARTICLE XI
AMENDMENTS
These bylaws may be amended in a manner consistent with regulations of
the Office and shall be effective after: (i) approval of the amendment by a
majority vote of the votes cast by the shareholders of the association at any
legal meeting, and (ii) receipt of any applicable regulatory approval. When a
savings bank fails to meet its quorum requirements, solely due to vacancies on
the board, then the affirmative vote of a majority of the sitting board will be
required to amend the bylaws.
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Exhibit 5.1
Opinion of Serchuk & Zelermyer, LLP regarding legality of stock to be issued
April 30, 1997
GSB Financial Corporation
One South Church Street
Goshen, New York 10924
Ladies and Gentlemen:
We have acted as counsel to GSB Financial Corporation, a Delaware
corporation (the "Corporation"), in connection with the registration under the
Securities Act of 1933, as amended, by the Corporation of an aggregate of
2,248,250 shares of Common Stock, par value $.01 per share (the "Shares"), of
the Corporation, and the related preparation and filing by the Corporation with
the Securities and Exchange Commission of a Registration Statement on Form S-1
(the "Registration Statement"). In rendering the opinions set forth below, we do
not express any opinion concerning law other than the federal law of the United
States and the corporate law of the State of Delaware.
We have examined originals or copies, certified or otherwise identified
to our satisfaction, of such documents, corporate records and other instruments,
and have examined such matters of law, as we have deemed necessary or advisable
for purposes of rendering the opinions set forth below. As to matters of fact,
we have examined and relied upon the representations of the Corporation
contained in the Registration Statement and, where we have deemed appropriate,
representations or certificates of officers of the Corporation or public
officials. We have assumed the authenticity of all documents submitted to us as
originals, the genuineness of all signatures, the legal capacity of natural
persons and the conformity to the originals of all documents submitted to us as
copies. In making our examination of any documents, we have assumed that all
parties, other than the Corporation, had the corporate power and authority to
enter into and perform all obligations thereunder, and, as to such parties, we
have also assumed the due authorization by all requisite action, the due
execution and delivery of such documents and the validity and binding effect and
enforceability thereof.
Based on the foregoing, we are of the opinion that the Shares to be
issued and sold by the Corporation have been duly authorized and, when issued
and sold as contemplated in the Registration Statement and the Plan of
Conversion of Goshen Savings Bank (the "Bank"), will be validly issued and
outstanding, fully paid and non-assessable.
In rendering the opinions set forth above, we have not passed upon and
do not purport to pass upon the application of securities or "blue-sky" laws of
any jurisdiction (except federal securities laws).
This opinion is given solely for the benefit of the Corporation and
investors who purchase Shares pursuant to the Registration Statement and may not
be relied upon by any other person or entity, nor quoted in whole or in part, or
otherwise referred to in any document without our express written consent.
We consent to the filing of this opinion as an Exhibit to the
Corporation's Registration Statement and to the Bank's Application for
Conversion on Form AC (the "Form AC") and to the reference to our firm under the
headings "The Conversion--Effects of Conversion on Depositors and Borrowers--Tax
Effects" and "Legal and Tax Opinion" in the prospectus which is part of such
Registration Statement and to the reference to our firm in the Form AC.
Very truly yours,
Serchuk & Zelermyer, LLP
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Exhibit 8.1
Opinion of Serchuk & Zelermyer, LLP regarding tax matters
April 30, 1997
GSB Financial Corporation
One South Church Street
Goshen, New York 10924
Ladies and Gentlemen:
You have requested our opinion regarding certain federal income tax consequences
of the proposed conversion of Goshen Savings Bank (the "Bank") from a federally
chartered mutual savings bank to a federally chartered stock savings bank (the
"Conversion"), the sale of all of the outstanding capital stock of the Bank to
GSB Financial Corporation, a Delaware corporation (the "Company"), and the sale
by the Company of up to 2,248,250 shares of its common stock, par value of $.01
per share (the "Common Stock") to the Bank's Eligible Account Holders, Employee
Plans, Supplemental Eligible Account Holders and Other Members, and to certain
other parties, pursuant to the Plan of Conversion of Goshen Savings Bank adopted
by the Board of Directors of the Bank on February 6, 1997, as amended (the
"Plan"). These and related transactions are described in the Plan and in the
prospectus included in the Company's Registration Statement filed on Form S-1
with the Securities and Exchange Commission in connection with the Conversion
(the "Prospectus"). We are rendering this opinion pursuant to Article 30 of the
Plan. All capitalized terms used but not defined in this letter shall have the
meanings set forth in the Plan or Prospectus.
In connection with the opinions expressed below, we have examined and
relied upon originals, or copies certified or otherwise identified to our
satisfaction, of the Plan and the Prospectus and of such corporate records of
the Bank and the Company as we have deemed appropriate. We have also relied,
without independent verification, upon the April 30, 1997 letter of the Bank and
the Company to Serchuk & Zelermyer, LLP containing certain representations. We
have assumed that the Bank, the Company and other parties will act in accordance
with the Plan, and that the representations made by the Bank and the Company in
the foregoing letter are true. In addition, we have made such investigations of
law as we have deemed appropriate to form a basis for the opinions expressed
below.
Based on and subject to the foregoing, it is our opinion that, for
federal income tax purposes, under current law:
1. The Conversion in accordance with the Plan will qualify as a
reorganization under Section 368(a)(1)(F) of the Code, and no gain or loss will
be recognized by the Bank in either its mutual form or its stock form, or by the
Company, by reason of the proposed Conversion.
<PAGE>
2. No gain or loss will be recognized by the Bank upon the receipt of
money from the Company for stock of the Bank, and no gain or loss will be
recognized by the Company upon the receipt of money for the Common Stock.
3. The assets of the Bank in either its mutual or its stock form will
have the same basis before and after the Conversion.
4. The holding period of the assets of the Bank will include the period
during which the assets were held by the Bank in its mutual form prior to the
Conversion.
5. No gain or loss will be recognized by the Eligible Account Holders,
Supplemental Eligible Account Holders, and Other Members upon the issuance to
them of withdrawable deposit accounts in the Bank after the Conversion in the
same dollar amount as their savings accounts in the Bank plus an interest in the
liquidation account of the Bank after the Conversion in exchange for their
savings accounts in the Bank prior to the Conversion.
6. The receipt by Eligible Account Holders, Supplemental Eligible
Account Holders, and Other Members of nontransferable subscription rights to
purchase shares of the Common Stock under the Plan is taxable to Eligible
Account Holders, Supplemental Eligible Account Holders, and Other Members to the
extent the subscription rights have value.
7. The basis of each account holder's savings accounts in the Bank
after the Conversion will be the same as the basis of his or her savings
accounts in the Bank prior to the Conversion, decreased by the fair market value
of the non-transferable subscription rights received and increased by the
amount, if any, of gain recognized on the exchange
8. The basis of each account holder's interest in the liquidation
account will be zero.
9. The holding period of the Common Stock acquired through the exercise
of subscription rights shall begin on the date on which the subscription rights
are exercised.
10. The Bank in its stock form will succeed to and take into account
the earnings and profits or deficit in earnings and profits of the Bank, in its
mutual form, as of the date of Conversion.
11. The Bank, immediately after Conversion, will succeed to the bad
debt reserve accounts of the Bank, in its mutual form, and the bad debt reserves
will have the same character in the hands of the Bank after Conversion as if no
distribution or transfer had occurred
12. The creation of the liquidation account will have no effect on the
Bank's taxable income, deductions, or addition to reserve for bad debts either
in its mutual or stock form.
13. For purposes of the New York State banking and franchise tax,
imposed by Article 32 of the New York Tax Law, and for the purposes of the New
York personal income tax under Article 22 which may be applicable to Eligible
<PAGE>
Account Holders, Supplemental Eligible Account Holders and other investors who
purchase shares pursuant to the Company's Registration Statement on Form S-1 who
receive non-transferrable subscription rights or who purchase stock in the
Conversion, the Conversion will be treated the same for New York State tax
purposes as for federal tax purposes under the Internal Revenue Code, as set
forth above.
Except as set forth above, we express no opinion to any party as to the
tax consequences, whether federal, state, local or foreign, of the Conversion or
of any transaction related thereto or contemplated by the Plan. This opinion is
given solely for the benefit of the parties to the Plan and Eligible Account
Holders, Supplemental Eligible Account Holders and other investors who purchase
shares pursuant to the Company's Registration Statement on Form S-1 (the
"Registration Statement"), and may not be relied upon by any other party or
entity or referred to in any document without our express written consent. We
consent to the filing of this opinion as an exhibit to the Registration
Statement and to the Application for Conversion on Form AC of the Bank.
Very truly yours,
Serchuk & Zelermyer, LLP
<PAGE>
Exhibit 10.1
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as
of the 1st day of May, 1997, by and between GSB Financial Corporation, a
corporation organized and operating under the laws of the State of Delaware and
having an office at 1 South Church Street, Goshen, New York 10924 (the
"Company"), and _______________________________, (the "Officer") residing at
___________________________________________.
WHEREAS, the Officer currently serves the Company as ____________; and
WHEREAS, in order to secure the Officer's continued services for the
period hereof, the Board of Directors of the Company (the "Board") has approved
and authorized the execution of this Agreement; and
WHEREAS, the Officer is willing to continue to make his services
available to the Company on the terms and conditions set forth herein; and
WHEREAS, on or about May 1, 1997 the Officer and Goshen Savings Bank
(the "Bank") entered into an Employment Agreement (the "Bank Employment
Agreement"); and
WHEREAS, it is contemplated that on or about June 30, 1997, the Company
will become a savings and loan holding company of which the Bank will be a
wholly owned subsidiary.
NOW, THEREFORE, in consideration of the mutual covenants and
obligations hereinafter set forth, the parties hereto hereby agree as follows:
1. Employment. The Company hereby continues the employment of the
Officer as its _______________________________, and the Officer hereby accepts
such continued employment, during the period and upon the terms and conditions
set forth in this Agreement.
2. Employment Period, Terms and Conditions. The employment period,
terms and conditions of this Agreement shall be identical to those in the Bank
Employment Agreement unless explicitly superseded or expanded upon by this
Agreement.
3. Compensation and Benefits. The compensation and benefits payable to
the Officer under this Agreement and under the Bank Employment Agreement shall
not be duplicative but, rather, the Bank shall be primarily responsible for the
payments called for in the Bank's Employment Agreement and the Company hereby
guarantees performance of such obligations by the Bank.
4. Excise Tax Indemnification.
(a) This section 4 shall apply if the Officer's employment is
terminated in circumstances giving rise to liability for excise taxes under
section 4999 of the Internal Revenue Code of 1986 (the "Code"). If this Section
4 applies, then, if for any taxable year, the Officer shall be liable for the
payment of an excise tax under section 4999 of the Code with respect to any
payment in the nature of compensation made by the Company or the Bank to (or for
the benefit of) the Officer, the Company shall pay to the Officer an amount
equal to X determined under the following formula:
1
<PAGE>
X = E x P
--------------------------------
1-[(FI x (1 - SLI) + SLI + EM]
where
E = the rate at which the excise tax is assessed under section 4999
of the Code;
P = the amount with respect to which such excise tax is assessed,
determined without regard to this section 4;
FI = the highest marginal rate of income tax applicable to the Officer
under the Code for the taxable year in question;
SLI = the sum of the highest marginal rates of income tax applicable to
the Officer under all applicable state and local laws for the taxable year in
question;
and
M = the highest marginal rate of Medicare tax applicable to the Officer
under the Code or the taxable year in question.
With respect to any payment in the nature of compensation that is made to (or
for the benefit of) the Officer under the terms of this Agreement, or otherwise,
and on which an excise tax under section 4999 of the Code will be assessed, the
payment determined under this section 4(a) shall be made to the Officer on the
earlier of (i) the date the Company or the Bank is required to withhold such
tax, or (ii) the date the tax is required to be paid by the Officer.
(b) Notwithstanding anything in this section 4 to the contrary, in the
event that the Officer's liability for the excise tax under section 4999 of the
Code for a taxable year is subsequently determined to be different than the
amount determined by the formula (X + P) x E, where X, P and E have the meanings
provided in section 4(a), the Officer or the Company, as the case may be, shall
pay to the other party at the time that the amount of such excise tax is finally
determined, an appropriate amount, plus interest, such that the payment made
under section 4(a), when increased by the amount of the payment made to the
Officer under this section 4(b) by the Company, or when reduced by the amount of
the payment made to the Company under this section 4(b) by the Officer, equals
the amount that should have properly been paid to the Officer under section
4(a). The interest paid under this section 4(b) shall be determined at the rate
provided under section 1274(b)(2)(B) of the Code. To confirm that the proper
amount, if any, was paid to the Officer under this section 4, the Officer shall
furnish to the Company a copy of each tax return which reflects a liability for
an excise tax payment made by the Company, at least 20 days before the date on
which such return is required to be filed with the Internal Revenue Service.
(c) The provisions of this section 4 are designed to reflect the
provisions of applicable federal, state and local tax laws in effect on the date
of this Agreement. If, after the date hereof, there shall be any change in any
such laws, this section 4 shall be modified in such manner as the Officer and
the Company may mutually agree upon if and to the extent necessary to assure
that the Officer is fully indemnified against the economic effects of the tax
imposed under section 4999 of the Code or any similar federal, state or local
tax.
2
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed and the Officer has hereto set his hand, all as of the day and year
first above written.
---------------------------------
WITNESS:
- ------------------------------
GSB FINANCIAL CORPORATION
By
------------------------------
ATTEST:
- -----------------------------
3
<PAGE>
Exhibit 10.2
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as
of the 1st day of May, 1997, by and between Goshen Savings Bank, a mutual
savings bank organized and operating under the laws of the United States and
having its executive office at 1 South Church Street, Goshen, New York 10924
(the "Bank"), and ________________________ (the "Officer"), residing at
____________________________________.
WHEREAS, the Officer currently serves the Bank as _______________; and
WHEREAS, in order to secure the Officer's continued services for the
period hereof, the Board of Directors of the Bank (the "Board") has approved and
authorized the execution of this Agreement; and
WHEREAS, the Officer is willing to continue to make his services
available to the Bank on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and
obligations hereinafter set forth, the parties hereto hereby agree as follows:
1. Employment. The Bank hereby continues the employment of the Officer
as its President and Chief Executive Officer, and the Officer hereby accepts
such continued employment, during the period and upon the terms and conditions
set forth in this Agreement. During said period, in the event of a conversion of
the Bank from a mutual savings bank to a stock form of organization (the
"Conversion"), if elected, the Officer also agrees to serve as the President and
Chief Executive Officer of the parent corporation of the Bank.
2. Employment Period. The terms and conditions of this Agreement shall
be and remain in effect during the period of employment established under this
section 2 (the "Employment Period").
(a) The Employment Period shall be for an initial term of three years
beginning on the date this Agreement is made and ending on the third anniversary
date of this Agreement, plus such extensions, if any, as are approved by the
Board pursuant to section 2(b).
(b) No later than on the first anniversary of the date of this
Agreement and on each anniversary date thereafter (each, an "Anniversary Date"),
the Board shall review the terms of this Agreement and the Officer's performance
of services hereunder and may, absent objection from the Officer, approve a one
year extension of the Employment Period. In such event, the Employment Period
shall be extended to the third anniversary of the Anniversary Date immediately
succeeding such Board review (the "Extension Ending Anniversary Date").
(c) If, prior to the date on which the Employment Period would end
pursuant to section 2(a) or (b) of this Agreement, a Change in Control (as
defined in section 13 of this Agreement) occurs and the Bank is not subject to
rules and regulations of the Office of Thrift Supervision (the "OTS"), then the
Employment Period shall be extended through and including the third anniversary
of the earliest date after the effective date of such Change in Control on which
either the Bank or the Officer elects, by written notice pursuant to section
2(d) of this Agreement to the non-electing party, to discontinue the Employment
Period; provided, however, that this section shall not apply in the event that,
prior to the Change in Control, the Officer has provided written notice to the
Bank of his intent to discontinue the Employment Period.
<PAGE>
(d) The Bank or the Officer may, at any time by written notice given to
the other, elect to terminate this Agreement. Any such notice given by the Bank
shall be accompanied by a certified copy of a resolution, adopted by the
affirmative vote of a majority of the entire membership of the Board at a
meeting of the Board duly called and held, authorizing the giving of such
notice.
3. Duties. During the Employment Period, the Officer shall:
(a) except to the extent allowed under section 7 of this Agreement,
devote his full business time and attention to the business and affairs of the
Bank, its parent and subsidiary corporations (if any), and use his best efforts
to advance their interests;
(b) serve as President and Chief Executive Officer of the Bank and its
parent corporation and as an officer of any of its subsidiaries if elected to
serve in such positions;
(c) have such functions, duties and responsibilities not inconsistent
with his title and office as may be assigned to him by or under the authority of
the Board, in accordance with the Organization Certificate, By-laws, applicable
Statutes and Regulations, custom and practice of the Bank as in effect on the
date this Agreement is made. the Officer shall have such authority as is
necessary or appropriate to carry out his assigned duties. The Officer shall
report to and be subject to direction and supervision by the Board; and
(d) none of the functions, duties and responsibilities to be performed
by the Officer pursuant to this Agreement shall be deemed to include those
functions, duties and responsibilities performed by the Officer in his capacity
as director of the Bank.
4. Compensation; Salary and Bonus.
(a) In consideration for services rendered by the Officer under this
Agreement, the Bank shall pay to the Officer a salary at an annual rate equal
to:
(i) during the twelve month period beginning on May 1, 1997 and
ending on April 30, 1998, no less than $________;
(ii) during each twelve month period that begins after April 30, 1998,
such amount as the Board may, in its discretion, determine, but in no event less
than the rate in effect for the prior twelve month period;
(iii) for each twelve month period that begins on or after a Change in
Control, the product of the Officer's annual rate of salary in effect
immediately prior to such twelve-month period, multiplied by the greater of:
(A) the quotient of (1) the U.S. Department of Labor
Consumer Price Index for All Urban Consumers
(N.Y.-Northeastern N.J.) for October of the immediately
preceding calendar year, divided by (2) the U.S. Department of
Labor Consumer Price Index for All Urban Consumers
(N.Y.-Northeastern N.J.) for October of the second preceding
calendar year; and
(B) the quotient of (1) the average annual rate of
salary, determined as of the first day of such calendar year,
of the officers of the Bank (other than the Officer) who are
assistant vice presidents or more senior officers, divided by
(2) the average annual rate of salary, determined as of the
first day of the immediately preceding calendar year, of the
officers of the Bank (other than the Officer) who are
assistant vice presidents or more senior officers.
2
<PAGE>
(b) The salary payable under section 4(a) shall be paid in
approximately equal installments in accordance with the Bank's customary payroll
practices. Nothing in this section 4 shall be construed as prohibiting the
payment to the Officer of a salary in excess of that prescribed under section
4(a) or of a bonus of additional cash or non-cash compensation, to the extent
that such payment is duly authorized by or under the authority of the Board.
(c) No portion of the compensation paid to the Officer pursuant to this
Agreement shall be deemed to be compensation received by him in his capacity as
a director of the Bank.
5. Employee Benefits Plans and Programs; Other Compensation. Except as
otherwise provided in this Agreement, the Officer shall be treated as an
employee of the Bank and be entitled to participate in and receive benefits
under the Bank's Retirement Plan, group life and health (including
hospitalization, medical, major medical and dental) and disability insurance
plans, and such other employee benefit plans and programs, including but not
limited to any long-term or short-term incentive compensation plans or programs
(whether or not employee benefit plans or programs), as the Bank may maintain
from time to time, in accordance with the terms and conditions of such employee
benefit plans and programs and compensation plans and programs and with the
Bank's customary practices. Following a Change in Control, all such benefits to
the Officer shall be continued on terms and conditions substantially identical
to, and in no event less favorable than, those in effect prior to the Change in
Control. Nothing in this Agreement will reduce benefits provided under the
Bank's Employee Handbook, Revised Edition January 1, 1997, notwithstanding any
future reductions which might be made to the benefits provided in such
Employee Handbook.
6. Conversion Benefits. In the event of a Conversion, the Bank will
provide, or cause to be provided, to the Officer in connection with such
Conversion, stock-based compensation and benefits, including, without
limitation, stock options, restricted stock awards, and participation in
tax-qualified stock bonus plans which, in the aggregate, are either (a) accepted
by the Officer in writing as being satisfactory for purposes of this Agreement
or (b) in the written, good faith opinion of a nationally recognized executive
compensation consulting firm selected by the Bank and satisfactory to the
Officer, whose agreement shall not be unreasonably withheld, are no less
favorable than the stock-based compensation and benefits usually and customarily
provided to similarly situated executives of similar financial institutions in
connection with similar transactions.
7. Board Memberships and Personal Activities. If elected, the Officer
will continue to serve on the Board and, in the event of a Conversion, on the
board of directors of any parent corporation of the Bank. In addition, the
Officer may also serve as a member of the board of directors of such business,
community and charitable organizations as he may disclose to the Board from time
to time, and he may engage in personal business and investment activities for
his own account; provided, however, that such service and personal business and
investment activities shall not (a) materially interfere with the performance of
his duties under this Agreement, and (b) involve entities which either compete
with the Bank or may reasonably be expected to negatively impact on the Bank's
standing and reputation in the community it serves.
8. Working Facilities and Expenses. The Officer's principal place of
employment shall be at the Bank's executive offices. The Bank shall provide the
Officer, at such principal place of employment, with support services and
facilities suitable to his position with the Bank and necessary or appropriate
in connection with the performance of his assigned duties under this Agreement.
The Bank shall reimburse the Officer for his ordinary and necessary business
expenses, including, without limitation, fees for memberships in such clubs and
organizations as the Officer and the Bank shall mutually agree are necessary and
appropriate for business purposes, and travel and entertainment expenses
incurred in connection with the performance of his duties under this Agreement
upon presentation to the Bank of itemized accounts of such expenses in such form
as the Bank may reasonably require. the Officer shall be entitled to no less
than four (4) weeks of paid vacation during each year in the Employment Period.
3
<PAGE>
9. Termination Giving Rise to Severance Benefits.
(a) The Bank shall provide to the Officer the benefits and pay him the
amounts provided under section 9(b) of this Agreement in the event that the
Officer's employment with the Bank shall terminate during the Employment Period
for reasons other than:
(i) a Termination for Cause (within the meaning of section 12(a) of
this Agreement);
(ii) a voluntary resignation by the Officer other than a Resignation
for Good Reason (within the meaning of section 12(b) of this Agreement);
(iii) a termination on account of the Officer's death; or
(iv) a termination after both of the following conditions exist: (A)
the Officer has been absent from the full-time service of the Bank on account of
his Disability (as defined in section 11(c) of this Agreement) for at least six
consecutive months; and (B) the Officer shall have failed to return to work in
the full-time service of the Bank within thirty days after written notice
requesting such return is given to the Officer by the Bank.
(b) In the event that the Officer's employment with the Bank shall
terminate under circumstances described in section 9(a) of this Agreement, the
following benefits and amounts shall be paid or provided to the Officer:
(i) his earned but unpaid salary as of the date of the termination of
his employment with the Bank, payable when due but in no event later than thirty
(30) days following his termination of employment with the Bank;
(ii) the benefits, if any, to which the Officer and his family and
dependents are entitled as a former officer/employee, or family or dependents of
a former officer/employee, under the employee benefit plans and programs and
compensation plans and programs maintained for the benefit of the Bank's
officers and employees, in accordance with the terms of such plans and programs
in effect on the date of his termination of employment, or if his termination of
employment occurs after a Change in Control, on the date of his termination of
employment or on the date of such Change in Control, whichever results in more
favorable benefits as determined by the Officer, with credit being given for
additional years of service and age to the then current Extension Ending
Anniversary Date for purposes of determining eligibility and benefits for any
plan and program where age and service are relevant factors;
(iii) payment for all unused vacation days and floating holidays in the
year in which his employment is terminated, at his highest annual rate of salary
for such year;
(iv) continued group life, health (including hospitalization, medical,
major medical and dental) and disability insurance benefits in addition to that
provided pursuant to section 9(b)(ii) of this Agreement, to the extent necessary
after taking into account coverage provided by any subsequent employer, to
provide the Officer and his family and dependents, until the then current
Extension Ending Anniversary Date, with coverage identical to and in any event
no less favorable than the coverage to which they would have been entitled under
such plans (as in effect on the date of his termination of employment, or, if
his termination of employment occurs after a Change in Control, on the date of
his termination of employment or during the one-year period ending on the date
of such Change in Control, whichever results in more favorable benefits as
determined by the Officer) if he had continued working for the Bank until the
then current Extension Ending Anniversary Date at the highest annual rate of
compensation (assuming, if a Change in Control has occurred, that the annual
increases under section 4(a)(iii) would apply) under the Agreement;
4
<PAGE>
(v) within thirty days following his termination of employment with the
Bank, a lump sum payment in an amount equal to the present value of the total
salary and bonuses that the Officer would have earned if he had worked for the
Bank until the then current Extension Ending Anniversary Date at the highest
annual rate of salary (assuming, if a Change in Control has occurred, that the
annual increases under section 4(a)(iii) would apply) and the highest bonus
(calculated by applying the highest ratio of bonus to salary received by the
Officer during the previous five years to the salary used for the calculation of
the lump sum payment under this section 9(b)(v)), with such present value to be
determined by using a discount rate of six percent per annum, compounded, in the
case of salary, with the frequency corresponding to the Bank's regular payroll
periods with respect to its officers, and, in the case of bonus, annually;
(vi) within thirty days following his termination of employment with
the Bank, a lump sum payment in an amount equal to the excess, if any, of (A)
the present value of the benefits to which he would be entitled under any
defined benefit plans maintained by, or covering employees of, the Bank
(including any "excess benefit plan" within the meaning of section 3(36) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or other
special or supplemental plan) as in effect on the date of his termination, if he
had worked for the Bank until the then current Extension Ending Anniversary Date
at the highest annual rate of compensation (assuming, if a Change in Control has
occurred, that the annual increases under section 4(a)(iii) would apply) under
this Agreement and been fully vested in such plan or plans, such benefits to be
determined as of the date of termination of employment by adding to the service
actually recognized under such plans an additional period equal to the time
remaining until the then current Extension Ending Anniversary Date and by adding
to the compensation recognized under such plans for the year in which
termination of employment occurs all amounts payable under sections 9(b)(i), (v)
and (viii), over (B) the present value of the benefits to which he is actually
entitled under any such plans maintained by, or covering employees of, the Bank
as of the date of his termination with such present values to be determined by
using a discount rate of six percent per annum, compounded monthly, and the
mortality tables prescribed under section 72 of the Internal Revenue Code of
1986 ("Code");
(vii) within thirty days following his termination of employment with
the Bank, a lump sum payment in an amount equal to the excess, if any, of (A)
the present value of the benefits attributable to the Bank's contribution to
which he would be entitled under any defined contribution plans maintained by,
or covering employees of, the Bank (including any "excess benefit plan" within
the meaning of section 3(36) of ERISA, or other special or supplemental plan) as
in effect on the date of his termination, if he had worked for the Bank until
the then current Extension Ending Anniversary Date at the highest annual rate of
compensation (assuming, if a Change in Control has occurred, that the annual
increases under section 4(c) would apply) under the Agreement, and made the
maximum amount of employee contributions, if any, required or permitted under
such plan or plans, and been eligible for the highest rate in matching
contributions under such plan or plans during the time remaining until the then
current Extension Ending Anniversary Date which is prior to the Officer's
termination of employment with the Bank, and been fully vested in such plan or
plans, over (B) the present value of the benefits attributable to the Bank's
contributions to which he is actually entitled under such plans as of the date
of his termination of employment with the Bank, with such present values to be
determined by using a discount rate of six percent per annum, compounded with
the frequency corresponding to the Bank's regular payroll periods with respect
to its officers;
5
<PAGE>
(viii) the payments that would have been made to the Officer under any
incentive compensation plan maintained by, or covering employees of, the Bank
(other than bonus payments to which section 9(b)(v) of this Agreement is
applicable) if he had continued working for the Bank until the then current
Extension Ending Anniversary Date and had earned an incentive award in each
calendar year that ends during the time remaining until the then current
Extension Ending Anniversary Date in an amount equal to the product of (A) the
maximum percentage rate of compensation at which an award was ever available to
the Officer under such incentive compensation plan, multiplied by (B) the
compensation that would have been paid to the Officer during each calendar year
at the highest annual rate of compensation (assuming, if a Change in Control has
occurred, that the annual increases under section 4(a)(iii) would apply) under
the Agreement, such payments to be made at the same time and in the same manner
as payments are made to other officers of the Bank pursuant to the terms of such
incentive compensation plan; provided, however, that payments under this section
9(b)(viii) shall not be made to the Officer for any year on account of which no
payments are made to any of the Bank's officers under any such incentive
compensation plan; and
(ix) the benefits to which the Officer is entitled under the Bank's
Supplemental Executive Retirement Plan (or other excess benefits plan within the
meaning of section 3(36) of ERISA or other special or supplemental plan) shall
be paid to him in a lump sum, with such lump sum to be computed using the
mortality tables under the Bank's tax-qualified pension plan and a discount rate
of six percent per annum. The payments specified in this section 9(b)(ix) shall
be made within thirty days after the date of the Officer's election, and if the
amount may be increased by a subsequent Change in Control, any additional
payment shall be made within thirty days of such Change in Control.
(c) the Officer shall not be required to mitigate the amount of any
payment provided for in this section 9 by seeking other employment or otherwise,
nor shall the amount of any payment or benefit provided for in this section 9 be
reduced by any compensation earned by the Officer as the result of employment by
another employer, by retirement benefits, by offset against any amount claimed
to be owed by the Officer to the Bank or the parent corporation of the Bank, or
otherwise except as specifically provided in this Agreement. The parties hereto
agree that the damages which may be incurred by the Officer as a consequence of
termination of employment are not capable of accurate measurement as of the date
this Agreement is made and that the benefits and payments provided for in this
Agreement constitute a reasonable estimate under the circumstances of all
damages that would be sustained as a consequence of any such termination of
employment, other than damages arising under or out of any stock option,
restricted stock or other non- qualified stock acquisition or investment plan or
program, it being understood and agreed that this Agreement does not determine
the measurement of damages under any such plan or program in respect of any
termination of employment.
10. Termination Without Severance Benefits. In the event that the
Officer's employment with the Bank shall terminate during the Employment Period
on account of (a) Termination for Cause (within the meaning of section 12(a) of
this Agreement); or (b) voluntary resignation by the Officer other than a
Resignation for Good Reason (within the meaning of section 12(b) of this
Agreement) then the Bank shall have no further obligations under this Agreement,
other than for the payment of the amounts and provision of the benefits under
sections 9(b)(i), (ii) and (iii) of this Agreement.
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11. Death and Disability.
(a) If the Officer's employment is terminated by reason of the
Officer's death during the Employment Period, this Agreement shall terminate
without further obligations to the Officer's legal representatives under this
Agreement, other than for payment of the amounts and provision of the benefits
under sections 9(b) (i), (ii) and (iii) including the extension of health,
hospitalization and dental benefits to spouses, eligible dependents as well as
the survivor, providing the eligibility rules are met in accordance with the
Bank's Employee Handbook, Revised Edition January 1, 1997, page 7; provided,
however, that if the Officer dies during the Employment Period, his designated
beneficiary(ies) shall receive a death benefit, payable through life insurance
or otherwise, which is the equivalent on a net after-tax basis of the death
benefit payable under a term life insurance policy, with a stated death benefit
of two times the Officer's then current salary under section 4 of this
Agreement.
(b) If the Officer's employment is terminated by reason of the
Officer's Disability as defined in section 11(c) during the Employment Period,
this Agreement shall terminate without further obligations to the Officer, other
than for payment of the amounts and provision of the benefits under sections
9(b) (i), (ii) and (iii) including the extension of health, hospitalization and
dental benefits to spouses, eligible dependents as well as the survivor,
providing the eligibility rules are met in accordance with the Bank's Employee
Handbook, Revised Edition January 1, 1997, page 7; provided, however, that in
the event of the Officer's Disability during the Employment Period, the Bank
will pay to him a lump sum amount equal to two times his then current salary
under section 4 of this Agreement.
