<PAGE>
- ------------------------------------------------------------------------------
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended September 30, 1997
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ____________ to ____________
COMMISSION FILE NUMBER 0-22559
GSB FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 06-1481061
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1 South Church Street, Goshen, New York 10924
(Address of principal executive office-zip code)
Telephone (914) 294-6151
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
(Title of class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities
Exchange Act of 1934 during the preceding twelve months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes X No .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this form 10-K. [ X ]
As of December 18, 1997 the aggregate market value of the voting stock
held by non-affiliates of the Registrant was $35.9 million based upon the
reported closing price on that date as quoted on the Nasdaq National Market
System.
As of December 18, 1997, 2,248,250 shares of Registrant's common
stock were outstanding.
Documents Incorporated by Reference:
Portions of the Registrant's 1997 Annual Report and its Proxy Statement for
its 1998 Annual Meeting of Stockholders are incorporated by reference in Parts
II and III.
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<PAGE>
BUSINESS OF THE COMPANY
Item 1 - Business
General
GSB Financial Corporation (the "Company") was organized as a Delaware
corporation on March 17, 1997 at the direction of Goshen Savings Bank (the
"Bank") in order to acquire all the common stock of the Bank to be issued upon
its conversion (the "Conversion") from the mutual to the stock form of
ownership. The Conversion was consummated on July 9, 1997, at which time the
Company sold 2,248,250 shares of its common stock at a price of $10.00 per
share and paid $10.7 million, representing one-half the net proceeds from its
sale of stock, to the Bank in exchange for all shares of stock of the Bank to
be issued in the Conversion. The Company thereupon became a savings and loan
holding company, and subsequently registered as such with the Office of Thrift
Supervision (the " OTS").
Eight percent of the shares sold by the Company were purchased by the
Company's Employee Stock Ownership Plan (the "ESOP") using the proceeds of a
loan from the Company to pay the purchase price. Therefore, after deducting
expenses of the Conversion, the $10.7 million paid to the Bank and the $1.8
million represented by the promissory note from the ESOP, there remained $8.9
million of net proceeds available for investment directly by the Company.
After the Conversion, the Company's business has consisted of
directing, planning and co-ordinating the Business activities of the Bank and
investing the net proceeds of the Conversion available for investment by it.
The Bank's business has continued to consist 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 also 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 net proceeds retained by the Company have been invested
principally in mortgage-backed, government, agency and corporate securities
and federal funds sold.
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. The Company neither owns nor leases any property
but instead uses 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.
References herein to the business activities, financial condition and
operations of the Company prior to July 9, 1997, refer to the Bank, while
references to the Company on or after that date refer to both the Company and
the Bank as consolidated, except to the extent the context otherwise
indicates.
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<PAGE>
Market Area
The Company'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 Company's market area grew significantly in population during the
1980s as rising housing prices closer to New York City, coupled with an
abundance of vacant land in Orange County, led to a boom in housing
construction. As the economy throughout the region declined in the late 1980s
and early 1990s, communities within the market area 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 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 Company's
market area an additional boost. Additional economic strength may come from
the recently announced doubling of the size of a nearby major shopping mall,
which will reportedly become one of the largest malls in the state after
completion of construction, which is expected to begin in 1998. 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 Company's market area.
Competition
The Company's principal competitors for deposits are savings banks,
savings and loan associations, commercial banks and credit unions in the
Company'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 Company. The Company's competition for
loans comes principally from savings banks, savings and loan associations,
commercial banks, mortgage bankers, finance companies and other institutional
lenders. The Company'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 Company is subject to competition from other financial
institutions which may have much greater financial and marketing resources.
However, the Company believes it benefits from its community bank orientation
as well as its relatively high core deposit base. The relative economic
stability of the Company's lending area is reflected in the small number of
mortgage delinquencies experienced by the Company.
Year 2000 Compliance
In 1997, the Bank appointed a committee of officers to assure that its
computer systems will function properly in the year 2000. The committee has
contacted software suppliers to determine whether the systems used by the Bank
are year 2000 compliant and, if not, to assess the corrective steps being
taken. Regardless of compliance by existing software, the Bank expects to
replace its teller station software and hardware during 1998 to upgrade its
system for delivering customer services. The new software will be reviewed for
year 2000 compliance. While there may be some expenses incurred during the next
two years, year 2000 compliance is not expected to have a material effect on the
Company's financial condition or results of operations.
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<PAGE>
Lending Activities
Loan Portfolio Composition. The Company's loan portfolio,
representing 56.2% of total assets, consists primarily of conventional first
mortgage loans secured by one-to-four family residences. At September 30,
1997, the Company had total loans receivable of $65.7 million, of which $57.4
million, or 87.0%, were owner-occupied one-to-four family residential first
mortgage loans. The remainder consisted of $2.3 million of home equity lines
of credit and other loans secured by junior liens on one-to-four family
owner-occupied residential properties, or 3.5% of total loans; $2.1 million of
commercial mortgage loans, or 3.2% of total loans; $1.9 million of loans
secured by one-to-four family residential property used for rental purposes or
2.9% of total loans; $1.4 million of construction loans, or 2.1% of total
loans; $804,000 of consumer loans which are not secured by real estate, or
1.3% of total loans; and $36,000 of other loans, or 0.02% of total loans.
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 Company 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.
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<PAGE>
Loan Portfolio Composition Table
The following table sets forth the composition of the Company's loan portfolio
in dollar amounts and in percentages of the respective portfolios at the dates
indicated:
<TABLE>
<CAPTION>
At September 30,
- -----------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
--------------------------- -------------------------- ----------------------------
Percent Percent Percent
of of of
Amount Total Amount Total Amount Total
------ ----- ------ ----- ------ -----
Mortgage loans:
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
One- to
four-family(1) .............. $57,365 87.0% $50,377 85.6% $49,552 85.4%
Construction .................. 1,377 2.1 1,003 1.7 352 0.6
One-to-four-family ............ 1,936 2.9 2,202 3.7 2,465 4.2
Rental property
Home equity ................... 2,314 3.5 2,197 3.8 2,122 3.7
Commercial real estate ........ 2,073 3.2 2,255 3.8 2,660 4.6
------- ----- ------- ----- ------- -----
Total mortgage loans ........ $65,065 98.7% 58,034 98.6 57,151 98.5
Other loans:
Commercial business ........... 36 0.0 15 0.0 20 0.0
Consumer ...................... 630 1.0 675 1.1 669 1.1
Savings account loans ......... 174 0.3 148 0.3 209 0.4
------- ----- ------- ----- ------- -----
Total other loans ......... $ 840 1.3 838 1.4 898 1.5
------- ----- ------- ----- ------- -----
Total loans receivable ..... 65,905 100.0% 58,872 100.0% 58,049 100.0%
Less:
Deferred loan fees ............ 28 22 16
------- ------- -------
Allowances for
loan losses ................. 139 123 114
------- ------- -------
Loans
receivable, net ............. $65,738 $58,727 $57,919
======= ======= =======
Mortgage loan
summary:
Fixed rate loans .............. $28,864 44.4% $17,885 30.8% $11,074 19.4%
Adjustable-rate
loans ....................... $36,201 55.6 40,149 69.2 46,077 80.6
------- ----- ------- ----- ------- -----
Total mortgage loans .......... $65,065 100.0% $58,034 100.0% $57,151 100.0%
======= ===== ======= ===== ======= =====
</TABLE>
<PAGE>
RESTUBBED
<TABLE>
<CAPTION>
At September 30,
- ----------------------------------------------------------------------------------------------
1994 1993
----------------------------- ----------------------------
Percent Percent
of of
Amount Total Amount Total
------ ----- ------ -----
Mortgage loans:
(Dollars in thousands)
<S> <C> <C> <C> <C>
One- to
four-family(1) .......... $49,279 86.0% $41,214 86.5%
Construction .............. 1,316 2.3 15 0.0
One-to-four-family ........ 2,406 4.2 2,052 4.3
Rental property
Home equity ............... 2,141 3.7 2,542 5.3
Commercial real estate .... 1,402 2.5 1,133 2.4
------- ----- ------- -----
Total mortgage loans .... 56,544 98.7 46,956 98.5
Other loans:
Commercial business ....... 26 0.0 2 0.0
Consumer .................. 544 1.0 493 1.0
Savings account loans ..... 176 0.3 215 0.5
------- ----- ------- -----
Total other loans ...... 746 1.3 710 1.5
------- ----- ------- -----
Total loans receivable . 57,290 100.0% 47,666 100.0%
Less:
Deferred loan fees ........ 13 14
Allowances for
loan losses ............. 106 91
------- ----- ------- -----
Loans
receivable, net ......... $57,171 $47,561
------- ----- ------- -----
Mortgage loan
summary:
Fixed rate loans .......... $12,544 22.2% $12,103 25.8%
Adjustable-rate
loans ................... 44,000 77.8 34,853 74.2
------- ----- ------- -----
Total mortgage
loans .................... $56,544 100.0% $46,956 100.0%
======= ===== ======= =====
</TABLE>
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<PAGE>
Residential Mortgage Loans. The primary focus of the Company's
lending activities are mortgage loans secured by first liens on one-to-four
family owner-occupied or rental residential real estate. At September 30,
1997, approximately $60.7 million, or 92.1%, of the Company's total loan
portfolio consisted of such loans. The Company offers both adjustable rate
mortgages ("ARMs") and fixed-rate mortgage loans. The relative proportions of
fixed-rate loans versus ARMs originated by the Company depends principally
upon current customer preference, which is generally driven by general
economic and interest rate conditions and the pricing offered by the Company's
competitors. At September 30, 1997, approximately 55.6% of the Company's
residential one-to-four family owner-occupied first mortgage portfolio were
ARMs and approximately 44.4% were fixed rate loans. The percentage represented
by fixed rate loans has increased from 29.9% at September 30, 1996, to 44.4%
at September 30, 1997, principally due to customer preference for fixed-rate
loans during current periods of low interest rates. The ARMs generally carry
annual caps and life-of-the-loan ceilings which limit interest rate
adjustments.
The Company's residential loan underwriting criteria are generally
comparable to those required by the Federal National Mortgage Association
("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. The Bank's teaser rate ARMs (ARMs with low initial interest rates
that are not based upon the index plus the margin for determining future rate
adjustments) were underwritten based on the payment due at the fully-indexed
rate.
In addition to verifying income and assets of borrowers, the Company
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 Company
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 Company has offered ARMs since the early 1980s. In the early
years, the Company's ARMs provided for interest rate adjustments based upon
the Contract Interest Rate Index (the "CIRI") and the Monthly Median Cost of
Funds Index (the "COFI"), both as originally published by the Federal Home
Loan Bank Board. These indexes have proved to be unsatisfactory because the
COFI generally reacts slowly to interest rate changes and the CIRI no longer
reflects the same spread against market interest rates due to changes in
mortgage lending patterns. As a result, at September 30, 1997, the Company had
approximately $7.0 million of ARMs based upon the COFI and CIRI with current
interest rates from 3.80% to 7.00%. ARMs originated in recent years have
interest rates that adjust annually based upon the movement of the one year
treasury bill constant maturity index, plus a margin of from 2% to 2.75%.
These loans generally have a maximum interest rate adjustment of 2% per year,
with a lifetime maximum interest rate adjustment, measured from the initial
interest rate, of 5.5% or 6%.
From approximately April 1993 to December 1994, the Company
originated teaser rate ARMs with discounted initial interest rates as low as
4.25%. During that period, it was also the Company'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.
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<PAGE>
Fixed-rate residential mortgage loans are generally originated by the
Company for terms of 15 or 30 years. Although 30 year fixed-rate mortgage
loans may adversely affect the Company's net interest income in periods of
rising interest rates, the Company 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 Company generally include
due-on-sale clauses which permit the Company to demand payment in full if the
borrower sells the property without the Company's consent. Due-on-sale clauses
are an important means of adjusting the rates of the Company's fixed-rate
mortgage loan portfolio, and the Company has generally exercised its rights
under these clauses.
The Company 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 Company
carefully monitors construction through regular inspections and the borrower
must qualify for the permanent mortgage loan before the construction loan is
made. At September 30, 1997, the Company had 15 construction loans with an
aggregate outstanding principal balance of $1.4 million. The Company's
delinquency experience with its construction loans has been favorable. At the
end of each fiscal year since September 30, 1992, the Company had no
non-performing construction loans.
Home Equity Loans. The Company 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 Company 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 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 Company 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 September 30, 1997, the
Company had $1.3 million in outstanding advances on home equity lines of
credit and $982,000 in regular amortizing home equity loans.
Commercial Mortgage Loans. The Company originates fixed and
adjustable rate mortgage loans secured by office buildings, retail
establishments, and other types of commercial property, almost always secured
by property located in the Company's market area. At September 30, 1997, the
Company's commercial mortgage loan portfolio was $2.1 million, or 3.2% of
total loans. At September 30, 1997, the Company's largest such loan was a
participation loan with a local savings bank in which the Company's
participation was $482,000, 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 Company makes commercial mortgage loans with loan to value ratios
up to 75%, terms up to 15 years, and amortization periods up to 15 years. At
September 30, 1997, $1.2 million of the Company's commercial mortgage loans
had adjustable rates and $843,000 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
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<PAGE>
management of the properties, repayment may be subject, to a greater extent,
to adverse conditions in the real estate market or the economy. The Company
seeks to minimize these risks through its underwriting policies. In reaching
its decision on whether to make a commercial mortgage loan, the Company
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
Company 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 Company generally requires a debt service coverage ratio of a
minimum of 120% and the personal guarantee of the borrower. The Company 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 Company considers the financial resources and
income level of the borrower, the borrower's experience in owning or managing
similar property and the Company's lending experience with the borrower. The
Company's underwriting policies require that the borrower be able to
demonstrate management skills and the ability to maintain the property from
current rental income or from the borrower's operations on the property. The
Bank's policy requires borrowers to present evidence of the ability to repay
the mortgage and a history of making mortgage payments on a timely basis. In
making its assessment of the creditworthiness of the borrower, the Bank
generally reviews the financial statements and credit history of the borrower,
as well as other related documentation.
Consumer Loans. The Company 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 $840,000, or 1.3% of total loans, at September 30, 1997. These loans
generally have an average term of not more than five years and have interest
rates higher than mortgage loans. The shorter terms to maturity are helpful in
managing the Company'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 Company's loan
officers, and referrals from other borrowers, real estate brokers and
builders. The Company originates loans through its own efforts and does not
use mortgage brokers, mortgage bankers or other fee paid loan finders. The
Company does not originate loans independent of the bank, except for the loan
made to the Company's ESOP, which was used to purchase stock in the
Conversion. The ESOP loan is not recorded as an asset on the Company's
consolidated financial statements and is excluded throughout this discussion
of the Company's lending business.
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 President Kelsey and
Executive Vice President Durland. Loans over $500,000, of which the Bank had
none at September 30, 1997, must be approved in advance by the Bank's ad hoc
loan review committee. All other mortgage loans are reviewed by the Bank's ad
hoc loan committee after approval.
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<PAGE>
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 September 30, 1997, 15% of the Bank's capital and surplus was
approximately $3.3 million. On that date, the Bank's largest aggregate loan
relationship was $773,000, represented by three loans to affiliated borrowers.
One of the three component loans, a participation loan with a balance owed to
the Bank at September 30, 1997 of $482,000, 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 September 30, 1997 with balances in excess of $500,000. One
relationship, in the amount of $650,000, include a commercial mortgage loan on
medical offices in the amount of $410,000 and a residential mortgage loan to a
principal of the commercial loan borrower. The other relationship, in the
amount of $642,000, include 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 September 30, 1997, the Bank had four loans
outstanding with principal balances in excess of $250,000 and an additional 10
loans with principal balances from $200,000 to $250,000. None of these loans
were past due 90 days or more on September 30, 1997 or otherwise classified as
non-performing.
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<PAGE>
The following table sets forth the Bank's loan originations, loan sales
and principal repayments for the periods indicated.
Year Ended September 30,
------------------------------------
1997 1996 1995
---- ---- ----
(In Thousands)
Total loans, beginning of period ..... $ 58,872 $ 58,049 $ 57,290
-------- -------- --------
Loans originated:
Residential 1 to 4 family(1) ......... 10,017 6,198 3,557
Commercial real estate ............... 17 334 1,195
Construction loans ................... 2,092 1,652 1,271
Consumer loans ....................... 1,127 2,030 1,780
-------- -------- --------
Total loans originated ........... 13,253 10,214 7,803
Loans purchased ...................... -- -- --
Loans sold ........................... -- -- --
Principal repayments ................. (6,206) (9,373) (7,022)
Total charge-offs .................... (14) (18) (22)
-------- -------- --------
Net loan activity .................... 7,033 823 759
-------- -------- --------
Total loans, end of period ......... $ 65,905 $ 58,872 $ 58,049
======== ======== ========
(1) Includes home equity loans secured by subordinate liens on one-to-four
family owner-occupied residences.
The Company does not purchase loans. Prior to fiscal 1995, the
Company sold part of its fixed rate residential mortgage loan production to
FNMA and retained the right to service those loans. At September 30, 1997, the
Company's portfolio of loans serviced for FNMA totaled $6.8 million. The
Company did not service loans for any other investors at that date. The
Company has never purchased loan servicing rights.
Loan Maturity. The following table shows the contractual maturity of
the Company's loan portfolio at September 30, 1997. 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.
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<PAGE>
<TABLE>
<CAPTION>
At September 30, 1997
-----------------------------------------------------------------------
One- to Total
Four- Home Commercial Other Loans
Family Equity Real Estate Loans Receivable
------ ------ ----------- ----- ----------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Contractual maturity:
Within 1 year................ $ 24 $ - $ 3 $ 49 $ 76
After 1 year:
1 to 3 years.............. 201 - - 412 613
3 to 5 years.............. 1,372 51 538 286 2,247
5 to 10 years............. 2,048 901 217 93 3,259
Over 10 years............. 57,033 1,362 1,315 - 59,710
---------- ---------- ---------- ---------- ----------
Total due after one year.. $ 60,654 $ 2,314 $ 2,070 $ 791 $ 65,829
---------- ---------- ---------- ---------- ----------
Total amounts due............ $ 60,678 $ 2,314 $ 2,073 $ 840 $ 65,905
========== ========== ========== ==========
Less:
Deferred loan fees, net...... 28
Allowance for loan losses.... 139
----------
Loans receivable, net........ $ 65,738
==========
</TABLE>
The following table sets forth at September 30, 1997, the dollar
amount of loans due after September 30, 1998, and whether such loans have
fixed interest rates or adjustable interest rates.
<TABLE>
<CAPTION>
Due After September 30, 1998
----------------------------
Fixed Adjustable Total
----- ---------- -----
(In Thousands)
<S> <C> <C> <C>
Mortgage loans:
One- to four-family................................. $ 27,017 $ 33,637 $ 60,654
Home equity........................................ 981 1,333 2,314
Commercial real estate.............................. 841 1,229 2,070
Other loans........................................... 721 70 791
--------- --------- ---------
Total loans receivable................................ $ 29,560 $ 36,269 $ 65,829
========= ========= =========
</TABLE>
Asset Quality
Delinquency Procedures. When a borrower fails to make a required
payment on a loan, the Company 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
Company 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 Company contacts the borrower on a
regular basis to seek to cure the delinquency. If a loan becomes past due 90
days, the Company 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 Company first obtains relief from the automatic stay
provided by the Bankruptcy Code.
If the Company 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 September 30,
1997, the Company 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
-11-
<PAGE>
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 Company 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 Company's underwriting guidelines. Currently, the Company
has no "loans to facilitate."
The following table sets forth information with respect to the
Company's non-performing assets (which generally include loans that are
delinquent for 90 days or more and real estate owned) at the dates indicated.
<TABLE>
<CAPTION>
At September 30,
-------------------------------------------------------------------
1997 1996 1995 1994 1993
------------ ------------- ------------ ------------ ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Non-accrual loans:
Loans in non-accrual status:
One- to four-family........... $ - $ 16 $ 157 $ 42 $ -
Home equity................... - - - - -
Commercial real estate........ - - - - -
-------- -------- -------- -------- --------
Total mortgage loans....... $ - 16 157 42 -
-------- -------- -------- -------- --------
Consumer loans................ - - - -
Total non-accrual.......... $ - 16 157 42 -
------- -------- -------- -------- --------
Accrual Loans delinquent 90 days
or more:
Mortgage loans................ - - 68 160 264
Home equity .................. - - - 51 -
Other loans................... - - - 4 5
-------- -------- -------- -------- --------
Total...................... - - 68 215 269
-------- -------- -------- -------- --------
Total non-performing loans...... - 16 225 257 269
Foreclosed and in substance
foreclosed real estate....... - - - - -
-------- -------- -------- -------- --------
Total non-performing assets..... $ - $ 16 $ 225 $ 257 $ 269
======== ======== ======== ======== ========
Ratio of non-performing loans to
total loans ................. 0.00% 0.03% 0.39% 0.45% 0.56%
Ratio of non-performing assets to
total assets................. 0.00% 0.02% 0.22% 0.26% 0.27%
</TABLE>
At September 30, 1997, management had identified as a potential
problem loan one residential mortgage loan with a principal balance of
$115,000, which was then 89 days past due. A foreclosure action was
subsequently commenced and the borrower filed a bankruptcy petition.
Management believes that the allowance for loan losses is adequate to cover
the loss, if any, on such loan. At September 30, 1997, there were no other
loans other than those included in the table above 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.
It is the Company's policy to discontinue accruing interest on a loan
when it becomes 90 days or more delinquent unless the Company 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 Company records interest as and when
received until the loan is restored to accruing status.
For the years ended September 30, 1997, 1996 and 1995, the amount of
interest income that would have been recorded on non-accrual loans was $0,
$1,400, and $6,700, respectively, if such loans had been performing
-12-
<PAGE>
inaccordance with their terms, of which $0, $1,400, and $0 was actually
collected by the Company and recorded as income during each such period.
Interest earned on loans 90 days or more delinquent and still accruing
interest amounted to $0, $0, and $7,600 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 in March 1997. 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 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 a specific allowance for
loss equal to 100% of the portion of the asset classified Loss or charge off
such amount. If the 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 September 30, 1997,
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 Company'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 Company's underwriting policies. The
Company 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 Company's actual
experience differ substantially from the conditions and experience used in the
assumptions upon which the initial determinations are based.
While the Company 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 Company's loan portfolio
as part of a future regulatory examination, will not request the Company to
materially increase its allowance for loan losses, thereby negatively
-13-
<PAGE>
affecting the Company'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.
The following table analyzes activity in the Company's allowance for
loan losses during the fiscal years indicated.
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------------------
1997 1996 1995 1994 1993
----- ----- ----- ----- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Allowance, beginning of period ........ $ 123 $ 114 $ 106 $ 91 $ 92
Provision:
Residential 1-4 family ............. 5 -- 15 20 10
Commercial real estate ............. -- -- -- -- --
Consumer ........................... 15 24 14 5 --
----- ----- ----- ----- -----
Total provision .................. 20 24 29 25 10
Charge-offs:
Residential 1-4 family ............. -- -- -- -- (6)
Consumer ........................... (14) (18) (22) (14) (7)
----- ----- ----- ----- -----
Total charge-offs ............... (14) (18) (22) (14) (13)
----- ----- ----- ----- -----
Recoveries:
Residential 1-4 family ............. -- -- -- -- 2
Consumer ........................... 10 3 1 4 --
----- ----- ----- ----- -----
Total recoveries ................ 10 3 1 4 2
----- ----- ----- ----- -----
Net (charge-offs) recoveries .......... (4) (15) (21) (10) (11)
----- ----- ----- ----- -----
Allowance, end of period .............. $ 139 $ 123 $ 114 $ 106 $ 91
===== ===== ===== ===== =====
Allowance as a percent of total loans . 0.21% 0.21% 0.20% 0.19% 0.19%
</TABLE>
-14-
<PAGE>
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 September 30,
------------------------------------------------------------------------------------------
1997 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 $117 95.58% $112 94.75% $112 93.87% $ 97 96.25%
Commercial real estate -- 3.15% -- 3.83% -- 4.58% -- 2.45%
Consumer and other .... 22 1.27% 11 1.42% 2 1.55% 9 1.30%
---- ------ ---- ------ ---- ------ ---- ------
Total allowance ....... $139 100.00% $123 100.00% $114 100.00% $106 100.00%
==== ====== ==== ====== ==== ====== ==== ======
</TABLE>
Environmental Issues
The Company 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 Company attempts to control its risk by requiring
a phase one environmental assessment by a Company-approved engineer as part of
its underwriting review for all mortgage loans other than those secured by
one-to-three family residences.
The Company believes its procedures regarding the assessment of
environmental risk are adequate and, as of September 30, 1997, the Company 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
Company's portfolio will not be adversely affected by unforeseen environmental
risks.
Investment Activities
General. The investment policy of the Company and the Bank, approved
by the Boards of Directors, is based upon 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.
-15-
<PAGE>
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 Company 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 Company has not had a trading securities portfolio
since 1994 and has no current plans to maintain such a portfolio in the
future. At September 30, 1997, $26.6 million of investment securities were
classified as available-for-sale and none were classified as held to maturity.
At September 30, 1997, $5.7 million of mortgage-backed securities were
classified as held-to-maturity with a fair value of $5.8 million, and $7.0
million 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 Company 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 Company's investment securities portfolio
totaled $26.6 million at September 30, 1997. It is the policy of the Company
to invest in debt securities issued by the United States Government, its
agencies, municipalities and corporations. In order to benefit from higher
yields, the Company invests in corporate debt securities, which totaled $11.9
million, or 44.8% of investment securities, at September 30, 1997. Such
securities have greater risks than U.S. Government securities because of the
greater possibility that the corporate obligor, compared to the U.S.
Government, will default in payment of the obligation. To control risks, the
Company limits its investment in corporate debt securities to those rated in
the three highest grades by a nationally recognized rating organization. The
Company also invests in the Institutional Investors Capital Appreciation Fund,
Inc. ("IICAF"), a mutual fund 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 September 30, 1997,
the Company's investment in IICAF shares totaled $2.5 million.
At September 30, 1997, the Bank had an investment of $638,000 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 6.49% for
the fiscal year ended September 30, 1997.
Mortgage-Backed Securities. The Company invests in mortgage-backed
securities to supplement the yields on its loan portfolio. At September 30,
1997, the Company's mortgage-backed securities portfolio totaled $12.7
million, of which $5.7 million was classified as held to maturity and $7.0
million were classified as available for sale. The Company's most recent
purchases of mortgage-backed securities have been classified as available for
sale and the Company expects that it will continue to so classify future
purchases to maintain flexibility. At September 30, 1997, all of the Company's
mortgage-backed securities were issued or guaranteed by FNMA, FHLMC or GNMA
and all were pass through securities. The Company's mortgage-backed securities
portfolio had a weighted average yield of 6.77% at September 30, 1997.
-16-
<PAGE>
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 Company. 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 the Bank's regulatory 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.
-17-
<PAGE>
The following table sets forth certain information regarding the
amortized cost and fair value of the Company's available for sale, and held to
maturity securities portfolios at the dates indicated.
<TABLE>
<CAPTION>
At September 30,
--------------------------------------------------------------------------
1997 1996 1995
--------------------------------------------------------------------------
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
---- ----- ---- ----- ---- -----
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Securities Available for Sale:
U.S. Treasury securities ...................... $ 3,497 $ 3,505 $ 4,718 $ 4,715 $ 2,051 $ 2,054
U.S. Government agencies ...................... 7,123 7,163 2,967 2,984 -- --
Corporate debt obligations .................... 11,879 11,942 12,043 12,075 -- --
Mortgage-backed securities .................... 6,994 6,990 -- -- -- --
Other securities .............................. 400 400 506 504 -- --
------- ------- ------- ------- ------- -------
Total ........................... 29,893 30,000 20,234 20,278 2,051 2,054
------- ------- ------- ------- ------- -------
FHLBNY stock .................................. 638 638 599 599 -- --
Corporate equity securities ................... 2,165 2,990 2,002 2,204 1,956 2,040
------- ------- ------- ------- ------- -------
Total equity securities ......... 2,803 3,628 2,601 2,803 1,956 2,040
------- ------- ------- ------- ------- -------
Total available for sale ........ 32,696 33,628 22,835 23,081 4,007 4,094
------- ------- ------- ------- ------- -------
Securities Held to Maturity:
U.S. Treasury ................................. -- -- -- -- 5,834 5,801
U.S. Government agencies ...................... -- -- -- -- 2,933 2,965
Corporate debt obligations .................... -- -- -- -- 13,964 13,934
Other ......................................... -- -- -- -- 1,019 1,011
Mortgage-backed securities .................... 5,653 5,766 6,474 6,529 4,404 4,492
------- ------- ------- ------- ------- -------
Total held to maturity .......... 5,653 5,766 6,474 6,529 28,154 28,203
------- ------- ------- ------- ------- -------
Total Securities ................ $38,349 $39,394 $29,309 $29,610 $32,161 $32,297
======= ======= ======= ======= ======= =======
</TABLE>
The table below sets forth certain information regarding the carrying
value, weighted average yields and stated maturity of the Company's securities
at September 30, 1997. 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 Company's equity at September 30,
1997.
<TABLE>
<CAPTION>
At September 30, 1997
-------------------------------------------------------------------------------------------------------
One Year or Less One to Five Years Five to Ten Years More than Ten Years Total Securities
---------------- ----------------- ----------------- --------------------- ----------------
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average Market
Value Yield Value Yield Value Yield Value Yield Value Yield Value
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury
securities............ $2,496 5.99% $1,001 5.97% $ - - - - $ 3,497 5.98% $ 3,505
U.S. Government
agency................ 1,488 6.75% 3,004 6.46% 2,631 6.77% - - 7,123 6.64% 7,163
Corporate debt
obligations........... 3,410 6.15% 8,469 6.37% - - - - 11,879 6.31% 11,942
Mortgage-backed
securities............ 212 7.00% 4,109 6.39% 3,696 6.84% 4,630 7.06% 12,647 6.77% 12,756
Other debt
securities............ 400 5.70% - 0.00% - - - - 400 5.70% 400
FHLBNY stock........... - - - - - - 638 6.49% 638 6.49% 638
Other equity
securities............ - - - - - - 2,165 5.21% 2,165 5.21% 2,990
------ ------- ------- ------ ----- -----
Total.............. $8,006 6.21% $16,579 6.37% $ 6,327 6.81% $ 7,433 6.47% $38,349 6.43% $39,394
====== ======= ======= ======= ======= =======
</TABLE>
-18-
<PAGE>
Sources of Funds
General. The Company's primary source of funds is deposits. In
addition, the Company 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 Company 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 Company's deposits are obtained predominantly from its Orange
County market area. The Company 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 Company's ability to attract
and retain savings deposits. The Company does not pay premium rates for
certificates of deposit in excess of $100,000 nor does the Company use brokers
to obtain deposits. At September 30, 1997, the Company had $83.0 million of
deposits outstanding.
The Company prices its deposit offerings based upon market and
competitive conditions in its market area. Beginning in fiscal 1996, the
Company took steps to decrease its cost of funds by moderating the rates it
offered on certificates of deposit. 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 September 30, 1997. Due to
declining market interest rates and the Company's efforts to reduce its cost
of funds, certificates of deposits with rates of 6.00% or more totaled
$784,000, or 1.5%, of the Company's certificates of deposit at September 30,
1997 compared to $15.8 million, or 36.8%, at September 30, 1995. Total
deposits decreased by $459,000 during the twelve months ended September 30,
1997. Management believes this decrease was caused principally by depositors
who used their deposits to purchase the Company's common stock.
-19-
<PAGE>
The following table sets forth the distribution of the Company's deposit
accounts at the dates indicated. Interest rates shown for non-time accounts are
the rates in effect at September 30, 1997.
<TABLE>
<CAPTION>
At September 30,
-----------------------------------------------------------------------------
1997 1996 1995
---- ---- ----
Percent Percent Percent
of of of
Amount Total Amount Total Amount Total
------ ----- ------ ----- ------ -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-time accounts:
Savings accounts (3.00%) .................... $26,839 31.65% $26,805 32.12% $27,198 30.87%
NOW accounts (2.50%) ........................ 4,136 4.87% 3,636 4.36% 3,308 3.76%
Checking accounts ........................... 4,869 4.70% 4,206 5.04% 3,796 4.31%
Money market accounts (3.00%) ............... 8,892 12.82% 10,457 12.53% 10,756 12.21%
------- ------ ------- ------ ------- -----
Total non-time accounts .................. 44,736 54.04% 45,104 54.05% 45,058 51.15%
------- ------ ------- ------ ------- -----
Time accounts:
3.00-3.99% .................................. 208 0.42% 501 0.60% 1,759 2.00%
4.00-4.99% .................................. 8,394 29.75% 25,479 30.53% 4,595 5.22%
5.00-5.99% .................................. 28,861 14.27% 9,736 11.67% 20,853 23.67%
6.00-6.99% .................................. 509 1.12% 2,291 2.75% 15,517 17.61%
7.00-7.99% .................................. 275 0.40% 331 0.40% 311 0.35%
------- ------ ------- ------ ------- -----
Total time accounts ...................... 38,247 45.96% 38,338 45.95% 43,035 48.85%
------- ------ ------- ------ ------- -----
Total deposits ....................... $82,983 100.0% $83,442 100.0% $88,093 100.0%
======= ====== ======= ====== ======= =====
</TABLE>
The following table sets forth the deposit flows at the Company
during the periods indicated.
Year Ended September 30,
----------------------------------
1997 1996 1995
---- ---- ----
(In Thousands)
Net deposits (withdrawals) .............. $(3,587) $(8,016) $(1,563)
Interest credited ....................... 3,128 3,365 3,260
------- ------- -------
Net increase (decrease) in deposits ..... $ (459) $(4,651) $ 1,697
======= ======= =======
At September 30, 1997, the Company had $1.8 million in certificates of
deposit with balances of $100,000 or more ("jumbo deposits"), representing 2.2%
of all deposits, as follows:
Original Interest
Term Rate (1) Balance
---- -------- -------
(In Thousands)
1-3 months ................. 3.60% $ 373
4-6 months ................. 4.90% 508
6-12 months ................ 5.10% 512
Over twelve months ......... 5.10% 428
------
$1,821
======
(1) Interest rate offered as of September 30, 1997.
-20-
<PAGE>
Borrowings. To a limited extend, the Company has in the past relied
upon borrowed funds or repurchase agreements to supplement its available
funds. The Company 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 was attractive when compared to
the rate required to be paid on deposits plus the deposit insurance premium
required to be paid. In the future, the Company may use borrowings to provide
funds in order to assist in the leveraging of the additional capital received
in the Conversion.
The Company had no borrowings at September 30, 1997. The maximum
borrowings outstanding at any time during fiscal 1997 were $2 million.
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 Bank may also invest an unlimited amount in operating subsidiaries engaged
solely in activities which a federal savings bank may engage in directly. The
Company is permitted, as a unitary savings and loan holding company, to invest
in subsidiaries without limits as to the activities in which the subsidiary
engages and without limit as to the amount invested. Neither the Bank nor the
Company have any subsidiaries.
Personnel
At September 30, 1997, the Bank employed 35 full-time and 4 part-time
employees. The Company did not have any employees who were not also employees
of the Bank. The employees are not represented by a collective bargaining
unit, and the Company considers its relationship with its employees to be
good.
Regulation
The following is a summary of certain statutes and regulations
affecting the Company and the Bank. The Bank, as a federally chartered, FDIC
insured, savings bank, derives its powers principally from federal law and is
subject to comprehensive regulation of virtually every aspect of its business
operations. The following summary is selective and should not be considered to
be a complete discussion of all regulation affecting the Company or the Bank.
General Bank Regulation. The Bank's primary federal bank regulator is
the Office of Thrift Supervision ("OTS"). The Bank is also subject to
regulation by the FDIC as the insurer of its deposits. The Bank must file
periodic reports with the OTS and is regularly examined by the OTS and the
FDIC. As a result of these examinations, the Bank can be required to adjust
its loan classifications or allowance for loan losses, take other actions to
correct deficiencies found during the examinations, or cease engaging in
certain activities. The Bank is generally permitted to open deposit-taking
branches throughout the United States, regardless of local laws regarding
branching.
The OTS may institute enforcement action against the Bank for
violations of law or for unsafe and unsound banking practices. Enforcement
actions can include the issuance of cease and desist orders, the commencement
of removal proceedings in which an employee, officer or director can be
removed from involvement with the Bank, the assessment of civil monetary
penalties, and injunctive relief. The FDIC may terminate the insurance of
deposits, after notice and hearing, upon a
-21-
<PAGE>
finding that an institution has engaged in unsafe and unsound practices, cannot
continue operations because it is in an unsafe and unsound condition, or has
violated any applicable law, regulation, rule, order or condition imposed by the
OTS or FDIC. The FDIC may instead impose less severe sanctions. Neither the OTS
nor the FDIC (which was also the Bank's primary federal regulator before the
Bank became a federal savings bank in March 1997) have ever instituted any
enforcement action against the Bank.
Federal law and OTS regulations limit the percentage of the Bank's
assets that can be invested in certain investments. For example, commercial,
corporate and business loans, other than those secured by real estate
collateral, are limited in the aggregate to 10% of assets. The purchase of
below investment grade debt securities is prohibited. Loans secured by
non-residential real property cannot, in the aggregate, exceed 400% of
capital. Consumer loans not secured by residential real estate are generally
limited, in the aggregate, to 35% of total assets. Loans secured by
residential real property, and many other types of loans and investments, are
not subject to any percentage of asset limit. Generally, the Bank may not lend
more than 15% of unimpaired capital and surplus to one borrower, which equates
to a lending limit of $3.3 million, with an additional 10% of unimpaired
capital and surplus being permitted if secured by certain readily marketable
collateral. The Bank is in compliance with all these limits. The Bank's
largest loan, to one borrower at September 30, 1997 was represented by three
related loans in the aggregate amount of $773,000 loan secured by commercial
and residential real estate in the Bank's market area.
The OTS also imposes a semi-annual assessment on all OTS regulated
institutions to defer the cost of OTS regulation. The Bank's most recent
semi-annual OTS assessment was $15,413.
The Company is a unitary savings and loan holding company, and its
sole FDIC-insured subsidiary, the Bank, is a qualified thrift lender ("QTL",
discussed in more detail below). Therefore, the Company generally has broad
authority to engage in all types of business activities in which business can
engage. If the Company were to acquire another insured institution as a
separate subsidiary or if the Bank fails to remain a QTL, the Company's
activities will be limited to those permitted of multiple savings and loan
holding companies. In general, a multiple savings and loan holding company (or
subsidiary thereof that is not an insured institution) may, subject to OTS
approval in most cases, engage in activities comparable to those permitted for
bank holding companies, certain insurance activities, and certain activities
related to the operations of its FDIC-insured subsidiaries.
Capital Requirements. The Bank is subject to minimum capital
requirements imposed by the OTS. The Bank must maintain (i) tangible capital
of 1.5% of tangible assets, (ii) core capital of 3.0% of adjusted tangible
assets, and (iii) a risk-based capital requirement of 8.0% of risk-weighted
assets. Under current law and regulations, there are no capital requirements
directly applicable to the Company. The Bank substantially exceeds all minimum
capital standards imposed by the OTS. At September 30, l997, the Bank had a
tangible capital ratio of 19.6%, a core capital ratio of 19.6% and a risk
based capital ratio of 39.1%. OTS regulations require that certain
institutions with more than normal interest rate risk must make a deduction
from capital before determining compliance with the minimum capital
requirements. The Bank is currently exempt from the deduction requirement
because it has total assets less than $300,000,000 and risk based capital in
excess of 12%. However, the Bank's capital ratios are high enough that even if
the exemption is withdrawn, the deduction would not have a material effect on
the Bank's compliance with OTS capital requirements.
The OTS has the authority to require that an institution take prompt
corrective action to solve problems if the institution is undercapitalized,
significantly undercapitalized or critically
-22-
<PAGE>
undercapitalized. Because of the Bank's high capital ratios, the prompt
corrective action regulations are not expected to have an effect on the Bank.
Deposit Insurance Premiums. The FDIC's deposit insurance premiums are
assessed through a risk-based system under which all insured depository
institutions are placed into one of nine categories and assessed insurance
premiums based upon their level of capital and supervisory evaluation. Under
the system, institutions classified as well capitalized and considered healthy
pay the lowest premium. The Bank is in this category and currently pays
negligible deposit insurance premiums. If the Bank's capital ratios
substantially deteriorate or if the Bank is found to be otherwise unhealthy,
the deposit insurance premiums payable by the Bank could increase.
In September 1996, The Economic Growth and Regulatory Paperwork
Reduction Act of 1996 (the "1996 Act") became law. Before the 1996 Act,
institutions insured by the Savings Association Insurance Fund ("SAIF") paid
deposit insurance premiums at a rate of at least 0.23% of insured deposits (23
cents per $100). This gave most BIF institutions, such as the Bank, a
competitive advantage because the BIF insurance premiums were lower. The 1996
Act imposed a one time assessment on all SAIF institutions and then equalized
the insurance premiums for BIF and SAIF institutions. At the same time, the
1996 Act required BIF institutions to contribute to the costs of the "FICO"
bonds sold in the late 1980s to finance the savings and loan bailout. BIF
institutions pay only 20% of the FICO bond assessment paid by SAIF
institutions. SAIF institutions pay a FICO bond assessment of approximately
0.065% of insured deposits, while BIF institutions such as the Bank pay
approximately 0.013% of insured deposits. The FICO bond assessment will
equalize no later than January 1, 2000. As a result of the 1996 Act the
competitive advantage which the Bank enjoyed against SAIF institutions has
been reduced, but not yet eliminated.
The 1996 Act contemplates a merger of the SAIF and BIF funds, with
the elimination of the federal savings bank charter by January 1, 1999. The
exact manner in which the elimination will be accomplished has not yet been
established, but commentators have suggested that all federal thrift
institutions, such as the Bank, will be required to convert either to a
national bank, state commercial bank or state savings bank charter. A change
in the charter of the Bank could also affect the flexibility accorded to the
Company as a unitary savings and loan holding company. The effect that the
forced conversion will have on the Bank and the Company cannot be determined
at this time and there can be no assurance that a charter conversion will not
have an adverse impact on the Company or the Bank.
Dividend Restrictions. OTS regulations impose limits on dividends or
other capital distributions by savings institutions based on capital levels
and net income. An institution, such as the Bank, that meets or exceeds all of
its capital requirements (both before and after giving effect to the
distribution) and is not in need of more than normal supervision, may make
capital distributions during a calendar year of up to the greater of (i) 100%
of net income for the current calendar year plus 50% of its capital surplus
(capital in excess of regulatory requirements) or (ii) 75% of its net income
over the most recent four quarters. Any additional capital distributions
require prior regulatory approval.
The Bank's capital levels exceed regulatory minimums to such an
extent that the substantive restrictions on dividends are not expected to have
a material effect on the Bank. However, OTS regulations also impose procedural
restrictions. The OTS must receive at least 30 days' written notice before
making any capital distributions. All such capital distributions are subject
to the OTS' right to object to a distribution on safety and soundness grounds.
The OTS has proposed regulations that would eliminate the notice requirement
for the highest rated institutions so that advance notice
-23-
<PAGE>
would not be required for most normal dividends. The Bank expects that it will
not be required to give notice under normal circumstances if the new proposal is
adopted in its current form.
Qualified Thrift Lenders. If the Bank fails to remain a QTL, as
defined below, it must either convert to a national bank charter or be subject
to restrictions on its activities specified by law and the OTS regulations,
which restrictions would generally limit activities to those permitted for
national banks. Also, three years after the savings institution ceases to be a
QTL, it would be prohibited from retaining any investment or engaging in any
activity not permissible for a national bank and would be required to repay
any outstanding borrowings from any Federal Home Loan Bank.
A savings institution will be a QTL if its qualified thrift
investments equal or exceed 65% of its portfolio assets on a monthly average
basis in nine of every 12 months. Qualified thrift investments include, among
others, (i) certain housing-related loans and investments (notably including
residential one to four family mortgage loans), (ii) certain federal
government and agency obligations, (iii) loans to purchase or construct
churches, schools, nursing homes and hospitals (subject to certain
limitations), (iv) consumer loans (subject to certain limitations), (v) shares
of stock issued by any Federal Home Loan Bank, and (vi) shares of stock issued
by the FHLMC or the FNMA (subject to certain limitations). The Bank satisfied
the QTL test at September 30, 1997 and for every month during fiscal 1997.
Community Reinvestment Act. Under the Community Reinvestment Act (the
"CRA"), as implemented by OTS regulations, the Bank has a continuing and
affirmative obligation consistent with its safe and sound operation to help
meet the credit needs of its entire community, including low and moderate
income neighborhoods. The Bank is periodically examined by its federal
regulator for compliance with the CRA. The Bank's CRA performance is evaluated
based upon the lending, investment and service activities of the Bank. The
Bank received a "satisfactory" CRA rating in its last CRA examination.
Federal Reserve Regulation. Under Federal Reserve Board regulations,
the Bank must maintain reserves against its transaction accounts (primarily
interest-bearing checking accounts) and non-personal time deposits. The effect
of the reserve requirements is to compel the Bank to maintain certain
low-yielding reserve deposits which are not available for investment in higher
yielding assets. However, at the present time, in light of the Bank's high
liquidity ratio, the reserve requirements do not have a material adverse
effect on the Bank. The balances maintained to meet the reserve requirements
may be used to satisfy liquidity requirements imposed by the OTS. The Bank is
in compliance with its reserve requirements.
