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As filed with the Securities and Exchange Commission on March 19, 1997
Registration No. 333-_____
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SECURITIES AND EXCHANGE COMISSION
Washington, D.C. 20549
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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 Requested
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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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<S> <C> <C> <C> <C>
Common Stock, $2,248,250 $10.00 $22,482,500 $6,812.88
$0.01 Par Value
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(1) Estimated solely for purposes of calculating the registration fee.
The registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<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, is offering
up to 1,955,000 of its common stock, par value of $.01 per share (the "Common
Stock"), for a purchase price of $10.00 per share (the "Purchase Price") in
connection with the conversion of Goshen Savings Bank (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 members 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 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
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 holder 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 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
its 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 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
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) part of the net proceeds
from the sale of the Company's stock. 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 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 loss in fiscal 1995 resulted in part from a
$279,000 provision for losses related to the closing of Nationar, then the
Bank's principal correspondent bank, and $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 at least 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 Bank is converting to increase its 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
home financing opportunities 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 the following 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 expire at 12:00 noon, eastern time, on the Subscription Offering
Expiration Date, unless extended by the Bank and the Company, with 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 combined amount by which orders exceed 5%
of the shares offered may not exceed 10% of the total shares offered. 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 the Common Stock 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 Board has established a Purchase Price of $10.00 per share,
and, therefore, it is anticipated that between 1,445,000 and 1,955,000 shares of
Common Stock will be sold 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
valuation 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. No resolicitation of subscribers will be made and subscribers will
not be permitted to modify or cancel their subscriptions unless resolicitation
is required by the OTS and either (i) the gross proceeds from the sale of the
Common Stock are less than the minimum or
6
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more than 15% above the maximum of the current Valuation Range or (ii) 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. 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 the Stock Option Plan and the 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 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 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. 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. 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 would 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 Mr. Kelsey and the five non-employee directors is from $289,000 to
$449,640 based upon the minimum and 15% above the maximum of the Valuation
Range. 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 $896,000. However,
the actual amount payable cannot be estimated at this time because it is 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 $550,000. 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. 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.
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." 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.
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. The Company is not expected to be able to immediately
leverage the new capital, and therefore the increase in equity may adversely
affect equity (net income divided by average equity), absent a corresponding
increase in net income. 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."
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 provide for, 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.
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, Severance 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. The Company will seek
to encourage and assist at least two market makers to make a market in its
Common Stock. 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 to act as a market maker for
the Common Stock, there can be no assurance that there will be two or more
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. 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 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. 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."
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 Delayed Offering
The successful consummation of the Offerings 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 Subscription
Offering and the Public Offering, if held, 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, which would delay completion of the Conversion.
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
Average equity to average total assets.... 12.33 11.15 11.53 11.40 11.34 10.99 10.66
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 1.46x 1.18x 0.82x 1.08x 1.30x 1.24x
Capital and Asset Quality Ratios:
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 0.22 0.20 0.19 0.19 0.20
Allowance for loan losses to
non-performing loans................... 44.33x NM 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 (10) ............. 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 7 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 IIMF lump sum distributions
received annually in December 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) In March 1997, the Bank opened a branch in Goshen, New York.
16
<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
______________, 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 its 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 as 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.
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<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
(i.e., 50% of the net proceeds) 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. 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 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 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 amount of assets and liabilities of the
Company. The pro forma stockholders' equity is not intended to represent the
fair market value of the Common Stock and may be greater than amounts that would
be available for distribution to stockholders in the event of liquidation.
The following tables summarize historical data of the Bank and pro
forma data of the Company at or for the three months ended December 31, 1996,
and at or 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 or, in the event of liquidation of
the Bank, to the tax effect of the bad debt reserve and other factors. 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 .......................... 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 earning 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 continue to 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 21,542
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 $ 30,972
======== ======== ======== ======== ========
</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. Such report includes an explanatory
paragraph relating to changes in accounting principles. 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 Years Ended
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>
<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 may then be sold on the secondary
market, with the Bank retaining servicing rights. However, the Bank has not 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. 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. Also set forth is information regarding outstanding balances
and yields or costs, with related information, at December 31, 1996.
<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 four 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,
form 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 decrease
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.
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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
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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 them 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
they are now entitled to 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
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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 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
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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.
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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 _____________,
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
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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.
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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 the
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
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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 98.66% 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 1.34% 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 0.45%
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 0.88%
Commercial business loans....... 26 0.04% 2 0.00% 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 ...... 133 123 115
------- -------- --------
Total loans, net .................$61,013 $ 58,727 $ 57,918
======= ======== ========
</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 and the Monthly Median Cost of Funds index, both as
originally published by the Federal Home Loan Bank Board. These indexes have
proved to be unsatisfactory and have resulted in approximately $7.0 million of
ARMs at December 31, 1996 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 of 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. 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 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 12 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
------ ------ -------- ------ ------ -------- ------ ------ --------
<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 90.40% $ 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 1.34% 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 5.9% 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 $4.7 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) $(8,015) $(1,563) $(5,092)
Interest credited............ 764 3,364 3,260 2,685
------- ------- ------- -------
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. 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 $35,000.
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 position of the Bank.
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REGULATION
Set forth below is a brief summary of certain laws which relate to the
regulation and supervision of the Bank. Note that the Bank did not become a
federally chartered savings bank until 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 fully secured by readily-marketable collateral. Such
collateral includes 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.
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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, and consumer loans up to 10% 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. 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 a deposit insurance premium of zero. 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 no 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.
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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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 plans to established the following committees of its Board
of Directors:
The Compensation Committee. The Compensation Committee 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 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 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.
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
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Company. However, the Company has entered into employment contracts with each 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>
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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 is the regional representative for the Sutphen Corporation and S.V.I.
Trucks 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. From 1971 to 1992, Mr. Gengel held various
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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. 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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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.
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. 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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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 each of 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 $334,000 payable to Mr. Kelsey and
$562,000 to the other three executive officers in the aggregate. However, the
actual amount to 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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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 $550,000. However, the actual amount
to 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 [, with an offset for
certain social security benefits]. A participant is entitled to a maximum of 30
years of service under the Pension Plan.
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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 seven years.
Employee Stock Ownership Plan. The Company has established, and the
Bank has adopted, for the benefit of eligible employees, 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, unallocated shares 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 upon 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, 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; provided, that shares received
through the exercise of such option are not disposed of for at least one year
after the date the stock is received in connection with the option exercise and
two years after the date of grant of the option. No compensation deduction 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 have 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 $449,640 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. 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. 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, 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 from 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 such distribution.
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, 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%.
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 Capital Resources Group.
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>
Total Price of Percent
Shares Shares of Shares
Name Position Purchased Purchased Purchased
- ---- -------- --------- --------- ---------
<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 Delayed Offering
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, has
been 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 $10,000. 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 1,955000 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 income on a per share basis while increasing the pro forma net
income and equity and 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 holders 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
Certain provisions of 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. See
"Management of the Bank--Benefit Plans--Stock Option Plan," and "--Benefit
Plans--Incentive Stock Award Plan." The Company and the Bank have also 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." The foregoing
provisions and limitations may make it more difficult for companies or persons
to acquire control of the Bank. Additionally, the provisions could deter offers
to acquire the outstanding shares of the Company which might be viewed by
stockholders to be in their best interests.
The 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 of 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.
105
<PAGE>
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 $0.10 per share, and 500,000 shares of
preferred stock, par value $0.10 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 [Transfer
Agent].
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.
Capital Resources 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, 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 the years then ended. 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 then ended 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
STATEMENT 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 accretion on investment
securities 222,033 559,935 842,684
Net 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
(Provision) Recovery for Nationar
Loss netted to cash 232,223 (232,223) 0
------------ ------------ ------------
Net cash provided by operating
activities 1,301,949 767,891 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
STATEMENT 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 (2,510,599) 4,824,329 662,778
Cash and cash equivalents at
beginning of year 7,194,554 2,370,225 1,707,447
------------ ------------ ------------
Cash and cash equivalents
and end of year $ 4,683,955 $ 7,194,554 $ 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-trading portfolio
to investment securities -
available for sale 20,912,562 0 0
Transfers of investment securities
-held to maturity 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
STATEMENT 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
(Provision) Recovery for Nationar 0 0
----------- -----------
Loss netted to cash
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
STATEMENT 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
securities trading portfolio 0 0
Transfers of investment
securities-trading portfolio to
investment securities - available for sale 0 20,912,562
Transfers of investment securities-held
to maturity 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 $ 0 $ 32,653 $ 5,800,899
United States Government
Agencies 2,933,346 31,545 0 2,964,891
Corporate Debt
Obligations 13,963,912 0 30,034 13,933,878
Other 1,018,631 0 7,670 1,010,961
----------- ---------- ---------- -----------
$23,749,441 $ 31,545 $ 70,357 $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 $ 10,642 $ 0 $ 3,022,820
United States Government
Agencies 2,972,372 42,243 0 3,014,615
Corporate Debt Obligations 11,569,417 80,277 0 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 $ 355,327 $ 0 $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 $ 0 $ 3,527 $ 4,714,187
United States Government
Agencies 2,967,353 16,387 0 2,983,740
Corporate Debt Obligations 12,042,427 32,479 0 12,074,906
Other Debt Obligations 506,046 0 1,486 504,560
Equity Securities 2,601,119 202,196 0 2,803,315
----------- ---------- ---------- -----------
$22,834,659 $ 251,062 $ 5,013 $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 $ 3,034 $ 0 $ 2,053,830
Corporate Equity Securities 1,956,584 83,825 0 2,040,409
----------- ----------- ---------- -----------
$ 4,007,380 $ 86,859 $ 0 $ 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 $79,249 $ 0 $6,252,401
========== ======= ======== ==========
September 30, 1996
-----------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair Market
Cost Gains Losses Value
--------- ---------- ---------- -----------
Mortgage Backed
Securities $6,473,727 $55,483 $ 0 $6,529,210
========== ======= ======== ==========
</TABLE>
F-16
<PAGE>
GOSHEN SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
NOTE 5. MORTGAGE BACKED SECURITIES.
<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 $ 88,245 $ 0 $ 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 company'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:
Years Ended
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 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 this
time, the cost for this cleanup is 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.
The regulations require 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 to 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 Bank after
giving effect to the conversion. A subscription offering of the
sale of the Bank's common stock will be offered initially to the
Bank's depositors, then to other members and trustees, officers and
employees of the Bank. Any shares of the Bank's common stock not
sold in the subscription offering will be offered for sale to the
general public in the Bank's market area. At the time of
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 an eligible account
holder's interest in the liquidation account. In the event of a
complete liquidation, each eligible depositor will be entitled to
receive a distribution from the liquidation account 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
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.
2,248,500
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.
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
3.4 Proposed Federal Stock Bylaws of Goshen Savings Bank
4.1 Form of Stock Certificate of GSB Financial Corporation
5.1 Form of Opinion of Serchuk & Zelermyer, LLP regarding legality
8.1 Form of 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
10.2 Form of Employment Agreement between Goshen Savings Bank and certain
executive officers
10.3 Form of Employee Retention Agreement between GSB Financial Corporation,
Goshen Savings Bank and certain officers
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
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 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*
* To be filed by amendment
(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 Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the Village of Goshen,
State of New York, on March 13, 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 March 13 , 1997
- --------------------------- and Director (principal executive officer)
Clifford E. Kelsey, Jr.
/s/ Richard C. Durland Executive Vice President, March 13 , 1997
- ---------------------- Treasurer and Director
Richard C. Durland
/s/ Stephen W. Dederick Principal Financial and Accounting March 13, 1997
- ----------------------- Officer
Stephen W. Dederick
/s/ Herbert C. Mueller Director March 13, 1997
- ----------------------
Herbert C. Mueller
/s/ Stephen O. Hopkins Director March 13, 1997
- ----------------------
Stephen O. Hopkins
/s/ Thomas V. Guarino Director March 13, 1997
- ---------------------
Thomas V. Guarino
/s/ Gene J. Gengel Director March 13, 1997
- ------------------
Gene J. Gengel
/s/ Roy L. Lippincott Director March 13, 1997
- ---------------------
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.
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
3.4 Proposed Federal Stock Bylaws of Goshen Savings Bank
4.1 Form of Stock Certificate of GSB Financial Corporation
5.1 Form of Opinion of Serchuk & Zelermyer, LLP regarding legality
8.1 Form of 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
10.2 Form of Employment Agreement between Goshen Savings Bank and certain
executive officers
10.3 Form of Employee Retention Agreement between GSB Financial Corporation,
Goshen Savings Bank and certain officers
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
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 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*
* - To be filed by amendment
<PAGE>
Exhibit 1.1
Letterhead of Capital Resources, Inc.
1211 Connecticut Ave., N.W. Suite 200 Washington, DC 20036 Tel (202)466-5685
Fax (202) 466-5695
PROPOSAL FOR MARKETING AGENT SERVICES
in connection with the planned mutual-to-stock conversion of
GOSHEN SAVINGS BANK
Goshen, New York
January 7, 1997
<PAGE>
Letterhead of Capital Resources, Inc.
1211 Connecticut Ave., N.W. Suite 200 Washington, DC 20036 Tel (202)466-5685
Fax (202) 466-5695
January 7, 1997
Mr. Clifford E. Kelsey, Jr.
President and Chief Executive Officer
Goshen Savings Bank
1 S. Church Street
Goshen, New York 10924
Dear Mr. Kelsey:
We are pleased to submit this proposal to set forth the terms of the
proposed engagement between Capital Resources, Inc. and Goshen Savings Bank
("Goshen Savings" or the "Bank") for your planned mutual-to-stock conversion
(the "Conversion") and the offering of your shares of common stock (the
"Offering").
BACKGROUND ON CAPITAL RESOURCES
Capital Resources is a National Association of Securities Dealers
("NASD") member investment banking firm specializing in raising capital for
financial institutions. Members of our professional staff are licensed
securities representatives and have extensive experience in conducting local
sales efforts for thrift conversions. Our "hands-on" philosophy and direct sales
involvement have resulted in many successful conversions and a satisfied
clientele. We combine the critical and necessary operational and data processing
support within our package of marketing services to help ensure a smooth,
professionally conducted, successful Conversion.