(c) For purposes of this Agreement, "Disability" shall be defined in
accordance with the terms of the Bank's long term disability policy.
(d) Payments under this section 11 shall be made within thirty days
after the Officer's death or disability.
12. Definition of Termination for Cause and Resignation for Good
Reason.
(a) the Officer's termination of employment with the Bank shall be
deemed a "Termination for Cause" if such termination occurs for "cause," which,
for purposes of this Agreement shall mean personal dishonesty, incompetence,
willful misconduct, breach of fiduciary duty involving personal profit,
intentional failure to perform stated duties, willful violation of any law, rule
or regulation (other than traffic violations or similar offenses) or final cease
and desist order, or material breach of any provision of this Agreement, in each
case as measured against standards generally prevailing at the relevant time in
the savings and community banking industry; provided, however, that the Officer
shall not be deemed to have been discharged for cause unless and until he shall
have received a written notice of termination from the Board, accompanied by a
resolution duly adopted by affirmative vote of a majority of the entire Board at
a meeting called and held for such purpose (after reasonable notice to the
Officer and a reasonable opportunity for the Officer to make oral and written
presentations to the members of the Board, on his own behalf, or through a
representative, who may be his legal counsel, to refute the grounds for the
proposed determination) finding that, in the good faith opinion of the Board,
grounds exist for discharging the Officer for cause.
(b) the Officer's termination of employment with the Bank shall be
deemed a Resignation for Good Reason if such termination occurs following any
one or more of the following events:
(i) (A) the assignment to the Officer of any duties inconsistent with
the Officer's status as President and Chief Executive Officer of the Bank; or
(B) a substantial adverse alteration in the nature or status of the Officer's
responsibilities from those in effect immediately prior to the alteration; or
(C) any Change in Control described in section 13 followed, within one year, by
notice pursuant to Section 2(d).
(ii) a reduction by the Bank in the Officer's salary as in effect on
the date this Agreement is made or as the same may have been increased from time
to time by the Board, unless such reduction was mandated at the initiation of
any regulatory authority having jurisdiction over the Bank;
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(iii) the relocation of the Bank's executive offices to a location
outside of Orange County or the Bank's requiring the Officer to be based
anywhere other than the Bank's executive offices except for required travel on
the Bank's business to an extent substantially consistent with the Officer's
business travel obligations at the date this Agreement is made;
(iv) the failure by the Bank, without the Officer's consent, to pay to
the Officer, within seven days of the date when due, (A) any portion of his
compensation, or (B) any portion of an installment of deferred compensation
under any deferred compensation program of the Bank, which failure is not
inadvertent and immaterial and which is not promptly cured by the Bank after
notice of such failure is given to the Bank by the Officer;
(v) the failure by the Bank to continue in effect any compensation plan
in which the Officer participates which is material to his total compensation,
including but not limited to the Bank's Retirement Plan or any substitute plans
unless an equitable arrangement (embodied in an ongoing substitute or
alternative plan) has been made with respect to such plan, or the failure by the
Bank to continue his participation therein (or in such substitute or alternative
plan) on a basis not materially less favorable, both in terms of the amount of
benefits provided and the level of his participation relative to other
participants, unless such failure is the result of action mandated at the
initiation of any regulatory authority having jurisdiction over the Bank;
(vi) the failure by the Bank to continue to provide the Officer with
benefits substantially similar to those enjoyed by the Officer under the Bank's
Retirement Plan or under any of the Bank's life, health (including
hospitalization, medical, major medical and dental), and disability insurance
benefits, in which the Officer is participating, or the taking of any action by
the Bank which would directly or indirectly materially reduce any of such
benefits or deprive the Officer of the number of paid vacation days to which he
is entitled, on the basis of years of service with the Bank, rank or otherwise,
in accordance with the Bank's normal vacation policy, unless such failure is the
result of action mandated at the initiation of any regulatory authority having
jurisdiction over the Bank;
(vii) the failure of the Bank to obtain a satisfactory agreement from
any successor to assume and agree to perform this Agreement, as contemplated in
section 15(a) of this Agreement;
(viii) any purported termination of employment by the Bank which is not
effected pursuant the provisions of section 12(a) regarding Termination for
Cause or on account of Disability;
(ix) a material breach of this Agreement by the Bank, which the Bank
fails to cure within thirty days following written notice thereof from the
Officer;
(x) a requirement that the Officer report to any person or group other
than the Board or an Executive Committee thereof.
13. Definition of Change in Control. For purposes of this
Agreement, a Change in Control of the Bank shall mean:
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(a) the occurrence of any event upon which any "person" (as such term
is used in sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended (the "1934 Act")), other than (i) GSB Financial Corporation; (ii) a
trustee or other fiduciary holding securities under an employee benefit plan
maintained for the benefit of employees of the Bank; (iii) a corporation owned,
directly or indirectly, by the stockholders of the Bank in substantially the
same proportions as their ownership of stock of the Bank; or (iv) the Officer,
or any group otherwise constituting a person in which the Officer is a member,
becomes the "beneficial owner" (as defined in Rule 13d-3 promulgated under the
1934 Act), directly or indirectly, of securities issued by the Bank representing
25% or more of the combined voting power of all of the Bank's then outstanding
securities; or
(b) the occurrence of any event upon which the individuals who on the
date this Agreement is made are members of the Board, together with individuals
(other than any individual designated by a person who has entered into an
agreement with the Bank to effect a transaction described in section 13(a) or
13(c) of this Agreement) whose election by the Board or nomination for election
by the Bank's stockholders was approved by the affirmative vote of at least
two-thirds of the members of Board then in office who were either members of the
Board on the date this Agreement is made or whose nomination or election was
previously so approved cease for any reason to constitute a majority of the
members of the Board, but excluding, for this purpose, any such individual whose
initial assumption of office is in connection with an actual or threatened
election contest relating to the election of directors of the Bank (as such
terms are used in Rule 14a-11 of Regulation 14A promulgated under the 1934 Act);
or
(c) the shareholders of the Bank approve either:
(i) a merger or consolidation of the Bank with any other
corporation, other than a merger or consolidation following which both of the
following conditions are satisfied:
(A) either (A) the members of the Board of the Bank
immediately prior to such merger or consolidation constitute
at least a majority of the members of the governing body of
the institution resulting from such merger or consolidation;
or (B) the shareholders of the Bank own securities of the
institution resulting from such merger or consolidation
representing eighty percent or more of the combined voting
power of all such securities then outstanding in substantially
the same proportions as their ownership of voting securities
of the Bank before such merger or consolidation; and
(B) the entity which results from such merger or
consolidation expressly agrees in writing to assume and
perform the Bank's obligations under this Agreement; or
(ii) a plan of complete liquidation of the Bank or an agreement for the
sale or disposition by the Bank of all or substantially all of its assets; and
(d) any event which would be described in sections 13(a), (b) or (c) if
the term "Parent Corporation of the Bank" were substituted for the term "Bank"
therein. Such an event shall be deemed to be a Change in Control under the
relevant provision of sections 13(a), (b) or (c).
It is understood and agreed that more than one Change in Control may occur at
the same or different times during the Employment Period and that the provisions
of this Agreement shall apply with equal force and effect with respect to each
such Change in Control.
14. No Effect on Employee Benefit Plans or Programs. Except as
expressly provided in this Agreement, the termination of the Officer's
employment during the Employment Period or thereafter, whether by the Bank or by
the Officer, shall have no effect on the rights and obligations of the parties
hereto under the Bank's Retirement Plan, group life, health (including
hospitalization, medical, major medical and dental), and disability insurance
plans or such other employee benefit plans or programs, or compensation plans or
programs (whether or not employee benefit plans or programs) and, following the
conversion of the Bank to stock form, any stock option and appreciation rights
plan, employee stock ownership plan and restricted stock plan, as may be
maintained by, or cover employees of, the Bank from time to time.
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15. Successors and Assigns.
(a) The Bank shall require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Bank to expressly assume and agree to perform
this Agreement in the same manner and to the same extent that the Bank would be
required to perform it if no such succession had taken place. Failure of the
Bank to obtain such assumption and agreement prior to the effectiveness of any
such succession shall be deemed to constitute a material breach of the Bank's
obligations under this Agreement.
(b) This Agreement will inure to the benefit of and be binding upon the
Officer, his legal representatives and testate or intestate distributees, and
the Bank, their respective successors and assigns, including any successor by
merger or consolidation or a statutory receiver or any other person or firm or
corporation to which all or substantially all of the respective assets and
business of the Bank may be sold or otherwise transferred.
16. Notices. Any communication required or permitted to be given under
this Agreement, including any notice, direction, designation, consent,
instruction, objection or waiver, shall be in writing and shall be deemed to
have been given at such time as it is delivered personally, or five days after
mailing if mailed, postage prepaid, by registered or certified mail, return
receipt requested, addressed to such party at the address listed below or at
such other address as one such party may by written notice specify to the other
party:
If to the Officer:
If to the Bank:
Goshen Savings Bank
1 South Church Street
Goshen, NY 10924
Attention: Corporate Secretary
With a copy to:
Serchuk & Zelermyer, LLP
81 Main Street
White Plains, NY 10601
Attention: Ivan Serchuk, Esq.
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17. Enforcement Costs and Attorneys' Fees. The Bank shall pay to or on
behalf of the Officer all reasonable costs, including legal fees, incurred by
him in connection with or arising out of his consultation with legal counsel or
in connection with or arising out of any action, suit or proceeding in which he
may be involved, as a result of his efforts, in good faith, to defend or enforce
the terms of this Agreement, provided that the Officer shall have (a) proceeded
in accordance with section 24 of this Agreement and (b) substantially prevailed
on the merits pursuant to a judgment, decree or order of a court of competent
jurisdiction or of an arbitrator in an arbitration proceeding, or in a
settlement; provided, further, that this section 17 shall not obligate the Bank
to pay costs and legal fees on behalf of the Officer under this Agreement in
excess of reasonable attorneys' fees. For purposes of this Agreement, any
settlement agreement which provides for payment of any amounts in settlement of
the Bank's obligations hereunder shall be conclusive evidence of the Officer's
entitlement to payments under this section, and any such payments shall be in
addition to amounts payable pursuant to such settlement agreement, unless such
settlement agreement expressly provides otherwise.
18. Severability. A determination that any provision of this Agreement
is invalid or unenforceable shall not affect the validity or enforceability of
any other provision hereof.
19. Waiver. Failure to insist upon strict compliance with any of the
terms, covenants or conditions hereof shall not be deemed a waiver of such term,
covenant, or condition. A waiver of any provision of this Agreement must be made
in writing, designated as a waiver, and signed by the party against who its
enforcement is sought. Any waiver or relinquishment of such right or power at
any one or more times shall not be deemed a waiver or relinquishment of such
right or power at any other time or times.
20. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and all of which shall
constitute one and the same Agreement.
21. Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of New York, without
reference to conflicts of law principles.
22. Headings and Construction. The headings of sections in this
Agreement are for convenience of reference only and are not intended to qualify
the meaning of any section. Any reference to a section number shall refer to a
section of this Agreement, unless otherwise stated. Any reference to the term
"Board" shall mean the Board of Trustees of the Bank while the Bank is a mutual
savings bank and the Board of Directors of the Bank while the Bank is a stock
savings bank. Any reference to the term "Bank" shall mean the Bank in its mutual
form prior to the Conversion and in its stock form on and after the Conversion.
If the Bank does not convert to stock form, any reference to the Bank's being a
stock savings bank shall have no effect.
23. Entire Agreement; Modifications. This instrument contains the
entire agreement of the parties relating to the subject matter hereof, and
supersedes in its entirety any and all prior agreements, understandings or
representations relating to the subject matter hereof between the Bank and the
Officer. No modifications of this Agreement shall be valid unless made in
writing and signed by the parties hereto.
24. Arbitration Clause. 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 in Middletown, New York, in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrators' award in any court having
jurisdiction; the expense of such arbitration shall be borne by the Bank.
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25. Required Regulatory Provisions. The following provisions are
included for the purposes of complying with various laws, rules and regulations
applicable to the Bank:
(a) Notwithstanding anything herein contained to the contrary, in no
event shall the aggregate amount of compensation payable to the Officer under
section 9(b) hereof (exclusive of amounts described in section 9(b)(i) and (ix))
exceed three times the Officer's average annual total compensation for the last
five consecutive calendar years to end prior to his termination of employment
with the Bank (or for his entire period of employment with the Bank if less than
five calendar years).
(b) Notwithstanding anything herein contained to the contrary, any
payments to the Officer by the Bank, whether pursuant to this Agreement or
otherwise, are subject to and conditioned upon their compliance with section
18(k) of the Federal Deposit Insurance Act (the "FDI Act"), 12 U.S.C. Section
1828(k), and any regulations promulgated thereunder.
(c) Notwithstanding anything herein contained to the contrary, if the
Officer is suspended from office and/or temporarily prohibited from
participating in the conduct of the affairs of the Bank pursuant to a notice
served under section 8(e)(3) or 8(g)(1) of the FDI Act, 12 U.S.C. Section
1818(e)(3) or 1818(g)(1), the Bank's obligations under this Agreement shall be
suspended as of the date of service of such notice, unless stayed by appropriate
proceedings. If the charges in such notice are dismissed, the Bank, in its
discretion, may (i) pay to the Officer all or part of the compensation withheld
while the Bank's obligations hereunder were suspended and (ii) reinstate, in
whole or in part, any of the obligations which were suspended.
(d) Notwithstanding anything herein contained to the contrary, if the
Officer 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 FDI Act, 12 U.S.C. Section 1818(e)(4) or (g)(1), all obligations
of the Bank under this Agreement shall terminate as of the effective date of the
order, but vested rights and obligations of the Bank and the Officer shall not
be affected.
(e) Notwithstanding anything herein contained to the contrary, if the
Bank is in default (within the meaning of section 3(x)(1) of the FDI Act, 12
U.S.C. Section 1813(x)(1)), all obligations of the Bank under this Agreement
shall terminate as of the date of default, but vested rights and obligations of
the Bank and the Officer shall not be affected.
(f) Notwithstanding anything herein contained to the contrary, all
obligations of the Bank hereunder shall be terminated, except to the extent that
a continuation of this Agreement is necessary for the continued operation of the
Bank: (i) by the Director of the OTS or his designee or the Federal Deposit
Insurance Corporation ("FDIC"), at the time the FDIC enters into an agreement to
provide assistance to or on behalf of the Bank under the authority contained in
section 13(c) of the FDI Act, 12 U.S.C. Section 1823(c); (ii) by the Director of
the OTS or his designee at the time such Director or designee approves a
supervisory merger to resolve problems related to the operation of the Bank or
when the Bank is determined by such Director to be in an unsafe or unsound
condition. The vested rights and obligations of the parties shall not be
affected.
If and to the extent that any of the foregoing provisions shall cease to be
required by applicable law, rule or regulation, the same shall become
inoperative as though eliminated by formal amendment of this Agreement.
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IN WITNESS WHEREOF, the Bank has caused this Agreement to be executed
and the Officer has hereto set his hand, all as of the day and year first above
written.
---------------------------------
WITNESS:
- -----------------------------
GOSHEN SAVINGS BANK
By
-------------------------------
ATTEST:
- ----------------------------
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Exhibit 10.3
EMPLOYEE RETENTION AGREEMENT
This Employee Retention Agreement ("Agreement") is made and entered
into as of _______________ by and among Goshen Savings Bank, a savings bank
organized and operating under the federal laws of the United States and having
its executive offices at One South Church Street, Goshen, New York 10924 (the
"Bank"); GSB Financial Corporation, a business corporation organized and
existing under the laws of the State of Delaware and having its executive
offices at One South Church Street, Goshen, New York 10924 ("Holding Company");
and ,_________ an individual residing at
_____________________________________________ ("Officer").
W I T N E S S E T H :
Whereas, effective as of the date of this Agreement, the Bank has
converted from a federal mutual savings bank to a federal stock savings bank and
has become a wholly-owned subsidiary of the Holding Company; and
Whereas, the Bank desires to secure for itself the continued
availability of the Officer's services; and
Whereas, the Bank recognizes that a third party may at some time in the
future pursue a Change of Control of the Bank or the Holding Company and that
this possibility may result in the departure or distraction of the Bank's
officers; and
Whereas, the Bank has determined that appropriate steps should be taken
to encourage the continued attention and dedication of the Bank's officers,
including the Officer, to their duties for the Bank without the distraction that
may arise from the possibility of a Change of Control of the Bank or the Holding
Company; and
Whereas, the Bank believes that, by assuring certain officers,
including the Officer, of reasonable financial security in the event of a Change
of Control of the Bank or the Holding Company, such officers will be in a
position to perform their duties free from financial self interest and in the
best interests of the Bank and its shareholders; and
Whereas, for purposes of securing the Officer's services for the Bank,
the Board of Directors of the Bank ("Board") has authorized the proper officers
of the Bank to enter into an employee retention agreement with the Officer on
the terms and conditions set forth herein; and
Whereas, the Board of Directors of the Holding Company has authorized
the Holding Company to guarantee the Bank's obligations under such an employee
retention agreement; and
Whereas, the Officer is willing to make the Officer's services
available to the Bank on the terms and conditions set forth herein;
Now, Therefore, in consideration of the premises and the mutual
covenants and obligations hereinafter set forth, the Bank, the Holding Company
and the Officer hereby agree as follows:
Section 1. Effective Date.
(a) This Agreement shall be effective as of the date first above
written and shall remain in effect during the term of this Agreement which shall
be for a period of three (3) years commencing on the date of this Agreement,
plus such extensions as are provided pursuant to section 1(b); provided,
however, that if the term of this Agreement has not otherwise terminated, the
term of this Agreement will terminate on the date of the Officer's termination
of employment with the Bank; and provided, further, that the obligations under
section 8 of this Agreement shall survive the term of this Agreement if payments
become due here under.
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(b) Prior to each anniversary date of this Agreement, the Board shall
consider the advisability of an extension of the term in light of the
circumstances then prevailing and may, in its discretion, approve an extension
to take effect as of the upcoming anniversary date. If an extension is approved,
the term of this Agreement shall be extended so that it will expire three (3)
years after such anniversary date.
(c) Notwithstanding anything herein contained to the contrary: (i) the
Officer's employment with the Bank may be terminated at any time, subject to the
terms and conditions of this Agreement; and (ii) nothing in this Agreement shall
mandate or prohibit a continuation of the Officer's employment following the
expiration of the Assurance Period upon such terms and conditions as the Bank
and the Officer may mutually agree upon.
Section 2. Assurance Period.
(a) The assurance period ("Assurance Period") shall be for a period
commencing on the date of a Change in Control, as defined in section 10 of this
Agreement, and ending on the third anniversary of the date on which the
Assurance Period commences, plus such extensions as are provided pursuant to the
following sentence. The Assurance Period shall be automatically extended for one
(1) additional year on each anniversary of the commencement of the Assurance
Period, unless either the Bank or the Officer elects not to extend the Assurance
Period further by giving written notice to the other party, in which case the
Assurance Period shall become fixed and shall end on the anniversary of the date
on which such written notice is given.
(b) Upon termination of the Officer's employment with the Bank, further
extensions under subparagraph 2(a) shall cease and the remaining unexpired
Assurance Period under this Agreement shall be a fixed period ending on the
later of the third anniversary of the date of the Change in Control, as defined
in section 10 of this Agreement, or the third anniversary of the date of the
last such extension.
Section 3. Duties.
During the period of the Officer's employment that falls within the
Assurance Period, the Officer shall: (a) except to the extent allowed under
section 6 of this Agreement, devote his or her full business time and attention
(other than during weekends, holidays, vacation periods, and periods of illness,
disability or approved leave of absence) to the business and affairs of the Bank
and use his or her best efforts to advance the Bank's interests; (b) serve in
the position to which the Officer is appointed by the Bank, which, during the
Assurance Period, shall be the position that the Officer held on the day before
the Assurance Period commenced or any higher office at the Bank to which he or
she may subsequently be appointed; and (c) subject to the direction of the Board
and the By-laws of the Bank, have such functions, duties, responsibilities and
authority commonly associated with such position.
Section 4. Compensation.
In consideration for the services rendered by the Officer during the
Assurance Period, the Bank shall pay to the Officer during the Assurance Period
a salary at an annual rate equal to the greater of:
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(a) the annual rate of salary in effect for the Officer on the day
before the Assurance Period commenced; or
(b) such higher annual rate as may be prescribed by or under the
authority of the Board;
provided, however, that in no event shall the Officer's annual rate of salary
under this Agreement in effect at a particular time during the Assurance Period
be reduced without the Officer's prior written consent. The annual salary
payable under this section 4 shall be subject to review at least once annually
and shall be paid in approximately equal installments in accordance with the
Bank's customary payroll practices. Nothing in this section 4 shall be deemed to
prevent the Officer from receiving additional compensation other than salary for
his or her services to the Bank, or additional compensation for his or her
services to the Holding Company, upon such terms and conditions as may be
prescribed by or under the authority of the Board or the Board of Directors of
the Holding Company.
Section 5. Employee Benefit Plans and Programs.
Except as otherwise provided in this Agreement, the Officer shall,
during the Assurance Period, be treated as an employee of the Bank and be
eligible to participate in and receive benefits under any qualified or
non-qualified defined benefit or defined contribution retirement plan, group
life, health (including hospitalization, medical and major medical), dental,
accident and long term disability insurance plans, and such other employee
benefit plans and programs, including, but not limited to, any incentive
compensation plans or programs (whether or not employee benefit plans or
programs), any stock option and appreciation rights plan, employee stock
ownership plan and restricted stock plan, as may from time to time be maintained
by, or cover employees of, the Bank, in accordance with the terms and conditions
of such employee benefit plans and programs and compensation plans and programs
and with the Bank's customary practices.
Section 6. Board Memberships.
The Officer may serve as a member of the boards of directors of such
business, community and charitable organizations as he or she may disclose to
and as may be approved by the Board (which approval shall not be unreasonably
withheld), and he or she may engage in personal business and investment
activities for his or her own account; provided, however, that such service and
personal business and investment activities shall not materially interfere with
the performance of his or her duties under this Agreement.
Section 7. Working Facilities and Expenses.
During the Assurance Period, the Officer's principal place of
employment shall be at the Bank's executive offices at the address first above
written, or at such other location within the County of Orange at which the Bank
shall maintain its principal executive offices, or at such other location as the
Bank and the Officer may mutually agree upon. The Bank shall provide the
Officer, at his or her principal place of employment, with support services and
facilities suitable to his or her position with the Bank and necessary or
appropriate in connection with the performance of his or her assigned duties
under this Agreement. The Bank shall reimburse the Officer for his or her
ordinary and necessary business expenses, including, without limitation, the
Officer's travel and entertainment expenses, incurred in connection with the
performance of the Officer's duties under this Agreement, upon presentation to
the Bank of an itemized account of such expenses in such form as the Bank may
reasonably require.
Section 8. Termination of Employment with Severance Benefits.
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(a) In the event that the Officer's employment with the Bank shall
terminate during the Assurance Period, or prior to the commencement of the
Assurance Period but within three (3) months of and in connection with a Change
of Control as defined in section 10 of this Agreement on account of:
(i) The Officer's voluntary resignation from employment with the Bank
within ninety (90) days following:
(A) the failure of the Bank's Board to appoint or re-appoint or elect
or re-elect the Officer to serve in the same position in which the Officer was
serving, on the day before the Assurance Period commenced or a more senior
office;
(B) the failure of the stockholders of the Holding Company to elect or
re-elect the Officer as a member of the Board, if he or she was a member of the
Board on the day before the Assurance Period commenced;
(C) the expiration of a thirty (30) day period following the date on
which the Officer gives written notice to the Bank of its material failure,
whether by amendment of the Bank's Charter or By-laws, action of the Board or
the Holding Company's stockholders or otherwise, to vest in the Officer the
functions, duties, or responsibilities vested in the Officer on the day before
the Assurance Period commenced (or the functions, duties and responsibilities of
a more senior office to which the Officer may be appointed), unless during such
thirty (30) day period, the Bank fully cures such failure;
(D) the failure of the Bank to cure a material breach of this Agreement
by the Bank, within thirty (30) days following written notice from the Officer
of such material breach;
(E) a reduction in the compensation provided to the Officer, or a
material reduction in the benefits provided to the Officer under the Bank's
program of employee benefits, compared with the compensation and benefits that
were provided to the Officer on the day before the Assurance Period commenced;
(F) a change in the Officer's principal place of employment that would
result in a one-way commuting time in excess of the greater of (I) 30 minutes or
(II) the Officer's commuting time immediately prior to such change; or
(ii) the discharge of the Officer by the Bank for any reason other than
for "cause" as provided in section 9(a);
Then, subject to section 21, the Bank shall provide the benefits and pay to the
Officer the amounts provided for under section 8(b) of this Agreement; provided,
however, that if benefits or payments become due hereunder as a result of the
Officer's termination of employment prior to the commencement of the Assurance
Period, the benefits and payments provided for under section 8(b) of this
Agreement shall be determined as though the Officer had remained in the service
of the Bank (upon the terms and conditions in effect at the time of his or her
actual termination of service) and had not terminated employment with the Bank
until the date on which the Officer's Assurance Period would have commenced.
(b) In the event that Officer's employment with the Bank shall
terminate under circumstances described in section 8(a) of this Agreement, the
following benefits and amounts shall be paid or provided to the Officer:
(i) his or her earned but unpaid salary as of the date of the
termination of his or her employment with the Bank, payable when due but in no
event later than thirty (30) days following his or her termination of employment
with the Bank;
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<PAGE>
(ii) the benefits, if any, to which Officer and his or her family and
dependents are entitled as a former officer/employee, or family or dependents of
a former officer/employee, under the employee benefit plans and programs and
compensation plans and programs maintained for the benefit of the Bank's
officers and employees, in accordance with the terms of such plans and programs
in effect on the date of his or her termination of employment, or if his or her
termination of employment occurs after a Change in Control, on the date of his
or her termination of employment or on the date of such Change in Control,
whichever results in more favorable benefits as determined by Officer, with
credit being given for additional years of service and age to the expiration of
the Assurance Period for purposes of determining eligibility and benefits for
any plan and program where age and service are relevant factors;
(iii) payment for all unused vacation days and floating holidays in the
year in which his or her employment is terminated, at his or her highest annual
rate of salary for such year;
(iv) continued group life, health (including hospitalization, medical,
major medical and dental) and disability insurance benefits in addition to that
provided pursuant to section 8(b)(ii) of this Agreement, to the extent necessary
after taking into account coverage provided by any subsequent employer, to
provide Officer and his or her family and dependents, until the expiration of
the Assurance Period, with coverage identical to and in any event no less
favorable than the coverage to which they would have been entitled under such
plans (as in effect on the date of his or her termination of employment, or, if
his or her termination of employment occurs after a Change in Control, on the
date of his or her termination of employment or during the one-year period
ending on the date of such Change in Control, whichever results in more
favorable benefits as determined by Officer) if he or she had continued working
for the Bank until the expiration of the Assurance Period at the highest annual
rate of compensation paid to the Officer during the three preceding years;
(v) within thirty days following his or her termination of employment
with the Bank, a lump sum payment in an amount equal to the present value of the
total salary and bonuses that the Officer would have earned if he or she had
worked for the Bank until the expiration of the Assurance Period at the highest
annual rate of salary paid to the Officer during the three preceding years and
the highest bonus calculated by applying the highest ratio of bonus to salary
received during the previous five years to the annual rate of salary used in the
calculation under this subparagraph), with such present value to be determined
by using a discount rate of six percent per annum, compounded, in the case of
salary, with the frequency corresponding to the Bank's regular payroll periods
with respect to its officers, and, in the case of bonus, annually;
(vi) within thirty days following his or her termination of employment
with the Bank, a lump sum payment in an amount equal to the excess, if any, of
(A) the present value of the benefits to which he or she would be entitled under
any defined benefit plans maintained by, or covering employees of, the Bank
(including any "excess benefit plan" within the meaning of section 3(36) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or other
special or supplemental plan) as in effect on the date of his or her
termination, if he or she had worked for the Bank until the expiration of the
Assurance Period at the highest annual rate of compensation paid to the Officer
during the three preceding years and been fully vested in such plan or plans,
such benefits to be determined as of the date of termination of employment by
adding to the service actually recognized under such plans an additional period
equal to the time remaining until the expiration of the Assurance Period and by
adding to the compensation recognized under such plans for the year in which
termination of employment occurs all amounts payable under sections 8(b)(i), (v)
and (viii), over (B) the present value of the benefits to which he or she is
actually entitled under any such plans maintained by, or covering employees of,
the Bank as of the date of his or her termination with such present values to be
determined by using a discount rate of six percent per annum, compounded
monthly, and the mortality tables prescribed under section 72 of the Internal
Revenue Code of 1986 ("Code");
5
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(vii) within thirty days following his or her termination of employment
with the Bank, a lump sum payment in an amount equal to the excess, if any, of
(A) the present value of the benefits attributable to the Bank's contribution to
which he or she would be entitled under any defined contribution plans
maintained by, or covering employees of, the Bank (including any "excess benefit
plan" within the meaning of section 3(36) of ERISA, or other special or
supplemental plan) as in effect on the date of his or her termination, if he or
she had worked for the Bank until the expiration of the Assurance Period at the
highest annual rate of compensation paid to the Officer during the three
preceding years and made the maximum amount of employee contributions, if any,
required or permitted under such plan or plans, and been eligible for the
highest rate in matching contributions under such plan or plans during the time
remaining until the expiration of the Assurance Period which is prior to the
Officer's termination of employment with the Bank, and been fully vested in such
plan or plans, over (B) the present value of the benefits attributable to the
Bank's contributions to which he or she is actually entitled under such plans as
of the date of his or her termination of employment with the Bank, with such
present values to be determined by using a discount rate of six percent per
annum, compounded with the frequency corresponding to the Bank's regular payroll
periods with respect to its officers;
(viii) the payments that would have been made to the Officer under any
incentive compensation plan maintained by, or covering employees of, the Bank
(other than bonus payments to which section 8(b)(v) of this Agreement is
applicable) if he or she had continued working for the Bank until the expiration
of the Assurance Period and had earned an incentive award in each calendar year
that ends during the time remaining until the expiration of the Assurance Period
in an amount equal to the product of (A) the maximum percentage rate of
compensation at which an award was ever available to Officer under such
incentive compensation plan, multiplied by (B) the compensation that would have
been paid to Officer during each calendar year at the highest annual rate of
compensation paid to the Officer during the three preceding years, such payments
to be made at the same time and in the same manner as payments are made to other
officers of the Bank pursuant to the terms of such incentive compensation plan;
provided, however, that payments under this section 8(b)(viii) shall not be made
to the Officer for any year on account of which no payments are made to any of
the Bank's officers under any such incentive compensation plan; and
(ix) the benefits to which the Officer is entitled under any excess
benefits plan within the meaning of section 3(36) of ERISA or other special or
supplemental plan shall be paid to him in a lump sum, with such lump sum to be
computed using the mortality tables under the Bank's tax-qualified pension plan
and a discount rate of six percent per annum. The payments specified in this
section 8(b)(ix) shall be made within thirty days after the date of Officer's
election, and if the amount may be increased by a subsequent Change in Control,
any additional payment shall be made within thirty days of such Change in
Control.
Section 9. Termination without Severance Benefits.