Taxation. The Company pays federal and New York State income taxes on
its income. The Bank, as a savings institution, was permitted a deduction
under former law for the creation of a reserve for bad debts. In August 1996,
the Internal Revenue Code (the "Code") was amended to abolish the percentage
method of calculating the tax bad debt deduction, which, in general, had
permitted savings institutions to deduct 8% of their taxable income as a
reserve for bad debts. The Bank had not been eligible to use the percentage
method because its retained earnings and surplus exceeded 12% of deposits, so
the abolition should not have a material effect on current operations.
Furthermore, the change in the Code also requires savings institutions to
recapture, over a period of six to eight years, any additions to their tax bad
debt reserves since 1988. The Bank had already provided, as a provision for
deferred taxes in accordance with SFAS No. 109, for the tax consequences of
the Bank's post-1987 additions to the tax bad debt reserve. Therefore, the
recapture requirement should not have a material financial statement impact.
-24-
<PAGE>
Item 2
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. The elder care facility is operated
by a non-profit corporation of which President Clifford Kelsey is a director.
The Company does not have separate facilities and operates out of the Bank's
headquarters. The following table sets forth certain information regarding the
Bank's deposit-taking offices.
<TABLE>
<CAPTION>
Owned/ Approximate Net Book
Location Date acquired Leased Square Feet Value
(In Thousands)
<S> <C> <C> <C> <C>
One South Church Street, Goshen, 1971 Owned 10,680 2,263
NY 10924 with adjacent drive-up
facility at 50 South Church Street
214 Harriman Drive March 1997 Leased 105 36
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 main office is located. This
contamination is being remediated by the adjoining land owner and the Bank
does not believe that it poses any continuing risks. The Bank has agreed to
share in the cost of remediation. The Bank estimates that its share of the
cost will be approximately $50,000, which amount was recorded as an expense
during the quarter ended March 31, 1997.
Item 3
Legal Proceedings
In the ordinary course of its operations, the Company 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 Company or its assets is or may become a party, poses a substantial
likelihood of potential loss or exposure which would have a material adverse
effect on the financial condition or results of operations of the Bank or the
Company.
Item 4
Submission of Matters to a Vote of Security Holders
None
-25-
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The following information included in the Annual Report to
Shareholders for the fiscal year ended September 30, 1997, (the "Annual
Report"), is incorporated herein by reference: "STOCKHOLDERS' INFORMATION-
Common Stock", which appears on page 53 of the Annual Report.
ITEM 6. SELECTED FINANCIAL DATA
The following information included in the Annual Report is
incorporated herein by reference: "SELECTED CONSOLIDATED FINANCIAL
INFORMATION" which appears on pages 2 and 3 of the Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following information included in the Annual Report is incorporated
herein by reference: "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS", which appears on pages 4 through 20 of the
Annual Report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The following information included in the Annual Report is incorporated
herein by reference: "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Gap Analysis" AND "- Analysis of Market
Risk", which appear on pages 9 through 11 of the Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following information included in the Annual Report is
incorporated herein by reference: The consolidated statements of financial
condition of GSB Financial Corporation and Subsidiary as of September 30, 1997
and 1996, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the years in the three-year period September
30, 1997, together with the related notes and the independent auditors' report
thereon, all of which appears on pages 22 through 51 of the Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following information included in the Proxy Statement under the
major heading "INFORMATION CONCERNING THE BOARD OF DIRECTORS AND EXECUTIVE
OFFICERS" is incorporated herein by reference: "Directors Nominated for Terms
Expiring In 2001," "Directors Whose Terms Will Continue Beyond the Meeting,"
"Board of Directors Biographical Information," and "Executive Officers Who Are
Not Directors," which appears on pages 3 through 5 of the Proxy Statement.
-26-
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The information included on pages 6 through 8 of the Proxy Statement
is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following information included in the Proxy Statement is
incorporated herein by reference: "Voting Securities and Certain Holders
Thereof", which appears on pages 2 and 3 of the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following information included on pages 8 and 9 of the Proxy
Statement is incorporated herein by reference: "Transactions With Directors and
Officers."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
-27-
<PAGE>
(a) 1. Financial Statements
The following financial statements are included in the Company's Annual
Report to Shareholders for the year ended September 30, 1996 and are
incorporated herein by this reference:
Consolidated Statements of Condition at September 30, 1996 and 1997
Consolidated Statements of Operations for the years ended September 30,
1997, 1996 and 1995
Consolidated Statements of Equity for the years ended September 30,
1997, 1996 and 1995
Consolidated Statements of Cash Flows for the years ended September 30,
1997, 1996 and 1995
Notes to Consolidated Financial Statements
Report of Independent Accountants
The remaining information appearing in the Annual Report to
Stockholders is not deemed to be filed as a part of this report, except as
expressly provided herein.
2. Financial Statement Schedules
Financial Statement Schedules have been omitted because they are not
applicable or the required information is shown in the Consolidated Financial
Statements or Notes thereto.
(b) Reports on Form 8-K filed during the last quarter of fiscal 1997
None
(c) Exhibits Required by Securities and Exchange Commission Regulation S-K
Exhibit Number
TABLE OF EXHIBITS
3.1 Certificate of Incorporation of GSB Financial Corporation
(incorporated by reference to Exhibit 3.1 to the Registration
Statement on Form S-1 No. 333-23573 of GSB Financial Corporation,
filed on March 19, 1997 (hereinafter "Form S-1")
3.2 By laws of GSB Financial Corporation (incorporated by reference to
Exhibit 3.2 to Form S-1.
-28-
<PAGE>
4.1 Form of Stock Certificate of GSB Financial Corporation (incorporated
by reference to Exhibit 4.1 to Form S-1).
10.1 Employee Retention Agreement between Goshen Savings Bank and Stephen
W. Dederick.
10.2 Schedule of Additional Employee Retention Agreements.
10.3 Supplementary Retention Agreement between GSB Financial Corporation
and Stephen W. Dederick.
10.4 Schedule of Additional Supplementary Retention Agreements.
10.5 Employment Agreement between Goshen Savings Bank and Richard C.
Durland.
10.6 Employment Agreement between GSB Financial Corporation and Richard
C. Durland.
10.7 Employment Agreement between Goshen Savings Bank and Clifford E.
Kelsey, Jr.
10.8 Employment Agreement between GSB Financial Corporation and Clifford
E. Kelsey, Jr.
10.9 Employment Agreement between Goshen Savings Bank and Diane D. King.
10.10 Employment Agreement between GSB Financial Corporation and Diane D.
King.
10.11 Employment Agreement between Goshen Savings Bank and Jenny M. Ford.
10.12 Employment Agreement between GSB Financial Corporation and Jenny M.
Ford.
10.13 GSB Financial Corporation Employee Stock Ownership Plan.
10.14 GSB Financial Corporation Employee Stock Ownership Plan Loan and
Security Agreement
13.1 1997 Annual Report to security holders
21.1 Subsidiaries of the Registrant
27 Financial Data Schedule
99.1 Proxy Statement for the Annual Meeting of Shareholders to be held on
February 25, 1998, portions of which are incorporated herein by
reference.
-29-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in Goshen, New York on
December 29, 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 December 29, 1997
- ---------------------------- and Director (principal executive
Clifford E. Kelsey, Jr. officer)
/s/ Richard C. Durland Executive Vice President, December 29, 1997
- --------------------------- Treasurer and Director
Richard C. Durland
/s/ Stephen W. Dederick Principal Financial and December 29, 1997
- -------------------------- Accounting Officer
Stephen W. Dederick
/s/ Herbert C. Mueller Director December 29, 1997
- --------------------------
Herbert C. Mueller
/s/ Stephen O. Hopkins Director December 29, 1997
- --------------------------
Stephen O. Hopkins
/s/ Thomas V. Guarino Director December 29, 1997
- --------------------------
Thomas V. Guarino
/s/ Gene J. Gengel Director December 29, 1997
- --------------------------
Gene J. Gengel
/s/ Roy L. Lippincott Director December 29, 1997
- --------------------------
Roy L. Lippincott
</TABLE>
-30-
<PAGE>
TABLE OF EXHIBITS
3.1 Certificate of Incorporation of GSB Financial Corporation
(incorporated by reference to Exhibit 3.1 to the Registration
Statement on Form S-1 No. 333-23573 of GSB Financial Corporation,
filed on March 19, 1997 (hereinafter "Form S-1")
3.2 By laws of GSB Financial Corporation (incorporated by reference to
Exhibit 3.2 to Form S-1.
4.1 Form of Stock Certificate of GSB Financial Corporation (incorporated
by reference to Exhibit 4.1 to Form S-1).
10.1 Employee Retention Agreement between Goshen Savings Bank and Stephen
W. Dederick.
10.2 Schedule of Additional Employee Retention Agreements.
10.3 Supplementary Retention Agreement between GSB Financial Corporation
and Stephen W. Dederick.
10.4 Schedule of Additional Supplementary Retention Agreements.
10.5 Employment Agreement between Goshen Savings Bank and Richard C.
Durland.
10.6 Employment Agreement between GSB Financial Corporation and Richard
C. Durland.
10.7 Employment Agreement between Goshen Savings Bank and Clifford E.
Kelsey, Jr.
10.8 Employment Agreement between GSB Financial Corporation and Clifford
E. Kelsey, Jr.
10.9 Employment Agreement between Goshen Savings Bank and Diane D. King.
10.10 Employment Agreement between GSB Financial Corporation and Diane D.
King.
10.11 Employment Agreement between Goshen Savings Bank and Jenny M. Ford.
10.12 Employment Agreement between GSB Financial Corporation and Jenny M.
Ford.
10.13 GSB Financial Corporation Employee Stock Ownership Plan.
10.14 GSB Financial Corporation Employee Stock Ownership Plan Loan and
Security Agreement
13.1 1997 Annual Report to security holders
21.1 Subsidiaries of the Registrant
27 Financial Data Schedule
99.1 Proxy Statement for the Annual Meeting of Shareholders to be held on
February 25, 1998, portions of which are incorporated herein by
reference.
-31-
<PAGE>
EXHIBIT 10.1
EMPLOYEE RETENTION AGREEMENT
This Employee Retention Agreement ("Agreement") is made and entered
into as of July 9, 1997 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"); and Stephen W. Dederick, an individual residing at 946 Oregon Trail,
Pine Bush, New York 12566 ("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 GSB Financial Corporation (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 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
<PAGE>
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.
(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
2
<PAGE>
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:
(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.
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.
3
<PAGE>
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.
(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
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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;
(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
5
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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");
(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
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with the Bank, and been fully vested in such plan or plans, over (B) the present
value of the benefits attributable to the Bank's contributions to which he or
she is actually entitled under such plans as of the date of his or her
termination of employment with the Bank, with such present values to be
determined by using a discount rate of six percent per annum, compounded with
the frequency corresponding to the Bank's regular payroll periods with respect
to its officers;
(viii) the payments that would have been made to the Officer under any
incentive compensation plan maintained by, or covering employees of, the Bank
(other than bonus payments to which section 8(b)(v) of this Agreement is
applicable) if he or she had continued working for the Bank until the expiration
of the Assurance Period and had earned an incentive award in each calendar year
that ends during the time remaining until the expiration of the Assurance Period
in an amount equal to the product of (A) the maximum percentage rate of
compensation at which an award was ever available to Officer under such
incentive compensation plan, multiplied by (B) the compensation that would have
been paid to Officer during each calendar year at the highest annual rate of
compensation paid to the Officer during the three preceding years, such payments
to be made at the same time and in the same manner as payments are made to other
officers of the Bank pursuant to the terms of such incentive compensation plan;
provided, however, that payments under this section 8(b)(viii) shall not be made
to the Officer for any year on account of which no payments are made to any of
the Bank's officers under any such incentive compensation plan; and
(ix) the benefits to which the Officer is entitled under any excess
benefits plan within the meaning of section 3(36) of ERISA or other special or
supplemental plan shall be paid to him in a lump sum, with such lump sum to be
computed using the mortality tables under the Bank's tax-qualified pension plan
and a discount rate of six percent per annum. The payments specified in this
section 8(b)(ix) shall be made within thirty days after the date of Officer's
election, and if the amount may be increased by a subsequent Change in Control,
any additional payment shall be made within thirty days of such Change in
Control.
Section 9. Termination without Severance Benefits.
In the event that the Officer's employment with the Bank shall
terminate during the Assurance Period on account of:
(a) the discharge of the Officer for "cause," which, for purposes of
this Agreement shall mean personal dishonesty, incompetence, willful misconduct,
breach of fiduciary duty involving personal profit, intentional failure to
perform stated duties, willful violation of any law, rule or regulation (other
than traffic violations or similar offenses) or final cease and desist order, or
material breach of any provision of this Agreement, in each case as measured
against 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
7
<PAGE>
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
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legal representatives and testate or intestate distributees, and the Bank and
its successors and assigns, including any successor by merger or consolidation
or a statutory receiver or any other person or firm or corporation to which all
or substantially all of the assets and business of the Bank may be sold or
otherwise transferred.
Section 13. Notices.
Any communication required or permitted to be given under this
Agreement, including any notice, direction, designation, consent, instruction,
objection or waiver, shall be in writing and shall be deemed to have been given
at such time as it is delivered personally, or five (5) days after mailing if
mailed, postage prepaid, by registered or certified mail, return receipt
requested, addressed to such party at the address listed below or at such other
address as one such party may by written notice specify to the other party:
If to the Officer:
Stephen W. Dederick
946 Oregon Trail
Pine Bush, New York 12566
If to the Bank:
Goshen Savings Bank
One South Church Street
Goshen, New York 10924
Attention: President
Section 14. Enforcement Costs and Attorneys' Fees.
The Bank shall pay to or on behalf of the Officer all reasonable costs,
including legal fees, incurred by him in connection with or arising out of the
Officer's consultation with legal counsel or in connection with or arising out
of any action, suit or proceeding in which the Officer be involved, as a result
of the Officer's efforts, in good faith, to defend or enforce the terms of this
Agreement, provided however that the Officer shall have substantially prevailed
on the merits pursuant to a judgment, decree or order of a court of competent
jurisdiction or of an arbitrator in an arbitration proceeding, or in a
settlement; provided, further, that this section 14 shall not obligate the Bank
to pay costs and legal fees on behalf of the Officer under this Agreement in
excess of reasonable attorneys fees. For purposes of this Agreement, any
settlement agreement which provides for payment of any amounts in settlement of
the Bank's obligations hereunder shall be conclusive evidence of the Officer's
entitlement to payments under this section, and any such payments shall be in
addition to amounts payable pursuant to such settlement agreement, unless such
settlement agreement expressly provides otherwise.
Section 15. Severability.
A determination that any provision of this Agreement is invalid or
unenforceable shall not
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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.
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).
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(b) Notwithstanding anything herein contained to the contrary, the
Officer shall have no right to receive compensation or other benefits for any
period after termination for cause.
(c) 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.
(d) 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 obligation 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.
(e) Notwithstanding anything herein contained to the contrary, if the
Officer is removed and/or permanently prohibited from participating in the
conduct of the Bank's affairs by an order issued under section 8(e)(4) or
8(g)(1) of the FDI Act, 12 U.S.C. Section 1818(e)(4) or (g)(1), all obligations
of the Bank under this Agreement shall terminate as of the effective date of the
order, but vested rights and obligations of the Bank and the Officer shall not
be affected.
(f) Notwithstanding anything herein contained to the contrary, if the
Bank is in default (within the meaning of section 3(x)(1) of the FDI Act, 12
U.S.C. Section 1813(x)(1)), all obligations of the Bank under this Agreement
shall terminate as of the date of default, but vested rights and obligations of
the Bank and the Officer shall not be affected.
(g) Notwithstanding anything herein contained to the contrary, all
obligations of the Bank hereunder shall be terminated, except to the extent that
a continuation of this Agreement is necessary for the continued operation of the
Bank: (i) by the Director of the Office of Thrift Supervision ("OTS") or his or
her designee or the Federal Deposit Insurance Corporation ("FDIC"), at the time
the FDIC enters into an agreement to provide assistance to or on behalf of the
Bank under the authority contained in section 13(c) of the FDI Act, 12 U.S.C.
Section 1823(c); (ii) by the Director of the OTS or his or her designee at the
time such Director or designee approves a supervisory merger to resolve problems
related to the operation of the Bank or when the Bank is determined by such
Director to be in an unsafe or unsound condition. The vested rights and
obligations of the parties shall not be affected. If and to the extent any of
the foregoing provisions shall cease to be required by applicable law, rule or
regulation, the same shall become inoperative as though eliminated by formal
amendment of this Agreement.
Section 22. 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
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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 Bank'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, as determined by the Officer in
his or her sole discretion, 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;
In Witness Whereof, the Bank has 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.
/s/ Stephen W. Dederick
-------------------------------
Stephen W. Dederick, Officer
ATTEST: Goshen Savings Bank
By /s/ Jenny Ford By /s/ Clifford E. Kelsey, Jr.
------------------------------- -------------------------------
Jenny Ford, Secretary Clifford E. Kelsey, Jr., President
<PAGE>
EXHIBIT 10.2
Schedule of Additional Employee Retention Agreements
In addition to the Employee Retention Agreement included as Exhibit
10.1, Goshen Savings Bank has executed Employee Retention Agreements with three
additional employees. With the exception of the name and address of each
individual, all the Employee Retention Agreements are identical and there are no
material details which differ from the agreement included as Exhibit 10.1. In
accordance with SEC Rule 12b-31 and Instruction 2 to Item 601 of Regulation S-K,
the following schedule identifies the three other employees.
1. Barbara Carr
2. Jennifer Terpstra
3. Richard C. Burch
<PAGE>
EXHIBIT 10.3
Supplementary Retention Agreement
This Supplementary Retention Agreement ("Agreement") is made and entered into as
of July 9, 1997 by and among GSB Financial Corporation, a corporation organized
and existing under the laws of the State of Delaware and having its executive
offices at One South Church Street, Goshen, New York 10924 (the "Company"); and
Stephen W. Dederick, an individual residing at 946 Oregon Trail, Pine Bush, New
York 12566 ("Officer").
Whereas, by Retention Agreement dated as of July 9, 1997, Goshen
Savings Bank, a savings bank organized and operating under the federal laws of
the United States and having its executive offices at One South Church Street,
Goshen, New York 10924 (the "Bank") agreed with Officer to provide Officer with
certain assurances regarding continued employment in the event of a change in
control of the Bank or of the Company; and
Whereas, the Company will become, upon the conversion of the Bank from
the mutual to the stock form of ownership, the holding company of the Bank
owning all the issued and outstanding shares of stock of the Bank; and
Whereas, the Board of Directors of the Company has determined that it
would be in the best interests of the Company to guaranty the assurances given
by the Bank to Officer in order to secure for the Bank and itself the continued
availability of Officer's services;
Now, Therefore, in consideration of the promises set forth in said
Retention Agreement, the Company and Officer hereby agree as follows:
Section 1. The Guaranty
The Company hereby guarantees each and every obligation of the Bank to
Officer pursuant to said Retention Agreement. Such guaranty shall be effective
as, when and if the Bank fails to make any payment due under the Retention
Agreement.
Section 2. Successors and Assigns.
This Agreement will inure to the benefit of and be binding upon
Officer, his or her legal representatives and testate or intestate distributees,
and the Company its successors and assigns, including any successor by merger or
consolidation or a statutory receiver or any other person or firm or corporation
to which all or substantially all of the assets and business of the Company may
be sold or otherwise transferred.
Section 3. Notices.
Any communication required or permitted to be given under this
Agreement, including any notice, direction, designation, consent, instruction,
objection or waiver, shall be in writing and shall be deemed to have been given
at such time as it is delivered personally, or five (5) days
<PAGE>
after mailing if mailed, postage prepaid, by registered or certified mail,
return receipt requested, addressed to such party at the address listed below or
at such other address as one such party may by written notice specify to the
other party:
If to Officer:
Stephen W. Dederick
946 Oregon Trail
Pine Bush, New York 12566
If to the Company:
GSB Financial Corporation
One South Church Street
Goshen, New York 10924
Attention: President
Section 4. Enforcement Costs and Attorneys' Fees.
The Company 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 the Officer's consultation with legal counsel or 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 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 4 shall not
obligate the Company to pay costs and legal fees on behalf of the Officer under
this Agreement in excess of reasonable attorneys fees. For purposes of this
Agreement, any settlement agreement which provides for payment of any amounts in
settlement of the Company's obligations hereunder shall be conclusive evidence
of the Officer's entitlement to payments under this section, and any such
payments shall be in addition to amounts payable pursuant to such settlement
agreement, unless such settlement agreement expressly provides otherwise.
Section 5. Severability.
A determination that any provision of this Agreement is invalid or
unenforceable shall not affect the validity or enforce ability of any other
provision hereof.
Section 6. Waiver.
Failure to insist upon strict compliance with any of the terms,
covenants or conditions hereof shall not be deemed a waiver of such term,
covenant, or condition. A waiver of any provision of this Agreement must be made
in writing, designated as a waiver, and signed by the party against whom its
enforcement is sought. Any waiver or relinquishment of any right or power
hereunder at any one or more times shall not be deemed a waiver or
relinquishment of such right or power at any other time or times.
<PAGE>
Section 7. Counterparts.
This Agreement may be executed in two (2) or more counterparts, each of
which shall be deemed an original, and all of which shall constitute one and the
same Agreement.
Section 8. Governing Law.
This Agreement shall be governed by and construed and enforced in
accordance with the federal laws of the United States, and in the absence of
controlling federal law, the laws of the State of New York, without reference to
conflicts of law principles.
Section 9. Headings and Construction.
The headings of sections in this Agreement are for convenience of
reference only and are not intended to qualify the meaning of any section. Any
reference to a section number shall refer to a section of this Agreement, unless
otherwise stated.
Section 10. Entire Agreement; Modifications.
This instrument contains the entire agreement of the parties relating
to the subject matter hereof, and supersedes in its entirety any and all prior
agreements, understandings or representations relating to the subject matter
hereof. No modifications of this Agreement shall be valid unless made in writing
and signed by the parties hereto.
Section 11. No Effect on Employment at Will Relationship.
The Company and Officer acknowledge and confirm that nothing contained
in this agreement or in the Retention Agreement between Officer and the Bank
shall change the employment relationship between the Bank and Officer to
anything other than employment at will, except for the express assurances,
protections and other provisions contained in the Retention Agreement and this
Agreement, which provisions shall be deemed to supersede the employment at will
relationship.
Dated: July 9, 1997
/s/ Stephen W. Dederick
-----------------------------------
Stephen W. Dederick, Officer
GSB Financial Corporation
By: /s/ Clifford E. Kelsey, Jr.
---------------------------------
Clifford E. Kelsey, Jr., President
<PAGE>
EXHIBIT 10.4
Schedule of Additional Supplementary Retention Agreements
In addition to the Supplementary Retention Agreement included as
exhibit 10.3, GSB Financial Corporation has executed Supplementary Retention
Agreements with three additional employees. With the exception of the name and
address of each individual, all the Supplementary Retention Agreements are
identical and there are no material details which differ from the agreement
included as Exhibit 10.1. In accordance with SEC Rule 12b-31 and Instruction 2
to Item 601 of Regulation S-K, the following schedule identifies the three other
employees.
1. Barbara Carr
2. Jennifer Terpstra
3. Richard C. Burch
<PAGE>
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as
of the 1st day of May, 1997, by and between Goshen Savings Bank, a mutual
savings bank organized and operating under the laws of the United States and
having its executive office at 1 South Church Street, Goshen, New York 10924
(the "Bank"), and Richard C. Durland, residing at 76 Twin Oaks Drive, Campbell
Hall, New York 10916.
WHEREAS, Mr. Durland currently serves the Bank as Executive
Vice President and Treasurer; and
WHEREAS, in order to secure Mr. Durland'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, Mr. Durland 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 Mr. Durland
as its Executive Vice President and Treasurer, and Mr. Durland hereby accepts
such continued employment, during the period and upon the terms and conditions
set forth in this
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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, Mr. Durland also agrees to serve as the Executive Vice President and
Treasurer 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 of this Agreement 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) Prior to the first anniversary of the date of this Agreement and
each anniversary date thereafter (each, an "Anniversary Date"), the Board shall
review the terms of this Agreement and Mr. Durland's performance of services
hereunder and may, absent objection from Mr. Durland, 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").
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(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 Mr. Durland 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, Mr. Durland has provided written notice to the
Bank of his intent to discontinue the Employment Period.
(d) The Bank or Mr. Durland 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, Mr. Durland 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
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corporations (if any), and use his best efforts to advance their
interests;
(b) serve as Executive Vice President and Treasurer 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 Bank's Chief Executive Officer and/or 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. Mr.
Durland shall have such authority as is necessary or appropriate to carry out
his assigned duties. Mr. Durland shall report to and be subject to direction and
supervision by the Bank's Chief Executive Officer and the Board; and
(d) none of the functions, duties and responsibilities to be performed
by Mr. Durland pursuant to this Agreement shall be deemed to include those
functions, duties and responsibilities performed by Mr. Durland in his capacity
as director of the Bank.
4. Compensation; Salary and Bonus.
(a) In consideration for services rendered by Mr. Durland under this
Agreement, the Bank shall pay to Mr. Durland a salary at an annual rate equal
to:
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(i) during the twelve month period beginning on May 1, 1997 and ending
on April 30, 1998, no less than $98,280;
(ii) during each twelve month period that begins after April 30, 1998,
such amount as the Board may, in its discretion, determine, but in no event less
than the rate in effect for the prior twelve month period;
(iii) for each twelve month period that begins on or after a Change in
Control, the product of Mr. Durland'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 Mr. Durland) 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
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the Bank (other than Mr. Durland) who are assistant
vice presidents or more senior officers.
(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 Mr. Durland 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 Mr. Durland 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, Mr. Durland 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
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<PAGE>
the Bank's customary practices. Following a Change in Control, all such benefits
to Mr. Durland shall be continued on terms and conditions substantially
identical to, and in no event less favorable than, those in effect prior to the
Change in Control. Nothing in this Agreement will reduce benefits provided under
the Bank's Employee Handbook, Revised Edition January 1, 1997, notwithstanding
any future reductions which might be made to the benefits provided in such
Employee Handbook.
6. Conversion Benefits. In the event of a Conversion, the Bank will
provide, or cause to be provided, to Mr. Durland 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 Mr. Durland 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 Mr.
Durland, 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, Mr. Durland
will continue to serve on the Board and, in the event
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<PAGE>
of a Conversion, on the board of directors of any parent corporation of the
Bank. In addition, Mr. Durland 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. Mr. Durland's principal place of
employment shall be at the Bank's executive offices. The Bank shall provide Mr.
Durland, 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 Mr. Durland for his ordinary and necessary business
expenses, including, without limitation, fees for memberships in such clubs and
organizations as Mr. Durland 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.
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<PAGE>
Mr. Durland shall be entitled to no less than four (4) weeks of
paid vacation during each year in the Employment Period.
9. Termination Giving Rise to Severance Benefits.
(a) The Bank shall provide to Mr. Durland the benefits and pay him the
amounts provided under section 9(b) of this Agreement in the event that Mr.
Durland'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 Mr. Durland other than a Resignation
for Good Reason (within the meaning of section 12(b) of this Agreement);
(iii) a termination on account of Mr. Durland's death; or
(iv) a termination after both of the following conditions exist: (A)
Mr. Durland 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) Mr. Durland 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 Mr. Durland by the Bank.
(b) In the event that Mr. Durland's employment with the Bank shall
terminate under circumstances described in section 9(a) of
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<PAGE>
this Agreement, the following benefits and amounts shall be paid
or provided to Mr. Durland:
(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 Mr. Durland 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 Mr. Durland, 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;
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(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 Mr. Durland 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 Mr. Durland) 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;
(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 Mr. Durland 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
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<PAGE>
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 Mr. Durland 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
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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
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<PAGE>
current Extension Ending Anniversary Date which is prior to Mr. Durland'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;
(viii) the payments that would have been made to Mr. Durland 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
Mr. Durland under such incentive compensation plan, multiplied by (B) the
compensation that would have been paid to Mr. Durland 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
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such incentive compensation plan; provided, however, that payments under this
section 9(b)(viii) shall not be made to Mr. Durland 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 Mr. Durland 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 Mr. Durland'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) Mr. Durland 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 Mr. Durland as the result of employment by
another employer, by retirement benefits, by offset against any amount claimed
to be owed by Mr. Durland to the Bank or the parent corporation of the Bank, or
otherwise except as specifically provided in this Agreement. The parties hereto
agree
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that the damages which may be incurred by Mr. Durland 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 Mr.
Durland'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 Mr. Durland 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.
11. Death and Disability.
(a) If Mr. Durland's employment is terminated by reason of
Mr. Durland's death during the Employment Period, this Agreement
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<PAGE>
shall terminate without further obligations to Mr. Durland's legal
representatives under this Agreement, other than for payment of the amounts and
provision of the benefits under sections 9(b) (i), (ii) and (iii) including the
extension of health, hospitalization and dental benefits to spouses, eligible
dependents as well as the survivor, providing the eligibility rules are met in
accordance with the Bank's Employee Handbook, Revised Edition January 1, 1997,
page 7; provided, however, that if Mr. Durland dies during the Employment
Period, his designated beneficiary(ies) shall receive a death benefit, payable
through life insurance or otherwise, which is the equivalent on a net after-tax
basis of the death benefit payable under a term life insurance policy, with a
stated death benefit of two times Mr. Durland's then current salary under
section 4 of this Agreement.
(b) If Mr. Durland's employment is terminated by reason of Mr.
Durland's Disability as defined in section 11(c) during the Employment Period,
this Agreement shall terminate without further obligations to Mr. Durland, other
than for payment of the amounts and provision of the benefits under sections
9(b) (i), (ii) and (iii) including the extension of health, hospitalization and
dental benefits to spouses, eligible dependents as well as the survivor,
providing the eligibility rules are met in accordance with the Bank's Employee
Handbook, Revised Edition January 1, 1997, page 7; provided, however, that in
the event of Mr. Durland's Disability during the Employment Period, the Bank
will
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pay to him a lump sum amount equal to two times his then current salary under
section 4 of this Agreement.
(c) For purposes of this Agreement, "Disability" shall be defined in
accordance with the terms of the Bank's long term disability policy.
(d) Payments under this section 11 shall be made within thirty days
after Mr. Durland's death or disability.
12. Definition of Termination for Cause and Resignation for Good
Reason.
(a) Mr. Durland'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 any provision of this Agreement, in
each case as measured against standards generally prevailing at the relevant
time in the savings and community banking industry; provided, however, that Mr.
Durland 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
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a meeting called and held for such purpose (after reasonable notice to Mr.
Durland and a reasonable opportunity for Mr. Durland 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 Mr. Durland for cause.
(b) Mr. Durland'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 Mr. Durland of any duties inconsistent with
Mr. Durland's status as Executive Vice President and Treasurer of the Bank; or
(B) a substantial adverse alteration in the nature or status of Mr. Durland'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 Mr. Durland'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;
(iii) the relocation of the Bank's executive offices to a location
outside of Orange County or the Bank's requiring Mr.
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Durland 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 Mr. Durland's business travel obligations at the date this Agreement is
made;
(iv) the failure by the Bank, without Mr. Durland's consent, to pay to
Mr. Durland, 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 Mr. Durland;
(v) the failure by the Bank to continue in effect any compensation plan
in which Mr. Durland 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;
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(vi) the failure by the Bank to continue to provide Mr. Durland with
benefits substantially similar to those enjoyed by Mr. Durland 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 Mr. Durland is participating, or the taking of any action by
the Bank which would directly or indirectly materially reduce any of such
benefits or deprive Mr. Durland 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 Mr. Durland;
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(x) a requirement that Mr. Durland report to any person or group other
than the Bank's Chief Executive Officer, 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:
(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) Clifford E.
Kelsey, Jr. or Mr. Durland, or any group otherwise constituting a person in
which Clifford E. Kelsey, Jr. or Mr. Durland 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
22
<PAGE>
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
23
<PAGE>
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 Mr. Durland's
employment during the Employment Period or thereafter, whether by the Bank or by
Mr. Durland, shall have no effect on the rights and obligations of the parties
hereto under the Bank's Retirement Plan, group life, health (including
hospitalization,
24
<PAGE>
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.
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 Mr.
Durland, 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
25
<PAGE>
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 Mr. Durland:
Mr. Richard C. Durland
76 Twin Oaks Drive
Campbell Hall,, New York 10916
If to the Bank:
Goshen Savings Bank
1 South Church Street
Goshen, NY 10924
Attention: The President
With a copy to:
Serchuk & Zelermyer, LLP
81 Main Street
White Plains, NY 10601
Attention: Ivan Serchuk, Esq.
17. Enforcement Costs and Attorneys' Fees. The Bank shall pay to or on
behalf of Mr. Durland all reasonable costs, including legal fees, incurred by
him in connection with or arising out of his consultation with legal counsel or
in
26
<PAGE>
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 Mr. Durland 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 Mr. Durland under this Agreement in
excess of reasonable attorney fees. For purposes of this Agreement, any
settlement agreement which provides for payment of any amounts in settlement of
the Bank's obligations hereunder shall be conclusive evidence of Mr. Durland's
entitlement to payments under this section, and any such payments shall be in
addition to amounts payable pursuant to such settlement agreement, unless such
settlement agreement expressly provides otherwise.
18. Severability. A determination that any provision of this Agreement
is invalid or unenforceable shall not affect the validity or enforceability of
any other provision hereof.
19. Waiver. Failure to insist upon strict compliance with any of the
terms, covenants or conditions hereof shall not be deemed a waiver of such term,
covenant, or condition. A waiver of any provision of this Agreement must be made
in writing, designated as a waiver, and signed by the party against whom its
27
<PAGE>
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
28
<PAGE>
prior agreements, understandings or representations relating to the subject
matter hereof between the Bank and Mr. Durland. 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.
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 Mr. Durland under
section 9(b) hereof (exclusive of amounts described in section 9(b)(i) and (ix))
exceed three times Mr. Durland'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).
29
<PAGE>
(b) Notwithstanding anything herein contained to the contrary, Mr.
Durland shall have no right to receive compensation or other benefits for any
period after termination for cause.
(c) Notwithstanding anything herein contained to the contrary, any
payments to Mr. Durland 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.
(d) Notwithstanding anything herein contained to the contrary, if Mr.
Durland 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 Mr. Durland 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.
(e) Notwithstanding anything herein contained to the contrary, if Mr.
Durland 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
30
<PAGE>
U.S.C. Section 1818(e)(4) or (g)(1), all obligations of the Bank under this
Agreement shall terminate as of the effective date of the order, but vested
rights and obligations of the Bank and Mr.
Durland shall not be affected.
(f) Notwithstanding anything herein contained to the contrary, if the
Bank is in default (within the meaning of section 3(x)(1) of the FDI Act, 12
U.S.C. Section 1813(x)(1)), all obligations of the Bank under this Agreement
shall terminate as of the date of default, but vested rights and obligations of
the Bank and Mr. Durland shall not be affected.
(g) Notwithstanding anything herein contained to the contrary, all
obligations of the Bank hereunder shall be terminated, except to the extent that
a continuation of this Agreement is necessary for the continued operation of the
Bank: (i) by the Director of the OTS or his designee or the Federal Deposit
Insurance Corporation ("FDIC"), at the time the FDIC enters into an agreement to
provide assistance to or on behalf of the Bank under the authority contained in
section 13(c) of the FDI Act, 12 U.S.C. Section 1823(c); (ii) by the Director of
the OTS or his designee at the time such Director or designee approves a
supervisory merger to resolve problems related to the operation of the Bank or
when the Bank is determined by such Director to be in an unsafe or unsound
condition. The vested rights and obligations of the parties shall not be
affected.
31
<PAGE>
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.
IN WITNESS WHEREOF, the Bank has caused this Agreement to be executed
and Mr. Durland has hereto set his hand, all as of the day and year first above
written.
/s/ Richard C. Durland
------------------------------------
RICHARD C. DURLAND
WITNESS:
/s/ Jenny Ford
GOSHEN SAVINGS BANK
By /s/ Clifford E. Kelsey, Jr.
------------------------------------
ATTEST:
/s/ Jenny Ford
- -------------------------
32
<PAGE>
Exhibit 10.6
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as
of the 1st day of May, 1997, by and between GSB Financial Corporation, a
corporation organized and operating under the laws of the State of Delaware and
having an office at 1 South Church Street, Goshen, New York 10924 (the
"Company"), and Richard C. Durland, residing at 76 Twin Oaks Drive, Campbell
Hall, New York 10916.
WHEREAS, Mr. Durland currently serves the Company as Executive Vice
President and Treasurer; and
WHEREAS, in order to secure Mr. Durland'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, Mr. Durland is willing to continue to make his
services available to the Company on the terms and conditions set
forth herein; and
WHEREAS, on or about May 1, 1997 Mr. Durland 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.
<PAGE>
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 Mr.
Durland as its Executive Vice President and Treasurer, and Mr. Durland 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
Mr. Durland 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 Mr. Durland'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, Mr. Durland shall be liable for the
payment of an
2
<PAGE>
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) Mr. Durland, the Company shall pay to Mr. Durland an amount equal to X
determined under the following formula:
E x P
X = ------------------------------
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
Mr. Durland under the Code for the taxable year in question;
SLI = the sum of the highest marginal rates of income tax applicable to
Mr. Durland under all applicable state and local laws for the
taxable year in question; and
M = the highest marginal rate of Medicare tax applicable to Mr.
Durland under the Code for the taxable year in question.
With respect to any payment in the nature of compensation that is made to (or
for the benefit of) Mr. Durland 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 Mr. Durland on the
earlier of (i) the date the Company or the Bank is required to
3
<PAGE>
withhold such tax, or (ii) the date the tax is required to be
paid by Mr. Durland.
(b) Notwithstanding anything in this section 4 to the contrary, in
the event that Mr. Durland'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), Mr. Durland 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 Mr.
Durland 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 Mr. Durland, equals
the amount that should have properly been paid to Mr. Durland 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 Mr. Durland under this section 4, Mr. Durland 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
4
<PAGE>
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 Mr. Durland and the Company may mutually agree upon if and to the
extent necessary to assure that Mr. Durland 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.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed and Mr. Durland has hereto set his hand, all as of the day and year
first above written.
/s/ Richard C. Durland
------------------------------
RICHARD C. DURLAND
WITNESS:
/s/ Jenny Ford
- ------------------------------
GSB FINANCIAL CORPORATION
By /s/ Clifford E. Kelsey
------------------------------
ATTEST:
/s/ Jenny Ford
- ------------------------------
5
<PAGE>
Exhibit 10.7
EMPLOYMENT AGREEMENT
--------------------
This EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as
of the 1st day of May, 1997, by and between Goshen Savings Bank, a mutual
savings bank organized and operating under the laws of the United States and
having its executive office at 1 South Church Street, Goshen, New York 10924
(the "Bank"), and Clifford E. Kelsey, Jr., residing at 3135 Route 207, Campbell
Hall, New York 10916.
WHEREAS, Mr. Kelsey currently serves the Bank as President
and Chief Executive Officer; and
WHEREAS, in order to secure Mr. Kelsey'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, Mr. Kelsey 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 Mr. Kelsey
as its President and Chief Executive Officer, and Mr. Kelsey hereby accepts such
continued employment, during the
<PAGE>
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, Mr. Kelsey 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 of this Agreement 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) Prior to the first anniversary of the date of this Agreement and
each anniversary date thereafter (each, an "Anniversary Date"), the Board shall
review the terms of this Agreement and Mr. Kelsey's performance of services
hereunder and may, absent objection from Mr. Kelsey, 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").
2
<PAGE>
(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 Mr. Kelsey 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, Mr. Kelsey has provided written notice to the
Bank of his intent to discontinue the Employment Period.
(d) The Bank or Mr. Kelsey 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, Mr. Kelsey 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
3
<PAGE>
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. Mr. Kelsey shall have such authority as is
necessary or appropriate to carry out his assigned duties. Mr. Kelsey 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 Mr. Kelsey pursuant to this Agreement shall be deemed to include those
functions, duties and responsibilities performed by Mr. Kelsey in his capacity
as director of the Bank.
4. Compensation; Salary and Bonus.
(a) In consideration for services rendered by Mr. Kelsey under this
Agreement, the Bank shall pay to Mr. Kelsey a salary at an annual rate equal to:
4
<PAGE>
(i) during the twelve month period beginning on May 1, 1997 and ending
on April 30, 1998, no less than $128,622;
(ii) during each twelve month period that begins after April 30, 1998,
such amount as the Board may, in its discretion, determine, but in no event less
than the rate in effect for the prior twelve month period;
(iii) for each twelve month period that begins on or after a Change in
Control, the product of Mr. Kelsey'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 Mr. Kelsey) 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
5
<PAGE>
the Bank (other than Mr. Kelsey) who are assistant vice
presidents or more senior officers.
(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 Mr. Kelsey 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 Mr. Kelsey 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, Mr. Kelsey 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
6
<PAGE>
the Bank's customary practices. Following a Change in Control, all such benefits
to Mr. Kelsey shall be continued on terms and conditions substantially identical
to, and in no event less favorable than, those in effect prior to the Change in
Control. Nothing in this Agreement will reduce benefits provided under the
Bank's Employee Handbook, Revised Edition January 1, 1997, notwithstanding any
future reductions which might be made to the benefits provided in such Employee
Handbook.
6. Conversion Benefits. In the event of a Conversion, the Bank will
provide, or cause to be provided, to Mr. Kelsey 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 Mr. Kelsey 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 Mr.
Kelsey, 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, Mr. Kelsey
will continue to serve on the Board and, in the event
7
<PAGE>
of a Conversion, on the board of directors of any parent corporation of the
Bank. In addition, Mr. Kelsey 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. Mr. Kelsey's principal place of
employment shall be at the Bank's executive offices. The Bank shall provide Mr.
Kelsey, 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 Mr. Kelsey for his ordinary and necessary business
expenses, including, without limitation, fees for memberships in such clubs and
organizations as Mr. Kelsey 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.
8
<PAGE>
Mr. Kelsey shall be entitled to no less than four (4) weeks of paid vacation
during each year in the Employment Period.
9. Termination Giving Rise to Severance Benefits.
(a) The Bank shall provide to Mr. Kelsey the benefits and pay him the
amounts provided under section 9(b) of this Agreement in the event that Mr.
Kelsey'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 Mr. Kelsey other than a Resignation for
Good Reason (within the meaning of section 12(b) of this Agreement);
(iii) a termination on account of Mr. Kelsey's death; or
(iv) a termination after both of the following conditions exist: (A)
Mr. Kelsey 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) Mr. Kelsey 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 Mr. Kelsey by the Bank.
(b) In the event that Mr. Kelsey's employment with the Bank shall
terminate under circumstances described in section 9(a) of
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this Agreement, the following benefits and amounts shall be paid or provided
to Mr. Kelsey:
(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 Mr. Kelsey 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 Mr. Kelsey, 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;
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<PAGE>
(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 Mr. Kelsey 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 Mr. Kelsey) 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;
(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 Mr. Kelsey 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
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<PAGE>
apply) and the highest bonus (calculated by applying the highest ratio of bonus
to salary received by Mr. Kelsey 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
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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 Mr.
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Kelsey'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;
(viii) the payments that would have been made to Mr. Kelsey 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
Mr. Kelsey under such incentive compensation plan, multiplied by (B) the
compensation that would have been paid to Mr. Kelsey 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
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under this section 9(b)(viii) shall not be made to Mr. Kelsey 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 Mr. Kelsey 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 Mr. Kelsey'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) Mr. Kelsey 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 Mr. Kelsey as the result of employment by
another employer, by retirement benefits, by offset against any amount claimed
to be owed by Mr. Kelsey 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 Mr. Kelsey as a consequence of
termination of employment are not capable of accurate measurement
15
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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 Mr.
Kelsey'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 Mr. Kelsey 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.
11. Death and Disability.
(a) If Mr. Kelsey's employment is terminated by reason of Mr. Kelsey's
death during the Employment Period, this Agreement shall terminate without
further obligations to Mr. Kelsey's legal representatives under this Agreement,
other than for payment of
16
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the amounts and provision of the benefits under sections 9(b) (i), (ii) and
(iii) including the extension of health, hospitalization and dental benefits to
spouses, eligible dependents as well as the survivor, providing the eligibility
rules are met in accordance with the Bank's Employee Handbook, Revised Edition
January 1, 1997, page 7; provided, however, that if Mr. Kelsey dies during the
Employment Period, his designated beneficiary(ies) shall receive a death
benefit, payable through life insurance or otherwise, which is the equivalent on
a net after-tax basis of the death benefit payable under a term life insurance
policy, with a stated death benefit of two times Mr. Kelsey's then current
salary under section 4 of this Agreement.
(b) If Mr. Kelsey's employment is terminated by reason of Mr. Kelsey's
Disability as defined in section 11(c) during the Employment Period, this
Agreement shall terminate without further obligations to Mr. Kelsey, other than
for payment of the amounts and provision of the benefits under sections 9(b)
(i), (ii) and (iii) including the extension of health, hospitalization and
dental benefits to spouses, eligible dependents as well as the survivor,
providing the eligibility rules are met in accordance with the Bank's Employee
Handbook, Revised Edition January 1, 1997, page 7; provided, however, that in
the event of Mr. Kelsey's Disability during the Employment Period, the Bank will
pay to him a lump sum amount equal to two times his then current salary under
section 4 of this Agreement.
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(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 Mr. Kelsey's death or disability.
12. Definition of Termination for Cause and Resignation for Good
Reason.
(a) Mr. Kelsey'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 any provision of this Agreement, in
each case as measured against standards generally prevailing at the relevant
time in the savings and community banking industry; provided, however, that Mr.
Kelsey 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
Mr. Kelsey and a reasonable opportunity for Mr. Kelsey to make oral and written
presentations to the members of the
18
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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 Mr. Kelsey
for cause.