As you are undoubtedly aware, there are substantial benefits to be
derived from a successful local offering of your stock. A successful local
offering not only results in stable, loyal stockholders, but also provides a
rare opportunity to capture many ancillary benefits to the Bank, such as the
opportunity for enhancing local identity and increasing local exposure.
The conversion process involves an enormous amount of attention to detail
and requires extensive knowledge and expertise in conversion regulations and
Securities and Exchange Commission ("SEC") marketing restrictions. Capital
Resources' experience in managing thrift conversions will help alleviate the
burden on management and minimize disruption to normal banking business while
ensuring each detail is attended to in a timely and accurate manner.
The following describes the scope of conversion marketing, operational
and staff training services Capital Resources proposes to provide Goshen
Savings.
<PAGE>
PROPOSED SERVICES
Capital Resources proposes to act as placement agent and marketing
representative on behalf of Goshen Savings with respect to the offering of
common stock pursuant to the Conversion. We will also serve as "Conversion
Manager" to assist you in numerous operational areas with respect to the
Conversion. In this regard, we combine four critical roles of the Conversion
process:
I. Sales and Marketing Assistance
II. Comprehensive Staff Training
III. Stock Center Management
IV. Additional Value-Added Services
Each area is discussed in the following sections.
I. SALES AND MARKETING ASSISTANCE
Capital Resources proposes to represent Goshen Savings as placement agent
in the sale of the common stock. Our marketing assistance program is designed to
inform your true customer base of the investment opportunity and to educate your
customers on the conversion process. Our main objective is to target sales to
your local customers who will have subscription rights. We have had much success
in selling entire issues to customers. In the event shares remain available
after customer subscription, we will market the remaining shares to achieve a
wide distribution to "friendly" shareholders.
Our specific responsibilities as such will be as follows:
o Assign licensed professionals from our staff to work at Goshen Savings'
offices as sales representatives on behalf of the Bank. Our professionals
will be responsible for all customer contact and inquiries regarding the
Offering.
o Work with your conversion counsel regarding the prospectus and the
language in it from a marketing perspective.
o If desirable, conduct a series of community meetings to provide
information on the Offering. Capital Resources' representatives will take
an active role in these meetings. These meetings serve as a customer
relations tool as well as enhance local exposure of Goshen Savings and
set the stage for favorable stockholder relations after Conversion.
o Design and prepare for the Bank a marketing campaign, including
appropriate marketing literature and media advertisements.
o If shares remain unsubscribed after the initial Offering, we will
assemble a selected dealer's syndicate to distribute any remaining shares
(the "Syndicated Community Offering"). We will meet with local brokers to
educate them on the particulars of thrift stocks, discuss the salient
terms of Goshen Savings' Offering, create after-market interest and
stimulate local interest in Goshen Savings' stock.
o We will use our best efforts to make a market in the stock after
Conversion and assist in arranging other market-makers, as feasible.
<PAGE>
II. COMPREHENSIVE STAFF TRAINING
Capital Resources will conduct comprehensive training sessions before the
formal commencement date of the Offering. Our training sessions are designed to
ensure that trustees, management and staff are knowledgeable of the conversion
process, aware of their roles and capable of dealing with problems, inquiries
and events. Each session is tailored to the audience involved and each covers a
different level of detail and area of the Conversion, as follows:
Top Management Meeting: A structured discussion pertaining to
organization, role assignments, facilities, marketing, accounting, reporting and
timetables.
Trustees' Meeting: A presentation regarding the conversion process and
trustees' roles and responsibilities, with emphasis on insider behavior and the
specific need for trustees' personal involvement.
Staff Training Meeting: A comprehensive training session with the entire
staff to discuss the nature of the Conversion, roles and responsibilities, and
the opportunity to elaborate community involvement. A slide presentation and
handouts are used.
Stock Center Training: We will train and supervise persons responsible
for assisting us in the Stock Center with clerical tasks (see section III
below). Computer training, account balancing procedures and stock recordkeeping
are covered.
In addition to our personalized training meetings, Capital Resources
documents the many details and functions of the conversion process in
easy-to-read study manuals. Our conversion study manuals are intended to be used
in conjunction with our personal training sessions and as a reference tool
during the Conversion. The manuals provide instruction, sample forms and general
information vital to a smooth conversion. This information has been collected
and refined by Capital Resources after use by our clients who have successfully
converted.
III. STOCK CENTER MANAGEMENT
A conversion requires accurate and timely recordkeeping and reporting.
Furthermore, customer inquiries must be handled professionally and accurately.
The Stock Center centralizes all data and work effort relating to the
Conversion. Capital Resources will establish the Stock Center, preferably
on-site at the Bank's offices, from which we will supervise all activities
relating to the Conversion. Our professionals will be on-site throughout the
Offering to handle customer inquiries and special situations as they arise. In
addition, we will require at least one of the Bank's employees (or temporary
personnel) to assist us on a full time basis in the Stock Center with clerical
tasks. We will train and supervise the clerical assistants. Stock Center
activities for which Capital Resources will assist the Bank include the
following:
<PAGE>
o Sort and track prospects
o Coordinate and record community meetings and attendance
o Tabulate stock orders
o Tabulate proxies
o Mail "Stock-Grams", "Proxy-Grams", and other literature as applicable
o Send order confirmations
o Coordinate mailings to customers and prospects
o Balance daily totals
o Respond to mail and telephone inquiries
o Generate daily management reports
o Coordinate with the printer for the initial sorting and mailing to
different categories of prospective subscribers.
Closing Assistance: The end of the Offering is a critical time that
requires coordination of many events. Capital Resources will be on-site to
coordinate tasks such as mailing interest checks, preparing 1099 forms, sending
"welcome" letters to shareholders, account balancing, final stock information
tabulation and preparing stockholder records for the transfer agent, as well as
to answer post-offering questions from subscribers.
In performing the various Stock Center tasks outlined above, Capital
Resources will utilize its proprietary conversion program, the "Back Office
Stock System" ("BOSS"). BOSS is a menu-driven, user-friendly program which will
help ensure efficient, accurate recordkeeping and timely reporting during the
Conversion. To use BOSS, we would require a computer to be provided by Goshen
Savings for Stock Center use during the conversion.
PROXY SOLICITATION
Regulations require that over 50% of the outstanding members' votes must
be in favor of the Plan of Conversion. We will solicit proxies to ensure this
vote requirement is met. We will need your staff to assist us in this process.
<PAGE>
IV. ADDITIONAL VALUE-ADDED SERVICES
Capital Resources will also provide certain other services as part of
this engagement at no charge, as follows:
o Provide proxy solicitation
o Prepare regulatory business plan
o Arrange market-makers
o Provide stock research coverage
o Purchase stock for benefit plans
PROPOSED FEE STRUCTURE
For our services as described herein, we propose a compensation structure
as follows:
A. A marketing fee of two percent (2.0%) of the total dollar amount of stock
sold in the Offering, excluding purchases by trustees, officers,
employees, and their immediate family members in the same household and
employee stock ownership plans and excluding stock sold by other NASD
member firms participating in the offering (see paragraph C. below). The
marketing fee is payable as follows: $15,000 upon execution of this
proposal and the commencement of our engagement; $15,000 upon filing of
the Application for Conversion; $15,000 upon regulatory approval of the
Conversion; and the balance upon closing. Progress payments are for
consulting work performed prior to the Offering.
B. Reimbursement for out-of-pocket expenses incurred by us on behalf of the
Conversion. Such expenses shall include, but are not limited to, travel,
legal, communications and postage. We will provide you with a detailed
accounting of all reimbursable expenses and will bill you monthly.
C. If utilized, the Bank shall be directly responsible for the payment of
selling commissions to other NASD firms participating in the Syndicated
Offering. Commissions to such other NASD member firms are typically up to
four percent (4%) of the amount of stock sold by such firms, and Capital
Resources' marketing fee shall be reduced to one percent (1.0%) of the
amount of stock sold, if any, by other NASD members.
ADDITIONAL PROVISIONS
Furthermore, it is understood that:
o Prior to the commencement of the Offering, Goshen Savings and Capital
Resources will enter into a formal agency agreement generally used by
Capital Resources for securities offerings which provides for mutual
indemnities and warranties. Our sales and marketing services are subject
to the usual warranties, indemnities and conditions contained in the
agency agreement.
o Our role as your NASD agent is subject to our normal underwriting
criteria and examination of relevant books and records.
o The Bank will pay all other expenses of the conversion, including but not
limited to attorney's fees, National Association of Securities Dealers,
Inc. filing fees, all fees and expenses relating to "blue sky" research
and filings, state licensing and securities registration fees, all fees
relating to auditing and accounting, all printing and advertising fees
and all costs associated with retaining temporary staffing, if any, in
connection with the Conversion.
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o Capital Resources will conduct an examination of the relevant documents
and records of Goshen Savings as appropriate. Goshen Savings agrees to
make all documents and records deemed appropriate or necessary by Capital
Resources available upon request.
o Our obligations stated herein will be subject to there being no material
changes, in the opinion of our firm, in the Bank's condition or in market
conditions so as to significantly delay the Offering or to render the
Offering inadvisable.
o Our marketing obligations pursuant to this agreement will terminate upon
the completion or termination of the initial Offering, but in no event
later than 12 months from the date of this letter. All fees or expenses
due to Capital Resources but unpaid will be payable to Capital Resources
at that time. In the event the offering is extended beyond this term, the
Bank and Capital Resources may mutually agree to renew this engagement
under mutually acceptable terms.
* * * * * * *
To engage our services, please sign in the space provided below and
return the signed letter to me. I have enclosed a signed copy for your files.
This proposal is open for your acceptance for thirty (30) days from the date of
this letter.
We look forward to working with Goshen Savings on this most exciting and
challenging project.
Sincerely,
CAPITAL RESOURCES, INC.
/s/ David P. Rochester
------------------------------------
David P. Rochester
Chairman and Chief Executive Officer
DPR/ems
Agreed To and Accepted By:
Goshen Savings Bank
/s/ Clifford E. Kelsey, Jr. Jan 13, 1997
signed date
Clifford E. Kelsey, Jr.
President and Chief Executive Officer
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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
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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 or Non-Tax-Qualified Employee 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 or Non-Tax-Qualified Employee Stock Benefit Plan, and (iii) any
relative or spouse of such person, or any relative of such spouse, who has the
same home as such Person or who is a 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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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 and the Non-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
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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. In the discretion of the Bank, the
term may also include demand accounts as defined in Section 561.18 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
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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.
5
<PAGE>
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 a wide 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.
6
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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
7
<PAGE>
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 a wide 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. 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 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 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 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 may
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. 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 3.1
CERTIFICATE OF INCORPORATION
OF
GSB FINANCIAL CORP.
ARTICLE ONE
NAME
The name of the Corporation is GSB Financial Corp.
(hereinafter sometimes referred to as the "Corporation").
ARTICLE TWO
REGISTERED ADDRESS
The address of the registered office of the Corporation in the State of
Delaware is 1013 Centre Road, in the City of Wilmington, County of New Castle.
The name of the registered agent at that address is Corporation Service Company.
ARTICLE THREE
PURPOSE
The purpose of the Corporation is to engage in any lawful act or activity for
which a corporation may be organized under the General Corporation Law of the
State of Delaware.
ARTICLE FOUR
DEFINITIONS
For the purposes of this Certificate of Incorporation, the following terms shall
have the meanings set forth in this Article Four.
A. "Affiliate" and "Associate" shall have the respective meanings ascribed to
such terms in Rule 12b-2 of the General Rules and Regulations under the
Securities Exchange Act of 1934, as in effect on the date of the initial filing
of this Certificate of Incorporation with the Secretary of State of the State of
Delaware.
B. "Announcement Date" shall mean, as to any Business Combination, the date of
the first public announcement of the proposal to engage in the Business
Combination or, if earlier, the first public announcement of any related
Business Combination.
C. "Beneficial Ownership" shall be determined pursuant to Rule 13d-3 of the
General Rules and Regulations under the Securities Exchange Act of 1934, as
amended (or any successor rule or statutory provision), or, if said Rule 13d-3
shall be rescinded and there shall be no successor rule or provision thereto,
pursuant to said Rule 13d-3 as in effect on the date of the initial filing of
this Certificate of Incorporation with the Secretary of State of the State of
Delaware; provided, however, that a person shall, in any event, also be deemed
the "beneficial owner" of any Common Stock which such person or any of its
Affiliates beneficially owns, directly or indirectly; or which such person or
any of its Affiliates has: (i) the right to acquire (whether such right is
exercisable immediately or only after the passage of time) pursuant to any
agreement, arrangement or understanding (but shall not be deemed to be the
<PAGE>
beneficial owner of any securities solely by reason of an agreement, contract,
or other arrangement with this Corporation to effect a Business Combination, or
upon the exercise of conversion rights, exchange rights, warrants, or options or
otherwise, or (ii) sole or shared voting or investment power with respect
thereto pursuant to any agreement, arrangement, understanding, relationship or
otherwise (but shall not be deemed to be the beneficial owner of any voting
shares solely by reason of a revocable proxy granted for a particular meeting of
stockholders, pursuant to a public solicitation of proxies for such meeting,
with respect to shares of which neither such person nor any such Affiliate is
otherwise deemed the beneficial owner); or which are beneficially owned,
directly or indirectly, by any other Person with which such first mentioned
person or any of its Affiliates acts as a partnership, limited partnership,
syndicate or other group pursuant to any agreement, arrangement or understanding
for the purpose of acquiring, holding, voting or disposing of any shares of
capital stock of this Corporation; and provided further, however, that: (1) no
Director or Officer of this Corporation (or any Affiliate of any such Director
or Officer) shall, solely by reason of any or all of such Directors or Officers
acting in their capacities as such, be deemed, for any purposes hereof, to
beneficially own any Common Stock beneficially owned by any other such Director
or Officer (or any Affiliate thereof); and (2) neither any employee stock
ownership or similar plan of this Corporation or any subsidiary of this
Corporation, nor any trustee with respect thereto or any Affiliate of such
trustee (solely by reason of such capacity of such trustee), shall be deemed,
for any purposes hereof, to beneficially own any Common Stock held under any
such plan. For purposes only of computing the percentage of Beneficial Ownership
of Common Stock of a Person, the outstanding Common Stock shall include shares
deemed owned by such Person through application of this subsection but shall not
include any other Common Stock which may be issuable by this Corporation
pursuant to any agreement, or upon exercise of conversion rights, warrants or
options, or otherwise. For all other purposes, the outstanding Common Stock
shall include only Common Stock then outstanding and shall not include any
Common Stock which may be issuable by this Corporation pursuant to any
agreement, or upon the exercise of conversion rights, warrants or options, or
otherwise.