In the event that the Officer's employment with the Bank shall
terminate during the Assurance Period on account of:
(a) the discharge of the Officer for "cause," which, for purposes of
this Agreement shall mean personal dishonesty, incompetence, willful misconduct,
breach of fiduciary duty involving personal profit, intentional failure to
perform stated duties, willful violation of any law, rule or regulation (other
than traffic violations or similar offenses) or final cease and desist order, or
material breach of any provision of this Agreement, in each case as measured
against
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standards generally prevailing at the relevant time in the savings and community
banking industry; provided, however, that the Officer shall not be deemed to
have been discharged for cause unless and until he or she shall have received a
written notice of termination from the Board, accompanied by a resolution duly
adopted by affirmative vote of a majority of the entire Board at a meeting
called and held for such purpose (after reasonable notice to the Officer and a
reasonable opportunity for the Officer to make oral and written presentations to
the members of the Board, on his or her own behalf, or through a representative,
who may be his or her legal counsel, to refute the grounds for the proposed
determination) finding that in the good faith opinion of the Board grounds exist
for discharging the Officer for cause; or
(b) the Officer's voluntary resignation from employment with the Bank
for reasons other than those specified in section 8(a)(i); or
(c) the Officer's death; or
(d) a determination that the Officer is eligible for long-term
disability benefits under the Bank's long-term disability insurance program or,
if there is no such program, under the federal Social Security Act;
then the Bank shall have no further obligations under this Agreement, other than
the payment to the Officer (or, in the event of his or her death, to his or her
estate) of his or her earned but unpaid salary as of the date of the termination
of his or her employment, and the provision of such other benefits, if any, to
which the Officer is entitled as a former employee under the employee benefit
plans and programs and compensation plans and programs maintained by, or
covering employees of, the Bank.
Section 10. Change of Control.
For purposes of this Agreement, a Change in Control of the Bank shall mean:
(a) the occurrence of any event upon which any "person" (as such term
is used in sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended (the "1934 Act")), other than (I) GSB Financial Corporation, (ii) a
trustee or other fiduciary holding securities under an employee benefit plan
maintained for the benefit of employees of the Bank; (iii) a corporation owned,
directly or indirectly, by the stockholders of the Bank in substantially the
same proportions as their ownership of stock of the Bank; or (iv) any person or
group consisting, in whole or in part, of one or more executive officers of the
Bank, becomes the "beneficial owner" (as defined in Rule 13d-3 promulgated under
the 1934 Act), directly or indirectly, of securities issued by the Bank
representing 25% or more of the combined voting power of all of the Bank's then
outstanding securities; or
(b) the occurrence of any event upon which the individuals who on the
date this Agreement is made are members of the Board, together with individuals
(other than any individual designated by a person who has entered into an
agreement with the Bank to effect a transaction described in section 10(a) or
10(c) of this Agreement) whose election by the Board or nomination for election
by the Bank's stockholders was approved by the affirmative vote of at least
two-thirds of the members of Board then in office who were either members of the
Board on the date this Agreement is made or whose nomination or election was
previously so approved cease for any reason to constitute a majority of the
members of the Board, but excluding, for this purpose, any such individual whose
initial assumption of office is in connection with an actual or threatened
election contest relating to the election of directors of the Bank (as such
terms are used in Rule 14a-11 of Regulation 14A promulgated under the 1934 Act);
or
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(c) the shareholders of the Bank approve either:
(i) a merger or consolidation of the Bank with any other
corporation, other than a merger or consolidation following which both of the
following conditions are satisfied:
(A) either (x) the members of the Board of the Bank
immediately prior to such merger or consolidation constitute at least a majority
of the members of the governing body of the institution resulting from such
merger or consolidation; or (y) the shareholders of the Bank own securities of
the institution resulting from such merger or consolidation representing eighty
percent or more of the combined voting power of all such securities then
outstanding in substantially the same proportions as their ownership of voting
securities of the Bank before such merger or consolidation; and
(B) the entity which results from such merger or
consolidation expressly agrees in writing to assume and perform the Bank's
obligations under this Agreement; or
(ii) a plan of complete liquidation of the Bank or an
agreement for the sale or disposition by the Bank of all or substantially all of
its assets; and
(d) any event which would be described in sections 10(a), (b) or (c) if
the term "Parent Corporation of the Bank" were substituted for the term "Bank"
therein. Such an event shall be deemed to be a Change in Control under the
relevant provision of sections 10(a), (b) or (c).
It is understood and agreed that more than one Change in Control may occur at
the same or different times and that the provisions of this Agreement shall
apply with equal force and effect with respect to each such Change in Control.
Section 11. No Effect on Employee Benefit Plans or Programs.
The termination of the Officer's employment during the Assurance Period
or thereafter, whether by the Bank or by the Officer, shall have no effect on
the rights and obligations of the parties hereto under the Bank's qualified and
non-qualified defined benefit or defined contribution retirement plans, group
life, health (including hospitalization, medical and major medical), dental,
accident and long term disability insurance plans or such other employee benefit
plans or programs, or compensation plans or programs (whether or not employee
benefit plans or programs) and any defined contribution plan, employee stock
ownership plan, stock option and appreciation rights plan, and restricted stock
plan, as may be maintained by, or cover employees of, the Bank from time to
time; provided, however, that nothing in this Agreement shall be deemed to
duplicate any compensation or benefits provided under any agreement, plan or
program covering the Officer to which the Bank or the Holding Company is a party
and any duplicative amount payable under any such agreement, plan or program
shall be applied as an offset to reduce the amounts otherwise payable hereunder.
Section 12. Successors and Assigns.
This Agreement will inure to the benefit of and be binding upon the
Officer, his or her legal representatives and testate or intestate distributees,
and the Bank and the Holding Company, their respective successors and assigns,
including any successor by merger or consolidation or a statutory receiver or
any other person or firm or corporation to which all or substantially all of the
respective assets and business of the Bank or the Holding Company may be sold or
otherwise transferred.
Section 13. Notices.
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Any communication required or permitted to be given under this
Agreement, including any notice, direction, designation, consent, instruction,
objection or waiver, shall be in writing and shall be deemed to have been given
at such time as it is delivered personally, or five (5) days after mailing if
mailed, postage prepaid, by registered or certified mail, return receipt
requested, addressed to such party at the address listed below or at such other
address as one such party may by written notice specify to the other party:
If to the Officer:
If to the Bank:
Goshen Savings Bank
One South Church Street
Goshen, New York 10924
Attention: President
If to the Holding Company:
GSB Financial Corporation
One South Church Street
Goshen, New York 10924
Attention: President
Section 14. Enforcement Costs and Attorneys' Fees.
The Bank shall indemnify, hold harmless and defend the Officer against
reasonable costs, including legal fees, incurred by the Officer in connection
with or arising out of any action, suit or proceeding in which the Officer may
be involved, as a result of the Officer's efforts, in good faith, to defend or
enforce the terms of this Agreement; provided, however, that the Officer shall
have substantially prevailed on the merits pursuant to a judgment, decree or
order of a court of competent jurisdiction or of an arbitrator in an arbitration
proceeding, or in a settlement; provided, further, that this section 14 shall
not obligate the Bank to pay costs and legal fees on behalf of the Officer under
this Agreement in excess of reasonable attorneys' fees. For purposes of this
Agreement, any settlement agreement which provides for payment of any amounts in
settlement of the Bank's obligations hereunder shall be conclusive evidence of
the Officer's entitlement to payments under this section, and any such payments
shall be in addition to amounts payable pursuant to such settlement agreement,
unless such settlement agreement expressly provides otherwise.
Section 15. Severability.
A determination that any provision of this Agreement is invalid or
unenforceable shall not affect the validity or enforce ability of any other
provision hereof.
Section 16. Waiver.
Failure to insist upon strict compliance with any of the terms,
covenants or conditions hereof shall not be deemed a waiver of such term,
covenant, or condition. A waiver of any provision of this Agreement must be made
in writing, designated as a waiver, and signed by the party against whom its
enforcement is sought. Any waiver or relinquishment of any right or power
hereunder at any one or more times shall not be deemed a waiver or
relinquishment of such right or power at any other time or times.
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Section 17. Counterparts.
This Agreement may be executed in two (2) or more counterparts, each of
which shall be deemed an original, and all of which shall constitute one and the
same Agreement.
Section 18. Governing Law.
This Agreement shall be governed by and construed and enforced in
accordance with the federal laws of the United States, and in the absence of
controlling federal law, the laws of the State of New York, without reference to
conflicts of law principles.
Section 19. Headings and Construction.
The headings of sections in this Agreement are for convenience of
reference only and are not intended to qualify the meaning of any section. Any
reference to a section number shall refer to a section of this Agreement, unless
otherwise stated.
Section 20. Entire Agreement; Modifications.
This instrument contains the entire agreement of the parties relating
to the subject matter hereof, and supersedes in its entirety any and all prior
agreements, understandings or representations relating to the subject matter
hereof. No modifications of this Agreement shall be valid unless made in writing
and signed by the parties hereto.
Section 21. Required Regulatory Provisions.
The following provisions are included for the purposes of complying
with various laws, rules and regulations applicable to the Bank:
(a) Notwithstanding anything herein contained to the contrary, in no
event shall the aggregate amount of compensation payable to the Officer under
section 8(b) hereof (exclusive of amounts described in section 8(b)(i)) exceed
three times the Officer's average annual total compensation for the last five
consecutive calendar years to end prior to his or her termination of employment
with the Bank (or for his or her entire period of employment with the Bank if
less than five calendar years).
(b) Notwithstanding anything herein contained to the contrary, any
payments to the Officer by the Bank, whether pursuant to this Agreement or
otherwise, are subject to and conditioned upon their compliance with section
18(k) of the Federal Deposit Insurance Act ("FDI Act"), 12 U.S.C. Section
1828(k), and any regulations promulgated thereunder.
(c) Notwithstanding anything herein contained to the contrary, if the
Officer is suspended from office and/or temporarily prohibited from
participating in the conduct of the affairs of the Bank pursuant to a notice
served under section 8(e)(3) or 8(g)(1) of the FDI Act, 12 U.S.C. Section
1818(e)(3) or 1818(g)(1), the Bank's obligations under this Agreement shall be
suspended as of the date of service of such notice, unless stayed by appropriate
proceedings. If the charges in such notice are dismissed, the Bank, in its
discretion, may (i) pay to the Officer all or part of the compensation withheld
while the Bank's obligations hereunder were suspended and (ii) reinstate, in
whole or in part, any of the obligations which were suspended.
(d) Notwithstanding anything herein contained to the contrary, if the
Officer 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 FDI Act, 12 U.S.C. Section 1818(e)(4) or (g)(1), all obligations
of the Bank under this Agreement shall terminate as of the effective date of the
order, but vested rights and obligations of the Bank and the Officer shall not
be affected.
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(e) Notwithstanding anything herein contained to the contrary, if the
Bank is in default (within the meaning of section 3(x)(1) of the FDI Act, 12
U.S.C. Section 1813(x)(1)), all obligations of the Bank under this Agreement
shall terminate as of the date of default, but vested rights and obligations of
the Bank and the Officer shall not be affected.
(f) Notwithstanding anything herein contained to the contrary, all
obligations of the Bank hereunder shall be terminated, except to the extent that
a continuation of this Agreement is necessary for the continued operation of the
Bank: (i) by the Director of the Office of Thrift Supervision ("OTS") or his or
her designee or the Federal Deposit Insurance Corporation ("FDIC"), at the time
the FDIC enters into an agreement to provide assistance to or on behalf of the
Bank under the authority contained in section 13(c) of the FDI Act, 12 U.S.C.
Section 1823(c); (ii) by the Director of the OTS or his or her designee at the
time such Director or designee approves a supervisory merger to resolve problems
related to the operation of the Bank or when the Bank is determined by such
Director to be in an unsafe or unsound condition. The vested rights and
obligations of the parties shall not be affected. If and to the extent any of
the foregoing provisions shall cease to be required by applicable law, rule or
regulation, the same shall become inoperative as though eliminated by formal
amendment of this Agreement.
Section 22. Guaranty.
The Holding Company hereby irrevocably and unconditionally guarantees
to the Officer the payment of all amounts, and the performance of all other
obligations, due from the Bank in accordance with the terms of this Agreement as
and when due without any requirement of presentment, demand of payment, protest
or notice of dishonor or nonpayment.
Section 23. Maximum Limitations on Severance Benefits.
Notwithstanding anything in this Agreement to the contrary, in the
event that the payments provided to the Officer (or in the event of his or her
death, to his or her estate) under this Agreement constitute an "excess
parachute payment" under section 280G of the Code, such payments shall be
limited to the lesser of (a) 2.99 times his or her average compensation
(including salary, bonuses, amounts contributed on behalf of the Officer to any
employee benefit plans and programs and compensation plans and programs
maintained for the benefit of the Holding Company's officers and employees and
any other cash or non-cash compensation paid to the Officer) for the period of
five taxable years ending immediately prior to his or her termination of
employment; or
(b) whichever of the following amounts yields the larger net payment to
the Officer, after provision for the tax (if any) imposed under section 4999 of
the Code:
(i) the amount determined under section 23(a); or
(ii) the maximum amount (if any) which may be paid to the Officer
hereunder without giving rise to any tax under section 4999 of the Code;
as determined by the Officer in his or her sole discretion.
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In Witness Whereof, the Bank and the Holding Company have caused this Agreement
to be executed and the Officer has hereunto set his or her hand, all as of the
day and year first above written.
---------------------------------
(officer)
ATTEST: Goshen Savings Bank
By ___________________
Secretary By ________________________
GSB Financial Corporation
By _____________________________
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Exhibit 10.6 Employee Stock Ownership Plan
GSB FINANCIAL CORPORATION
EMPLOYEE STOCK OWNERSHIP PLAN
<PAGE>
GSB FINANCIAL CORPORATION
EMPLOYEE STOCK OWNERSHIP PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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PREAMBLE 1
ARTICLE 1 DEFINITION OF TERMS AND CONSTRUCTION
1.1 Definitions
<S> <C>
(a) "Act" 2
(b) "Administrator" 2
(c) "Annual Additions" 2
(d) "Authorized Leave of Absence" 2
(e) "Beneficiary" 2
(f) "Board of Directors" 2
(g) "Break" 3
(h) "Code" 3
(i) "Compensation" 3
(j) "Date of Hire" 3
(k) "Disability" 3
(l) "Disability Retirement Date" 3
(m) "Early Retirement Date" 4
(n) "Effective Date" 4
(o) "Eligibility Period" 4
(p) "Employee" 4
(q) "Employer" 4
(r) "Employer Securities" 4
(s) "Entry Date" 4
(t) "Exempt Loan" 4
(u) "Former Participant" 4
(v) "Fund" 4
(w) "Hour of Service" 4
(x) "Investment Adjustments" 5
(y) "Limitation Year" 5
(z) "Normal Retirement Date" 5
(aa) "Participant" 5
(bb) "Plan" 5
(cc) "Plan Year" 6
(dd) "Qualified Domestic Relations Order" 6
(ee) "Retirement" 6
(ff) "Service" 6
(gg) "Sponsor" 6
(hh) "Trust Agreement" 6
(ii) "Trustee" 6
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Page
(jj) "Valuation Date" 7
(kk) "Year of Service" 7
1.2. Plurals and Gender 7
1.3 Incorporation of Trust Agreement 7
1.4 Headings 7
1.5 Severability 8
1.6 References to Governmental Regulations 8
ARTICLE II PARTICIPATION
2.1 Commencement of Participation 9
2.2 Termination of Participation 9
2.3 Resumption of Participation 9
2.4 Determination of Eligibility 10
ARTICLE III CREDITED SERVICE
3.1 Service Counted for Eligibility Purposes 11
3.2 Service Counted for Vesting Purposes 11
3.3 Credit for Pre-Break Service 11
3.4 Service Credit During Authorized Leaves 11
3.5 Service Credit During Maternity or
Paternity Leave 12
3.6 Ineligible Employees 12
ARTICLE IV CONTRIBUTIONS
4.1 Employee Stock Ownership Contributions 13
4.2 Time and Manner of Employee Stock Ownership
Contributions 13
4.3 Records of Contributions 14
4.4 Erroneous Contributions 14
ARTICLE V ACCOUNTS, ALLOCATIONS AND INVESTMENTS
5.1 Establishment of Separate Participant
Accounts 15
5.2 Establishment of Suspense Account 15
5.3 Allocation of Earnings, Losses and Expenses 16
5.4 Allocation of Forfeitures 16
5.5 Allocation of Annual Employee Stock
Ownership Contributions 16
5.6 Limitation on Annual Additions 17
5.7 Erroneous Allocations 20
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Page
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5.8 Value of Participant's Interest in Fund 20
5.9 Investment of Account Balances 20
ARTICLE VI RETIREMENT, DEATH AND DESIGNATION
OF BENEFICIARY
6.1 Normal Retirement 21
6.2 Early Retirement 21
6.3 Disability Retirement 21
6.4 Death Benefits 21
6.5 Designation of Death Beneficiary and
Manner of Payment 22
ARTICLE VII VESTING AND FORFEITURES
7.1 Vesting on Death, Disability, Normal Retirement 23
7.2 Vesting on Termination of Participation 23
7.3 Disposition of Forfeitures 23
ARTICLE VIII EMPLOYEE STOCK OWNERSHIP RULES
8.1 Right to Demand Employer Securities 25
8.2 Voting Rights 25
8.3 Nondiscrimination in Employee Stock
Ownership Contributions 26
8.4 Dividends 26
8.5 Exempt Loans 27
8.6 Exempt Loan Payments 28
8.7 Put Option 29
8.8 Diversification Requirements 29
8.9 Independent Appraiser 30
ARTICLE IX PAYMENTS AND DISTRIBUTIONS
9.1 Payments on Termination of Service
- In General 31
9.2 Commencement of Payments 31
9.3 Mandatory Commencement of Benefits 31
9.4 Required Beginning Dates 34
9.5 Form of Payment 35
9.6 Payments Upon Termination of Plan 35
9.7 Distribution Pursuant to Qualified
Domestic Relations Orders 35
9.8 Cash-Out Distributions 35
9.9 ESOP Distribution Rules 36
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9.10 Withholding 36
9.11 Waiver of 30-day Notice 37
ARTICLE X PROVISIONS RELATING TO TOP-HEAVY PLANS
10.1 Top-Heavy Rules to Control 38
10.2 Top-Heavy Plan Definitions 38
10.3 Calculation of Accrued Benefits 39
10.4 Determination of Top-Heavy Status 41
10.5 Determination of Super Top-Heavy Status 41
10.6 Minimum Contribution 41
10.7 Vesting 42
10.8 Maximum Benefit Limitation 43
ARTICLE XI ADMINISTRATION
11.1 Appointment of Administrator 44
11.2 Resignation or Removal of Administrator 44
11.3 Appointment of Successors: Terms of
Office, Etc. 44
11.4 Powers and Duties of Administrator 44
11.5 Action by Administrator 45
11.6 Participation by Administrators 46
11.7 Agents 46
11.8 Allocation of Duties 46
11.9 Delegation of Duties 46
11.10 Administrator's Action Conclusive 46
11.11 Compensation and Expenses of
Administrator 47
11.12 Records and Reports 47
11.13 Reports of Fund Open to Participants 47
11.14 Named Fiduciary 47
11.15 Information from Employer 47
11.16 Reservation of Rights by Employer 48
11.17 Liability and Indemnification 48
11.18 Service as Trustee and Administrator 48
ARTICLE XII CLAIMS PROCEDURE
12.1 Notice of Denial 49
12.2 Right to Reconsideration 49
12.3 Review of Documents 49
12.4 Decision by Administrator 49
12.5 Notice by Administrator 49
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Page
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ARTICLE XIII AMENDMENTS, TERMINATION AND MERGER
13.1 Amendments 50
13.2 Consolidation, Merger or Other
Transactions of Employer 50
13.3 Consolidation or Merger of Trust 51
13.4 Bankruptcy or Insolvency of Employer 51
13.5 Voluntary Termination 52
13.6 Partial Termination of Plan or Permanent
Discontinuance of Contributions 52
ARTICLE XIV MISCELLANEOUS
14.1 No Diversion of Funds 53
14.2 Liability Limited 53
14.3 Incapacity 53
14.4 Spendthrift Clause 53
14.5 Benefits Limited to Fund 54
14.6 Cooperation of Parties 54
14.7 Payments Due Missing Persons 54
14.8 Governing Law 54
14.9 Nonguarantee of Employment 54
14.10 Counsel 55
v
</TABLE>
<PAGE>
GSB FINANCIAL CORPORATION
EMPLOYEE STOCK OWNERSHIP PLAN
PREAMBLE
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Effective as of _____________, GSB Financial Corporation, a Delaware
corporation, (the "Sponsor"), has adopted the GSB Financial Corporation Employee
Stock Ownership Plan in order to enable Participants to share in the growth and
prosperity of the Sponsor and its wholly owned subsidiary, Goshen Savings Bank,
and to provide Participants with an opportunity to accumulate capital for their
future economic security by accumulating funds to provide retirement, death and
disability benefits. The Plan is a stock bonus plan designed to meet the
requirements of an employee stock ownership plan as described at Section
4975(e)(7) of the Code and Section 407 (d)(6) of ERISA. The primary purpose of
the employee stock ownership plan is to invest in employer securities. The
Sponsor intends that the Plan will qualify under Sections 401(a) and 501(a) of
the Code and will comply with the provisions of ERISA. The Plan has been drafted
to comply with the Tax Reform Act of 1986, the Omnibus Budget Reconciliation Act
of 1986, the Omnibus Budget Reconciliation Act of 1987, the Technical and
Miscellaneous Revenue Act of 1988, the Revenue Reconciliation Act of 1989, and
the Omnibus Budget Reconciliation Act of 1993.
The terms of this Plan shall apply only with respect to Employees of
the Employer on and after ________________.
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ARTICLE I
DEFINITION OF TERMS AND CONSTRUCTION
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1.1 Definitions.
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Unless a different meaning is plainly implied by the context, the
following terms as used in this Plan shall have the following meanings:
(a) "Act" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, or any successor statute.
(b) "Administrator" shall mean the administrative committee provided
for in Article XI.
(c) "Annual Additions" shall mean, with respect to each Participant,
the sum of those amounts allocated to the Participant's accounts under this Plan
and under any other qualified defined contribution plan to which the Employer
contributes for any Limitation Year, consisting of the following:
(1) Employer contributions;
(2) Forfeitures; and
(3) Voluntary contributions (if any).
(d) "Authorized Leave of Absence" shall mean an absence from Service
with respect to which the Employee may or may not be entitled to Compensation
and which meets any one of the following requirements:
(1) Service in any of the armed forces of the United States
for up to 36 months, provided that the Employee resumes Service within 90 days
after discharge, or such longer period of time during which such Employee's
employment rights are protected by law; or
(2) Any other absence or leave expressly approved and granted
by the Employer which does not exceed 24 months, provided that the Employee
resumes Service at or before the end of such approved leave period. In approving
such leaves of absence, the Employer shall treat all Employees on a uniform and
nondiscriminatory basis.
(e) "Beneficiary" shall mean such persons as may be designated by the
Participant to receive benefits after the death of the Participant, or such
persons designated by the Administrator to receive benefits after the death of
the Participant, all as provided in Section 6.5.
(f) "Board of Directors" shall mean the Board of Directors of the
Sponsor.
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(g) "Break" shall mean a Plan Year during which an Employee fails to
complete more than 500 Hours of Service.
(h) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time, or any successor statute.
(i) "Compensation" shall mean the amount of remuneration paid to an
Employee by the Employer, after the date on which the Employee becomes a
Participant, for services rendered to the Employer during a Plan Year, including
base salary, bonuses, overtime and commissions, and any amount of compensation
contributed pursuant to a salary reduction election under Code Section 401(k)
and any amount of compensation contributed to a cafeteria plan described at
Section 125 of the Code, but excluding amounts paid by the Employer or accrued
with respect to this Plan or any other qualified or nonqualified unfunded plan
of deferred compensation or other employee welfare plan to which the Employer
contributes, payments for group insurance, medical benefits, reimbursement for
expenses, and other forms of extraordinary pay, and excluding amounts accrued
for a prior year.
Notwithstanding the foregoing, for purposes of complying with Code
Section 415, a Participant's contributions to the 401(k) Plan and cafeteria plan
shall not be included in the Participant's compensation. Notwithstanding
anything herein to the contrary, the annual Compensation of each Participant
taken into account under the Plan for any Plan Year shall not exceed $150,000,
as adjusted from time to time in accordance with Section 415(d) of the Code. In
determining the compensation of a Participant for purposes of this limitation,
the rules of section 414(q)(6) of the Code shall apply, except in applying such
rules, the term "family" shall include only the spouse of the Participant and
any lineal descendants of the Participant who have not attained age 19 before
the close of the year. If, as a result of such rules, the adjusted $150,000
limitation is exceeded, then (except for purposes of determining the portion of
compensation up to the integration level), the limitation shall be prorated
among the affected individuals in proportion to each such individual's
compensation as determined under this section prior to the application of this
limitation.
(j) "Date of Hire" shall mean the date on which a person shall perform
his first Hour of Service. Notwithstanding the foregoing, in the event a person
incurs one or more consecutive Breaks after his initial Date of Hire which
results in the forfeiture of his pre-Break Service pursuant to Section 3.3, his
"Date of Hire" shall thereafter be the date on which he completes his first Hour
of Service after such Break or Breaks.
(k) "Disability" shall mean a physical or mental impairment which
prohibits a Participant from engaging in any occupation for wages or profit and
which has caused the Social Security Administration to classify the individual
as "disabled" for purposes of Social Security.
(l) "Disability Retirement Date" shall mean the first day of the month
after which a Participant incurs a Disability.
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(m) "Early Retirement Date" shall mean the first day of the month
coincident with or next following the date on which a Participant attains age 55
and completes 5 Years of Service.
(n) "Effective Date" shall mean _____________.
(o) "Eligibility Period" shall mean the period of 12 consecutive months
commencing on an Employee's Date of Hire. Succeeding eligibility computation
periods after the initial eligibility computation period shall be based on the
Plan Year which includes the first anniversary of an Employee's Date of Hire.
(p) "Employee" shall mean any person employed by the Employer,
including officers but excluding directors in their capacity as such; provided,
however, that the term "Employee" shall not include any employee included in a
unit of employees covered by a collective-bargaining agreement with the Employer
that does not expressly provide for participation of such employees in this
Plan, where there has been good-faith bargaining between the Employer and the
employees' representatives on the subject of retirement benefits.
(q) "Employer" shall mean GSB Financial Corporation, a Delaware
corporation, and its wholly owned subsidiary, Goshen Savings Bank, or any
successors to the aforesaid corporations by merger, consolidation or otherwise,
which may agree to continue this Plan, or any affiliated or subsidiary
corporation or business organization of any Employer which, with the consent of
the Sponsor, shall agree to become a party to this Plan.
(r) "Employer Securities" shall mean the common stock issued by GSB
Financial Corporation, a Delaware corporation.
(s) "Entry Date" shall mean each January 1 and July 1, so long as this
Plan shall remain in effect.
(t) "Exempt Loan" shall mean a loan described at Section 4975(d)(1) of
the Code to the Trustee to purchase Employer Securities for the Plan, made or
guaranteed by a disqualified person, as defined at Section 4975(e)(2) of the
Code, including, but not limited to, a direct loan of cash, a purchase money
transaction, an assumption of an obligation of the Trustee, an unsecured
guarantee or the use of assets of such disqualified person as collateral for
such a loan.
(u) "Former Participant" shall mean any previous Participant whose
participation has terminated but who has a vested interest in the Plan which has
not been distributed in full.
(v) "Fund" shall mean the Fund maintained by the Trustee pursuant to
the Trust Agreement in order to provide for the payment of the benefits
specified in the Plan.
(w) "Hour of Service" shall mean each hour for which an Employee is
directly or indirectly paid or entitled to payment by an Employer for the
performance of duties or for reasons other than the performance of duties (such
as vacation time, holidays, sickness, disability, paid
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lay-offs, jury duty and similar periods of paid nonworking time). To the extent
not otherwise included, Hours of Service shall also include each hour for which
back pay, irrespective of mitigation of damages, is either awarded or agreed to
by the Employer. Hours of working time shall be credited on the basis of actual
hours worked, even though compensated at a premium rate for overtime or other
reasons. In computing and crediting Hours of Service for an Employee under this
Plan, the rules set forth in Sections 2530.200b-2(b) and (c) of the Department
of Labor Regulations shall apply, said Sections being herein incorporated by
reference. Hours of Service shall be credited to the Plan Year or other relevant
period during which the services were performed or the nonworking time occurred,
regardless of the time when Compensation therefor may be paid. Any Employee for
whom no hourly employment records are kept by the Employer shall be credited
with 190 Hours of Service for each calendar month in which he would have been
credited with a least one Hour or Service under the foregoing provisions, if
hourly records were available. Effective January 1, 1985, for absences
commencing on or after that date, solely for purposes of determining whether a
Break for participation and vesting purposes has occurred in an Eligibility
Period or Plan Year, an individual who is absent from work for maternity or
paternity reasons shall receive credit for the Hours of Service which would
otherwise have been credited to such individual but for such absence, or in any
case in which such hours cannot be determined, 8 Hours of Service per day of
such absence. For purposes of this Section 1.1(w), an absence from work or
maternity or paternity reasons means an absence (1) by reason of the pregnancy
of the individual, (2) by reason of a birth of a child of the individual, (3) by
reason of the placement of a child with the individual in connection with the
adoption of such child by such individual, or (4) for purposes of caring for
such child for a period beginning immediately following such birth or placement.
The Hours of Service credited under this provision shall be credited (1) in the
computation period in which the absence begins if the crediting is necessary to
prevent a Break in that period, or (2) in all other cases, in the following
computation period.
(x) "Investment Adjustments" shall mean the increases and/or decreases
in the value of a Participant's accounts attributable to earnings, gains, losses
and expenses of the Fund, as set forth in Section 5.3.
(y) "Limitation Year" shall mean the calendar year.
(z) "Normal Retirement Date" shall mean the first day of the month
coincident with or during which a Participant attains age 65 and completes the
fifth anniversary of his participation in the Plan.
(aa) "Participant" shall mean an Employee who has met all of the
eligibility requirements of the Plan and who is currently included in the Plan
as provided in Article II hereof.
(bb) "Plan" shall mean the GSB Financial Corporation Employee Stock
Ownership Plan, as described herein or as hereafter amended from time to time.
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(cc) "Plan Year" shall mean any 12 consecutive month period commencing
on January 1 and ending on December 31.
(dd) "Qualified Domestic Relations Order" shall mean any judgment,
decree or order (including approval of a property settlement agreement) that
relates to the provision of child support, alimony, marital property rights to a
spouse, former spouse, child or other dependent of the Participant (all such
persons hereinafter termed "alternate payee") and is made pursuant to a State
domestic relations law (including community property law) and, further, that
creates or recognizes the existence of an alternate payee's right to, or assigns
to an alternate payee the right to receive all or a portion of the benefits
payable with respect to a Participant and that clearly specifies the following:
(1) the name and last known mailing address (if available) of the
Participant and the name and mailing address of each alternate payee to which
the order relates;
(2) the amount or percentage of the Participant's benefits to be paid
to an alternate payee or the manner in which the amount is to be determined; and
(3) the number of payments or period for which payments are required.
A domestic relations order is not a Qualified Domestic Relations Order
if it:
(1) requires the Plan to provide any type or form of benefit or any
option not otherwise provided under the Plan; or,
(2) requires the Plan to provide increased benefits, or
(3) requires payment of benefits to an alternate payee that are
required to be paid to another alternate payee under a previously existing
Qualified Domestic Relations Order.
(ee) "Retirement" shall mean termination of employment which qualifies
as Early, Normal or Disability retirement as described in Article VI.
(ff) "Service" shall mean employment with the Employer.
(gg) "Sponsor" shall mean GSB Financial Corporation, a Delaware
corporation.
(hh) "Trust Agreement" shall mean the agreement, dated ______________
1997 by and between GSB Financial Corporation, a Delaware corporation, and
Marine Midland Bank, a New York chartered bank.
(ii) "Trustee" shall mean the Trustee or Trustees by whom the assets of
the Plan are held, as provided in the Trust Agreement, or his or their
successors.