(b) Mr. Kelsey'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 Mr. Kelsey of any duties inconsistent with
Mr. Kelsey's status as President and Chief Executive Officer of the Bank; or (B)
a substantial adverse alteration in the nature or status of Mr. Kelsey'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 Mr. Kelsey'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;
(iii) the relocation of the Bank's executive offices to a location
outside of Orange County or the Bank's requiring Mr. Kelsey to be based anywhere
other than the Bank's executive offices except for required travel on the Bank's
business to an
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extent substantially consistent with Mr. Kelsey's business travel obligations at
the date this Agreement is made;
(iv) the failure by the Bank, without Mr. Kelsey's consent, to pay to
Mr. Kelsey, 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 Mr.
Kelsey;
(v) the failure by the Bank to continue in effect any compensation plan
in which Mr. Kelsey 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 Mr. Kelsey with
benefits substantially similar to those enjoyed by
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Mr. Kelsey 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 Mr. Kelsey is participating, or the
taking of any action by the Bank which would directly or indirectly materially
reduce any of such benefits or deprive Mr. Kelsey 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 Mr. Kelsey;
(x) a requirement that Mr. Kelsey 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) Mr. Kelsey, or
any group otherwise constituting a person in which Mr. Kelsey 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
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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
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(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 Mr. Kelsey's employment
during the Employment Period or thereafter, whether by the Bank or by Mr.
Kelsey, 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
24
<PAGE>
be maintained by, or cover employees of, the Bank from time to time.
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 Mr.
Kelsey, 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
25
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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 Mr. Kelsey:
Mr. Clifford E. Kelsey, Jr.
P.O. Box 193
Goshen, NY 10924
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.
17. Enforcemehnt Costs and Attorneys' Fees. The Bank shall pay to or on
behalf of Mr. Kelsey 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 Mr. Kelsey shall have (a) proceeded in
accordance with section 24 of this Agreement and (b) substantially prevailed on
the merits pursuant
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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 Mr. Kelsey under this Agreement in excess of reasonable attorney fees.
For purposes of this Agreement, any settlement agreement which provides for
payment of any amounts in settlement of the Bank's obligations hereunder shall
be conclusive evidence of Mr. Kelsey's entitlement to payments udner this
section, and any such payments shall be in addition to amounts payable pursuant
to such settlement agreement, unless such settlement agreement expressly
provides otherwise.
18. Severability. A determination that any provision of this Agreement
is invalid or unenforceable shall not affect the validity or enforceability of
any other provision hereof.
19. Waiver. Failure to insist upon strict compliance with any of the
terms, covenants or conditions hereof shall not be deemed a waiver of such term,
covenant, or condition. A waiver of any provision of this Agreement must be made
in writing, designated as a waiver, and signed by the party against whom 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.
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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 Mr.
Kelsey. No modifications of this Agreement shall be valid unless made in writing
and signed by the parties hereto.
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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.
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 Mr. Kelsey under
section 9(b) hereof (exclusive of amounts described in section 9(b)(i) and (ix))
exceed three times Mr. Kelsey'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, Mr.
Kelsey shall have no right to receive compensation or other benefits for any
period after termination for cause.
(c) Notwithstanding anything herein contained to the contrary, any
payments to Mr. Kelsey by the Bank, whether
29
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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.
(d) Notwithstanding anything herein contained to the contrary, if Mr.
Kelsey 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 Mr. Kelsey 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.
(e) Notwithstanding anything herein contained to the contrary, if Mr.
Kelsey is removed and/or permanently prohibited from participating in the
conduct of the Bank's affairs by an order issued under section 8(e)(4) or
8(g)(1) of the FDI Act, 12 U.S.C. Section 1818(e)(4) or (g)(1), all obligations
of the Bank under this Agreement shall terminate as of the effective date of the
order, but vested rights and obligations of the Bank and Mr.
Kelsey shall not be affected.
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(f) Notwithstanding anything herein contained to the contrary, if the
Bank is in default (within the meaning of section 3(x)(1) of the FDI Act, 12
U.S.C. Section 1813(x)(1)), all obligations of the Bank under this Agreement
shall terminate as of the date of default, but vested rights and obligations of
the Bank and Mr. Kelsey shall not be affected.
(g) Notwithstanding anything herein contained to the contrary, all
obligations of the Bank hereunder shall be terminated, except to the extent that
a continuation of this Agreement is necessary for the continued operation of the
Bank: (i) by the Director of the OTS or his designee or the Federal Deposit
Insurance Corporation ("FDIC"), at the time the FDIC enters into an agreement to
provide assistance to or on behalf of the Bank under the authority contained in
section 13(c) of the FDI Act, 12 U.S.C. Section 1823(c); (ii) by the Director of
the OTS or his designee at the time such Director or designee approves a
supervisory merger to resolve problems related to the operation of the Bank or
when the Bank is determined by such Director to be in an unsafe or unsound
condition. The vested rights and obligations of the parties shall not be
affected.
If and to the extent that any of the foregoing provisions shall cease to be
required by applicable law, rule or regulation, the same shall become
inoperative as though eliminated by formal amendment of this Agreement.
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IN WITNESS WHEREOF, the Bank has caused this Agreement to be executed
and Mr. Kelsey has hereto set his hand, all as of theday and year first above
written.
/s/ Clifford E. Kelsey, Jr.
------------------------------
CLIFFORD E. KELSEY, JR.
WITNESS:
/s/ Jenny Ford
- ------------------------------
GOSHEN SAVINGS BANK
By /s/ Herbert C. Mueller
------------------------------
ATTEST:
/s/ Jenny Ford
- ------------------------------
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EXHIBIT 10.8
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as
of the 1st day of May, 1997, by and between GSB Financial Corporation, a
corporation organized and operating under the laws of the State of Delaware and
having an office at 1 South Church Street, Goshen, New York 10924 (the
"Company"), and Clifford E. Kelsey, residing at 3135 Route 207, Campbell Hall,
New York 10916.
WHEREAS, Mr. Kelsey currently serves the Company as
President and Chief Executive Officer; and
WHEREAS, in order to secure Mr. Kelsey'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, Mr. Kelsey is willing to continue to make his
services available to the Company on the terms and conditions set
forth herein; and
WHEREAS, on or about May 1, 1997 Mr. Kelsey 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.
<PAGE>
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 Mr.
Kelsey as its President and Chief Executive Officer, and Mr. Kelsey 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
Mr. Kelsey 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 Mr. Kelsey'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, Mr. Kelsey shall be liable for the
payment of an
2
<PAGE>
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) Mr. Kelsey, the Company shall pay to Mr. Kelsey an amount equal to X
determined under the following formula:
E x P
X =______________________________
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 Mr. Kelsey
under the Code for the taxable year in question;
SLI = the sum of the highest marginal rates of income tax applicable to
Mr. Kelsey under all applicable state and local laws for the taxable
year in question; and
M = the highest marginal rate of Medicare tax applicable to Mr. Kelsey
under the Code for the taxable year in question.
With respect to any payment in the nature of compensation that is made to (or
for the benefit of) Mr. Kelsey 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 Mr. Kelsey on the
earlier of (i) the date the Company or the Bank is required to
3
<PAGE>
withhold such tax, or (ii) the date the tax is required to be
paid by Mr. Kelsey.
(b) Notwithstanding anything in this section 4 to the contrary, in
the event that Mr. Kelsey'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), Mr. Kelsey 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 Mr.
Kelsey 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 Mr. Kelsey, equals
the amount that should have properly been paid to Mr. Kelsey 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 Mr. Kelsey under this section 4, Mr. Kelsey 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
4
<PAGE>
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 Mr. Kelsey and the Company may mutually agree upon if and to the
extent necessary to assure that Mr. Kelsey 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.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed and Mr. Kelsey has hereto set his hand, all as of the day and year
first above written.
/s/ Clifford E. Kelsey
----------------------
CLIFFORD E. KELSEY
WITNESS:
/s/ Jenny Ford
- ------------------------
GSB FINANCIAL CORPORATION
By /s/ Herbert C. Mueller
---------------------------
ATTEST:
/s/ Jenny Ford
- -----------------------
5
<PAGE>
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
--------------------
This EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as
of the 1st day of May, 1997, by and between Goshen Savings Bank, a mutual
savings bank organized and operating under the laws of the United States and
having its executive office at 1 South Church Street, Goshen, New York 10924
(the "Bank"), and Diane D. King, residing at 105 Sproat Street, Middletown, New
York 10940.
WHEREAS, Ms. King currently serves the Bank as Senior Vice
President, Assistant Treasurer and Head Teller; and
WHEREAS, in order to secure Ms. King's continued services for the
period thereof, the Board of Directors of the Bank (the "Board") has approved
and authorized the execution of this Agreement; and
Whereas, Ms. King is willing to continue to make her
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
Ms. King as its Senior Vice President, Assistant Treasurer and
Head Teller, and Ms. King hereby accepts such continued
<PAGE>
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, Ms. King also agrees to serve as the Senior Vice President and
Assistant Treasurer 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 of this Agreement 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) Prior to the first anniversary of the date of this Agreement and
each anniversary date thereafter (each, an "Anniversary Date"), the Board shall
review the terms of this Agreement and Ms. King's performance of services
hereunder and may, absent objection from Ms. King, 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").
2
<PAGE>
(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 Ms. King 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, Ms. King has provided written notice to the Bank
of her intent to discontinue the Employment Period.
(d) The Bank or Ms. King 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, Ms. King shall:
(a) except to the extent allowed under section 7 of this Agreement,
devote her full business time and attention to the business and affairs of the
Bank, its parent and subsidiary
3
<PAGE>
corporations (if any), and use her best efforts to advance their
interests;
(b) serve as Senior Vice President, Assistant Treasurer and Head Teller
of the Bank, Senior Vice President and Assistant Treasurer of the Bank's parent
corporation and an officer of any of its subsidiaries if elected to serve in
such positions;
(c) have such functions, duties and responsibilities not inconsistent
with her title and office as may be assigned to her by or under the authority of
the Bank's Chief Executive Officer and/or 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. Ms.
King shall have such authority as is necessary or appropriate to carry out her
assigned duties. Ms. King shall report to and be subject to direction and
supervision by the Bank's Chief Executive Officer and the Board; and
4. Compensation; Salary and Bonus.
(a) In consideration for services rendered by Ms. King under this
Agreement, the Bank shall pay to Ms. King a salary at an annual rate equal to:
(i) during the twelve month period beginning on May 1, 1997 and ending
on April 30, 1998, no less than $68,874;
4
<PAGE>
(ii) during each twelve month period that begins after April 30, 1998,
such amount as the Board may, in its discretion, determine, but in no event less
than the rate in effect for the prior twelve month period;
(iii) for each twelve month period that begins on or after a Change in
Control, the product of Ms. King'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 Ms. King) 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 Ms. King) who are assistant
vice presidents or more senior officers.
5
<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 Ms. King 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.
5. Employee Benefits Plans and Programs; Other Compensation. Except as
otherwise provided in this Agreement, Ms. King 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 Ms. King shall be
continued on terms and conditions substantially identical to, and in no event
less favorable than, those in effect prior to the Change in Control. Nothing in
this Agreement will reduce benefits provided under the Bank's Employee Handbook,
Revised Edition January 1, 1997,
6
<PAGE>
notwithstanding any future reductions which might be made to the benefits
provided in such Employee Handbook.
6. Conversion Benefits. In the event of a Conversion, the Bank will
provide, or cause to be provided, to Ms. King 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 Ms. King 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 Ms. King,
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. Ms. King may serve as a
member of the board of directors of such business, community and charitable
organizations as she may disclose to the Board from time to time, and she may
engage in personal business and investment activities for her own account;
provided, however, that such service and personal business and investment
activities shall not (a) materially interfere with the performance of her duties
under this Agreement, and (b) involve entities which
7
<PAGE>
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. Ms. King's principal place of
employment shall be at the Bank's executive offices. The Bank shall provide Ms.
King, at such principal place of employment, with support services and
facilities suitable to her position with the Bank and necessary or appropriate
in connection with the performance of her assigned duties under this Agreement.
The Bank shall reimburse Ms. King for her ordinary and necessary business
expenses, including, without limitation, fees for memberships in such clubs and
organizations as Ms. King 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 her duties under this Agreement
upon presentation to the Bank of itemized accounts of such expenses in such form
as the Bank may reasonably require. Ms. King shall be entitled to no less than
four (4) weeks of paid vacation during each year in the Employment Period.
9. Termination Giving Rise to Severance Benefits.
(a) The Bank shall provide to Ms. King the benefits and pay her the
amounts provided under section 9(b) of this Agreement in the event that Ms.
King's employment with the Bank shall terminate during the Employment Period for
reasons other than:
8
<PAGE>
(i) a Termination for Cause (within the meaning of section
12(a) of this Agreement);
(ii) a voluntary resignation by Ms. King other than a Resignation for
Good Reason (within the meaning of section 12(b) of this Agreement);
(iii) a termination on account of Ms. King's death; or
(iv) a termination after both of the following conditions exist: (A)
Ms. King has been absent from the full-time service of the Bank on account of
this Disability (as defined in section 11(c) of this Agreement) for at least six
consecutive months; and (B) Ms. King 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 Ms. King by the Bank.
(b) In the event that Ms. King'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 Ms. King:
(i) her earned but unpaid salary as of the date of the termination of
her employment with the Bank, payable when due but in no event later than thirty
(30) days following her termination of employment with the Bank;
(ii) the benefits, if any, to which Ms. King and her family and
dependents are entitled as a former officer/employee, or
9
<PAGE>
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 her termination of employment,
or if her termination of employment occurs after a Change in Control, on the
date of her termination of employment or on the date of such Change in Control,
whichever results in more favorable benefits as determined by Ms. King, 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 her employment is terminated, at 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 9(b)(ii) of this Agreement, to the extent necessary
after taking into account coverage provided by any subsequent employer, to
provide Ms. King and her 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
10
<PAGE>
entitled under such plans (as in effect on the date of her termination of
employment, or, if her termination of employment occurs after a Change in
Control, on the date of 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 Ms. King) if she 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;
(v) within thirty days following 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 Ms. King would have earned if she 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 Ms.
King 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;
11
<PAGE>
(vi) within thirty days following this 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 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 this termination, if
she 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 she
is actually entitled under any such plans maintained by, or covering employees
of, the Bank as of the date of this termination with such present values to be
determined by using a discount rate of six percent per annum, compounded
monthly, and
12
<PAGE>
the mortality tables prescribed under section 72 of the Internal
Revenue Code of 1986 ("Code");
(vii) within thirty days following 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 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 her termination, if she 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 Ms. King'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 she is actually entitled under such plans as of the date
of her termination of employment with the Bank, with such present values to be
determined by using a discount rate of six percent
13
<PAGE>
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 Ms. King 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 she 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
Ms. King under such incentive compensation plan, multiplied by (B) the
compensation that would have been paid to Ms. King 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 Ms. King 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 Ms. King is entitled under the Bank's
Supplemental Executive Retirement Plan (or other excess
14
<PAGE>
benefits plan within the meaning of section 3(36) of ERISA or other special or
supplemental plan) shall be paid to her 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 Ms. King'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) Ms. King 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 Ms. King as the result of employment by
another employer, by retirement benefits, by offset against any amount claimed
to be owed by Ms. King to the Bank or the parent corporation of the Bank, or
otherwise except as specifically provided in this Agreement. Unless there is a
change of control, the parties hereto agree that the damages which may be
incurred by Ms. King 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
15
<PAGE>
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 Ms.
King'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 Ms. King 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.
11. Death and Disability.
(a) If Ms. King's employment is terminated by reason of Ms. King's
death during the Employment Period, this Agreement shall terminate without
further obligations to Ms. King's legal representatives under this Agreement,
other than for payment of the amounts and provision of the benefits under
sections 9(b) (i), (ii) and (iii) including the extension of health,
hospitalization and dental benefits to spouses, eligible dependents as well as
the survivor, providing the eligibility rules are met in accordance with the
Bank's Employee Handbook, Revised Edition January 1, 1997, page 7; provided,
however, that
16
<PAGE>
if Ms. King dies during the Employment Period, her designated beneficiary(ies)
shall receive a death benefit, payable through life insurance or otherwise,
which is the equivalent on a net after-tax basis of the death benefit payable
under a term life insurance policy, with a stated death benefit of two times Ms.
King's then current salary under section 4 of this Agreement.
(b) If Ms. King's employment is terminated by reason of Ms. King's
Disability as defined in section 11(c) during the Employment Period, this
Agreement shall terminate without further obligations to Ms. King, other than
for payment of the amounts and provision of the benefits under sections 9(b)
(i), (ii) and (iii) including the extension of health, hospitalization and
dental benefits to spouses, eligible dependents as well as the survivor,
providing the eligibility rules are met in accordance with the Bank's Employee
Handbook, Revised Edition January 1, 1997, page 7; provided, however, that in
the event of Ms. King's Disability during the Employment Period, the Bank will
pay to her a lump sum amount equal to two times her 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 Ms. King's death or disability.
17
<PAGE>
12. Definition of Termination for Cause and Resignation for Good
Reason.
(a) Ms. King'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 any provision of this Agreement, in
each case as measured against standards generally prevailing at the relevant
time in the savings and community banking industry; provided, however, that Ms.
King shall not be deemed to have been discharged for cause unless and until 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
Ms. King and a reasonable opportunity for Ms. King to make oral and written
presentations to the members of the Board, on her own behalf, or through a
representative, who may be 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 Ms. King for cause.
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<PAGE>
(b) Ms. King'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 Ms. King of any duties inconsistent with Ms.
King's status as Senior Vice President, Assistant Treasurer and Head Teller of
the Bank; or (B) a substantial adverse alteration in the nature or status of Ms.
King'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 Ms. King'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;
(iii) the relocation of the Bank's executive offices to a location
outside of Orange County or the Bank's requiring Ms. King 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 Ms. King's business travel
obligations at the date this Agreement is made;
(iv) the failure by the Bank, without Ms. King's consent, to pay to Ms.
King, within seven days of the date when due, (A) any portion of her
compensation, or (B) any portion of an installment
19
<PAGE>
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 Ms. King;
(v) the failure by the Bank to continue in effect any compensation plan
in which Ms. King participates which is material to her 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 her 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 her 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 Ms. King with
benefits substantially similar to those enjoyed by Ms. King 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 Ms. King is participating, or the taking of any action by the
Bank which would directly or indirectly materially reduce any of such benefits
or deprive Ms. King of the number of paid vacation days
20
<PAGE>
to which she 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 Ms. King;
(x) a requirement that Ms. King report to any person or group other
than the Bank's Chief Executive Officer, 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:
(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
21
<PAGE>
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) Clifford E.
Kelsey, Jr. or Ms. King, or any group otherwise constituting a person in which
Clifford E. Kelsey, Jr. or Ms. King 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
22
<PAGE>
(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
23
<PAGE>
substituted for the term "Bank" herein. 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 Ms. King's employment
during the Employment Period or thereafter, whether by the Bank or by Ms. King,
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.
24
<PAGE>
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 Ms.
King, this 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
25
<PAGE>
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 Ms. King:
Ms. Diane D. King
105 Sproat Street
Middletown,, New York 10940
If to the Bank:
Goshen Savings Bank
1 South Church Street
Goshen, NY 10924
Attention: The President
With a copy to:
Serchuk & Zelermyer, LLP
81 Main Street
White Plains, NY 10601
Attention: Ivan Serchuk, Esq.
17. Enforcement Costs and Attorneys' Fees. The Bank shall pay to or on
behalf of Ms. King all reasonable costs, including legal fees, incurred by her
in connection with or arising out of her consultation with legal counsel or in
connection with or arising out of any action, suit or proceeding in which she
may be involved, as a result of her efforts, in good faith, to defend or enforce
the terms of this Agreement, provided that Ms. King 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
26
<PAGE>
not obligate the Bank to pay costs and legal fees on behalf of Ms. King under
this Agreement in excess of reasonable attorney fees. For purposes of this
Agreement, any settlement agreement which provides for payment of any amounts in
settlement of the Bank's obligations hereunder shall be conclusive evidence of
Ms. King's entitlement to payments under this section, and any such payments
shall be in addition to amounts payable pursuant to such settlement agreement,
unless such settlement agreement expressly provides otherwise.
18. Severability. A determination that any provision of this Agreement
is invalid or unenforceable shall not affect the validity or enforceability of
any other provision hereof.
19. Waiver. Failure to insist upon strict compliance with any of the
terms, covenants or conditions hereof shall not be deemed a waiver of such term,
covenant, or condition. A waiver of any provision of this Agreement must be made
in writing, designated as a waiver, and signed by the party against whom 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.
27
<PAGE>
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 Ms.
King. 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
28
<PAGE>
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.
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 Ms. King under
section 9(b) hereof (exclusive of amounts described in section 9(b)(i) and (ix))
exceed three times Ms. King's average annual total compensation for the last
five consecutive calendar years to end prior to her termination of employment
with the Bank (or for her entire period of employment with the Bank if less than
five calendar years).
(b) Notwithstanding anything herein contained to the contrary, Ms. King
shall have no right to receive compensation or other benefits for any period
after termination for cause.
(c) Notwithstanding anything herein contained to the contrary, any
payments to Ms. King 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
29
<PAGE>
Insurance Act (the "FDI Act"), 12 U.S.C. Section 1828(k), and any regulations
promulgated hereunder.
(d) Notwithstanding anything herein contained to the contrary, if Ms.
King 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 Ms. King 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.
(e) Notwithstanding anything herein contained to the contrary, if Ms.
King is removed and/or permanently prohibited from participating in the conduct
of the Bank's affairs by an order issued under section 8(e)(4) or 8(g)(1) of the
FDI Act, 12 U.S.C. Section 1818(e)(4) or (g)(1), all obligations of the Bank
under this Agreement shall terminate as of the effective date of the order, but
vested rights and obligations of the Bank and Ms. King shall not be affected.
(f) 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)),
30
<PAGE>
all obligations of the Bank under this Agreement shall terminate as of the date
of default, but vested rights and obligations of the Bank and Ms. King shall not
be affected.
(g) Notwithstanding anything herein contained to the contrary, all
obligations of the Bank hereunder shall be terminated, except to the extent that
a continuation of this Agreement is necessary for the continued operation of the
Bank: (i) by the Director of the OTS or 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 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 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.
IN WITNESS WHEREOF, the Bank has caused this Agreement to be
executed and Ms. King has hereto set her hand, all as of the day
31
<PAGE>
and year first above written.
/s/ Diane D. King
---------------------
DIANE D. KING
WITNESS:
/s/ Jenny Ford
- ------------------
GOSHEN SAVINGS BANK
By /s/ Clifford E. Kelsey, Jr.
---------------------------
ATTEST:
/s/ Jenny Ford
- ------------------
32
<PAGE>
EXHIBIT 10.10
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as
of the 1st day of May, 1997, by and between GSB Financial Corporation, a
corporation organized and operating under the laws of the State of Delaware and
having an office at 1 South Church Street, Goshen, New York 10924 (the
"Company"), and Diane D. King, residing at 105 Sproat Street, Middletown, New
York 10940.
WHEREAS, Ms. King currently serves the Company as Senior
Vice President, Assistant Treasurer and Head Teller; and
WHEREAS, in order to secure Ms. King'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, Ms. King is willing to continue to make her
services available to the Company on the terms and conditions set
forth herein; and
WHEREAS, on or about May 1, 1997 Ms. King 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.
1
<PAGE>
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 Ms. King
as its Senior Vice President, Assistant Treasurer and Head Teller, and Ms. King
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
Ms. King 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 Ms. King'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, Ms. King shall be liable for the payment of an
2
<PAGE>
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) Ms. King, the Company shall pay to Ms. King an amount equal to X determined
under the following formula:
E x P
X =_______________________________
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 Ms. King under the
Code for the taxable year in question;
SLI = the sum of the highest marginal rates of income tax applicable to
Ms. King under all applicable state and local laws for the taxable
year in question; and
M = the highest marginal rate of Medicare tax applicable to Ms. King
under the Code for the taxable year in question.
With respect to any payment in the nature of compensation that is made to (or
for the benefit of) Ms. King 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 Ms. King 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 Ms. King.
3
<PAGE>
(b) Notwithstanding anything in this section 4 to the contrary, in
the event that Ms. King'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), Ms. King 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 Ms. King
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 Ms. King, equals the
amount that should have properly been paid to Ms. King 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 Ms. King under this section 4, Ms. King 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
<PAGE>
4 shall be modified in such manner as Ms. King and the Company may mutually
agree upon if and to the extent necessary to assure that Ms. King 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.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed and Ms. King has hereto set her hand, all as of the day and year first
above written.
/s/ Diane D. King
------------------
DIANE D. KING
WITNESS:
/s/ Jenny Ford
- ------------------------
GSB FINANCIAL CORPORATION
By /s/ Clifford E. Kelsey, Jr.
----------------------------
ATTEST:
/s/ Jenny Ford
- -----------------------
5
<PAGE>
EXHIBIT 10.11
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as
of the 1st day of May, 1997, by and between Goshen Savings Bank, a mutual
savings bank organized and operating under the laws of the United States and
having its executive office at 1 South Church Street, Goshen, New York 10924
(the "Bank"), and Jenny M. Ford, residing at 272 N. Plank Road, Newburgh, New
York 12550.
WHEREAS, Ms. Ford currently serves the Bank as Vice President and
Secretary; and
WHEREAS, in order to secure Ms. Ford's continued services for the
period thereof, the Board of Directors of the Bank (the "Board") has approved
and authorized the execution of this Agreement; and
Whereas, Ms. Ford is willing to continue to make her 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 Ms. Ford as
its Vice President and Secretary, and Ms. Ford hereby accepts such continued
employment, during the period and upon the
<PAGE>
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, Ms. Ford also agrees to serve as
the Vice President and Secretary 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 of this Agreement 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) Prior to the first anniversary of the date of this Agreement and
each anniversary date thereafter (each, an "Anniversary Date"), the Board shall
review the terms of this Agreement and Ms. Ford's performance of services
hereunder and may, absent objection from Ms. Ford, 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").
2
<PAGE>
(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 Ms. Ford 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, Ms. Ford has provided written notice to the Bank
of her intent to discontinue the Employment Period.
(d) The Bank or Ms. Ford 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, Ms. Ford shall:
(a) except to the extent allowed under section 7 of this Agreement,
devote her full business time and attention to the business and affairs of the
Bank, its parent and subsidiary
3
<PAGE>
corporations (if any), and use her best efforts to advance their
interests;
(b) serve as Vice President and Secretary of the Bank, Vice President
and Secretary of the Bank's parent corporation and an officer of any of its
subsidiaries if elected to serve in such positions;
(c) have such functions, duties and responsibilities not inconsistent
with her title and office as may be assigned to her by or under the authority of
the Bank's Chief Executive Officer and/or 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. Ms.
Ford shall have such authority as is necessary or appropriate to carry out her
assigned duties. Ms. Ford shall report to and be subject to direction and
supervision by the Bank's Chief Executive Officer and the Board; and
4. Compensation; Salary and Bonus.
(a) In consideration for services rendered by Ms. Ford under this
Agreement, the Bank shall pay to Ms. Ford a salary at an annual rate equal to:
(i) during the twelve month period beginning on May 1, 1997 and ending
on April 30, 1998, no less than $64,038;
4
<PAGE>
(ii) during each twelve month period that begins after April 30, 1998,
such amount as the Board may, in its discretion, determine, but in no event less
than the rate in effect for the prior twelve month period;
(iii) for each twelve month period that begins on or after a Change in
Control, the product of Ms. Ford'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 Ms. Ford) 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 Ms. Ford) who are assistant
vice presidents or more senior officers.
5
<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 Ms. Ford 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.
5. Employee Benefits Plans and Programs; Other Compensation. Except as
otherwise provided in this Agreement, Ms. Ford 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 Ms. Ford shall be
continued on terms and conditions substantially identical to, and in no event
less favorable than, those in effect prior to the Change in Control. Nothing in
this Agreement will reduce benefits provided under the Bank's Employee Handbook,
Revised Edition January 1, 1997,
6
<PAGE>
notwithstanding any future reductions which might be made to the benefits
provided in such Employee Handbook.
6. Conversion Benefits. In the event of a Conversion, the Bank will
provide, or cause to be provided, to Ms. Ford 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 Ms. Ford 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 Ms. Ford,
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. Ms. Ford may serve as a
member of the board of directors of such business, community and charitable
organizations as she may disclose to the Board from time to time, and she may
engage in personal business and investment activities for her own account;
provided, however, that such service and personal business and investment
activities shall not (a) materially interfere with the performance of her duties
under this Agreement, and (b) involve entities which
7
<PAGE>
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. Ms. Ford's principal place of
employment shall be at the Bank's executive offices. The Bank shall provide Ms.
Ford, at such principal place of employment, with support services and
facilities suitable to her position with the Bank and necessary or appropriate
in connection with the performance of her assigned duties under this Agreement.
The Bank shall reimburse Ms. Ford for her ordinary and necessary business
expenses, including, without limitation, fees for memberships in such clubs and
organizations as Ms. Ford 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 her duties under this Agreement
upon presentation to the Bank of itemized accounts of such expenses in such form
as the Bank may reasonably require. Ms. Ford shall be entitled to no less than
four (4) weeks of paid vacation during each year in the Employment Period.
9. Termination Giving Rise to Severance Benefits.
(a) The Bank shall provide to Ms. Ford the benefits and pay her the
amounts provided under section 9(b) of this Agreement in the event that Ms.
Ford's employment with the Bank shall terminate during the Employment Period for
reasons other than:
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<PAGE>
(i) a Termination for Cause (within the meaning of section
12(a) of this Agreement);
(ii) a voluntary resignation by Ms. Ford other than a Resignation for
Good Reason (within the meaning of section 12(b) of this Agreement);
(iii) a termination on account of Ms. Ford's death; or
(iv) a termination after both of the following conditions exist: (A)
Ms. Ford has been absent from the full-time service of the Bank on account of
this Disability (as defined in section 11(c) of this Agreement) for at least six
consecutive months; and (B) Ms. Ford 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 Ms. Ford by the Bank.
(b) In the event that Ms. Ford'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 Ms. Ford:
(i) her earned but unpaid salary as of the date of the termination of
her employment with the Bank, payable when due but in no event later than thirty
(30) days following her termination of employment with the Bank;
(ii) the benefits, if any, to which Ms. Ford and her family and
dependents are entitled as a former officer/employee, or
9
<PAGE>
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 her termination of employment,
or if her termination of employment occurs after a Change in Control, on the
date of her termination of employment or on the date of such Change in Control,
whichever results in more favorable benefits as determined by Ms. Ford, 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 her employment is terminated, at 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 9(b)(ii) of this Agreement, to the extent necessary
after taking into account coverage provided by any subsequent employer, to
provide Ms. Ford and her 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
10
<PAGE>
entitled under such plans (as in effect on the date of her termination of
employment, or, if her termination of employment occurs after a Change in
Control, on the date of 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 Ms. Ford) if she 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;
(v) within thirty days following 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 Ms. Ford would have earned if she 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 Ms.
Ford 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;
11
<PAGE>
(vi) within thirty days following this 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 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 this termination, if
she 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 she
is actually entitled under any such plans maintained by, or covering employees
of, the Bank as of the date of this termination with such present values to be
determined by using a discount rate of six percent per annum, compounded
monthly, and
12
<PAGE>
the mortality tables prescribed under section 72 of the Internal
Revenue Code of 1986 ("Code");
(vii) within thirty days following 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 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 her termination, if she 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 Ms. Ford'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 she is actually entitled under such plans as of the date
of her termination of employment with the Bank, with such present values to be
determined by using a discount rate of six percent
13
<PAGE>
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 Ms. Ford 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 she 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
Ms. Ford under such incentive compensation plan, multiplied by (B) the
compensation that would have been paid to Ms. Ford 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 Ms. Ford 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 Ms. Ford is entitled under the Bank's
Supplemental Executive Retirement Plan (or other excess
14
<PAGE>
benefits plan within the meaning of section 3(36) of ERISA or other special or
supplemental plan) shall be paid to her 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 Ms. Ford'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) Ms. Ford 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 Ms. Ford as the result of employment by
another employer, by retirement benefits, by offset against any amount claimed
to be owed by Ms. Ford to the Bank or the parent corporation of the Bank, or
otherwise except as specifically provided in this Agreement. Unless there is a
change of control, the parties hereto agree that the damages which may be
incurred by Ms. Ford 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
15
<PAGE>
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 Ms.
Ford'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 Ms. Ford 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.
11. Death and Disability.
(a) If Ms. Ford's employment is terminated by reason of Ms. Ford's
death during the Employment Period, this Agreement shall terminate without
further obligations to Ms. Ford's legal representatives under this Agreement,
other than for payment of the amounts and provision of the benefits under
sections 9(b) (i), (ii) and (iii) including the extension of health,
hospitalization and dental benefits to spouses, eligible dependents as well as
the survivor, providing the eligibility rules are met in accordance with the
Bank's Employee Handbook, Revised Edition January 1, 1997, page 7; provided,
however, that
16
<PAGE>
if Ms. Ford dies during the Employment Period, her designated beneficiary(ies)
shall receive a death benefit, payable through life insurance or otherwise,
which is the equivalent on a net after-tax basis of the death benefit payable
under a term life insurance policy, with a stated death benefit of two times Ms.
Ford's then current salary under section 4 of this Agreement.
(b) If Ms. Ford's employment is terminated by reason of Ms. Ford's
Disability as defined in section 11(c) during the Employment Period, this
Agreement shall terminate without further obligations to Ms. Ford, other than
for payment of the amounts and provision of the benefits under sections 9(b)
(i), (ii) and (iii) including the extension of health, hospitalization and
dental benefits to spouses, eligible dependents as well as the survivor,
providing the eligibility rules are met in accordance with the Bank's Employee
Handbook, Revised Edition January 1, 1997, page 7; provided, however, that in
the event of Ms. Ford's Disability during the Employment Period, the Bank will
pay to her a lump sum amount equal to two times her 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 Ms. Ford's death or disability.
17
<PAGE>
12. Definition of Termination for Cause and Resignation for Good
Reason.
(a) Ms. Ford's termination of employment with the Bank shall be deemed
a "Termination for Cause" if such termination occurs for "cause," which, for
purposes of this Agreement shall mean personal dishonesty, incompetence, willful
misconduct, breach of fiduciary duty involving personal profit, intentional
failure to perform stated duties, willful violation of any law, rule or
regulation (other than traffic violations or similar offenses) or final cease
and desist order, or material breach of any provision of this Agreement, in each
case as measured against standards generally prevailing at the relevant time in
the savings and community banking industry; provided, however, that Ms. Ford
shall not be deemed to have been discharged for cause unless and until 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 Ms. Ford
and a reasonable opportunity for Ms. Ford to make oral and written presentations
to the members of the Board, on her own behalf, or through a representative, who
may be 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 Ms. Ford for cause.
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<PAGE>
(b) Ms. Ford'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 Ms. Ford of any duties inconsistent with Ms.
Ford's status as Vice President and Secretary of the Bank; or (B) a substantial
adverse alteration in the nature or status of Ms. Ford'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 Ms. Ford'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;
(iii) the relocation of the Bank's executive offices to a location
outside of Orange County or the Bank's requiring Ms. Ford 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 Ms. Ford's business travel
obligations at the date this Agreement is made;
(iv) the failure by the Bank, without Ms. Ford's consent, to pay to Ms.
Ford, within seven days of the date when due, (A) any portion of her
compensation, or (B) any portion of an installment
19
<PAGE>
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 Ms. Ford;
(v) the failure by the Bank to continue in effect any compensation plan
in which Ms. Ford participates which is material to her 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 her 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 her 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 Ms. Ford with
benefits substantially similar to those enjoyed by Ms. Ford 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 Ms. Ford is participating, or the taking of any action by the
Bank which would directly or indirectly materially reduce any of such benefits
or deprive Ms. Ford of the number of paid vacation days
20
<PAGE>
to which she 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 hereof from Ms. Ford;
(x) a requirement that Ms. Ford report to any person or group other
than the Bank's Chief Executive Officer, 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:
(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
21
<PAGE>
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) Clifford E. Kelsey,
Jr. or Ms. Ford, or any group otherwise constituting a person in which Clifford
E. Kelsey, Jr. or Ms. Ford 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
22
<PAGE>
(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
23
<PAGE>
substituted for the term "Bank" herein. 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 Ms. Ford's employment
during the Employment Period or thereafter, whether by the Bank or by Ms. Ford,
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.
15. Successors and Assigns.
24
<PAGE>
(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 Ms.
Ford, this 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
25
<PAGE>
at such other address as one such party may by written notice specify to the
other party:
If to Ms. Ford:
Ms. Jenny M. Ford
272 N. Plank Road
Newburgh, New York 12550
If to the Bank:
Goshen Savings Bank
1 South Church Street
Goshen, NY 10924
Attention: The President
With a copy to:
Serchuk & Zelermyer, LLP
81 Main Street
White Plains, NY 10601
Attention: Ivan Serchuk, Esq.
17. Enforcement Costs and Attorneys' Fees. The Bank shall pay to or on
behalf of Ms. Ford all reasonable costs, including legal fees, incurred by her
in connection with or arising out of her consultation with legal counsel or in
connection with or arising out of any action, suit or proceeding in which she
may be involved, as a result of her efforts, in good faith, to defend or enforce
the terms of this Agreement, provided that Ms. Ford 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
26
<PAGE>
Ms. Ford under this Agreement in excess of reasonable attorney fees. For
purposes of this Agreement, any settlement agreement which provides for payment
of any amounts in settlement of the Bank's obligations hereunder shall be
conclusive evidence of Ms. Ford's entitlement to payments under this section,
and any such payments shall be in addition to amounts payable pursuant to such
settlement agreement, unless such settlement agreement expressly provides
otherwise.
18. Severability. A determination that any provision of this Agreement
is invalid or unenforceable shall not affect the validity or enforceability of
any other provision hereof.
19. Waiver. Failure to insist upon strict compliance with any of the
terms, covenants or conditions hereof shall not be deemed a waiver of such term,
covenant, or condition. A waiver of any provision of this Agreement must be made
in writing, designated as a waiver, and signed by the party against whom 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.
27
<PAGE>
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 Ms.
Ford. 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
28
<PAGE>
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.
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 Ms. Ford under
section 9(b) hereof (exclusive of amounts described in section 9(b)(i) and (ix))
exceed three times Ms. Ford's average annual total compensation for the last
five consecutive calendar years to end prior to her termination of employment
with the Bank (or for her entire period of employment with the Bank if less than
five calendar years).
(b) Notwithstanding anything herein contained to the contrary, Ms. Ford
shall have no right to receive compensation or other benefits for any period
after termination for cause.
(c) Notwithstanding anything herein contained to the contrary, any
payments to Ms. Ford 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
29
<PAGE>
Insurance Act (the "FDI Act"), 12 U.S.C. Section 1828(k), and any regulations
promulgated hereunder.
(d) Notwithstanding anything herein contained to the contrary, if Ms.
Ford 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 Ms. Ford 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.
(e) Notwithstanding anything herein contained to the contrary, if Ms.
Ford is removed and/or permanently prohibited from participating in the conduct
of the Bank's affairs by an order issued under section 8(e)(4) or 8(g)(1) of the
FDI Act, 12 U.S.C. Section 1818(e)(4) or (g)(1), all obligations of the Bank
under this Agreement shall terminate as of the effective date of the order, but
vested rights and obligations of the Bank and Ms.
Ford shall not be affected.
(f) 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)),
30
<PAGE>
all obligations of the Bank under this Agreement shall terminate as of the date
of default, but vested rights and obligations of the Bank and Ms. Ford shall not
be affected.
(g) Notwithstanding anything herein contained to the contrary, all
obligations of the Bank hereunder shall be terminated, except to the extent that
a continuation of this Agreement is necessary for the continued operation of the
Bank: (i) by the Director of the OTS or 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 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 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.
IN WITNESS WHEREOF, the Bank has caused this Agreement to be executed
and Ms. Ford has hereto set her hand, all as of the day and year first above
written.
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<PAGE>
/s/ Jenny M. Ford
--------------------
JENNY M. FORD
WITNESS:
/s/ Diane D. King
- ----------------------
GOSHEN SAVINGS BANK
By /s/ Clifford E. Kelsey, Jr.
----------------------------
ATTEST:
/s/ Diane D. King
- ----------------------
32
<PAGE>
EXHIBIT 10.12
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as
of the 1st day of May, 1997, by and between GSB Financial Corporation, a
corporation organized and operating under the laws of the State of Delaware and
having an office at 1 South Church Street, Goshen, New York 10924 (the
"Company"), and Jenny M. Ford, residing at 272 N. Plank Road, Newburgh, New York
12550.
WHEREAS, Ms. Ford currently serves the Company as Vice
President and Secretary; and
WHEREAS, in order to secure Ms. Ford'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, Ms. Ford is willing to continue to make her
services available to the Company on the terms and conditions set
forth herein; and
WHEREAS, on or about May 1, 1997 Ms. Ford 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.
<PAGE>
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 Ms. Ford
as its Vice President and Secretary, and Ms. Ford 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
Ms. Ford 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 Ms. Ford'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, Ms. Ford shall be liable for the payment of an excise
tax under section 4999 of the Code with respect to any
2
<PAGE>
payment in the nature of compensation made by the Company or the Bank to (or for
the benefit of) Ms. Ford, the Company shall pay to Ms. Ford an amount equal to X
determined under the following formula:
E x P
X =______________________________
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 Ms. Ford under the
Code for the taxable year in question;
SLI = the sum of the highest marginal rates of income tax applicable to
Ms. Ford under all applicable state and local laws for the taxable
year in question; and
M = the highest marginal rate of Medicare tax applicable to Ms. Ford
under the Code for the taxable year in question.
With respect to any payment in the nature of compensation that is made to (or
for the benefit of) Ms. Ford 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 Ms. Ford 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 Ms. Ford.
3
<PAGE>
(b) Notwithstanding anything in this section 4 to the contrary, in
the event that Ms. Ford'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), Ms. Ford 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 Ms. Ford
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 Ms. Ford, equals the
amount that should have properly been paid to Ms. Ford 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 Ms. Ford under this section 4, Ms. Ford 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
<PAGE>
4 shall be modified in such manner as Ms. Ford and the Company may mutually
agree upon if and to the extent necessary to assure that Ms. Ford 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.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed and Ms. Ford has hereto set her hand, all as of the day and year first
above written.
/s/ Jenny M. Ford
-------------------
JENNY M. FORD
WITNESS:
/s/ Diane D. King
- ---------------------
GSB FINANCIAL CORPORATION
By /s/ Clifford E. Kelsey, Jr.