D. "Business Combination" shall mean any transaction described in one or more of
paragraphs 1 through 6 of Section A of Article Nine.
E. In the event of any Business Combination in which the Corporation survives,
the phrase "consideration other than cash to be received" shall include the
shares of Common Stock and/or the shares of any other class of capital stock
retained by the holder of such shares in addition to any other consideration and
securities of the Corporation retained by the recipient of such consideration.
F. "Determination Date" shall mean the date on which an Interested Stockholder
becomes an Interested Stockholder.
G. "Disinterested Director" means any member of the Board of Directors who is
unaffiliated with the Interested Stockholder and was a member of the Board of
Directors prior to the time that the Interested Stockholder became an Interested
Stockholder, and any Director who is thereafter chosen to fill any vacancy of
the Board of Directors or who is elected and who, in either event, is
unaffiliated with the Interested Stockholder and in connection with his or her
initial assumption of office is recommended for appointment or election by a
majority of Disinterested Directors then on the Board of Directors.
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H. "Fair Market Value" means:
(1). in the case of stock, the highest closing sales price of the stock
during the 30-day period immediately preceding the date in question of a share
of such stock on the National Association of Securities Dealers Automated
Quotation System or any system then in use, or, if such stock is admitted to
trading on a principal United States securities exchange registered under the
Securities Exchange Act of 1934, as amended, Fair Market Value shall be the
highest sale price reported during the 30-day period preceding the date in
question, or, if no such quotations are available, the Fair Market Value on the
date in question of a share of such stock as determined by the Board of
Directors in good faith, in each case with respect to any class of stock,
appropriately adjusted for any dividend or distribution in shares of such stock
or any stock split or reclassification of outstanding shares of such stock into
a greater number of shares of such stock or any combination or reclassification
of outstanding shares of such stock into a smaller number of shares of such
stock; and
(2). in the case of property other than cash or stock, the Fair Market
Value of such property on the date in question as determined by the Board of
Directors in good faith.
I. Reference to "Highest Per Share Price" shall in each case with respect to any
class of stock reflect an appropriate adjustment for any dividend or
distribution in shares of such stock or any stock split or reclassification of
outstanding shares of such stock into a greater number of shares of such stock
or any combination or reclassification of outstanding shares of such stock into
a smaller number of shares of such stock.
J. "Interested Stockholder" shall mean any person (other than the Corporation or
Subsidiary thereof and other than any profit-sharing, employee stock ownership
or other employee benefit plan of the Corporation or any Subsidiary or any
trustee or fiduciary with respect to any such plan or holding Voting Stock for
the purpose of funding any such plan or funding other employee benefits for
employees of the Corporation or any Subsidiary when acting in such capacity) who
or which:
(1) is, or has announced or publicly disclaimed a plan or intention to
become, the beneficial owner, directly or indirectly, of more than 10% of the
voting power of the outstanding Voting Stock; or
(2) is an Affiliate of the Corporation and at any time within the
two-year period immediately prior to the date in question was the beneficial
owner, directly or indirectly, of 10% or more of the voting power of the then
outstanding Voting Stock; or
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(3) is an assignee of or has otherwise succeeded to any shares of
Voting Stock which were at any time within the two-year period immediately prior
to the date in question beneficially owned by any Interested Stockholder, if
such assignment or succession shall have occurred in the course of a transaction
or series of transactions not involving a public offering within the meaning of
the Securities Act of 1933, as amended.
K. The "Limit" shall mean 10% of the then-outstanding shares of Common Stock.
L. "Person" shall mean an individual, a firm, a group acting in concert, a
corporation, a partnership, an association, a joint venture, a pool, a joint
stock company, a trust, an unincorporated organization or similar company, a
government or political subdivision, a syndicate or any other group formed for
the purpose of acquiring, holding or disposing of securities, or any other
entity.
M. "Subsidiary" means any corporation of which a majority of any class of equity
security is owned, directly or indirectly, by the Corporation; provided,
however, that for the purposes of the definition of Interested Stockholder, the
term "Subsidiary" shall mean only a corporation of which a majority of each
class of equity security is owned, directly or indirectly, by the Corporation.
N. "Voting Stock" shall mean all issued and outstanding capital stock of the
Corporation, without giving effect to the provisions Article Five, Section C,
entitled to vote in the election of Directors.
O. "Whole Board" shall mean the total number of authorized directorships
including all vacancies and unfilled, newly-created directorships.
ARTICLE FIVE
CAPITAL STOCK
A. The total number of shares of all classes of stock which the Corporation
shall have authority to issue is five million (5,000,000) consisting of five
hundred thousand (500,000) shares of Preferred Stock, par value one cent ($.01)
per share (the "Preferred Stock"); and four million five hundred thousand
(4,500,000) shares of Common Stock, par value one cent ($.01) per share (the
"Common Stock").
B. The Board of Directors is authorized, subject to any limitations prescribed
by law, to provide for the issuance of the shares of Preferred Stock in one or
more series, and by filing a certificate pursuant to the applicable law of the
State of Delaware (such certificate being hereinafter referred to as a
"Preferred Stock Designation"), to establish from time to time the number of
shares to be included in each such series, and to fix the designation, powers,
preferences, and rights of the shares of each such series and any
qualifications, limitations or restrictions thereof. The number of authorized
shares of Preferred Stock may be increased or decreased (but not below the
number of shares thereof then outstanding) by the affirmative vote of the
holders of a majority of the Common Stock, without a vote of the holders of the
Preferred Stock, or of any series thereof, unless a vote of any such holders is
required pursuant to the terms of any Preferred Stock Designation.
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C. 1. Notwithstanding any other provision of this Certificate of Incorporation,
in no event shall any record owner of any outstanding Common Stock which is
beneficially owned, directly or indirectly, by a person who, as of any record
date for the determination of stockholders entitled to vote on any matter,
beneficially owns in excess of the Limit, be entitled, or permitted to any vote
in respect of the shares held in excess of the Limit. The number of votes which
may be cast by any record owner by virtue of the provisions hereof in respect of
Common Stock beneficially owned by any person who beneficially owns shares in
excess of the Limit shall be a number equal to the total number of votes which a
single record owner of all Common Stock beneficially owned by such person would
be entitled to cast (subject to the provisions of this Article), multiplied by a
fraction, the numerator of which is the number of shares of such class or series
which are both beneficially owned by such person and owned of record by such
record owner and the denominator of which is the total number of shares of
Common Stock beneficially owned by such person owning shares in excess of the
Limit. The provisions of this Section C shall not apply to Common Stock owned of
record by any pension, profit-sharing, stock bonus or other compensation plan
maintained by the Corporation, or by a member of a controlled group of
corporations of which the Corporation is a member, for the benefit of the
Corporation or any Subsidiary.
2. The Board of Directors shall have the power to construe and apply
the provisions of this Section C and to make all determinations necessary or
desirable to implement such provisions including, but not limited to, matters
with respect to: (i) the number of shares of Common Stock beneficially owned by
any Person; (ii) whether a person is an Affiliate of another; (iii) whether a
Person has an agreement, arrangement, or understanding with another as to the
matters referred to in the definition of beneficial ownership; (iv) the
application of any other definition or operative provision of this Section to
the given facts; or (v) any other matter relating to the applicability or effect
of this Section.
3. The Board of Directors shall have the right to demand that any
Person who is reasonably believed to beneficially own Common Stock in excess of
the Limit (or holds of record Common Stock beneficially owned by any Person in
excess of the Limit) supply the Corporation with complete information as to: (i)
the record owner(s) of all shares beneficially owned by such Person who is
reasonably believed to own shares in excess of the Limit; and (ii) any other
factual matter relating to the applicability or effect of this section as may
reasonably be requested of such Person. If such person fails to supply the
Corporation the information so requested within five business days after demand,
the record owner of any shares beneficially owned by such Person shall not be
entitled to vote in respect of any shares beneficially owned by such Person
until such information is provided.
4. Except as otherwise provided by law or expressly provided in this
Section C, the presence, in person or by proxy, of the holders of record of
shares of capital stock of the Corporation entitling the holders thereof to cast
a majority of the votes (after giving effect, if required, to the provisions of
this Section C) entitled to be cast thereat shall constitute a quorum at all
meetings of the stockholders, and every reference in this Certificate of
Incorporation to a majority or other proportion of capital stock (or the holders
thereof) for purposes of determining any quorum requirement or any requirement
for stockholder consent or approval shall be deemed to refer to such majority or
other proportion of the votes (or the holders thereof) then entitled to be cast
in respect of such capital stock thereat.
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5. Any constructions, applications, or determinations made by the Board
of Directors pursuant to this section in good faith and on the basis of such
information and assistance as was then reasonably available for such purpose
shall be conclusive and binding upon the Corporation and its stockholders.
6. This Article Five, Section C shall not apply to (a) any offer or
sale with a view towards public resale made exclusively by the Corporation to
any underwriter or underwriters acting on behalf of the Corporation, or to the
selling group acting on such underwriter's or underwriters' behalf, in
connection with a public offering of Common Stock; or (b) any reclassification
of securities (including any reverse stock split), or recapitalization of the
Corporation, or any merger or consolidation of the Corporation with any of its
Subsidiaries or any other transaction or reorganization that does not have the
effect, directly or indirectly, of changing the beneficial ownership interests
of the Corporation's shareholders, other than pursuant to the exercise of any
dissenters' appraisal rights, except as a result of immaterial changes due to
fractional share adjustments, which changes do not exceed, in the aggregate, one
percent (1%) of the issued and outstanding shares of such class of equity or
convertible securities.
7. In the event any provision (or portion thereof) of this Section C
shall be found to be invalid, prohibited or unenforceable for any reason, the
remaining provisions (or portions thereof) of this Section shall remain in full
force and effect, and shall be construed as if such invalid, prohibited or
unenforceable provision had been stricken herefrom or otherwise rendered
inapplicable, it being the intent of this Corporation and its stockholders that
each such remaining provision (or portion thereof) of this Section C remain, to
the fullest extent permitted by law, applicable and enforceable as to all
stockholders, including stockholders owning an amount of stock over the Limit,
notwithstanding any such finding.
D. No holder of any of the shares of any class or series of stock or of options,
warrants or other rights to purchase shares of any class or series of stock or
of other securities of the Corporation shall have any preemptive right to
purchase or subscribe for any unissued stock of any class or series, or any
unissued bonds, certificates of indebtedness, debentures, or other securities
convertible into or exchangeable for stock of any class or series or carrying
any right to purchase stock of any class or series; but any such unissued stock,
bonds, certificates of indebtedness, debentures, or other securities convertible
into or exchangeable for stock or carrying any right to purchase stock may be
issued pursuant to resolution of the Board of directors of the Corporation to
such persons, firms, corporations, or associations, whether or not holders
thereof, and upon such terms as may be deemed advisable by the Board of
Directors in the exercise of its sole discretion.
E. The Corporation may from time to time, pursuant to authorization by the Board
of directors of the Corporation and without action by the stockholders, purchase
or otherwise acquire shares of any class, bonds, debentures, notes, scrip,
warrants, obligations, evidences of indebtedness, or other securities of the
Corporation in such manner, upon such terms, and in such amounts as the Board of
directors shall determine; subject, however, to such limitations or
restrictions, if any, as are contained in the express terms of any class of
shares of the Corporation outstanding at the time of the purchase or acquisition
in question or as are imposed by law or regulation.
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ARTICLE SIX
MANAGEMENT
The following provisions are inserted for the management of the business and the
conduct of the affairs of the Corporation, and for further definition,
limitation and regulation of the powers of the Corporation and of its Directors
and stockholders:
A. The business and affairs of the Corporation shall be managed by or under the
direction of the Board of Directors. In addition to the powers and authority
expressly conferred upon them by statute or by this Certificate of Incorporation
or the Bylaws of the Corporation, the Directors are hereby empowered to exercise
all such powers and do all such acts and things as may be exercised or done by
the Corporation.
B. The Directors of the Corporation need not be elected by written ballot unless
the Bylaws so provide. Shareholders shall not have the right to cumulate their
votes in the election of Directors.
C. Any action required or permitted to be taken by the stockholders of the
Corporation must be effected at a duly called annual or special meeting of
stockholders of the Corporation and may not be effected by any consent in
writing by such stockholders.
D. Special meetings of stockholders of the Corporation may be called only by
the Board of Directors pursuant to a resolution adopted by a majority of the
Whole Board or as otherwise provided in the Bylaws.
ARTICLE SEVEN
DIRECTORS
A. The number of Directors shall be fixed from time to time by the Board of
Directors pursuant to a resolution adopted by a majority of the Whole Board. The
Directors (other than those Directors elected by the holders of any series of
Preferred Stock provided for or fixed pursuant to the provision of Section B of
Article Five hereof) shall be divided into three classes, as nearly equal in
number as reasonably possible, with the term of office of the first class to
expire at the first annual meeting of stockholders, the term of office of the
second class to expire at the second annual meeting of stockholders and the term
of office of the third class to expire at the third annual meeting of
stockholders, with each Director to hold office until his or her successor shall
have been duly elected and qualified. At each annual meeting of stockholders
following such initial classification and election, Directors elected to succeed
those Directors whose terms expire shall be elected for a term of office to
expire at the third succeeding annual meeting of stockholders after their
election with each Director to hold office until his or her successor shall have
been duly elected and qualified.