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(jj) "Valuation Date" shall mean the last day of each Plan Year. The
Trustee may make additional valuations, at the instruction of the Administrator,
but in no event may the Administrator request additional valuations by the
Trustee more frequently than quarterly. Whenever such date falls on a Saturday,
Sunday or holiday, the preceding business day shall be the Valuation Date.
(kk) "Year of Service" shall mean any Plan Year during which an
Employee has completed at least 1,000 Hours of Service, except as otherwise
specified in Article III. In the determination of Years of Service for
eligibility and vesting purposes under this Plan, the term "Year of Service"
shall also mean any Plan Year during which an Employee has completed at least
1,000 Hours of Service with an entity that is:
(1) a member of a controlled group including the Employer,
while it is a member of such controlled group (within the meaning of Section
414(b) of the Code);
(2) in a group of trades or businesses under common control
with the Employer, while it is under common control within the meaning of
Section 414(c) of the Code);
(3) a member of an affiliated service group including the
Employer, while it is a member of such affiliated service group (within the
meaning of Section 414(m) of the Code); or
(4) a leasing organization, under the circumstances described
in Section 414(n) of the Code.
1.2 Plurals and Gender.
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Where appearing in the Plan and the Trust Agreement, the masculine
gender shall include the feminine and neuter genders, and the singular shall
include the plural, and vice versa, unless the context clearly indicates a
different meaning.
1.3 Incorporation of Trust Agreement.
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The Trust Agreement, as the same may be amended from time to time, is
intended to be and hereby is incorporated by reference into this Plan and for
all purposes shall be deemed a part of the Plan.
1.4 Headings.
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The headings and sub-headings in this Plan are inserted for the
convenience of reference only and are to be ignored in any construction of the
provisions hereof.
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1.5 Severability.
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In case any provision of this Plan shall be held illegal or void, such
illegality or invalidity shall not affect the remaining provisions of this Plan,
but shall be fully severable, and the Plan shall be construed and enforced as if
said illegal or invalid provisions had never been inserted herein.
1.6 References to Governmental Regulations.
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References in this Plan to regulations issued by the Internal Revenue
Service, the Department of Labor, or other governmental agencies shall include
all regulations, rulings, procedures, releases and other position statements
issued by any such agency.
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ARTICLE II
PARTICIPATION
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2.1 Commencement of Participation.
-----------------------------
(a) Any Employee who completes at least 1,000 Hours of Service during
his Eligibility Period or during any Plan Year beginning after his Date of Hire
shall initially become a Participant on the Entry Date coincident with or next
following the later of the following dates, provided he is employed by the
Employer on that Entry Date:
(1) (i) With respect to an Employee who completes 1,000 Hours
of Service during his initial Eligibility Period, the date which is 12 months
after his Date of Hire; and (ii) with respect to an Employee who satisfies the
1,000 Hours of Service requirement after his initial Eligibility Period, the end
of the Plan Year in which he first performs 1,000 Hours of Service; and
(2) The date on which he attains age 21.
(b) Any Employee who had satisfied the requirements set forth in
Section 2.1(a) during the 12-month period prior to the Effective Date shall
become a Participant on the Effective Date, provided he is still employed by the
Employer on the Effective Date.
2.2 Termination of Participation.
----------------------------
After commencement or resumption of his participation, an Employee
shall remain a Participant during each consecutive Plan Year thereafter until
the earliest of the following dates:
(a) His actual Retirement date;
(b) His date of death; or
(c) The last day of a Plan Year during which he incurs a Break.
2.3 Resumption of Participation.
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(a) Any Participant whose employment terminates and who resumes Service
before he incurs a Break shall resume participation immediately on the date he
is reemployed.
(b) Except as otherwise provided in Section 2.3(c), any Participant who
incurs one or more Breaks and resumes Service shall resume participation
retroactively as of the first day of the first Plan Year in which he completes a
Year of Service after such Break(s).
(c) Any Participant who incurs one or more Breaks and resumes Service,
but whose pre-Break Service is not reinstated to his credit pursuant to Section
3.3, shall be treated as a new
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Employee and shall again be required to satisfy the eligibility requirements
contained in Section 2.1 before resuming participation on the appropriate Entry
Date, as specified in Section 2.1.
2.4 Determination of Eligibility.
The Administrator shall determine the eligibility of Employees in
accordance with the provisions of this Article. For each Plan Year, the Employer
shall furnish the Administrator a list of all Employees, indicating the original
date of their reemployment with the Employer and any Breaks they may have
incurred.
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ARTICLE III
CREDITED SERVICE
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3.1 Service Counted for Eligibility Purposes.
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Except as provided in Section 3.3, all Years of Service completed by an
Employee shall be counted in determining his eligibility to become a Participant
on and after the Effective Date, whether such Service was completed before or
after the Effective Date.
3.2 Service Counted for Vesting Purposes.
------------------------------------
All Years of Service completed by an Employee (including Years of
Service completed prior to the Effective Date) shall be counted in determining
his vested interest in this Plan, except the following:
(a) Service which is disregarded under the provisions of Section 3.3;
(b) Service prior to the Effective Date of this Plan if such Service
would have been disregarded under the "break in service" rules (within the
meaning of Section 1.411(a) - 5(b) (6) of the Treasury Regulations).
3.3 Credit for Pre-Break Service.
----------------------------
Upon his resumption of participation following one or a series of
consecutive Breaks, an Employee's pre-Break Service shall be reinstated to his
credit for all purposes of this Plan only if either:
(a) He was vested in any portion of his accrued benefit at the time the
Break(s) began; or
(b) The number of his consecutive Breaks does not equal or exceed the
greater of 5 or the number of his Years of Service credited to him before the
Breaks began.
Except as provided in the foregoing, none of an Employee's Service
prior to one or a series of consecutive Breaks shall be counted for any purpose
in connection with his participation in this Plan thereafter.
3.4 Service Credit During Authorized Leaves.
---------------------------------------
An Employee shall receive no Service credit under Section 3.1 or 3.2
during any Authorized Leave of Absence. However, solely for the purpose of
determining whether he has incurred a Break during any Plan Year in which he is
absent from Service for one or more Authorized Leaves of Absence, he shall be
credited with 45 Hours of Service for each week
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during any such leave period. Notwithstanding the foregoing, if an Employee
fails to return to Service at or before the end of a leave period, he shall be
deemed to have terminated Service as of the first day of such leave period and
his credit for Hours of Service, determined under this Section 3.4, shall be
revoked. Notwithstanding anything contained herein to the contrary, an Employee
who is absent by reason of military service as set forth in Section 1.1(d)(1)
shall be given Service credit under this Plan for such military leave period to
the extent, and for all purposes, required by law.
3.5 Service Credit During Maternity or Paternity Leave.
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Effective for absences beginning on or after January 1, 1985, for
purposes of determining whether a Break has occurred for participation and
vesting purposes, an individual who is on maternity or paternity leave as
described in Section 1.1(w), shall be deemed to have completed Hours of Service
during such period of absence, all in accordance with Section 1.1(w)
Notwithstanding the foregoing, no credit shall be given for such Hours of
Service unless the individual furnishes to the Administrator such timely
information as the Administrator may reasonably require to determine:
(a) that the absence from Service was attributable to one of the
maternity or paternity reasons enumerated in Section 1.1(w); and
(b) the number of days for which such absence lasted.
In no event, however, shall any credit be given for such leave other than for
determining whether a Break has occurred.
3.6 Ineligible Employees.
--------------------
Notwithstanding any provisions of this Plan to the contrary, any person
who is employed by the Employer, but who is ineligible to participate in this
Plan, either because of his failure
(a) To meet the eligibility requirements contained in Article II; or
(b) To be an Employee, as defined in Section 1.1(p), shall,
nevertheless, earn Years of Service for eligibility and vesting purposes
pursuant to the rules contained in this Article III. However, such a person
shall not be entitled to receive any contributions hereunder unless and until he
becomes a Participant in this Plan, and then, only during his period of
participation.
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ARTICLE IV
CONTRIBUTIONS
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4.1 Employee Stock Ownership Contributions.
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(a) Subject to all of the provisions of this Article IV, for each Plan
Year commencing on or after the Effective Date, the Employer may make an
Employee Stock Ownership contribution to the Fund, in such amount as may be
determined by the Board of Directors in its discretion. Such contributions shall
be in the form of cash or Employer Securities. In determining the value of
Employer Securities transferred to the Fund as an Employee Stock Ownership
contribution, the Administrator may determine the average of closing prices of
such securities for a period of up to 90 consecutive days immediately preceding
the date on which the securities are contributed to the Fund. In the event that
the Employer Securities are not readily tradable on an established securities
market, the value of the Employer Securities transferred to the Fund shall be
determined by an independent appraiser in accordance with Section 8.9.
(b) In no event shall such contribution by the Employer exceed for any
Plan Year the maximum amount that may be deducted by the Employer under Section
404 of the Code, nor shall such contribution cause the Employer to violate its
regulatory capital requirements. Each Employee Stock Ownership contribution by
the Employer shall be deemed to be made on the express condition that the Plan,
as then in effect, shall be qualified under Sections 401 and 501 of the Code and
that the amount of such contribution shall be deductible from the Employer's
income under Section 404 of the Code.
4.2 Time and Manner of Employee Stock Ownership Contributions.
---------------------------------------------------------
(a) The Employee Stock Ownership contribution (if any) for each Plan
Year shall be paid to the Trustee in one lump sum or installments at any time on
or before the expiration of the time prescribed by law (including any
extensions) for filing of the Employer's federal income tax return for its
fiscal year ending concurrent with or during such Plan Year. Any portion of an
Employee Stock Ownership contribution for each Plan Year that may be made prior
to the last day of the Plan Year shall be maintained by the Trustee in the
Employee Stock Ownership suspense account described in Section 5.2 until the
last day of such Plan Year.
(b) If an Employee Stock Ownership contribution for a Plan Year is paid
after the close of the Employer's fiscal year which ends concurrent with or
during such Plan Year but on or prior to the due date (including any extensions)
for filing of the Employer's federal income tax return for such fiscal year, it
shall be considered, for allocation purposes, as an Employee Stock Ownership
contribution to the Fund for the Plan Year for which it was computed and
accrued, unless such contribution is accompanied by a statement to the Trustee,
signed by a representative of the Employer, which specifies that the Employee
Stock Ownership contribution is made with respect to the Plan Year in which it
is received by the Trustee. Any Employee Stock Ownership contribution paid by
the Employer during any Plan Year but after the due date (including any
extensions) for filing of its federal income tax return for the fiscal year of
the Employer ending
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on or before the last day of the preceding Plan Year shall be treated, for
allocation purposes, as an Employee Stock Ownership contribution to the Fund for
the Plan Year in which the contribution is paid to the Trustee.
(c) Notwithstanding anything contained herein to the contrary, no
Employee Stock Ownership contribution shall be made for any year during which a
"limitations account" created pursuant to Section 5.6(c)(2) is in existence
until the balance of such limitations account has been reallocated in accordance
with Section 5.6(c)(2).
4.3 Records of Contributions.
------------------------
The Employer shall deliver at least annually to the Trustee, with
respect to the contributions contemplated in Section 4.1, a certificate of the
Administrator, in such form as the Trustee shall approve, setting forth:
(a) The aggregate amount of contributions, if any, to the Fund for such
Plan Year;
(b) The names, Internal Revenue Service identifying numbers and current
residential addresses of all Participants in the Plan;
(c) The amount and category of contributions to be allocated to each
such Participant; and
(d) Any other information reasonably required for the proper operation
of the Plan.
4.4 Erroneous Contributions.
-----------------------
(a) Notwithstanding anything herein to the contrary, upon the
Employer's request, a contribution which was made by a mistake of fact, or
conditioned upon the initial qualification of the Plan, under Code Section 401,
or upon the deductibility of the contribution under Section 404 of the Code,
shall be returned to the Employer by the Trustee within one year after the
payment of the contribution, the denial of the qualification or the disallowance
of the deduction (to the extent disallowed), whichever is applicable; provided,
however, that in the case of denial of the initial qualification of the Plan, a
contribution shall not be returned unless an Application for Determination has
been timely filed with the Internal Revenue Service. Any portion of a
contribution returned pursuant to this Section 4.4 shall be adjusted to reflect
its proportionate share of the losses of the fund, but shall not be adjusted to
reflect any earnings or gains. Notwithstanding any provisions of this Plan to
the contrary, the right or claim of any Participant or Beneficiary to any asset
of the Fund or any benefit under this Plan shall be subject to and limited by
this Section 4.4.
(b) In no event shall voluntary Employee contributions be accepted. Any
such voluntary Employee contributions (and any earnings attributable thereto)
mistakenly received by the Trustee shall promptly be returned to the
Participant.
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ARTICLE V
ACCOUNTS, ALLOCATIONS AND INVESTMENTS
-------------------------------------
5.1 Establishment of Separate Participant Accounts.
----------------------------------------------
The Administrator shall establish and maintain separate individual
accounts for Participants in the Plan and for each Former Participant in
accordance with the provisions of this Article V. Such separate accounts shall
be for accounting purposes only and shall not require a segregation of the Fund,
and no Participant, Former Participant or Beneficiary shall acquire any right to
or interest in any specific assets of the Fund as a result of the allocations
provided for under this Plan, except where segregation is expressly provided for
in this Plan.
(a) Employee Stock Ownership Accounts.
---------------------------------
The Administrator shall establish a separate Employee Stock Ownership
Account in the Fund for each Participant. The account shall be credited as of
the last day of each Plan Year with the amounts allocated to the Participant
under Sections 5.4 and 5.5. The Administrator may establish subaccounts
hereunder, an Employer Stock Account reflecting a Participant's interest in
Employer Securities held by the Trust and an Other Investments Account
reflecting the Participant's interest in his Employee Stock Ownership Account
other than Employer Securities.
(b) Distribution Accounts.
---------------------
In any case where distribution of a terminated Participant's vested
interest in the Plan is to be deferred, the Administrator shall establish a
separate, nonforfeitable account in the Fund to which the balance in his
Employee Stock Ownership Account in the Plan shall be transferred after such
Participant incurs a Break. Unless the Former Participant's distribution
accounts are segregated for investment purposes pursuant to section 9.4, they
shall share in Investment Adjustments.
(c) Other Accounts.
--------------
The Administrator shall establish such other separate accounts for each
Participant as may be necessary or desirable for the convenient administration
of the Fund.
5.2 Establishment of Suspense Accounts.
----------------------------------
The Administrator shall establish separate accounts to be known as
"suspense accounts." There shall be credited to such appropriate suspense
accounts any Employee Stock Ownership contributions that may be made prior to
the last day of the Plan Year, as provided in Section 4.2. The suspense accounts
shall share proportionately as to time and amount in any Investment Adjustments.
As of the last day of each Plan Year, the balance of the Employee Stock
Ownership suspense account shall be added to the Employee Stock Ownership
contribution and allocated to
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the Employee Stock Ownership Accounts of Participants as provided in Section
5.5, except as provided herein. In the event that the Plan takes an Exempt Loan,
the Employer Securities purchased thereby shall be allocated to a separate
Exempt Loan Suspense Account, from which allocations shall be made in accordance
with Section 8.5.
5.3 Allocation of Earnings, Losses and Expenses.
-------------------------------------------
As of each Valuation Date, any increase or decrease in the net worth of
the aggregate Employee Stock Ownership Accounts held in the Fund attributable to
earnings, losses, expenses and unrealized appreciation or depreciation in each
such aggregate Account, as determined by the Trustee pursuant to the Trust
Agreement, shall be credited to or deducted from the appropriate suspense
accounts and all Participants, Employee Stock Ownership Accounts (except
segregated distribution accounts described in Section 5.1(b) and the
"limitations account" described in Section 5.6(c)(2)) in the proportion that the
value of each such Account (determined immediately prior to such allocation and
before crediting any Employee Stock Ownership contributions and forfeitures for
the current Plan Year but after adjustment for any transfer to or from such
Accounts and for the time such funds were in such Accounts) bears to the value
of all Employee Stock Ownership Accounts.
5.4 Allocation of Forfeitures.
-------------------------
As of the last day of each Plan Year, all forfeitures attributable to
the Employee Stock Ownership Accounts which are then available for reallocation
shall be, as appropriate, added to the Employee Stock Ownership contribution (if
any) for such year and allocated among the Participants' Employee Stock
Ownership Accounts, as appropriate, in the manner provided in Sections 5.5 and
5.6.
5.5 Allocation of Annual Employee Stock Ownership Contributions.
-----------------------------------------------------------
As of the last day of each Plan Year for which the Employer shall make an
Employee Stock Ownership contribution, the Administrator shall allocate the
Employee Stock Ownership contribution (including reallocable forfeitures) for
such Plan Year to the Employee Stock Ownership account of each Participant who
completed at least 1,000 Hours of Service during that Plan Year, provided that
he is still employed by the Employer on the last day of the Plan Year. Such
allocation shall be made in the same proportion that each such Participant's
Compensation for such Plan Year bears to the total Compensation of all such
Participants for such Plan Year, subject to Section 5.6. Notwithstanding the
foregoing, if a Participant attains his Normal Retirement Date and terminates
Service prior to the last day of the Plan Year but after completing 1,000 Hours
of Service, he shall be entitled to an allocation based on his Compensation
earned prior to his termination and during the Plan Year. Furthermore, if a
Participant completes 1,000 Hours of Service and is on a Leave of Absence on the
last day of the Plan Year because of pregnancy or other medical reason, such a
Participant shall be entitled to an allocation based on his Compensation earned
during such Plan Year.
16
<PAGE>
5.6 Limitation on Annual Additions.
------------------------------
(a) Notwithstanding any provisions of this Plan to the contrary, the
total Annual Additions credited to a Participant's accounts under this Plan (and
under any other defined contribution plan to which the Employer contributes) for
any Limitation Year shall not exceed the lesser of:
(1) 25% of the Participant's compensation for such Limitation
Year; or
(2) $30,000 (or, if greater, one-fourth of the defined benefit
dollar limitation set forth in Section 415 (b) (1) (A) of the Code) .
Whenever otherwise allowed by law, the maximum amount of $30,000 shall
be automatically adjusted annually for cost-of-living increases in
accordance with Section 415(d) of the Code and the highest such
increase effective at any time during the Limitation Year shall be
effective for the entire Limitation Year, without any amendment to this
Plan.
(b) Solely for the purpose of this Section 5.6, the term "compensation"
is defined as wages, salaries, and fees for professional services and other
amounts received (without regard to whether or not an amount is paid in cash)
for personal services actually rendered in the course of employment with the
Employer maintaining the Plan to the extent that the amounts are includable in
gross income (including, but not limited to, commissions paid to salesmen,
compensation for services on the basis of a percentage of profits, commissions
on insurance premiums, tips, bonuses, fringe benefits, and reimbursements or
other expense allowances under a nonaccountable plan (as described in Treas.
Regs. ss. 1.62-2(c)) and excluding the following:
(1) Employer contributions to a plan of deferred compensation
which are not includible in the Employee's gross income for the taxable
year in which contributed, or Employer contributions under a simplified
employee pension plan to the extent such contributions are deductible
by the Employee, or any distributions from a plan of deferred
compensation;
(2) Amounts realized from the exercise of a non-qualified
stock option, or when restricted stock (or property) held by the
employee either becomes freely transferable or is no longer subject to
a substantial risk of forfeiture;
(3) Amounts realized from the sale, exchange or other
disposition of stock acquired under a qualified stock option; and
(4) Other amounts which received special tax benefits, or
contributions made by the employer (whether or not under a salary
reduction agreement) towards the purchase of an annuity contract
described in section 403(b) of the Code (whether or not the
contributions are actually excludable from the gross income of the
Employee).
17
<PAGE>
(c) In the event that the limitations on Annual Additions described in
this Section 5.6(a) above are exceeded with respect to any Participant in any
Limitation Year, then the contributions allocable to the Participant for such
year shall be reduced to the minimum extent required by such limitations in the
following order of priority:
(1) If any further reductions in Annual Additions are
necessary, then the Employee Stock Ownership contributions and
forfeitures allocated during such Limitation Year to the Participant's
Employee Stock Ownership Account shall be reduced. The amount of any
such reductions in the Employee Stock Ownership contributions and
forfeitures shall be reallocated to all other Participants in the same
manner as set forth under Sections 5.4 and 5.5.
(2) Any amounts which cannot be reallocated to other
Participants in a current Limitation Year in accordance with Section
5.6(c)(1) above because of the limitations contained in Sections 5.6(a)
and (d) shall be credited to an account designated as the "limitations
account" and carried forward to the next and subsequent Limitation
Years until it can be reallocated to all Participants as set forth in
Sections 5.4 and 5.5, as appropriate. No Investment Adjustments shall
be allocated to this limitations account. In the next and subsequent
Limitation Years, all amounts in the limitations account must be
allocated in the manner described in Sections 5.4 and 5.5, as
appropriate, before any Employee Stock Ownership contributions may be
made to this Plan for that Limitation Year.
(3) The Administrator shall determine to what extent the
Annual Additions to any Participant's Employee Stock Ownership Account
must be reduced in each Limitation Year. The Administrator shall reduce
the Annual Additions to all other qualified, tax-exempt retirement
plans maintained by the Employer in accordance with the terms contained
therein for required reductions or reallocations mandated by Section
415 of the Code before reducing any Annual Additions in this Plan.
(4) In the event this Plan is voluntarily terminated by the
Employer under Section 13.5, any amounts credited to the limitations
account described in Section 5.6(c) (2) above which have not be
reallocated as set forth herein shall be distributed to the
Participants who are still employed by the Employer on the date of
termination, in the proportion that each Participant's Compensation
bears to the Compensation of all Participants.
(d) The Annual Additions credited to a Participant's accounts for each
Limitation Year are further limited so that in the case of an Employee who is a
Participant in both this Plan and any qualified defined benefit plan
(hereinafter referred to as a "pension plan") of the Employer, the sum of (1)
and (2) below will not exceed 1.0:
(1) (A) The projected annual normal retirement benefit of a
Participant under the pension plan, divided by
18
<PAGE>
(B) The lesser of:
(i) The product of 1.25 multiplied by the dollar
limitation in effect under Section 415(b)(1)(A) of the Code
for such Limitation Year, or
(ii) The product of 1.4 multiplied by the amount of
compensation which may be taken into account under Section
415(b)(1)(B) of the Code for the Participant for such
Limitation Year; plus
(2) (A) The sum of Annual Additions credited to the
Participant under this Plan for all Limitation Years, divided by:
(B) The sum of the lesser of the following amounts
determined for such Limitation Year and for each prior year of service
with the Employer:
(i) The product of 1.25 multiplied by the dollar
limitation in effect under Section 415 (b) (1) (A) of the Code
for such Limitation Year, or
(ii) The product of 1.4 multiplied by the amount of
compensation which may be taken into account under Section
415(b)(1)(B) of the Code for the Participant for such
Limitation Year
The Administrator may, in calculating the defined contribution plan
fraction described in Section 5.6(d)(2), elect to use the transitional rule
pursuant to Section 415(e)(6) of the Code, if applicable. If the sum of the
fractions produced above will exceed 1.0, even after the use of the "fresh
start" rule contained in Section 235 of the Tax Equity and Fiscal Responsibility
Act of 1982 (TEFRA), if applicable, then the same provisions as stated in
Section 5.6(c) above shall apply. If, even after the reductions provided for in
Section 5.6(c), the sum of the fractions still exceeds 1.0, then the benefits of
the Participant provided under the pension plan shall be reduced to the extent
necessary, in accordance with Treasury Regulations issued under the Code. Solely
for the purposes of this Section 5.6(d), the term "years of service" shall mean
all years of service defined by Treasury Regulations issued under Section 415 of
the Code.
(e) In the event that the Employer is a member of (1) a controlled
group of corporations or a group of trades or businesses under common control
(as described in Section 414(b) or (c) of the Code, as modified by Section
415(h) thereof), or (2) an affiliated service group (as described in Section
414(m) of the Code), the Annual Additions credited to any Participant's accounts
in any such Limitation Year shall be further limited by reason of the existence
of all other qualified retirement plans maintained by such affiliated
corporations, other entities under common control or other members of the
affiliated service group, to the extent such reduction is required by Section
415 of the Code and the regulations promulgated thereunder. The Administrator
shall determine if any such reduction in the Annual Additions to a Participant's
accounts is required for this reason, and if so, the same provisions as stated
in 5.6(c) and (d) above shall apply.
19
<PAGE>
(f) Annual Additions shall not include any Employer contributions which
are used by the Trust to pay interest on an Exempt Loan nor any forfeitures of
Employer Securities purchased with the proceeds of an Exempt Loan, provided that
not more than one-third of the Employer contributions are allocated to
Participants who are among the group of employees deemed "highly compensated
employees" within the meaning of Code Section 414(q).
5.7 Erroneous Allocations.
---------------------
No Participant shall be entitled to any Annual Additions or other
allocations to his accounts in excess of those permitted under Sections 5.3,
5.4, 5.5, and 5.6. If it is determined at any time that the Administrator and/or
Trustee have erred in accepting and allocating any contributions or forfeitures
under this Plan, or in allocating Investment Adjustments, or in excluding or
including any person as a Participant, then the Administrator, in a uniform and
nondiscriminatory manner, shall determine the manner in which such error shall
be corrected and shall promptly advise the Trustee in writing of such error and
of the method for correcting such error. The accounts of any or all Participants
may be revised, if necessary, in order to correct such error.
5.8 Value of Participant's Interest in Fund.
---------------------------------------
At any time, the value of a Participant's interest in the Fund shall
consist of the aggregate value of his Employee Stock Ownership Account and his
distribution account, if any, determined as of the next-preceding Valuation
Date. The Administrator shall maintain adequate records of the cost basis of
Employer Securities allocated to each Participant's Employer Stock Ownership
Account.
5.9 Investment of Account Balances.
------------------------------
The Employee Stock Ownership Accounts shall be invested primarily in
Employer Securities. Employer Securities shall constitute at least 51% of the
assets of all Employee Stock Ownership Accounts. All sales of Employer
Securities by the Trustee attributable to the Employee Stock Ownership Accounts
of all Participants shall be charged pro rata to the Employee Stock Ownership
Accounts of all Participants.
20
<PAGE>
ARTICLE VI
RETIREMENT, DEATH AND DESIGNATION OF BENEFICIARY
------------------------------------------------
6.1 Normal Retirement.
-----------------
A Participant who reaches his Normal Retirement Date and who shall
retire at that time shall thereupon be entitled to retirement benefits based on
the value of his interest in the Fund, payable pursuant to the provisions of
Section 9.1. A Participant who remains in Service after his Normal Retirement
Date shall not be entitled to any retirement benefits until his actual
termination of Service thereafter (except as provided in Sections 9.3 and 9.4)
and he shall meanwhile continue to participate in this Plan.
6.2 Early Retirement.
----------------
A Participant who reaches his Early Retirement Date may retire at such
time (or, at his election, as of the first day of any month thereafter prior to
his Normal Retirement Date) and shall thereupon be entitled to retirement
benefits based on the value of his interest in the Fund, payable pursuant to the
provisions of Section 9.1.
6.3 Disability Retirement.
---------------------
In the event a Participant incurs a Disability, he may retire on his
Disability Retirement Date and shall thereupon be entitled to retirement
benefits based on the value of his interest in the Fund, payable pursuant to the
provisions of Section 9.1.
6.4 Death Benefits.
--------------
(a) Upon the death of a Participant before his Retirement or other
termination of Service, the value of his interest in the Fund shall be payable
pursuant to the provisions of Section 9.1. The Administrator shall direct the
Trustee to distribute his interest in the Fund to any surviving Beneficiary
designated by the Participant or, if none, to such persons designated by the
Administrator pursuant to Section 6.5.
(b) Upon the death of a Former Participant, the Administrator shall
direct the Trustee to distribute any undistributed balance of his interest in
the Fund to any surviving Beneficiary designated by him or, if none, to such
persons designated by the Administrator pursuant to Section 6.5.
(c) The Administrator may require such proper proof of death and such
evidence of the right of any person to receive the interest in the Fund of a
deceased Participant or Former Participant as the Administrator may deem
desirable. The Administrator's determination of death and of the right of any
person to receive payment shall be conclusive.
21
<PAGE>
6.5 Designation of Death Beneficiary and Manner of Payment.
------------------------------------------------------
(a) Each Participant shall have the right to designate a Beneficiary or
Beneficiaries to receive the sum or sums to which he may be entitled upon his
death. The Participant may also designate the manner in which any death benefits
under this Plan shall be payable to his Beneficiary, provided that such
designation is in accordance with Sections 9.3 and 9.4. Such designation of
Beneficiary and manner of payment shall be in writing and delivered to the
Administrator, and shall be effective when received by the Administrator. The
Participant shall have the right to change such designation by notice in writing
to the Administrator. Such change of Beneficiary or the manner of payment shall
become effective upon its receipt by the Administrator. Any such change shall be
deemed to revoke all prior designations.
(b) If a Participant shall fail to designate validly a Beneficiary or
if no designated Beneficiary survives the Participant, his interest in the Fund
shall be paid to the person or persons in the first of the following classes of
successive preference Beneficiaries surviving at the death of the Participant:
the Participant's (1) widow or widower, (2) children, (3) parents, and (4)
estate. The Administrator shall decide which Beneficiaries, if any, shall have
been validly designated, and its decision shall be binding and conclusive on all
persons.
(c) Notwithstanding the foregoing, if a Participant has been married
throughout the 12 month period preceding the date of his death, the sum or sums
to which he may be entitled under this Plan upon his death shall be paid to his
spouse, unless the Participant's spouse shall have consented to the election of
another Beneficiary. Such a spousal consent shall be in writing and shall be
witnessed either by a representative of the Plan or a notary public. If it is
established to the satisfaction of the Administrator that such spousal consent
cannot be obtained because there is no spouse, because the spouse cannot be
located, or other reasons prescribed by governmental regulations, the consent of
the spouse may be waived, and the Participant may designate a Beneficiary or
Beneficiaries other than his spouse.
22
<PAGE>
ARTICLE VII
VESTING AND FORFEITURES
-----------------------
7.1 Vesting on Death, Disability and Normal Retirement.
--------------------------------------------------
Unless his participation in this Plan shall have terminated prior
thereto, upon a Participant's death, Disability or upon his attainment of Normal
Retirement Date (whether or not he actually retires at that time) while he is
still employed by the Employer, the Participant's entire interest in the Fund
shall be fully vested and nonforfeitable.
7.2 Vesting on Termination of Participation.
---------------------------------------
Upon termination of his participation in this Plan for any reason other
than death, Disability, or Normal Retirement, a Participant shall be vested in a
percentage of his Employee Stock Ownership Account, such vested percentage to be
determined under the following table, based on the Years of Service (including
Years of Service prior to the Effective Date) credited to him for vesting
purposes at the time of his termination of participation:
Years of Service Completed Percentage vested
-------------------------- -----------------
Less than 5 0%
5 or more 100%
Any portion of the Participant's Employee Stock Ownership Account which
is not vested at the time he incurs a Break shall thereupon be forfeited and
disposed of pursuant to Section 7.3. Distribution of the vested portion of a
terminated Participant's interest in the Plan may be authorized by the
Administrator in any manner permitted under Section 9.1.
7.3 Disposition of Forfeitures.
--------------------------
(a) In the event a Participant incurs a Break and subsequently resumes
both his Service and his participation in the Plan prior to incurring at least 5
consecutive Breaks, the forfeitable portion of his Employee Stock Ownership
Account shall be reinstated to the credit of the Participant as of the date he
resumes participation.
(b) In the event a Participant terminates Service and subsequently
incurs a Break and receives a distribution, or in the event a Participant does
not terminate Service, but incurs at least 5 consecutive Breaks, or in the event
that a Participant terminates Service and incurs at least 5 consecutive Breaks
but has not received a distribution, then the forfeitable portion of his
Employer Account, including Investment Adjustments, shall be reallocated to
other Participants, pursuant to Section 5.4 as of the date the Participant
incurs such Break or Breaks, as the case may be.