---------------------------
ATTEST:
/s/ Diane D. King
- ---------------------
5
<PAGE>
EXHIBIT 10.13
GSB FINANCIAL CORPORATION
EMPLOYEE STOCK OWNERSHIP PLAN
TABLE OF CONTENTS
<TABLE>
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PREAMBLE 1
ARTICLE 1 DEFINITION OF TERMS AND CONSTRUCTION
1.1 Definitions
(a) "Act" 2
(b) "Administrator" 2
(c) "Annual Additions" 2
(d) "Authorized Leave of Absence" 2
(e) "Bank" 2
(f) "Beneficiary" 2
(g) "Board of Directors" 3
(h) "Break" 3
(i) "Code" 3
(j) "Compensation" 3
(k) "Date of Hire" 3
(l) "Disability" 4
(m) "Disability Retirement Date" 3
(n) "Early Retirement Date" 4
(o) "Effective Date" 4
(p) "Eligibility Period" 4
(q) "Employee" 4
(r) "Employer" 4
(s) "Employer Securities" 4
(t) "Entry Date" 4
(u) "Exempt Loan" 4
(v) "Former Participant" 4
(w) "Fund" 4
(x) "Hour of Service" 5
(y) "Investment Adjustments" 5
(z) "Limitation Year" 5
(aa) "Normal Retirement Date" 5
(bb) "Participant" 5
(cc) "Plan" 6
(dd) "Plan Year" 6
(ee) "Qualified Domestic Relations Order" 6
(ff) "Retirement" 6
(gg) "Service" 6
(hh) "Sponsor" 6
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(ii) "Trust Agreement" 6
(jj) "Trustee" 7
(kk) "Valuation Date" 7
(ll) "Year of Service" 7
1.2. Plurals and Gender 7
1.3 Incorporation of Trust Agreement 7
1.4 Headings 7
1.5 Severability 8
1.6 References to Governmental Regulations 8
ARTICLE II PARTICIPATION
2.1 Commencement of Participation 9
2.2 Termination of Participation 9
2.3 Resumption of Participation 9
2.4 Determination of Eligibility 10
ARTICLE III CREDITED SERVICE
3.1 Service Counted for Eligibility Purposes 11
3.2 Service Counted for Vesting Purposes 11
3.3 Credit for Pre-Break Service 11
3.4 Service Credit During Authorized Leaves 11
3.5 Service Credit During Maternity or
Paternity Leave 12
3.6 Ineligible Employees 12
ARTICLE IV CONTRIBUTIONS
4.1 Employee Stock Ownership Contributions 13
4.2 Time and Manner of Employee Stock Ownership
Contributions 13
4.3 Records of Contributions 14
4.4 Erroneous Contributions 14
ARTICLE V ACCOUNTS, ALLOCATIONS AND INVESTMENTS
5.1 Establishment of Separate Participant
Accounts 15
5.2 Establishment of Suspense Account 15
5.3 Allocation of Earnings, Losses and Expenses 16
5.4 Allocation of Forfeitures 16
5.5 Allocation of Annual Employee Stock
Ownership Contributions 16
5.6 Limitation on Annual Additions 17
ii
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5.7 Erroneous Allocations 20
5.8 Value of Participant's Interest in Fund 20
5.9 Investment of Account Balances 20
ARTICLE VI RETIREMENT, DEATH AND DESIGNATION
OF BENEFICIARY
6.1 Normal Retirement 21
6.2 Early Retirement 21
6.3 Disability Retirement 21
6.4 Death Benefits 21
6.5 Designation of Death Beneficiary and
Manner of Payment 22
ARTICLE VII VESTING AND FORFEITURES
7.1 Vesting on Death, Disability, Normal Retirement 23
7.2 Vesting on Termination of Participation 23
7.3 Disposition of Forfeitures 23
7.4 Full Vesting Upon Change in Control 24
ARTICLE VIII EMPLOYEE STOCK OWNERSHIP PROVISIONS
8.1 Right to Demand Employer Securities 26
8.2 Voting and Tendering of Stock 26
8.3 Nondiscrimination in Employee Stock
Ownership Contributions 27
8.4 Dividends 27
8.5 Exempt Loans 28
8.6 Exempt Loan Payments 29
8.7 Put Option 30
8.8 Diversification Requirements 30
8.9 Independent Appraiser 31
ARTICLE IX PAYMENTS AND DISTRIBUTIONS
9.1 Payments on Termination of Service
- In General 32
9.2 Commencement of Payments 32
9.3 Mandatory Commencement of Benefits 32
9.4 Required Beginning Dates 35
9.5 Form of Payment 36
9.6 Payments Upon Termination of Plan 36
9.7 Distribution Pursuant to Qualified
Domestic Relations Orders 36
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9.8 Cash-Out Distributions 36
9.9 ESOP Distribution Rules 37
9.10 Withholding 37
9.11 Waiver of 30-day Notice 38
ARTICLE X PROVISIONS RELATING TO TOP-HEAVY PLANS
10.1 Top-Heavy Rules to Control 39
10.2 Top-Heavy Plan Definitions 39
10.3 Calculation of Accrued Benefits 40
10.4 Determination of Top-Heavy Status 42
10.5 Determination of Super Top-Heavy Status 42
10.6 Minimum Contribution 42
10.7 Vesting 43
10.8 Maximum Benefit Limitation 44
ARTICLE XI ADMINISTRATION
11.1 Appointment of Administrator 45
11.2 Resignation or Removal of Administrator 45
11.3 Appointment of Successors: Terms of
Office, Etc. 45
11.4 Powers and Duties of Administrator 45
11.5 Action by Administrator 46
11.6 Participation by Administrators 47
11.7 Agents 47
11.8 Allocation of Duties 47
11.9 Delegation of Duties 47
11.10 Administrator's Action Conclusive 47
11.11 Compensation and Expenses of
Administrator 48
11.12 Records and Reports 48
11.13 Reports of Fund Open to Participants 48
11.14 Named Fiduciary 48
11.15 Information from Employer 48
11.16 Reservation of Rights by Employer 49
11.17 Liability and Indemnification 49
11.18 Service as Trustee and Administrator 49
ARTICLE XII CLAIMS PROCEDURE
12.1 Notice of Denial 50
12.2 Right to Reconsideration 50
12.3 Review of Documents 50
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12.4 Decision by Administrator 50
12.5 Notice by Administrator 50
ARTICLE XIII AMENDMENTS, TERMINATION AND MERGER
13.1 Amendments 51
13.2 Consolidation, Merger or Other
Transactions of Employer 51
13.3 Consolidation or Merger of Trust 52
13.4 Bankruptcy or Insolvency of Employer 52
13.5 Voluntary Termination 53
13.6 Partial Termination of Plan or Permanent
Discontinuance of Contributions 53
ARTICLE XIV MISCELLANEOUS
14.1 No Diversion of Funds 54
14.2 Liability Limited 54
14.3 Incapacity 54
14.4 Spendthrift Clause 54
14.5 Benefits Limited to Fund 55
14.6 Cooperation of Parties 55
14.7 Payments Due Missing Persons 55
14.8 Governing Law 55
14.9 Nonguarantee of Employment 55
14.10 Counsel 56
</TABLE>
v
<PAGE>
GSB FINANCIAL CORPORATION
EMPLOYEE STOCK OWNERSHIP PLAN
PREAMBLE
Effective as of the date on which the conversion of Goshen Savings Bank
from a mutual savings bank to a stock savings bank becomes effective, GSB
Financial Corporation, a Delaware corporation, (the "Sponsor"), has adopted the
GSB Financial Corporation Employee Stock Ownership Plan in order to enable
Participants to share in the growth and prosperity of the Sponsor and its wholly
owned subsidiary, Goshen Savings Bank, and to provide Participants with an
opportunity to accumulate capital for their future economic security by
accumulating funds to provide retirement, death and disability benefits. The
Plan is a stock bonus plan designed to meet the requirements of an employee
stock ownership plan as described at Section 4975(e)(7) of the Code and Section
407 (d)(6) of ERISA. The primary purpose of the employee stock ownership plan is
to invest in employer securities. The Sponsor intends that the Plan will qualify
under Sections 401(a) and 501(a) of the Code and will comply with the provisions
of ERISA. The Plan has been drafted to comply with the Tax Reform Act of 1986,
the Omnibus Budget Reconciliation Act of 1986, the Omnibus Budget Reconciliation
Act of 1987, the Technical and Miscellaneous Revenue Act of 1988, the Revenue
Reconciliation Act of 1989, and the Omnibus Budget Reconciliation Act of 1993.
The terms of this Plan shall apply only with respect to Employees of
the Employer on and after the date on which the conversion of Goshen Savings
Bank from a mutual savings bank to a stock savings bank becomes effective.
1
<PAGE>
ARTICLE I
DEFINITION OF TERMS AND CONSTRUCTION
1.1 Definitions.
Unless a different meaning is plainly implied by the context, the
following terms as used in this Plan shall have the following meanings:
(a) "Act" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, or any successor statute.
(b) "Administrator" shall mean the administrative committee provided
for in Article XI.
(c) "Annual Additions" shall mean, with respect to each Participant,
the sum of those amounts allocated to the Participant's accounts under this Plan
and under any other qualified defined contribution plan to which the Employer
contributes for any Limitation Year, consisting of the following:
(1) Employer contributions;
(2) Forfeitures; and
(3) Voluntary contributions (if any).
(d) "Authorized Leave of Absence" shall mean an absence from Service
with respect to which the Employee may or may not be entitled to Compensation
and which meets any one of the following requirements:
(1) Service in any of the armed forces of the United States
for up to 36 months, provided that the Employee resumes Service within 90 days
after discharge, or such longer period of time during which such Employee's
employment rights are protected by law; or
(2) Any other absence or leave expressly approved and granted
by the Employer which does not exceed 24 months, provided that the Employee
resumes Service at or before the end of such approved leave period. In approving
such leaves of absence, the Employer shall treat all Employees on a uniform and
nondiscriminatory basis.
(e) "Bank" shall mean Goshen Savings Bank, and any entity which
succeeds to the business of the Bank and adopts this Plan as an Employer.
(f) "Beneficiary" shall mean such persons as may be designated by the
Participant to receive benefits after the death of the Participant, or such
persons designated by the Administrator to receive benefits after the death of
the Participant, all as provided in Section 6.5.
2
<PAGE>
(g) "Board of Directors" shall mean the Board of Directors of the
Sponsor.
(h) "Break" shall mean a Plan Year during which an Employee fails to
complete more than 500 Hours of Service.
(i) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time, or any successor statute.
(j) "Compensation" shall mean the amount of remuneration paid to an
Employee by the Employer, after the date on which the Employee becomes a
Participant, for services rendered to the Employer during a Plan Year, including
base salary, bonuses, overtime and commissions, and any amount of compensation
contributed pursuant to a salary reduction election under Code Section 401(k)
and any amount of compensation contributed to a cafeteria plan described at
Section 125 of the Code, but excluding amounts paid by the Employer or accrued
with respect to this Plan or any other qualified or nonqualified unfunded plan
of deferred compensation or other employee welfare plan to which the Employer
contributes, payments for group insurance, medical benefits, reimbursement for
expenses, and other forms of extraordinary pay, and excluding amounts accrued
for a prior year.
Notwithstanding the foregoing, for purposes of complying with Code
Section 415, a Participant's contributions to the 401(k) Plan and cafeteria plan
shall not be included in the Participant's compensation. Notwithstanding
anything herein to the contrary, the annual Compensation of each Participant
taken into account under the Plan for any Plan Year shall not exceed $150,000,
as adjusted from time to time in accordance with Section 415(d) of the Code. In
determining the compensation of a Participant for purposes of this limitation,
the rules of Section 414(q)(6) of the Code shall apply, except in applying such
rules, the term "family" shall include only the spouse of the Participant and
any lineal descendants of the Participant who have not attained age 19 before
the close of the year. If, as a result of such rules, the adjusted $150,000
limitation is exceeded, then (except for purposes of determining the portion of
compensation up to the integration level), the limitation shall be prorated
among the affected individuals in proportion to each such individual's
compensation as determined under this section prior to the application of this
limitation.
(k) "Date of Hire" shall mean the date on which a person shall perform
his first Hour of Service. Notwithstanding the foregoing, in the event a person
incurs one or more consecutive Breaks after his initial Date of Hire which
results in the forfeiture of his pre-Break Service pursuant to Section 3.3, his
"Date of Hire" shall thereafter be the date on which he completes his first Hour
of Service after such Break or Breaks.
(l) "Disability" shall mean a physical or mental impairment which
prohibits a Participant from engaging in any occupation for wages or profit and
which has caused the Social Security Administration to classify the individual
as "disabled" for purposes of Social Security.
3
<PAGE>
(m) "Disability Retirement Date" shall mean the first day of the month
after which a Participant incurs a Disability.
(n) "Early Retirement Date" shall mean the first day of the month
coincident with or next following the date on which a Participant attains age 55
and completes 5 Years of Service.
(o) "Effective Date" shall mean the date on which the conversion of the
Bank from a mutual savings bank to a stock savings bank becomes effective.
(p) "Eligibility Period" shall mean the period of 12 consecutive months
commencing on an Employee's Date of Hire. Succeeding eligibility computation
periods after the initial eligibility computation period shall be based on the
Plan Year which includes the first anniversary of an Employee's Date of Hire.
(q) "Employee" shall mean any person employed by the Employer,
including officers but excluding directors in their capacity as such; provided,
however, that the term "Employee" shall not include any employee included in a
unit of employees covered by a collective-bargaining agreement with the Employer
that does not expressly provide for participation of such employees in this
Plan, where there has been good-faith bargaining between the Employer and the
employees' representatives on the subject of retirement benefits.
(r) "Employer" shall mean GSB Financial Corporation, a Delaware
corporation, and its wholly owned subsidiary, Goshen Savings Bank, or any
successors to the aforesaid corporations by merger, consolidation or otherwise,
which may agree to continue this Plan, or any affiliated or subsidiary
corporation or business organization of any Employer which, with the consent of
the Sponsor, shall agree to become a party to this Plan.
(s) "Employer Securities" shall mean the common stock issued by GSB
Financial Corporation, a Delaware corporation.
(t) "Entry Date" shall mean each January 1 and July 1, so long as this
Plan shall remain in effect.
(u) "Exempt Loan" shall mean a loan described at Section 4975(d)(1) of
the Code to the Trustee to purchase Employer Securities for the Plan, made or
guaranteed by a disqualified person, as defined at Section 4975(e)(2) of the
Code, including, but not limited to, a direct loan of cash, a purchase money
transaction, an assumption of an obligation of the Trustee, an unsecured
guarantee or the use of assets of such disqualified person as collateral for
such a loan.
(v) "Former Participant" shall mean any previous Participant whose
participation has terminated but who has a vested interest in the Plan which has
not been distributed in full.
(w) "Fund" shall mean the Fund maintained by the Trustee pursuant to
the Trust Agreement in order to provide for the payment of the benefits
specified in the Plan.
4
<PAGE>
(x) "Hour of Service" shall mean each hour for which an Employee is
directly or indirectly paid or entitled to payment by an Employer for the
performance of duties or for reasons other than the performance of duties (such
as vacation time, holidays, sickness, disability, paid lay-offs, jury duty and
similar periods of paid nonworking time). To the extent not otherwise included,
Hours of Service shall also include each hour for which back pay, irrespective
of mitigation of damages, is either awarded or agreed to by the Employer. Hours
of working time shall be credited on the basis of actual hours worked, even
though compensated at a premium rate for overtime or other reasons. In computing
and crediting Hours of Service for an Employee under this Plan, the rules set
forth in Sections 2530.200b-2(b) and (c) of the Department of Labor Regulations
shall apply, said Sections being herein incorporated by reference. Hours of
Service shall be credited to the Plan Year or other relevant period during which
the services were performed or the nonworking time occurred, regardless of the
time when Compensation therefor may be paid. Any Employee for whom no hourly
employment records are kept by the Employer shall be credited with 190 Hours of
Service for each calendar month in which he would have been credited with a
least one Hour or Service under the foregoing provisions, if hourly records were
available. Effective January 1, 1985, for absences commencing on or after that
date, solely for purposes of determining whether a Break for participation and
vesting purposes has occurred in an Eligibility Period or Plan Year, an
individual who is absent from work for maternity or paternity reasons shall
receive credit for the Hours of Service which would otherwise have been credited
to such individual but for such absence, or in any case in which such hours
cannot be determined, 8 Hours of Service per day of such absence. For purposes
of this Section 1.1(w), an absence from work or maternity or paternity reasons
means an absence (1) by reason of the pregnancy of the individual, (2) by reason
of a birth of a child of the individual, (3) by reason of the placement of a
child with the individual in connection with the adoption of such child by such
individual, or (4) for purposes of caring for such child for a period beginning
immediately following such birth or placement. The Hours of Service credited
under this provision shall be credited (1) in the computation period in which
the absence begins if the crediting is necessary to prevent a Break in that
period, or (2) in all other cases, in the following computation period.
(y) "Investment Adjustments" shall mean the increases and/or decreases
in the value of a Participant's accounts attributable to earnings, gains, losses
and expenses of the Fund, as set forth in Section 5.3.
(z) "Limitation Year" shall mean the calendar year.
(aa) "Normal Retirement Date" shall mean the first day of the month
coincident with or next following the date on which a Participant attains age
65.
(bb) "Participant" shall mean an Employee who has met all of the
eligibility requirements of the Plan and who is currently included in the Plan
as provided in Article II hereof.
5
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(cc) "Plan" shall mean the GSB Financial Corporation Employee Stock
Ownership Plan, as described herein or as hereafter amended from time to time.
(dd) "Plan Year" shall mean any 12 consecutive month period commencing
on January 1 and ending on December 31.
(ee) "Qualified Domestic Relations Order" shall mean any judgment,
decree or order (including approval of a property settlement agreement) that
relates to the provision of child support, alimony, marital property rights to a
spouse, former spouse, child or other dependent of the Participant (all such
persons hereinafter termed "alternate payee") and is made pursuant to a State
domestic relations law (including community property law) and, further, that
creates or recognizes the existence of an alternate payee's right to, or assigns
to an alternate payee the right to receive all or a portion of the benefits
payable with respect to a Participant and that clearly specifies the following:
(1) the name and last known mailing address (if available) of the
Participant and the name and mailing address of each alternate payee to which
the order relates;
(2) the amount or percentage of the Participant's benefits to be paid
to an alternate payee or the manner in which the amount is to be determined; and
(3) the number of payments or period for which payments are required.
A domestic relations order is not a Qualified Domestic Relations Order
if it:
(1) requires the Plan to provide any type or form of benefit or any
option not otherwise provided under the Plan; or,
(2) requires the Plan to provide increased benefits, or
(3) requires payment of benefits to an alternate payee that are
required to be paid to another alternate payee under a previously existing
Qualified Domestic Relations Order.
(ff) "Retirement" shall mean termination of employment which qualifies
as Early, Normal or Disability retirement as described in Article VI.
(gg) "Service" shall mean employment with the Employer.
(hh) "Sponsor" shall mean GSB Financial Corporation, a Delaware
corporation.
(ii) "Trust Agreement" shall mean the agreement, dated June 12, 1997 by
and between GSB Financial Corporation, a Delaware corporation, and Marine
Midland Bank, a New York chartered bank.
6
<PAGE>
(jj) "Trustee" shall mean the Trustee or Trustees by whom the assets of
the Plan are held, as provided in the Trust Agreement, or his or their
successors.
(kk) "Valuation Date" shall mean the last day of each Plan Year. The
Trustee may make additional valuations, at the instruction of the Administrator,
but in no event may the Administrator request additional valuations by the
Trustee more frequently than quarterly. Whenever such date falls on a Saturday,
Sunday or holiday, the preceding business day shall be the Valuation Date.
(ll) "Year of Service" shall mean any Plan Year during which an
Employee has completed at least 1,000 Hours of Service, except as otherwise
specified in Article III. In the determination of Years of Service for
eligibility and vesting purposes under this Plan, the term "Year of Service"
shall also mean any Plan Year during which an Employee has completed at least
1,000 Hours of Service with an entity that is:
(1) a member of a controlled group including the Employer,
while it is a member of such controlled group (within the meaning of Section
414(b) of the Code);
(2) in a group of trades or businesses under common control
with the Employer, while it is under common control within the meaning of
Section 414(c) of the Code);
(3) a member of an affiliated service group including the
Employer, while it is a member of such affiliated service group (within the
meaning of Section 414(m) of the Code); or
(4) a leasing organization, under the circumstances described
in Section 414(n) of the Code.
1.2 Plurals and Gender.
Where appearing in the Plan and the Trust Agreement, the masculine
gender shall include the feminine and neuter genders, and the singular shall
include the plural, and vice versa, unless the context clearly indicates a
different meaning.
1.3 Incorporation of Trust Agreement.
The Trust Agreement, as the same may be amended from time to time, is
intended to be and hereby is incorporated by reference into this Plan and for
all purposes shall be deemed a part of the Plan.
1.4 Headings.
The headings and sub-headings in this Plan are inserted for the
convenience of reference only and are to be ignored in any construction of the
provisions hereof.
7
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1.5 Severability.
In case any provision of this Plan shall be held illegal or void, such
illegality or invalidity shall not affect the remaining provisions of this Plan,
but shall be fully severable, and the Plan shall be construed and enforced as if
said illegal or invalid provisions had never been inserted herein.
1.6 References to Governmental Regulations.
References in this Plan to regulations issued by the Internal Revenue
Service, the Department of Labor, or other governmental agencies shall include
all regulations, rulings, procedures, releases and other position statements
issued by any such agency.
8
<PAGE>
ARTICLE II
PARTICIPATION
2.1 Commencement of Participation.
(a) Any Employee who completes at least 1,000 Hours of Service during
his Eligibility Period or during any Plan Year beginning after his Date of Hire
shall initially become a Participant on the Entry Date coincident with or next
following the later of the following dates, provided he is employed by the
Employer on that Entry Date:
(1) (i) With respect to an Employee who completes 1,000 Hours
of Service during his initial Eligibility Period, the date which is 12 months
after his Date of Hire; and (ii) with respect to an Employee who satisfies the
1,000 Hours of Service requirement after his initial Eligibility Period, the end
of the Plan Year in which he first performs 1,000 Hours of Service; and
(2) The date on which he attains age 21.
(b) Any Employee who had satisfied the requirements set forth in
Section 2.1(a) during the 12-month period prior to the Effective Date shall
become a Participant on the Effective Date, provided he is still employed by the
Employer on the Effective Date.
2.2 Termination of Participation.
After commencement or resumption of his participation, an Employee
shall remain a Participant during each consecutive Plan Year thereafter until
the earliest of the following dates:
(a) His actual Retirement date;
(b) His date of death; or
(c) The last day of a Plan Year during which he incurs a Break.
2.3 Resumption of Participation.
(a) Any Participant whose employment terminates and who resumes Service
before he incurs a Break shall resume participation immediately on the date he
is reemployed.
(b) Except as otherwise provided in Section 2.3(c), any Participant who
incurs one or more Breaks and resumes Service shall resume participation
retroactively as of the first day of the first Plan Year in which he completes a
Year of Service after such Break(s).
(c) Any Participant who incurs one or more Breaks and resumes Service,
but whose pre-Break Service is not reinstated to his credit pursuant to Section
3.3, shall be treated as a new
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Employee and shall again be required to satisfy the eligibility requirements
contained in Section 2.1 before resuming participation on the appropriate Entry
Date, as specified in Section 2.1.
2.4 Determination of Eligibility.
The Administrator shall determine the eligibility of Employees in
accordance with the provisions of this Article. For each Plan Year, the Employer
shall furnish the Administrator a list of all Employees, indicating the original
date of their reemployment with the Employer and any Breaks they may have
incurred.
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ARTICLE III
CREDITED SERVICE
3.1 Service Counted for Eligibility Purposes.
Except as provided in Section 3.3, all Years of Service completed by an
Employee shall be counted in determining his eligibility to become a Participant
on and after the Effective Date, whether such Service was completed before or
after the Effective Date.
3.2 Service Counted for Vesting Purposes.
All Years of Service completed by an Employee (including Years of
Service completed prior to the Effective Date) shall be counted in determining
his vested interest in this Plan, except the following:
(a) Service which is disregarded under the provisions of Section 3.3;
(b) Service prior to the Effective Date of this Plan if such Service
would have been disregarded under the "break in service" rules (within the
meaning of Section 1.411(a) - 5(b) (6) of the Treasury Regulations).
3.3 Credit for Pre-Break Service.
Upon his resumption of participation following one or a series of
consecutive Breaks, an Employee's pre-Break Service shall be reinstated to his
credit for all purposes of this Plan only if either:
(a) He was vested in any portion of his accrued benefit at the time the
Break(s) began; or
(b) The number of his consecutive Breaks does not equal or exceed the
greater of 5 or the number of his Years of Service credited to him before the
Breaks began.
Except as provided in the foregoing, none of an Employee's Service
prior to one or a series of consecutive Breaks shall be counted for any purpose
in connection with his participation in this Plan thereafter.
3.4 Service Credit During Authorized Leaves.
An Employee shall receive no Service credit under Section 3.1 or 3.2
during any Authorized Leave of Absence. However, solely for the purpose of
determining whether he has incurred a Break during any Plan Year in which he is
absent from Service for one or more Authorized Leaves of Absence, he shall be
credited with 45 Hours of Service for each week
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during any such leave period. Notwithstanding the foregoing, if an Employee
fails to return to Service at or before the end of a leave period, he shall be
deemed to have terminated Service as of the first day of such leave period and
his credit for Hours of Service, determined under this Section 3.4, shall be
revoked. Notwithstanding anything contained herein to the contrary, an Employee
who is absent by reason of military service as set forth in Section 1.1(d)(1)
shall be given Service credit under this Plan for such military leave period to
the extent, and for all purposes, required by law.
3.5 Service Credit During Maternity or Paternity Leave.
Effective for absences beginning on or after January 1, 1985, for
purposes of determining whether a Break has occurred for participation and
vesting purposes, an individual who is on maternity or paternity leave as
described in Section 1.1(x), shall be deemed to have completed Hours of Service
during such period of absence, all in accordance with Section 1.1(w)
Notwithstanding the foregoing, no credit shall be given for such Hours of
Service unless the individual furnishes to the Administrator such timely
information as the Administrator may reasonably require to determine:
(a) that the absence from Service was attributable to one of the
maternity or paternity reasons enumerated in Section 1.1(x); and
(b) the number of days for which such absence lasted.
In no event, however, shall any credit be given for such leave other than for
determining whether a Break has occurred.
3.6 Ineligible Employees.
Notwithstanding any provisions of this Plan to the contrary, any person
who is employed by the Employer, but who is ineligible to participate in this
Plan, either because of his failure
(a) To meet the eligibility requirements contained in Article II; or
(b) To be an Employee, as defined in Section 1.1(q), shall,
nevertheless, earn Years of Service for eligibility and vesting purposes
pursuant to the rules contained in this Article III. However, such a person
shall not be entitled to receive any contributions hereunder unless and until he
becomes a Participant in this Plan, and then, only during his period of
participation.
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ARTICLE IV
CONTRIBUTIONS
4.1 Employee Stock Ownership Contributions.
(a) Subject to all of the provisions of this Article IV, for each Plan
Year commencing on or after the Effective Date, the Employer may make an
Employee Stock Ownership contribution to the Fund, in such amount as may be
determined by the Board of Directors in its discretion. Such contributions shall
be in the form of cash or Employer Securities. In determining the value of
Employer Securities transferred to the Fund as an Employee Stock Ownership
contribution, the Administrator may determine the average of closing prices of
such securities for a period of up to 90 consecutive days immediately preceding
the date on which the securities are contributed to the Fund. In the event that
the Employer Securities are not readily tradable on an established securities
market, the value of the Employer Securities transferred to the Fund shall be
determined by an independent appraiser in accordance with Section 8.9.
(b) In no event shall such contribution by the Employer exceed for any
Plan Year the maximum amount that may be deducted by the Employer under Section
404 of the Code, nor shall such contribution cause the Employer to violate its
regulatory capital requirements. Each Employee Stock Ownership contribution by
the Employer shall be deemed to be made on the express condition that the Plan,
as then in effect, shall be qualified under Sections 401 and 501 of the Code and
that the amount of such contribution shall be deductible from the Employer's
income under Section 404 of the Code.
4.2 Time and Manner of Employee Stock Ownership Contributions.
(a) The Employee Stock Ownership contribution (if any) for each Plan
Year shall be paid to the Trustee in one lump sum or installments at any time on
or before the expiration of the time prescribed by law (including any
extensions) for filing of the Employer's federal income tax return for its
fiscal year ending concurrent with or during such Plan Year. Any portion of an
Employee Stock Ownership contribution for each Plan Year that may be made prior
to the last day of the Plan Year shall be maintained by the Trustee in the
Employee Stock Ownership suspense account described in Section 5.2 until the
last day of such Plan Year.
(b) If an Employee Stock Ownership contribution for a Plan Year is paid
after the close of the Employer's fiscal year which ends concurrent with or
during such Plan Year but on or prior to the due date (including any extensions)
for filing of the Employer's federal income tax return for such fiscal year, it
shall be considered, for allocation purposes, as an Employee Stock Ownership
contribution to the Fund for the Plan Year for which it was computed and
accrued, unless such contribution is accompanied by a statement to the Trustee,
signed by a representative of the Employer, which specifies that the Employee
Stock Ownership contribution is made with respect to the Plan Year in which it
is received by the Trustee. Any Employee Stock Ownership contribution paid by
the Employer during any Plan Year but after the due date (including any
extensions) for filing of its federal income tax return for the fiscal year of
the Employer ending
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on or before the last day of the preceding Plan Year shall be treated, for
allocation purposes, as an Employee Stock Ownership contribution to the Fund for
the Plan Year in which the contribution is paid to the Trustee.
(c) Notwithstanding anything contained herein to the contrary, no
Employee Stock Ownership contribution shall be made for any year during which a
"limitations account" created pursuant to Section 5.6(c)(2) is in existence
until the balance of such limitations account has been reallocated in accordance
with Section 5.6(c)(2).
4.3 Records of Contributions.
The Employer shall deliver at least annually to the Trustee, with
respect to the contributions contemplated in Section 4.1, a certificate of the
Administrator, in such form as the Trustee shall approve, setting forth:
(a) The aggregate amount of contributions, if any, to the Fund for such
Plan Year;
(b) The names, Internal Revenue Service identifying numbers and current
residential addresses of all Participants in the Plan;
(c) The amount and category of contributions to be allocated to each
such Participant; and
(d) Any other information reasonably required for the proper operation
of the Plan.
4.4 Erroneous Contributions.
(a) Notwithstanding anything herein to the contrary, upon the
Employer's request, a contribution which was made by a mistake of fact, or
conditioned upon the initial qualification of the Plan, under Code Section 401,
or upon the deductibility of the contribution under Section 404 of the Code,
shall be returned to the Employer by the Trustee within one year after the
payment of the contribution, the denial of the qualification or the disallowance
of the deduction (to the extent disallowed), whichever is applicable; provided,
however, that in the case of denial of the initial qualification of the Plan, a
contribution shall not be returned unless an Application for Determination has
been timely filed with the Internal Revenue Service. Any portion of a
contribution returned pursuant to this Section 4.4 shall be adjusted to reflect
its proportionate share of the losses of the fund, but shall not be adjusted to
reflect any earnings or gains. Notwithstanding any provisions of this Plan to
the contrary, the right or claim of any Participant or Beneficiary to any asset
of the Fund or any benefit under this Plan shall be subject to and limited by
this Section 4.4.
(b) In no event shall voluntary Employee contributions be accepted. Any
such voluntary Employee contributions (and any earnings attributable thereto)
mistakenly received by the Trustee shall promptly be returned to the
Participant.
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ARTICLE V
ACCOUNTS, ALLOCATIONS AND INVESTMENTS
5.1 Establishment of Separate Participant Accounts.
The Administrator shall establish and maintain separate individual
accounts for Participants in the Plan and for each Former Participant in
accordance with the provisions of this Article V. Such separate accounts shall
be for accounting purposes only and shall not require a segregation of the Fund,
and no Participant, Former Participant or Beneficiary shall acquire any right to
or interest in any specific assets of the Fund as a result of the allocations
provided for under this Plan, except where segregation is expressly provided for
in this Plan.
(a) Employee Stock Ownership Accounts.
The Administrator shall establish a separate Employee Stock Ownership
Account in the Fund for each Participant. The account shall be credited as of
the last day of each Plan Year with the amounts allocated to the Participant
under Sections 5.4 and 5.5. The Administrator may establish subaccounts
hereunder, an Employer Stock Account reflecting a Participant's interest in
Employer Securities held by the Trust and an Other Investments Account
reflecting the Participant's interest in his Employee Stock Ownership Account
other than Employer Securities.
(b) Distribution Accounts.
In any case where distribution of a terminated Participant's vested
interest in the Plan is to be deferred, the Administrator shall establish a
separate, nonforfeitable account in the Fund to which the balance in his
Employee Stock Ownership Account in the Plan shall be transferred after such
Participant incurs a Break. Unless the Former Participant's distribution
accounts are segregated for investment purposes pursuant to section 9.4, they
shall share in Investment Adjustments.
(c) Other Accounts.
The Administrator shall establish such other separate accounts for each
Participant as may be necessary or desirable for the convenient administration
of the Fund.
5.2 Establishment of Suspense Accounts.
The Administrator shall establish separate accounts to be known as
"suspense accounts." There shall be credited to such appropriate suspense
accounts any Employee Stock Ownership contributions that may be made prior to
the last day of the Plan Year, as provided in Section 4.2. The suspense accounts
shall share proportionately as to time and amount in any Investment Adjustments.
As of the last day of each Plan Year, the balance of the Employee Stock
Ownership suspense account shall be added to the Employee Stock Ownership
contribution and allocated to
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the Employee Stock Ownership Accounts of Participants as provided in Section
5.5, except as provided herein. In the event that the Plan takes an Exempt Loan,
the Employer Securities purchased thereby shall be allocated to a separate
Exempt Loan Suspense Account, from which allocations shall be made in accordance
with Section 8.5.
5.3 Allocation of Earnings, Losses and Expenses.
As of each Valuation Date, any increase or decrease in the net worth of
the aggregate Employee Stock Ownership Accounts held in the Fund attributable to
earnings, losses, expenses and unrealized appreciation or depreciation in each
such aggregate Account, as determined by the Trustee pursuant to the Trust
Agreement, shall be credited to or deducted from the appropriate suspense
accounts and all Participants, Employee Stock Ownership Accounts (except
segregated distribution accounts described in Section 5.1(b) and the
"limitations account" described in Section 5.6(c)(2)) in the proportion that the
value of each such Account (determined immediately prior to such allocation and
before crediting any Employee Stock Ownership contributions and forfeitures for
the current Plan Year but after adjustment for any transfer to or from such
Accounts and for the time such funds were in such Accounts) bears to the value
of all Employee Stock Ownership Accounts.
5.4 Allocation of Forfeitures.
As of the last day of each Plan Year, all forfeitures attributable to
the Employee Stock Ownership Accounts which are then available for reallocation
shall be, as appropriate, added to the Employee Stock Ownership contribution (if
any) for such year and allocated among the Participants' Employee Stock
Ownership Accounts, as appropriate, in the manner provided in Sections 5.5 and
5.6.
5.5 Allocation of Annual Employee Stock Ownership Contributions.
As of the last day of each Plan Year for which the Employer shall make an
Employee Stock Ownership contribution, the Administrator shall allocate the
Employee Stock Ownership contribution (including reallocable forfeitures) for
such Plan Year to the Employee Stock Ownership account of each Participant who
completed at least 1,000 Hours of Service during that Plan Year, provided that
he is still employed by the Employer on the last day of the Plan Year. Such
allocation shall be made in the same proportion that each such Participant's
Compensation for such Plan Year bears to the total Compensation of all such
Participants for such Plan Year, subject to Section 5.6. Notwithstanding the
foregoing, if a Participant attains his Normal Retirement Date and terminates
Service prior to the last day of the Plan Year but after completing 1,000 Hours
of Service, he shall be entitled to an allocation based on his Compensation
earned prior to his termination and during the Plan Year. Furthermore, if a
Participant completes 1,000 Hours of Service and is on a Leave of Absence on the
last day of the Plan Year because of pregnancy or other medical reason, such a
Participant shall be entitled to an allocation based on his Compensation earned
during such Plan Year.
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5.6 Limitation on Annual Additions.
(a) Notwithstanding any provisions of this Plan to the contrary, the
total Annual Additions credited to a Participant's accounts under this Plan (and
under any other defined contribution plan to which the Employer contributes) for
any Limitation Year shall not exceed the lesser of:
(1) 25% of the Participant's compensation for such Limitation
Year; or
(2) $30,000 (or, if greater, one-fourth of the defined benefit
dollar limitation set forth in Section 415 (b) (1) (A) of the Code).
Whenever otherwise allowed by law, the maximum amount of $30,000 shall
be automatically adjusted annually for cost-of-living increases in
accordance with Section 415(d) of the Code and the highest such
increase effective at any time during the Limitation Year shall be
effective for the entire Limitation Year, without any amendment to this
Plan.
(b) Solely for the purpose of this Section 5.6, the term "compensation"
is defined as wages, salaries, and fees for professional services and other
amounts received (without regard to whether or not an amount is paid in cash)
for personal services actually rendered in the course of employment with the
Employer maintaining the Plan to the extent that the amounts are includable in
gross income (including, but not limited to, commissions paid to salesmen,
compensation for services on the basis of a percentage of profits, commissions
on insurance premiums, tips, bonuses, fringe benefits, and reimbursements or
other expense allowances under a nonaccountable plan (as described in Treas.
Regs. ss. 1.62-2(c)) and excluding the following:
(1) Employer contributions to a plan of deferred compensation
which are not includible in the Employee's gross income for the taxable
year in which contributed, or Employer contributions under a simplified
employee pension plan to the extent such contributions are deductible
by the Employee, or any distributions from a plan of deferred
compensation;
(2) Amounts realized from the exercise of a non-qualified
stock option, or when restricted stock (or property) held by the
employee either becomes freely transferable or is no longer subject to
a substantial risk of forfeiture;
(3) Amounts realized from the sale, exchange or other
disposition of stock acquired under a qualified stock option; and
(4) Other amounts which received special tax benefits, or
contributions made by the employer (whether or not under a salary
reduction agreement) towards the purchase of an annuity contract
described in section 403(b) of the Code (whether or not the
contributions are actually excludable from the gross income of the
Employee).
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(c) In the event that the limitations on Annual Additions described in
this Section 5.6(a) above are exceeded with respect to any Participant in any
Limitation Year, then the contributions allocable to the Participant for such
year shall be reduced to the minimum extent required by such limitations in the
following order of priority:
(1) If any further reductions in Annual Additions are
necessary, then the Employee Stock Ownership contributions and
forfeitures allocated during such Limitation Year to the Participant's
Employee Stock Ownership Account shall be reduced. The amount of any
such reductions in the Employee Stock Ownership contributions and
forfeitures shall be reallocated to all other Participants in the same
manner as set forth under Sections 5.4 and 5.5.
(2) Any amounts which cannot be reallocated to other
Participants in a current Limitation Year in accordance with Section
5.6(c)(1) above because of the limitations contained in Sections 5.6(a)
and (d) shall be credited to an account designated as the "limitations
account" and carried forward to the next and subsequent Limitation
Years until it can be reallocated to all Participants as set forth in
Sections 5.4 and 5.5, as appropriate. No Investment Adjustments shall
be allocated to this limitations account. In the next and subsequent
Limitation Years, all amounts in the limitations account must be
allocated in the manner described in Sections 5.4 and 5.5, as
appropriate, before any Employee Stock Ownership contributions may be
made to this Plan for that Limitation Year.
(3) The Administrator shall determine to what extent the
Annual Additions to any Participant's Employee Stock Ownership Account
must be reduced in each Limitation Year. The Administrator shall reduce
the Annual Additions to all other qualified, tax-exempt retirement
plans maintained by the Employer in accordance with the terms contained
therein for required reductions or reallocations mandated by Section
415 of the Code before reducing any Annual Additions in this Plan.
(4) In the event this Plan is voluntarily terminated by the
Employer under Section 13.5, any amounts credited to the limitations
account described in Section 5.6(c) (2) above which have not be
reallocated as set forth herein shall be distributed to the
Participants who are still employed by the Employer on the date of
termination, in the proportion that each Participant's Compensation
bears to the Compensation of all Participants.
(d) The Annual Additions credited to a Participant's accounts for each
Limitation Year are further limited so that in the case of an Employee who is a
Participant in both this Plan and any qualified defined benefit plan
(hereinafter referred to as a "pension plan") of the Employer, the sum of (1)
and (2) below will not exceed 1.0:
(1) (A) The projected annual normal retirement benefit of a
Participant under the pension plan, divided by
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(B) The lesser of:
(i) The product of 1.25 multiplied by the dollar
limitation in effect under Section 415(b)(1)(A) of the Code
for such Limitation Year, or
(ii) The product of 1.4 multiplied by the amount of
compensation which may be taken into account under Section
415(b)(1)(B) of the Code for the Participant for such
Limitation Year; plus
(2) (A) The sum of Annual Additions credited to the
Participant under this Plan for all Limitation Years, divided by:
(B) The sum of the lesser of the following amounts
determined for such Limitation Year and for each prior year of service
with the Employer:
(i) The product of 1.25 multiplied by the dollar
limitation in effect under Section 415(b)(1)(A) of the Code
for such Limitation Year, or
(ii) The product of 1.4 multiplied by the amount of
compensation which may be taken into account under Section
415(b)(1)(B) of the Code for the Participant for such
Limitation Year
The Administrator may, in calculating the defined contribution plan
fraction described in Section 5.6(d)(2), elect to use the transitional rule
pursuant to Section 415(e)(6) of the Code, if applicable. If the sum of the
fractions produced above will exceed 1.0, even after the use of the "fresh
start" rule contained in Section 235 of the Tax Equity and Fiscal Responsibility
Act of 1982 (TEFRA), if applicable, then the same provisions as stated in
Section 5.6(c) above shall apply. If, even after the reductions provided for in
Section 5.6(c), the sum of the fractions still exceeds 1.0, then the benefits of
the Participant provided under the pension plan shall be reduced to the extent
necessary, in accordance with Treasury Regulations issued under the Code. Solely
for the purposes of this Section 5.6(d), the term "years of service" shall mean
all years of service defined by Treasury Regulations issued under Section 415 of
the Code.
(e) In the event that the Employer is a member of (1) a controlled
group of corporations or a group of trades or businesses under common control
(as described in Section 414(b) or (c) of the Code, as modified by Section
415(h) thereof), or (2) an affiliated service group (as described in Section
414(m) of the Code), the Annual Additions credited to any Participant's accounts
in any such Limitation Year shall be further limited by reason of the existence
of all other qualified retirement plans maintained by such affiliated
corporations, other entities under common control or other members of the
affiliated service group, to the extent such reduction is required by Section
415 of the Code and the regulations promulgated thereunder. The Administrator
shall determine if any such reduction in the Annual Additions to a Participant's
accounts is required for this reason, and if so, the same provisions as stated
in 5.6(c) and (d) above shall apply.
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(f) Annual Additions shall not include any Employer contributions which
are used by the Trust to pay interest on an Exempt Loan nor any forfeitures of
Employer Securities purchased with the proceeds of an Exempt Loan, provided that
not more than one-third of the Employer contributions are allocated to
Participants who are among the group of employees deemed "highly compensated
employees" within the meaning of Code Section 414(q).
5.7 Erroneous Allocations.
No Participant shall be entitled to any Annual Additions or other
allocations to his accounts in excess of those permitted under Sections 5.3,
5.4, 5.5, and 5.6. If it is determined at any time that the Administrator and/or
Trustee have erred in accepting and allocating any contributions or forfeitures
under this Plan, or in allocating Investment Adjustments, or in excluding or
including any person as a Participant, then the Administrator, in a uniform and
nondiscriminatory manner, shall determine the manner in which such error shall
be corrected and shall promptly advise the Trustee in writing of such error and
of the method for correcting such error. The accounts of any or all Participants
may be revised, if necessary, in order to correct such error.
5.8 Value of Participant's Interest in Fund.
At any time, the value of a Participant's interest in the Fund shall
consist of the aggregate value of his Employee Stock Ownership Account and his
distribution account, if any, determined as of the next-preceding Valuation
Date. The Administrator shall maintain adequate records of the cost basis of
Employer Securities allocated to each Participant's Employer Stock Ownership
Account.
5.9 Investment of Account Balances.
The Employee Stock Ownership Accounts shall be invested primarily in
Employer Securities. Employer Securities shall constitute at least 51% of the
assets of all Employee Stock Ownership Accounts. All sales of Employer
Securities by the Trustee attributable to the Employee Stock Ownership Accounts
of all Participants shall be charged pro rata to the Employee Stock Ownership
Accounts of all Participants.
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ARTICLE VI
RETIREMENT, DEATH AND DESIGNATION OF BENEFICIARY
6.1 Normal Retirement.
A Participant who reaches his Normal Retirement Date and who shall
retire at that time shall thereupon be entitled to retirement benefits based on
the value of his interest in the Fund, payable pursuant to the provisions of
Section 9.1. A Participant who remains in Service after his Normal Retirement
Date shall not be entitled to any retirement benefits until his actual
termination of Service thereafter (except as provided in Sections 9.3 and 9.4)
and he shall meanwhile continue to participate in this Plan.
6.2 Early Retirement.
A Participant who reaches his Early Retirement Date may retire at such
time (or, at his election, as of the first day of any month thereafter prior to
his Normal Retirement Date) and shall thereupon be entitled to retirement
benefits based on the value of his interest in the Fund, payable pursuant to the
provisions of Section 9.1.
6.3 Disability Retirement.
In the event a Participant incurs a Disability, he may retire on his
Disability Retirement Date and shall thereupon be entitled to retirement
benefits based on the value of his interest in the Fund, payable pursuant to the
provisions of Section 9.1.
6.4 Death Benefits.
(a) Upon the death of a Participant before his Retirement or other
termination of Service, the value of his interest in the Fund shall be payable
pursuant to the provisions of Section 9.1. The Administrator shall direct the
Trustee to distribute his interest in the Fund to any surviving Beneficiary
designated by the Participant or, if none, to such persons designated by the
Administrator pursuant to Section 6.5.
(b) Upon the death of a Former Participant, the Administrator shall
direct the Trustee to distribute any undistributed balance of his interest in
the Fund to any surviving Beneficiary designated by him or, if none, to such
persons designated by the Administrator pursuant to Section
(c) The Administrator may require such proper proof of death and such
evidence of the right of any person to receive the interest in the Fund of a
deceased Participant or Former Participant as the Administrator may deem
desirable. The Administrator's determination of death and of the right of any
person to receive payment shall be conclusive.
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6.5 Designation of Death Beneficiary and Manner of Payment.
(a) Each Participant shall have the right to designate a Beneficiary or
Beneficiaries to receive the sum or sums to which he may be entitled upon his
death. The Participant may also designate the manner in which any death benefits
under this Plan shall be payable to his Beneficiary, provided that such
designation is in accordance with Sections 9.3 and 9.4. Such designation of
Beneficiary and manner of payment shall be in writing and delivered to the
Administrator, and shall be effective when received by the Administrator. The
Participant shall have the right to change such designation by notice in writing
to the Administrator. Such change of Beneficiary or the manner of payment shall
become effective upon its receipt by the Administrator. Any such change shall be
deemed to revoke all prior designations.
(b) If a Participant shall fail to designate validly a Beneficiary or
if no designated Beneficiary survives the Participant, his interest in the Fund
shall be paid to the person or persons in the first of the following classes of
successive preference Beneficiaries surviving at the death of the Participant:
the Participant's (1) widow or widower, (2) children, (3) parents, and (4)
estate. The Administrator shall decide which Beneficiaries, if any, shall have
been validly designated, and its decision shall be binding and conclusive on all
persons.
(c) Notwithstanding the foregoing, if a Participant has been married
throughout the 12 month period preceding the date of his death, the sum or sums
to which he may be entitled under this Plan upon his death shall be paid to his
spouse, unless the Participant's spouse shall have consented to the election of
another Beneficiary. Such a spousal consent shall be in writing and shall be
witnessed either by a representative of the Plan or a notary public. If it is
established to the satisfaction of the Administrator that such spousal consent
cannot be obtained because there is no spouse, because the spouse cannot be
located, or other reasons prescribed by governmental regulations, the consent of
the spouse may be waived, and the Participant may designate a Beneficiary or
Beneficiaries other than his spouse.
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ARTICLE VII
VESTING AND FORFEITURES
7.1 Vesting on Death, Disability and Normal Retirement.
Unless his participation in this Plan shall have terminated prior
thereto, upon a Participant's death, Disability or upon his attainment of Normal
Retirement Date (whether or not he actually retires at that time) while he is
still employed by the Employer, the Participant's entire interest in the Fund
shall be fully vested and nonforfeitable.