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B. Subject to the rights of holders of any series of Preferred Stock
outstanding, all newly created directorships resulting from any increase in the
authorized number of Directors and any vacancies in the Board of Directors
resulting from death, resignation, retirement, disqualification, removal from
office or other cause may be filled only by a majority vote of the Directors
then in office, though less than a quorum, and Directors so chosen shall hold
office for a term expiring at the annual meeting of stockholders at which the
term of office of the class to which they have been chosen expires. No decrease
in the number of Directors constituting the Board of Directors shall shorten the
term of any incumbent Director.
C. Advance notice of stockholder nominations for the election of Directors and
of business to be brought by stockholders before any meeting of the stockholders
of the Corporation shall be given in the manner provided in the Bylaws of the
Corporation.
D. Subject to the rights of holders of any series of Preferred Stock then
outstanding, any Director, or the entire Board of Directors, may be removed from
office at any time, but only for cause and only by the affirmative vote of the
holders of at least 80 percent of the voting power of all of the
then-outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of Directors (after giving effect to the provisions of
Article Five of this Certificate of Incorporation), voting together as a single
class.
ARTICLE EIGHT
BYLAWS
A. The Board of Directors is expressly empowered to adopt, amend or repeal
Bylaws of the Corporation. Any adoption, amendment or repeal of the Bylaws of
the Corporation by the Board of Directors shall require the approval of a
majority of the Whole Board. The stockholders shall also have power to adopt,
amend or repeal the Bylaws of the Corporation; provided, however, that, in
addition to any vote of the holders of any class or series of stock of this
Corporation required by law or by this Certificate of Incorporation, the
affirmative vote of the holders of at least 80 percent of the voting power of
all of the then-outstanding shares of the capital stock of the Corporation
entitled to vote generally in the election of Directors (after giving effect to
the provisions of Article Five), voting together as a single class, shall be
required for the stockholders of the Corporation to adopt, amend or repeal any
provisions of the Bylaws of the Corporation.
ARTICLE NINE
CERTAIN BUSINESS COMBINATIONS
A. In addition to any affirmative vote required by law or this Certificate of
Incorporation, and except as otherwise expressly provided in this Article and
subject to applicable laws:
(1) any merger or consolidation of the Corporation or any Subsidiary
with: (i) any Interested Stockholder; or (ii) any other corporation (whether or
not itself an Interested Stockholder) which is, or after such merger or
consolidation would be, an Affiliate or Associate of an Interested Stockholder;
or
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(2) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions) to, with or for the
benefit of any Interested Stockholder, or any Affiliate or Associate of any
Interested Stockholder, of any assets of the Corporation or any Subsidiary
having an aggregate Fair Market Value equaling or exceeding 25% or more of the
combined assets of the Corporation and its Subsidiaries; or
(3) the issuance or transfer by the Corporation or any Subsidiary (in
one transaction or a series of transactions) of any securities of the
Corporation or any Subsidiary to any Interested Stockholder or any Affiliate or
Associate of any Interested Stockholder in exchange for cash, securities or
other property (or a combination thereof) having an aggregate Fair Market Value
equaling or exceeding 25% of the combined Fair Market Value of the outstanding
Common Stock of the Corporation and its Subsidiaries, except for any issuance or
transfer pursuant to an employee benefit plan of the Corporation or any
Subsidiary thereof; or
(4) the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation proposed by or on behalf of an Interested
Stockholder or any Affiliate or Associate of any Interested Stockholder; or
(5) any reclassification of securities (including any reverse stock
split), or recapitalization of the Corporation, or any merger or consolidation
of the Corporation with any of its Subsidiaries or any other transaction
(whether or not with or into or otherwise involving an Interested Stockholder)
which has the effect, directly or indirectly, of increasing the proportionate
share of the outstanding shares of any class of equity or convertible securities
of the Corporation or any Subsidiary which is directly or indirectly owned by
any Interested Stockholder or any Affiliate of any Interested Stockholder; or
(6) any contract, agreement or other arrangement providing for any one
or more of the actions specified (1) through (5) above,
shall in any such event require the affirmative vote of the holders of at least
80% of the voting power of the Voting Stock, voting together as a single class.
Such affirmative vote shall be required notwithstanding the fact that no vote
may be required, or that a lesser percentage may be specified, by law or by any
other provisions of this Certificate of Incorporation or any Preferred Stock
Designation in any agreement with any national securities exchange or otherwise.
B. The provisions of Section A of this Article shall not be applicable to any
particular Business Combination, and such Business Combination shall require
only the affirmative vote (if any) as is required by law or by this Certificate
of Incorporation, if, in the case of any Business Combination that does not
involve any cash or other consideration being received by the stockholders of
the Corporation solely in their capacity as stockholders of the Corporation, the
condition specified in the following paragraph 1 is met or, in the case of any
other Business Combination, all of the conditions specified in either of the
following paragraphs 1 or 2 are met:
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(1) The Business Combination shall have been approved by a majority of
the Disinterested Directors.
(2) All of the following conditions shall have been met:
(a) The aggregate amount of the cash and the Fair Market
Value, as of the date of the consummation of the Business Combination, of
consideration other than cash to be received per share by the holders of Common
Stock in such Business Combination shall at least be equal to the higher of the
following:
(i) (if applicable) the Highest Per Share Price,
including any brokerage commissions, transfer taxes and soliciting dealers'
fees, paid by the Interested Stockholder or any of its Affiliates for any shares
of Common Stock acquired by it: (x) within the two-year period immediately prior
to the applicable Announcement Date; or (y) in the transaction in which it
became an Interested Stockholder, whichever is higher, plus interest compounded
annually from the Determination Date to the date the Business Combination is
consummated at the highest prime rate of interest for United States Banks as
published from time to time in the Eastern Edition of the Wall Street Journal,
or if no longer so published then such other indicator of the prime bank rate of
interest as is selected by a majority of the Disinterested Directors then in
office; or
(ii) the Fair Market Value per share of Common Stock
on the Announcement Date or on the Determination Date, whichever is higher;
(b) The aggregate amount of the cash and the Fair Market Value
as of the date of the consummation of the Business Combination of consideration
other than cash to be received per share by holders of shares of any class or
series of outstanding capital stock other than Common Stock shall be at least
equal to the highest of the following (it being intended that the requirements
of this subparagraph (b) shall be required to be met with respect to every such
class or series of outstanding capital stock, whether or not the Interested
Stockholder has previously acquired any shares of a particular class or series
of capital stock):
(i) (if applicable) the Highest Per Share Price,
including any brokerage commissions, transfer taxes and soliciting dealers'
fees, paid by the Interested Stockholder for any shares of such class or series
of capital stock acquired by it: (x) within the two-year period immediately
prior to the Announcement Date; or (y) in the transaction in which it became an
Interested Stockholder, whichever is higher; plus interest compounded annually
from the Determination Date to the date the Business Combination is consummated
at the highest prime rate of interest for United States Banks as published from
time to time in the Eastern Edition of the Wall Street Journal, or if no longer
so published then such other indicator of the prime bank rate of interest as is
selected by a majority of the Disinterested Directors then in office; or
(ii) (if applicable) the highest preferential amount
per share to which the holders of shares of such class or series of capital
stock are entitled in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation; or
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(iii) the Fair Market Value per share of such class
or series of capital stock on the Announcement Date or on the Determination
Date, whichever is higher.
(c) The consideration to be received by holders of a
particular class of outstanding capital stock (including Common Stock) shall be
in cash or in the same form as the Interested Stockholder has previously paid
for shares of such class or series of Capital stock. If the Interested
Stockholder has paid for shares of any class or series of Capital stock with
varying forms of consideration, the form of consideration to be received per
share by holders of shares of such class or series of Capital stock shall be
either cash or the form used to acquire the largest number of shares of such
class or series of Capital stock previously acquired by the Interested
Stockholder. The price determined in accordance with subparagraph B(2) of this
Article shall be subject to appropriate adjustment in the event of any stock
dividend, stock split, combination of shares or similar event.
(d) After such Interested Stockholder has become an Interested
Stockholder and prior to the consummation of such Business Combination: (i)
except as approved by a majority of the Disinterested Directors there shall have
been no failure to declare and pay at the regular date therefor any full
quarterly dividends (whether or not cumulative) on any outstanding stock having
preference over the Common Stock as to dividends or liquidation; (ii) there
shall have been: (x) no reduction in the annual rate of dividends paid on the
Common Stock (except as necessary to reflect any subdivision of the Common
Stock), except as approved by a majority of the Disinterested Directors; and (y)
an increase in such annual rate of dividends as necessary to reflect any
reclassification (including any reverse stock split), recapitalization,
reorganization or any similar transaction which has the effect of reducing the
number of outstanding shares of the Common Stock, unless the failure to so
increase such annual rate is approved by a majority of the Disinterested
Directors, and (iii) neither such Interested Stockholder nor any of its
Affiliates shall have become the beneficial owner of any additional shares of
capital stock except as part of the transaction that results in such Interested
Stockholder becoming an Interested Stockholder and except in a transaction that,
after giving effect thereto, would not result in any increase in the Interested
Stockholder's percentage beneficial ownership of any class or series of capital
stock of the Corporation.
(e) After such Interested Stockholder has become an Interested
Stockholder, such Interested Stockholder shall not have received the benefit,
directly or indirectly (except proportionately as a stockholder), of any loans,
advances, guarantees, pledges or other financial assistance or any tax credits
or other tax advantages provided, directly or indirectly, by the Corporation,
whether in anticipation of or in connection with such Business Combination or
otherwise.
(f) A proxy or information statement describing the proposed
Business Combination and complying with the requirements of the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder (or
any subsequent provisions replacing such Act, and the rules or regulations
thereunder) shall be mailed to stockholders of the Corporation at least 30 days
prior to the consummation of such Business Combination (whether or not such
proxy or information statement is required to be mailed pursuant to such Act or
subsequent provisions).
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C. A majority of the Disinterested Directors of the Corporation shall have the
power and duty to determine for the purposes of this Article, on the basis of
information known to them after reasonable inquiry: (i) whether a person is an
Interested Stockholder; (ii) the number of shares of Voting Stock beneficially
owned by any person; (iii) whether a person is an Affiliate or Associate of
another; (iv) whether the applicable conditions set forth in paragraph (2) of
Section B of this Article Nine have been met with respect to any Business
Combination, (v) the Fair Market Value of stock or other property in accordance
with Section H of Article Four, and (vi) whether the assets which are the
subject of any Business Combination have, or the consideration to be received
for the issuance or transfer of securities by the Corporation or any Subsidiary
in any Business Combination has an aggregate Fair Market Value equaling or
exceeding 25% of the combined Fair Market Value of the Common Stock of the
Corporation and its Subsidiaries. A majority of the Disinterested Directors
shall have the further power to interpret all of the terms and provisions of
this Article.
D. Nothing contained in this Article shall be construed to relieve any
Interested Stockholder from any fiduciary obligation imposed by law.
E. Notwithstanding any other provisions of this Certificate of Incorporation or
any provision of law which might otherwise permit a lesser vote or no vote, but
in addition to any affirmative vote of the holders of any particular class or
series of the Voting Stock required by law, this Certificate of Incorporation or
any Preferred Stock Designation, the affirmative vote of the holders of at least
80 percent of the voting power of all of the then-outstanding shares of the
Voting Stock, voting together as a single class or series, shall be required to
alter, amend or repeal this Article. For the purposes of the preceding sentence,
shares owned in excess of the Limit which have no voting power pursuant to
Article Five shall be counted in determining the aggregate voting power of all
outstanding shares of Voting Stock but shall remain subject to the limitations
on voting set forth in Article Five.
ARTICLE TEN
BOARD DETERMINATIONS
The Board of Directors of the Corporation, when evaluating any offer of another
Person to (A) make a tender or exchange offer for any equity security of the
Corporation; (B) merge or consolidate the Corporation with another corporation
or entity; or (C) purchase or otherwise acquire all or substantially all of the
properties and assets of the Corporation, may, in connection with the exercise
of its judgment in determining what is in the best interest of the Corporation
and its stockholders, give due consideration to all relevant factors, including,
without limitation, those factors that Directors of any subsidiary of the
Corporation may consider in evaluating any action that may result in a change or
potential change in the control of the subsidiary, and the social and economic
effect of acceptance of such offer: (i) on the Corporation's present and future
customers and employees and those of its Subsidiaries; (ii) on the communities
in which the Corporation and its Subsidiaries operate or are located; (iii) on
the ability of the Corporation to fulfill its corporate objective as a savings
and loan holding company under applicable laws and regulations; and (iv) on the
ability of its Subsidiary banks or savings institutions to fulfill the
objectives of a stock form financial institution under applicable statutes and
regulations.
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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.
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
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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.
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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.
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.
ARTICLE THIRTEEN
AMENDMENT
The Corporation reserves the right to amend or repeal any provision contained in
this Certificate of Incorporation in the manner prescribed by the laws of the
State of Delaware and all rights conferred upon stockholders are granted subject
to this reservation; provided, however, that, notwithstanding any other
provision of this Certificate of Incorporation or any provision of law which
might otherwise permit a lesser vote or no vote, but in addition to any vote of
the holders of any class or series or series of the stock of this Corporation
required by law or by this Certificate of Incorporation, the affirmative vote of
the holders of at least 80 percent of the voting power of all of the
then-outstanding Voting Stock, voting together as a single class or series,
shall be required to amend or repeal this Article, Article 4, Section C of
Article 5, Sections C or D of Article 6, Article 7, Article 8, Article 9,
Article 11, or Article 12.
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ARTICLE 14
INCORPORATOR
The name and mailing address of the sole incorporator are as follows:
Name: Jay L. Hack
Mailing Address: Serchuk & Zelermyer, LLP, 81 Main Street, White Plains,
New York 10601
I, THE UNDERSIGNED, being the incorporator, for the purpose of forming a
corporation under the laws of the State of Delaware, do make, file and record
this Certificate of Incorporation and do certify that the facts herein stated
are true, and accordingly, have hereto set my hand this 17th day of March, 1997.
/s/ Jay L. Hack
-------------------------
Jay L. Hack, Incorporator
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Exhibit 3.2
GSB FINANCIAL CORPORATION
BYLAWS
ARTICLE I - STOCKHOLDERS
Section 1. Annual Meeting.