23
<PAGE>
(c) In the event a former Participant who had received a distribution
from the Plan is rehired, he shall repay the amount of his distribution before
the earlier of 5 years after the date of his rehire by the Employer, or the
close of the first period of 5 consecutive Breaks commencing after the
withdrawal in order for any forfeited amounts to be restored to him.
24
<PAGE>
ARTICLE VIII
EMPLOYEE STOCK OWNERSHIP PROVISIONS
-----------------------------------
8.1 Right to Demand Employer Securities.
-----------------------------------
A Participant entitled to a distribution from his Employee Stock
Ownership Account shall be entitled to demand that his interest in the Account
be distributed to him in the form of Employer Securities, all subject to Section
9.9. In the event that the Employer Securities are not readily tradable on an
established market, the Participant shall be entitled to require that the
Employer repurchase the Employer Securities under a fair valuation formula, as
provided by governmental regulations. The Participant or Beneficiary shall be
entitled to exercise the put option described in the preceding sentence for a
period of not more than 60 days following the date of distribution of Employer
Securities to him. If the put option is not exercised within such 60-day period,
the Participant or Beneficiary may exercise the put option during an additional
period of not more than 60 days after the beginning of the first day of the
first Plan Year following the Plan Year in which the first put option period
occurred, all as provided in regulations promulgated by the Secretary of the
Treasury.
8.2 Voting and Tendering of Stock.
-----------------------------
(a) The Trustee generally shall vote all Employer Securities held under
the Plan. However, if any Employer has a registration-type class of securities
within the meaning of Section 409(e)(4) of the Code or, if a matter submitted to
the holders of Employer Securities involves a merger, consolidation,
recapitalization, reclassification, liquidation, dissolution or sale of
substantially all assets of an entity, then (i) the Employer Securities which
have been allocated to Participant Employee Stock Ownership Accounts shall be
voted by the Trustee in acordance with the Participants' written instructions,
and (ii) the Trustee shall vote any Employer Securities which have been
allocated to Participant Employee Stock Ownership Accounts but for which no
written instructions have been received and any unallocated Employer Securities
in the same proportion as allocated Employer Securities are voted by the Trustee
in accordance with Participants' written instructions. In the event no Employer
Securities have been allocated to Participant Employee Stock Ownership Accounts
at the time Employer Securities are to be voted, each Participant shall be demed
to have one share of Employer Securities allocated to his or her Account for the
sole purposes of providing the Trustee with voting instructions. Notwithstanding
any provision hereunder to the contrary, all Employer Securities which have been
allocated to Participant Employee Stock Ownership Accounts and for which the
Trustee has received no written instructions and all unallocated Employer
Securities must be voted by the Trustee in a manner determined by the Trustee to
be solely in the interest of the Participants and Beneficiaries. Whenever such
voting rights are to be exercised, the Employer, the Administrator and the
Trustee shall see that all Participants and Beneficiaries are provided with the
same notices and other materials as are provided to other holders of Employer
Securities, and are provided with adequate opportunity to deliver their
instructions to the Trustee regarding the voting of Employer Securities
25
<PAGE>
allocated to their Accounts. The instructions of the Participants with respect
to the voting of allocated shares hereunder shall be confidential.
(b) In the event of a tender offer, Employer Securities shall be
tendered by the Trustee in the same manner set forth above with respect to the
voting of Employer Securities. Notwithstanding any provision hereunder to the
contrary, Employer Securities must be tendered by the Trustee in a manner
determined by the Trustee to be solely in the interest of the Participant and
Beneficiaries.
8.3 Nondiscrimination in Employee Stock Ownership Contributions.
-----------------------------------------------------------
In the event that the amount of the Employee Stock Ownership
contributions that would be required in any Plan Year to make the scheduled
payments on an Exempt Loan would exceed the amount that would otherwise be
deductible by the Employer for such Plan Year under Code Section 404, then no
more than one-third of the Employee Stock Ownership contributions for the Plan
Year shall be allocated to the group of Employees who, during the Plan Year or
the preceding Plan Year:
(a) Was at any time a 5 percent owner of the Employer;
(b) Received compensation from the Employer in excess of $75,000, as
adjusted under Code Section 414(q);
(c) Received compensation from the Employer in excess of $50,000, as
adjusted under Code Section 414(q), and was in the "top-paid group" of employees
(as defined below) for such year; or
(d) Was at any time an officer and received compensation greater than
50 percent of the amount in effect under Code Section 415(b)(1)(A), as adjusted
for cost-of-living increases permitted under Code Section 415(d)(1), but without
regard to any adjustment under Code Section 415(c)(6)(A).
An Employee shall be deemed a member of the "top-paid group" of employees for a
given Plan Year if such Employee is in the group of the top 20% of the employees
of the Employer when ranked on the basis of compensation.
8.4 Dividends.
---------
Dividends paid with respect to Employer Securities credited to a
Participant's Employee Stock Ownership account as of the record date for the
dividend payment may be paid in cash to the Participants, pursuant to the
directions of the Board of Directors of the Sponsor. If the Board of Directors
shall direct that the aforesaid dividends shall be paid directly to
Participants, the dividends paid with respect to such Employer Securities shall
be paid to the Plan, from which dividend distributions in cash shall be made to
the Participants with respect to the Employer
26
<PAGE>
Securities in their Employee Stock Ownership Accounts within 90 days of the
close of the Plan Year in which the dividends were paid. Dividends on Employer
Securities obtained pursuant to an Exempt Loan and still held in the Suspense
Account may be used to make payments on an Exempt Loan, as described in Section
8.5.
8.5 Exempt Loans.
------------
(a) The Sponsor may direct the Trustee to obtain Exempt Loans. The
Exempt Loan may take the form of (i) a loan from a bank or other commercial
lender to purchase Employer Securities (ii) a loan from the Employer to the
Plan; or (iii) an installment sale of Employer Securities to the Plan. The
proceeds of any such Exempt Loan shall be used, within a reasonable time after
the Exempt Loan is obtained, only to purchase Employer Securities, repay the
Exempt Loan, or repay any prior Exempt Loan. Any such Exempt Loan shall provide
for no more than a reasonable rate of interest and shall be without recourse
against the Plan. The number of years to maturity under the Exempt Loan must be
definitely ascertainable at all times. The only assets of the Plan that may be
given as collateral for an Exempt Loan are Employer Securities acquired with the
proceeds of the Exempt Loan and Employer Securities that were used as collateral
for a prior Exempt Loan repaid with the proceeds of the current Exempt Loan.
Such Employer Securities so pledged shall be placed in an Exempt Loan Suspense
Account. No person or institution entitled to payment under an Exempt Loan shall
have recourse against Trust assets other than the aforesaid collateral, Employer
Stock Ownership contributions (other than contributions of Employer Securities)
that are available under the Plan to meet obligations under the Exempt Loan and
earnings attributable to such collateral and the investment of such
contributions. All Employee Stock Ownership contributions paid during the Plan
Year in which an Exempt Loan is made (whether before or after the date the
proceeds of the Exempt Loan are received), all Employee Stock Ownership
contributions paid thereafter until the Exempt Loan has been repaid in full, and
all earnings from investment of such Employee Stock Ownership contributions,
without regard to whether any such Employee Stock Ownership contributions and
earnings have been allocated to Participants' Employee Stock Ownership Accounts,
shall be available to meet obligations under the Exempt Loan as such obligations
accrue, or prior to the time such obligations accrue, unless otherwise provided
by the Employer at the time any such contribution is made. Any pledge of
Employer Securities shall provide for the release of shares so pledged upon the
payment of any portion of the Exempt Loan.
(b) For each Plan Year during the duration of the Exempt Loan, the
number of shares of Employer Securities released from such pledge shall equal
the number of encumbered shares held immediately before release for the current
Plan Year multiplied by a fraction. The numerator of the fraction is the sum of
principal and interest paid in such Plan Year. The denominator of the fraction
is the sum of the numerator plus the principal and interest to be paid for all
future years. Such years will be determined without taking into account any
possible extension or renewal periods. If interest on any Exempt Loan is
variable, the interest to be paid in future years under the Exempt Loan shall be
computed by using the interest rate applicable as of the end of the Plan Year.
27
<PAGE>
(c) Notwithstanding the foregoing, the Trustee may obtain an Exempt
Loan pursuant to the terms of which the number of Employer Securities to be
released from encumbrance shall be determined solely with reference to principal
payments. In the event that such an Exempt Loan is obtained, annual payments of
principal and interest shall be at a cumulative rate that is not less rapid at
any time than level payments of such amounts for not more than 10 years. The
amount of interest in any such annual loan repayment shall be disregarded only
to the extent that it would be determined to be interest under standard loan
amortization tables. The requirement set forth in the preceding sentence shall
not be applicable from the time that, by reason of a renewal, extension, or
refinancing, the sum of the expired duration of the Exempt Loan, the renewal
period, the extension period, and the duration of a new Exempt Loan exceeds 10
years.
8.6 Exempt Loan Payments.
--------------------
(a) Payments of principal and interest on any Exempt Loan during a Plan
Year shall be made by the Trustee (as directed by the Administrator) only from
(1) Employee Stock Ownership contributions to the Trust made to meet the Plan's
obligation under an Exempt Loan (other than contributions of Employer
Securities) and from any earnings attributable to Employer Securities held as
collateral for an Exempt Loan and investments of such contributions (both
received during or prior to the Plan Year); (2) the proceeds of a subsequent
Exempt Loan made to repay a prior Exempt Loan; and (3) the proceeds of the sale
of any Employer Securities held as collateral for an Exempt Loan. Such
contribution and earnings shall be accounted for separately by the Plan until
the Exempt Loan is repaid.
(b) Employer Securities released by reason of the payment of principal
or interest on an Exempt Loan from amounts allocated to Participants' Employee
Stock Ownership Accounts shall immediately upon payment be allocated as set
forth in Section 5.5.
(c) The Employer shall contribute to the Trust sufficient amounts to
enable the Trust to pay principal and interest on any such Exempt Loans as they
are due, provided however that no such contribution shall exceed the limitations
in Section 5.6. In the event that such contributions by reason of the
limitations in Section 5.6 are insufficient to enable the Trust to pay principal
and interest on such Exempt Loan as it is due, then upon the Trustee's request
the Employer shall:
(1) Make an Exempt Loan to the Trust in sufficient amounts to
meet such principal and interest payments. Such new Exempt Loan shall
be subordinated to the prior Exempt Loan. Securities released from the
pledge of the prior Exempt Loan shall be pledged as collateral to
secure the new Exempt Loan. Such Employer Securities will be released
from this new pledge and allocated to the Employee Stock Ownership
Accounts of the Participants in accordance with applicable provisions
of the Plan;
(2) Purchase any Employer Securities pledged as collateral in
an amount necessary to provide the Trustee with sufficient funds to
meet the principal and interest
28
<PAGE>
repayments. Any such sale by the Plan shall meet the requirements of
Section 408(e) of the Act; or
(3) Any combination of the foregoing. However, the Employer
shall not, pursuant to the provisions of this subsection, do, fail to
do or cause to be done any act or thing which would result in a
disqualification of the Plan as an Employee Stock Ownership Plan under
the Code.
(d) Except as provided in Section 8.1 above and notwithstanding any
amendment to or termination of the Plan which causes it to cease to qualify as
an Employee Stock Ownership Plan within the meaning of Section 4975(e)(7) of the
Code, or any repayment of an Exempt Loan, no shares of Employer Securities
acquired with the proceeds of an Exempt Loan obtained by the Trust to purchase
Employer Securities may be subject to a put, call or other option, or buy-sell
or similar arrangement while such shares are held by the Plan or when such
Shares are distributed from the Plan.
8.7 Put Option.
----------
If a Participant exercises a put option (as set forth in Section 8.1)
with respect to Employer Securities that were distributed as part of a total
distribution pursuant to which a Participant's Employee Stock Ownership Account
is distributed to him in a single taxable year, the Employer or the Plan may
elect to pay the purchase price of the Employer Securities over a period not to
exceed 5 years. Such payments shall be made in substantially equal installments
not less frequently than annually over a period beginning not later than 30 days
after the exercise of the put option. Reasonable interest shall be paid to the
Participant with respect to the unpaid balance of the purchase price and
adequate security shall be provided with respect thereto. In the event that a
Participant exercises a put option with respect to Employer Securities that are
distributed as part of an installment distribution, the amount to be paid for
such securities shall be paid not later than 30 days after the exercise of the
put option.
8.8 Diversification Requirements
----------------------------
Each Participant who has completed at least 10 years of participation
in the Plan and has attained age 55 may elect within 90 days after the close of
each Plan Year during his "qualified election period" to direct the Plan as to
the investment of at least 25 percent of his Employee Stock Ownership Account
(to the extent such percentage exceeds the amount to which a prior election
under this Section 8.8 had been made). For purposes of this Section 8.8, the
term "qualified election period" shall mean the 5-Plan-Year period beginning
with the Plan Year after the Plan Year in which the Participant attains age 55
(or, if later, beginning with the Plan Year after the first Plan Year in which
the Employee first completes at least 10 years of participation in the Plan). In
the case of the Employee who has attained age 60 and completed 10 years of
participation in the prior Plan Year and in the case of the election year in
which any other Participant who has met the minimum age and service requirements
for diversification can make his last election hereunder, he shall be entitled
to direct the Plan as to the investment of at least
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<PAGE>
50 percent of his Employee Stock Ownership Account (to the extent such
percentage exceeds the amount to which a prior election under this Section 8.8
had been made). The Plan shall make available at least 3 investment options (not
inconsistent with regulations prescribed by the Department of Treasury) to each
Participant making an election hereunder. The Plan shall be deemed to have met
the requirements of this Section if the portion of the Participant's Employee
Stock Ownership Account covered by the election hereunder is distributed to the
Participant or his designated Beneficiary within 90 days after the period during
which the election may be made. In the absence of such a distribution, the
Trustee shall implement the Participant's election within 90 days following the
expiration of the qualified election period.
8.9 Independent Appraiser.
---------------------
An independent appraiser meeting the requirements of Code 170(a)(1)
shall value the Employer Securities in those Plan Years when such securities are
not readily tradable on an established securities market.
30
<PAGE>
ARTICLE IX
PAYMENTS AND DISTRIBUTIONS
--------------------------
9.1 Payments on Termination of Service - In General.
-----------------------------------------------
All benefits provided under this Plan shall be funded by the value of a
Participant's vested interest in the Fund. As soon as practicable after a
Participant's Retirement, death or termination of Service, the Administrator
shall ascertain the value of his vested interest in the Fund, as provided in
Article V, and the Administrator shall hold or dispose of the same in accordance
with the following provisions of this Article IX.
9.2 Commencement of Payments.
------------------------
(a) Distributions Upon Retirement or Death. Upon a Participant's
Retirement or Death, payment of benefits under this Plan shall, unless the
Participant otherwise elects (in accordance with Section 9.3), commence no later
than 6 months after the close of the Plan Year in which occurs the date of the
Participant's Retirement or death.
(b) Distribution Following Termination of Service. Unless a Participant
elects otherwise, if a Participant terminates Service prior to Retirement or
death, he shall be accorded an opportunity to commence receipt of distributions
from his Accounts within six (6) months after the Valuation Date next following
the date of his termination of service. A Participant who terminates Service
with a deferred vested benefit shall be entitled to receive from the
Administrator a statement of his benefits. In the event that a Participant
elects not to commence receipt of distributions from his Accounts in accordance
with this Section 9.2(b), after the Participant incurs a Break, the
Administrator shall transfer his deferred vested interest to a distribution
account. If a Participant's vested Employer Account does not exceed (or at the
time of any prior distribution did not exceed) $3,500, the Plan Administrator
may distribute the vested portion of his Employer Account as soon as
administratively feasible without the consent of the Participant or his spouse.
(c) Distribution of Accounts Greater Than $3,500. If the value of a
Participant's vested Account balance exceeds (or at the time of any prior
distribution exceeded) $3,500, and the Account balance is immediately
distributable, the Participant must consent to any distribution of such Account
balance. The Plan Administrator shall notify the Participant of the right to
defer any distribution until the Participant's Account balance is no longer
immediately distributable. The consent of the Participant shall not be required
to the extent that a distribution is required to satisfy Code ss.401(a)(9) or
Code ss.415.
9.3 Mandatory Commencement of Benefits.
----------------------------------
(a) Unless a Participant elects otherwise, in writing, distribution of
benefits will begin no later than the 60th day after the latest of the close of
the Plan Year in which (i) the Participant
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<PAGE>
attains age 65, (ii) occurs the tenth anniversary of the year in which the
Participant commenced participation in the Plan Year, or (iii) the Participant
terminates Service with the Employer.
(b) In the event that the Plan shall be subsequently amended to provide
for a form of distribution other than a lump sum, as of the first distribution
calendar year, distributions, if not made in a lump sum, may be made only over
one of the following periods (or a combination thereof):
(i) the life of the Participant,
(ii) the life of the Participant and the designated beneficiary,
(iii) a period certain not extending beyond the life expectancy of
the Participant, or
(iv) a period certain not extending beyond the joint and last
survivor expectancy of the Participant and a designated
beneficiary.
(c) In the event that the Plan shall be subsequently amended to provide
for a form of distribution other than a lump sum, if the Participant's interest
is to be distributed in other than a lump sum, the following minimum
distribution rules shall apply on or after the required beginning date:
(i) If a Participant's benefit is to be distributed over (1) a
period not extending beyond the life expectancy of the Participant or the joint
life and last survivor expectancy of the Participant and the Participant's
designated beneficiary or (2) a period not extending beyond the life expectancy
of the designated beneficiary, the amount required to be distributed for each
calendar year, beginning with distributions for the first distribution calendar
year, must at least equal the quotient obtained by dividing the Participant's
benefit by the applicable life expectancy.
(ii) For calendar years beginning after December 31, 1988, the
amount to be distributed each year, beginning with distributions for the first
distribution calendar year, shall not be less than the quotient obtained by
dividing the Participant's benefit by the lesser of (1) the applicable life
expectancy or (2) if the Participant's spouse is not the designated beneficiary,
the applicable divisor determined from the table set forth in Q&A-4 of section
1.401(a)(9)-2 of the Proposed Regulations. Distributions after the death of the
participant shall be distributed using the applicable life expectancy in
sub-section (b) (iii) above as the relevant divisor without regard to Proposed
Regulations 1.401(a)(9)-2.
(iii) The minimum distribution required for the Participant's
first distribution calendar year must be made on or before the Participant's
required beginning date as defined in Section 9.4. The minimum distribution for
other calendar years, including the minimum distribution for the distribution
calendar year in which the employee's required beginning date occurs, must be
made on or before December 31 of the distribution calendar year.
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<PAGE>
(d) If a Participant dies after a distribution has commenced in
accordance with Section 8.3(b) but before his entire interest has been
distributed to him, the remaining portion of such interest shall be distributed
to his Beneficiary at least as rapidly as under the method of distribution in
effect as of the date of his death.
(e) If a Participant shall die before the distribution of his interest in
the Plan has begun, the entire interest of the Participant shall be distributed
by December 31 of the calendar year containing the fifth anniversary of the
death of the Participant, except in the following events:
(i) If any portion of the Participant's interest is payable to
(or for the benefit of) a designated beneficiary over a period not extending
beyond the life expectancy of such beneficiary and such distributions begin not
later than December 31 of the calendar year immediately following the calendar
year in which the Participant died.
(ii) If any portion of the Participant's interest is payable
to (or for the benefit of) the Participant's spouse over a period not extending
beyond the life expectancy of such spouse and such distributions begin no later
than December 31 of the calendar year in which the Participant would have
attained age 70-1/2.
If the Participant has not made a distribution election by the time of
his death, the Participant's designated beneficiary shall elect the method of
distribution no later than the earlier of (1) December 31 of the calendar year
in which distributions would be required to begin under this Article or (2)
December 31 of the calendar year which contains the fifth anniversary of the
date of death of the Participant. If the Participant has no designated
beneficiary, or if the designated beneficiary does not elect a method of
distribution, distribution of the Participant's entire interest shall be
completed by December 31 of the calendar year containing the fifth anniversary
of the Participant's death.
(f) For purposes of this Article, the life expectancy of a Participant
and his spouse may be redetermined but not more frequently than annually. The
life expectancy (or joint and last survivor expectancy) shall be calculated
using the attained age of the Participant (or designated beneficiary) as of the
Participant's (or designated beneficiary's) birthday in the applicable calendar
year reduced by one for each calendar year which has elapsed since the date life
expectancy was first calculated. If life expectancy is being recalculated, the
applicable life expectancy shall be the life expectancy as so recalculated. The
applicable calendar year shall be the first distribution calendar year, and if
life expectancy is being recalculated, such succeeding calendar year. Unless
otherwise elected by the Participant (or his spouse, if applicable) by the time
distributions are required to begin, life expectancies shall be recalculated
annually. Any such election not to recalculate shall be irrevocable and shall
apply to all subsequent years. The life expectancy of a nonspouse beneficiary
may not be recalculated.
(g) For purposes of Sections 9.3(b) and 9.3(e), any amount paid to a
child shall be treated as if it had been paid to a surviving spouse if such
amount will become payable to the
33
<PAGE>
surviving spouse upon such child reaching majority (or other designated event
permitted under regulations).
(h) For distributions beginning before the Participant's death, the first
distribution calendar year is the calendar year immediately preceding the
calendar year which contains the Participant's required beginning date. For
distributions beginning after the Participant's death, the first distribution
calendar year is the calendar year in which distributions are required to begin
pursuant to this Article.
9.4 Required Beginning Dates.
(a) General Rule. The required beginning date of a Participant is the
first day of April of the calendar year following the calendar year in which the
Participant attains age 70- 1/2.
(b) Transitional Rules. The required beginning date of a Participant who
attains age 70-1/2 before January 1, 1988, shall be determined in accordance
with (1) or (2) below:
(1) Non-5-percent owners. The required beginning date of a
Participant who is not a 5-percent owner is the first day of April of the
calendar year following the calendar year in which the later of retirement or
attainment or age 70-1/2 occurs,
(2) 5-percent owners. The required beginning date of a
Participant who is a 5-percent owner during any year beginning after December
31, 1989, is the first day of April following the later of:
(i) the calendar year in which the Participant attains age
70-1/2, or
(ii) the earlier of the calendar year with or within which
ends the Plan Year in which the Participant becomes a 5 percent owner, or the
calendar year in which the Participant retires.
The required beginning date of a Participant who is not a 5-percent owner
who attains age 70-1/2 during 1988 and who has not retired as of January 1, 1989
is April 1, 1990.
(c) 5-percent owner. A Participant is treated as a 5 percent owner for
purposes of this section if such Participant is a 5-percent owner as defined in
section 416(i) of the Code (determined in accordance with Section 416 but
without regard to whether the plan is top-heavy) at any time during the Plan
Year ending with or within the calendar year in which such owner attains age
66-1/2 or any subsequent Plan Year. Once distributions have begun to a 5-percent
owner under this section, they must continue to be distributed, even if the
Participant ceases to be a 5-percent owner in a subsequent year.
34
<PAGE>
9.5 Form of Payment.
---------------
Each Participant's vested interest shall be distributed in a lump sum
payment. Notwithstanding the preceding sentence, but subject to Section 9.3, the
Administrator may not distribute a lump sum when the present value of a
Participant's total Account balances is in excess of $3,500 without the
Participant's consent. This form of payment shall be the normal form of
distribution. Furthermore, however, in the event that the Administrator must
commence distributions with respect to an Employee who has attained age 70-1/2
and is still employed by the Employer, if the Employee does not elect a lump sum
distribution, payments shall be made in installments in such amounts as shall
satisfy the minimum distribution rules of Section 9.3.
9.6 Payments Upon Termination of Plan.
---------------------------------
Upon termination of this Plan pursuant to Sections 13.2, 13.4, 13.5 or
13.6, the Administrator shall continue to perform its duties and the Trustee
shall make all payments upon the following terms, conditions and provisions: All
interests of Participants shall immediately become fully vested; the value of
the interests of all Participants shall be determined within 60 days after such
termination, and the Administrator shall have the same powers to direct the
Trustee in making payments as contained in Sections 9.1 and 13.5.
9.7 Distributions Pursuant to Qualified Domestic Relations Orders.
-------------------------------------------------------------
Upon receipt of a domestic relations order, the Administrator shall
notify promptly the Participant and any alternate payee of receipt of the order
and the Plan's procedure for determining whether the order is a Qualified
Domestic Relations Order. While the issue of whether a domestic relations order
is a Qualified Domestic Relations Order is being determined, if the benefits
would otherwise be paid, the Administrator shall segregate in a separate account
in the Plan the amounts that would be payable to the alternate payee during such
period if the order were a Qualified Domestic Relations Order. If within 18
months the order is determined to be a Qualified Domestic Relations Order, the
amounts so segregated, along with the interest or investment earnings
attributable thereto shall be paid to the alternate payee. Alternatively, if
within 18 months, it is determined that the order is not a Qualified Domestic
Relations Order or if the issue is still unresolved, the amounts segregated
under this Section 9.6, with the earnings attributable thereto, shall be paid to
the Participant or Beneficiary who would have been entitled to such amounts if
there had been no order. The determination as to whether the order is qualified
shall be applied prospectively. Thus, if the Administrator determines that the
order is a Qualified Domestic Relations Order after the 18-month period, the
Plan shall not be liable for payments to the alternative payee for the period
before the order is determined to be a Qualified Domestic Relations Order.
9.8 Cash-Out Distributions
----------------------
If a Participant receives a distribution of the entire present value of
his vested Account balances under this Plan because of the termination of his
participation in the Plan, the Plan shall
35
<PAGE>
disregard a Participant's Service with respect to which such cash-out
distribution shall have been made, in computing his accrued benefit under the
Plan in the event that a Former Participant shall again become an Employee and
become eligible to participate in the Plan. Such a distribution shall be deemed
to be made on termination of participation in the Plan if it is made not later
than the close of the second Plan Year following the Plan Year in which such
termination occurs. The forfeitable portion of a Participant's accrued benefit
shall be restored upon repayment to the Plan by such former Participant of the
full amount of the cash-out distribution, provided that the former Participant
again becomes an Employee. Such repayment must be made by the Employee not later
than the end of the 5-year period beginning with the date of the distribution.
Forfeitures required to be restored by virtue of such repayment shall be
restored from the following sources in the following order of preference: U)
current forfeitures; (ii) additional employee stock ownership contributions, as
appropriate and as subject to Section 5.6; and (iii) investment earnings of the
Fund. In the event that a Participant's interest in the Plan is totally
forfeitable, a Participant shall be deemed to have received a distribution of
zero upon his termination of Service. In the event of a return to Service within
5 years of the date of his deemed distribution, the Participant shall be deemed
to have repaid his distribution in accordance with the rules of this Section
9.8.
9.9 ESOP Distribution Rules.
-----------------------
Notwithstanding any provision of this Article IX to the contrary, the
distribution of a Participant's Employee Stock Ownership Account (unless the
Participant elects otherwise in writing) shall commence as soon as
administratively feasible as of the first Valuation Date coincident with or next
following his death, disability or termination of Service, but not later than 1
year after the close of the Plan Year in which the Participant separates from
Service by reason of the attainment of his Normal Retirement Date, disability,
death or separation from Service. In addition, all distributions hereunder
shall, to the extent that the Participant's Account is invested in Employer
Securities, be made in the form of Employer Securities. Fractional shares,
however, may be distributed in the form of cash.
9.10 Withholding.
-----------
(a) Notwithstanding any provision of the Plan to the contrary that would
otherwise limit a distributee's election under this Article IX, a distributee
may elect, at the time and in the manner prescribed by the Plan Administrator,
to have any portion of an "eligible rollover distribution" paid directly to an
"eligible retirement plan" specified by the distributee in a "direct rollover."
(b) For purposes of this Section 9.10, an "eligible rollover
distribution" is any distribution of all or any portion of the balance to the
credit of the distributee, except that an "eligible rollover distribution" does
not include: any distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made for the life (or life
expectancy) of the distributee or the joint lives (or joint life expectancies)
of the distributee and the distributee's designated beneficiary, or for a
specified period of ten years or more; any
36
<PAGE>
distribution to the extent such distribution is required under section 401(a)(9)
of the Code; and the portion of any distribution that is not includible in gross
income (determined without regard to the exclusion for net unrealized
appreciation with respect to Employer Securities).
(c) For purposes of this Section 9.10, an "eligible retirement plan" is
an individual retirement account described in section 408(a) of the Code, an
individual retirement annuity described in section 408(b) of the Code, an
annuity plan described in section 403(a) of the Code, or a qualified trust
described in section 401(a) of the Code, that accepts the distributee's eligible
rollover distribution. However, in the case of an "eligible rollover
distribution" to the surviving spouse, an "eligible retirement plan" is an
individual retirement account or individual retirement annuity.
(d) For purposes of this Section 9.10, a distributee includes a
Participant or former Participant. In addition, the Participant's or former
Participant's surviving spouse and the Participant's or former Participant's
spouse or former spouse who is the alternate payee under a Qualified Domestic
Relations Order are "distributees" with regard to the interest of the spouse or
former spouse.
(e) For purposes of this Section 9.10, a "direct rollover" is a payment
by the Plan to the "eligible retirement plan" specified by the distributee.
9.11 Waiver of 30-day Notice.
-----------------------
If a distribution is one to which Sections 401(a)(11) and 417 of the Code
do not apply, such distribution may commence less than 30 days after the notice
required under section 1. 411(a)- 11(c) of the Income Tax Regulations is given,
provided that: (1) the Plan Administrator clearly informs the Participant that
the Participant has a right to a period of at least 30 days after receiving the
notice to consider the decision of whether or not to elect a distribution (and,
if applicable, a particular distribution option), and (2) the Participant, after
receiving the notice, affirmatively elects a distribution.
37
<PAGE>
ARTICLE X
PROVISIONS RELATING TO TOP-HEAVY PLANS
--------------------------------------
10.1 Top-Heavy Rules to Control.
--------------------------
Anything contained in this Plan to the contrary notwithstanding, if for
any Plan Year the Plan is a top-heavy plan, as determined pursuant to Section
416 of the Code, then the Plan must meet the requirements of this Article X for
such Plan Year.
10.2 Top-Heavy Plan Definitions.
--------------------------
Unless a different meaning is plainly implied by the context, the
following terms as used in this Article X shall have the following meanings:
(a) "Accrued Benefit" shall mean the account balances or accrued benefits
of an Employee, calculated pursuant to Section 10.3.
(b) "Determination of Date" shall mean, with respect to any particular
Plan Year of this Plan, the last day of the preceding Plan Year (or, in the case
of the first Plan Year of the Plan, the last day of the first Plan Year). In
addition, the term "Determination Date" shall mean, with respect to any
particular plan year of any plan (other than this Plan) in a Required
Aggregation Group or a Permissive Aggregation Group, the last day of the plan
year of such plan which falls within the same calendar year as the Determination
Date for this Plan.
(c) "Employer" shall mean the Employer (as defined in Section 1.1(q)) and
any entity which is (1) a member of a controlled group including such Employer,
while it is a member of such controlled group (within the meaning of Section
414(b) of the Code), (2) in a group of trades or businesses under common control
with such Employer, while it is under common control (within the meaning of
Section 414(c) of the Code), and (3) a member of an affiliated service group
including such Employer, while it is a member of such affiliated service group
(within the meaning of Section 414(m) of the Code).