7.2 Vesting on Termination of Participation.
Upon termination of his participation in this Plan for any reason other
than death, Disability, or Normal Retirement, a Participant shall be vested in a
percentage of his Employee Stock Ownership Account, such vested percentage to be
determined under the following table, based on the Years of Service (including
Years of Service prior to the Effective Date) credited to him for vesting
purposes at the time of his termination of participation:
Years of Service Completed Percentage vested
-------------------------- -----------------
Less than 5 0%
5 or more 100%
Any portion of the Participant's Employee Stock Ownership Account which
is not vested at the time he incurs a Break shall thereupon be forfeited and
disposed of pursuant to Section 7.3. Distribution of the vested portion of a
terminated Participant's interest in the Plan may be authorized by the
Administrator in any manner permitted under Section 9.1.
7.3 Disposition of Forfeitures.
(a) In the event a Participant incurs a Break and subsequently resumes
both his Service and his participation in the Plan prior to incurring at least 5
consecutive Breaks, the forfeitable portion of his Employee Stock Ownership
Account shall be reinstated to the credit of the Participant as of the date he
resumes participation.
(b) In the event a Participant terminates Service and subsequently
incurs a Break and receives a distribution, or in the event a Participant does
not terminate Service, but incurs at least 5 consecutive Breaks, or in the event
that a Participant terminates Service and incurs at least 5 consecutive Breaks
but has not received a distribution, then the forfeitable portion of his
Employer Account, including Investment Adjustments, shall be reallocated to
other Participants, pursuant to Section 5.4 as of the date the Participant
incurs such Break or Breaks, as the case may be.
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(c) In the event a former Participant who had received a distribution
from the Plan is rehired, he shall repay the amount of his distribution before
the earlier of 5 years after the date of his rehire by the Employer, or the
close of the first period of 5 consecutive Breaks commencing after the
withdrawal in order for any forfeited amounts to be restored to him.
7.4 Full Vesting Upon Change in Control.
(a) Notwithstanding anything contained herein to the contrary, a
Participant's interest in the Fund shall fully vest upon the occurrence of a
Change in Control of the Bank or the Sponsor.
For purposes of this Section 7.4, a Change in Control of the Bank
or the Sponsor shall mean:
(b) 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) the Sponsor; (ii) a trustee or other
fiduciary holding securities under an employee benefit plan maintained for the
benefit of employees of the Bank or the Sponsor; (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) Clifford E.
Kelsey, Jr., or any group otherwise constituting a person in which Clifford E.
Kelsey, Jr. 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 or the Sponsor representing 25% or more of the combined
voting power of all of the Bank's or the Sponsor's then outstanding securities;
or
(c) The occurrence of any event upon which the individuals who on the
date hereof are members of the Board of Directors, together with individuals
(other than any individual designated by a person who has entered into an
agreement with the Bank or the Sponsor to effect a transaction described in
paragraphs (b) or (c) of this Section 7.4) whose election by the Board of
Directors or nomination for election by the Bank's or the Sponsor's stockholders
was approved by the affirmative vote of at least two-thirds of the members of
Board of Directors then in office who were either members of the Board of
Directors on the date hereof or whose nomination or election was previously so
approved, cease for any reason to constitute a majority of the members of the
Board of Directors, 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 or the
Sponsor (as such terms are used in Rule 14a-11 of Regulation 14A promulgated
under the 1934 Act); or
(d) The shareholders of the Sponsor or the Bank approve either:
(i) a merger or consolidation of the Sponsor or the Bank with
any other corporation, other than a merger or consolidation following which the
following condition is satisfied:
Either (A) the members of the Board of Directors
immediately prior to such merger or consolidation constitute at least a
majority of the members of the governing
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body of the institution resulting from such merger or consolidation; or
(B) the shareholders of the Bank or the Sponsor 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 or the Sponsor before
such merger or consolidation; and
(ii) a plan of complete liquidation of the Sponsor or the Bank
or an agreement for the sale or disposition by the Sponsor or the Bank of all or
substantially all of its assets.
For the purposes of paragraphs (c) and (d) of this Section 7.4
only, Board of Directors shall mean the boards of directors of the Bank and of
the Sponsor, as the context requires.
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ARTICLE VIII
EMPLOYEE STOCK OWNERSHIP PROVISIONS
8.1 Right to Demand Employer Securities.
A Participant entitled to a distribution from his Employee Stock
Ownership Account shall be entitled to demand that his interest in the Account
be distributed to him in the form of Employer Securities, all subject to Section
9.9. In the event that the Employer Securities are not readily tradable on an
established market, the Participant shall be entitled to require that the
Employer repurchase the Employer Securities under a fair valuation formula, as
provided by governmental regulations. The Participant or Beneficiary shall be
entitled to exercise the put option described in the preceding sentence for a
period of not more than 60 days following the date of distribution of Employer
Securities to him. If the put option is not exercised within such 60-day period,
the Participant or Beneficiary may exercise the put option during an additional
period of not more than 60 days after the beginning of the first day of the
first Plan Year following the Plan Year in which the first put option period
occurred, all as provided in regulations promulgated by the Secretary of the
Treasury.
8.2 Voting and Tendering of Stock.
(a) The Trustee generally shall vote all Employer Securities held under
the Plan. However, if any Employer has a registration-type class of securities
within the meaning of Section 409(e)(4) of the Code or, if a matter submitted to
the holders of Employer Securities involves a merger, consolidation,
recapitalization, reclassification, liquidation, dissolution or sale of
substantially all assets of an entity, then (i) the Employer Securities which
have been allocated to Participant Employee Stock Ownership Accounts shall be
voted by the Trustee in accordance with the Participants' written instructions,
and (ii) the Trustee shall vote any Employer Securities which have been
allocated to Participant Employee Stock Ownership Accounts but for which no
written instructions have been received and any unallocated Employer Securities
in the same proportion as allocated Employer Securities are voted by the Trustee
in accordance with Participants' written instructions. In the event no Employer
Securities have been allocated to Participant Employee Stock Ownership Accounts
at the time Employer Securities are to be voted, each Participant shall be
deemed to have one share of Employer Securities allocated to his or her Account
for the sole purposes of providing the Trustee with voting instructions.
Notwithstanding any provision hereunder to the contrary, all Employer Securities
which have been allocated to Participant Employee Stock Ownership Accounts and
for which the Trustee has received no written instructions and all unallocated
Employer Securities must be voted by the Trustee in a manner determined by the
Trustee to be solely in the interest of the Participants and Beneficiaries.
Whenever such voting rights are to be exercised, the Employer, the Administrator
and the Trustee shall see that all Participants and Beneficiaries are provided
with the same notices and other materials as are provided to other holders of
Employer Securities, and are provided with adequate opportunity to deliver their
instructions to the Trustee regarding the voting of Employer Securities
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<PAGE>
allocated to their Accounts. The instructions of the Participants with respect
to the voting of allocated shares hereunder shall be confidential.
(b) In the event of a tender offer, Employer Securities shall be
tendered by the Trustee in the same manner set forth above with respect to the
voting of Employer Securities. Notwithstanding any provision hereunder to the
contrary, Employer Securities must be tendered by the Trustee in a manner
determined by the Trustee to be solely in the interest of the Participant and
Beneficiaries.
8.3 Nondiscrimination in Employee Stock Ownership Contributions.
In the event that the amount of the Employee Stock Ownership
contributions that would be required in any Plan Year to make the scheduled
payments on an Exempt Loan would exceed the amount that would otherwise be
deductible by the Employer for such Plan Year under Code Section 404, then no
more than one-third of the Employee Stock Ownership contributions for the Plan
Year shall be allocated to the group of Employees who, during the Plan Year or
the preceding Plan Year:
(a) Was at any time a 5 percent owner of the Employer;
(b) Received compensation from the Employer in excess of $75,000, as
adjusted under Code Section 414(q);
(c) Received compensation from the Employer in excess of $50,000, as
adjusted under Code Section 414(q), and was in the "top-paid group" of employees
(as defined below) for such year; or
(d) Was at any time an officer and received compensation greater than
50 percent of the amount in effect under Code Section 415(b)(1)(A), as adjusted
for cost-of-living increases permitted under Code Section 415(d)(1), but without
regard to any adjustment under Code Section 415(c)(6)(A).
An Employee shall be deemed a member of the "top-paid group" of employees for a
given Plan Year if such Employee is in the group of the top 20% of the employees
of the Employer when ranked on the basis of compensation.
8.4 Dividends.
Dividends paid with respect to Employer Securities credited to a
Participant's Employee Stock Ownership account as of the record date for the
dividend payment may be paid in cash to the Participants, pursuant to the
directions of the Board of Directors of the Sponsor. If the Board of Directors
shall direct that the aforesaid dividends shall be paid directly to
Participants, the dividends paid with respect to such Employer Securities shall
be paid to the Plan, from which dividend distributions in cash shall be made to
the Participants with respect to the Employer
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Securities in their Employee Stock Ownership Accounts within 90 days of the
close of the Plan Year in which the dividends were paid. Dividends on Employer
Securities obtained pursuant to an Exempt Loan and still held in the Suspense
Account may be used to make payments on an Exempt Loan, as described in Section
8.5.
8.5 Exempt Loans.
(a) The Sponsor may direct the Trustee to obtain Exempt Loans. The
Exempt Loan may take the form of (i) a loan from a bank or other commercial
lender to purchase Employer Securities (ii) a loan from the Employer to the
Plan; or (iii) an installment sale of Employer Securities to the Plan. The
proceeds of any such Exempt Loan shall be used, within a reasonable time after
the Exempt Loan is obtained, only to purchase Employer Securities, repay the
Exempt Loan, or repay any prior Exempt Loan. Any such Exempt Loan shall provide
for no more than a reasonable rate of interest and shall be without recourse
against the Plan. The number of years to maturity under the Exempt Loan must be
definitely ascertainable at all times. The only assets of the Plan that may be
given as collateral for an Exempt Loan are Employer Securities acquired with the
proceeds of the Exempt Loan and Employer Securities that were used as collateral
for a prior Exempt Loan repaid with the proceeds of the current Exempt Loan.
Such Employer Securities so pledged shall be placed in an Exempt Loan Suspense
Account. No person or institution entitled to payment under an Exempt Loan shall
have recourse against Trust assets other than the aforesaid collateral, Employer
Stock Ownership contributions (other than contributions of Employer Securities)
that are available under the Plan to meet obligations under the Exempt Loan and
earnings attributable to such collateral and the investment of such
contributions. All Employee Stock Ownership contributions paid during the Plan
Year in which an Exempt Loan is made (whether before or after the date the
proceeds of the Exempt Loan are received), all Employee Stock Ownership
contributions paid thereafter until the Exempt Loan has been repaid in full, and
all earnings from investment of such Employee Stock Ownership contributions,
without regard to whether any such Employee Stock Ownership contributions and
earnings have been allocated to Participants' Employee Stock Ownership Accounts,
shall be available to meet obligations under the Exempt Loan as such obligations
accrue, or prior to the time such obligations accrue, unless otherwise provided
by the Employer at the time any such contribution is made. Any pledge of
Employer Securities shall provide for the release of shares so pledged upon the
payment of any portion of the Exempt Loan.
(b) For each Plan Year during the duration of the Exempt Loan, the
number of shares of Employer Securities released from such pledge shall equal
the number of encumbered shares held immediately before release for the current
Plan Year multiplied by a fraction. The numerator of the fraction is the sum of
principal and interest paid in such Plan Year. The denominator of the fraction
is the sum of the numerator plus the principal and interest to be paid for all
future years. Such years will be determined without taking into account any
possible extension or renewal periods. If interest on any Exempt Loan is
variable, the interest to be paid in future years under the Exempt Loan shall be
computed by using the interest rate applicable as of the end of the Plan Year.
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<PAGE>
(c) Notwithstanding the foregoing, the Trustee may obtain an Exempt
Loan pursuant to the terms of which the number of Employer Securities to be
released from encumbrance shall be determined solely with reference to principal
payments. In the event that such an Exempt Loan is obtained, annual payments of
principal and interest shall be at a cumulative rate that is not less rapid at
any time than level payments of such amounts for not more than 10 years. The
amount of interest in any such annual loan repayment shall be disregarded only
to the extent that it would be determined to be interest under standard loan
amortization tables. The requirement set forth in the preceding sentence shall
not be applicable from the time that, by reason of a renewal, extension, or
refinancing, the sum of the expired duration of the Exempt Loan, the renewal
period, the extension period, and the duration of a new Exempt Loan exceeds 10
years.
8.6 Exempt Loan Payments.
(a) Payments of principal and interest on any Exempt Loan during a Plan
Year shall be made by the Trustee (as directed by the Administrator) only from
(1) Employee Stock Ownership contributions to the Trust made to meet the Plan's
obligation under an Exempt Loan (other than contributions of Employer
Securities) and from any earnings attributable to Employer Securities held as
collateral for an Exempt Loan and investments of such contributions (both
received during or prior to the Plan Year); (2) the proceeds of a subsequent
Exempt Loan made to repay a prior Exempt Loan; and (3) the proceeds of the sale
of any Employer Securities held as collateral for an Exempt Loan. Such
contribution and earnings shall be accounted for separately by the Plan until
the Exempt Loan is repaid.
(b) Employer Securities released by reason of the payment of principal
or interest on an Exempt Loan from amounts allocated to Participants' Employee
Stock Ownership Accounts shall be allocated as set forth in Section 5.5.
(c) The Employer shall contribute to the Trust sufficient amounts to
enable the Trust to pay principal and interest on any such Exempt Loans as they
are due, provided however that no such contribution shall exceed the limitations
in Section 5.6. In the event that such contributions by reason of the
limitations in Section 5.6 are insufficient to enable the Trust to pay principal
and interest on such Exempt Loan as it is due, then upon the Trustee's request
the Employer shall:
(1) Make an Exempt Loan to the Trust in sufficient amounts to
meet such principal and interest payments. Such new Exempt Loan shall
be subordinated to the prior Exempt Loan. Securities released from the
pledge of the prior Exempt Loan shall be pledged as collateral to
secure the new Exempt Loan. Such Employer Securities will be released
from this new pledge and allocated to the Employee Stock Ownership
Accounts of the Participants in accordance with applicable provisions
of the Plan;
(2) Purchase any Employer Securities pledged as collateral in
an amount necessary to provide the Trustee with sufficient funds to
meet the principal and interest
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repayments. Any such sale by the Plan shall meet the requirements of
Section 408(e) of the Act; or
(3) Any combination of the foregoing. However, the Employer
shall not, pursuant to the provisions of this subsection, do, fail to
do or cause to be done any act or thing which would result in a
disqualification of the Plan as an Employee Stock Ownership Plan under
the Code.
(d) Except as provided in Section 8.1 above and notwithstanding any
amendment to or termination of the Plan which causes it to cease to qualify as
an Employee Stock Ownership Plan within the meaning of Section 4975(e)(7) of the
Code, or any repayment of an Exempt Loan, no shares of Employer Securities
acquired with the proceeds of an Exempt Loan obtained by the Trust to purchase
Employer Securities may be subject to a put, call or other option, or buy-sell
or similar arrangement while such shares are held by the Plan or when such
Shares are distributed from the Plan.
8.7 Put Option.
If a Participant exercises a put option (as set forth in Section 8.1)
with respect to Employer Securities that were distributed as part of a total
distribution pursuant to which a Participant's Employee Stock Ownership Account
is distributed to him in a single taxable year, the Employer or the Plan may
elect to pay the purchase price of the Employer Securities over a period not to
exceed 5 years. Such payments shall be made in substantially equal installments
not less frequently than annually over a period beginning not later than 30 days
after the exercise of the put option. Reasonable interest shall be paid to the
Participant with respect to the unpaid balance of the purchase price and
adequate security shall be provided with respect thereto. In the event that a
Participant exercises a put option with respect to Employer Securities that are
distributed as part of an installment distribution, the amount to be paid for
such securities shall be paid not later than 30 days after the exercise of the
put option.
8.8 Diversification Requirements
Each Participant who has completed at least 10 years of participation
in the Plan and has attained age 55 may elect within 90 days after the close of
each Plan Year during his "qualified election period" to direct the Plan as to
the investment of at least 25 percent of his Employee Stock Ownership Account
(to the extent such percentage exceeds the amount to which a prior election
under this Section 8.8 had been made). For purposes of this Section 8.8, the
term "qualified election period" shall mean the 5-Plan-Year period beginning
with the Plan Year after the Plan Year in which the Participant attains age 55
(or, if later, beginning with the Plan Year after the first Plan Year in which
the Employee first completes at least 10 years of participation in the Plan). In
the case of the Employee who has attained age 60 and completed 10 years of
participation in the prior Plan Year and in the case of the election year in
which any other Participant who has met the minimum age and service requirements
for diversification can make his last election hereunder, he shall be entitled
to direct the Plan as to the investment of at least
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50 percent of his Employee Stock Ownership Account (to the extent such
percentage exceeds the amount to which a prior election under this Section 8.8
had been made). The Plan shall make available at least 3 investment options (not
inconsistent with regulations prescribed by the Department of Treasury) to each
Participant making an election hereunder. The Plan shall be deemed to have met
the requirements of this Section if the portion of the Participant's Employee
Stock Ownership Account covered by the election hereunder is distributed to the
Participant or his designated Beneficiary within 90 days after the period during
which the election may be made. In the absence of such a distribution, the
Trustee shall implement the Participant's election within 90 days following the
expiration of the qualified election period.
8.9 Independent Appraiser.
An independent appraiser meeting the requirements of Code 170(a)(1)
shall value the Employer Securities in those Plan Years when such securities are
not readily tradable on an established securities market.
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ARTICLE IX
PAYMENTS AND DISTRIBUTIONS
9.1 Payments on Termination of Service - In General.
All benefits provided under this Plan shall be funded by the value of a
Participant's vested interest in the Fund. As soon as practicable after a
Participant's Retirement, death or termination of Service, the Administrator
shall ascertain the value of his vested interest in the Fund, as provided in
Article V, and the Administrator shall hold or dispose of the same in accordance
with the following provisions of this Article IX.
9.2 Commencement of Payments.
(a) Distributions Upon Retirement or Death. Upon a Participant's
Retirement or Death, payment of benefits under this Plan shall, unless the
Participant otherwise elects (in accordance with Section 9.3), commence no later
than 6 months after the close of the Plan Year in which occurs the date of the
Participant's Retirement or death.
(b) Distribution Following Termination of Service. Unless a Participant
elects otherwise, if a Participant terminates Service prior to Retirement or
death, he shall be accorded an opportunity to commence receipt of distributions
from his Accounts within six (6) months after the Valuation Date next following
the date of his termination of service. A Participant who terminates Service
with a deferred vested benefit shall be entitled to receive from the
Administrator a statement of his benefits. In the event that a Participant
elects not to commence receipt of distributions from his Accounts in accordance
with this Section 9.2(b), after the Participant incurs a Break, the
Administrator shall transfer his deferred vested interest to a distribution
account. If a Participant's vested Employer Account does not exceed (or at the
time of any prior distribution did not exceed) $3,500, the Plan Administrator
may distribute the vested portion of his Employer Account as soon as
administratively feasible without the consent of the Participant or his spouse.
(c) Distribution of Accounts Greater Than $3,500. If the value of a
Participant's vested Account balance exceeds (or at the time of any prior
distribution exceeded) $3,500, and the Account balance is immediately
distributable, the Participant must consent to any distribution of such Account
balance. The Plan Administrator shall notify the Participant of the right to
defer any distribution until the Participant's Account balance is no longer
immediately distributable. The consent of the Participant shall not be required
to the extent that a distribution is required to satisfy Code ss.401(a)(9) or
Code ss.415.
9.3 Mandatory Commencement of Benefits.
(a) Unless a Participant elects otherwise, in writing, distribution of
benefits will begin no later than the 60th day after the latest of the close of
the Plan Year in which (i) the Participant
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attains age 65, (ii) occurs the tenth anniversary of the year in which the
Participant commenced participation in the Plan Year, or (iii) the Participant
terminates Service with the Employer.
(b) In the event that the Plan shall be subsequently amended to provide
for a form of distribution other than a lump sum, as of the first distribution
calendar year, distributions, if not made in a lump sum, may be made only over
one of the following periods (or a combination thereof):
(i) the life of the Participant,
(ii) the life of the Participant and the designated beneficiary,
(iii) a period certain not extending beyond the life expectancy of
the Participant, or
(iv) a period certain not extending beyond the joint and last
survivor expectancy of the Participant and a designated
beneficiary.
(c) In the event that the Plan shall be subsequently amended to provide
for a form of distribution other than a lump sum, if the Participant's interest
is to be distributed in other than a lump sum, the following minimum
distribution rules shall apply on or after the required beginning date:
(i) If a Participant's benefit is to be distributed over (1) a
period not extending beyond the life expectancy of the Participant or the joint
life and last survivor expectancy of the Participant and the Participant's
designated beneficiary or (2) a period not extending beyond the life expectancy
of the designated beneficiary, the amount required to be distributed for each
calendar year, beginning with distributions for the first distribution calendar
year, must at least equal the quotient obtained by dividing the Participant's
benefit by the applicable life expectancy.
(ii) For calendar years beginning after December 31, 1988, the
amount to be distributed each year, beginning with distributions for the first
distribution calendar year, shall not be less than the quotient obtained by
dividing the Participant's benefit by the lesser of (1) the applicable life
expectancy or (2) if the Participant's spouse is not the designated beneficiary,
the applicable divisor determined from the table set forth in Q&A-4 of section
1.401(a)(9)-2 of the Proposed Regulations. Distributions after the death of the
participant shall be distributed using the applicable life expectancy in
sub-section (b) (iii) above as the relevant divisor without regard to Proposed
Regulations 1.401(a)(9)-2.
(iii) The minimum distribution required for the Participant's
first distribution calendar year must be made on or before the Participant's
required beginning date as defined in Section 9.4. The minimum distribution for
other calendar years, including the minimum distribution for the distribution
calendar year in which the employee's required beginning date occurs, must be
made on or before December 31 of the distribution calendar year.
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(d) If a Participant dies after a distribution has commenced in
accordance with Section 8.3(b) but before his entire interest has been
distributed to him, the remaining portion of such interest shall be distributed
to his Beneficiary at least as rapidly as under the method of distribution in
effect as of the date of his death.
(e) If a Participant shall die before the distribution of his interest in
the Plan has begun, the entire interest of the Participant shall be distributed
by December 31 of the calendar year containing the fifth anniversary of the
death of the Participant, except in the following events:
(i) If any portion of the Participant's interest is payable to
(or for the benefit of) a designated beneficiary over a period not extending
beyond the life expectancy of such beneficiary and such distributions begin not
later than December 31 of the calendar year immediately following the calendar
year in which the Participant died.
(ii) If any portion of the Participant's interest is payable
to (or for the benefit of) the Participant's spouse over a period not extending
beyond the life expectancy of such spouse and such distributions begin no later
than December 31 of the calendar year in which the Participant would have
attained age 70-1/2.
If the Participant has not made a distribution election by the time of
his death, the Participant's designated beneficiary shall elect the method of
distribution no later than the earlier of (1) December 31 of the calendar year
in which distributions would be required to begin under this Article or (2)
December 31 of the calendar year which contains the fifth anniversary of the
date of death of the Participant. If the Participant has no designated
beneficiary, or if the designated beneficiary does not elect a method of
distribution, distribution of the Participant's entire interest shall be
completed by December 31 of the calendar year containing the fifth anniversary
of the Participant's death.
(f) For purposes of this Article, the life expectancy of a Participant
and his spouse may be redetermined but not more frequently than annually. The
life expectancy (or joint and last survivor expectancy) shall be calculated
using the attained age of the Participant (or designated beneficiary) as of the
Participant's (or designated beneficiary's) birthday in the applicable calendar
year reduced by one for each calendar year which has elapsed since the date life
expectancy was first calculated. If life expectancy is being recalculated, the
applicable life expectancy shall be the life expectancy as so recalculated. The
applicable calendar year shall be the first distribution calendar year, and if
life expectancy is being recalculated, such succeeding calendar year. Unless
otherwise elected by the Participant (or his spouse, if applicable) by the time
distributions are required to begin, life expectancies shall be recalculated
annually. Any such election not to recalculate shall be irrevocable and shall
apply to all subsequent years. The life expectancy of a nonspouse beneficiary
may not be recalculated.
(g) For purposes of Sections 9.3(b) and 9.3(e), any amount paid to a
child shall be treated as if it had been paid to a surviving spouse if such
amount will become payable to the
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surviving spouse upon such child reaching majority (or other designated event
permitted under regulations).
(h) For distributions beginning before the Participant's death, the first
distribution calendar year is the calendar year immediately preceding the
calendar year which contains the Participant's required beginning date. For
distributions beginning after the Participant's death, the first distribution
calendar year is the calendar year in which distributions are required to begin
pursuant to this Article.
9.4 Required Beginning Dates.
(a) General Rule. The required beginning date of a Participant is the
first day of April of the calendar year following the calendar year in which the
Participant attains age 70-1/2.
(b) Transitional Rules. The required beginning date of a Participant who
attains age 70-1/2 before January 1, 1988, shall be determined in accordance
with (1) or (2) below:
(1) Non-5-percent owners. The required beginning date of a
Participant who is not a 5-percent owner is the first day of April of the
calendar year following the calendar year in which the later of retirement or
attainment or age 70-1/2 occurs,
(2) 5-percent owners. The required beginning date of a
Participant who is a 5-percent owner during any year beginning after December
31, 1989, is the first day of April following the later of:
(i) the calendar year in which the Participant attains age
70-1/2, or
(ii) the earlier of the calendar year with or within which
ends the Plan Year in which the Participant becomes a 5 percent owner, or the
calendar year in which the Participant retires.
The required beginning date of a Participant who is not a 5-percent owner
who attains age 70-1/2 during 1988 and who has not retired as of January 1, 1989
is April 1, 1990.
(c) 5-percent owner. A Participant is treated as a 5 percent owner for
purposes of this section if such Participant is a 5-percent owner as defined in
section 416(i) of the Code (determined in accordance with Section 416 but
without regard to whether the plan is top-heavy) at any time during the Plan
Year ending with or within the calendar year in which such owner attains age
66-1/2 or any subsequent Plan Year. Once distributions have begun to a 5-percent
owner under this section, they must continue to be distributed, even if the
Participant ceases to be a 5-percent owner in a subsequent year.
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9.5 Form of Payment.
Each Participant's vested interest shall be distributed in a lump sum
payment. Notwithstanding the preceding sentence, but subject to Section 9.3, the
Administrator may not distribute a lump sum when the present value of a
Participant's total Account balances is in excess of $3,500 without the
Participant's consent. This form of payment shall be the normal form of
distribution. Furthermore, however, in the event that the Administrator must
commence distributions with respect to an Employee who has attained age 70-1/2
and is still employed by the Employer, if the Employee does not elect a lump sum
distribution, payments shall be made in installments in such amounts as shall
satisfy the minimum distribution rules of Section 9.3.
9.6 Payments Upon Termination of Plan.
Upon termination of this Plan pursuant to Sections 13.2, 13.4, 13.5 or
13.6, the Administrator shall continue to perform its duties and the Trustee
shall make all payments upon the following terms, conditions and provisions: All
interests of Participants shall immediately become fully vested; the value of
the interests of all Participants shall be determined within 60 days after such
termination, and the Administrator shall have the same powers to direct the
Trustee in making payments as contained in Sections 9.1 and 13.5.
9.7 Distributions Pursuant to Qualified Domestic Relations Orders.
Upon receipt of a domestic relations order, the Administrator shall
notify promptly the Participant and any alternate payee of receipt of the order
and the Plan's procedure for determining whether the order is a Qualified
Domestic Relations Order. While the issue of whether a domestic relations order
is a Qualified Domestic Relations Order is being determined, if the benefits
would otherwise be paid, the Administrator shall segregate in a separate account
in the Plan the amounts that would be payable to the alternate payee during such
period if the order were a Qualified Domestic Relations Order. If within 18
months the order is determined to be a Qualified Domestic Relations Order, the
amounts so segregated, along with the interest or investment earnings
attributable thereto shall be paid to the alternate payee. Alternatively, if
within 18 months, it is determined that the order is not a Qualified Domestic
Relations Order or if the issue is still unresolved, the amounts segregated
under this Section 9.6, with the earnings attributable thereto, shall be paid to
the Participant or Beneficiary who would have been entitled to such amounts if
there had been no order. The determination as to whether the order is qualified
shall be applied prospectively. Thus, if the Administrator determines that the
order is a Qualified Domestic Relations Order after the 18-month period, the
Plan shall not be liable for payments to the alternative payee for the period
before the order is determined to be a Qualified Domestic Relations Order.
9.8 Cash-Out Distributions
If a Participant receives a distribution of the entire present value of
his vested Account balances under this Plan because of the termination of his
participation in the Plan, the Plan shall
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disregard a Participant's Service with respect to which such cash-out
distribution shall have been made, in computing his accrued benefit under the
Plan in the event that a Former Participant shall again become an Employee and
become eligible to participate in the Plan. Such a distribution shall be deemed
to be made on termination of participation in the Plan if it is made not later
than the close of the second Plan Year following the Plan Year in which such
termination occurs. The forfeitable portion of a Participant's accrued benefit
shall be restored upon repayment to the Plan by such former Participant of the
full amount of the cash-out distribution, provided that the former Participant
again becomes an Employee. Such repayment must be made by the Employee not later
than the end of the 5-year period beginning with the date of the distribution.
Forfeitures required to be restored by virtue of such repayment shall be
restored from the following sources in the following order of preference: (i)
current forfeitures; (ii) additional employee stock ownership contributions, as
appropriate and as subject to Section 5.6; and (iii) investment earnings of the
Fund. In the event that a Participant's interest in the Plan is totally
forfeitable, a Participant shall be deemed to have received a distribution of
zero upon his termination of Service. In the event of a return to Service within
5 years of the date of his deemed distribution, the Participant shall be deemed
to have repaid his distribution in accordance with the rules of this Section
9.8.
9.9 ESOP Distribution Rules.
Notwithstanding any provision of this Article IX to the contrary, the
distribution of a Participant's Employee Stock Ownership Account (unless the
Participant elects otherwise in writing) shall commence as soon as
administratively feasible as of the first Valuation Date coincident with or next
following his death, disability or termination of Service, but not later than 1
year after the close of the Plan Year in which the Participant separates from
Service by reason of the attainment of his Normal Retirement Date, disability,
death or separation from Service. In addition, all distributions hereunder
shall, to the extent that the Participant's Account is invested in Employer
Securities, be made in the form of Employer Securities. Fractional shares,
however, may be distributed in the form of cash.
9.10 Withholding.
(a) Notwithstanding any provision of the Plan to the contrary that would
otherwise limit a distributee's election under this Article IX, a distributee
may elect, at the time and in the manner prescribed by the Plan Administrator,
to have any portion of an "eligible rollover distribution" paid directly to an
"eligible retirement plan" specified by the distributee in a "direct rollover."
(b) For purposes of this Section 9.10, an "eligible rollover
distribution" is any distribution of all or any portion of the balance to the
credit of the distributee, except that an "eligible rollover distribution" does
not include: any distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made for the life (or life
expectancy) of the distributee or the joint lives (or joint life expectancies)
of the distributee and the distributee's designated beneficiary, or for a
specified period of ten years or more; any
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distribution to the extent such distribution is required under section 401(a)(9)
of the Code; and the portion of any distribution that is not includible in gross
income (determined without regard to the exclusion for net unrealized
appreciation with respect to Employer Securities).
(c) For purposes of this Section 9.10, an "eligible retirement plan" is
an individual retirement account described in section 408(a) of the Code, an
individual retirement annuity described in section 408(b) of the Code, an
annuity plan described in section 403(a) of the Code, or a qualified trust
described in section 401(a) of the Code, that accepts the distributee's eligible
rollover distribution. However, in the case of an "eligible rollover
distribution" to the surviving spouse, an "eligible retirement plan" is an
individual retirement account or individual retirement annuity.
(d) For purposes of this Section 9.10, a distributee includes a
Participant or former Participant. In addition, the Participant's or former
Participant's surviving spouse and the Participant's or former Participant's
spouse or former spouse who is the alternate payee under a Qualified Domestic
Relations Order are "distributees" with regard to the interest of the spouse or
former spouse.
(e) For purposes of this Section 9.10, a "direct rollover" is a payment
by the Plan to the "eligible retirement plan" specified by the distributee.
9.11 Waiver of 30-day Notice.
If a distribution is one to which Sections 401(a)(11) and 417 of the Code
do not apply, such distribution may commence less than 30 days after the notice
required under section 1. 411(a)-11(c) of the Income Tax Regulations is given,
provided that: (1) the Plan Administrator clearly informs the Participant that
the Participant has a right to a period of at least 30 days after receiving the
notice to consider the decision of whether or not to elect a distribution (and,
if applicable, a particular distribution option), and (2) the Participant, after
receiving the notice, affirmatively elects a distribution.
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ARTICLE X
PROVISIONS RELATING TO TOP-HEAVY PLANS
10.1 Top-Heavy Rules to Control.
Anything contained in this Plan to the contrary notwithstanding, if for
any Plan Year the Plan is a top-heavy plan, as determined pursuant to Section
416 of the Code, then the Plan must meet the requirements of this Article X for
such Plan Year.
10.2 Top-Heavy Plan Definitions.
Unless a different meaning is plainly implied by the context, the
following terms as used in this Article X shall have the following meanings:
(a) "Accrued Benefit" shall mean the account balances or accrued benefits
of an Employee, calculated pursuant to Section 10.3.
(b) "Determination of Date" shall mean, with respect to any particular
Plan Year of this Plan, the last day of the preceding Plan Year (or, in the case
of the first Plan Year of the Plan, the last day of the first Plan Year). In
addition, the term "Determination Date" shall mean, with respect to any
particular plan year of any plan (other than this Plan) in a Required
Aggregation Group or a Permissive Aggregation Group, the last day of the plan
year of such plan which falls within the same calendar year as the Determination
Date for this Plan.
(c) "Employer" shall mean the Employer (as defined in Section 1.1(q)) and
any entity which is (1) a member of a controlled group including such Employer,
while it is a member of such controlled group (within the meaning of Section
414(b) of the Code), (2) in a group of trades or businesses under common control
with such Employer, while it is under common control (within the meaning of
Section 414(c) of the Code), and (3) a member of an affiliated service group
including such Employer, while it is a member of such affiliated service group
(within the meaning of Section 414(m) of the Code).
(d) "Key Employee" shall mean any Employee or former Employee (or any
Beneficiary of such Employee or former Employee, as the case may be) who, at any
time during the Plan Year or during the 4 immediately preceding Plan Years is
one of the following:
(1) An officer of the Employer who has compensation greater
than 50% of the amount in effect under Section 415(b)(1)(A) of the Code
for the Plan Year; provided, however, that no more than 50 Employees (or,
if lesser, the greater of 3 or 10% of the Employees) shall be deemed
officers;
(2) One of the 10 Employees having annual compensation (as
defined in Section 415 of the Code) in excess of the limitation in effect
under Section 415(c)(1)(A) of the Code,
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and owning (or considered as owning, within the meaning of Section 318
of the Code) the largest interests in the Employer;
(3) Any Employee owning (or considered as owning, within the
meaning of Section 318 of the Code) more than 5% of the outstanding stock
of the Employer or stock possessing more than 5% of the total combined
voting power of all stock of the Employer; or
(4) Any Employee having annual compensation (as defined in
Section 415 of the Code) of more than $150,000 and who would be described
in Section 10.2(d)(3) if "1%" were substituted for 5% wherever the latter
percentage appears.
For purposes of applying Section 318 of the Code to the provisions of
this Section 10.2(d), Section 318(a)(2)(C) of the Code shall be applied by
substituting "5%" for "50%" wherever the latter percentage appears. In addition,
for purposes of this Section 10.2(d), the provisions of Section 414(b), (c) and
(m) of the Code shall not apply in determining ownership interests in the
Employer. However, for purposes of determining whether an individual has
compensation in excess of $150,000, or whether an individual is a Key Employee
under Section 10.2(d)(1) and (2), compensation from each entity required to be
aggregated under Sections 414(b), (c) and (m) of the Code shall be taken into
account. Notwithstanding anything contained herein to the contrary, all
determinations as to whether a person is or is not a Key Employee shall be
resolved by reference to Section 416 of the Code and any rules and regulations
promulgated thereunder.
(e) "Non-Key Employee" shall mean any Employee or former Employee (or any
Beneficiary of such Employee or former Employee, as the case may be) who is not
considered to be a Key Employee with respect to this Plan.
(f) "Permissive Aggregation Group" shall mean all plans in the Required
Aggregation Group and any other plans maintained by the Employer which satisfy
Sections 401(a)(4) and 410 of the Code when considered together with the
Required Aggregation Group.
(g) "Required Aggregation Group" shall mean each plan (including any
terminated plan) of the Employer in which a Key Employee is (or in the case of a
terminated plan, had been) a Participant in the Plan Year containing the
Determination Date or any of the 4 preceding Plan Years, and each other plan of
the Employer which enables any plan of the Employer in which a Key Employee is a
Participant to meet the requirement of Sections 401(a)(4) and 410 of the Code.
10.3 Calculation of Accrued Benefits.
(a) An Employee's Accrued Benefit shall be equal to:
(1) with respect to this Plan or any other defined
contribution plan (other than a defined contribution pension plan) in a
Required Aggregation Group or a Permissive Aggregation Group, the
Employee's account balances under the respective plan, determined
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as of the most recent plan valuation date within a 12-month period ending
on the Determination Date, including contributions actually made after
the valuation date but before the Determination Date (and, in the first
plan year of a plan, also including any contributions made after the
Determination Date which are allocated as of a date in the first plan
year).
(2) With respect to any defined contribution pension plan in a
Required Aggregation Group or a Permissive Aggregation Group, the
Employee's account balances under the plan, determined as of the most
recent plan valuation date within a 12-month period ending on the
Determination Date, including contributions which have not actually been
made, but which are due to be made as of the Determination Date.
(3) With respect to any defined benefit plan in a Required
Aggregation Group or a Permissive Aggregation Group, the present value of
the Employee's accrued benefits under the plan, determined as of the most
recent plan valuation date within a 12-month period ending on the
Determination Date, pursuant to the actuarial assumptions used by such
plan,and calculated as if the Employee terminated Service under such plan
as of the valuation date (except that, in the first plan year of a plan,
a current Participant's estimated Accrued Benefit as of the Determination
Date shall be taken into account).
(4) If any individual has not performed services for the
Employer maintaining the Plan at any time during the 5-year period ending
on the Determination Date, any Accrued Benefit for such individual shall
not be taken into account.
(b) The Accrued Benefit of any Employee shall be further adjusted as
follows:
(1) The Accrued Benefit shall be calculated to include all amounts
attributable to both Employer and Employee contributions, but shall exclude
amounts attributable to voluntary deductible Employee contributions, if any.
(2) The Accrued Benefit shall be increased by the aggregate distributions
made with respect to an Employee under the plan or plans, as the case may be,
during the 5 year period ending on the Determination Date.
(3) Rollover and direct plan-to-plan transfers shall be taken into
account as follows:
(A) If the transfer is initiated by the Employee and made from
a plan maintained by one employer to a plan maintained by another
unrelated employer, the transferring plan shall continue to count the
amount transferred; the receiving plan shall not count the amount
transferred.
(B) If the transfer is not initiated by the Employee or is
made between plans maintained by related employers, the transferring plan
shall no longer count the amount transferred; the receiving plan shall
count the amount transferred.
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(c) If any individual has not performed services for the Employer at any
time during the 5-year period ending on the Determination Date, any accrued
benefit for such individual (and the account of such individual) shall not be
taken into account.
10.4 Determination of Top-Heavy Status.
This Plan shall be considered to be a top-heavy plan for any Plan Year
if, as of the Determination Date, the value of the Accrued Benefits of Key
Employees exceeds 60% of the value of the Accrued Benefits of all eligible
Employees under the Plan. Notwithstanding the foregoing, if the Employer
maintains any other qualified plan, the determination of whether this Plan is
top-heavy shall be made after aggregating all other plans of the Employer in the
Required Aggregation Group and, if desired by the Employer as a means of
avoiding top-heavy status, after aggregating any other plan of the Employer in
the Permissive Aggregation Group. If the required Aggregation Group is
top-heavy, then each plan contained in such group shall be deemed to be
top-heavy, notwithstanding that any particular plan in such group would not
otherwise be deemed to be top-heavy. Conversely, if the Permissive Aggregation
Group is not top-heavy, then no plan contained in such group shall be deemed to
be top-heavy, notwithstanding that any particular plan in such group would
otherwise be deemed to be top-heavy. In no event shall a plan included in a
top-heavy Permissive Aggregation Group be deemed a top-heavy plan unless such
plan is also included in a top-heavy Required Aggregation Group.
10.5 Determination of Super Top-Heavy Status.
The Plan shall be considered to be a super top-heavy plan if, as of the
Determination Date, the Plan would meet the test specified in Section 10.4 above
for classification as a top-heavy plan, except that "90%" shall be substituted
for "60%" whenever the latter percentage appears.
10.6 Minimum Contribution.
(a) For any year in which the Plan is top-heavy, each Non-Key Employee
who has met the age and service requirements, if any, contained in the Plan,
shall be entitled to a minimum contribution (which may include forfeitures
otherwise allocable) equal to a percentage of such Non-Key Employee's
compensation (as defined in Section 415 of the Code) as follows:
(1) If the Non-Key Employee is not covered by a defined
benefit plan maintained by the Employer, then the minimum contribution
under this Plan shall be 3% of such Non-Key Employee's compensation.
(2) If the Non-Key Employee is covered by a defined benefit
plan maintained by the Employer, then the minimum contribution under this
Plan shall be 5% of such Non- Key Employee's compensation.
(b) Notwithstanding the foregoing, the minimum contribution otherwise
allocable to a Non-Key Employee under this Plan shall be reduced in the
following circumstances:
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(1) The percentage minimum contribution required under this
Plan shall in no event exceed the percentage contribution made
for the Key Employee for whom such percentage is the highest
for the Plan Year after taking into account contributions
under other defined contribution plans in this Plan's Required
Aggregation Group; provided, however, that this Section
10.7(b) (1) shall not apply if this Plan is included in a
Required Aggregation Group and this Plan enables a defined
benefit plan in such Required Aggregation Group to meet the
requirements of Section 401(a)(4) or 410 of the Code.
(2) No minimum contribution shall be required (or the minimum
contribution shall be reduced, as the case may be) for a
Non-Key Employee under this Plan for any Plan Year if the
Employer maintains another qualified plan under which a
minimum benefit or contribution is being accrued or made on
account of such Plan Year, in whole or in part, on behalf of
the Non-Key Employee, in accordance with Section 416(c) of the
Code.
(c) For purposes of this Section 10.6, there shall be disregarded (1) any
Employer contributions attributable to a salary reduction or similar
arrangement, or (2) any Employer contributions to or any benefits under Chapter
21 of the Code (relating to the Federal Insurance Contributions Act), Title II
of the Social Security Act, or any other federal or state law.
(d) For purposes of this Section 10.6, minimum contributions shall be
required to be made on behalf of only those Non-Key Employees, as described in
Section 10.7(a), who have not terminated Service as of the last day of the Plan
Year. If a Non-Key Employee is otherwise entitled to receive a minimum
contribution pursuant to this Section 10.6(d), the fact that such Non-Key
Employee failed to complete 1,000 Hours of Service or failed to make any
mandatory or elective contributions under this Plan, if any are so required,
shall not preclude him from receiving such minimum contribution.
10.7 Vesting.
(a) For any Plan Year in which the Plan is a top-heavy plan, a
Participant's Employer Account shall vest according to the following schedule:
Years of Service Completed Percentage Vested
--------------------------- -----------------
Less than 1 0%
1 but less than 2 20%
2 but less than 3 40%
3 but less than 4 60%
4 but less than 5 80%
5 or more 100%
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(b) For purposes of Section 10.7(a), the term "year of service" shall
have the same meaning as set forth in Section 1.1(kk), as modified by Section
3.2
(c) If for any Plan Year the Plan becomes top-heavy and the vesting
schedule set forth in Section 10.7(a) becomes effective, then, even if the Plan
ceases to be top-heavy in any subsequent Plan Year, the vesting schedule set
forth in Section 10.7(a) shall remain applicable with respect to any Participant
who has completed 3 Years of Service.
10.8 Maximum Benefit Limitation.
For any Plan Year in which the Plan is a top-heavy plan, Section
5.6(d)(1)(B)(i) and Section 5.6(d)(2)(B)(i) shall be read by substituting "1.0"
for "1.25", wherever the latter figure appears; provided, however, that such
substitution shall not have the effect of reducing any benefit accrued under a
defined benefit plan prior to the first day of the plan year in which this
Section becomes applicable.
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ARTICLE XI
ADMINISTRATION
11.1 Appointment of Administrator.
This Plan shall be administered by a committee consisting of up to 5
persons, whether or not Employees or Participants, who shall be appointed from
time to time by the Board of Directors to serve at its pleasure. The Sponsor may
require that each person appointed as an Administrator shall signify his
acceptance by filing an acceptance with the Sponsor. The term "Administrator" as
used in this Plan shall refer to the members of the committee, either
individually or collectively, as appropriate. In the event that the Sponsor
shall elect not to appoint any individuals to constitute a committee to
administer the Plan, the Sponsor shall serve as the Administrator hereunder.
11.2 Resignation or Removal of Administrator.
An Administrator shall have the right to resign at any time by giving
notice in writing, mailed or delivered to the Employer and to the Trustee. Any
Administrator who was an employee of the Employer at the time of his appointment
shall be deemed to have resigned as an Administrator upon his termination of
Service. The Board of Directors may, in its discretion, remove any Administrator
with or without cause, by giving notice in writing, mailed or delivered to the
Administrator and to the Trustee.