An annual meeting of the stockholders, for the election of Directors to
succeed those whose terms expire and for the transaction of such other business
as may properly come before the meeting, shall be held at such place, on such
date, and at such time as the Board of Directors shall each year fix, which date
shall be within thirteen (13) months subsequent to the later of the date of
incorporation or the last annual meeting of stockholders.
Section 2. Special Meetings.
Subject to the rights of the holders of any class or series of
preferred stock of the Corporation, special meetings of stockholders of the
Corporation may be called only by the Board of Directors pursuant to a
resolution adopted by a majority of the total number of Directors which the
Corporation would have if there were no vacancies on the Board of Directors
(hereinafter the "Whole Board"). Such special meetings shall be held at such
place, on such date and at such time as the Board of Directors shall determine.
Section 3. Notice of Meetings.
Written notice of the place, date, and time of all meetings of the
stockholders shall be given, not less than ten (10) nor more than sixty (60)
days before the date on which the meeting is to be held, to each stockholder
entitled to vote at such meeting, except as otherwise provided herein or
required by law (meaning, here and hereinafter, as required from time to time by
the Delaware General Corporation Law or the Certificate of Incorporation of the
Corporation).
When a meeting is adjourned to another place, date or time, written
notice need not be given of the adjourned meeting if the place, date and time
thereof are announced at the meeting at which the adjournment is taken;
provided, however, that if the date of any adjourned meeting is more than thirty
(30) days after the date for which the meeting was originally noticed, or if a
new record date is fixed for the adjourned meeting, written notice of the place,
date, and time of the adjourned meeting shall be given in conformity herewith.
At any adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
Section 4. Quorum.
At any meeting of the stockholders, the holders of a majority of all of
the shares of the stock entitled to vote at the meeting, present in person or by
proxy (after giving effect to the provisions of Article Five of the
Corporation's Certificate of Incorporation), shall constitute a quorum for all
purposes, unless or except to the extent that the presence of a larger number
may be required by law. Where a separate vote by a class or classes is required,
a majority of the shares of such class or classes present in person or
represented by proxy (after giving effect to any and all provisions of the
Corporation's Certificate of Incorporation which may provide that certain shares
are not entitled to vote) shall constitute a quorum entitled to take action with
respect to that vote on that matter.
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If a quorum shall fail to attend any meeting, the chairman of the
meeting or the holders of a majority of the shares of stock entitled to vote who
are present, in person or by proxy, may adjourn the meeting to another place,
date, or time.
If a notice of any adjourned special meeting of stockholders is sent to
all stockholders entitled to vote thereat, stating that it will be held with
those present in person or by proxy constituting a quorum, then except as
otherwise required by law, those present in person or by proxy at such adjourned
meeting shall constitute a quorum, and all matters shall be determined by a
majority of the votes cast at such meeting.
Section 5. Organization.
The Chairman of the Board of the Corporation or, in his or her absence,
the President of the Corporation or such other person as may be designated by
the Board, or in the absence of all of them such person as may be chosen by the
holders of a majority of the shares entitled to vote who are present, in person
or by proxy, shall call to order any meeting of the stockholders and act as
chairman of the meeting. In the absence of the Secretary of the Corporation, the
secretary of the meeting shall be such person as the chairman appoints.
Section 6. Conduct of Business.
(a) The chairman of any meeting of stockholders shall determine the
order of business and the procedures at the meeting, including such regulation
of the manner of voting and the conduct of discussion as may be deemed by him or
her to be appropriate. The date and time of the opening and closing of the polls
for each matter upon which the stockholders will vote at the meeting shall be
announced at the meeting.
(b) At any annual meeting of the stockholders, only such business shall
be conducted as shall have been brought before the meeting: (i) by or at the
direction of the Board of Directors or (ii) by any stockholder of the
Corporation who is entitled to vote with respect thereto and who complies with
the notice procedures set forth in this Section 6(b). For business to be
properly brought before an annual meeting by a stockholder, the business must
relate to a proper subject matter for stockholder action and the stockholder
must have given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice must be in writing and
delivered or mailed to and received at the principal executive offices of the
Corporation not less than ninety (90) days prior to the date of the annual
meeting; provided, however, that as to the first annual meeting, or any
subsequent annual meeting held earlier than 30 days in advance of the
anniversary of the annual meeting in the previous year, notice by the
stockholder to be timely must be received not later than the close of business
on the 10th day following the day on which notice of the date of the annual
meeting was mailed or public disclosure of the date of the meeting was made. For
the purpose of this and the following subsection of these Bylaws, public
disclosure shall be deemed to mean the issuance of a press release to the Dow
Jones News Service, the Associated Press or any other broadly distributed news
service, or the public filing of a document with the Securities and Exchange
Commission disclosing the date of the meeting. A stockholder's notice to the
Secretary shall be signed by such stockholder and shall set forth as to each
matter such stockholder proposes to bring before the annual meeting: (i) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting; (ii) the name
and address, as they appear on the Corporation's books, of the stockholder
proposing such business; (iii) the class and number of shares of the
Corporation's capital stock that are beneficially owned by such stockholder; and
(iv) any material interest of such stockholder in such business. Notwithstanding
anything in these Bylaws to the contrary, no business shall be brought before or
conducted at an annual meeting except in accordance with the provisions of this
Section 6(b). The Officer of the Corporation or other person presiding over the
annual meeting shall, if the facts so warrant, determine and declare to the
meeting that business was not properly brought before the meeting in accordance
with the provisions of this Section 6(b) and, if he should so determine, any
such business so determined to be not properly brought before the meeting shall
not be transacted.
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At any special meeting of the stockholders, only such business shall be
conducted as shall have been brought before the meeting by or at the direction
of the Board of Directors.
(c) Only persons who are nominated in accordance with the procedures
set forth in these Bylaws shall be eligible for election as Directors.
Nominations of persons for election to the Board of Directors of the Corporation
may be made at a meeting of stockholders at which directors are to be elected
only: (i) by or at the direction of the Board of Directors; or (ii) by any
stockholder of the Corporation entitled to vote for the election of Directors at
the meeting who complies with the notice procedures set forth in this Section
6(c). Such nominations, other than those made by or at the direction of the
Board of Directors, shall be made by timely notice in writing to the Secretary
of the Corporation. To be timely, a stockholder's notice shall be in writing and
delivered or mailed to and received at the principal executive offices of the
Corporation not less than ninety (90) days prior to the date of the meeting;
provided, however, that if the meeting is a special meeting, or an annual
meeting held earlier than 30 days in advance of the anniversary of the annual
meeting in the previous year, or if it is the first annual meeting, notice by
the stockholder to be timely must be so received not later than the close of
business on the 10th day following the day on which notice of the date of the
meeting was mailed or public disclosure of the date of the meeting was made.
Such stockholder's notice shall be signed by such stockholder and shall set
forth: (i) as to each person whom such stockholder proposes to nominate for
election or re-election as a Director, all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
directors, or is otherwise required, in each case pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended (including such person's
written consent to being named in the proxy statement as a nominee and to
serving as a director if elected, provided, however, that the Corporation shall
not be required to name such nominee in any proxy statement prepared by the
Corporation or to solicit votes for such nominee unless required by law to do
so); and (ii) as to the stockholder giving the notice (x) the name and address,
as they appear on the Corporation's books, of such stockholder (y) the class and
number of shares of the Corporation's capital stock that are beneficially owned
by such stockholder and (z) any business, familial or employment relationship
between such stockholder and such nominees. At the request of the Board of
Directors, any person nominated by the Board of Directors for election as a
Director shall furnish to the Secretary of the Corporation that information
required to be set forth in a stockholder's notice of nomination which pertains
to the nominee. No person shall be eligible for election as a Director of the
Corporation unless nominated in accordance with the provisions of this Section
6(c). The Officer of the Corporation or other person presiding at the meeting
shall, if the facts so warrant, determine that a nomination was not made in
accordance with such provisions and, if he or she shall so determine, he or she
shall so declare to the meeting and the defective nomination shall be
disregarded.
Section 7. Proxies and Voting.
At any meeting of the stockholders, every stockholder entitled to vote
may vote in person or by proxy authorized by an instrument in writing filed in
accordance with the procedure established for the meeting. Any facsimile
telecommunication or other reliable reproduction of the writing or transmission
created pursuant to this paragraph may be substituted or used in lieu of the
original writing or transmission for any and all purposes for which the original
writing or transmission could be used, provided that such copy, facsimile
telecommunication or other reproduction shall be a complete reproduction of the
entire original writing or transmission. The attendance of a stockholder in
person at a meeting shall not, as such, revoke any proxy given by such
stockholder unless such stockholder shall revoke such proxy in writing or vote
in person.
All voting, including on the election of Directors but excepting where
otherwise required by law or by the governing documents of the Corporation, may
be made by a voice vote; provided, however, that upon demand therefor by a
stockholder entitled to vote or his or her proxy, a stock vote shall be taken.
Every stock vote shall be taken by ballot, each of which shall state the name of
the stockholder or proxy voting and such other information as may be required
under the procedures established for the meeting. The Corporation shall, in
advance of any meeting of stockholders, appoint one or more inspectors to act at
the meeting and make a written report thereof. The Corporation may designate one
or more persons as alternate inspectors to replace any inspector who fails to
act. If no inspector or alternate is able to act at a meeting of stockholders,
or if no inspector is so appointed, the person presiding at the meeting shall
appoint one or more inspectors to act at the meeting. The duties of the
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inspectors shall include determining the number of shares outstanding and the
voting power of each, the shares represented at the meeting, the existence of a
quorum, the validity and effect of proxies, receiving votes, ballots or
consents, hearing and deciding all challenges and questions arising in
connection with the right to vote, counting and tabulating all votes, ballots or
consents, discharge of their duties determining the results and doing such acts
as are proper to the conduct of the election or the vote with fairness to all
stockholders. Any report or certificate made by them shall be prima facie
evidence of the facts stated and of the vote as certified by them.
All elections shall be determined by a plurality of the votes cast, and
except as otherwise required by law or the Certificate of Incorporation, all
other matters shall be determined by a majority of the votes cast.
Section 8. Stock List.
A complete list of stockholders entitled to vote at any meeting of
stockholders, arranged in alphabetical order for each class of stock and showing
the address of each such stockholder and the number of shares registered in his
or her name, shall be open to the examination of any such stockholder, for any
purpose germane to the meeting, during ordinary business hours for a period of
at least ten (10) days prior to the meeting, at the office of the Corporation
shown in the notice of the meeting,.
The stock list shall also be kept at the place of the meeting during
the whole time thereof and shall be open to the examination of any such
stockholder who is present. This list shall presumptively determine the identity
of the stockholders entitled to vote at the meeting and the number of shares
held by each of them.
Section 9. Consent of Stockholders in Lieu of Meeting.
Subject to the rights of the holders of any class or series of
preferred stock of the Corporation, any action required or permitted to be taken
by the stockholders of the Corporation must be effected at an annual or special
meeting of stockholders of the Corporation and may not be effected by any
consent in writing by such stockholders.
ARTICLE II - BOARD OF DIRECTORS
Section 1. General Powers, Number, Term of Office and Limitations.
The business and affairs of the Corporation shall be under the
direction of its Board of Directors. The number of Directors who shall
constitute the Whole Board shall be such number as the Board of Directors shall
from time to time have designated, except that in the absence of such
designation shall be Seven. The Board of Directors shall annually elect a
Chairman of the Board from among its members who shall, when present, preside at
its meetings.
The Directors, other than those who may be elected by the holders of
any class or series of Preferred Stock, shall be divided, with respect to the
time for which they severally hold office, into three classes, with the term of
office of the first class to expire at the first annual meeting of stockholders,
the term of office of the second class to expire at the second annual meeting of
stockholders and the term of office of the third class to expire at the third
annual meeting of stockholders, with each Director to hold office until his or
her successor shall have been duly elected and qualified. At each annual meeting
of stockholders, Directors elected to succeed those Directors whose terms then
expire shall be elected for a term of office to expire at the third annual
meeting of stockholders after their election, with each Director to hold office
until his or her successor shall have been duly elected and qualified.
Section 2. Vacancies and Newly Created Directorships.
Subject to the rights of the holders of any class or series of
Preferred Stock, and unless the Board of Directors otherwise determines, newly
created directorships resulting from any increase in the authorized number of
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directors or any vacancies in the Board of Directors resulting from death,
resignation, retirement, disqualification, removal from office or other cause
may be filled only by a majority vote of the Directors then in office, though
less than a quorum, and Directors so chosen shall hold office for a term
expiring at the annual meeting of stockholders at which the term of office of
the class to which they have been elected expires and until such Director's
successor shall have been duly elected and qualified. No decrease in the number
of authorized Directors constituting the Board shall shorten the term of any
incumbent Director.
Section 3. Regular Meetings.
Regular meetings of the Board of Directors shall be held at such place
or places, on such date or dates, and at such time or times as shall have been
established by the Board of Directors and publicized among all Directors. A
notice of each regular meeting shall not be required.
Section 4. Special Meetings.
Special meetings of the Board of Directors may be called by one-third
(1/3) of the Directors then in office (rounded up to the nearest whole number),
by the Chairman of the Board or the President or, in the event that the Chairman
of the Board or President are incapacitated or otherwise unable to call such
meeting, by the Secretary, and shall be held at such place, on such date, and at
such time as they, or he or she, shall fix. Notice of the place, date, and time
of each such special meeting shall be given each Director by whom it is not
waived by mailing written notice not less than five (5) days before the meeting
or by telegraphing or telexing or by facsimile transmission of the same not less
than twenty-four (24) hours before the meeting. Unless otherwise indicated in
the notice thereof, any and all business may be transacted at a special meeting.
Section 5. Quorum.
At any meeting of the Board of Directors, a majority of the Whole Board
shall constitute a quorum for all purposes. If a quorum shall fail to attend any
meeting, a majority of those present may adjourn the meeting to another place,
date, or time, without further notice or waiver thereof.
Section 6. Participation in Meetings By Conference Telephone.
Members of the Board of Directors, or of any committee thereof, may
participate in a meeting of such Board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other and such participation shall
constitute presence in person at such meeting.
Section 7. Conduct of Business.