(d) "Key Employee" shall mean any Employee or former Employee (or any
Beneficiary of such Employee or former Employee, as the case may be) who, at any
time during the Plan Year or during the 4 immediately preceding Plan Years is
one of the following:
(1) An officer of the Employer who has compensation greater
than 50% of the amount in effect under Section 415(b)(1)(A) of the Code
for the Plan Year; provided, however, that no more than 50 Employees (or,
if lesser, the greater of 3 or 10% of the Employees) shall be deemed
officers;
(2) One of the 10 Employees having annual compensation (as
defined in Section 415 of the Code) in excess of the limitation in effect
under Section 415(c)(1)(A) of the Code,
38
<PAGE>
and owning (or considered as owning, within the meaning of Section 318 of
the Code) the largest interests in the Employer;
(3) Any Employee owning (or considered as owning, within the
meaning of Section 318 of the Code) more than 5% of the outstanding stock
of the Employer or stock possessing more than 5% of the total combined
voting power of all stock of the Employer; or
(4) Any Employee having annual compensation (as defined in
Section 415 of the Code) of more than $150,000 and who would be described
in Section 10.2(d)(3) if "1%" were substituted for 5% wherever the latter
percentage appears.
For purposes of applying Section 318 of the Code to the provisions of
this Section 10.2(d), Section 318(a)(2)(C) of the Code shall be applied by
substituting "5%" for "50%" wherever the latter percentage appears. In addition,
for purposes of this Section 10.2(d), the provisions of Section 414(b), (c) and
(m) of the Code shall not apply in determining ownership interests in the
Employer. However, for purposes of determining whether an individual has
compensation in excess of $150,000, or whether an individual is a Key Employee
under Section 10.2(d)(1) and (2), compensation from each entity required to be
aggregated under Sections 414(b), (c) and (m) of the Code shall be taken into
account. Notwithstanding anything contained herein to the contrary, all
determinations as to whether a person is or is not a Key Employee shall be
resolved by reference to Section 416 of the Code and any rules and regulations
promulgated thereunder.
(e) "Non-Key Employee" shall mean any Employee or former Employee (or any
Beneficiary of such Employee or former Employee, as the case may be) who is not
considered to be a Key Employee with respect to this Plan.
(f) "Permissive Aggregation Group" shall mean all plans in the Required
Aggregation Group and any other plans maintained by the Employer which satisfy
Sections 401(a)(4) and 410 of the Code when considered together with the
Required Aggregation Group.
(g) "Required Aggregation Group" shall mean each plan (including any
terminated plan) of the Employer in which a Key Employee is (or in the case of a
terminated plan, had been) a Participant in the Plan Year containing the
Determination Date or any of the 4 preceding Plan Years, and each other plan of
the Employer which enables any plan of the Employer in which a Key Employee is a
Participant to meet the requirement of Sections 401(a)(4) and 410 of the Code.
10.3 Calculation of Accrued Benefits.
-------------------------------
(a) An Employee's Accrued Benefit shall be equal to:
(1) with respect to this Plan or any other defined
contribution plan (other than a defined contribution pension plan) in a
Required Aggregation Group or a Permissive Aggregation Group, the
Employee's account balances under the respective plan, determined
39
<PAGE>
as of the most recent plan valuation date within a 12-month period ending
on the Determination Date, including contributions actually made after
the valuation date but before the Determination Date (and, in the first
plan year of a plan, also including any contributions made after the
Determination Date which are allocated as of a date in the first plan
year).
(2) With respect to any defined contribution pension plan in a
Required Aggregation Group or a Permissive Aggregation Group, the
Employee's account balances under the plan, determined as of the most
recent plan valuation date within a 12-month period ending on the
Determination Date, including contributions which have not actually been
made, but which are due to be made as of the Determination Date.
(3) With respect to any defined benefit plan in a Required
Aggregation Group or a Permissive Aggregation Group, the present value of
the Employee's accrued benefits under the plan, determined as of the most
recent plan valuation date within a 12-month period ending on the
Determination Date, pursuant to the actuarial assumptions used by such
plan,and calculated as if the Employee terminated Service under such plan
as of the valuation date (except that, in the first plan year of a plan,
a current Participant's estimated Accrued Benefit as of the Determination
Date shall be taken into account).
(4) If any individual has not performed services for the
Employer maintaining the Plan at any time during the 5-year period ending
on the Determination Date, any Accrued Benefit for such individual shall
not be taken into account.
(b) The Accrued Benefit of any Employee shall be further adjusted as
follows:
(1) The Accrued Benefit shall be calculated to include all amounts
attributable to both Employer and Employee contributions, but shall exclude
amounts attributable to voluntary deductible Employee contributions, if any.
(2) The Accrued Benefit shall be increased by the aggregate distributions
made with respect to an Employee under the plan or plans, as the case may be,
during the 5 year period ending on the Determination Date.
(3) Rollover and direct plan-to-plan transfers shall be taken into
account as follows:
(A) If the transfer is initiated by the Employee and made from
a plan maintained by one employer to a plan maintained by another
unrelated employer, the transferring plan shall continue to count the
amount transferred; the receiving plan shall not count the amount
transferred.
(B) If the transfer is not initiated by the Employee or is
made between plans maintained by related employers, the transferring plan
shall no longer count the amount transferred; the receiving plan shall
count the amount transferred.
40
<PAGE>
(c) If any individual has not performed services for the Employer at any
time during the 5-year period ending on the Determination Date, any accrued
benefit for such individual (and the account of such individual) shall not be
taken into account.
10.4 Determination of Top-Heavy Status.
---------------------------------
This Plan shall be considered to be a top-heavy plan for any Plan Year
if, as of the Determination Date, the value of the Accrued Benefits of Key
Employees exceeds 60% of the value of the Accrued Benefits of all eligible
Employees under the Plan. Notwithstanding the foregoing, if the Employer
maintains any other qualified plan, the determination of whether this Plan is
top-heavy shall be made after aggregating all other plans of the Employer in the
Required Aggregation Group and, if desired by the Employer as a means of
avoiding top-heavy status, after aggregating any other plan of the Employer in
the Permissive Aggregation Group. If the required Aggregation Group is
top-heavy, then each plan contained in such group shall be deemed to be
top-heavy, notwithstanding that any particular plan in such group would not
otherwise be deemed to be top-heavy. Conversely, if the Permissive Aggregation
Group is not top-heavy, then no plan contained in such group shall be deemed to
be top-heavy, notwithstanding that any particular plan in such group would
otherwise be deemed to be top-heavy. In no event shall a plan included in a
top-heavy Permissive Aggregation Group be deemed a top-heavy plan unless such
plan is also included in a top-heavy Required Aggregation Group.
10.5 Determination of Super Top-Heavy Status.
---------------------------------------
The Plan shall be considered to be a super top-heavy plan if, as of the
Determination Date, the Plan would meet the test specified in Section 10.4 above
for classification as a top-heavy plan, except that "90%" shall be substituted
for "60%" whenever the latter percentage appears.
10.6 Minimum Contribution.
--------------------
(a) For any year in which the Plan is top-heavy, each Non-Key Employee
who has met the age and service requirements, if any, contained in the Plan,
shall be entitled to a minimum contribution (which may include forfeitures
otherwise allocable) equal to a percentage of such Non-Key Employee's
compensation (as defined in Section 415 of the Code) as follows:
(1) If the Non-Key Employee is not covered by a defined
benefit plan maintained by the Employer, then the minimum contribution
under this Plan shall be 3% of such Non-Key Employee's compensation.
(2) If the Non-Key Employee is covered by a defined benefit
plan maintained by the Employer, then the minimum contribution under this
Plan shall be 5% of such Non-Key Employee's compensation.
(b) Notwithstanding the foregoing, the minimum contribution otherwise
allocable to a Non-Key Employee under this Plan shall be reduced in the
following circumstances:
41
<PAGE>
(1) The percentage minimum contribution required under this
Plan shall in no event exceed the percentage contribution made
for the Key Employee for whom such percentage is the highest
for the Plan Year after taking into account contributions
under other defined contribution plans in this Plan's Required
Aggregation Group; provided, however, that this Section
10.7(b) (1) shall not apply if this Plan is included in a
Required Aggregation Group and this Plan enables a defined
benefit plan in such Required Aggregation Group to meet the
requirements of Section 401(a)(4) or 410 of the Code.
(2) No minimum contribution shall be required (or the minimum
contribution shall be reduced, as the case may be) for a
Non-Key Employee under this Plan for any Plan Year if the
Employer maintains another qualified plan under which a
minimum benefit or contribution is being accrued or made on
account of such Plan Year, in whole or in part, on behalf of
the Non-Key Employee, in accordance with Section 416(c) of the
Code.
(c) For purposes of this Section 10.6, there shall be disregarded (1) any
Employer contributions attributable to a salary reduction or similar
arrangement, or (2) any Employer contributions to or any benefits under Chapter
21 of the Code (relating to the Federal Insurance Contributions Act), Title II
of the Social Security Act, or any other federal or state law.
(d) For purposes of this Section 10.6, minimum contributions shall be
required to be made on behalf of only those Non-Key Employees, as described in
Section 10.7(a), who have not terminated Service as of the last day of the Plan
Year. If a Non-Key Employee is otherwise entitled to receive a minimum
contribution pursuant to this Section 10.6(d), the fact that such Non-Key
Employee failed to complete 1,000 Hours of Service or failed to make any
mandatory or elective contributions under this Plan, if any are so required,
shall not preclude him from receiving such minimum contribution.
10.7 Vesting.
-------
(a) For any Plan Year in which the Plan is a top-heavy plan, a
Participant's Employer Account shall vest according to the following schedule:
Years of Service Completed Percentage Vested
-------------------------- -----------------
Less than 1 0%
1 but less than 2 20%
2 but less than 3 40%
3 but less than 4 60%
4 but less than 5 80%
5 or more 100%
42
<PAGE>
(b) For purposes of Section 10.7(a), the term "year of service" shall
have the same meaning as set forth in Section 1.1(kk), as modified by Section
3.2
(c) If for any Plan Year the Plan becomes top-heavy and the vesting
schedule set forth in Section 10.7(a) becomes effective, then, even if the Plan
ceases to be top-heavy in any subsequent Plan Year, the vesting schedule set
forth in Section 10.7(a) shall remain applicable with respect to any Participant
who has completed 3 Years of Service.
10.8 Maximum Benefit Limitation.
--------------------------
For any Plan Year in which the Plan is a top-heavy plan, Section
5.6(d)(1)(B)(i) and Section 5.6(d)(2)(B)(i) shall be read by substituting "1.0"
for "1.25", wherever the latter figure appears; provided, however, that such
substitution shall not have the effect of reducing any benefit accrued under a
defined benefit plan prior to the first day of the plan year in which this
Section becomes applicable.
43
<PAGE>
ARTICLE XI
ADMINISTRATION
--------------
11.1 Appointment of Administrator.
----------------------------
This Plan shall be administered by a committee consisting of up to 5
persons, whether or not Employees or Participants, who shall be appointed from
time to time by the Board of Directors to serve at its pleasure. The Sponsor may
require that each person appointed as an Administrator shall signify his
acceptance by filing an acceptance with the Sponsor. The term "Administrator" as
used in this Plan shall refer to the members of the committee, either
individually or collectively, as appropriate. In the event that the Sponsor
shall elect not to appoint any individuals to constitute a committee to
administer the Plan, the Sponsor shall serve as the Administrator hereunder.
11.2 Resignation or Removal of Administrator.
---------------------------------------
An Administrator shall have the right to resign at any time by giving
notice in writing, mailed or delivered to the Employer and to the Trustee. Any
Administrator who was an employee of the Employer at the time of his appointment
shall be deemed to have resigned as an Administrator upon his termination of
Service. The Board of Directors may, in its discretion, remove any Administrator
with or without cause, by giving notice in writing, mailed or delivered to the
Administrator and to the Trustee.
11.3 Appointment of Successors: Terms of Office. Etc.
-----------------------------------------------
Upon the death, resignation or removal of an Administrator, the Employer
may appoint, by Board of Directors' resolution, a successor or successors.
Notice of termination of an Administrator and notice of appointment of a
successor shall be made by the Employer in writing, with copies mailed or
delivered to the Trustee, and the successor shall have all the rights and
privileges and all of the duties and obligations of the predecessor.
11.4 Powers and Duties of Administrator.
----------------------------------
The Administrator shall have the following duties and responsibilities in
connection with the administration of this Plan:
(a) To promulgate and enforce such rules, regulations and procedures as
shall be proper for the efficient administration of the Plan, such rules,
regulations and procedures to apply uniformly to all Employees, Participants and
Beneficiaries;
(b) To determine all questions arising in the administration,
interpretation and application of the Plan, including questions of eligibility
and of the status and rights of Participants, Beneficiaries and any other
persons hereunder;
44
<PAGE>
(c) To decide any dispute arising hereunder strictly in accordance with
the terms of the Plan; provided, however, that no Administrator shall
participate in any matter involving any questions relating solely to his own
participation or benefits under this Plan;
(d) To advise the Employer and the Trustee regarding the known future
needs for funds to be available for distribution in order that the Trustee may
establish investments accordingly;
(e) To correct defects, supply omissions and reconcile inconsistencies to
the extent necessary to effectuate the Plan;
(f) To advise the Employer of the maximum deductible contribution to the
Plan for each fiscal year;
(g) To direct the Trustee concerning all payments which shall be made out
of the Fund pursuant to the provisions of this Plan;
(h) To advise the Trustee on all terminations of Service by Participants,
unless the Employer has so notified the Trustee;
(i) To confer with the Trustee on the settling of any claims against the
Fund;
(j) To make recommendations to the Board of Directors with respect to
proposed amendments to the Plan and the Trust Agreement;
(k) To file all reports with government agencies, Employees and other
parties as may be required by law, whether such reports are initially the
obligation of the Employer, the Plan or the Trustee; and
(l) To have all such other powers as may be necessary to discharge its
duties hereunder.
Reasonable discretion is granted to the Administrator to affect the
benefits, rights and privileges of Participants, Beneficiaries or other persons
affected by this Plan. The Administrator shall exercise reasonable discretion
under the terms of this Plan and shall administer the Plan strictly in
accordance with its terms, such discretion to be exercised uniformly so that all
persons similarly situated shall be similarly treated.
11.5 Action by Administrator.
-----------------------
The Administrator may elect a Chairman and Secretary from among its
members and may adopt rules for the conduct of its business. A majority of the
members then serving shall constitute a quorum for the transaction of business.
All resolutions or other action taken by the Administrator shall be by vote of a
majority of those present at such meeting and entitled to vote. Resolutions may
be adopted or other action taken without a meeting upon written consent signed
45
<PAGE>
by at least a majority of the members. All documents, instruments, orders,
requests, directions, instructions and other papers shall be executed on behalf
of the Administrator by either the Chairman or the Secretary of the
Administrator, if any, or by any member or agent of the Administrator duly
authorized to act on the Administrator's behalf.
11.6 Participation by Administrators.
-------------------------------
No Administrator shall be precluded from becoming a Participant in the
Plan if he would be otherwise eligible, but he shall not be entitled to vote or
act upon matters or to sign any documents relating specifically to his own
participation under the Plan, except when such matters or documents relate to
benefits generally. If this disqualification results in the lack of a quorum,
then the Board of Directors shall appoint a sufficient number of temporary
Administrators who shall serve for the sole purpose of determining such a
question.
11.7 Agents.
------
The Administrator may employ agents and provide for such clerical, legal,
actuarial, accounting, medical, advisory or other services as it deems necessary
to perform its duties under this Plan. The cost of such services and all other
expenses incurred by the Administrator in connection with the administration of
the Plan shall be paid from the Fund, unless paid by the Employer.
11.8 Allocation of Duties.
--------------------
The duties, powers and responsibilities reserved to the Administrator may
be allocated among its members so long as such allocation is pursuant to written
procedures adopted by the Administrator, in which case, except as may be
required by the Act, no Administrator shall have any liability, with respect to
any duties, powers or responsibilities not allocated to him, for the acts of
omissions of any other Administrator.
11.9 Delegation of Duties.
--------------------
The Administrator may delegate any of its duties to other employees of
the Employer, to the Trustee with its consent, or to any other person or firm,
provided that the Administrator shall prudently choose such agents and rely in
good faith on their actions.
11.10 Administrator's Action Conclusive.
---------------------------------
Any action on matters within the authority of the Administrator shall be
final and conclusive except as provided in Article XII.
46
<PAGE>
11.11 Compensation and Expenses of Administrator.
------------------------------------------
No Administrator who is receiving compensation from the Employer as a
full-time employee, as a director or agent, shall be entitled to receive any
compensation or fee for his services hereunder. Any other Administrator shall be
entitled to receive such reasonable compensation for his services as an
Administrator hereunder as may be mutually agreed upon between the Employer and
such Administrator. Any such compensation shall be paid from the Fund, unless
paid by the Employer. Each Administrator shall be entitled to reimbursement by
the Employer for any reasonable and necessary expenditures incurred in the
discharge of his duties.
11.12 Records and Reports.
-------------------
The Administrator shall maintain adequate records of its actions and
proceedings in administering this Plan and shall file all reports and take all
other actions as it deems appropriate in order to comply with the Act, the Code
and governmental regulations issued thereunder.
11.13 Reports of Fund Open to Participants.
------------------------------------
The Administrator shall keep on file, in such form as it shall deem
convenient and proper, all annual reports of the Fund received by the
Administrator from the Trustee, and a statement of each Participant's interest
in the Fund as from time to time determined. The annual reports of the Fund and
the statement of his own interest in the Fund, as well as a complete copy of the
Plan and the Trust Agreement and copies of annual reports to the Internal
Revenue Service, shall be made available by the Administrator to the Employer
for examination by each Participant during reasonable hours at the office of the
Employer, provided, however, that the statement of a Participant's interest
shall not be made available for examination by any other Participant.
11.14 Named Fiduciary.
---------------
The Administrator is the named fiduciary for purposes of the Act and
shall be the designated agent for receipt of service of process on behalf of the
Plan. It shall use ordinary care and diligence in the performance of its duties
under this Plan. Nothing in this Plan shall preclude the Employer from
indemnifying the Administrator for all actions under this Plan to the full
extent permitted under the Act, or from purchasing liability insurance to
protect it with respect to its duties under this Plan.
11.15 Information from Employer.
-------------------------
The Employer shall promptly furnish all necessary information to the
Administrator to permit it to perform its duties under this Plan. The
Administrator shall be entitled to rely upon the accuracy and completeness of
all information furnished to it by the Employer, unless it knows or should have
known that such information is erroneous.
47
<PAGE>
11.16 Reservation of Rights by Employer.
---------------------------------
Where rights are reserved in this Plan to the Employer, such rights shall
be exercised only by action of the Board of Directors, except where the Board of
Directors, by written resolution, delegates any such rights to one or more
officers of the Employer or to the Administrator. Subject to the rights reserved
to the Board of Directors acting on behalf of the Employer as set forth in this
Plan, no member of the Board of Directors shall have any duties or
responsibilities under this Plan, except to the extent he shall be acting in the
capacity of an Administrator or Trustee.
11.17 Liability and Indemnification.
-----------------------------
(a) The Administrator shall perform all duties required of it under this
Plan in a prudent manner. To the extent not prohibited by the Act, the
Administrator shall not be responsible in any way for any action or omission of
the Employer, the Trustee or any other fiduciaries in the performance of their
duties and obligations set forth in this Plan and in the Trust Agreement. To the
extent not prohibited by the Act, the Administrator shall also not be
responsible for any act or omission of any of its agents, or with respect to
reliance upon advice of its counsel (whether or not such counsel is also counsel
to the Employer or the Trustee), provided that such agents or counsel were
prudently chosen by the Administrator and that the Administrator relied in good
faith upon the action of such agent or the advice of such counsel.
(b) The Administrator shall not be relieved from responsibility or
liability for any responsibility, obligation or duty imposed upon it under this
Plan or under the Act. Except for its own gross negligence, willful misconduct
or willful breach of the terms of this Plan, the Administrator shall be
indemnified and held harmless by the Employer against liability or losses
occurring by reason of any act or omission of the Administrator to the extent
that such indemnification does not violate the Act or any other federal or state
laws.
11.18 Service as Trustee and Administrator.
------------------------------------
Nothing in this Plan shall prevent one or more Trustees from serving as
Administrator under this Plan.
48
<PAGE>
ARTICLE XII
CLAIMS PROCEDURE
----------------
12.1 Notice of Denial.
----------------
If a Participant or his Beneficiary is denied any benefits under this
Plan, either in whole or in part, the Administrator shall advise the claimant in
writing of the amount of his benefit, if any, and the specific reasons for the
denial. The Administrator shall also furnish the claimant at that time with a
written notice containing:
(a) A specific reference to pertinent Plan provisions;
(b) A description of any additional material or information
necessary for the claimant to perfect his claim, if possible,
and an explanation of why such material or information is
needed; and
(c) An explanation of the Plan's claim review procedure.
12.2 Right to Reconsideration.
------------------------
Within 60 days of receipt of the information described in 12.1 above, the
claimant shall, if he desires further review, file a written request for
reconsideration with the Administrator.
12.3 Review of Documents.
-------------------
So long as the claimant's request for review is pending (including the
60-day period described in Section 12.2 above), the claimant or his duly
authorized representative may review pertinent Plan documents and the Trust
Agreement (and any pertinent related documents) and may submit issues and
comments in writing to the Administrator.
12.4 Decision by Administrator.
-------------------------
A final and binding decision shall be made by the Administrator within 60
days of the filing by the claimant of his request for reconsideration; provided,
however, that if the Administrator feels that a hearing with the claimant or his
representative present is necessary or desirable, this period shall be extended
an additional 60 days.
12.5 Notice by Administrator.
-----------------------
The Administrator's decision shall be conveyed to the claimant in writing
and shall include specific reasons for the decision, written in a manner
calculated to be understood by the claimant, with specific references to the
pertinent Plan provisions on which the decision is based.
49
<PAGE>
ARTICLE XIII
AMENDMENTS, TERMINATION AND MERGER
----------------------------------
13.1 Amendments.
----------
The Employer reserves the right at any time and from time to time, and
retroactively if deemed necessary or appropriate by it, to the extent
permissible under law, to conform with governmental regulations or other
policies, to amend in whole or in part any or all of the provisions of this
Plan, provided that:
(a) No amendment shall make it possible for any part of the Fund to be
used f or, or diverted to, purposes other than for the exclusive benefit of
Participants or their Beneficiaries under the Trust Agreement, except to the
extent provided in Section 4.4;
(b) No amendment may, directly or indirectly, reduce the vested portion
of any Participant's interest as of the effective date of the amendment or
change the vesting schedule with respect to the future accrual of Employer
contributions for any Participants unless each Participant with 3 or more Years
of Service with the Employer is permitted to elect to have the vesting schedule
in effect before the amendment used to determine his vested benefit; and
(c) No amendment may eliminate an optional form of benefit.
(d) No amendment may increase the duties of the Trustee without
its consent.
(e) No amendment that shall change any of the following types of
provisions shall be made more than once every 6 months, other than to comport
with changes in the Code, the Act or the regulations thereunder: (i) any
provision stating the amount and price of Employer Securities to be awarded to
designated officers and directors or categories of officers and directors; (ii)
any provisions specifying the timing of awards or allocations to officers and
directors; (iii) any provision setting forth a formula that determines the
amount, price and timing of allocations or awards, using objective criteria such
as earnings of the issuer, value of the Employer Securities, Years of Service,
job classification and Compensation levels.
Amendments may be made in the form of Board of Directors' resolutions or
separate written document. Copies of all amendments shall be delivered to the
Trustee.
13.2 Consolidation, Merger or Other Transactions of Employer.
-------------------------------------------------------
Nothing in this Plan shall prevent the consolidation, merger,
reorganization or liquidation of the Employer, or prevent the sale by Employer
of any or all of its property. Any successor corporation or other entity formed
and resulting from any such transaction shall have the right to become a party
to this Plan by adopting the same by resolution and by appointing a new Trustee
as though the Trustee had resigned in accordance with the Trust Agreement, and
by executing a
50
<PAGE>
proper supplemental agreement with the Trustee. If, within 180 days from the
effective date of such transaction, such new entity does not become a party to
this Plan as above provided, this Plan shall automatically be terminated and the
Trustee shall make payments to the persons entitled thereto in accordance with
Section 9.5.
13.3 Consolidation or Merger of Trust.
--------------------------------
In the event of any merger or consolidation of the Fund with, or transfer
in whole or in part of the assets and liabilities of the Fund to, another trust
fund held under any other plan of deferred compensation maintained or to be
established for the benefit of all or some of the Participants of this Plan, the
assets of the Fund applicable to such Participants shall be transferred to the
other trust fund only if:
(a) Each Participant would receive a benefit under such successor trust
fund immediately after the merger, consolidation or transfer which is equal to
or greater than the benefit he would have been entitled to receive immediately
before the merger, consolidation or transfer (determined as if this Plan and
such transferee trust fund had then terminated);
(b) Resolutions of the Board of Directors under this Plan, or of any new
or successor employer of the affected Participants, shall authorize such
transfer of assets, and, in the case of the new or successor employer of the
affected Participants, its resolutions shall include an assumption of
liabilities with respect to such Participants, inclusion in the new employer's
plan; and
(c) Such other plan and trust are qualified under Sections 401(a) and
501(a) of the Code.
13.4 Bankruptcy or Insolvency of Employer.
------------------------------------
In the event of (a) the Employer's legal dissolution or liquidation by
any procedure other than a consolidation or merger, (b) the Employer's
receivership, insolvency, or cessation of its business as a going concern, or
(c) the commencement of any proceeding by or against the Employer under the
federal bankruptcy laws, and similar federal or state statute, or any federal or
state statute or rule providing for the relief of debtors, compensation of
creditors, arrangement, receivership, liquidation or any similar event which is
not dismissed within 30 days, this Plan shall terminate automatically on such
date (provided, however, that if a proceeding is brought against the Employer
for reorganization under Chapter 11 of the United States Bankruptcy Code or any
similar federal or state statute, then this Plan shall terminate automatically
if and when said proceeding results in a liquidation of the Employer, or the
approval of any Plan providing therefor, or the proceeding is converted to a
case under Chapter 7 of the Bankruptcy Code or any similar conversion to a
liquidation proceeding under federal or state law including, but not limited to,
a receivership proceeding). In the event of any such termination as provided in
the foregoing sentence, the Trustee shall make payments to the persons entitled
thereto in accordance with Section 9.5 hereof.
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<PAGE>
13.5 Voluntary Termination.
---------------------
The Board of Directors reserves the right to terminate this Plan at any
time by giving to the Trustee and the Administrator notice in writing of such
desire to terminate. The Plan shall terminate upon the date of receipt of such
notice, the interests of all Participants shall become fully vested, and the
Trustee shall make payments to each Participant or Beneficiary in accordance
with Section 9.5. Alternatively, the Employer, in its discretion, may determine
to continue the Trust Agreement and to continue the maintenance of the Fund, in
which event distributions shall be made upon the contingencies and in all the
circumstances which would have been entitled such distributions on a fully
vested basis, had there been no termination of the Plan.
13.6 Partial Termination of Plan or Permanent Discontinuance of Contributions.
------------------------------------------------------------------------
In the event that a partial termination of the Plan shall be deemed to
have occurred, or if the Employer shall discontinue completely its contributions
hereunder, the right of each affected Participant to his interest in the Fund
shall be fully vested. The Employer, in its discretion, shall decide whether to
direct the Trustee to make immediate distribution of such portion of the Fund
assets to the persons entitled thereto or to make distribution in the
circumstances and contingencies which would have controlled such distributions
if there had been no partial termination or discontinuance of contributions.
52
<PAGE>
ARTICLE XIV
MISCELLANEOUS
-------------
14.1 No Diversion of Funds.
---------------------
It is the intention of the Employer that it shall be impossible for any
part of the corpus or income of the Fund to be used for, or diverted to,
purposes other than for the exclusive benefit of the Participants or their
Beneficiaries, except to extent that a return of the Employer's contribution is
permitted under Section 4.4.
14.2 Liability Limited.
-----------------
Neither the Employer nor the Administrator, nor any agents, employees,
officers, directors or shareholders of any of them, nor the Trustee, nor any
other person shall have any liability or responsibility with respect to this
Plan, except as expressly provided herein.
14.3 Incapacity.
----------
If the Administrator shall receive evidence satisfactory to it that a
Participant or Beneficiary entitled to receive any benefit under the Plan is, at
the time when such benefit becomes payable, a minor, or is physically or
mentally incompetent to receive such benefit and to give a valid release
therefor, and that another person or an institution is then maintaining or has
custody of such Participant or Beneficiary, and that no guardian, committee or
other representative of the estate of such Participant or Beneficiary shall have
been duly appointed, the Administrator may direct the Trustee to make payment of
such benefit otherwise payable to such Participant or Beneficiary, to such other
person or institution, including a custodian under a Uniform Gifts to Minor Act,
or corresponding legislation (who shall be an adult, a guardian of the minor or
a trust company), and the release of such other person or institution shall be a
valid and complete discharge for the payment of such benefit.
14.4 Spendthrift Clause.
------------------
Except as permitted by the Act or the Code, no benefits or other amounts
payable under the Plan shall be subject in any manner to anticipation, sale,
transfer, assignment, pledge, encumbrance, charge or alienation. If the
Administrator determines that any person entitled to any payments under the Plan
has become insolvent or bankrupt or has attempted to anticipate, sell, transfer,
assign, pledge, encumber, charge or otherwise in any manner alienate any benefit
or other amount payable to him under the Plan or that there is any danger of any
levy or attachment or other court process or encumbrance on the part of any
creditor of such person entitled to payments under the Plan against any benefit
or other accounts payable to such person, the Administrator may, at any time, in
its discretion, direct the Trustee to withhold any or all payments to such
person under the Plan and apply the same for the benefit of such person, in such
manner and in such proportion as the Administrator may deem proper.
53
<PAGE>
14.5 Benefits Limited to Fund.
------------------------
All contributions by the Employer to the Fund shall be voluntary, and the
Employer shall be under no legal liability to make any such contributions. The
benefits of this Plan shall be only as can be provided by the assets of the
Fund, and no liability for the payment of benefits under the Plan or for any
loss of assets due to any action or inaction of the Trustee shall be imposed
upon the Employer.
14.6 Cooperation of Parties.
----------------------
All parties to this Plan and any party claiming interest hereunder agree
to perform any and all acts and execute any and all documents and papers which
are necessary and desirable for carrying out this Plan or any of its provisions.
14.7 Payments Due Missing Persons.
----------------------------
The Administrator shall direct the Trustee to make a reasonable effort to
locate all persons entitled to benefits under the Plan; however, notwithstanding
any provision in the Plan to the contrary, if, after a period of 5 years from
the date such benefit shall be due, any such persons entitled to benefits have
not been located, their rights under the Plan shall stand suspended. Before this
provision becomes operative, the Trustee shall send a certified letter to all
such persons at their last known address advising them that their interest in
benefits under the Plan shall be suspended. Any such suspended amounts shall be
held by the Trustee for a period of 3 additional years (or a total of 8 years
from the time the benefits first became payable), and thereafter such amounts
shall be reallocated among current Participants in the same manner that a
current contribution would be allocated. However, if a person subsequently makes
a valid claim with respect to such reallocated amounts and any earnings thereon,
the Plan earnings or the Employer's contribution to be allocated for the year in
which the claim shall be paid shall be reduced by the amount of such payment.
Any such suspended amounts shall be handled in a manner not inconsistent with
regulations issued by the Internal Revenue Service and Department of Labor.
14.8 Governing Law.
-------------
This Plan has been executed in the State of New York and all questions
pertaining to its validity, construction and administration shall be determined
in accordance with the laws of that State, except to the extent superseded by
the Act.
14.9 Nonguarantee of Employment.
--------------------------
Nothing contained in this Plan shall be construed as a contract of
employment between the Employer and any Employee, or as a right of any Employee
to be continued in the employment of the Employer, or as a limitation of the
right of the Employer to discharge any of its Employees, with or without cause.
54
<PAGE>
14.10 Counsel.
-------
The Trustee and the Administrator may consult with legal counsel, who may
be counsel for the Employer and for the Administrator or the Trustee (as the
case may be), with respect to the meaning or construction of this Plan and the
Trust Agreement, their respective obligations or duties hereunder or with
respect to any action or proceeding or any question of law, and they shall be
fully protected with respect to any action taken or omitted by them in good
faith pursuant to the advice of legal counsel.