11.3 Appointment of Successors: Terms of Office. Etc.
Upon the death, resignation or removal of an Administrator, the Employer
may appoint, by Board of Directors' resolution, a successor or successors.
Notice of termination of an Administrator and notice of appointment of a
successor shall be made by the Employer in writing, with copies mailed or
delivered to the Trustee, and the successor shall have all the rights and
privileges and all of the duties and obligations of the predecessor.
11.4 Powers and Duties of Administrator.
The Administrator shall have the following duties and responsibilities in
connection with the administration of this Plan:
(a) To promulgate and enforce such rules, regulations and procedures as
shall be proper for the efficient administration of the Plan, such rules,
regulations and procedures to apply uniformly to all Employees, Participants and
Beneficiaries;
(b) To determine all questions arising in the administration,
interpretation and application of the Plan, including questions of eligibility
and of the status and rights of Participants, Beneficiaries and any other
persons hereunder;
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(c) To decide any dispute arising hereunder strictly in accordance with
the terms of the Plan; provided, however, that no Administrator shall
participate in any matter involving any questions relating solely to his own
participation or benefits under this Plan;
(d) To advise the Employer and the Trustee regarding the known future
needs for funds to be available for distribution in order that the Trustee may
establish investments accordingly;
(e) To correct defects, supply omissions and reconcile inconsistencies to
the extent necessary to effectuate the Plan;
(f) To advise the Employer of the maximum deductible contribution to the
Plan for each fiscal year;
(g) To direct the Trustee concerning all payments which shall be made out
of the Fund pursuant to the provisions of this Plan;
(h) To advise the Trustee on all terminations of Service by Participants,
unless the Employer has so notified the Trustee;
(i) To confer with the Trustee on the settling of any claims against the
Fund;
(j) To make recommendations to the Board of Directors with respect to
proposed amendments to the Plan and the Trust Agreement;
(k) To file all reports with government agencies, Employees and other
parties as may be required by law, whether such reports are initially the
obligation of the Employer, the Plan or the Trustee; and
(l) To have all such other powers as may be necessary to discharge its
duties hereunder.
Reasonable discretion is granted to the Administrator to affect the
benefits, rights and privileges of Participants, Beneficiaries or other persons
affected by this Plan. The Administrator shall exercise reasonable discretion
under the terms of this Plan and shall administer the Plan strictly in
accordance with its terms, such discretion to be exercised uniformly so that all
persons similarly situated shall be similarly treated.
11.5 Action by Administrator.
The Administrator may elect a Chairman and Secretary from among its
members and may adopt rules for the conduct of its business. A majority of the
members then serving shall constitute a quorum for the transaction of business.
All resolutions or other action taken by the Administrator shall be by vote of a
majority of those present at such meeting and entitled to vote. Resolutions may
be adopted or other action taken without a meeting upon written consent signed
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by at least a majority of the members. All documents, instruments, orders,
requests, directions, instructions and other papers shall be executed on behalf
of the Administrator by either the Chairman or the Secretary of the
Administrator, if any, or by any member or agent of the Administrator duly
authorized to act on the Administrator's behalf.
11.6 Participation by Administrators.
No Administrator shall be precluded from becoming a Participant in the
Plan if he would be otherwise eligible, but he shall not be entitled to vote or
act upon matters or to sign any documents relating specifically to his own
participation under the Plan, except when such matters or documents relate to
benefits generally. If this disqualification results in the lack of a quorum,
then the Board of Directors shall appoint a sufficient number of temporary
Administrators who shall serve for the sole purpose of determining such a
question.
11.7 Agents.
The Administrator may employ agents and provide for such clerical, legal,
actuarial, accounting, medical, advisory or other services as it deems necessary
to perform its duties under this Plan. The cost of such services and all other
expenses incurred by the Administrator in connection with the administration of
the Plan shall be paid from the Fund, unless paid by the Employer.
11.8 Allocation of Duties.
The duties, powers and responsibilities reserved to the Administrator may
be allocated among its members so long as such allocation is pursuant to written
procedures adopted by the Administrator, in which case, except as may be
required by the Act, no Administrator shall have any liability, with respect to
any duties, powers or responsibilities not allocated to him, for the acts of
omissions of any other Administrator.
11.9 Delegation of Duties.
The Administrator may delegate any of its duties to other employees of
the Employer, to the Trustee with its consent, or to any other person or firm,
provided that the Administrator shall prudently choose such agents and rely in
good faith on their actions.
11.10 Administrator's Action Conclusive.
Any action on matters within the authority of the Administrator shall be
final and conclusive except as provided in Article XII.
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11.11 Compensation and Expenses of Administrator.
No Administrator who is receiving compensation from the Employer as a
full-time employee, as a director or agent, shall be entitled to receive any
compensation or fee for his services hereunder. Any other Administrator shall be
entitled to receive such reasonable compensation for his services as an
Administrator hereunder as may be mutually agreed upon between the Employer and
such Administrator. Any such compensation shall be paid from the Fund, unless
paid by the Employer. Each Administrator shall be entitled to reimbursement by
the Employer for any reasonable and necessary expenditures incurred in the
discharge of his duties.
11.12 Records and Reports.
The Administrator shall maintain adequate records of its actions and
proceedings in administering this Plan and shall file all reports and take all
other actions as it deems appropriate in order to comply with the Act, the Code
and governmental regulations issued thereunder.
11.13 Reports of Fund Open to Participants.
The Administrator shall keep on file, in such form as it shall deem
convenient and proper, all annual reports of the Fund received by the
Administrator from the Trustee, and a statement of each Participant's interest
in the Fund as from time to time determined. The annual reports of the Fund and
the statement of his own interest in the Fund, as well as a complete copy of the
Plan and the Trust Agreement and copies of annual reports to the Internal
Revenue Service, shall be made available by the Administrator to the Employer
for examination by each Participant during reasonable hours at the office of the
Employer, provided, however, that the statement of a Participant's interest
shall not be made available for examination by any other Participant.
11.14 Named Fiduciary.
The Administrator is the named fiduciary for purposes of the Act and
shall be the designated agent for receipt of service of process on behalf of the
Plan. It shall use ordinary care and diligence in the performance of its duties
under this Plan. Nothing in this Plan shall preclude the Employer from
indemnifying the Administrator for all actions under this Plan to the full
extent permitted under the Act, or from purchasing liability insurance to
protect it with respect to its duties under this Plan.
11.15 Information from Employer.
The Employer shall promptly furnish all necessary information to the
Administrator to permit it to perform its duties under this Plan. The
Administrator shall be entitled to rely upon the accuracy and completeness of
all information furnished to it by the Employer, unless it knows or should have
known that such information is erroneous.
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11.16 Reservation of Rights by Employer.
Where rights are reserved in this Plan to the Employer, such rights shall
be exercised only by action of the Board of Directors, except where the Board of
Directors, by written resolution, delegates any such rights to one or more
officers of the Employer or to the Administrator. Subject to the rights reserved
to the Board of Directors acting on behalf of the Employer as set forth in this
Plan, no member of the Board of Directors shall have any duties or
responsibilities under this Plan, except to the extent he shall be acting in the
capacity of an Administrator or Trustee.
11.17 Liability and Indemnification.
(a) The Administrator shall perform all duties required of it under this
Plan in a prudent manner. To the extent not prohibited by the Act, the
Administrator shall not be responsible in any way for any action or omission of
the Employer, the Trustee or any other fiduciaries in the performance of their
duties and obligations set forth in this Plan and in the Trust Agreement. To the
extent not prohibited by the Act, the Administrator shall also not be
responsible for any act or omission of any of its agents, or with respect to
reliance upon advice of its counsel (whether or not such counsel is also counsel
to the Employer or the Trustee), provided that such agents or counsel were
prudently chosen by the Administrator and that the Administrator relied in good
faith upon the action of such agent or the advice of such counsel.
(b) The Administrator shall not be relieved from responsibility or
liability for any responsibility, obligation or duty imposed upon it under this
Plan or under the Act. Except for its own gross negligence, willful misconduct
or willful breach of the terms of this Plan, the Administrator shall be
indemnified and held harmless by the Employer against liability or losses
occurring by reason of any act or omission of the Administrator to the extent
that such indemnification does not violate the Act or any other federal or state
laws.
11.18 Service as Trustee and Administrator.
Nothing in this Plan shall prevent one or more Trustees from serving as
Administrator under this Plan.
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ARTICLE XII
CLAIMS PROCEDURE
12.1 Notice of Denial.
If a Participant or his Beneficiary is denied any benefits under this
Plan, either in whole or in part, the Administrator shall advise the claimant in
writing of the amount of his benefit, if any, and the specific reasons for the
denial. The Administrator shall also furnish the claimant at that time with a
written notice containing:
(a) A specific reference to pertinent Plan provisions;
(b) A description of any additional material or information necessary for
the claimant to perfect his claim, if possible, and an explanation of why such
material or information is needed; and
(c) An explanation of the Plan's claim review procedure.
12.2 Right to Reconsideration.
Within 60 days of receipt of the information described in 12.1 above, the
claimant shall, if he desires further review, file a written request for
reconsideration with the Administrator.
12.3 Review of Documents.
So long as the claimant's request for review is pending (including the
60-day period described in Section 12.2 above), the claimant or his duly
authorized representative may review pertinent Plan documents and the Trust
Agreement (and any pertinent related documents) and may submit issues and
comments in writing to the Administrator.
12.4 Decision by Administrator.
A final and binding decision shall be made by the Administrator within 60
days of the filing by the claimant of his request for reconsideration; provided,
however, that if the Administrator feels that a hearing with the claimant or his
representative present is necessary or desirable, this period shall be extended
an additional 60 days.
12.5 Notice by Administrator.
The Administrator's decision shall be conveyed to the claimant in writing
and shall include specific reasons for the decision, written in a manner
calculated to be understood by the claimant, with specific references to the
pertinent Plan provisions on which the decision is based.
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ARTICLE XIII
AMENDMENTS, TERMINATION AND MERGER
13.1 Amendments.
The Employer reserves the right at any time and from time to time, and
retroactively if deemed necessary or appropriate by it, to the extent
permissible under law, to amend in whole or in part any or all of the provisions
of this Plan, provided that:
(a) No amendment shall make it possible for any part of the Fund to be
used f or, or diverted to, purposes other than for the exclusive benefit of
Participants or their Beneficiaries under the Trust Agreement, except to the
extent provided in Section 4.4;
(b) No amendment may, directly or indirectly, reduce the vested portion
of any Participant's interest as of the effective date of the amendment or
change the vesting schedule with respect to the future accrual of Employer
contributions for any Participants unless each Participant with 3 or more Years
of Service with the Employer is permitted to elect to have the vesting schedule
in effect before the amendment used to determine his vested benefit; and
(c) No amendment may eliminate an optional form of benefit.
(d) No amendment may increase the duties of the Trustee without its
consent.
(e) No amendment that shall change any of the following types of
provisions shall be made more than once every 6 months, other than to comport
with changes in the Code, the Act or the regulations thereunder: (i) any
provision stating the amount and price of Employer Securities to be awarded to
designated officers and directors or categories of officers and directors; (ii)
any provisions specifying the timing of awards or allocations to officers and
directors; (iii) any provision setting forth a formula that determines the
amount, price and timing of allocations or awards, using objective criteria such
as earnings of the issuer, value of the Employer Securities, Years of Service,
job classification and Compensation levels.
Amendments may be made in the form of Board of Directors' resolutions or
separate written document. Copies of all amendments shall be delivered to the
Trustee.
13.2 Consolidation, Merger or Other Transactions of Employer.
Nothing in this Plan shall prevent the consolidation, merger,
reorganization or liquidation of the Employer, or prevent the sale by Employer
of any or all of its property. Any successor corporation or other entity formed
and resulting from any such transaction shall have the right to become a party
to this Plan by adopting the same by resolution and by appointing a new Trustee
as though the Trustee had resigned in accordance with the Trust Agreement, and
by executing a proper supplemental agreement with the Trustee. If, within 180
days from the effective date of
51
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such transaction, such new entity does not become a party to this Plan as above
provided, this Plan shall automatically be terminated and the Trustee shall make
payments to the persons entitled thereto in accordance with Section 9.5.
13.3 Consolidation or Merger of Trust.
In the event of any merger or consolidation of the Fund with, or transfer
in whole or in part of the assets and liabilities of the Fund to, another trust
fund held under any other plan of deferred compensation maintained or to be
established for the benefit of all or some of the Participants of this Plan, the
assets of the Fund applicable to such Participants shall be transferred to the
other trust fund only if:
(a) Each Participant would receive a benefit under such successor trust
fund immediately after the merger, consolidation or transfer which is equal to
or greater than the benefit he would have been entitled to receive immediately
before the merger, consolidation or transfer (determined as if this Plan and
such transferee trust fund had then terminated);
(b) Resolutions of the Board of Directors under this Plan, or of any new
or successor employer of the affected Participants, shall authorize such
transfer of assets, and, in the case of the new or successor employer of the
affected Participants, its resolutions shall include an assumption of
liabilities with respect to such Participants, inclusion in the new employer's
plan; and
(c) Such other plan and trust are qualified under Sections 401(a) and
501(a) of the Code.
13.4 Bankruptcy or Insolvency of Employer.
In the event of (a) the Employer's legal dissolution or liquidation by
any procedure other than a consolidation or merger, (b) the Employer's
receivership, insolvency, or cessation of its business as a going concern, or
(c) the commencement of any proceeding by or against the Employer under the
federal bankruptcy laws, and similar federal or state statute, or any federal or
state statute or rule providing for the relief of debtors, compensation of
creditors, arrangement, receivership, liquidation or any similar event which is
not dismissed within 30 days, this Plan shall terminate automatically on such
date (provided, however, that if a proceeding is brought against the Employer
for reorganization under Chapter 11 of the United States Bankruptcy Code or any
similar federal or state statute, then this Plan shall terminate automatically
if and when said proceeding results in a liquidation of the Employer, or the
approval of any Plan providing therefor, or the proceeding is converted to a
case under Chapter 7 of the Bankruptcy Code or any similar conversion to a
liquidation proceeding under federal or state law including, but not limited to,
a receivership proceeding). In the event of any such termination as provided in
the foregoing sentence, the Trustee shall make payments to the persons entitled
thereto in accordance with Section 9.5 hereof.
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13.5 Voluntary Termination.
The Board of Directors reserves the right to terminate this Plan at any
time by giving to the Trustee and the Administrator notice in writing of such
desire to terminate. The Plan shall terminate upon the date of receipt of such
notice, the interests of all Participants shall become fully vested, and the
Trustee shall make payments to each Participant or Beneficiary in accordance
with Section 9.5. Alternatively, the Employer, in its discretion, may determine
to continue the Trust Agreement and to continue the maintenance of the Fund, in
which event distributions shall be made upon the contingencies and in all the
circumstances which would have been entitled such distributions on a fully
vested basis, had there been no termination of the Plan.
13.6 Partial Termination of Plan or Permanent Discontinuance of Contributions.
In the event that a partial termination of the Plan shall be deemed to
have occurred, or if the Employer shall discontinue completely its contributions
hereunder, the right of each affected Participant to his interest in the Fund
shall be fully vested. The Employer, in its discretion, shall decide whether to
direct the Trustee to make immediate distribution of such portion of the Fund
assets to the persons entitled thereto or to make distribution in the
circumstances and contingencies which would have controlled such distributions
if there had been no partial termination or discontinuance of contributions.
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ARTICLE XIV
MISCELLANEOUS
14.1 No Diversion of Funds.
It is the intention of the Employer that it shall be impossible for any
part of the corpus or income of the Fund to be used for, or diverted to,
purposes other than for the exclusive benefit of the Participants or their
Beneficiaries, except to extent that a return of the Employer's contribution is
permitted under Section 4.4.
14.2 Liability Limited.
Neither the Employer nor the Administrator, nor any agents, employees,
officers, directors or shareholders of any of them, nor the Trustee, nor any
other person shall have any liability or responsibility with respect to this
Plan, except as expressly provided herein.
14.3 Incapacity.
If the Administrator shall receive evidence satisfactory to it that a
Participant or Beneficiary entitled to receive any benefit under the Plan is, at
the time when such benefit becomes payable, a minor, or is physically or
mentally incompetent to receive such benefit and to give a valid release
therefor, and that another person or an institution is then maintaining or has
custody of such Participant or Beneficiary, and that no guardian, committee or
other representative of the estate of such Participant or Beneficiary shall have
been duly appointed, the Administrator may direct the Trustee to make payment of
such benefit otherwise payable to such Participant or Beneficiary, to such other
person or institution, including a custodian under a Uniform Gifts to Minor Act,
or corresponding legislation (who shall be an adult, a guardian of the minor or
a trust company), and the release of such other person or institution shall be a
valid and complete discharge for the payment of such benefit.
14.4 Spendthrift Clause.
Except as permitted by the Act or the Code, no benefits or other amounts
payable under the Plan shall be subject in any manner to anticipation, sale,
transfer, assignment, pledge, encumbrance, charge or alienation. If the
Administrator determines that any person entitled to any payments under the Plan
has become insolvent or bankrupt or has attempted to anticipate, sell, transfer,
assign, pledge, encumber, charge or otherwise in any manner alienate any benefit
or other amount payable to him under the Plan or that there is any danger of any
levy or attachment or other court process or encumbrance on the part of any
creditor of such person entitled to payments under the Plan against any benefit
or other accounts payable to such person, the Administrator may, at any time, in
its discretion, direct the Trustee to withhold any or all payments to such
person under the Plan and apply the same for the benefit of such person, in such
manner and in such proportion as the Administrator may deem proper.
54
<PAGE>
14.5 Benefits Limited to Fund.
All contributions by the Employer to the Fund shall be voluntary, and the
Employer shall be under no legal liability to make any such contributions. The
benefits of this Plan shall be only as can be provided by the assets of the
Fund, and no liability for the payment of benefits under the Plan or for any
loss of assets due to any action or inaction of the Trustee shall be imposed
upon the Employer.
14.6 Cooperation of Parties.
All parties to this Plan and any party claiming interest hereunder agree
to perform any and all acts and execute any and all documents and papers which
are necessary and desirable for carrying out this Plan or any of its provisions.
14.7 Payments Due Missing Persons.
The Administrator shall direct the Trustee to make a reasonable effort to
locate all persons entitled to benefits under the Plan; however, notwithstanding
any provision in the Plan to the contrary, if, after a period of 5 years from
the date such benefit shall be due, any such persons entitled to benefits have
not been located, their rights under the Plan shall stand suspended. Before this
provision becomes operative, the Trustee shall send a certified letter to all
such persons at their last known address advising them that their interest in
benefits under the Plan shall be suspended. Any such suspended amounts shall be
held by the Trustee for a period of 3 additional years (or a total of 8 years
from the time the benefits first became payable), and thereafter such amounts
shall be reallocated among current Participants in the same manner that a
current contribution would be allocated. However, if a person subsequently makes
a valid claim with respect to such reallocated amounts and any earnings thereon,
the Plan earnings or the Employer's contribution to be allocated for the year in
which the claim shall be paid shall be reduced by the amount of such payment.
Any such suspended amounts shall be handled in a manner not inconsistent with
regulations issued by the Internal Revenue Service and Department of Labor.
14.8 Governing Law.
This Plan has been executed in the State of New York and all questions
pertaining to its validity, construction and administration shall be determined
in accordance with the laws of that State, except to the extent superseded by
the Act.
14.9 Nonguarantee of Employment.
Nothing contained in this Plan shall be construed as a contract of
employment between the Employer and any Employee, or as a right of any Employee
to be continued in the employment of the Employer, or as a limitation of the
right of the Employer to discharge any of its Employees, with or without cause.
55
<PAGE>
14.10 Counsel.
The Trustee and the Administrator may consult with legal counsel, who may
be counsel for the Employer and for the Administrator or the Trustee (as the
case may be), with respect to the meaning or construction of this Plan and the
Trust Agreement, their respective obligations or duties hereunder or with
respect to any action or proceeding or any question of law, and they shall be
fully protected with respect to any action taken or omitted by them in good
faith pursuant to the advice of legal counsel.
IN WITNESS WHEREOF, the Sponsor has caused these presents to be executed
by its duly authorized officers and its corporate seal to be affixed on this
12th day of June 1997.
GSB FINANCIAL CORPORATION
ATTEST:
/s/ Jenny M. Ford /s/ Clifford E. Kelsey, Jr.
__________________________ By______________________________
Jenny M. Ford, Clifford E. Kelsey, Jr.,
Secretary President
[Corporate Seal]
56
<PAGE>
Exhibit 10.14
GSB FINANCIAL CORPORATION
EMPLOYEE STOCK OWNERSHIP PLAN TRUST
LOAN AND SECURITY AGREEMENT
GSB Financial Corporation
One South Church Street
Goshen, New York 10924
Gentlemen:
The undersigned, Marine Midland Bank ("Trustee"), not individually but
solely as trustee of the trust (the "Trust") related to the GSB Financial
Corporation Employee Stock Ownership Plan (the "ESOP"), effective as of the date
of conversion (the "Conversion") of Goshen Savings Bank (the "Bank") from mutual
to stock form (the "Trust" shall sometimes be referred to herein as the
"Borrower"), applies to you for your commitment, subject to all of the terms and
conditions of this Loan and Security Agreement (the "Agreement") and on the
basis of the representations hereinafter set forth, to make a loan available to
the Borrower as hereinafter set forth. GSB Financial Corporation is hereinafter
referred to as the "Lender". The Bank is an Employer participating in the ESOP.
SECTION ONE. THE TERM LOAN.
1.1 Amount and Terms. By its acceptance hereof, the Lender agrees, subject to
all of the terms and conditions hereof and on the basis of the representations
hereinafter set forth, to make a loan (the "Loan") in an aggregate principal
amount sufficient to permit the Borrower to acquire a number of shares of the
Lender's common stock, par value $0.01 per share (the "Shares"), equal to, 8.0%
of the Shares issued in the Conversion (the "Loan Amount"). The Loan proceeds
shall be used by the Borrower entirely to acquire Shares.
The Loan is intended to be an "exempt loan" as described in Section 4975(d) of
the Internal Revenue Code of 1986, as amended (the "Code"), as defined in
Section 54.4975-7(b) of the Treasury Regulations (the "Regulations"), as
described in Section 408(b)(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), and as described in Department of Labor Regulations
Section 2550.408b-3 (collectively, the "Exempt Loan Rules").
1.2 The Note. The disbursement of the Loan pursuant to Section 1. I hereof shall
be made against and evidenced by a promissory note of the Borrower in the form
annexed hereto as Exhibit A (the "Note "), which Note shall bear interest as
hereinafter provided, and be payable in forty (40) equal quarterly principal
installments commencing on the last Business Day (as defined below) in
September, 1997 and continuing on the last Business Day of each and every
calendar quarter thereafter, each such principal installment to be in an amount
equal to the principal amount outstanding on the due date of the installment
multiplied by a fraction, the numerator of which shall be one and the
denominator of which shall be the number of principal installments remaining on
the Note, including the installment due in the current calendar quarter, except
that the final installment in the amount of all principal and interest not
sooner paid shall be due on June 30, 2007, the final maturity thereof. For
purposes of this Section 1.2 and the other provisions of this Agreement, the
phrase "Business Day" shall mean any day on which savings institutions are
generally open for business in New York other than a Saturday or Sunday.
<PAGE>
Without regard to the principal amount of the Note stated on its face, the
actual principal amount at any time outstanding and owed by the Borrower on
account of the Note shall be the amount of the disbursement of the Loan made by
the Lender under Section 1.1 hereof less all payments of principal actually
received by the Lender. The amount of such disbursement made by the Lender and
any repayments of principal thereof shall be recorded by the Under on its books
or records or, at its option, endorsed on the reverse side of the Note by the
Lender and the unpaid principal balance at any time so recorded or endorsed by
the Lender shall be prima facie evidence in any court or other proceedings
brought to enforce the Note of the principal amount remaining unpaid thereon.
1.3 Exempt Rules. Notwithstanding anything to the contrary contained in this
Agreement or in the Note, the Borrower shall be obligated to make repayments of
the Loan only to the extent that such repayments when added to the repayments
theretofore made during the applicable plan year would not exceed an amount
which would cause the limitations of Section 415 of the Code to be exceeded for
any ESOP participant.
Except as set forth in the next succeeding sentence and to the extent permitted
by applicable law, including, without limitation, the Exempt Loan Rules, the
principal amount of the Loan and any interest thereon shall be payable solely
from contributions (other than contributions of employer securities) made to the
Trust in accordance with the ESOP, and cash dividends received on the Shares, to
enable the Borrower to pay its obligations -under the Loan and from earnings
attributable to the Shares and the investment of such contributions and
dividends.
The Lender acknowledges and agrees that it shall have no other recourse against
the Borrower for repayment of the Loan and that it shall have no recourse
against assets of the ESOP included in the Trust other than pursuant to Sections
3 and 8 hereof.
SECTION TWO. INTEREST AND FEES.
2.1 Interest Rate. The Loan shall bear interest (which the Borrower hereby
promises to pay) prior to maturity (whether by lapse of time, acceleration or
otherwise) at a rate per annum. equal at all times to the Interest Rate. For
purposes of this Agreement, the phrase "Interest Rate" shall mean 7.75% per
annum.
2.2 Basis and Payment Dates. All interest accruing on the Note prior to maturity
shall be due and payable on a quarterly basis on the last Business Day of each
calendar quarter (commencing September 30, 1997) and at maturity (unless prepaid
in whole prior to such date, then on the date of such prepayment in whole) and
interest accruing after maturity shall be due and payable upon demand. All
interest on the Note shall be computed on the basis of a year of 360 days.
SECTION THREE. COLLATERAL.
3.1 Grant of Security Interest-Pledged Shares. The Borrower hereby grants,
pledges and assigns to the Lender all issued and outstanding Shares which were
either (i) purchased by the Borrower from the proceeds of the disbursement of
the Loan; or (ii) acquired by the Borrower with the proceeds of a prior exempt
loan within the meaning of Section 54.4975-7(b) of the Regulations, and pledged
as collateral for such prior exempt loan, where the balance of such prior exempt
loan has been repaid with the proceeds of the disbursement of the Loan (the
"Pledged Shares", which shall sometimes be referred to herein as the
"Collateral"). The Pledged Shares shall be evidenced by a stock certificate. -
The assignment and pledge herein granted and provided for is made and given to
secure and shall secure the prompt payment of principal of and interest on the
Note as and when the same becomes due and payable and the payment,
<PAGE>
observance and performance of any and all obligations and liabilities arising
under or provided for in this Agreement or the Note or any of them in each
instance as the same may be amended or modified and whether now existing or
hereafter arising.
3.2 Further Assurances. The Borrower covenants and agrees that it will at any
time and from time to time as requested by the Lender execute and deliver such
further instruments and do and perform such other acts as the Lender may
reasonably deem necessary or desirable to provide for or perfect the lien of the
Lender in the Collateral hereunder.
3.3 Voting. Upon the occurrence of a Default or an Event of Default (as defined
in Section 3.5 below), the Lender shall have the right to transfer the
Collateral or any part thereof into its name or into the name of its nominee.
The Lender shall not be entitled to vote the Pledged Shares unless and until an
Event of Default has occurred and so long as the same shall not have been waived
by the Lender.
3.4 Partial Releases. The Lender agrees, provided always that no Default or
Event of Default (as defined in Section 3.5 below) shall have occurred and be
continuing, as promptly as is practicable after December 31 of each year (the
period commencing with the effective date of the ESOP, specified above, and
ending December 31, 1997 and each subsequent 12-month period ending on December
31 being hereinafter referred to as a "Plan Year"), to release that number of
Pledged Shares then being held to secure the Loan which is equal to the number
of such Pledged Shares held as of the last day of the Plan Year multiplied by a
fraction, the numerator of which is the aggregate amount of all principal
payments made on the Note during the Plan Year and the denominator of which is
the sum of the numerator plus the unpaid principal of the Note as of the last
day of such Plan Year.
3.5 Default or Event of Default. For purposes of this Agreement:
(a)The term "Default" shall mean any event or condition which. with the lapse of
time, the giving of notice, or both would constitute an Event of Default.
(b)The phrase "Event of Default" shall mean any event or condition specified as
such in Section 9.1 hereof.
SECTION FOUR. PAYMENTS.
4.1 Place and Application. All payments of principal, interest, fees and all
other amounts payable hereunder shall be made to the Lender at One South Church
Street, Goshen, New York 10924, for the account of the Lender (or at such other
place for the account of the Lender as the Lender may from time to time in
writing specify to the Borrower) in immediately available and freely
transferable funds at the places of payment. All payments shall be paid in full
without setoff or counterclaim and without reduction for and free from any and
all taxes, levies, duties, fees, charges, deductions, withholdings, restrictions
or conditions of any nature imposed by any government or any political
subdivision or taxing authority thereof.
4.2 Prepayments. The Borrower shall have the privilege of prepaying in whole or
in part the Note at any time upon giving three (3) Business Days' prior, notice
to the Lender, each such prepayment to be made by the payment of the principal
amount to be prepaid and accrued interest thereon to the date fixed for
prepayment. All such prepayments shall be made without premium or penalty.
Prepayments shall first be applied to the several installments of the Note in
the inverse order of their respective maturities.
<PAGE>
SECTION FIVE. REPRESENTATIONS AND WARRANTIES.
The Borrower represents and warrants to the Lender as follows:
5.1 The Trust is a duly organized, validly existing employee stock ownership
trust.
5.2 The proceeds of the disbursement of the Loan shall be applied in their
entirety to the payment of the purchase price for the Pledged Shares.
5.3 The Borrower has full right, power and authority to enter into this
Agreement, to make the borrowings hereunder provided for, to issue the Note in
evidence thereof and to perform each and all of the matters and things herein
and therein provided for and this Agreement does not, and the Note when issued
will not, nor will the performance or observance by the Borrower of any of the
matters or things herein or therein provided, contravene any provision of law or
the Trust or any other covenant or agreement affecting the Trust or any of its
assets. As of the date of tile disbursement of the Loan, the Pledged Shares will
be fully paid and non-assessable and the Pledged Shares will be owned by the
Borrower free and clear of all liens, charges and encumbrances whatsoever,
except for any lien of Lender provided for herein.
5.4 To the best knowledge of the Borrower, and except as disclosed to the
Lender in writing, there is no litigation or governmental proceeding pending,
nor to the knowledge of the Borrower threatened, against the ESOP or Trust.
5.5 The ESOP and Trust have no material liabilities, whether absolute or
contingent, except for those heretofore disclosed to the Lender.
SECTION SIX. REPRESENTATIONS AND WARRANTIES OF THE LENDER.
The Lender represents and warrants that:
6.1 The Lender is a corporation duly organized under the laws of the State of
Delaware, and is validly existing and in good standing under the laws of the
State of Delaware. The Lender has full power and authority and legal right to
make and perform this Agreement.
6.2 The execution, delivery and performance by the Lender of this Agreement have
been duly authorized by all necessary action by the Lender and is not and will
not violate any provisions of law applicable to the Lender, any rules,
regulations or orders applicable to the Lender or any judgments or decrees
binding upon the Lender. This Agreement is a valid and legally binding
obligation of the Lender enforceable against the Lender in accordance with its
terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors' rights
generally and the general principles of equity (regardless of whether considered
in a proceeding at law or in equity).
6.3 No authorizations, approvals or consents of, and no filings or registrations
with, any governmental regulatory authority or agency are required for the
execution, delivery or performance by the Lender of this Agreement, or any
transaction contemplated hereby, or for the validity or enforceability against
the Lender hereof except as have already been received or accomplished.
6.4 The execution, delivery and performance of the Agreement and the
consummation of the transactions contemplated hereby will not violate, conflict
with or constitute a default under (i) any of the provisions of the Lender's
Certificate of Incorporation or Bylaws, (h) any provision of
<PAGE>
any agreement, instrument, order, arbitration award, judgment or decree to which
the Lender is a party or by which it is or its assets are bound, (iii) any
statute, rule or regulation of any federal, state or local government or agency
applicable to the Lender, except in any such case described in (i), (ii) (iii)
above, for any such violations, conflicts or defaults which either individually
or in the aggregate do not have a material adverse effect on the business
properties of the Lender and its subsidiaries, taken as a whole.
6.5 The Lender and the Bank have taken such actions as are required by
applicable law to be taken by it to establish the ESOP and the Trust. The ESOP
qualifies as an "employee stock ownership plan" as defined in Section 4975(e)(7)
of the Code. The ESOP provides that the Under and the "employer", as such term
is defined in the ESOP (the "Employer"), may make contributions to the Trust in
an amount necessary to enable the Trustee to amortize the Loan in accordance
with the terms of the Note and this Agreement, and the Employer shall make such
contributions; provided, however, that no such contributions shall be required
if they would adversely affect the qualification of the ESOP under Section
401(a) of the Code.
6.6 There is no action, suit, investigation or proceeding pending, or to the
best knowledge of the Lender, threatened against or affecting the ESOP before
any court or governmental department, agency or instrumentality.
6.7 The Loan will be an "exempt loan" as that term is defined under Section
54.49757(b)(1)(ii) of the Regulations, provided the "administrator" of the ESOP,
as such term is defined in the ESOP (the "Administrator"), determines that the
interest rate is not more than reasonable; and the transactions contemplated by
this Agreement are not "prohibited transactions" within the meaning of Section
4975 of the Code or Section 406(a) of ERISA. The Lender shall cause the
Administrator to provide the Trustee with an opinion of counsel to such effect,
in a form reasonably satisfactory to counsel for the Trustee, before any
disbursement is. made to the Borrower hereunder.
6.8 Except as otherwise provided in this Agreement, the Shares are not subject
to any restriction on transfer under applicable Federal securities law and may
be freely traded over-the-counter.
SECTION SEVEN. CONDITIONS PRECEDENT.
The obligation of the Lender to make the Loan shall be subject to satisfaction
of the following conditions precedent:
7.1 The Lender shall have received executed originals of this Agreement and the
Note duly signed and properly completed.
7.2 The Under shall have received (i) either (A) the certificate(s) evidencing
all the Pledged Shares together with duly executed blank stock power(s)
therefore or (B) if such Pledged Shares are not yet available, a duly executed
assignment of all of Borrower's rights to and interest in the Pledged Shares in
the form attached hereto as Exhibit B and (ii) a duly executed irrevocable proxy
with respect to the Pledged Shares in the form attached hereto as Exhibit C.
7.3 The Under shall have received copies (executed or certified, as may be
appropriate) of all legal documents or proceedings taken in connection with the
execution and delivery of this Agreement and Note.
SECTION EIGHT. COVENANTS.
<PAGE>
Borrower covenants and agrees that so long as any amount remains unpaid on the
Note or the commitment by the Lender to make the Loan hereunder is outstanding,
except to the extent compliance in any case or cases is waived in writing by the
Lender:
8.1 Compliance.
The Borrower will comply with all requirements of the Code, ERISA and any other
law, rule or regulation applicable to it as such laws, rules or regulations
affect the ESOP or the Trust.
8.2 Reports.
(a)The Borrower will maintain a system of accounting for the ESOP and the Trust
in accordance with sound accounting practice and will, from time to time,
furnish to the Lender and its duly authorized representatives, such information
and data with respect to the financial condition of the ESOP and the Trust as
the Lender may reasonably request.
(b)Without any request, the Borrower will furnish to the Lender promptly after
knowledge thereof shall have come to the attention of the Borrower, written
notice of the occurrence of any Default or Event of Default hereunder or of any
threatened or pending litigation or governmental proceeding against the Plan or
the Trust.
8.3 Determination Letter. The Lender shall apply for a determination letter from
the Internal Revenue Service that the Plan and the Trust, taken together,
qualify as an employee stock ownership plan for purposes of Section 4975(e)(7)
of the Code and the rules and regulations thereunder.
SECTION NINE. EVENTS OF DEFAULT AND REMEDIES.
9.1 Event of Default. Any one or more of the following shall constitute an Event
of Default hereunder:
(a) The Borrower shall default in the payment of principal and/or interest in
respect of the Note or any amounts payable under this Agreement when due;
(b)Any representation, warranty or statement made by the Borrower herein or in
connection with the making of the Loan proves to be incorrect in any material
respect as of the date of the issuance or making thereof,
(c)The Borrower shall default in the due performance or observance by it of any
term, covenant or agreement (other than those referred to in subsections (a) and
(b), inclusive, of this Section 9. 1) contained in this Agreement and such
default shall continue unremedied for a period of 30 days after notice to the
Borrower by the Lender or any other holder of the Note;
(d) The ESOP shall be terminated prior to the expiration of the term of this
Agreement.
9.2 Limitations on Use of Trust Assets. When any Event of Default described in
subsections (a) to (c) of Section 9.1 has occurred and is continuing, the Lender
or the holder of the Note shall have no rights to assets of the Trust other than
(i) contributions (other than contributions of employer securities) that are
made by the Employer to enable the. Borrower to meet its obligations pursuant to
the Loan, cash dividends received by the Borrower on the Shares
<PAGE>
and earnings attributable to the investment of such contributions and dividends
and (ii) the Pledged Stock; provided, however, that the value of Trust assets
transferred to the Lender as a result of an Event of Default shall not exceed
the amount of the repayment then in default, and, provided further, that so
long as the Lender is a "party in interest" within the meaning of ERISA
Section 3(14) or a "disqualified person" within the meaning of Section
4975(e)(2) of the Code, a transfer of Trust assets upon default shall be made
only if, and to the extent of, the Borrower's failure to meet the loan's payment
schedule.
9.3 Rights Upon an Event of Default. When any Event of Default has occurred and
is continuing, the Lender may, in addition to such other rights or remedies as
it may have, then or at any time or times thereafter exercise with respect to
the Collateral any, and all -of -the rights, options and remedies of a secured
party under the Uniform Commercial Code of New York (the "UCC"), including,
without limitation, the sale of all or any part of the Collateral at any
brokers' board or any public or private sale, provided, however, that the Lender
shall only be able to exercise such rights and remedies to the extent of all
interest and principal payments which are due and payable as of the date of the
Event of Default and, provided further, that prior to such exercise, the Lender
shall release from the Collateral so much thereof as it would have been required
to release under Section 3.4 hereof if the period from the previous December 31
to the date of such release constituted a Plan Year and no Event of Default had
occurred. The net proceeds of any such sale, after deducting all costs and
expenses incurred in the collection, protection, sale and delivery. of the
Collateral (which expenses Borrower promises to pay) shall be applied first to
the payment of any costs and expenses incurred by the Lender in selling or
otherwise disposing of the Collateral, second, to the payment of the principal
of and the interest on the Note, and, third, ratably as among any other terms of
the indebtedness hereby secured. Any surplus remaining after the full payment
and satisfaction of the foregoing shall be returned to the Borrower or to
whomsoever a court of competent jurisdiction shall determine to be entitled
thereto. Any requirement of said UCC as to reasonable notice shall be met by the
Lender personally delivering or mailing notice (by certified mail - return
receipt requested) to the Borrower at its address as provided in Section 11.6
hereof at least ten (10) days prior to the event giving rise to the requirement
of such notice. In connection with any offer, solicitation or sale of
Collateral, the Lender may restrict bidders and otherwise proceed in whatever
manner it reasonably believes appropriate in order to comply or assure
compliance with applicable legal requirements pertaining to the offer and sale
of securities of the same type as the Collateral.
9.4 ERISA Restrictions. The number of shares of Pledged Stock as to which the
Lender may exercise the rights set forth in this Section 9 may not exceed that
number of shares (then remaining subject to pledge hereunder) which is then
equal in current value to the amount in default under the Note. The remedies set
forth in this Section 9 may only be exercised to the extent consistent with the
restrictions on remedies set forth in Section 408(b)(3) of ERISA and the
regulations thereunder and Section 4975(d)(3) of the Code and the regulations
thereunder.
SECTION TEN. RESERVED.
SECTION ELEVEN. MISCELLANEOUS
11.1 Holidays. If any principal of the Note shall fall due on Saturday, Sunday
or on another day which is a legal holiday for savings institutions in the State
of New York, interest at the rate the Note bears for the period prior to
maturity shall continue to accrue on such principal from the stated date thereof
to and including the next succeeding Business Day on which the same is payable.
11.2 No Waiver, Cumulative Remedies. No delay or failure on the part of the
Lender or the
<PAGE>
part of the holder of the Note in the exercise of any power or
right shall preclude any other or further exercise thereof, or the exercise of
any other power or right, and the rights and remedies hereunder of the Under and
of any holder of the Note are cumulative to, and not exclusive of, any rights or
remedies which any of them would otherwise have.
11.3 Amendments, Etc. No amendment, modification, termination or waiver of any
provision of this Agreement or of the Note nor consent to any departure by the
Borrower therefrom, shall in any event be effective unless the same shall be in
writing and signed by the Lender, and then such consent, modification or waiver
shall be effective only in the specific instance and for the specific purpose
for which given. No notice to or demand on the Borrower in any case shall
entitle the Borrower to any other further notice or demand in similar or other
circumstances.
11.4 Survival of Representations. All representations and warranties made herein
or in certificates given in connection with the Loan shall survive the execution
and delivery of this Agreement and of the Note, and shall continue in full force
and effect with respect to the date as of which they were made as long as any
credit is in use or available hereunder.
11.5 Payments. So long as the Lender is the holder of the Note, the Borrower
will promptly and punctually pay the principal of and interest on the Note
without presentment of the Note and without any notation of any such payment
being made on the Note.
11.6 Addresses for Notices. All communications provided for herein shall be in
writing and shall be deemed to have been given or made when served personally or
when deposited in the United States mail addressed, if to the Borrower at 250
Park Avenue, New York, New York 10177, Attn: James R. McDonald, Vice President,
with copy to Helm, Shapiro, Anito & McCale, P.C., 20 Corporate Woods Boulevard,
Albany, New York 1221 1, Attn: Brian P. Goldstein, Esq.; if to the Lender at One
South Church Street, Goshen, New York 10924, Attn: Clifford E. Kelsey, Jr.,
President, with copy to Serchuk & Zelermyer, LLP, 81 Main Street, White Plains,
New York 10601, Attn: Clifford S. Weber, Esq.; or at such other address as shall
be designated by any party hereto in a written notice to each other party
pursuant to this Section 11.6.
11.7 Headings. Article and Section headings used in this Agreement are for
convenience or reference only and are not a part of this Agreement for any other
purpose.
11.8 Severability of Provisions. Any provision of this Agreement which is
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such unenforceability without impairing the enforceability of
the remaining provisions hereof affecting the enforceability of such provision
in any other jurisdiction.
11.9 Counterparts. This Agreement may be executed in any number of counterparts,
and by different parties hereto on separate counterparts, and all such
counterparts taken together shall be deemed to constitute one and the same
instrument.
11.10 Binding Nature, Governing Law, Etc. This Agreement shall be binding upon
the Borrower and its successors and assigns and shall inure to the benefit of
the Lender and the benefit of its successors and assigns, including any
subsequent holder of the Note. To the extent not preempted by Federal law, this
Agreement and the rights and duties of the parties hereto shall be construed and
determined in accordance with the laws of the State of New York without regard
to principles of conflicts of laws. This Agreement constitutes the entire
understanding of the parties with respect to the subject matter hereof and any
prior agreements, whether written or oral, with respect thereto are superseded
hereby.
<PAGE>
11.11 Concerning the Borrower. The term "Borrower" as used herein shall mean and
include the undersigned as Trustee of the Trust and its successors in trust, not
individually but solely as Trustee under that certain agreement forming the
Trust. The undersigned Trustee assumes no personal or individual liability or
responsibility for payment of the -indebtedness evidenced by the Note or for
observance or performance of the covenants and agreements herein contained or
for the truthfulness of the representations and warranties herein contained, the
undersigned having executed this Agreement and the Note solely in its capacity
as trustee as aforesaid to bind the undersigned. its successors in trust and the
trust estates.
11.12 Limited Liability. Anything contained herein or in the Note to the
contrary notwithstanding, the sole and only recourse of the Under and any other
holder of the Note for payment of the obligations hereunder and under the Note,
as against the Borrower for the payment of the obligations hereunder and under
the Note shall be to (i) the Collateral, (ii) contributions, other than employer
securities not constituting Collateral hereunder, made to the ESOP and the Trust
by sponsoring employers to enable the Borrower to meet its obligations hereunder
and under the Note, and (iii) earnings attributable to the Pledged Shares and to
the investment of such employer contributions, but only to the extent of the
failure of the Borrower to meet the payment schedule of the Loan provided for
herein. The Trust assets may be transferred to Lender upon the occurrence of a
Default or an Event of Default hereunder only upon and to the extent of the
failure of the ESOP to meet the payment schedule of the Loan. In no event may
the value of the Trust assets so transferred exceed the amount of the default.
11.13 Lender's Duty of Care. It is agreed and understood that the Lender's duty
with respect to the Collateral shall be solely to use reasonable care in the
custody and preservation of the Collateral in the Lender's possession, which
shall not include any steps necessary to preserve rights against other parties.
All provisions in this Agreement shall be construed so as to maintain (i) the
ESOP as a qualified leveraged employee stock ownership plan under Sections
401(a) and 4975(e)(7) of the Code, (ii) the Trust as exempt from taxation under
Section 501 (a) of the Code, and (iii) the Loan as an "exempt loan" under the
Exempt Loan Rules.
Upon your acceptance hereof in the manner hereinafter set forth, this Agreement
shall constitute a contract between us for the uses and purposes hereinabove set
forth.
Dated as of this 12TH
day of June 1997.
MARINE MIDLAND BANK, and it successors in trust, as Trustee under the Trust
related to the GSB Financial Corporation Employee Stock Ownership Plan
By: /s/ James McDonald
Accepted and agreed to at Goshen, New York as of the date last above written.
GSB FINANCIAL CORPORATION
By: /s/ Clifford E. Kelsey, Jr.