At any meeting of the Board of Directors, business shall be transacted
in such order and manner as the Board may from time to time determine, and all
matters shall be determined by the vote of a majority of the Directors present,
except as otherwise provided herein or required by law. Action may be taken by
the Board of Directors without a meeting if a majority of the members thereof
(or such greater number as may be required by these Bylaws, the Certificate of
Incorporation or by law) consent thereto in writing, and the writing or writings
are filed with the minutes of proceedings of the Board of Directors.
Section 8. Powers.
The Board of Directors may, except as otherwise required by law,
exercise all such powers and do all such acts and things as may be exercised or
done by the Corporation.
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Section 9. Compensation of Directors.
Directors, as such, may receive, pursuant to resolution of the Board of
Directors, fixed fees and other compensation for their services as Directors,
including, without limitation, their services as members of committees of the
Board of Directors.
ARTICLE III - COMMITTEES
Section 1. Committees of the Board of Directors.
The Board of Directors, by a vote of a majority of the Board of
Directors, may from time to time designate committees of the Board, with such
lawfully delegable powers and duties as it thereby confers, to serve at the
pleasure of the Board and shall, for these committees and any others provided
for herein, elect a Director or Directors to serve as the member or members,
designating, if it desires, other Directors as alternate members who may replace
any absent or disqualified member at any meeting of the committee. Any committee
so designated may exercise the power and authority of the Board of Directors to
declare a dividend, to authorize the issuance of stock, to adopt a certificate
of ownership and merger or take any other action permitted by law if the
resolution which designates the committee or a supplemental resolution of the
Board of Directors shall so provide. In the absence or disqualification of any
member of any committee and any alternate member in his or her place, the member
or members of the committee present at the meeting and not disqualified from
voting, whether or not he or she or they constitute a quorum, may by unanimous
vote appoint another member of the Board of Directors to act at the meeting in
the place of the absent or disqualified member.
Section 2. Conduct of Business.
Each committee may determine the procedural rules for meeting and
conducting its business and shall act in accordance therewith, except as
otherwise provided herein or required by law. Adequate provision shall be made
for notice to members of all meetings. The quorum requirements for each such
committee shall be a majority of the members of such committee unless otherwise
determined by the Board of Directors by a majority vote of the Board of
Directors which such quorum determined by a majority of the Board may be one-
third or more of such members. All matters considered by such committees shall
be determined by a majority vote of the members present. Action may be taken by
any committee without a meeting if all members thereof consent thereto in
writing, and the writing or writings are filed with the minutes of the
proceedings of such committee.
Section 3. Nominating Committee.
The Board of Directors shall appoint a Nominating Committee of the
Board, consisting of not less than three (3) members. The Nominating Committee
shall have authority: (a) to review any nominations for election to the Board of
Directors made by a stockholder of the Corporation pursuant to these Bylaws in
order to determine compliance with such Bylaw; and (b) to recommend to the Whole
Board nominees for election to the Board of Directors to replace those Directors
whose terms expire at the annual meeting of stockholders next ensuing.
Section 4. Executive Committee.
There shall be an Executive Committee of the Board, consisting of at
least members, as shall be appointed by the Board of Directors. In
addition, the President shall be an ex-officio member of the Executive
Committee, with power to vote on all matters so long as the President is also a
Director of the Corporation. The vote of a majority of members present at any
meeting including the presiding member, who shall be eligible to vote, shall
constitute the action of the Executive Committee.
The Executive Committee shall, to the extent not inconsistent with law,
these Bylaws, the Certificate of Incorporation or resolutions adopted by the
Board, exercise all the powers and authority of the Board in the management of
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the business and affairs of the Corporation in the intervals between the
meetings of the Board.
Section 5. Audit Committee.
The Audit Committee shall consist of at least three (3) members. The
Audit Committee shall make, or cause to be made, such examinations of the
affairs of the Corporation as it may deem advisable or whenever so directed by
the Board of Directors and shall report thereon the Board of Directors. The
Audit Committee shall make recommendations to the Board in relation to the
employment of accountants and independent auditors, review the work of the
accountants and independent auditors, and arrange for such other assistance as
it may deem necessary or desirable. The Audit Committee shall review and
evaluate the procedures and performance of the Corporation's internal auditing
staff. A quorum shall consist of at least one-third of the members of the
committee, and in no event less than two (2) members of the committee.
Section 6. Compensation Committee.
The Compensation Committee shall consist of at least three (3) members.
The Compensation Committee shall be responsible for overseeing the development,
implementation and conduct of the Corporation's employment and personnel
policies, notices and procedures, including the administration of the
Corporation's compensation and benefit programs.
ARTICLE IV - OFFICERS
Section 1. Generally.
(a) The Board of Directors, as soon as may be practicable after the
annual meeting of stockholders shall choose a Chairman of the Board, a
President, one or more Vice Presidents, a Secretary and a Treasurer and from
time to time may choose such other officers as it may deem proper. The Chairman
of the Board shall be chosen from among the Directors. Any number of offices may
be held by the same person. The Board of Directors may designate one officer as
the Chief Executive Officer.
(b) The term of office of all Officers shall be until the next annual
election of Officers and until their respective successors are chosen but any
Officer may be removed from office at any time by the vote of the Board of
Directors.
(c) All Officers chosen by the Board of Directors shall have such
powers and duties as generally pertain to their respective Offices, subject to
the specific provisions of these Bylaws. Such officers shall also have such
powers and duties as from time to time may be conferred by the Board of
Directors or by any committee thereof.
(d) The Board of Directors may, except as otherwise required by law,
remove any Officer of the Corporation with or without cause, and from time to
time, devolve the powers and duties of any Officer upon any other person for the
time being, and to confer upon any Officer of the Corporation the power to
appoint, remove or suspend subordinate officers, employees and agents.
Section 2. Chairman of the Board of Directors.
The Chairman of the Board shall, subject to the provisions of these
Bylaws and to the direction of the Board of Directors, preside at all meetings
of the Board of Directors and stockholders of the Corporation. The Chairman of
the Board shall perform all duties and have all powers which are commonly
incident to the office of Chairman of the Board or which are delegated to him or
her by the Board of Directors. He or she shall have power to sign all stock
certificates, contracts and other instruments of the Corporation which are
authorized.
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Section 3. President.
The President shall have general responsibility for the management and
control of the business and affairs of the Corporation, shall oversee all
aspects of the Corporation's business, and shall perform all duties and have all
powers which are commonly incident to the office of President or which are
delegated to him or her by the Board of Directors. Subject to the direction of
the Board of Directors, the President shall have power to sign all stock
certificates, contracts and other instruments of the Corporation which are
authorized and shall have general supervision of all of the other Officers
(other than the Chairman of the Board), employees and agents of the Corporation.
Section 4. Vice President.
The Vice President or Vice Presidents shall perform the duties of the
President in his absence or during his inability to act. In addition, the Vice
Presidents shall perform the duties and exercise the powers usually incident to
their respective offices and/or such other duties and powers as may be properly
assigned to them by the Board of Directors, the Chairman of the Board or the
President. A Vice President or Vice Presidents may be designated as Executive
Vice President or Senior Vice President and in the absence or inability to act
of the President, the highest ranking Vice President who is available and ready
to act shall substitute for the President.
Section 5. Secretary.
The Secretary or Assistant Secretary shall issue notices of meetings,
shall keep their minutes, shall have charge of the seal and the corporate books,
shall perform such other duties and exercise such other powers as are usually
incident to such office and/or such other duties and powers as are properly
assigned thereto by the Board of Directors, the Chairman of the Board or the
President. Subject to the direction of the Board of Directors, the Secretary
shall have the power to sign all stock certificates.
Section 6. Treasurer.
The Treasurer shall be the chief financial officer of the Corporation
and shall have the responsibility for maintaining the financial records of the
Corporation. He or she shall make such disbursements of the funds of the
Corporation as are authorized and shall render from time to time an account of
all such transactions and of the financial condition of the Corporation. The
Treasurer shall also perform such other duties as the Board of Directors may
from time to time prescribe. Subject to the direction of the Board of Directors,
the Treasurer shall have the power to sign all stock certificates.
Section 7. Assistant Secretaries and Other Officers.
The Board of Directors may appoint one or more Assistant Secretaries
and such other Officers who shall have such powers and shall perform such duties
as are provided in these Bylaws or as may be assigned to them by the Board of
Directors, the Chairman of the Board or the President. If authorized by the
Board of Directors, the President shall also be authorized to appoint such
lesser Officers who shall report to and be supervised by such Officers as are
appointed by the Board of Directors.
Section 8. Action with Respect to Securities of Other Corporations.
Unless otherwise directed by the Board of Directors, the President or
any Officer of the Corporation authorized by the President shall have power to
vote and otherwise act on behalf of the Corporation, in person or by proxy, at
any meeting of stockholders of or with respect to any action of stockholders of
any other corporation in which this Corporation may hold securities and
otherwise to exercise any and all rights and powers which this Corporation may
possess by reason of its ownership of securities in such other corporation.
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Section 9. Executive Officers.
The President shall be an executive officer of the Corporation. No
other officer shall be an executive officer of the Corporation unless so
designated by the Board of Directors.
ARTICLE V - STOCK
Section 1. Certificates of Stock.
Each stockholder shall be entitled to a certificate signed by, or in
the name of the Corporation by, the Chairman of the Board or the President, and
by the Secretary or an Assistant Secretary, or any Treasurer or Assistant
Treasurer, certifying the number of shares owned by him or her. Any or all of
the signatures on the certificate may be by facsimile.
Section 2. Transfers of Stock.
Transfers of stock shall be made only upon the transfer books of the
Corporation kept at an office of the Corporation or by transfer agents
designated to transfer shares of the stock of the Corporation. Except where a
certificate is issued in accordance with Section 4 of Article V of these Bylaws,
an outstanding certificate for the number of shares involved shall be
surrendered for cancellation before a new certificate is issued therefor.
Section 3. Record Date.
In order that the Corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders, or to receive payment of
any dividend or other distribution or allotment of any rights or to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may fix a record
date, which record date shall not precede the date on which the resolution
fixing the record date is adopted and which record date shall not be more than
sixty (60) nor less than ten (10) days before the date of any meeting of
stockholders, nor more than sixty (60) days prior to the time for such other
action as hereinbefore described; provided, however, that if no record date is
fixed by the Board of Directors, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given or,
if notice is waived, at the close of business on the next day preceding the day
on which the meeting is held, and, for determining stockholders entitled to
receive payment of any dividend or other distribution or allotment or rights or
to exercise any rights of change, conversion or exchange of stock or for any
other purpose, the record date shall be at the close of business on the day on
which the Board of Directors adopts a resolution relating thereto.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
Section 4. Lost, Stolen or Destroyed Certificates.
In the event of the loss, theft or destruction of any certificate of
stock, the holder of record thereof shall immediately notify the Corporation.
Another certificate may be issued in its place pursuant to such regulations as
the Board of Directors may establish concerning proof of such loss, theft or
destruction and concerning the giving of a satisfactory bond or bonds of
indemnity. The holder of record of such lost, stolen or destroyed certificate
shall also comply with all customary requirements of the transfer agents
designated by the Board to transfer shares of stock of the Corporation.
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Section 5. Regulations.
The issue, transfer, conversion and registration of certificates of
stock shall be governed by such other regulations as the Board of Directors may
establish.
Section 6. Holder of Record.
Subject to the provisions of the Certificate of Incorporation of the
Corporation, the Corporation shall be entitled to treat the holder of record of
any share of shares of stock as the holder thereof in fact and shall not be
bound to recognize any equitable or other claim to or interest in such shares on
the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise expressly provided by law.
ARTICLE VI - NOTICES
Section 1. Notices.
Except as otherwise specifically provided herein or required by law,
all notices required to be given to any stockholder, Director, Officer, employee
or agent pursuant to these Bylaws shall be in writing and may in every instance
be effectively given by hand delivery to the recipient thereof, by depositing
such notice in the mails, postage paid, or by sending such notice by prepaid
telegram or mailgram or other courier. Any such notice shall be addressed to
such stockholder, Director, Officer, employee or agent at his or her last known
address as the same appears on the books of the Corporation. The time when such
notice is received, if hand delivered, or dispatched, if delivered through the
mails or by telegram or mailgram or other courier, shall be the time of the
giving of the notice.
Section 2. Waivers.
A written waiver of any notice, signed by a stockholder, Director,
Officer, employee or agent, whether before or after the time of the event for
which notice is to be given, shall be deemed equivalent to the notice required
to be given to such stockholder, Director, Officer, employee or agent. Neither
the business nor the purpose of any meeting need be specified in such a waiver.
ARTICLE VII - MISCELLANEOUS
Section 1. Facsimile Signatures.
In addition to the provisions for use of facsimile signatures elsewhere
specifically authorized in these Bylaws, facsimile signatures of any officer or
officers of the Corporation may be used whenever and as authorized by the Board
of Directors or a committee thereof.
Section 2. Corporate Seal.
The Board of Directors may provide a suitable seal, containing the name
of the Corporation, which seal shall be in the charge of the Secretary. If and
when so directed by the Board of Directors or a committee thereof, duplicates of
the seal may be kept and used by any other Officer.
Section 3. Reliance Upon Books, Reports and Records.
Each Director, each member of any committee designated by the Board of
Directors, and each Officer of the Corporation shall, in the performance of his
or her duties, be fully protected in relying in good faith upon the books of
account or other records of the Corporation and upon such information, opinions,
reports or statements presented to the Corporation by any of its Officers or
employees, or committees of the Board of Directors so designated, or by any
other person as to matters which such Director or committee member reasonably
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believes are within such other person's professional or expert competence and
who has been selected with reasonable care by or on behalf of the Corporation.
Section 4. Fiscal Year.
The fiscal year of the Corporation shall be as fixed by the Board of
Directors.
Section 5. Time Periods.
In applying any provision of these Bylaws which requires that an act be
done or not be done a specified number of days prior to an event or that an act
be done during a period of a specified number of days prior to an event,
calendar days shall be used, the day of the doing of the act shall be included,
and the day of the event shall be excluded.
Section 6. Adoption of Regulations.