IN WITNESS WHEREOF, the Sponsor has caused these presents to be executed
by its duly authorized officers and its corporate seal to be affixed on this day
of _______________.
GSB FINANCIAL CORPORATION
ATTEST:
__________________________ By______________________________
Jenny M. Ford, Clifford E. Kelsey, Jr.,
Secretary President
[Corporate Seal]
55
<PAGE>
EXHIBIT 10.7
Supplementary Retention Agreement
This Supplementary Retention Agreement ("Agreement") is made and entered into as
of _______________, 1997 by and among GSB Financial Corporation, a corporation
organized and existing under the laws of the State of Delaware and having its
executive offices at One South Church Street, Goshen, New York 10924 (the
"Company"); and ___________________________ an individual residing at
_____________________________________________ ("Officer").
Whereas, by Retention Agreement dated as of __________________, 1997,
Goshen Savings Bank, a savings bank organized and operating under the federal
laws of the United States and having its executive offices at One South Church
Street, Goshen, New York 10924 (the "Bank") agreed with Officer to provide
Officer with certain assurances regarding continued employment in the event of a
change in control of the Bank or of the Company; and
Whereas, the Company will become, upon the conversion of the Bank from
the mutual to the stock form of ownership, the holding company of the Bank
owning all the issued and outstanding shares of stock of the Bank; and
Whereas, the Board of Directors of the Company has determined that it
would be in the best interests of the Company to guaranty the assurances given
by the Bank to Officer in order to secure for the Bank and itself the continued
availability of Officer's services;
Now, Therefore, in consideration of the promises set forth in said
Retention Agreement, the Company and Officer hereby agree as follows:
Section 1. The Guaranty
The Company hereby guarantees each and every obligation of the Bank to
Officer pursuant to said Retention Agreement. Such guaranty shall be effective
as, when and if the Bank fails to make any payment due under the Retention
Agreement.
Section 2. Successors and Assigns.
This Agreement will inure to the benefit of and be binding upon
Officer, his or her legal representatives and testate or intestate distributees,
and the Company its successors and assigns, including any successor by merger or
consolidation or a statutory receiver or any other person or firm or corporation
to which all or substantially all of the assets and business of the Company may
be sold or otherwise transferred.
Section 3. Notices.
Any communication required or permitted to be given under this
Agreement, including any notice, direction, designation, consent, instruction,
objection or waiver, shall be in writing and shall be deemed to have been given
at such time as it is delivered personally, or five (5) days after mailing if
mailed, postage prepaid, by registered or certified mail, return receipt
requested, addressed to such party at the address listed below or at such other
address as one such party may by written notice specify to the other party:
If to Officer:
If to the Company:
GSB Financial Corporation
One South Church Street
Goshen, New York 10924
Attention: President
Section 4. Indemnification and Attorneys' Fees.
The Company shall indemnify, hold harmless and defend Officer against
reasonable costs, including legal fees, incurred by Officer in connection with
or arising out of any action, suit or proceeding in which Officer may be
involved, as a result of Officer's efforts, in good faith, to defend or enforce
the terms of this Agreement; provided, however, that Officer shall have
substantially prevailed on the merits pursuant to a judgment, decree or order of
a court of competent jurisdiction or of an arbitrator in an arbitration
proceeding, or in a settlement; provided, further, that this section shall not
obligate the Company to pay costs and legal fees on behalf of Officer under this
Agreement in excess of $25,000. For purposes of this Agreement, any settlement
agreement which provides for payment of any amounts in settlement of the
Company's obligations hereunder shall be conclusive evidence of Officer's
entitlement to indemnification hereunder, and any such indemnification payments
shall be in addition to amounts payable pursuant to such settlement agreement,
unless such settlement agreement expressly provides otherwise.
Section 5. Severability.
A determination that any provision of this Agreement is invalid or
unenforceable shall not affect the validity or enforce ability of any other
provision hereof.
<PAGE>
Section 6. Waiver.
Failure to insist upon strict compliance with any of the terms,
covenants or conditions hereof shall not be deemed a waiver of such term,
covenant, or condition. A waiver of any provision of this Agreement must be made
in writing, designated as a waiver, and signed by the party against whom its
enforcement is sought. Any waiver or relinquishment of any right or power
hereunder at any one or more times shall not be deemed a waiver or
relinquishment of such right or power at any other time or times.
Section 7. Counterparts.
This Agreement may be executed in two (2) or more counterparts, each of
which shall be deemed an original, and all of which shall constitute one and the
same Agreement.
Section 8. Governing Law.
This Agreement shall be governed by and construed and enforced in
accordance with the federal laws of the United States, and in the absence of
controlling federal law, the laws of the State of New York, without reference to
conflicts of law principles.
Section 9. Headings and Construction.
The headings of sections in this Agreement are for convenience of
reference only and are not intended to qualify the meaning of any section. Any
reference to a section number shall refer to a section of this Agreement, unless
otherwise stated.
Section 10. Entire Agreement; Modifications.
This instrument contains the entire agreement of the parties relating
to the subject matter hereof, and supersedes in its entirety any and all prior
agreements, understandings or representations relating to the subject matter
hereof. No modifications of this Agreement shall be valid unless made in writing
and signed by the parties hereto.
Section 11. No Effect on Employment at Will Relationship.
The Company and Officer acknowledge and confirm that nothing contained
in this agreement or in the Retention Agreement between Officer and the Bank
shall change the employment relationship between the Bank and Officer to
anything other than employment at will, except for the express assurances,
protections and other provisions contained in the Retention Agreement and this
Agreement, which provisions shall be deemed to supersede the employment at will
relationship.
Dated: __________________, 1997
------------------------------------
, Officer
GSB Financial Corporation
By:_________________________________
Clifford E. Kelsey, Jr., President
<PAGE>
Exhibit 23.1
[LETTERHEAD OF NUGENT & HAEUSSLER, P.C. APPEARS HERE]
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and
to the use of our reports dated December 13, 1996 (relating to the financial
statements of Goshen Savings Bank), included in the headnote on the consolidated
statements of earning on page 28, in the Registration Statement on Form S-1,
Amendment Number 1 to the Registration Statement on Form S-1, Application for
Conversion on Form 86-AC and related Prospectus and Prospectus Supplement of GSB
Financial Corporation and any pre-effective amendments to the Form S-1 filed by
GSB Financial Corporation.
/s/ Nugent & Haeussler, P.C.
April 23, 1997
Newburgh, New York
<PAGE>
Exhibit 23.2
[LETTERHEAD OF SERCHUK & ZELERMYER, LLP APPEARS HERE]
Consent of Serchuk & Zelermyer, LLP
The Board of Directors
Goshen Savings Bank
Re: The Pre-Effective Amendment No. 1 to Registration Statement on Form S-1 to
be filed by GSB Financial Corporation in connection with the conversion of
Goshen Savings Bank from the mutual to the stock form of ownership.
We hereby consent to the reference to our firm under the heading "Legal
and Tax Opinions" in the prospectus which is a part of the (i) Pre-Effective
Amendment No. 1 to the Registration Statement on Form S-1 of GSB Financial
Corporation, filed with the Securities and Exchange Commission and (ii) the
Application No. 1 to Application for Conversion on Form AC of Goshen Savings
Bank filed with the Office of Thrift Supervision.
Very truly yours,
/s/ Serchuk & Zelermyer, LLP
----------------------------------
Serchuk & Zelermyer, LLP
White Plains, New York
April 30, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM "THE
CONSOLIDATED FINANCIAL STATEMENTS" AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS. (IN THOUSANDS)
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1996 SEP-30-1996
<PERIOD-END> DEC-31-1996 SEP-30-1996
<CASH> 2,079 2,964
<INT-BEARING-DEPOSITS> 0 0
<FED-FUNDS-SOLD> 3,400 1,720
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 21,016 23,081
<INVESTMENTS-CARRYING> 6,173 6,474
<INVESTMENTS-MARKET> 6,252 6,529
<LOANS> 61,167 58,872
<ALLOWANCE> 133 123
<TOTAL-ASSETS> 95,966 93,323
<DEPOSITS> 82,583 83,442
<SHORT-TERM> 1,000 0
<LIABILITIES-OTHER> 1,277 1,135
<LONG-TERM> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 12,106 11,747
<TOTAL-LIABILITIES-AND-EQUITY> 96,966 96,323
<INTEREST-LOAN> 1,155 4,328
<INTEREST-INVEST> 521 907
<INTEREST-OTHER> 0 0
<INTEREST-TOTAL> 1,676 6,235
<INTEREST-DEPOSIT> 764 3,365
<INTEREST-EXPENSE> 781 3,448
<INTEREST-INCOME-NET> 895 2,787
<LOAN-LOSSES> 0 24
<SECURITIES-GAINS> 0 234
<EXPENSE-OTHER> 637 2,343
<INCOME-PRETAX> 420 909
<INCOME-PRE-EXTRAORDINARY> 420 909
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 295 558
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
<YIELD-ACTUAL> 3.81 3.08
<LOANS-NON> 0 16
<LOANS-PAST> 3 0
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 123 114
<CHARGE-OFFS> 0 18
<RECOVERIES> 10 3
<ALLOWANCE-CLOSE> 133 123
<ALLOWANCE-DOMESTIC> 0 0
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 133 123
</TABLE>
<PAGE>
MARKETING MATERIALS
FOR
GOSHEN SAVINGS BANK
STOCK CONVERSION CAMPAIGN
Revised
April 11, 1997
<PAGE>
QUESTIONS AND ANSWERS BROCHURE
- ------------------------------
Cover Page
[Bank's Logo]
Answers to Frequently Asked Questions
About Our Stock Conversion and
Your Opportunity to Invest in
GSB FINANCIAL CORPORATION
the Proposed Holding Company of
Goshen Savings Bank
<PAGE>
Questions and Answers Brochure
- ------------------------------
Page 2
Inside Cover
You can be one of the initial stockholders of GSB Financial
Corporation, the proposed holding company of Goshen Savings Bank. GSB Financial
Corporation is "going public" as part of Goshen Savings' conversion from a
mutual savings bank to a federally chartered stock savings bank. The Bank will
continue to be known as Goshen Savings Bank. Now you have the opportunity to
invest in the Bank by purchasing stock in the initial offering by GSB Financial
Corporation. This brochure answers some of the most frequently asked questions
about the conversion to stock ownership and about your opportunity to invest in
GSB Financial.
<PAGE>
Questions and Answers Brochure
- ------------------------------
Page 3
ABOUT THE TRANSACTION
- ---------------------
1. WHAT IS A CONVERSION?
Goshen Savings Bank is now a mutual savings bank, which does not have
stockholders. After the Conversion, we will be a stock savings bank
owned by a holding company. The holding company, GSB Financial
Corporation, will be owned by stockholders who will have voting rights
with respect to certain key business matters. The holding company is
offering shares of its common stock to certain depositors and
tax-qualified employee plans of Goshen Savings and, depending upon
market conditions and the availability of shares, may offer shares to
selected persons in a public offering.
2. WHAT IS GSB FINANCIAL CORPORATION AND WHY WAS IT FORMED?
GSB Financial Corporation is a newly organized holding company created
by Goshen Savings specifically to purchase 100% ownership in Goshen
Savings. The holding company currently has no stockholders, but is
offering shares of its common stock to certain depositors and
tax-qualified employee plans of Goshen Savings and, depending upon
market conditions and the availability of shares, may offer shares to
selected persons in a public offering. The additional capital provided
through the offering of GSB Financial Corporation's stock will support
future banking activities and local expansion of the financial services
currently offered through Goshen Savings.
3. WHAT ARE THE BENEFITS AND RISKS OF CONVERSION?
The Conversion and sale of stock will increase Goshen Savings' capital,
enabling it to do many things, including possibly the following:
- support expansion of financial services
- enhance ability to expand through acquisitions
- better compete with other financial institutions
- facilitate future access to the capital markets
Please review "Use of Proceeds" in the Prospectus for Goshen Savings'
and the holding company's initial plans with respect to the capital to
be raised in the Conversion.
There are certain risks in investing in GSB Financial Corporation
common stock. An offer is made only by a prospectus accompanied by a
stock order form and certification. Please review the prospectus prior
to making an investment decision, particularly the section entitled
"Risk Factors."
<PAGE>
Questions and Answers Brochure
- ------------------------------
Page 4
4. WILL THE CONVERSION HAVE ANY EFFECT ON MY SAVINGS OR LOAN ACCOUNT?
No. The Conversion will not affect the terms of your savings account
which will continue to be insured by the Federal Deposit Insurance
Corporation (FDIC) to the maximum legal limit. Your savings account is
not being converted to stock. The obligations of borrowers under their
loan agreements will not be affected.
5. HOW DO I BENEFIT FROM THE CONVERSION?
Eligible depositors will be given the opportunity to subscribe or place
an order to purchase stock in GSB Financial Corporation and thereby
participate in any gain in the value of the shares and future dividend
payments, if any. Furthermore, the additional capital will enable
Goshen Savings to provide expanded services to its customers and the
community.
ABOUT PURCHASING STOCK
- ----------------------
6. WHO MAY PURCHASE STOCK?
GSB Financial Corporation is currently conducting a Subscription
Offering. Persons listed below may have the opportunity to subscribe to
purchase GSB Financial Corporation's common stock during the
Subscription Offering.
- Eligible Account Holders. Persons who had a savings deposit at
Goshen Savings on the Eligibility Record Date, December 31, 1995.
- Tax Qualified Employee Plans of Goshen Savings.
- Supplemental Eligible Account Holders. Persons who had a savings
deposit on the Supplemental Eligibility Record Date, March 31,
1997.
- Other Members. Depositors as of the Voting Record Date, ___, 1997.
GSB Financial Corporation may, depending upon market conditions and the
availability of shares, offer stock to certain persons in a public
offering.
<PAGE>
Questions and Answers Brochure
- ------------------------------
Page 5
7. WHAT IS THE PRICE PER SHARE AND HOW MANY SHARES ARE BEING OFFERED?
The aggregate value of GSB Financial Corporation stock has been
determined by an independent, nationally recognized appraisal firm. The
purchase price per share is $10.00. Up to 1,955,000 shares are being
offered for sale (or up to 2,248,250 shares under certain conditions
such as a change in market and financial conditions following
commencement of the Offering).
8. WILL EVERYONE PAY THE SAME PRICE FOR THE STOCK?
Yes. All subscribers, including Goshen Savings' Board of Directors and
management, will pay the same price during the Offering.
9. ARE DEPOSITORS OBLIGATED TO BUY STOCK?
No. But our depositors have a priority subscription right.
10. HOW MUCH STOCK MAY I BUY IN THE SUBSCRIPTION OFFERING?
The individual purchase limit is 15,000 shares. Individuals acting in
concert or groups of persons may purchase up to 15,000 shares. The
actual number of shares to be issued is expected to be between
1,445,000 and 1,955,000 (or up to 2,248,250 shares under certain
conditions such as a change in market and financial conditions
following commencement of the Offering).
11. WHAT IS THE MINIMUM AMOUNT OF STOCK I MAY BUY?
The minimum purchase limit is 25 shares.
12. IS THE STOCK INSURED BY THE FDIC?
No. Like any other common stock, GSB Financial Corporation's stock will
not be insured by the FDIC or any governmental agency.
13. IN THE FUTURE, HOW MAY I PURCHASE MORE SHARES OR SELL MY SHARES?
GSB Financial Corporation has applied to have the common stock quoted
on the Nasdaq Stock Market under the symbol "GOSB". No assurance can be
given, however, that the GSB Financial Corporation's stock will be
quoted on the Nasdaq Stock Market or that an active and liquid market
for the common stock will develop or that an investor will be able to
resell the common stock at or above the original purchase price after
Conversion.
<PAGE>
Questions and Answers Brochure
- ------------------------------
Page 6
14. WILL THERE BE ANY DIVIDENDS?
GSB Financial Corporation does not currently intend to pay dividends on
its common stock but it may do so in the future. The declaration and
payment of dividends are subject to, among other things, the financial
conditions and results of operations of GSB Financial Corporation,
Goshen Savings' compliance with its capital requirements, tax
considerations, industry standards and other factors.
15. HOW DO I ORDER STOCK AND WHAT METHODS CAN BE USED FOR PAYMENT OF MY
STOCK PURCHASES?
Complete the stock order form and certification as instructed. Be sure
to indicate the number of shares you wish to purchase and the total
amount paid (multiply the number of shares subscribed for by $10.00 per
share.) Total payment for purchases in the Subscription Offering must
accompany the order form and be received by GSB Financial Corporation
prior to 12:00 noon, Eastern time, on June --,1997. The payment options
for stock purchases are as follows:
- Check or money order sent or delivered to a Goshen Savings branch
or the Stock Center. If payment is made by check or money order,
interest will be earned at the passbook rate per annum until the
Conversion is completed.
- Withdrawal of funds from any existing account of Goshen Savings in
an amount equal to the Purchase Price (which is $10.00 per share)
times the number of shares ordered. Penalties for early withdrawal
from a Goshen Savings certificate of deposit will be waived when
purchasing stock in the Subscription Offering. Once authorization
for withdrawal of funds has been made, the subscriber may not
withdraw the designated amount unless the Plan of Conversion is
terminated or as otherwise required by regulatory authorities. All
funds maintained in savings accounts are insured by the FDIC up to
legally applicable limits and will earn interest until completion
of the Conversion.
- Orders of $25,000 or more must be paid by Goshen Savings account
withdrawals, certified check, cashier's check, or money order.
- IRA purchases. If you wish to purchase shares of GSB Financial
Corporation's stock for an IRA account, either at Goshen Savings
or elsewhere, we may be able to accommodate you. Please contact
the Stock Center as soon as possible at (914) 219-3999 so that we
may assist you with the appropriate procedures for such a
purchase. It is important that you contact us soon because making
the IRA arrangements takes time.
<PAGE>
Questions and Answers Brochure
- ------------------------------
Page 7
16. MAY I CHANGE MY MIND AFTER I SUBMIT AN ORDER?
The stock order form you executed cannot be canceled or withdrawn.
However, you may order additional shares by completing another stock
order form, subject to the maximum purchase limitations.
17. ARE MY SUBSCRIPTION RIGHTS TRANSFERABLE?
No. No person may transfer or enter into any agreement to transfer his
or her subscription rights issued under the Plan of Conversion, or the
shares to be issued upon the exercise of such rights. Persons violating
such prohibition will lose their right to purchase stock in the
Conversion and may be subject to further government sanctions.
ABOUT VOTING RIGHTS
- -------------------
18. WHO IS ELIGIBLE TO VOTE ON THE PLAN OF CONVERSION?
Depositors at the Voting Record Date of ___, 1997 who continue to be
depositors at the date of the Special Meeting are eligible to vote. The
Special Meeting to vote on the conversion will be held on June --,
1997.
19. HOW IS THE NUMBER OF VOTES DETERMINED?
Each deposit account holder is entitled to cast one vote for each $100,
or fraction thereof, of the aggregate withdrawal value of all such
account holder's deposit accounts on the Voting Record Date. The
maximum number of votes per voting member is 1,000. However, if you
have different accounts with different titles, the accounts may be
treated separately and you may be able to cast more than 1,000 votes.
20. IF I VOTE FOR THE PLAN OF CONVERSION ON THE PROXY CARD, WILL I BE
OBLIGATED TO PURCHASE GSB FINANCIAL CORPORATION STOCK?
No. Signing the proxy card and voting for the Conversion in no way
obligates you to purchase GSB Financial Corporation stock. All
depositors with voting rights are urged to vote for the Conversion. THE
BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE PLAN OF CONVERSION AND
RECOMMENDS A VOTE "FOR" APPROVAL OF THE PLAN OF CONVERSION.
<PAGE>
Questions and Answers Brochure
- ------------------------------
Page 8
21. WHAT HAPPENS IF I DON'T VOTE?
Failing to vote could be equivalent to voting against the Plan of
Conversion. YOUR VOTE IS EXTREMELY IMPORTANT! Please sign and mail your
proxy card(s) now.
22. MAY I COME TO THE SPECIAL MEETING AND VOTE?
Yes. However, if you have voting rights, you are encouraged to send a
proxy card(s) to Goshen Savings prior to the meeting even if you plan
to attend the special meeting. The proxy is revocable and can be
changed by submitting a later dated proxy or by casting a ballot at the
meeting.
23. I RECEIVED MORE THAN ONE PROXY CARD. CAN I VOTE THEM ALL?
Yes. Please vote ALL the proxy cards you receive. You may have more
than one account under different titles and separate proxy cards may be
required for each of them.
24. IF A SAVINGS ACCOUNT IS IN JOINT NAME, MUST BOTH NAMES BE SIGNED ON THE
PROXY CARD?
No. Two or more signatures are required only when two or more
signatures are needed to withdraw funds from the account.
25. IF I DON'T BUY STOCK WILL I HAVE A VOTE AT FUTURE ANNUAL MEETINGS?
No. After the Conversion, only stockholders will have voting rights.
However, the operations of Goshen Savings and the general terms and
balances of your deposit accounts and loans will remain unchanged.
26. HOW MAY I GET MORE INFORMATION?
We hope that these questions and answers, combined with the Prospectus
and the Proxy Statement, will help you better understand the Conversion
and the stock offering. You are urged to carefully review the
Prospectus and Proxy Statement before making an investment or voting
decision. If you desire further information, please contact the Stock
Center at:
Telephone: (914) 219-3999
<PAGE>
Questions and Answers Brochure
- ------------------------------
Page 9
Back Cover
Goshen Savings Bank
Stock Center
One South Church Street
Goshen, New York 10924
Telephone: (914) 219-3999
THIS BROCHURE IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY
THE COMMON STOCK OF GSB FINANCIAL CORPORATION. THE OFFER IS MADE ONLY BY THE
PROSPECTUS ACCOMPANIED BY A STOCK ORDER FORM AND CERTIFICATION, COPIES OF WHICH
MAY BE OBTAINED BY CONTACTING THE STOCK CENTER. THE COMMON STOCK OFFERED IN THE
CONVERSION IS NOT A DEPOSIT OR ACCOUNT AND IS NOT FEDERALLY INSURED OR
GUARANTEED
<PAGE>
FOLDER AND MANAGEMENT AND DIRECTORS PROFILE
- -------------------------------------------
Front Cover
[Bank's Logo]
GSB Financial Corporation
proposed holding company for
Goshen Savings Bank
<PAGE>
Folder and Management and Directors Profile
- -------------------------------------------
Page 2
Inside Front Cover
HEADER
- ------
Our Board of Directors and management show support and confidence in the future
of Goshen Savings.
Meet Our Board of Directors and Management Team.
Board of Directors of Goshen Savings Bank and GSB Financial Corporation
- ------------------------------------------------------------------------
Clifford E. Kelsey, Jr.
President, Chief Executive Officer and Director
Richard Durland
Executive Vice President, Treasurer and Director
Herbert C. Mueller
Director
Roy L. Lippincott
Director
Stephen O. Hopkins
Director
Gene J. Gengel
Director
Executive Officers of Goshen Savings Bank and GSB Financial Corporation:
- ------------------------------------------------------------------------
Clifford E. Kelsey, Jr. Richard C. Durland
President and Chief Executive Officer Executive Vice President and Treasurer
Stephen W. Dederick Jenny M. Ford
Chief Financial Officer Vice President and Secretary
Diane D. King
Senior Vice President and Assistant Treasurer
The Board of Directors and Executive Officers of Goshen Savings Bank intend to
purchase an aggregate of $576,450 of GSB Financial Corporation stock.
THIS IS NOT AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE COMMON
STOCK OF GSB FINANCIAL CORPORATION. THE OFFER IS MADE ONLY BY THE PROSPECTUS
ACCOMPANIED BY A STOCK ORDER FORM AND CERTIFICATION. THE COMMON STOCK OFFERED IN
THE CONVERSION IS NOT A DEPOSIT OR ACCOUNT AND IS NOT FEDERALLY INSURED OR
GUARANTEED.
<PAGE>
Folder and Management and Directors Profile
- --------------------------------------------
Page 3
Inside Back Cover
[Blank with fold over flap to hold offering materials.]
(Insert attached graphs here)
<PAGE>
Folder and Management and Directors Profile
- --------------------------------------------
Page 4
Back Cover
[Bank Logo]
CALL FOR MORE INFORMATION!
Stock Center
One South Church Street
Goshen, New York 10924
Telephone: (914) 219-3999
<PAGE>
PLACARD/LOBBY POSTER FOR EACH BRANCH OFFICE - Approx. 2 1/2' X 4'
-----------------------------------------------------------------
[Bank's Logo]
GSB Financial Corporation is Going Public!
You may now own a part of Goshen Savings Bank
by purchasing shares of stock
in its proposed holding company, GSB Financial Corporation
For further information about the stock offering
call the Stock Center at
(914) 219-3999
THIS ANNOUNCEMENT IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO
BUY THE COMMON STOCK OF GSB FINANCIAL CORPORATION. THE OFFER IS MADE ONLY BY THE
PROSPECTUS ACCOMPANIED BY A STOCK ORDER FORM AND CERTIFICATION, COPIES OF WHICH
MAY BE OBTAINED BY CONTACTING THE STOCK CENTER. THE COMMON STOCK OFFERED IN THE
CONVERSION IS NOT A DEPOSIT OR ACCOUNT AND IS NOT FEDERALLY INSURED OR
GUARANTEED.
<PAGE>
NEWSPAPER ADVERTISEMENT
- -----------------------
NEW ISSUE
[Holding Company Logo]
GSB Financial Corporation, the proposed holding company for
Goshen Savings Bank
is going public!
Up to 1,955,000 shares of Common Stock are being offered
at a Subscription Price of $10.00 per share.
For Information Call:
Stock Center
Telephone (914) 219-3999
or stop by the Stock Center located at
One South Church Street
Goshen, New York 10924
The Subscription Offering period deadline is 12:00 Noon, Eastern Time June ____,
1997.
THIS ANNOUNCEMENT IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO
BUY THE COMMON STOCK OF GSB FINANCIAL CORPORATION. THE OFFER CAN BE MADE ONLY BY
THE PROSPECTUS ACCOMPANIED BY A STOCK ORDER FORM AND CERTIFICATION, COPIES OF
WHICH MAY BE OBTAINED BY CONTACTING THE STOCK CENTER. THE COMMON STOCK OFFERED
IN THE CONVERSION IS NOT A DEPOSIT OR ACCOUNT AND IS NOT FEDERALLY INSURED OR
GUARANTEED.
<PAGE>
I M P O R T A N T
P R O X Y R E M I N D E R
[Bank Logo]
GOSHEN SAVINGS BANK
YOUR VOTE ON GOSHEN SAVINGS' STOCK CONVERSION IS VERY IMPORTANT.
VOTING FOR THE CONVERSION WILL NOT AFFECT THE INSURANCE OF YOUR DEPOSIT ACCOUNT.
YOUR ACCOUNT WILL CONTINUE TO BE INSURED UP TO THE MAXIMUM LEGAL LIMIT BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, AN AGENCY OF THE U.S. GOVERNMENT.
REMEMBER, VOTING FOR THE CONVERSION DOES NOT OBLIGATE YOU TO BUY ANY STOCK.
PLEASE ACT PROMPTLY! SIGN YOUR PROXY CARD(S) AND MAIL OR DELIVER THEM TO GOSHEN
SAVINGS TODAY. WE RECOMMEND THAT YOU VOTE FOR THE PLAN OF CONVERSION.
THE BOARD OF DIRECTORS GOSHEN SAVINGS BANK
If you have already mailed your proxy card(s), please
accept our thanks and disregard this request.
For Further Information, Please Call
The Stock Center
at (914) 219-3999
THIS ANNOUNCEMENT IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO
BUY THE COMMON STOCK OF GSB FINANCIAL CORPORATION. THE OFFER IS MADE ONLY BY THE
PROSPECTUS ACCOMPANIED BY A STOCK ORDER FORM AND CERTIFICATION, COPIES OF WHICH
MAY BE OBTAINED BY CONTACTING THE STOCK CENTER. THE COMMON STOCK OFFERED IN THE
CONVERSION IS NOT A DEPOSIT OR ACCOUNT AND IS NOT FEDERALLY INSURED OR
GUARANTEED.
<PAGE>
N E W S R E L E A S E For Additional Information Contact:
Mr. Clifford E. Kelsey, Jr.
President and Chief Executive Officer
Goshen Savings Bank
1 South Church Street
Goshen, New York 10924
Immediate Release (914) 219-3999
___________, 1997
GOSHEN SAVINGS BANK, INC.
PROPOSED HOLDING COMPANY FOR
GOSHEN SAVINGS BANK
OFFERS COMMON STOCK
On ___________, 1997 the Office of Thrift Supervision approved an application
submitted by Goshen Savings Bank to convert from a federal mutual savings bank
to a federal stock savings bank, subject to approval by the Bank's depositors at
a special meeting. The Bank has formed a holding company, GSB Financial
Corporation, which is currently offering for sale shares of its common stock to
certain present and former depositors of Goshen Savings in a Subscription
Offering.
Mr. Clifford E. Kelsey, Jr., President and Chief Executive Officer of Goshen
Savings, stated that the normal business of the Bank of accepting deposits and
making mortgage loans will continue and that Goshen Savings will continue to
emphasize customer service to its depositors and borrowers. "The stock
conversion is a very positive move for us. We will continue to do what we do
best, serving our customers through our array of financial products and
services," stated Mr. Kelsey.
# More #
<PAGE>
N E W S R E L E A S E
Page 2
During the Subscription Offering, which expires on June ___, 1997, certain
present and former depositors have the opportunity to order stock in GSB
Financial Corporation. Depending on market conditions and availability of
shares, stock may also be offered to certain persons in a Public Offering. Up to
1,955,000 shares are being offered at a purchase price of $10.00 per share
(subject to increase to 2,248,250 shares under certain circumstances).
Capital Resources, Inc., a Washington, D.C. based investment banking company, is
assisting Goshen Savings in its conversion to stock ownership and the sale of
the stock in the Offering. Information relating to the Offering and the
operations of the Bank is contained in the Prospectus that has been mailed to
depositors of Goshen Savings. The Subscription Offering will end at 12:00 noon
Eastern time on June __, 1997.
Copies of the Prospectus, containing information relating to the Offering, may
be obtained from the Stock Center located at One South Church Street, Goshen,
New York 12010. Persons who desire to purchase stock may call the Stock Center
at (914) 291-3999 for further information.
THIS ANNOUNCEMENT IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO
BUY THE COMMON STOCK OF GSB FINANCIAL CORPORATION. THE OFFER IS MADE ONLY BY THE
PROSPECTUS ACCOMPANIED BY A STOCK ORDER FORM AND CERTIFICATION, COPIES OF WHICH
MAY BE OBTAINED BY CONTACTING THE STOCK CENTER. THE COMMON STOCK OFFERED IN THE
CONVERSION IS NOT A DEPOSIT OR ACCOUNT AND IS NOT FEDERALLY INSURED OR
GUARANTEED.
### END ###
<PAGE>
GOSHEN SAVINGS BANK
COVER LETTERS
FOR
CONVERSION OFFERING MATERIALS
Revised
April 11, 1997
<PAGE>
1. Letter to Members and Friends (Closed Accounts)
May ___, 1997
Dear Depositors and Friends:
The Board of Directors of Goshen Savings Bank ("Goshen Savings") has
adopted a plan to convert to a federally chartered stock savings bank (the
"Conversion"). As a stock company, Goshen Savings will be structured under the
same form of ownership used by most businesses and banks. This Conversion to
stock ownership means Goshen Savings will increase its capital and will enable
Goshen Savings to support future banking activities. The Conversion will not
affect your deposit accounts or loans with Goshen Savings or existing FDIC
insurance coverage for your deposit accounts.