<PAGE>
EXHIBIT A
PROMISSORY NOTE
Amount Sufficient to Satisfy Loan Amount
Goshen, New York 1997
For VALUE RECEIVED, the undersigned, MARINE MIDLAND BANK, not individually but
solely as Trustee under the trust related to the GSB Financial Corporation
Employee Stock Ownership Plan (which trust shall be referred to as the
"Borrower"), promises to pay to the order of GSB FINANCIAL CORPORATION, a
Delaware Corporation (the "Lender") at its office at One South Church Street,
Goshen, New York 10924, the aggregate principal amount of the loan made to the
Borrower under Section 1. 1 of the Loan and Security Agreement hereinafter
referred to in forty consecutive equal quarterly principal installments,
together with all accrued interest on the unpaid principal sum, payable
quarterly commencing on the last business day of September, 1997, and on the
last business day of each and every calendar quarter thereafter, except that the
final installment in the amount of all principal and interest not sooner paid
shall be due on June 30, 2007, the final maturity hereof. Each such principal
installment shall equal the unpaid principal balance on-the due date of the
installment multiplied by a fraction, the numerator of which shall be one and
the denominator of which shall be the number of installments remaining under
this Note, including the installment which is due in the current calendar
quarter.
The Borrower promises to pay interest (computed on the basis of a year of 360
days) at said office on the balance of principal from time to time remaining
outstanding and unpaid hereon at the rate per annum equal at all times to the
Interest Rate as defined in Section 2.1 of the Loan and Security Agreement (as
defined below) on the last business day of each and every calendar quarter,
commencing September, 1997, and on the final maturity date of this Note. On
demand, the Borrower promises to pay interest on any overdue principal hereof
(whether by lapse of time, acceleration, or otherwise) until paid at the stated
rate.
This Note is issued under and subject to the terms and provisions of that
certain GSB Financial Corporation Employee Stock Ownership Plan Trust Loan and
Security Agreement bearing even date herewith by and between the Borrower and
the Lender (the "Loan and Security Agreement") and this Note and the holder
hereof are entitled to all the benefits and security provided for thereby or
referred to therein to which Loan and Security Agreement reference is hereby
made for a statement thereof.
This Note may be declared due prior to its express maturity and voluntary
prepayments may be made hereon, all in the events, on the terms and in the
manner as provided in such Loan and Security Agreement.
Recourse for the payment of this Note has been limited by the provisions of the
Loan and Security Agreement and this Note is expressly made subject to such
provisions. This Note shall be governed by and construed in accordance with the
laws of New York without regard to principles of conflicts of laws. The
Borrower hereby waives presentment for payment and demand.
Upon the occurrence of an Event of Default as such term is defined in the Loan
and Security Agreement, at the option of the Lender, all amounts payable by the
Borrower to the Lender under the terms of this Note may immediately become due
and payable by the Borrower to the Lender subject to the provisions of Section
9.2 of the Loan and Security Agreement, and the Lender shall have all of the
rights, powers, and remedies available under the terms of this Note, any of the
<PAGE>
other documents evidencing and securing this Loan and all applicable laws. The
Borrower and all endorsers, guarantors, and other parties who may now or in the
future be primarily or secondarily liable for the payment of indebtedness
evidenced by this Note hereby severally waive presentment, protest and demand,
notice of protest, notice of demand and of dishonor and non-payment of this Note
and expressly agree that this Note or any payment hereunder may be extended from
time to time without in any way affecting the liability of the Borrower,
guarantors and endorsers.
MARINE MIDLAND BANK, and it successors in trust, as Trustee under the Trust
related to the GSB Financial Corporation Employee Stock Ownership Plan
By:
As its:
<PAGE>
SCHEDULE B
FORM OF ASSIGNMENT
In consideration of the loan made by GSB Financial Corporation (the "Lender") to
the trust related to the GSB Financial Corporation Employee Stock Ownership Plan
(the "Trust") pursuant to the GSB Financial Corporation Employee Stock Ownership
Plan Trust Loan and Security Agreement (the "Loan Agreement") of even date
hereof between the Lender and the Trust, and subject to the terms and conditions
of the Loan Agreement, which are incorporated herein by this reference, the
undersigned Trust hereby transfers, assigns and conveys to the Under all its
right, title and interest in and to those certain shares of common stock of the
Lender which it shall purchase with the proceeds of the loan made pursuant to
the Loan Agreement, and agrees to transfer and endorse to the Lender the
certificates representing such shares promptly upon its receipt thereof.
Dated: 1997
MARINE MIDLAND BANK, and it successors in trust, as Trustee under the Trust
related to the GSB Financial Corporation Employee Stock Ownership Plan
By:
As its
<PAGE>
SCHEDULE C
FORM OF IRREVOCABLE PROXY
In consideration of the loan made by GSB Financial Corporation (the "Lender") to
the trust related to the GSB Financial Corporation Employee Stock Ownership Plan
(the "Trust") pursuant to the GSB Financial Corporation Employee Stock Ownership
Plan Trust Loan and Security Agreement (the "Loan Agreement") of even date
hereof between the Lender and the Trust, and subject to the terms and conditions
of the Loan Agreement, which are incorporated herein by this reference,, the
undersigned Trust hereby appoints the Lender as its proxy, with power of
substitution, to represent and to vote those certain shares of common stock of
the Lender which it shall purchase with the proceeds of the loan made pursuant
to the Loan Agreement. This proxy, when properly executed, shall be irrevocable
and shall give the Lender full power and authority to vote on any and all
matters for which other holders of shares of common stock of the Lender are
entitled to vote.
Dated: 1997
MARINE MIDLAND BANK, and it successors in trust, as Trustee under the Trust
related to the GSB Financial Corporation Employee Stock Ownership Plan
By:
As its:
<PAGE>
To Our Stockholders
On behalf of the directors, officers and employees of GSB Financial
Corporation and its subsidiary, Goshen Savings Bank, I am pleased to bring you
this annual report, our first as a public company. On July 9, 1997, we completed
the conversion of Goshen Savings Bank and sold 2,248,250 shares of stock of our
holding company at $10.00 per share. We do not view the conversion as a
revolution, but rather as another step in our evolution which began more than
125 years ago when Goshen Savings Bank was first chartered by the New York State
legislature. The conversion helps position us to move forward into the next
millennium as a strong and vibrant institution serving the needs of our
community.
We all recognize that the conversion brings us a new constituency, our
stockholders, to add to our existing constituencies represented by our
employees, our customers, and our surrounding community. Your management team
will work to harmonize the interests of all these constituencies through the
continuation of our operating strategy, which is to remain a carefully run,
limited risk, community-based, profitable institution. Our additional capital
gives us the opportunity to explore gradual diversification, both through
prudent expansion of our customer base and the offering of new products and
broader loan programs.
We have begun the process of investing that capital to increase
profitability. We are also exploring a number of possibilities for expansion of
our franchise and the related leveraging of the new capital. In preparation for
potential expansion, your management team is investigating opportunities to
improve and expand the services available to our customers to further satisfy
the banking needs of the communities we serve.
We must never forget that a profitable business is always a partnership
of many interested persons. We are pleased that you, our stockholders have
joined us in that partnership. We invite you to become our customers, bring us
your business, send us business and help us grow even stronger and more
profitable than we have been during the 1997 fiscal year.
/s/ Clifford E. Kelsey, Jr.
---------------------------------
Clifford E. Kelsey, Jr.
President and Chief Executive Officer
<PAGE>
SELECTED FINANCIAL INFORMATION
Set forth below are selected consolidated financial and other data of
GSB Financial Corporation (the "Company"). This financial data is derived in
part from, and should be read in conjunction with, the Financial Statements and
Notes to Consolidated Financial Statements of the Company presented elsewhere in
this Annual Report. In the opinion of management of the Company, 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 September 30,
----------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C> <C>
Total assets ....................... $117,046 $ 96,323 $101,041 $100,222 $100,290
Loans receivable, net (1) ........................ 65,738 58,727 57,919 57,171 47,561
Mortgage-backed securities (2) .................... 12,643 6,474 4,404 2,226 1,753
Investment securities (2) ......................... 26,638 23,081 27,844 34,714 45,516
Cash and cash equivalents ......................... 8,318 4,684 7,195 2,370 1,707
Deposits ........................................ 82,983 83,442 88,093 86,396 88,803
Borrowings ........................................ -- -- 1,000 2,000 --
Total equity ...................................... 32,633 11,747 11,097 11,508 11,197
</TABLE>
Selected Operations Data:
<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C> <C>
Interest income .................................... $ 7,078 $ 6,235 $ 5,715 $ 5,747 $ 6,414
Interest expense ................................... 3,226 3,448 3,289 2,689 3,026
-------- ------- ------- ------- -------
Net interest income ............................. 3,852 2,787 2,426 3,058 3,388
Provision for loan losses .......................... 20 24 29 25 10
------- ------- ------- ------- -------
Net interest income after
provision for loan losses .................. 3,832 2,763 2,397 3,033 3,378
Non-interest income ................................ 343 721 450 377 425
Non-interest expense ............................... 2,979 2,575 2,931 2,798 2,599
------- ------- ------- ------- -------
Income (loss) before income taxes and cumulative
effect of changes in accounting principles ........ 1,196 909 (84) 612 1,204
Income tax expense
(benefit) .......................................... 440 351 (16) 301 398
------- ------- ------- ------- -------
Income (loss) before cumulative effect of changes
in accounting principles ........................ 756 558 (68) 311 806
Cumulative effect of changes
in accounting principles (3) ................... -- -- (394) -- --
------- ------- ------- ------- -------
Net income (loss) .......................... $ 756 $558 $ (462) $311 $806
======= ======= ======= ======= =======
</TABLE>
Notes appear on following page.
-2-
<PAGE>
Selected Financial Ratios and Other Data (4):
<TABLE>
<CAPTION>
At or for the Year Ended September 30,
-----------------------------------------------------------------------
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Performance Ratios:
Return on average assets (net income
to average total assets) ....................... 0.71% 0.56% (0.46)% 0.31% 0.82%
Return on average equity (net income
to average equity) ............................. 4.54 4.88 (4.04) 2.72 7.47
Average interest-earnings assets to
average interest-bearing liabilities ........... 119.66 109.57 109.91 112.69 110.73
Net interest rate spread (5) ...................... 3.25 2.71 2.27 2.85 3.28
Net interest margin (6) ........................... 3.89 3.08 2.62 3.21 3.64
Net interest income after provision
for loan losses to total other expenses ........ 1.29x 1.07x 0.82x 1.08x 1.30x
Capital and Asset Quality Ratios:
Average equity to average total assets ............ 15.61 11.40 11.34
11.53 10.99
Total equity to assets end of period .............. 27.88 10.98 11.48
12.20 11.16
Non-performing assets to total assets ............. -- 0.02 0.22 0.26 0.27
Non-performing loans to total loans ............... -- 0.03 0.39 0.45 0.56
Allowance for loan losses to total loans .......... 0.21 0.21 0.20 0.19 0.19
Allowance for loan losses to
non-performing loans ........................... NM(7) 7.69x 0.51x 0.41x 0.34x
Other Data:
Number of real estate loans outstanding ........ 983 876 913 951 922
Number of deposit accounts ..................... 11,047 11,695 12,556 12,106 12,040
Full service offices ........................... 2 1 1 1 1
</TABLE>
(1) Shown net of deferred fees and the allowance for loan losses.
(2) At September 30, 1997, $5.7 million of the Company's mortgage-backed
securities are classified as held to maturity and $7.0 million are classified as
available for sale. All investment securities are classified as available for
sale. See Notes 3, 4, 5 and 6 of Notes to Financial Statements. For 1994,
investment securities include $2.2 million of trading securities.
(3) 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 13 of Notes to Financial
Statements.
(4) Asset quality and capital ratios are at end of period. Other ratios are
based upon month end average balances.
(5) 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.
(6) 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.
(7) Not Meaningful. The denominator (non-performing loans) is zero.
-3-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
On July 9, 1997, Goshen Savings Bank (the "Bank") converted from a
mutual to a stock form savings bank (the "Conversion"). Simultaneously, GSB
Financial Corporation (the "Company") sold 2,248,250 shares of its common stock
at $10.00 per share (the "Offering"). Net proceeds from the Offering amounted to
$21.4 million, including proceeds from the sale of stock to the Company's
Employee Stock Ownership Plan (the "ESOP") which was financed with a loan from
the Company. From the net proceeds, $10.7 million was paid by the Company to the
Bank in exchange for all the common stock issued by the Bank.
The financial condition and results of operations of the Company are
primarily dependent upon the operations of the Bank, and the earnings from
securities investments made by the Company with its portion of the net proceeds
retained by it. The Company'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 Company's provision for loan losses. In addition to net
interest income, other sources of income for the Company 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. Results of operations are also
significantly affected by general economic and competitive conditions,
particularly changes in market interest rates, government policies and actions
of regulatory authorities.
The Bank is a federal savings bank with deposits insured by the Bank
Insurance Fund ("BIF") of the FDIC. The Bank's primary federal banking regulator
is the Office of Thrift Supervision ("OTS"). References to the business
activities, financial condition and operations of the Company prior to July 9,
1997, refer to the Bank, while references to the Company on or after that date
refer to both the Company and the Bank as consolidated, except to the extent
that the context otherwise indicates.
Management Strategy
The Company's strategy is to continue to operate the Bank as a
community-based savings bank while exploring appropriate opportunities to
leverage the additional capital obtained in the Conversion. The Company is
seeking to improve its customer service delivery capability, enabling it to
provide better services to existing customers and seek to expand its customer
base. 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. Management
also considers other loan types consistent with its mission to serve the local
consumer and business community.
At September 30, 1997, 89.1% of the Company's loan portfolio
represented loans secured by first mortgages on owner-occupied one-to-four
family residential real estate, 3.5% represented home equity loans (including
lines of credit and conventional second mortgages) secured by junior liens on
residential real estate, and 2.9% represented loans secured by one-to-four
family residential real estate used for rental purposes. The Company also
invests in debt securities, emphasizing corporate securities to increase yields,
while controlling risks by limiting such investments to securities rated in the
three highest grades by a nationally recognized rating organization.
-4-
<PAGE>
Analysis of Net Interest Income
Net interest income, the principal source of income for the Company,
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 Company 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.
During the period from October 1, 1994 (the beginning of the 1995
fiscal year) through September 30, 1997, four principal factors had substantial
effects on the financial condition and results of operations of the Company.
These four 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") 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 Company to try to reduce its cost of funds; and (iv) the receipt
and investment of the net proceeds of the sale of the Company's common stock.
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"). The Company had total deposits and federal funds sold at
Nationar of approximately $2.9 million, which were frozen pending the
liquidation of Nationar by the Superintendent. The Company also had a $1.0
million borrowing with Nationar in the form of a repurchase agreement, and the
Company 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 ceased
earning interest after Nationar was closed, and thus have not been considered
interest-earning assets for the purpose of calculating yields, spread and net
interest margin.
The closing of Nationar had a number of effects on net interest income.
No interest was earned on the deposits and federal funds sold. Furthermore,
unavailability of the liquid assets at Nationar created a liquidity shortage,
which the Company 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 Company's average cost of funds. Furthermore, one of
the Company's competitors, also facing Nationar-related liquidity problems,
offered high-rate certificates of deposit after the Company's own program
expired. The Company 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 Company 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 Company recorded a $279,000
provision for Nationar losses, which did not directly affect net interest
income. In fiscal 1997 and 1996, the Company recovered $9,000 and $232,000,
respectively, of its provision for Nationar losses as it became apparent that
the Company 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 Company
offered ARMs with low initial interest rates. This was done due to customer
preferences and to maintain the Company'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 Company 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 5.50% to 6.00%.
-5-
<PAGE>
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
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 Company's loans, and consequently the Company's net interest
income, was adversely affected. As the interest rates on the teaser rate loans
increased, the Company experienced an increase in spread and interest income.
All of such loans adjusted 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 Company, to meet its competition, increased
the rates it offered on its certificates of deposit. This increase caused the
Company 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 Company 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 Company'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 Company 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 Company did not offer premium rates to
retain such deposits. In addition, as general market interest rates declined,
the Company did not aggressively pursue the retention of maturing high-rate
certificates of deposit by offering above-market rates at renewal. Instead, the
Company offered moderate rates in line with the average rates being offered in
its market area. In addition, the Company 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 $1.8 million, or 2.2%, of total deposits at September
30, 1997.
Additional Capital from the Conversion. Upon consummation of the
Conversion, the Company and the Bank had approximately $19.6 million of
additional capital to invest, representing the amount raised upon the sale of
the Company's common stock minus the costs of the transaction and the loan made
to the ESOP. Immediately after the Conversion, these funds were invested
principally in government, agency, corporate and mortgage-backed securities and
federal funds sold. Such investment can be anticipated to have a number of
immediate consequences, many of which are temporary, including the following.
First and foremost, since the new capital represents a funding source without
any interest cost, the investment of the capital will increase net interest
income. Absent changes in other aspects of the Company's business, this can be
expected to result in an increase in return on average assets, while return on
average equity can be expected to decline because the new capital has not yet
been leveraged. The investment of the new capital in securities and federal
funds sold can be expected to reduce the Company's reported spread because those
investments tend to have lower yields than loans, the Company's largest
component of interest earning assets. However, net interest margin can be
expected to increase because the capital generates no interest expense.
The Company is exploring opportunities to leverage the additional
capital obtained in the conversion through expansion of the Bank's deposit
taking network. The acquisition or opening of one or more additional branches is
under consideration, although at the date of this annual report no agreement to
engage in any particular transaction has been entered into. Other methods of
leveraging the additional capital, such as increased borrowings, are also
possible. However, no assurance can be given that the Company will be able to
satisfactorily leverage the additional capital nor that, if it is able to do so,
it will be able to maintain the same asset mix or average asset yields in its
current portfolio.
-6-
<PAGE>
Average Balances, Interest Rates and Yield
The following table presents for the periods indicated, the total
dollar amount of interest income from average interest-earning assets and the
resultant yields, as well as the interest expense on average interest-bearing
liabilities, expressed both in dollars and rates. No tax equivalent adjustments
were made. All average balances are monthly average balances.
Non-interest-bearing checking accounts are included in the tables as a component
of non-interest-bearing liabilities.
<TABLE>
<CAPTION>
For the Year Ended September 30,
--------------------------------
1997 1996
---- ----
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
---------- -------- ------- ---------- -------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earnings assets:
Loans receivable (1) ............. $ 62,520 $ 4,833 7.73% $ 57,794 $ 4,328 7.49%
Mortgage-backed securities ....... 7,045 474 6.73 6,334 396 6.25
Investment securities ............ 21,626 1,332 6.16 24,136 1,388 5.75
Federal funds sold ............... 7,868 439 5.58 2,310 123 5.32
-------- -------- -------- -------- -------- --------
Total interest-earning assets .. 99,059 7,078 7.15 90,574 6,235 6.88
-------- -------- --------
Non-interest-earning assets ...... 7,566 8,505
-------- --------
Total assets ................... $106,625 99,079
======== ========
Interest-bearing liabilities:
Savings accounts ................. $ 27,976 825 2.95 $ 27,154 814 3.00
Certificates of deposit .......... 38,084 1,907 5.01 40,284 2,130 5.29
Money market ..................... 9,856 295 2.99 10,800 333 3.08
NOW accounts ..................... 3,931 101 2.57 3,376 88 2.61
Other ............................ 2,938 98 3.34 1,051 83 7.90
-------- -------- -------- --------
Total interest-bearing
liabilities ................. 82,785 3,226 3.90 82,665 3,448 4.17
-------- --------
Non-interest-bearing
liabilities ................. 7,198 4,987
-------- -------
Total liabilities ............. 89,983 87,652
Equity .......................... 16,642 11,427
-------- --------
Total liabilities and equity .. $106,625 $ 99,079
======== ========
Net interest income/spread (2)(3) 3,852 3.25% $ 2,787 2.71%
======== ======== ======== ========
Net earning assets/net
interest margin (4)............ $ 16,274 3.89% $ 7,909 3.08%
======== ======== ======== ========
Ratio of average interest-earning
assets to average interest-bearing
liabilities ..................... 1.20x 1.10x
===== =====
</TABLE>
<PAGE>
RESTUBBED TABLE
<TABLE>
<CAPTION>
1995
-----
Average
Average Yield/
Balance Interest Cost
---------- -------- -------
<S> <C> <C> <C>
Interest-earnings assets:
Loans receivable (1) ............. $ 58,433 $ 3,882 6.64%
Mortgage-backed securities ....... 2,910 198 6.80
Investment securities ............ 29,409 1,536 5.22
Federal funds sold ............... 1,740 99 5.69
-------- --------
Total interest-earning assets .. 92,492 5,715 6.18
--------
Non-interest-earning assets ...... 7,929
--------
Total assets ................... $100,421
========
Interest-bearing liabilities:
Savings accounts ................. $ 29,533 891 3.02
Certificates of deposit .......... 38,195 1,886 4.94
Money market ..................... 11,779 397 3.37
NOW accounts ..................... 3,290 86 2.61
Other ............................ 1,358 29 2.14
-------- --------
Total interest-bearing
liabilities ................. 84,155 3,289 3.91
--------
Non-interest-bearing
liabilities ................. 4,819
--------
Total liabilities ............. 88,974
Equity .......................... 11,447
--------
Total liabilities and equity .. $100,421
========
Net interest income/spread (2)(3) $ 2,426 2.27
======== ========
Net earning assets/net
interest margin (4)............ $ 8,337 2.62%
======== ========
Ratio of average interest-earning
assets to average interest-bearing
liabilities ..................... 1.10x
=====
</TABLE>
(1) Average balances include non-accrual loans. Interest on such loans is
recognized as and when received.
(2) Includes interest-bearing deposit in other financial institution.
(3) Interest-rate spread represents the difference between average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(4) Net yield on interest-earning assets represents net interest income as a
percentage of average interest-earning assets.
-7-
<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>
Year Ended September 30,
-------------------------------------------------------------------
1997 vs. 1996 1996 vs. 1995
---------------------------- ---------------------------
Increase (Decrease) Due to: Increase (Decrease) Due to:
--------------------------- ---------------------------
Rate Volume Total Rate Volume Total
(In Thousands)
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C>
Loans receivable ..................................... $ 143 $ 362 $ 505 $ 489 $ (43) $ 446
Mortgage-backed securities ........................... 32 46 78 (17) 215 198
Investment securities ................................ 94 (150) (56) 145 (293) (148)
Federal funds ........................................ 6 310 316 (7) 31 24
------- ------- ------- ------- ------- -------
Total interest-earning assets ................... 275 568 843 610 (90) 520
------- ------- ------- ------- ------- -------
Interest-bearing liabilities:
Savings accounts ..................................... (13) 24 11 (6) (71) (77)
Certificates of deposit .............................. (110) (113) (223) 138 106 244
Money market ......................................... (10) (28) (38) (32) (32) (64)
NOW accounts ......................................... (1) 14 13 (1) 3 2
Other ................................................ (69) 84 15 62 (8) 54
------- ------- ------- ------- ------- -------
Total interest-bearing liabilities .............. (203) (19) (222) 161 (2) 159
------- ------- ------- ------- ------- -------
Net change in net interest income .................... $ 478 $ 587 $ 1,065 $ 449 $ (88) $ 361
======= ======= ======= ======= ======= =======
</TABLE>
The principal objective of the Company'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, such as during fiscal 1997
and 1996, the Company makes fixed-rate 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 Company is exploring
offering other loan products which may provide loans with shorter terms or
adjustable rates, such as a more competitive prime rate based home equity loan
product.
Interest rate pricing and interest rate risk strategy objectives are
implemented, in the first instance, by the Bank's Asset/Liability Committee,
consisting of five officers of the Bank. The committee meets weekly to review
the pricing of the Bank's loan and deposit products. The Board of Directors of
the Bank receives and reviews a
-8-
<PAGE>
report on the Bank's estimated interest rate sensitivity every month. When
appropriate based upon its need to manage interest rate risk, the Company may
emphasize adjustable rate loans or short term debt securities investments, or
may seek to lengthen the maturities of its liabilities. The Company 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, 1995,
1996, and 1997, the Bank had passbook and statement savings deposits of $27.2
million, $26.8 million and $26.8 million, respectively, reflecting a significant
level of deposits with interest rates that did not change for more than three
years.
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 Company'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 September 30, 1997, the Company'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, as a
percentage of total assets, was estimated to be a positive 18.08%, 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 September 30, 1997, which are
estimated by the Company, 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
documentation for new adjustable rate loans provided that each loan would
reprice either on January 1 or July 1 of each year. Therefore, the interest rate
adjustments on such loans were bunched together rather than spread throughout
the year, so three month gap analysis may be distorted and one year gap
information may be more meaningful.
The Company 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 Company's estimated gap. While the Company 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.
-9-
<PAGE>
<TABLE>
<CAPTION>
At September 30, 1997
----------------------------------------------------------------------------------------
Less Three
Than Months Over One Over Three Over Five More
Three Through Through Through Through Than
Months One Year Three Years Five Years Ten Years Ten Years Total
------ -------- ----------- ---------- --------- --------- -----
(Dollars in Thousands)
Interest-earnings assets:
<S> <C> <C> <C> <C> <C> <C> <C>
Loans receivable.................. $ 3,198 $ 32,476 $ 2,267 $ 2,548 $ 1,119 $24,297 $65,905
Mortgage backed securities........ 376 1,521 6,249 2,827 1,140 534 12,647
Federal funds sold................ 5,100 - - - - - 5,100
Investment securities ............ 4,704 9,503 9,970 1,525 - - 25,702
------- -------- ------- -------- ------- -------- --------
Total interest-earning assets 13,378 43,500 18,486 6,900 2,259 24,831 109,354
------- -------- ------- -------- ------- -------- --------
Interest-bearing liabilities:
NOW accounts...................... 62 186 496 496 2,896 - 4,136
Savings accounts ................. 403 1,207 3,220 3,220 18,789 - 26,839
Money market accounts............. 134 400 1,068 1,068 6,222 - 8,892
Certificates of deposits.......... 12,785 21,934 3,464 64 - - 38,247
Borrowings........................ - - - - - - -
------- -------- ------- -------- ------- -------- --------
Total interest-bearing
liabilities.................... 13,384 23,727 8,248 4,848 27,907 - 78,114
------- -------- ------- -------- ------- -------- --------
Interest-earning assets less
Iterest-bearing liabilities ...... $ (6) $ 19,773 $ 10,238 $2,052 $ (25,648) $24,831 31,240
======== ======== ======== ======== ========= ======== ========
Cumulative interest sensitivity
gap... $(6) $ 19,767 $ 30,005 $ 32,057 $ 6,409 $31,240
======== ======== ======== ======== ========= ========
Cumulative gap to total assets.... (0.01)% 16.89% 25.64% 27.39% 5.48% 26.69%
======== ======== ======== ======== ========= ========
Cumulative gap to
interest-earning
assets............................. (0.01)% 18.08% 27.44% 29.31% 5.86% 28.57%
======== ======== ======== ======== ========= ========
Cumulative interest-earning
assets to cumulative
interest-bearing liabilities 99.96% 153.26% 166.15% 163.85% 108.20% 139.99%
======== ======== ======== ======== ========= ========
</TABLE>
Analysis of Market Risk. In addition to analysis of gap, the Company
expects that in the future it will also analyze susceptibility to interest rate
fluctuations based upon the OTS Net Portfolio Value ("NPV") model. The OTS
calculated the susceptibility to interest rate fluctuations by analyzing the
effect on NPV of various interest rate shock scenarios. NPV represents the
difference between the present value of the expected cash flows from assets less
the present value of expected cash flows on liabilities. Because the Bank only
recently converted from a state chartered to a federally chartered savings bank,
and because the Bank is exempt from the OTS rules which require additional
capital to support excess interest rate risk, the Bank has not yet obtained an
analysis from the OTS of its change in NPV based upon changes in interest rates.
In the interim, in addition to the gap analysis set forth above, the
Company has prepared the following table which sets forth the expected maturity,
weighted average interest rate and fair value of its on balance sheet financial
instruments at September 30, 1997. Asset and liability maturities are based upon
the same assumptions set forth above with respect to the gap analysis table and
fair values are based upon the assumptions set forth in Note 19 of the
accompanying Notes to Financial Statements. The Company recognizes that in any
rapidly changing interest rate scenario, consumer preferences often shift
dramatically, and unpredictably. For example, in an increasing interest rate
environment, some borrowers may seek to refinance adjustable rate loans into
fixed rates in order to lock in fixed rates before interest rates go even
higher, while new home purchasers may seek adjustable rate loans in the belief
that interest rates will go back down. Consumer preferences can have a
substantial affect on the accuracy of projections of changes in future
-10-
<PAGE>
income or value when such projections are based upon interest rate sensitivity
analysis. Therefore, although the Company considers interest rate sensitivity to
be an important component of its analysis of product offerings and pricing,
other factors, such as maintaining a satisfactory spread, are also important.
The reader is cautioned not to place undue emphasis on interest rate sensitivity
analysis.
<TABLE>
<CAPTION>
At September 30, 1997
----------------------------
One to Two to More than Total
To One Two Three Three Book Fair
Year Years Years Years Value Value
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Financial Assets
Cash and cash equivalents $5,100 $ - $ - $ 3,218 $ 8,318 $8,318
Weighted average interest rate 6.25% - - - 3.83%
Investment securities available for sale 7,794 3,297 6,681 5,127 22,899 23,010
Weighted average interest rate 6.19% 6.18% 6.05% 7.09% 6.35%
Mortgage-backed securities available for sale - - - 6,994 6,994 6,990
Weighted average interest rate - - - 6.71% 6.71%
Mortgage-backed securities held to maturity 212 556 873 4,012 5,653 5,766
Weighted average interest rate 7.00% 5.01% 6.98% 7.11% 6.87%
Federal Home Loan Bank stock - - - 638 638 638
Weighted average interest rate - - - 6.49% 6.49%
Equity securities - - - 2,165 2,165 2,990
Weighted average interest rate - - - 5.21% 5.20%
Real estate loans - fixed-rate 2,387 101 117 26,259 28,864 28,864
Weighted average interest rate 7.43% 8.82% 8.62% 7.99% 7.95%
Real estate loans - adjustable-rate 32,989 1,225 608 1,379 36,201 36,201
Weighted average interest rate 7.50% 6.44% 7.50% 8.05% 7.48%
Consumer loans 299 80 136 325 840 840
Weighted average interest rate 9.99% 11.09% 11.09% 10.44% 10.45%
Deposits
Savings accounts 1,610 1,610 1,610 22,009 26,839 26,839
Weighted average interest rate 3.00% 3.00% 3.00% 3.00% 3.00%
Certificates of deposit 34,719 2,684 780 64 38,247 38,247
Weighted average interest rate 5.08% 5.19% 6.04% 5.10% 5.11%
Money market accounts 534 534 534 7,290 8,892 8,892
Weighted average interest rate 3.00% 3.00% 3.00% 3.00% 3.00%
Now accounts 248 248 248 3,392 4,136 4,136
Weighted average interest rate 2.50% 2.50% 2.50% 2.50% 2.50%
Demand accounts - - - 4,869 4,869 4,869
Weighted average interest rate - - - - -
</TABLE>
-11-
<PAGE>
Comparison of Financial Condition at September 30, 1997 and September 30, 1996
Total assets at September 30, 1997 were $117.0 million compared to
$96.3 million at September 30, 1996, an increase of $20.7 million, or 21.5%. The
increase resulted principally from the net proceeds from the Conversion of $19.6
million, excluding the ESOP loan. Due to the active solicitation of new
residential mortgage loans, the Company increased its loans, net by $7.0
million, or 11.9%, from $58.7 million at September 30, 1996 to $65.7 million at
September 30, 1997. The Company invested the remainder of the net proceeds of
the Conversion principally in investment and mortgage-backed securities
available for sale, which increased $3.6 million and $7.0 million, respectively,
at September 30, 1997 compared to September 30, 1996. Total deposits decreased
by $459,000 from $83.4 million at September 30, 1996 to $83.0 million as of
September 30, 1997. Management believes the decrease in deposits resulted
principally from the use of deposits by some customers to purchase stock of the
Company in the Conversion. The Bank opened a new branch in March 1997, which had
total deposits of $2.1 million at September 30, 1997. Such deposits partially
offset the decline as deposits were used to purchase stock.
Total equity increased to $32.6 million at September 30, 1997, from
$11.7 million at September 30, 1996. Included in the equity is an increase of
$19.7 million representing the net proceeds from the initial public offering
after deducting unallocated ESOP stock, and an increase of $416,000 in the net
unrealized gain on securities available for sale.
Comparison of Operating Results for the Years Ended September 30, 1997 and
September 30, 1996
General. Net income for the year ended September 30, 1997 was $756,000,
compared to $558,000 for the year ended September 30, 1996. The improvement in
net income resulted principally from an increase in net interest income of $1.1
million, caused by an increase in the yield on interest-earning assets, an
increase in the volume of interest-earning asset and a decrease in the cost of
funds. This improvement was offset by a decrease in non-interest income of
$378,000 and an increase in both non-interest expenses of $404,000 and income
tax expense of $89,000.
Interest Income. Interest income increased by $843,000, or 13.5%, from
$6.2 million in fiscal 1996 to $7.1 million in fiscal 1997. The average balance
of interest-earning assets during the fiscal 1997 increased by $8.5 million, or
9.4%, compared to fiscal 1996. This increase was caused principally by the
effect of investing (a) in excess of $50 million of stock subscriptions received
by the Bank pending consummation of the Conversion and (b) the additional
capital received when the Company's stock was sold. The stock subscriptions were
invested in federal funds sold, representing the principal cause of an increase
in the average balance of federal funds sold from $2.3 million in fiscal 1996 to
$7.9 million in fiscal 1997. The average balance of loans increased by $4.7
million, or 8.2%, in fiscal 1997 compared to fiscal 1996, as management actively
pursued an increase in loan originations. The average balance of investment
securities declined by $2.5 million from fiscal 1996 to 1997 as the proceeds
from maturing investment securities were redeployed into higher-yielding loans
in the early part of the year, to be replenished after the Conversion.
Accompanying these increases in average volume was an overall increase in
average yield of 27 basis points, including an increase in the average rate
earned on loans of 24 basis points to 7.73% from 7.49% as the Company's ARM
loans had all reached fully indexed rates and new mortgage loans tended to be
fixed-rate loans with slightly higher interest rates. Yields on other asset
categories also increased due to higher market rates on federal funds sold and
security investments.
Interest Expense. Interest expense decreased $222,000 from $3.4 million
in fiscal 1996 to $3.2 in fiscal 1997. The principal cause for the decrease was
a decrease of 27 basis points in the average cost of funds in fiscal 1997,
represented principally by a decline in the rate paid on certificates of deposit
as the Company realized the benefits of low market interest rates coupled with
its efforts to reduce its cost of funds. The average balances of
interest-bearing liabilities increased by $120,000 due to the stock
subscriptions received in connection with the Conversion, which had interest
rates equal to the rates paid on the accounts into which the depositor deposited
the subscription funds, or 3% if not held in a customer deposit account. Thus,
the increase in deposits was represented by increases in the volume of low cost
deposit categories while the
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average volume of certificates of deposit, the Company's highest costing
deposits, declined by $2.2 million, and the average rate paid on such deposits
declined by 28 basis points. Interest expense during fiscal 1997 included
$74,000 of interest paid at the 3% rate on stock subscriptions not deposited
into customer accounts.
Net Interest Income. Net interest income before the provision for loan
losses increased by $1.1 million from fiscal 1996 to fiscal 1997, representing
the net effect of the $843,000 increase in interest income and the $222,000
decrease in interest expense. The overall increase in net interest income was
reflected in an increase in the Company's spread by 54 basis point from 2.71% to
3.25%.
During both fiscal 1997 and 1996, non-performing assets were at low
levels and changes in the level of average non-performing assets from fiscal
1996 to fiscal 1997 did not have a material effect on the change in net interest
income.
Provision for Loan Losses. From fiscal 1996 to fiscal 1997, the
provision for loan losses was reduced by $3,500 from $23,500 to $20,000. 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 Company's historical experience. Throughout 1996 and
1997, the Company had low levels of non-performing, delinquent and classified
loans, and net charge-offs amounted to only $15,000 in fiscal 1996 and $4,000 in
fiscal 1997. All charge-offs during both periods were on non-real estate secured
consumer loans. More than 85% of the Company's loans throughout fiscal 1995,
1996 and 1997 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 all three periods represented principally the
replenishment of amounts charged against the allowance.
The Company periodically reviews its loan portfolio, level 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 are necessarily speculative based upon estimates of the future
performance of the Company's loan portfolio. Although the Company maintains its
allowance for loan losses at a level which it considers to be adequate to
provide for potential losses, there can be no assurance that such losses will
not exceed the current estimated amounts. As a result, higher provisions for
loan losses may be necessary in future periods which would adversely affect
operating results.
Non-Interest Income. Non-interest income amounted to $343,000 for 1997
as compared to $721,000 for 1996. The $378,000 decrease was principally because
during fiscal 1996, the Company recovered $232,000 of the reserve created in
fiscal 1995 for possible Nationar losses, compared to a $9,000 additional
recovery in 1997. The net realized gains on securities sold declined by $114,000
between the periods because the Company did not sell any investment securities
during 1997. The Company also experienced a $26,000 decline in capital gain
distributions on its mutual fund investments from fiscal 1996 to 1997. The
mutual fund 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 the fund and the timing of its
securities trading activities, which, depending upon market conditions, result
in realized gains which are distributed each December.
Non-Interest Expense. Non-interest expense increased by $404,000 from
$2.6 million in 1996 to $3.0 million in fiscal 1997. Salaries and benefits
expense increased by $150,000 due to $83,000 of benefits expense in connection
with the Company's ESOP and $67,000 representing the combined effect of normal
salary increases, promotions and an increase in staff by approximately two full
time equivalent employees. The $83,000 of ESOP expense corresponded to $45,000
contributed to the ESOP in the form of principal payments on the ESOP loan, an
additional $22,000 representing the amount required to be recorded as an expense
under accounting rules due to an increase in the market value of the stock
released from the lien of the ESOP loan, and $16,000 in administrative expense
related to the ESOP. The principal payments on the ESOP loan are $45,000 per
calendar quarter. Interest on the ESOP loan payable to the Company is eliminated
in
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consolidation. Fiscal 1997 also included a $50,000 expense for costs related to
the removal of environmental contamination on property adjoining the Bank's main
office. Furthermore, during the period from the completion of the Conversion
through the end of fiscal 1997, the Company incurred or accrued $79,000 of
expenses related to operating a public company and holding the first annual
meeting of stockholders.
Income Tax Expense. Income tax expense increased from $351,000 in
fiscal 1996 to $440,000 in fiscal 1997. The increase was principally the result
of the increase in the Company's income before taxes from $909,000 in fiscal
1996 to $1.2 million in fiscal 1997. The Company's effective tax rate declined
from 38.6% in fiscal 1996 to 36.8% in fiscal 1997 principally due to a reduction
in deferred tax liabilities caused by changes in New York State law regarding
the tax bad debt deduction. Most of the Company'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 any of the years described herein.
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 Company 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 Company's $1.0 million repurchase agreement borrowing with Nationar, which
reduced the Company's total assets by that amount.
The deposit outflow was funded principally by a reduction in the
Company's portfolio of investment securities, which totaled $27.8 million at
September 30, 1995 and decreased by $4.7 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 Company as Nationar was liquidated. Due to the active solicitation
of new residential mortgage loans, the Company 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 Company's total stockholder's 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.
On December 29, 1995, in accordance with an interpretation by the
Financial Accounting Standard Board (the "FASB"), the Company reclassified its
entire investment securities portfolio from "held to maturity" to "available for
sale." This was done in order to provide the Company with additional flexibility
in dealing with liquidity and funding requirements, although the Company has
generally not engaged in the sale of securities classified as available for
sale. See Notes 1 and 3 of Notes to Financial Statements
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 Company received payment of a substantial portion of its claims
against Nationar in fiscal 1996, allowing the Company to recover $232,000 of the
$279,000 provision for possible Nationar losses recorded in fiscal 1995. Second,
in fiscal 1995, the Company 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 13 of Notes to Financial
Statements. Third, the Company'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, the Company instead incurs 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 at a
rate of 0.013% of deposits. Finally, the
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Company'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 principally from the upward adjustment of
the interest rates on the Company's teaser rate residential mortgage. These
upward adjustments, which brought the yields on the loans closer to market
rates, 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 Company'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 Company'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 Company occasionally
sold fixed rate residential mortgage loans to FNMA with servicing retained by
the Company, since 1995 the Company has retained in its portfolio all fixed-rate
residential mortgage loans it has originated. During fiscal 1996, virtually all
of the Company'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
newly originated ARMs. In addition, with the waning of customer interest in
ARMs, the Company 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 Company'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 Company'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 Company 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
Company 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 Company on account of its Nationar claim in fiscal
1996,
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the Company 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 Company'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.
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 Company's historical experience. Throughout 1995 and
1996, the Company 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.
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. The Company determined to create an allowance for losses by recording 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 Company's Nationar assets was alleviated. As a result, the Company
determined that its existing allowance exceeded the uncertainties associated
with its remaining claim, and the Company recovered $232,000 of the allowance.
The remainder of the allowance in the amount of $47,000 represented the Nationar
capital stock and capital debentures owned by the Company, and was not expected
to be recovered. However, $9,000 was recovered in fiscal 1997 when the
Superintendent made an additional payment.
Non-interest Income. Non-interest income increased from $450,000 in
fiscal 1995 to $721,000 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 Company sold a portion of its investment in Student Loan Marketing
Association 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 the mutual fund in which the Company
invests.
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 Company 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
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benefit costs, while occupancy expense 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 Company aggressively advertised for new loans and increased general
advertising in connection with the Bank's 125th anniversary.
Effect of SFAS 106. SFAS 106, "Employer's Accounting for
Post-retirement Benefits Other Than Pensions," issued in December 1990, requires
that the cost of post-retirement benefits, other than pensions, be recognized on
an accrual basis as employees perform the services which earn the
post-retirement benefits. This departed from prior practice in which the costs
of such benefits were recognized as and when paid. Prior to the adoption of SFAS
106, the Company offered all its retired employees health, dental and life
insurance coverage. After the adoption of SFAS 106, the Company reduced
post-retirement non-pension benefits for employees who are not yet retired so
current employees are now entitled to post-retirement health and dental benefits
only if they have 23 years of service and their age plus years of service equals
at least 75. SFAS 106 permits employers to accrue the additional liability for
pre-adoption service credit either in one lump sum or gradually over a period of
years. During fiscal 1995, the Company 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 Company
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 Company 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 13 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 Company'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.
Liquidity and Capital
The Company's primary sources of funds are deposits, proceeds from
the principal and interest payments on loans, mortgage-backed and debt
securities and capital gain distributions on its mutual fund investment. 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 Company is the origination of
residential one-to-four family mortgage loans and the purchase of
mortgage-backed and debt securities. During the years ended September 30, 1997,
1996 and 1995, the Company's loan originations totaled $13.3 million, $10.2
million and $7.8 million, respectively. Loans, net, after payments and
charge-offs, increased by $7.0 million, $808,000 and $748,000 during such
periods, respectively, while investment and mortgage-backed securities,
excluding the effect of unrealized gains and losses, increased by $9.0 million
and declined by $2.9 million and $4.9 million, respectively, during the same
periods. New loan and securities investments were funded primarily by principal
repayments on loans, mortgage-backed and debt securities and during the last
quarter of fiscal 1997, by the additional capital obtained in the Conversion.
Deposits and other interest-bearing funding sources declined by $5.7
million, or 6.3%, from September 30, 1995 to September 30, 1996 and then
declined by $459,000 from September 30, 1996 to September 30, 1997. Deposits
decreased from 1995 to 1996 as part of management's efforts to reduce the
Company's cost of funds. Deposits decreased from 1996 to 1997 principally
because interest credited on deposits was more than offset by withdrawals to
purchase stock of the Company in the Conversion. Deposit flows are also affected
by the level of interest rates, the interest rates and products offered by the
local competitors, and other factors.
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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 September 30,
1997, the Bank had available lines of credit with the Federal Home Loan Bank of
New York of $9.8 million. The Bank had outstanding borrowings of $2.0 million
for a part of fiscal year 1997 but all borrowings were repaid by year end. The
Bank may use borrowings to satisfy funding needs rather than increase the rates
paid on new deposits, which could have had a greater adverse effect on the cost
of funds. In the future, borrowings may also provide an appropriate method of
leveraging the additional capital obtained in the Conversion.
Loan commitments totaled $3.1 million at September 30, 1997, and the
Bank had $1.1 million of unused home equity lines of credit and $192,000 of
unused consumer overdraft checking lines of credit. 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 September 30, 1997, totaled $34.7 million. Management anticipates
that the Bank will be able to retain substantially all of such deposits if the
Bank decides to do so to fund loans and other investments.
At September 30, 1997, the Bank exceeded all regulatory capital
requirements of the OTS applicable to it, with tangible and core capital of
$21.3 million, or 19.6% of adjusted assets and total risk-based capital of $21.5
million, or 39.1% of risk-weighted assets. The Bank was classified as "well
capitalized" at September 30, 1997 under OTS regulations.
The Bank is subject to the minimum liquidity regulations of the OTS. At
September 30, 1997, and since the Bank became a federal savings bank in March
1997, OTS regulations required that the Bank maintain liquid assets equal to at
least 5% of its net withdrawable accounts plus short term borrowings, measured
on a monthly basis. The Bank has satisfied this requirement throughout the
period during which it has been a federal savings bank, and at September 30,
1997 had liquid assets equal to 31.7% of net withdrawable accounts plus short
term borrowings. Effective November 24, 1997, the OTS revised its liquidity
regulations to reduce the liquidity requirement to 4% and simplify the
administrative burdens associated with the calculation of liquidity ratios.