The Board of Directors may, except as otherwise required by law, adopt
from time to time regulations, not inconsistent with these Bylaws, for the
management of the Corporation's business and affairs.
ARTICLE VIII - AMENDMENTS
The Board of Directors may amend, alter or repeal these Bylaws at any
meeting of the Board. The stockholders shall also have power to amend, alter or
repeal these Bylaws at any meeting of stockholders provided notice of the
proposed change was given in the notice of the meeting; provided, however, that,
notwithstanding any other provisions of the Bylaws or any provision of law which
might otherwise permit a lesser vote or no vote, but in addition to any
affirmative vote of the holders of any particular class or series of the voting
stock required by law, the Certificate of Incorporation, any Preferred Stock
Designation or these Bylaws, the affirmative votes of the holders of at least
80% of the voting power of all the then-outstanding shares of the voting stock
of the Corporation, voting together as a single class, shall be required to
alter, amend or repeal any provisions of these Bylaws. For the purpose of this
Article, shares owned in excess of the "Limit" as described in Article Five of
the Corporation's Certificate of Incorporation shall be counted for the purpose
of determining the aggregate voting power of the outstanding shares of voting
stock but such shares shall remain subject to any restrictions or voting
limitations set forth in said Article Five.
The above Bylaws are effective as of the date of incorporation of the
Corporation.
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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 the approval of its 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 to the savings bank), 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 which 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 connection with the conversion of the
savings bank from the mutual to the stock form of organization, no shares of
capital stock (including shares issuable upon conversion, exchange, or exercise
of other securities) shall be issued, directly or indirectly, to officers,
directors, or controlling persons of the savings bank other than as part of a
general public offering or as qualifying shares to a director, unless their
issuance or the plan under which they would be issued has been approved by a
majority of the total votes eligible to be cast at a legal meeting.
Nothing contained in this Section 5 (or in any supplementary sections
hereto) shall entitle the holders of any class or series of capital stock to
vote as a separate class or series or to more than one vote per share, provided,
that this restriction on voting separately by class or series shall not apply:
<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 such holder, except as to
the cumulation of votes for the election of directors unless this charter
provides that there shall be no cumulative voting.
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.
Subject to any provision for a liquidation account, 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 after payment or provision for payment of all debt and liabilities of
the savings bank, to receive, the remaining assets of the savings bank available
for distribution in cash or in kind, remaining after 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 (which exception shall also be deemed to include the acquisition of all
of the issued and outstanding shares of common stock of the savings bank upon
its initial conversion to the stock form of ownership), 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 first proposed by the board of directors of the savings bank,
approved by the shareholders by a majority of the total 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
<PAGE>
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. Cumulative Voting. Every shareholder entitled to vote at an
election for directors shall have the right to vote, in person or by proxy, the
number of shares owned by the shareholder for as many persons as there are
directors to be elected and for whose election the shareholder has a right to
vote, or to cumulate the votes by giving one candidate as many votes as the
number of such directors to be elected multiplied by the number of shares shall
equal or by distributing such votes on the same principle among any number of
candidates.
Section 13. Inspectors of Election. In advance of any meeting of
shareholders, the board of directors may appoint any person other than nominees
for office as inspectors of election to act at such meeting or any adjournment.
The number of inspectors shall be either one or three. Any such appointment
shall not be altered at the meeting. If inspectors of election are not so
appointed, the chairman of the board or the president may, or on the request of
not fewer than 10 percent of the votes represented at the meeting shall, make
such appointment at the meeting. If appointed at the meeting, the majority of
the votes present shall determine whether one or three inspectors are to be
appointed. In case any person appointed as inspector fails to appear or fails or
refuses to act, the vacancy may be filled by appointment by the board of
directors in advance of the meeting or at the meeting by the chairman of the
board or the president.
Unless otherwise prescribed by regulations of the Office, the duties of
such inspectors shall include: determining the number of shares and the voting
power of each share, the shares represented at the meeting, the existence of a
quorum, and the authenticity, validity and effect of proxies: receiving votes,
ballots, or consents; hearing and determining all challenges and questions in
any way arising in connection with the rights to vote; counting and tabulating
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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 14. Nominating Committee. The board of directors shall act as a
nominating committee for selecting the management nominees for election as
directors. Except in the case of 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 15. New Business. Any new business to be taken up at the annual
meeting shall be stated in writing and filed with the secretary of the savings
bank at least 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 16. Informal Action by Shareholders. Any action required to be
taken at a meeting of the shareholders, or any other action which may be taken
at a meeting of shareholders, may be taken without a meeting if consent in
writing, setting forth the action so taken, shall be given by all of the
shareholders entitled to vote with respect to the subject matter.
ARTICLE III
BOARD OF DIRECTORS
Section 1. General Powers. The business and affairs of the 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. At a meeting of shareholders called
expressly for that purpose, any director may be removed for cause by a vote of
the holders of a majority of the shares then entitled to vote at an election of
directors. Whenever the holders of the shares of any class are entitled to elect
one or more directors by the provisions of the charter or supplemental sections
thereto, the provisions of this section shall apply, in respect to the removal
of a director or directors so elected, to the vote of the holders of the
outstanding shares of that class and not to the vote of the outstanding shares
as a whole.
ARTICLE IV
EXECUTIVE AND OTHER COMMITTEES
Section 1. Appointment. The board of directors, by resolution adopted by
a majority of the full board, may designate the chief executive officer and two
or more of the other directors to constitute an executive committee. The
designation of any committee pursuant to this Article IV and the delegation of
authority shall not operate to relieve the board of directors, or any director,
of any responsibility imposed by law or regulation.
Section 2. Authority. The executive committee, when the board of
directors is not in session, shall have and may exercise all of the authority of
the board of directors except to the extent, if any, that such authority shall
be limited by the resolution appointing the executive committee; and except also
that the executive committee shall not have the authority of the board of
directors with reference to: the declaration of dividends; the amendment of the
charter or bylaws of the 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.
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Exhibit 4.1
COMMON STOCK COMMON STOCK
PAR VALUE $.01 SEE REVERSE FOR CERTAIN DEFINITIONS
AND INFORMATION REGARDING CERTAIN RESTRICTIONS
CUSIP
GSB FINANCIAL CORPORATION
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES THAT
is the owner of:
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK $.01 PAR VALUE PER SHARE OF
GSB FINANCIAL CORPORATION (the "Corporation").
This certificate is not valid unless countersigned and registered by the
Corporation's transfer agent and registrar. The shares represented by this
Certificate are not a deposit or account and are not insured or guaranteed by
the Federal Deposit Insurance Corporation, the Office of Thrift Supervision or
any other government agency.
IN WITNESS THEREOF, GSB Financial Corporation has caused this
certificate to be executed by the facsimile signatures of its duly authorized
officers and has caused a facsimile of its corporate seal to be hereunto
affixed.
Dated: ___________________
______________________________________ [SEAL] ______________________________
President or Chairman of the Board Secretary or Treasurer
<PAGE>
The shares represented by this certificate are transferable only on the stock
transfer books of the Corporation by the holder of record thereof, or by his
duly authorized attorney or legal representative, upon the surrender of this
certificate properly endorsed. This certificate and the shares represented
hereby are issued and shall be held subject to all the provisions of the
Certificate of Incorporation of the Corporation and any amendments thereto
(copies of which are on file at the principal executive offices of the
Corporation), to all of which provisions the holder by acceptance hereof,
assents.
The shares represented by this certificate are subject to a limitation contained
in the Certificate of Incorporation to the effect that, except for certain
exceptions set forth in said Certificate of Incorporation, in no event shall any
record owner of any outstanding common stock which is beneficially owned,
directly or indirectly, by a person who beneficially owns in excess of 10% of
the outstanding shares of common stock (the "Limit") be entitled or permitted to
any vote in respect of shares held in excess of the Limit.
The Board of Directors of the Corporation is authorized by resolution(s), from
time to time adopted, to provide for the issuance of serial preferred stock in
series and to fix and state the voting powers, designations, preferences and
relative, participating, optional, or other special rights of the shares of each
such series and the qualifications, limitations and restrictions thereof. The
Corporation will furnish to any shareholder upon request and without charge a
full description of each class of stock and any series thereof.
The shares represented by this certificate may not be cumulatively voted on any
matter. The affirmative vote of the holders of at least 80% of the voting stock
of the Corporation, voting together as a single class, shall be required to
approve certain business combinations and other transactions, pursuant to the
Certificate of Incorporation or to amend certain provisions of the Certificate
of Incorporation.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C> <C>
TEN COM - as tenants in common TEN ENT - as tenants by the entirety
JT TEN - as joint tenants with right of survivorship and not as tenants in common
UNIF GIFTS MIN ACT - _____ custodian _______ under Uniform Gifts to Minors Act________
(Cust) (Minor) (State)
UNIF TRANS MIN ACT - ______ custodian ______ under Uniform Transfers to Minors Act _______
(Cust) (Minor) (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received, __________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFICATION NUMBER OF TRANSFEREE
________________________________________________________________________________
Please print or typewrite name and address including postal zip code of assignee
_______________________________________________ shares of the common stock
represented by the within Certificate, and do hereby irrevocably constitute and
appoint ______________________________________________ Attorney to transfer the
said stock on the books of the within-named Corporation with full power of
substitution in the premises.
DATED ________________________ __________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATEVER.
SIGNATURE GUARANTEED: ____________________________________________________
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(SAVINGS BANKS, BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT
UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO SEC RULE 17Ad-15
<PAGE>
Exhibit 5.1
Form of Opinion of Serchuk & Zelermyer, LLP regarding legality of stock to
be issued
___________________, 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
<PAGE>
Exhibit 8.1
Form of Opinion of Serchuk & Zelermyer, LLP regarding tax matters
, 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 ________________, 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 8.2
[LETTERHEAD OF CAPITAL RESOURCES GROUP, INC. APPEARS HERE]
March 17, 1997
Board of Directors
Goshen Savings Bank
1 South Church Street
Goshen, New York 10924
Dear Board Members:
All capitalized terms not otherwise defined in this letter have the
meanings given such terms in the Plan of Conversion adopted by the Board of
Directors of Goshen Savings Bank ("GSB").
It is our understanding that, pursuant to the Office of Thrift
Supervision regulations, subscription rights are non-transferable. Persons
violating such prohibitions may lose their right to purchase stock in the
Conversion and be subject to other possible sanctions.
Because the Subscription Rights to purchase shares of common stock in
the Bank to be issued to the Bank's employee stock benefit plans, depositors of
the Bank, and to other members of the Bank will be acquired by such recipients
without cost, will be non-transferable and of short duration, and will afford
the recipients the right only to purchase shares of common stock at the same
price as will be paid by members of the general public in a Community or Public
Offering, we are of the opinion that:
(1) the Subscription Rights will have no ascertainable fair
market value and,
(2) the price at which the Subscription Rights are exercisable
will not be more or less than the fair market value of the
shares on the date of this exercise.
Very truly yours,
/s/ Capital Resources Group, Inc.
---------------------------------
CAPITAL RESOURCES GROUP, INC.
<PAGE>
Exhibit 10.1
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as
of the 1st day of April, 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 April 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 April, 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 April 1, 1997 and
ending on March 31, 1998, no less than $________;
(ii) during each twelve month period that begins after March 31, 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.
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;
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(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;
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(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); 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 three 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); 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 three 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 any material breach 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. Indemnification 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 $25,000. 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 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.
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 prospective
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 prospective 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
prospective 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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(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");
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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
any material breach 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. Indemnification 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 $25,000. 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 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 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 prospective
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 prospective 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
prospective 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.
11
<PAGE>
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 _____________________________
12
<PAGE>
Exhibit 10.4
Letterhead of Capital Resources Group, Inc.
1211 Connecticut Ave., N.W. Suite 200 Washington, DC 20036 Tel (202)466-5685
Fax (202) 466-5695
PROPOSAL FOR APPRAISAL SERVICES AND
BUSINESS PLANNING ASSISTANCE
in connection with the planned mutual-to-stock conversion of
GOSHEN SAVINGS BANK
Goshen, New York
February 6, 1997
<PAGE>
Letterhead of Capital Resources Group, Inc.
1211 Connecticut Ave., N.W. Suite 200 Washington, DC 20036 Tel (202)466-5685
Fax (202) 466-5695
February 6, 1997
Mr. Clifford E. Kelsey, Jr.
President and Chief Executive Officer
Goshen Savings Bank
One South Church Street
Goshen, New York 10924-2103
Dear Mr. Kelsey:
This letter sets forth the agreement between Goshen Savings Bank ("Goshen
Savings" or the "Bank") and Capital Resources Group, Inc. ("CRG"), whereby
Goshen Savings has engaged CRG to determine the estimated pro forma market value
of the shares of common stock that are to be issued and sold by the Bank in
conjunction with its conversion into a stock savings institution (the
"Conversion") and to prepare the regulatory business plan for the formation of
the new holding company.
CRG agrees to deliver the valuation, in writing, to the Bank at the above
address on or before a mutually-agreed upon date. Further, we agree to discuss
with the board of directors the valuation, the methodology employed and other
relevant factors of the appraisal. In addition, CRG agrees to undertake all the
necessary filing requirements with respect to the valuation appraisal report
with the appropriate regulatory agencies. It is understood that the services of
CRG under this agreement shall be limited as described above. CRG is an
affiliate of Capital Resources, Inc. which is offering marketing agent services
separately.
Goshen Savings agrees to pay CRG for its services to prepare the
appraisal and the regulatory business plan and to reimburse CRG for certain
expenses necessary and incident to the completion of the appraisal. Professional
fees for our services are $20,000 for the appraisal and $10,000 for the
regulatory holding company business plan. Payment of the appraisal and business
plan fees shall be made according to the following schedule:
o $5,000 upon execution of this letter of agreement;
o $15,000 upon delivery of the completed appraisal report; and
o $10,000 upon delivery of the completed regulatory business plan.
<PAGE>
Any updated appraisal reports necessary in the conversion process will be
produced for a fixed fee of $5,000. Typically, no updates are required for the
business plan.
As part of the due diligence process, CRG will require that senior
management be available for a management review session conducted on the Bank's
premises.