As part of the Conversion, Goshen Savings has formed a holding company,
GSB Financial Corporation. GSB Financial Corporation will own all of the common
stock of Goshen Savings. GSB Financial Corporation is offering up to 1,955,000
shares of its common stock (subject to increase to 2,248,250 shares under
certain conditions) to customers of Goshen Savings at a subscription price of
$10.00 per share. As a depositor on either December 31, 1995, March 31, 1997, or
May __, 1997, you have a preferential right to subscribe to purchase the stock
of GSB Corporation during the Subscription Offering without paying a fee or
commission. For your convenience this packet includes the following material:
o PROSPECTUS containing detailed information about Goshen Savings and
the stock offering. Please read the Prospectus carefully before
making your investment decision.
o BROCHURE which answers questions about the Conversion and stock
offering.
o STOCK ORDER FORM and CERTIFICATION to be completed in order to
purchase shares of GSB Financial Corporation stock. Payment by check
or written authorization to withdraw from a specified Goshen Savings
account must accompany each order form and certification. Orders of
$25,000 or more must be paid by Goshen Savings account withdrawals,
certified check, cashier's check, or money order. Order forms must be
received by Goshen Savings no later than 12:00 noon, Eastern time on
June __, 1997.
If you would like to purchase GSB Financial Corporation stock for your
IRA account, using IRA funds, we may be able to accommodate you. Please contact
the Stock Center as soon as possible at (914) 219-3999.
<PAGE>
Letter to Members and Friends
Page 2
If you were a depositor of Goshen Savings on May __, 1997, you will also
find enclosed a proxy statement and proxy card(s). On behalf of the Board, we
ask that you help Goshen Savings take this important step by signing the
enclosed proxy card(s) and, casting your vote in favor of the Plan of
Conversion. Your vote is very important! Please mail your proxy card(s) today in
the enclosed postage paid return envelope. We urge you to vote "Yes" even if you
do not want to purchase any stock. Voting in favor of the Conversion does not
require you to purchase stock.
We believe it is in the best interest of Goshen Savings to have our
customers and members of the communities we serve as our stockholders. We
encourage you to review this investment opportunity carefully. If you have any
questions, please call the Stock Center at (914) 219-3999.
Sincerely,
Clifford E. Kelsey, Jr.
President and Chief
Executive Officer
Enclosures
VS
- -------------------------------------------------------------------------------
THIS LETTER IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY
THE COMMON STOCK OF GSB FINANCIAL CORPORATION. THE OFFER IS MADE ONLY BY THE
PROSPECTUS ACCOMPANIED BY A STOCK ORDER FORM AND CERTIFICATION, COPIES OF WHICH
MAY BE OBTAINED BY CONTACTING THE STOCK CENTER. THE COMMON STOCK OFFERED IN THE
CONVERSION IS NOT A DEPOSIT OR ACCOUNT AND IS NOT FEDERALLY INSURED OR
GUARANTEED.
- -------------------------------------------------------------------------------
<PAGE>
2. Letter for branch packages, Stock Center, non-members.
May ___, 1997
Dear Prospective Investor:
Goshen Savings Bank ("Goshen Savings") is converting to a federal stock
savings bank (the "Conversion").
As part of the Conversion, Goshen Savings has formed a holding company,
GSB Financial Corporation. GSB Financial Corporation will own all of the common
stock of Goshen Savings. GSB Financial Corporation is offering up to 1,955,000
shares of its common stock at a purchase price of $10.00 per share. Even if you
are not a present or former depositor with subscription rights, you may have the
opportunity to purchase shares without paying a fee or commission. Certain
depositors have priority rights to purchase shares in the Subscription Offering
and therefore your order may not be filled.
For your convenience, enclosed are the following materials:
o PROSPECTUS containing detailed information about Goshen Savings and
the stock offering. Please read the prospectus carefully before
making your investment decision.
o STOCK ORDER FORM and CERTIFICATION to be completed in order to
purchase shares of GSB Financial Corporation's stock. Payment by
check or written authorization to withdraw from a specified Goshen
Savings account must accompany each order form and certification.
Orders of $25,000 or more must be paid by Goshen Savings account
withdrawals, certified check, cashier's check or money order. If you
are interested in purchasing shares of GSB Financial Corporation's
stock in this offering, your completed stock order form and
certification along with payment must be received by Goshen Savings
by no later than 12:00 noon, Eastern time on ________, 1997.
<PAGE>
Letter for Branch Packages, Stock Center, non-members
Page 2
We encourage you to review this investment opportunity carefully. If you
have any questions, please call our Stock Center at (914) 219-3999.
Sincerely,
Clifford E. Kelsey, Jr.
President and Chief
Executive Officer
Enclosures
P
- -------------------------------------------------------------------------------
THIS LETTER IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY
THE COMMON STOCK OF GSB FINANCIAL CORPORATION. THE OFFER IS MADE ONLY BY THE
PROSPECTUS ACCOMPANIED BY A STOCK ORDER FORM AND CERTIFICATION, COPIES OF WHICH
MAY BE OBTAINED BY CONTACTING THE STOCK CENTER. THE COMMON STOCK OFFERED IN THE
CONVERSION IS NOT A DEPOSIT OR ACCOUNT AND IS NOT FEDERALLY INSURED OR
GUARANTEED
- -------------------------------------------------------------------------------
<PAGE>
3. Capital Resources Cover Letter to Blue Sky States
May __, 1997
To Depositors and Friends of Goshen Savings Bank:
Capital Resources, Inc. is an NASD member broker/dealer assisting Goshen
Savings Bank ("Goshen Savings") in its conversion from a mutual to a stock
savings bank.
At the request of Goshen Savings and GSB Financial Corporation, the
proposed parent holding company of Goshen Savings, we enclose certain materials
regarding the sale and issuance of common stock in connection with the
conversion of Goshen Savings. These materials include a prospectus which offers
you the opportunity to subscribe to purchase shares of common stock of GSB
Financial Corporation.
We have been asked to forward these documents to you in view of certain
requirements of the securities laws of your state. We should not be understood
as recommending or soliciting in any way any action by you with regard to the
enclosed materials. If you have any questions, please contact us at the Stock
Center at (914) 219-3999.
Very truly yours,
Capital Resources, Inc.
Enclosures
BD
- -------------------------------------------------------------------------------
THIS LETTER IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY
THE COMMON STOCK OF GSB FINANCIAL CORPORATION. THE OFFER IS MADE ONLY BY THE
PROSPECTUS ACCOMPANIED BY A STOCK ORDER FORM AND CERTIFICATION, COPIES OF WHICH
MAY BE OBTAINED BY CONTACTING THE STOCK CENTER. THE COMMON STOCK OFFERED IN THE
CONVERSION IS NOT A DEPOSIT OR ACCOUNT AND IS NOT FEDERALLY INSURED OR
GUARANTEED.
- -------------------------------------------------------------------------------
<PAGE>
4. Letter to Members in "Dark Blue-Sky" States and Foreign Accounts
May ___, 1997
Dear Depositor:
Goshen Savings Bank ("Goshen Savings") is converting to a federal stock
savings bank with the concurrent formation of a holding company, GSB Financial
Corporation.
Enclosed you will find a Proxy Statement and Prospectus describing the
conversion and proxy card(s). As a depositor of Goshen Savings on May --, 1997,
we ask you to participate in the conversion by reviewing the information
provided and voting on the conversion by completing and mailing the enclosed
proxy card(s) in the enclosed postage-paid envelope as soon as possible. The
Board of Directors recommends that you vote in favor of the Plan of Conversion.
Although you may vote on Goshen Savings' Plan of Conversion, GSB
Financial Corporation unfortunately is unable to either offer or sell its common
stock to you because (I) the small number of eligible subscribers in your
jurisdiction makes registration or qualification of the common stock under the
securities laws of your jurisdiction impractical, for reasons of cost or
otherwise; or (ii) the small number of eligible subscribers in your jurisdiction
makes registration or qualification of GSB Financial Corporation, its officers,
directors, employees and persons acting on its behalf as broker/dealer in your
jurisdiction impractical, for reasons of cost or otherwise. Accordingly, neither
this letter nor the enclosed material should be considered an offer to sell or a
solicitation of an offer to buy the common stock of GSB Financial Corporation.
If you have any questions about your voting rights or the conversion in
general, please call the Stock Center at (914) 219-3999.
Sincerely,
Clifford E. Kelsey, Jr.
President and Chief
Executive Officer
Enclosures
J
- -------------------------------------------------------------------------------
THIS LETTER IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY
THE COMMON STOCK OF GSB FINANCIAL CORPORATION. THE OFFER IS MADE ONLY BY THE
PROSPECTUS ACCOMPANIED BY A STOCK ORDER FORM AND CERTIFICATION. THE COMMON STOCK
OFFERED IN THE CONVERSION IS NOT A DEPOSIT OF ACCOUNT AND IS NOT FEDERALLY
INSURED OR GUARANTEED.
- -------------------------------------------------------------------------------
<PAGE>
----------------------------
Logo Stock Offering Expires
12:00 Noon
June ____, 1997
----------------------------
(Holding Company for Goshen Savings Bank) Stock Center
One South Church Street
Goshen, NY 10924
(914) 219-3999
STOCK ORDER FORM
- -------------------------------------------------------------------------------
Number of Shares
- -------------------------------------------------------------------------------
Number of Shares Purchase Price Total Payment Due
- ------------------------ -------------------------
X $10.00
- ------------------------ -------------------------
The minimum number of shares that may be subscribed for is 25 and the maximum
number is 15,000 shares per individual or per account. The limit for any person
together with their associates or persons acting in concert in the Conversion is
15,000 shares. Management has the discretion to increase or decrease the
purchase limit within regulations. Orders of $25,000 or more must be paid by
Goshen Savings Bank account withdrawals, certified funds, cashier's check or
money order.
- -------------------------------------------------------------------------------
Method of Payment
- -------------------------------------------------------------------------------
/ / Enclosed is a check or money order made payable to GSB Financial
Corporation for $_______________. Do not mail cash. Please take cash
payment in person to any Goshen Savings
Bank office.
/ / I authorize Goshen Savings Bank to withdraw the indicated amounts from the
following Goshen Savings Bank accounts, and understand that the amounts will
not otherwise be available for withdrawal.
Account Number Amount
- ---------------------------------------------- To withdraw from an account with
$ check writing privileges, please
- ---------------------------------------------- write a check. (Call the Stock
$ Center for IRA transactions.)
- ----------------------------------------------
$ There will be no penalty for
- ---------------------------------------------- early withdrawals of funds used
$ to order stock.
-----------------
- -------------------------------------------------------------------------------
Purchaser Information
- -------------------------------------------------------------------------------
/ / Check here if you are a director, officer or employee of Goshen Savings Bank
or a member of their immediate families.
/ / Check here if you were a depositor on December 31, 1995, March 31, 1997 or
______, 1997. If you check this box, please enter all your account
information for each of these dates below: (If you need additional space,
please attach a separate sheet.)
Name(s) on Accounts Account Number Name(s) on Accounts Account Number
- --------------------------------------------------------------------------------
- ------------------- --------------- -------------------- ---------------
- ------------------- --------------- -------------------- ---------------
- ------------------- --------------- -------------------- ---------------
- ------------------- --------------- -------------------- ---------------
- ------------------- --------------- -------------------- ---------------
- --------------------------------------------------------------------------------
/ / I am not acting in concert with any other persons purchasing stock in the
Conversion nor are any of my associates purchasing stock.
/ / I am acting in concert with the following purchasers and/or the following
purchasers are my associates: _____________, _____________, _______________.
- -------------------------------------------------------------------------------
Stock Registration
- -------------------------------------------------------------------------------
Please review the guidelines on the back of this form. Print the name(s) in
which you want the stock registered and the mailing address for the
registration. Names must appear exactly as on your account at Goshen Savings
Bank if you are subscribing as an Eligible Account Holder, Supplemental Account
Holder or Other Member.
SUBSCRIPTION RIGHTS ARE NOT TRANSFERABLE.
Form of ownership: Please check one.
<TABLE>
<S> <C> <C>
/ / Individual / / Tenants in common / / Uniform Transfers to Minors Act
/ / Joint Tenants / / Corporation or partnership / / Uniform Gifts to Minors Act
/ / Other _________________ / / Fiduciary ______________________
please specify adoption date
</TABLE>
<PAGE>
- -------------------------------------------------------------------------------
Name Social Security or Tax I.D. No.
- -------------------------------------------------------------------------------
Name Evening Telephone
- -------------------------------------------------------------------------------
Street Address Daytime Telephone
- -------------------------------------------------------------------------------
City State Zip County of Residence
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NASD Affiliation
- -------------------------------------------------------------------------------
Please read the NASD Affiliation section on the
reverse side of this form: Check if applicable
and initial where indicated with *.
/ / Check here if you are a member interest. In accordance with
of the NASD or a person the conditions for an exception
associated with an NASD member from the interpretation, I agree
or a partner with a securities (I) not to sell, transfer or
brokerage firm or a member of hypothecate this stock for a
the immediate family of any period of 90 days following
such person to whose support issuance and (ii) to report this
such person contributes subscription in writing to the
directly or indirectly applicable NASD member I am
or if you have an account associated with within one
in which an NASD member or day of payment of the stock.
person associated with an *_____________________(Initial)
NASD member has a beneficial
- -------------------------------------------------------------------------------
Acknowledgements
- -------------------------------------------------------------------------------
To purchase stock in the Subscription Offering, this fully completed Stock Order
Form must be actually received by Goshen Savings Bank no later than 12:00 noon,
Eastern Time on _____________, unless extended, otherwise this Stock Order Form
and all subscription rights will be void. Completed Stock Order Forms, together
with the required payment or withdrawal authorization and signed Certification,
may be delivered to Goshen Savings Bank or may be mailed to the Post Office Box
indicated on the enclosed business reply envelope. All rights exercisable
hereunder are not transferable and shares purchased upon exercise of such rights
must be purchased for the account of the person exercising such rights. The
undersigned certifies that this stock order is for my account only and there is
no agreement or understanding regarding the transfer of my subscription rights
or any further sales or transfer of these shares.
It us understood that this Stock Order Form will be accepted in accordance with,
and subject to, the terms and conditions of the Plan of Conversion of Goshen
Savings Bank described in the accompanying Prospectus, receipt of which is
hereby acknowledged at least 48 hours prior to delivery of this Stock Order Form
to Goshen Savings Bank. If the minimum shares cannot be sold, all orders will be
canceled and funds received as payment will be returned promptly.
The undersigned agrees that after receipt by GSB Financial, this Stock Order
Form may not be modified, withdrawn or canceled (unless the Conversion is not
completed by ______________) and if Goshen Savings Bank has been given
authorization to withdraw a specified amount from deposit accounts at Goshen
Savings Bank as payment shares, the amount authorized for withdrawal shall not
otherwise be available for withdrawal by the undersigned.
I ACKNOWLEDGE THAT THIS SECURITY IS NOT A DEPOSIT OR ACCOUNT AND IS NOT INSURED
OR GUARANTEED BY THE SAIF, THE FDIC OR THE FEDERAL GOVERNMENT.
Under penalty of perjury, I certify that the Social Security or Tax ID Number on
this Stock Order Form is true, correct and complete and that I am not subject to
back-up withholding.
- -------------------------------------------------------------------------------
Sign Below (You must also read and sign the Certification on the reverse side to
purchase stock).
- -------------------------------------------------------------------------------
Sign and date the form. When purchasing as a custodian, corporate officer, etc.,
include your full title. An additional signature is required only when payment
is by withdrawal from an account that requires more than one signature to
withdraw funds. YOUR ORDER WILL BE FILLED IN ACCORDANCE WITH THE PROVISIONS OF
THE PROSPECTUS. THIS ORDER IS NOT VALID IF NOT SIGNED ON THE FRONT AND BACK.
If you need help completing this form, you may call the Stock Center at
(914) 219-3999
===============================================================================
x
- -------------------------------------------------------------------------------
Authorized Signature Title (if applicable) Date
x
- -------------------------------------------------------------------------------
Authorized Signature Title (if applicable) Date
===============================================================================
<PAGE>
- -------------------------------------------------------------------------------
GUIDELINES FOR REGISTERING STOCK
- -------------------------------------------------------------------------------
For reasons of clarity and standardization, the stock transfer industry
has developed uniform stock ownership registrations which we will use in issuing
your stock certificate. Common ownership registrations are explained below. If
you have any questions about how your GSB Financial Corporation stock should be
registered, see your legal advisor.
To ensure correct registration, please follow the instructions for the
ownership you select:
- -------------------------------------------------------------------------------
GENERAL INSTRUCTIONS: o Include the first name, middle initial, and last
name of each person listed. Avoid the use of an
initial in place of the first name.
o Do not use titles such as ("Mr.," "Mrs.," "Dr.,"
etc.)
o Omit words that do not affect ownership rights
such as "special account" "personal property,"
etc.
- -------------------------------------------------------------------------------
INDIVIDUAL: Instructions: Print the first name, middle initial,
and last name of the person in whose name the stock
is to be registered. You may not list beneficiaries
for this ownership.
- -------------------------------------------------------------------------------
JOINT TENANTS: Joint Tenancy with Right of Survivorship identifies
two or more persons as owners of the stock. Upon the
death of one of the owners, ownership automatically
passes to the surviving tenant(s).
Instructions: Print the first name, middle initial,
and last name of each joint tenant. You may not list
beneficiaries for this ownership.
- -------------------------------------------------------------------------------
TENANTS IN COMMON: Tenants in Common identifies two or more persons as
owners of the stock. Upon the death of one co-tenant,
ownership of the stock passes to the heirs of the
deceased co-tenant and the surviving co-tenant(s).
Instructions: Print the first name, middle initial,
and last name of each co-tenant. You may not list
beneficiaries for this ownership.
- -------------------------------------------------------------------------------
FIDUCIARIES: Generally, fiduciary relationships (such as
Conservatorship, Legal Trust, Guardianship, etc.) are
established under a form of trust agreement or are
pursuant to a court order. Without a legal document
establishing a fiduciary relationship, your stock may
not be registered in a fiduciary capacity.
Instructions: On the first "NAME" line, print the
first name, middle initial, and last name of the
fiduciary if the fiduciary is an individual. If the
fiduciary is a corporation, list the corporate title
on the first "NAME" line. Following the name, print
the fiduciary "title" such as conservator, personal
representative, etc.
On the second "NAME" line, print either the name of
the maker, donor or testator or the name of the
beneficiary. Following the name, indicate the type of
legal document establishing the fiduciary
relationship (agreement, court order, etc.)
In the blank above "Adoption Date," fill in the date
of the document governing the relationship. The date
of the document need not be provided for a trust
created by a will.
EXAMPLE OF A FIDUCIARY REGISTRATION:
John D. Smith Trustee for Tom A. Smith Under
Agreement Dated 6/6/74.
PLEASE NOTE THAT "TOTTEN TRUST" AND "PAYABLE ON
DEATH" OWNERSHIPS MAY NOT BE USED IN REGISTERING
STOCK.
For example, stock cannot be registered as "John Doe
Trustee for Jane Doe" or "John Doe Payable on Death
to Jane Doe."
<PAGE>
- -------------------------------------------------------------------------------
UNIFORM GIFTS TO For New York residents and residents of many states,
MINORS ACT/UNIFORM stock may be held in the name of a custodian for the
TRANSFERS TO MINORS: benefit of a minor under the Uniform Transfers to
Minors Act. For residents of some other states, stock
may be held in a similar type of ownership under the
Uniform Gifts to Minors Act of the individual states.
For either ownership, the minor is the actual owner
of the stock with the adult custodian being
responsible for the investment until the minor
reaches legal age.
Instructions: If you are a New York resident and wish
to register stock in this ownership, check "Uniform
Transfers to Minors Act." For other states, see your
legal advisor if you are unsure about the correct
registration of your stock.
On the first "NAME" line, print the first name,
middle initial, and last name of the custodian with
the abbreviation "CUST" after the name.
Print the first name, middle initial, and last name
of the minor on the second "NAME" line.
Only one custodian and one minor may be designated.
- -------------------------------------------------------------------------------
NASD AFFILIATION: Please refer to the NASD AFFILIATION statement on the
face of this form. If applicable, initial where
indicated and check the box. The National Association
of Securities Dealers, Inc. Interpretation With
Respect to Free-Riding and Withholding (the
"Interpretation") restricts the sale of a "hot issue"
(securities that trade at a premium in the
aftermarket) to NASD members, persons associated with
NASD members (i.e., an owner, director, officer,
partner, employee or agent of a NASD member) and
certain members of their families. Such persons are
requested to indicate that they will comply with
certain conditions required for an exemption from the
restrictions.
- -------------------------------------------------------------------------------
CERTIFICATION: I/WE ACKNOWLEDGE THAT THIS SECURITY IS NOT A DEPOSIT
OR AN ACCOUNT AND IS NOT FEDERALLY INSURED, AND IS
NOT GUARANTEED BY GOSHEN SAVINGS BANK OR BY THE
FEDERAL GOVERNMENT.
If anyone asserts that this security is federally
insured or guaranteed, or is as safe as an insured
deposit, I/we should call the Office of Thrift
Supervision Regional Director, Northeast Regional
Office, at (201) 413-1000.
I/We further certify that before purchasing the
common stock, par value $0.01 per share, of GSB
Financial Corporation, I/we received a prospectus
that contains disclosure concerning the nature of the
security being offered and describes the risks
involved in the investment, including, among other
(1) interest rate risk; (2) allowance for loan
losses; (3) lending concentration; (4) competition;
(5) impact of technological advances; (6) return on
equity; (7) certain anti-takeover provisions; (8)
voting control of officers and directors; (9)
provisions in management contracts and benefit plans;
(10) absence of market for common stock; (11)
possible increase in the valuation range and number
of shares to be issued; (12) possible dilution from
stock options and the ISAP; (13) possible adverse
income tax consequences of the distribution of
subscription rights; (14) regulation of financial
institutions; and (15) risk of delayed offering. See
"Risk Factors" on pages ___ through ___ of the
prospectus.
SIGNATURE: _____________________ SIGNATURE: _______________________
PRINT NAME:_____________________ PRINT NAME:_______________________
SIGNATURE: ____________________ SIGNATURE: _______________________
PRINT NAME:_____________________ PRINT NAME:_______________________
<PAGE>
LETTERHEAD OF SERCHUK & ZELERMYER, LLP
April 30, 1997
Ms. Peggy Fisher, Assistant Director
Securities and Exchange Commission
450 Fifth Street
Washington, DC 20549
Re: GSB Financial Corporation
Form S-1
Filed March 19, 1997
File No. 333-23573
Dear Ms. Fisher:
This letter is provided in response to your letter to Clifford E.
Kelsey, Jr. dated April 18, 1997 providing the staff's comments to the
above-referenced filing. Our responses are numbered to correspond to the
numbering in your letter. An amended registration statement with a revised
prospectus reflecting the changes outlined below in being filed electronically
(filing should occur on May 1, 1997) and two courtesy paper copies are being
sent directly to Mr. Clampitt for him and Mr. Hamm. The comment numbers have
been manually written into the margins of the courtesy copies to facilitate
review.
1. The requested disclosure has been added to the first sentence of the first
paragraph of the prospectus cover.
2. A disclosure that a majority of the votes eligible to be cast is required to
approve the plan of conversion has been added to the second paragraph of the
cover, which now carries over onto the inside cover page.
3. A brief discussion of the Community Offering, with a cross-reference to the
more detailed discussion later, has been added to the requested paragraph on
page 2.
4. An explanatory definition has been added to the first paragraph under the
caption "Stock Pricing and Number of Shares to be Issued" directly after the use
of the phrase "pro forma market value" at page 6 carrying over onto page 7.
5. A discussion regarding the updating of the appraisal and the related
resolicitation requirement has been added to the second paragraph under the
caption "Stock Pricing and Number of Shares to be Issued" at page 7. We note,
however, that under Office of Thrift Supervision procedures, resolicitation will
not be required unless the appraisal update shows a value in excess of
$22,482,500, being 15% above the maximum of the Valuation Range.
6. Only subscribers who have subscribed for the maximum purchase limitation will
be resolicited if there is an increase. A statement to that effect has been
added under the caption "Purchase Limitations" at page 6 directly after the
discussion of the right to increase the limit.
<PAGE>
Serchuk & Zelermyer, LLP
Ms. Peggy Fisher
April 30, 1997
Page 2
7. A statement of how the exercise price of the options will be established has
been added to the paragraph under the caption "Benefits to Management and
Directors--Stock Option Plan" at page 8.
8. The requested disclosure has been added to the paragraph under the caption
"Benefits to Management and Directors--Stock Option Plan" at page 8.
9. A disclosure of the cost of repurchasing 4% of the outstanding shares to fund
the ISAP has been added to the paragraph under the caption "Benefits to
Management and Directors--Incentive Stock Award Plan" at page 8. It is our
understanding that the financial statement expense of ISAP awards will be based
not upon the repurchase price but instead upon the market value of the stock on
the date it is vested, which represents the opportunity cost of grating the
stock for free instead of selling it on that date. Therefore, we have added
disclosure describing how the financial statement cost of the ISAP is determined
and stating that an increase in the fair market value on the date of the award
will result in an increased expense to the paragraph under the caption "Benefits
to Management and Directors--Incentive Stock Award Plan" at page 8 and under the
caption "Management of the Bank--Benefits--Incentive Stock Award Plan" at page
104.
10. Mr. Kelsey, the president, is the sole named executive officer. A disclosure
of his estimated payment under his employment agreement has been added to the
paragraph under the caption Benefits to Management and Directors--Executive
Officer Employment Contracts" at page 8.
11. Disclosure of the subscription priorities of directors and executive
officers (note that they have no advantageous special priority) has been added
to the paragraph under the caption Benefits to Management and
Directors--Subscriptions by Executive Officers and Directors" at page 9.
12. The requested disclosure the potential market price impact of anti-takeover
provisions has been added under the caption "Anti-takeover Aspects of
Conversion" at page 9.
13. The requested additional risk factor regarding capital ratio has been
combined with the with the risk factor regarding Return on Equity and included
at pages 11 and 12. The caption of the Risk Factor has been revised to read
"Additional Capital; Return on Equity." This approach was taken because the two
issues are so closely related and both result from the influx of additional
capital.
14. The requested disclosure regarding OTS repurchase restrictions has been
added under the caption "Additional Capital; Return on Equity" at page 12, with
a cross-reference to the more detailed discussion of the repurchase
restrictions.
15. The requested disclosure regarding historical return on equity has been
added under the caption "Addition Capital; Return on Equity" at page 11 and 12.
16. A reference to the effect of the anti-takeover provisions on market price
has been added to under the caption "Certain Anti-takeover
Provisions--Provisions in the Company's and the Bank's Governing Instruments" at
page 12.
<PAGE>
Serchuk & Zelermyer, LLP
Ms. Peggy Fisher
April 30, 1997
Page 3
17. The requested disclosure regarding the effect of a lack of a market has been
added to the second paragraph under the caption "Absence of Market for Common
Stock" at page 13.
18. The requested disclosure explaining the market price implications of
dilution has been added under the caption "Possible Dilution From Stock Options
and the ISAP" at page 15.
19. The requested disclosure regarding preemptive rights has been added under
the caption "Possible Dilution From Stock Options and the ISAP" at page 15.
20. The risk factor formerly titled "Risk of Delayed Offering" at page 14 and 15
has been revised to change the title and reference certain adverse consequences
which could result from such a delay.
21. The number of shares used to calculate earnings per share, which number of
shares is disclosed in the table, is determined in accordance with OTS policy
for pro forma data in conversion transactions. The number of shares used to
calculate per share income data is equal to the total shares sold for the
applicable column, minus 8% representing the ESOP purchase, but adding back the
weighted average number of shares estimated to be released from the lien of the
ESOP loan during the applicable period. The ESOP loan is projected to have a
term of 10 years, so one-tenth of the ESOP shares are expected to be released
each year. The weighted average shares released is thus one-twentieth of the
total ESOP shares for a full year and one-eightieth for a three-month period.
For example, for the first column on page 34, the number of shares used to
calculate pro forma net income per share is equal to 1,445,000 - (1,445,000 x
.08) + (((1,445,000 x .08)/10)/8) = 1,330,845 shares. This is divided into
historical net income for the period ($295,000) to determine pro forma
historical net income per share.
22. Nationar was not an affiliate of Goshen Savings Bank. The Bank owned an
equity interest in Nationar equal to less than 0.1% of the total equity
ownership interest in Nationar. The remainder of the stock of Nationar was owned
by other thrift institutions in New York, many of whom are much larger than
Goshen Savings Bank. It is the Registrant's understanding (based upon a
combination of statements by the Superintendent of Banks, litigation affidavits
submitted by other entities in the Nationar liquidation proceeding, and other
information) that Nationar was closed due to a liquidity crisis caused by the
precipitous withdrawal of certain large deposits by other bank customers of
Nationar who were concerned about Nationar's health. Goshen Savings Bank had no
involvement in, or control over, the events which precipitated the closing and
had no special access to information regarding the Superintendent's decision to
close Nationar. Therefore, the registrant believes that any disclosure by it of
the events which preceded the closure and the reasons for the closure would be
at best speculative. Since the reasons for the closure were not within the
control of Goshen Savings Bank, and since the Nationar situation is unlikely to
recur because Nationar was a one-of-a-kind specially chartered bank, the
registrant respectfully suggests that the requested disclosure not be made.
23. The requested disclosure regarding the potential income statement effect of
litigation has been added under the caption "Legal Proceedings" at page 80.
<PAGE>
Serchuk & Zelermyer, LLP
Ms. Peggy Fisher
April 30, 1997
Page 4
24. A statement reference the reader to the discussion of the tax effects of the
Conversion has been added to the introduction to the discussion of general tax
matters under the caption "Taxation--General" at page 89.
25. Dates have been added to the discussion of the employment history of Messrs.
Gengel, Hopkins and Dederick to clarify that the disclosures cover the past five
years, under the caption "Biographical Information" at pages 95 and 96.
26. The requested disclosure regarding the coverage of material tax matters has
been added under the caption "Effects of Conversion on Depositors and
Borrowers--Tax Effects" at page 106.
27. The auditor's report at page F-2 has been revised to include the year ended
September 30, 1994 as applicable.
28. The Statement of Cash Flows, at pages F-5 and F-7, have been revised to
eliminate the line entitled "(Provision) Recovery for Nationar Loss netted to
cash" and adjusted the balance of cash and cash equivalents by the $232,223
amount which is the Nationar loss reserve account balance. The balance sheet
discloses that the cash balance is net of this reserve. This revision will
effectively illustrate the Nationar provision in the statement of cash flow.
29. The registrant and its accountants believe that the net amortization or
accretion on securities needs to be disclosed as an adjustment to reconcile net
income to net cash provided by operating activities at pages F-5 and F-7. The
net amortization/accretion is a necessary and required entry on the Statement of
Cash Flows to reconcile net income to net cash because the amortization or
accretion represents income or expense recorded on the Statements of Income
which is not represented by a corresponding cash receipt or disbursement. The
fact that the securities are recorded as available for sale on the Balance
Sheets does not affect the need to adjust, on the Statement of Cash Flows, the
net income as shown on the Statements of Income by non-cash items.
30. Under the heading "Supplemental Statement of Non-Cash Investing Activities"
at pages F-6 and F-8, two classification titles were inadvertently typed in
incorrect order. The titles "Transfers of investment securities - trading
portfolio to investment securities - available for sale" and "Transfers of
investment securities - held to maturity to investment securities - available
for sale" have been reversed, so that the amount in the columns now correspond
to the correct titles and are in the correct periods.
General
The disclosures have been updated and changes have also been made in
response to comments from the Office of Thrift Supervision. In addition, a
"Recent Developments" section has been added at pages 20-25 to set forth various
financial disclosures and discuss the financial condition and results of
operations at or for the three and six month periods ended March 31, 1997.
<PAGE>
Serchuk & Zelermyer, LLP
Ms. Peggy Fisher
April 30, 1997
Page 5
I trust that the changes outlined above will be satisfactory. If the
staff has any further comments or would like any additional information, please
do not hesitate to contact the undersigned and appropriate steps will be taken.
Sincerely,
/s/ Jay L. Hack
-------------------
Jay L. Hack