Reimbursement of expenses for travel, communications, reproduction, data
and computer time shall be paid to CRG as incurred and billed. CRG will make
every attempt to hold these costs to a minimum, but in no event will they exceed
$5,000 without the prior approval of the Bank.
In the event the Bank shall, for any reason, discontinue its conversion
to a stock savings institution prior to the regulatory filing of the original
appraisal and business plan, the Bank agrees to compensate CRG according to
CRG's standard billing rates for consulting services based on accumulated and
verifiable time expenses, not to exceed $30,000 plus reimbursable expenses.
If, during the course of the Bank's Conversion, unforeseen events occur
so as to materially change the nature of the work content of the appraisal and
business planning services described in this contract, the terms of said
contract shall be subject to renegotiation by the Bank and CRG. Such unforeseen
events shall include, but not be limited to, major changes in procedures as they
relate to conversion regulations, appraisal guidelines or processing procedures
as they relate to conversions, major changes in management, operating policies
or financial condition, and excessive delays in completing the transaction
and/or suspension of processing of conversions such that completion of the
proposed Conversion requires the preparation by CRG of a new appraisal report
which differs substantially from the appraisal report prepared by CRG.
The Bank and CRG hereby agree to the following:
1. The Bank agrees to supply to CRG such information with respect to its
business and financial condition as CRG may reasonably request in order to
provide the aforesaid valuation. Such information heretofore or hereafter
supplied or made available to CRG shall include without limitation: annual
financial statements, periodic regulatory filings and material agreements, debt
instruments, commitments and contingencies, potential gains/losses and corporate
books and records.
2. The Bank hereby represents and warrants to CRG that any information
provided to CRG does not and will not, to the best of the Bank's knowledge, at
all relevant times, contain any untrue statement of a material fact or fail to
state a material fact necessary to make the statements therein not false or
misleading.
3. (a) The Bank agrees that it will indemnify and hold harmless CRG and
any affiliates of CRG who act for or on behalf of CRG in connection with the
services called for under this agreement, from and against any and all losses,
claims, damages and liabilities (including, but not limited to, all losses and
expenses in connection with claims under the federal securities laws) caused by
or arising out of any untrue statement of a material fact contained in the
information supplied by the Bank to CRG or by an omission to state a material
fact in the information so provided that is required to be stated therein or
necessary to make the statements not misleading.
<PAGE>
(b) The Bank will not be responsible for any such losses, claims,
damages and liabilities if CRG is determined to be negligent or otherwise at
fault.
(c) CRG will not be responsible for any such losses, claims, damages
and liabilities to the extent that it reasonably relied upon information
furnished by the Bank whether or not the Bank is determined to be negligent or
otherwise at fault.
(d) Should CRG incur legal expenses in defending any legal action
challenging the valuation where CRG is not negligent or otherwise at fault or is
found by a court of law to be not negligent or otherwise at fault, the Bank will
indemnify CRG for all such expenses.
The Bank and CRG are not affiliated, and neither the Bank nor CRG has an
economic interest in, or is held in common with, the other and has not derived a
significant portion of its gross revenues, receipts or net income for any period
from transactions with the other.
Please acknowledge your agreement to the foregoing by signing as
indicated below and returning to CRG a signed copy of this letter.
Sincerely,
CAPITAL RESOURCES GROUP, INC.
/s/ David P. Rochester
-------------------------------------
David P. Rochester Chairman and Chief
Executive Officer
DPR/cct
Agreed To and Accepted By:
Goshen Savings Bank
/s/ Clifford E. Kelsey, Jr. 2/10/97
signed date
Clifford E. Kelsey, Jr.
President and Chief Executive Officer
<PAGE>
Exhibit 10.5
Letterhead of Capital Resources Group, Inc.
1211 Connecticut Ave., N.W. Suite 200 Washington, DC 20036 Tel (202)466-5685
Fax (202) 466-5695
PROPOSAL FOR CONSULTING AND RECORDS
MANAGEMENT SERVICES
in connection with the planned mutual-to-stock conversion of
GOSHEN SAVINGS BANK
Goshen, New York
January 7, 1997
<PAGE>
Letterhead of Capital Resources Group, Inc.
1211 Connecticut Ave., N.W. Suite 200 Washington, DC 20036 Tel (202)466-5685
Fax (202) 466-5695
January 7, 1997
Mr. Clifford E. Kelsey, Jr.
President and Chief Executive Officer
Goshen Savings Bank
1 S. Church Street
Goshen, New York 10924
Dear Mr. Kelsey:
This letter describes the consulting and records management services that
Capital Resources Group, Inc. ("CRG") proposes to provide Goshen Savings Bank
(the "Bank") in connection with your planned mutual-to-stock conversion (the
"Conversion").
CONSULTING
Capital Resources will provide general management and financial
consulting services to the Bank in preparation for a mutual-to-stock conversion.
Further, Capital Resources will provide general financial consulting to the Bank
with respect to issues facing stock companies for a year following conversion.
Such areas would include loan loss reserves, use of conversion proceeds,
business strategies, staffing requirements as a public company, dividend
policies, stock repurchases, and reporting as a public company, among others. A
representative from Capital Resources will attend Board meetings semi-annually,
as requested, to discuss such issues. The Bank will reimburse Capital Resources
for out-of-pocket expenses related to such meetings.
RECORDS MANAGEMENT
CRG proposes to act as your "Conversion Agent" to be responsible for
consolidating member accounts of and calculating subscription rights for your
depositors and borrowers. Specifically, the services to be provided Goshen
Savings shall consist of the following:
<PAGE>
Conversion and Consolidation of Member Files
o Convert depositor and loan customer files to establish a file for the
initial mailing of Conversion packages.
A. Members holding savings accounts as of the specified eligibility
record date;
B. Members holding savings accounts as of the supplemental eligibility
record date; and
C. Members holding savings accounts and/or loans as of the "Other Member"
date.
o Build an interim data base as of the latest practical date for the
purpose of providing a suspected same ownership report.
o Edit tapes to identify records with missing names and addresses and/or
other incomplete information.
o Perform audit to ensure that complete and correct data has been
converted.
o Consolidate accounts with the same registration.
o Segregate accounts coded "Bad Address" and "No Mail".
o Household sort accounts residing at the same address.
o Print consolidated addresses on mailing media.
File Analysis/Solicitation Aids
o Provide a household aggregate dollar balance range survey for determining
a target group for stock order solicitation.
o Provide zip code surveys for determining a plan for the mailing of
conversion packages.
o Provide geographic surveys for determining the "Blue Sky" states.
o Provide a telephone deck for stock order solicitation.
o Provide a list of eligible subscribers coded by eligibility categories
according to the "Plan of Conversion".
o Imprint name and address on request cards to non-target members, if
applicable.
o Code request cards or subscription forms with eligibility category
according to the Plan of Conversion.
<PAGE>
Proxy Form Preparation and Analysis
o Provide list of all members entitled to receive a proxy for voting on the
conversion.
o Provide vote range survey for determining a target group for proxy
solicitation (if applicable).
o Imprint name and address on proxy cards.
o Print the number of eligible votes on the proxy cards.
o Code IRA and Keogh accounts as applicable.
o Segregate and produce proxies coded "Bad Address" or "No Mail".
o Print proxies and sort in household groups for mailing.
o Tabulate all validly executed proxies.
o Furnish daily reports to management.
o Produce and mail second mailing proxies (i.e., "Proxygrams") to unvoted
target members, if necessary.
o Provide an inspector of elections to attend the special meeting of
members.
o Provide proxy vote final list showing all members entitled to vote, if
they voted, how they voted and the number of votes voted.
Subscription Preparation and Processing
o Imprint name and address on subscription forms, if applicable.
o Imprint code for subscription eligibility category on form.
o Segregate and process subscription forms by category as stated in the
Plan of Conversion.
o Create and maintain a file for all subscribers.
o Produce and mail acknowledgment letters to subscribers daily.
o Verify shares purchased daily.
o Generate reports which confirm shares purchased.
o Issue a final report and confirm the final shares sold.
o Generate a pricing matrix showing the additional shares for a range of
prices (if applicable).
o Provide to transfer agent data for the issuance of stock certificates.
o Calculate and generate refund/interest checks.
o Prepare 1099s for interest at year end.
<PAGE>
FEE SCHEDULE
For consulting services rendered in connection with this agreement, our
fee will be $30,000. For records management services, our fee will be $30,000.
The fees for these services will be payable as follows; $15,000 payable upon
execution of this proposal and the commencement of our services; $15,000 upon
filing of the Application of Conversion; $15,000 upon regulatory approval of the
Conversion; and the balance either after the Special Meeting of Members or the
termination of the Conversion, whichever is sooner. In the rare event of a
recision or resolicitation, an additional fee of $2,500 for resolicitation of
stock subscriptions would be payable. In addition, we will bill you on a monthly
basis for direct out-of-pocket expenses incurred by us in performing our duties.
Such expenses shall include items such as travel (if necessary), communication,
shipping/postage, and supplies and shall not exceed $10,000 without prior
approval of the Bank.
ADDITIONAL PROVISIONS
1. Goshen Savings will provide CRG with all information we may normally
request in order to carry out the duties under this Agreement. The information
shall be provided on magnetic tape in the format required by us and shall
include, but not be limited to, names and addresses of all persons or entities
holding deposits in Goshen Savings or who are borrowers thereof.
2. CRG may subcontract with any one or more of its affiliates to perform
part or all of its obligations herein with diligence and in a workmanlike
manner, and shall not be liable or responsible for delays or errors occurring by
reason of circumstances beyond its control, including acts of civil or military
authority, national emergencies, labor difficulties, fire, mechanical breakdown,
flood or catastrophe, acts of God, insurrection, war, riots or failure of
communication or power supply.
3. Goshen Savings shall indemnify and hold CRG harmless with respect to
any damages, liabilities, claims and expenses, unless caused in whole or part by
the negligence or willful misconduct by CRG under this Agreement. Under no
circumstances shall CRG be responsible for special or consequential damages
arising out of CRG's performance of its duties under this Agreement.
4. All data relating to Goshen Savings' business submitted by the Bank to
CRG pursuant to this Agreement will be safeguarded by us and CRG will not
disclose confidential information to third persons, except as provided in
Paragraph 5 below.
<PAGE>
5. While all data submitted by Goshen Savings required hereunder is
regarded to be disclosed in confidence, nothing herein shall prevent or prohibit
disclosure by CRG of any information if it has been made public or if required
to be disclosed by any provision of law, rule or regulation, or in those cases
where CRG is satisfied that it is liable to any governmental agency or third
person, or will be held in contempt for failure to disclose such information.
6. This Agreement constitutes the entire Agreement between the parties
and cannot be changed orally.
7. Should Goshen Savings decide, at any time during the Conversion
process, to discontinue such Conversion, Goshen Savings shall be required to pay
CRG only for such work as has been completed up to the time that the Conversion
process was stopped, based on an equitable proration of the fee.
If the terms herein meet with your approval, please execute this contract
below and return it to me. I have enclosed a signed copy for your files.
We look forward to serving you in this capacity.
Sincerely,
CAPITAL RESOURCES GROUP, INC.
/s/ David P. Rochester
----------------------------
David P. Rochester
Chairman and Chief
Executive Officer
DPR/ems
Agreed To and Accepted By:
Goshen Savings Bank
/s/ Clifford E. Kelsey, Jr. 9/13/97
signed date
Clifford E. Kelsey, Jr.
President and Chief Executive Officer
<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,
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.
March 13, 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 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) Registration
Statement on Form S-1 of GSB Financial Corporation, filed with the Securities
and Exchange Commission and (ii) the 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
March 17, 1997
<PAGE>
Exhibit 23.3
[LETTERHEAD OF CAPITAL RESOURCES GROUP, INC. APPEARS HERE]
March 17, 1997
Board of Directors
Goshen Savings Bank
1 South Church Street
Goshen, New York 10924
Dear Board Members:
We hereby consent to the use of our firm's name Capital Resources
Group, Inc. ("CRG") in the Application for Approval of Conversion filed by
Goshen Savings Bank for permission to convert to a capital stock savings bank
and references to the Conversion Valuation Appraisal Report ("Report") and the
valuation of Goshen Savings Bank provided by CRG. We also consent to the use of
our firm's name and references to our Report in the Form S-1 Registration
Statement filed by GSB Financial Corporation.
Very truly yours,
/s/ Michael B. Seiler
---------------------------
Michael B. Seiler
Senior Vice President
<PAGE>
Exhibit 24.1
POWERS OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Clifford E. Kelsey, Jr. and Richard C.
Durland as the true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities to sign The Registration Statement on Form S-1 and any
and all amendments thereto, and the Application for Conversion on Form AC, and
to file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission and the Office of Thrift
Supervision, respectively, granting unto said attorneys-in-fact and agents full
power and authority to do and perform each and every act and things requisite
and necessary to be done as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or his substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
and any rules and regulations promulgated thereunder, and the Office of Thrift
Supervision regulations, the foregoing Powers of Attorney prepared in
conjunction with the Registration Statement on Form S-1 and the Application for
Conversion on Form AC have been duly signed by the following persons in the
capacities and on the dates indicated.
Dated: March 13, 1997
<TABLE>
<CAPTION>
<S> <C>
/s/ Clifford E. Kelsey, Jr. /s/ Richard C. Durland
- --------------------------- ----------------------
Clifford E. Kelsey, Jr., President, Chief Richard C. Durland, Executive Vice President
Executive Officer and Director Treasurer and Director
/s/ Herbert C. Mueller /s/ Roy L. Lippincott
- --------------------------- ----------------------
Herbert C. Mueller, Director Roy L. Lippincott, Director
/s/ Stephen O. Hopkins /s/ Gene J. Gengel
- --------------------------- ----------------------
Stephen O. Hopkins, Director Gene J. Gengel, Director
/s/ Thomas V. Guarino /s/ Jenny M. Ford
- --------------------------- ----------------------
Thomas V. Guarino, Director Jenny M. Ford, Secretary
/s/ Stephen W. Dederick
- ---------------------------
Stephen W. Dederick, Chief Financial Officer
</TABLE>
<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>