Impact of Inflation and Changing Prices
The Consolidated 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.
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
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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 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. The Company is
still evaluating the two available alternatives under SFAS 123 and has not yet
determined which alternative to use in connection with currently proposed stock
based compensation plans.
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 adoption of SFAS 125 has not had a material impact on the
Company.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 128, "Earnings per share" (SFAS
No. 128). SFAS No. 128 replaced the presentation of primary EPS with the
presentation of basic EPS. It also requires dual presentation of basic and
diluted EPS on the face of the income statement for all entities with complex
capital structures and requires a reconciliation of the numerator and
denominator of the diluted EPS computation.
Basic EPS excludes dilution and is computed by dividing income
available to common stockholders by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the entity (such as the Company's
stock options). This Statement is effective for financial statements issued for
periods ending after December 15, 1997, including interim periods. Earlier
adoption is not permitted. This Statement requires restatement of all
prior-period EPS data presented. The adoption of SFAS No. 128 will provide
additional disclosure but will not affect financial condition or results of
operations.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 129, "Disclosure of Information
about Capital Structure" (SFAS No. 129). In accordance with SFAS No. 129,
companies will be required to provide in the financial statements a complete
description of all aspects of their capital structure, including call and put
feature, redemption requirements and conversion options. The disclosures
required by SFAS No. 129 are for financial statements for periods ending
December 15, 1997. Management anticipated providing the required information in
the 1998 annual financial statements.
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 130, "Reporting Comprehensive Income" (SFAS
No. 130). SFAS No. 130 states that comprehensive income includes the reported
net income of a company adjusted for items that are currently
-19-
<PAGE>
accounted for as direct entries to equity, such as the mark to market adjustment
on securities available for sale, foreign currency items and minimum pension
liability adjustments. This statement is effective for fiscal years beginning
after December 15, 1997. Management anticipates developing the required
information for inclusion in the 1998 annual consolidated financial statements.
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 131, "Disclosure about Segments on an
Enterprise and Related Information" (SFAS No. 131). SFAS No. 131 establishes
standards for reporting by public companies about operating segments of their
business and for related disclosures about products and services, geographic
areas and major customers. This statement is effective for fiscal years
beginning after December 15, 1997. Management anticipates developing the
required information for inclusion in the 1998 annual consolidated financial
statements of GSB Financial Corporation.
Forward-Looking Statements
When used in this Annual Report, in future filings by the Company with
the Securities and Exchange Commission, in the Company's press releases or other
public or stockholder communications, or in oral statements made with the
approval of an authorized officer, words and phrases such as " will likely
result" "are expected to," "will continue," "are estimated," "are anticipated"
and other similar expressions, are intended to identify "forward-looking
statements" under the Private Securities Litigation Reform Act. In particular,
certain information customarily disclosed by financial institutions, such as
estimates of interest rate sensitivity and the adequacy of the loan loss
allowance, are inherently forward-looking statements because, by their nature,
they represent attempts to estimate what will occur in the future.
A wide variety of factors could cause the Company's actual results and
experiences 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 operations, performance, 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 services industry; (iv) changes in competition; and (v) changes in
consumer preferences.
Furthermore, changes in the economic circumstances of individual
borrowers could have a material adverse effect on their ability to repay their
loans regardless of general economic conditions. Likewise, financial adversity
experienced by any one major business in the Company's market area could have a
significant adverse effect on those of the Company's customers who are employees
of that business or otherwise rely upon it for their economic well being. This
could affect their ability to honor their loan obligations and their ability to
maintain deposit balances.
For these reasons, the Company cautions readers not to place undue
reliance upon any forward-looking statements. Forward-looking statements speak
only as of the date made and the Company assumes no obligation to update or
revise any such statements upon any change in applicable circumstances.
-20-
<PAGE>
GSB FINANCIAL CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Independent Auditors' Report .................................................................................22
Consolidated Statements of Condition at September 30, 1997 and 1996...........................................23
Consolidated Statements of Operations for the Years Ended September 30, 1997, 1996 and 1995...................24
Consolidated Statements of Equity for the Years Ended September 30, 1997, 1996 and 1995.......................25
Consolidated Statements of Cash Flows for the Years Ended September 30, 1997, 1996 and 1995................26-27
Notes to Consolidated Financial Statements ................................................................28-51
</TABLE>
-21-
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
GSB Financial Corporation
1 South Church Street
Goshen, New York 10924
We have audited the accompanying consolidated statements of financial
condition of GSB Financial Corporation and Subsidiary (the "Company") as of
September 30, 1997 and 1996, and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for each of the years
in the three year period ended September 30, 1997. These consolidated financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated 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 consolidated
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of GSB
Financial Corporation and Subsidiary at September 30, 1997 and 1996, and the
results of their operations, changes in stockholders' equity and their cash
flows for each of the years in the three year period ended September 30, 1997,
in conformity with generally accepted accounting principles.
Respectfully submitted,
/s/ Nugent & Haeussler, P.C.
- -----------------------------
NUGENT & HAEUSSLER, P.C.
October 24, 1997
Newburgh, New York
-22-
<PAGE>
GSB Financial Corporation and Subsidiary
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands except shares and per share amounts)
<TABLE>
<CAPTION>
September 30,
----------------------------
1997 1996
-------- -------
<S> <C> <C>
ASSETS
Cash and due from banks $ 3,218 $ 2,964
Federal funds sold 5,100 1,720
-------- -------
Cash and cash equivalents 8,318 4,684
Investment securities available for sale (Note 3 and 4) 26,638 23,081
Mortgage-backed securities:
Held to maturity (estimated market values of $5,766 and
$6,529 at September 30, 1997 and 1996, respectively)(Note 5) 5,653 6,474
Available for sale (Note 6) 6,990 -
Loans receivable, net (Note 7 and 8) 65,738 58,727
Banking house and equipment (Note 9) 2,299 2,261
Accrued interest receivable (Note 10) 788 665
Prepaid expenses and other assets 622 431
-------- -------
Total assets $117,046 $96,323
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits (Note 11) $ 82,983 $83,442
Mortgagors' escrow deposits 62 54
Accrued expenses and other liabilities 1,368 1,080
-------- -------
Total liabilities $ 84,413 $84,576
Commitments and contingent liabilities (Note 16)
Stockholders' Equity
Preferred stock ($0.01 par value; 500,000 shares
authorized; none issued) - -
Common stock ($0.01 par value; 4,500,000 shares authorized; 2,248,250
issued at September 30, 1997) 22 -
Additional paid-in capital 21,446 -
Retained earnings, substantially restricted 12,360 11,604
Net unrealized gain on securities available
for sale, net of taxes 559 143
Unallocated ESOP stock (Note 13) (1,754) -
-------- -------
Total stockholders' equity $ 32,633 $11,747
-------- -------
Total liabilities and stockholders' equity $117,046 $96,323
======== =======
</TABLE>
-23-
<PAGE>
GSB Financial Corporation and Subsidiary
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Years Ended September 30,
---------------------------------
1997 1996 1995
---- ---- ----
(In thousands except shares and per share amounts)
<S> <C> <C> <C>
INTEREST INCOME
Loans $ 4,833 $4,328 $3,882
Federal funds sold 439 122 99
Investment securities 1,332 1,388 1,535
Mortgage-backed securities 474 396 198
---------- ------ ------
Total interest income 7,078 6,234 5,714
INTEREST EXPENSE
Deposit accounts 3,128 3,364 3,260
Other borrowings 24 83 28
Stock subscription interest expense 74 - -
---------- ------ ------
Total interest expense 3,226 3,447 3,288
Net interest income 3,852 2,787 2,426
Provision for loan losses 20 24 29
---------- ------ ------
Net interest income after provision for loan losses 3,832 2,763 2,397
NON-INTEREST INCOME
Service charges on deposit accounts 139 147 148
Other income 101 108 106
Net realized gains on securities 1 115 14
Capital gains distributions 93 119 181
Nationar recovery 9 232 -
---------- ------ ------
Total non-interest income 343 721 449
NON-INTEREST EXPENSE
Salaries and employee benefits 1,657 1,507 1,486
Occupancy and equipment 361 333 319
Data processing expenses 246 223 192
Nationar writedown - - 279
Other non-interest expense 715 512 654
---------- ------ ------
Total non-interest expense 2,979 2,575 2,930
---------- ------ ------
Income before income taxes 1,196 909 (84)
Income tax expense 440 351 (16)
---------- ------ ------
Net income (loss) before cumulative
effect of accounting change 756 558 (68)
Cumulative effect of accounting change-
postretirement benefits - - (394)
---------- ------ ------
Net income $ 756 $ 558 $ (462)
========== ====== ======
Earnings per share $0.37 N/A N/A
Weighted average shares outstanding 2,068,444 N/A N/A
</TABLE>
-24-
<PAGE>
GSB FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Retained Common Unrealized
Shares Additional Earnings Stock Gain on
Outstanding Common Paid - In Substantially Acquired Securities,
Common Stock Capital Restricted by ESOP Net of Tax Total
----------- ------ ---------- -------------- -------- ------------ -----
(In thousands, except shares and per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1994 - $ - $ - $11,508 $ - $ - $11,508
--------- ----- ------- ------- ------- ---- -------
Effect of adoption of SFAS 115 - - - - - 51 51
Net income (loss) - - - (462) - - (462)
--------- ----- ------- ------- ------- ---- -------
Balance at September 30, 1995 - - - 11,046 - 51 11,097
--------- ----- ------- ------- ------- ---- -------
Net income - - - 558 - - 558
Change in net unrealized gain on
investment securities available
for sale, net of income taxes - - - - - 92 92
--------- ----- ------- ------- ------- ---- -------
Balance at September 30, 1996 - - - 11,604 - 143 11,747
--------- ----- ------- ------- ------- ---- -------
Net income - - - 756 - - 756
Sale of Common Stock 2,248,250 22 21,424 - - - 21,446
Acquisition of ESOP stock - - - - (1,799) - (1,799)
ESOP shares committed to be released - - 22 - 45 67
Change in net unrealized gain on
investment securities available
for sale, net of income taxes - - - - - 416 416
--------- ----- ------- ------- ------- ---- -------
Balance at September 30, 1997 2,248,250 $ 22 $21,446 $12,360 $(1,754) $559 $32,633
========= ===== ======= ======= ======= ==== =======
</TABLE>
-25-
<PAGE>
GSB FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended September 30,
-----------------------------
1997 1996 1995
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 756 $ 558 $ (462)
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 157 142 142
Provision for loan losses 20 24 29
ESOP compensation expense 67 - -
Provision for Nationar loss contingency - (232) 232
Write-down on Nationar stock and debentures - - 46
Net gain on sale of other real estate owned - (5) (3)
Gain on sale of investment securities - held to maturity - - (14)
Gain on maturity/redemption of investment securities
available for sale (1) (115) -
Other Assets (314) 256 (23)
Net amortization on investment securities - held to maturity - - 554
Net amortization on investment securities - avail for sale 72 222 6
Net amortization (accretion) on mortgage - backed
securities - held to maturity 1 2 (5)
Net amortization (accretion) on mortgage - backed
securities - available for sale 2 - -
Increase (decrease) in accrued expenses and other
Liabilities 18 262 497
--------- ------- -------
Net cash provided by operating activities 778 1,114 999
--------- ------- -------
Cash flows from investing activities:
Purchases of mortgage - backed securities held to maturity (405) (3,653) (2,578)
Purchases of mortgage - backed securities available for sale (7,108) - -
Proceeds from principal paydowns of mortgage - backed
securities - held to maturity 1,225 1,581 405
Proceeds from principal paydowns of mortgage - backed
securities - available for sale 111 - -
Proceeds from maturity and redemption of investment
securities - held to maturity - - 14,320
Proceeds from maturity and redemption of investment
securities - available for sale 9,173 11,511 -
Purchase of investment securities - held to maturity - - (6,911)
Purchase of investment securities - avail for sale (12,111) (7,401) (2,080)
Proceeds from sale of investment securities
held to maturity - - 1,036
Proceeds from sale of investment securities
available for sale - 702 -
Net (increase) decrease in loans (7,032) (988) (820)
Capital expenditures (194)
(78) (57)
Proceeds from sale of other real estate owned - 165 45
--------- ------- -------
Net cash provided (used) by investing activities (16,341) 1,839 3,360
--------- ------- -------
</TABLE>
-26-
<PAGE>
GSB FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Cash flow from financing activities:
Net increase (decrease) in demand, statement passbook,
money market and NOW deposit accounts (459) (4,651) 1,697
Proceeds from borrowings 2,000 - -
Repayments of borrowings (2,000) - -
Proceeds from issuance of common stock 22,483 - -
Conversion Costs (1,036) - -
Purchase of ESOP Stock (1,799) - -
Increase (decrease) in advances from borrowers for taxes
and insurance 8 (45) 1
Net increase (decrease) in other borrowings - (1,000) (1,000)
-------- ------- -------
Net cash provided by (used in) financing activities 19,197 (5,696) 698
-------- ------- -------
Net increase (decrease) in cash and cash equivalents 3,634 (2,743) 5,057
Cash and cash equivalents at beginning of year 4,684 7,427 2,370
-------- ------- -------
Cash and cash equivalents at end of year $ 8,318 $ 4,684 $ 7,427
======== ======= =======
Additional Disclosures:
Supplemental disclosures of cash flows information-cash paid during year for:
Interest on other borrowings $ 24 $ 83 $ 28
Income taxes 935 120 (57)
Supplemental schedule of non-cash investing activities:
Reduction in loans receivable resulting from the transfer
to real estate owned - 157 42
Transfers of investment securities - held to maturity to
investment securities - available for sale - 20,913 -
Transfers of investment securities-trading portfolio to
investment securities - available for sale - - 2,172
Change in unrealized gains in investment securities -
available for sale 416 92 51
</TABLE>
-27-
<PAGE>
GSB FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
A. Organization
GSB Financial Corporation ("GSB Financial") was incorporated under
Delaware law in March 1997 as a holding company to purchase 100% of the common
stock of Goshen Savings Bank (the "Bank"). On July 9, 1997, GSB Financial
completed its initial public offering of 2,248,250 shares of common stock in
connection with the conversion of the Bank from a mutual form institution to a
stock savings bank (the "Conversion"). Concurrently with the Conversion, GSB
Financial acquired all of the Bank's common stock. To date, the principal
operations of GSB Financial Corporation and subsidiary (the "Company") have been
those of the Bank.
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 that market area. In addition, other real
estate owned, if any is also generally located in Orange County in New York
State.
The following is a description of the more significant policies the
Company follows in preparing and presenting its consolidated financial
statements:
B. Basis of Financial Statement Presentation
The accompanying consolidated financial statement includes the accounts
of GSB Financial and its wholly owned subsidiary, Goshen Savings Bank. The
consolidated financial statements have been prepared in conformity with
generally accepted accounting principles. Significant intercompany transactions
and amounts have been eliminated.
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.
-28-
<PAGE>
GSB FINANCIAL CORPORATION
NOTES TO CONSOLIDATED 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 and Mortgage-Backed 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 straight-line basis over the life of the note to maturity. This
method of amortization differs from the interest method and results in
immaterial differences for reporting purposes.
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 on a straight-line basis over the life of the pools to maturity.
This method of amortization differs from the interest method and results in
immaterial differences for reporting purposes.
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.
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 September 30, 1997
and 1996.
Gains and losses on the sale of securities are determined using the
specific identification method.
-29-
<PAGE>
GSB FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. (Continued)
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 and such reclassification was
recorded effective December 29, 1995.
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 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.
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.
-30-
<PAGE>
GSB FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACOCUNTING POLICIES. (Continued)
G. Loans Receivable and Allowance for Loan Losses. (Continued)
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.
I. Real Estate Owned.
Real estate owned includes assets received from foreclosure and
in-substance foreclosures. In accordance with SFAS No. 114, a loan is classified
as an in-substance foreclosure when the Company has taken possession of the
collateral regardless of whether formal foreclosure proceedings have taken
place. Prior to the adoption of SFAS No. 114 and SFAS No. 118, in-substance
foreclosed properties included those properties where the borrower had little or
no remaining equity in the property considering its fair value; where repayment
was only expected to come from the operation of sale of the property; and where
the borrower had effectively abandoned control of the property or it was
doubtful that the borrower would be able to rebuild equity in the property.
Foreclosed assets, including in-substance foreclosures, are recorded on
an individual asset basis at net realizable value which is the lower of fair
value minus estimated costs to sell or "cost" (defined as the fair value at
initial foreclosure). When a property is acquired or identified as in-substance
foreclosure, the excess of the loan balance over fair value is charged to the
allowance for loan losses. Subsequent write-downs to carry the property at fair
value less costs to sell are included in non-interest expense. Costs incurred to
develop or improve properties are capitalized, while holding costs are charged
to expense.
The Company had no real estate owned from foreclosure or in-substance
foreclosure at September 30, 1997 and 1996.
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.
-31-
<PAGE>
GSB FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE. 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. (Continued)
K. Borrowings
The Bank has a line of credit available with the Federal Home Loan Bank
of New York and as of September 30, 1997, the Bank could borrow up to $9.8
million. There were no amounts outstanding under this line of credit at
September 30, 1997.
L. Off-Balance-Sheet Risk
The Bank is a party to certain financial instruments with
off-balance-sheet risk such as commitments to extend credit. The Bank's policy
is to record such instruments when funded.
M. Earnings Per Share.
Earnings per share is calculated based upon the weighted average number
of shares outstanding from the date of conversion, July 9, 1997 through
September 30, 1997 adjusted for common stock equivalents that have a dilutive
effect on the per share data. The weighted average number of shares outstanding
for the period ending September 30, 1997 was 2,068,444.
N. Reclassification.
Amounts in the prior periods' financial statements are reclassified
whenever necessary to conform to current period presentations.
NOTE 2. CONVERSION TO STOCK OWNERSHIP
On July 9, 1997, GSB Financial sold 2,248,250 shares of common stock at
$10.00 per share to depositors and employees of the Bank and to the Company's
Employee Stock Ownership Plan (the "ESOP"). Net proceeds from the sale of stock
of GSB Financial, after deducting conversion expenses of approximately $1.0
million, were $21.4 million and are reflected as common stock and additional
paid-in-capital in the accompanying September 30, 1997 consolidated statement of
financial conditions. The Company utilized $10.7 million of the net proceeds to
acquire all of the capital stock of the Bank.
As part of the conversion, the Bank established a liquidation account
for the benefit of eligible depositors who continue to maintain their deposit
accounts in the Bank after conversion. In the unlikely event of a complete
liquidation of the Bank, each eligible depositor will be entitled to receive a
liquidation distribution from the liquidation account in the proportionate
amount of the then current adjusted balance for deposit accounts held before
distribution may be made with respect to the Bank's capital stock. The Bank may
not declare or pay a cash dividend to GSB Financial on, or repurchase any of its
capital stock if the effect thereof would cause the retained earnings of the
Bank to be reduced below the amount required for the liquidation account. Except
for such restrictions, the existence of the liquidation account does not
restrict the use or application of retained earnings.
-32-
<PAGE>
GSB FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. CONVERSION TO STOCK OWNERSHIP (Continued)
The Bank's capital exceeds all of the fully phased-in capital
regulatory requirements. The Office of Thrift Supervision ("OTS") regulations
provide that an institution that exceeds all fully phased-in capital
requirements before and after a proposed capital distribution could, after prior
notice but without the approval by the OTS, make capital distributions during
the calendar year of up to 100% of its net income to date during the calendar
year plus the amount that would reduce by one-half its "surplus capital ratio"
(the excess capital over its fully phased-in capital requirements) at the
beginning of the calendar year.
Unlike the Bank, GSB Financial is not subject to these regulatory
restrictions on the payment of dividends to its stockholders.
NOTE 3. INVESTMENT SECURITIES - AVAILABLE FOR SALE
A summary comparison of securities available for sale as of September
30, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
September 30, 1997
------------------
Carrying Gross Gross
Value Unrealized Unrealized Estimated
(Cost) Gains Losses Fair Value
------ ----- ------ ----------
(In Thousands)
<S> <C> <C> <C> <C>
United States Treasury $ 3,497 $ 8 $ - $ 3,505
United States Government Agencies 7,123 44 4 7,163
Corporate Debt Obligations 11,879 74 11 11,942
Foreign Debt Obligations 400 - - 400
Equity Securities 2,803 825 - 3,628
------- ---- --- -------
$25,702 $951 $15 $26,638
======= ==== === =======
September 30, 1996
------------------
Carrying Gross Gross
Value Unrealized Unrealized Estimated
(Cost) Gains Losses Fair Value
------ ----- ------ ----------
(In Thousands)
<S> <C> <C> <C> <C>
United States Treasury $ 4,718 $ 5 $ 8 $ 4,715
United States Government Agencies 2,967 19 2 2,984
Corporate Debt Obligations 12,043 47 15 12,075
Municipal Debt Obligations 99 1 - 100
Foreign Debt Obligations 407 - 3 404
Equity Securities 2,601 202 - 2,803
------- ---- --- -------
$22,835 $274 $28 $23,081
======= ==== === =======
</TABLE>
The amortized cost and approximate fair value of securities available for
sale at September 30, 1997 and 1996, 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.
-33-
<PAGE>
GSB FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. INVESTMENT SECURITIES - AVAILABLE FOR SALE. (Continued)
September 30, 1997
------------------
Amortized Cost Approximate Fair Value
-------------- ----------------------
(In Thousands)
Due within one year $ 7,793 $ 7,812
Due one year to five years 12,475 12,552
Due over five years 5,434 6,274
------- -------
Total $25,702 $26,638
======= =======
September 30, 1996
------------------
Amortized Cost Approximate Fair Value
-------------- ----------------------
(In Thousands)
Due within one year $ 8,796 $ 8,794
Due one year to five years 11,438 11,484
Due over five years 2,601 2,803
------- -------
Total $22,835 $23,081
======= =======
Proceeds from the sale of securities available for sale were
approximately $0 and $700,000 during the years ended September 30, 1997 and 1996
respectively, which resulted in gross realized gains of approximately $0 and
$120,000, respectively, and gross realized losses of approximately $0 and
$5,000, respectively. There were no sales of securities available for sale
during the year ended September 30, 1997.
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 the required level at September 30, 1997. 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 $638,000 invested in FHLB stock at
September 30, 1997, which is included in Equity Securities in Note 3 and is
carried at cost due to the fact that it is classified as a non-marketable
restricted investment.
NOTE 5. MORTGAGE BACKED SECURITIES - HELD TO MATURITY.
Mortgage backed securities held to maturity at September 30, 1997 and
1996, consists of Federal National Mortgage Association ("FNMA"), Federal Home
Loan Mortgage Corporation ("FHLMC") and Government National Mortgage Association
("GNMA") securities and are summarized as follows:
<TABLE>
<CAPTION>
September 30, 1997
------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair Market
Cost Gains Losses Value
---- ----- ------ -----
(In Thousands)
<S> <C> <C> <C> <C>
Mortgage Backed Securities $ 5,653 $ 115 $ 2 $ 5,766
======= ===== === =======
</TABLE>
-34-
<PAGE>
GSB FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. MORTGAGE BACKED SECURITIES - HELD TO MATURITY. (Continued)
<TABLE>
<CAPTION>
September 30, 1996
------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair Market
Cost Gains Losses Value
---- ----- ------ -----
(In Thousands)
<S> <C> <C> <C> <C>
Mortgage Backed Securities $6,474 $84 $29 $6,529
====== === === =====
</TABLE>
The amortized cost and approximate fair market value of mortgage backed
securities held to maturity at September 30, 1997, and 1996, 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, 1997
------------------
Amortized Cost Approximate Fair Value
-------------- ----------------------
(In Thousands)
Due within one year $ 212 $ 212
Due one year to five years 2,623 2,648
Due five to ten years 688 700
Due after ten years 2,130 2,206
------ ------
Total $5,653 $5,766
====== ======
September 30, 1996
------------------
Amortized Cost Approximate Fair Value
-------------- ----------------------
(In Thousands)
Due within one year $ 24 $ 29
Due one year to five years 2,988 2,929
Due five to ten years 798 800
Due after ten years 2,664 2,771
------ ------
Total $6,474 $6,529
====== ======
NOTE 6. MORTGAGE BACKED SECURITIES - AVAILABLE FOR SALE.
Mortgage backed securities available for sale at September 30, 1997,
consists of FNMA, FHLMC and GNMA securities and are summarized as follows:
<TABLE>
<CAPTION>
September 30, 1997
------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair Market
Cost Gains Losses Value
---- ----- ------ -----
(In Thousands)
<S> <C> <C> <C> <C>
Mortgage Backed Securities $6,994 $5 $9 $6,990
====== == == ======
</TABLE>
-35-
<PAGE>
GSB FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. MORTGAGE BACKED SECURITIES - AVAILABLE FOR SALE. (Continued)
The amortized cost and approximate fair market value of mortgage backed
securities available for sale at September 30, 1997, 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, 1997
------------------
Amortized Cost Approximate Fair Value
-------------- ----------------------
(In Thousands)
Due within one year $ - $ -
Due one year to five years 1,486 1,482
Due five to ten years 3,008 3,008
Due after ten years 2,500 2,500
------ ------
Total $6,994 $6,990
====== ======
NOTE 7. LOANS RECEIVABLE, NET.
Loans receivable are summarized as follows:
September 30
-----------------
1997 1996
---- ----
(In Thousands)
Loans Secured by Real Estate
One to four family residential $58,742 $51,380
One to four family rental property 1,936 2,202
Commercial real estate 2,073 2,255
Home equity line of credit loans 2,314 2,197
------- -------
Total Loans Secured by Real Estate 65,065 58,034
------- -------
Other Loans
Loans on savings accounts 174 148
Property improvement loans 104 103
Commercial loan 36 15
Consumer and other loans 526 572
------- -------
Total Other loans 840 838
------- -------
Total Loans Receivable 65,905 58,872
Less:
Deferred loan fees 28 22
Allowance for losses-loans 139 123
------- -------
Loans Receivable, Net $65,738 $58,727
======= =======
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 year ended September 30, 1997 and 1996. 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 $6.8 million, $7.4 million and $8.0
million at September 30, 1997, 1996, 1995, respectively.
-36-
<PAGE>
GSB FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. ALLOWANCE FOR LOAN LOSSES.
Activity in the allowance for loan losses for the years ended September
30, 1997, 1996 and 1995 is summarized as follows:
Years Ended September 30,
-------------------------
1997 1996 1995
---- ---- ----
(In Thousands)
Balance at Beginning of Year $123 $114 $106
Provision charged to operations 20 24 29
Loans charged off
Real Estate - - -
Other loans (14) (18) (22)
Recoveries
Real Estate - - -
Other loans 10 3 1
---- ---- ----
Balance at end of period $139 $123 $114
==== ==== ====
The following table sets forth information with regard to
non-performing loans:
September 30
---------------
1997 1996
---- ----
(In Thousands)
Loans in non-accrual status $- $16
== ===
There were no troubled debt restructurings at September 30, 1997, or
1996.
Accumulated interest on non-accrual loans, as shown above, collected
and recognized as interest income for the years ended September 30, 1997, and
1996, was not material to equity or total interest income.
NOTE 9. BANKING HOUSE AND EQUIPMENT.
Banking House and equipment at September 30, 1997 and 1996 are
summarized by major classification as follows:
September 30
---------------
1997 1996
---- ----
(In Thousands)
Land $1,112 $1,112
Buildings and improvements 948 902
Furniture, fixtures and equipment 239 247
------ ------
Banking House and Equipment, Net $2,299 $2,261
====== ======
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 $156,874 and $142,406 for the years ended
September 30, 1997 and 1996, respectively.
-37-
<PAGE>
GSB FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. ACCRUED INTEREST RECEIVABLE.
A summary of accrued interest receivable as of September 30, 1997 and
1996 is as follows:
September 30,
---------------
1997 1996
---- ----
(In Thousands)
Securities available for sale $421 $326
Investment securities held to maturity 16 -
Loans receivable 351 339
---- ----
Total Accrued Interest Receivable $788 $665
==== ====
NOTE 11. DEPOSITS.
Deposits are summarized as follows:
September 30,
------------
1997 1996
---- ----
No. of Accounts Amount No. of Accounts Amount
--------------- ------ --------------- ------
(In Thousands)
TYPE OF ACCOUNTS
Savings Accounts 4,846 $26,839 5,304 $26,805
Certificates of deposit 2,369 38,247 2,476 38,338
Money market accounts 403 8,892 450 10,457
Now accounts 679 4,136 652 3,636
Demand accounts 2,750 4,869 2,813 4,206
------ ------- ------ -------
11,047 $82,983 11,695 $83,442
====== ======= ====== =======
The approximate contractual maturities of certificates of deposit
accounts for the twelve month periods subsequent to September 30, 1997, are as
follows:
Twelve month periods ended September 30,
----------------------------------------
(In Thousands)
1998 $34,719
1999 2,684
2000 780
2001 41
2002 23
-------
$38,247
=======
-38-
<PAGE>
GSB FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11. DEPOSITS. (Continued)
The approximate 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,
----------------------------------------
(In Thousands)
1997 $33,299
1998 3,682
1999 733
2000 612
2001 12
-------
$38,338
=======
At September 30, 1997 and 1996, the aggregate of time deposit accounts
with balances equal to or in excess of $100,000 was approximately $1.8 million
and $1.5 million. Deposits in excess of $100,000 are not Federally insured.
Interest expense on deposits for the years ended September 30, 1997,
1996, and 1995 is summarized as follows:
Years Ended September 30,
-------------------------
1997 1996 1995
---- ---- ----
(In Thousands)
Savings $ 822 $ 811 $ 888
Certificates of deposit 1,907 2,130 1,886
Money market accounts 295 333 397
Now accounts 101 88 86
Escrow 3 3 3
------- ------- -------
$ 3,128 $ 3,365 $ 3,260
======= ======= =======
NOTE 12. BORROWED FUNDS.
The Company had no borrowings outstanding at September 30, 1997 and
1996. During 1997, the Bank utilized advances from the Federal Home Loan Bank to
provide liquidity. The maximum outstanding borrowings during the year ended
September 30, 1997, was $2 million and interest related to these advances
amounted to $24,160.
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.
-39-
<PAGE>
GSB FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13. 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.
The following table sets forth the plan's funded status as of December
31, 1996 and the plan's projected funded status as of December 31, 1997 based
upon information available on September 30, 1997. The plan's funded status as of
September 30, 1997 and 1996 are not available because the actuarial valuations
for the plan are completed annually at December 31, 1997 to correspond with
calendar year filings.
<TABLE>
<CAPTION>
December 31,
------------
1997 1996
---- ----
(In Thousands)
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation $ 2,317 $ 1,967
======== ========
Projected benefit obligation for service rendered to date $(2,874) $(2,553)
Plan assets at fair value 3,557 2,928
-------- --------
Plan assets in excess of projected benefit 683 375
Amount contributed during fourth quarter - 23
Unrecognized net (gain) loss from past experience
different from that assumed and effects of changes
in assumptions (397) (47)
Prior service cost not yet recognized in net periodic pension
cost 16 19
Unrecognized net asset being recognized over 11.81 years (53) (70)
--------- --------
(Accrued) prepaid pension cost $ 249 $ 300
========= ========
</TABLE>
-40-
<PAGE>
GSB FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13. EMPLOYEE BENEFITS. (Continued)
A. Pension Plan (Continued)
------------
Net pension cost for 1997 and 1996 included the following components:
December 31,
------------
1997 1996
---- ----
(In Thousands)
Service Costs - Benefits
Earned during the period $ 103 $ 109
Interest cost on projected benefit obligation 194 178
Actual return on plan assets (658) (364)
Amortization of unrecognized transition asset (17) (17)
Amortization of unrecognized loss - -
Amortization of past service liability 4 4
Amortization of deferred investment loss 425 163
------ ------
Net Pension Expense $ 51 $ 73
====== ======
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 7.75 percent and 5.5 percent
respectively. The expected long-term rate of return on assets was 8.0 percent.
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 $26,569, $28,295
and $27,185 for the fiscal years ended September 30, 1997, 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.
-41-
<PAGE>
GSB FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13. EMPLOYEE BENEFITS. (Continued)
C. Other Retirement Benefits (Continued)
-------------------------
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.
The following is a reconciliation of the funded status of the plan at
December 31, 1996 and the projected funded status at December 31, 1997 based
upon information available on September 30, 1997. The plan's funded status as of
September 30, 1997 and 1996 are not available because the actuarial valuations
for the plan are completed annually at December 31, 1997 to correspond with
calendar year filings.
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
----------------- -----------------
(In Thousands)
<S> <C> <C>
Accumulated Postretirement Benefit Obligation
Retirees $ 308 $ 262
Active employees fully eligible for benefits
418 203
Other active employees 358 495
--------- ---------
Total 1,084 960
Unrecognized gain (loss) (236) (178)
Fair value of plan assets 0 0
--------- ---------
Accrued postretirement benefits $ 848 $ 782
========= =========
</TABLE>
The components of the net periodic postretirement benefit cost for
calendar year 1996 and the projected cost for calendar year 1997 based upon the
plan's funded status set forth above and other applicable data, are as follows:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
----------------- -----------------
(In Thousands)
<S> <C> <C>
Service cost $ 19 $ 24
Interest cost 73 75
Amortization of unrecognized gain (loss) 7 8
------- --------
Postretirement benefit cost $ 99 $ 107
======= ========
</TABLE>
A discount rate of 7.75%, an annual rate of salary increases of 5.5%
and a 8% increase in the assumed health care costs reducing linearly to 5% in
the year 2005, were used to determine the APBO at December 31, 1996 and 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, 1995.
-42-
<PAGE>
GSB FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13. EMPLOYEE BENEFITS. (Continued)
D. Employee Stock Ownership Plan
-----------------------------
Concurrently with the conversion, the Company adopted an Employee Stock
Ownership Plan (the "ESOP") for substantially all employees. The ESOP purchased
179,860 shares for the Company's stock in the conversion at a cost of $1,798,600
using the proceeds of a loan provided by the Company. The terms of the loan call
for level principal payments in 40 quarterly installments commencing September
30, 1997, with interest at 7.75% per annum.
Shares purchased by the ESOP will initially be pledged as collateral
for the ESOP loan and will be allocated among participants annually based
proportionately on the repayment of the ESOP loan and the relative compensation
of the participants. The cost of unallocated shares held in the suspense account
is reflected as a reduction of stockholders' equity.
The Company accounts for the ESOP in accordance with the American
Institute of Certified Public Accountant's Statement of Position No. 93-6
"Employees' Accounting For Stock Ownership Plans" (SOP 93-6). Accordingly, the
shares pledged as collateral are reported as unallocated ESOP shares in
shareholders' equity. As shares are released from collateral, the Company
reports compensation expense equal to the average market price of the shares
(during the applicable service period), and the shares become outstanding for
earnings per share computations. Unallocated ESOP shares are not included in the
earnings per share computations. The Company recorded approximately $67,000 of
compensation expense under the ESOP during the year ended September 30, 1997.
The ESOP shares as of September 30, 1997 were as follows:
Allocated shares -
Shares released for allocation 4,497
Unallocated share 175,363
-------
179,860
=======
Market value of unallocated
shares at September 30, 1997 2,871,569
=========
NOTE 14. INCOME TAXES.
The components of income tax expense are as follows:
Years Ended September 30,
-------------------------
1997 1996 1995
---- ---- ----
(In Thousands)
Current tax:
Expense $ 922 $ 395 $ 337
Deferred tax (benefit):
Expense (482) (44) (353)
------- ------- ---------
Income tax expense $ 440 $ 351 $ (16)
======= ======= =========
-43-
<PAGE>
GSB FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14. 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:
Years Ended September 30,
-------------------------
1997 1996 1995
---- ---- ----
(In Thousands)
Expense at statutory federal tax rate $ 407 $ 309 $ (28)
Tax-exempt income (2) (2) (2)
State income taxes, net of federal tax 83 60 (6)
benefit
Other, net (48) (16) 20
------ ------ -------
Income tax expense $ 440 $ 351 $ (16)
====== ====== =======
Effective tax rate 36.8% 38.6% (19.0%)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at September 30, 1997 and
1996 are as follows:
September 30,
-------------
1997 1996 1995
---- ---- ----
(In Thousands)
Deferred tax assets:
Post retirement employees benefits $ 340 $ 314 $ 262
Allowance for loan losses 55 51 47
Mark to market securities tax 330 83 35
Other 56 24 51
------- ------- -------
Total deferred tax assets 781 472 395
------- ------- -------
Deferred tax liabilities:
Depreciation 32 88 101
Prepaid pension costs 104 121 93
Tax bad debt reserves over the base year 55 155 137
------- ------- -------
Total deferred tax liabilities 191 364 331
Net deferred tax asset (liability) at the end
of period 590 108 64
Net deferred tax asset (liability) at the
beginning of period 108 64 (289)
------- ------- -------
Deferred tax benefit for the period $ (482) $ (44) $ (225)
======= ======= =======
In addition to the deferred tax amounts described above, the Bank also
had a deferred tax liability of approximately $372,000, $103,000 and $36,000 at
September 30, 1997, 1996 and 1995, respectfully, related to the net unrealized
gain on securities available for sale.
-44-
<PAGE>
GSB FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14. INCOME TAXES. (Continued)
The Bank, as a qualifying thrift institution under IRS guidelines, was
entitled to a special deduction for additions to a tax bad debt reserve made on
or before December 31, 1987. The Bank's aggregate reserve at December 31, 1987
was $921,000. This reserve is not required to be recaptured, despite subsequent
changes in the tax laws, so long as the Bank remains a qualified thrift
institution for IRS purposes. Hence, no deferred tax liability has been recorded
under SFAS No. 109 for potential recapture of this reserve.
NOTE 15. NATIONAR LIQUIDATION.
On February 6, 1995, the Superintendent of Banks of the State of New
York took possession of, and closed, Nationar, which was then the Bank's
principal correspondent bank. Nationar was wholly-owned by various savings banks
and provided commercial banking and other services, principally to savings banks
and savings and loan associations.
When Nationar was closed, the Bank had various deposits with and
investments in Nationar. During the year ended September 30, 1995, the Bank
recorded a provision for losses on Nationar matters of $278,623 based upon
management's judgment of the losses, which would be suffered as Nationar was
liquidated. Of the provision, $232,223 was allocated to a demand deposit balance
of the Bank at Nationar and $46,400 was allocated to Nationar debentures and
stock owned by the Bank. Losses in the actual liquidation of Nationar were less
than anticipated, and by virtue of payments actually received, $9,375 and
$232,223 of the reserves were reversed during the years ended September 30, 1997
and 1996 respectively.
NOTE 16. COMMITMENTS AND CONTINGENCIES.
A. Legal Proceedings
-----------------
The Company may, from time to time, be a defendant in legal proceedings
relating to the conduct of its business. In the best judgment of management, the
consolidated financial position of the Company will not be affected materially
by the outcome of any pending legal proceedings.
B. Lease Commitments
-----------------
The Company leases approximately 105 square feet in an elder Care
facility in Goshen, New York, as a branch office at an annual rental of
$2,400.00 terminating on September 30, 1999.
In addition, the Bank has an agreement for data processing services
through February of 1999. Approximate annual payments associated with the data
processing agreement are estimated to be $225,000.00.
C. Off-Balance Sheet Financing
---------------------------
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.
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.
-45-
<PAGE>
GSB FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16. COMMITMENTS AND CONTINGENCIES. (Continued)
D. Commitments Pending
-------------------
Contract amounts of financial instruments that represent credit risk
are as follows:
(Unaudited) (Unaudited)
September 30, September 30,
1997 1996
---- ----
(In Thousands)
Commitments Pending
-------------------
Mortgage Loans $ 2,991 $2,446
Equity Line of Credit:
Available Draw 1,071 1,104
Commitments 95 80
Overdraft Checking 192 177
------- ------
$ 4,349 $3,807
======= ======
The breakdown of fixed rate loan commitments and the corresponding
interest rate range for the periods of September 30, 1997 and 1996 are as
follows:
(Unaudited) (Unaudited)
September 30, September 30,
Fixed Rate Commitments: 1997 1996
---- ----
(In Thousands)
First Mortgage Loans $2,991 $ 2,405
Home Equity Loans 45 80
------ -------
Total Fixed Rate Loan Commitments $3,036 $ 2,485
====== =======
Fixed Rate Commitment Interest Rate Range 7.50% to 9.00% 8.00% to 9.75%
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.
-46-
<PAGE>
GSB FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16. COMMITMENTS AND CONTINGENCIES. (Continued)
E. 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. During
the year ended September 30, 1997, the tanks were removed and the contaminated
soil was properly disposed of under the direction of the Department of
Environmental Conservation at a cost of approximately $50,000.
NOTE 17. 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 capitalized 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
years ended September 30, 1997, 1996, and 1995, net FDIC assessment expense
amounted to $10,358, $10,708, $142,402, respectively.
NOTE 18. REGULATORY CAPITAL REQUIREMENTS.
OTS capital regulations require savings institutions to maintain
minimum levels of regulatory capital. Under the regulations in effect at
September 30, 1997, the Bank was required to maintain a minimum ratio of
tangible capital to total assets of 1.5%; a minimum leverage ratio of core (Tier
1) capital to total adjusted tangible assets of 3.0%; and a minimum ratio of
total capital (core capital and supplementary capital) to risk-weighted assets
of 8%, of which 4.0% must be core (Tier 1) capital.
The prompt corrective action regulations define specific capital
categories based on institutions capital ratios. The capital categories in
declining order are "well capitalized", "adequately capitalized",
"undercapitalized", "significantly undercapitalized", and "critically
undercapitalized". The OTS is required to take certain supervisory actions with
respect to an undercapitalized institution. Such actions could have a direct
material effect on an institution's financial statements. Generally an
institution is considered well capitalized if it has a core (Tier 1) capital
ratio of at least 5.0% (based on average total assets; a core (Tier 1)
risk-based capital ratio of at least 6.0%; and a total risk-based capital of at
least 10.0%.
Management believes that, as at September 30, 1997, the Bank meets all
capital adequacy requirements to which it is subject.
The Bank's actual capital amounts and ratios as of September 30, 1997,
compared to the OTS minimum capital adequacy requirements and the OTS
requirements for classification as a well capitalized institution are summarized
below. OTS capital regulations apply to the Bank only.
-47-
<PAGE>
GSB FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18. REGULATORY CAPITAL REQUIREMENTS. (Continued)
<TABLE>
<CAPTION>
Actual Minimum Capital For Classification as
Well
Capitalized
Bank Amount Ratio Amount Ratio Amount Ratio
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Tangible Capital $21,338 19.61% 1,632 1.50% - -
Tier 1 (Core) Capital 21,338 19.61% 3,264 3.00% $8,703 5.0%
Risk Based Capital:
Tier 1 21,338 38.87% - - 3,294 6.0%
Total 21,476 39.12% 4,392 8.00% 5,490 10.0%
</TABLE>
NOTE 19. 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.
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.
-48-
<PAGE>
GSB FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19. FAIR VALUE OF FINANCIAL INSTRUMENTS. (Continued)
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.
Off-Balance Sheet Instruments. The estimated fair value of commitments
to extend credit is estimated using fees currently charged for similar
arrangements adjusted for changes in interest rates and credit risk that has
occurred subsequent to origination. Because the Bank believes that the credit
risk associated with available but undisbursed commitments would essentially
offset the fees that could be recognized under similar arrangements, and because
the commitments are either short term in nature or subject to immediate
repricing, no fair value has been assigned to these off-balance sheet
commitments.
The following is a summary of the carrying values and estimated fair
values of the Company's financial instruments at September 30, 1997 and
September 30, 1996:
<TABLE>
<CAPTION>
September 30, 1997 September 30, 1996
------------------ ------------------
Carrying Estimated Fair Carrying Estimated Fair
Amount Value Amount Value
------ ----- ------ -----
(In Thousands)
<S> <C> <C> <C> <C>
Financial Assets:
Cash and Cash Equivalents $8,318 $8,318 $4,684 $4,684
Securities Available for Sale 26,638 26,638 23,081 23,081
Mortgage Backed Securities-
Held to Maturity 5,653 5,766 6,474 6,529
Available for Sale 6,990 6,990 - -
Loans Receivable 65,738 65,738 58,727 58,727
Financial Liabilities:
Deposits 82,983 82,983 83,442 83,442
</TABLE>
-49-
<PAGE>
GSB FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 20. PARENT COMPANY FINANCIAL INFORMATION.
GSB Financial began operations on July 9, 1997, in conjunction with the
Bank's mutual-to-stock conversion and GSB Financial's initial public offering of
its common stock. GSB Financial's statement of financial condition as of
September 30, 1997, and related statements of operations and cash flows for the
period July 9, 1997 to September 30, 1997, are as follows:
<TABLE>
<CAPTION>
Statement of Financial Condition as of September 30, 1997
---------------------------------------------------------
(In Thousands)
Assets:
<S> <C>
Cash and due from banks $ 1,729
Investment securities available for sale 5,146
Mortgage-backed securities available for sale 2,009
Loans, net 1,754
Accrued interest receivable 178
Equity in net assets of subsidiary 21,905
Other Assets 6
--------
Total Assets $ 32,727
========
Liabilities and Stockholders' Equity
Liabilities:
Accrued expenses and other liabilities $ 94
--------
Stockholders' Equity
Preferred stock, $.01 par value; authorized 500,000 shares $ 0
Common stock, $.01 par value; authorized 4,500,000:
2,248,250 shares issued at September 30, 1997 22
Additional paid-in capital 21,446
Retained earnings 12,360
Net unrealized loss on securities available for sale (net of tax) 559
Unallocated ESOP stock (1,754)
--------
Total Stockholders' Equity 32,633
--------
Total Liabilities and Stockholders' Equity $ 32,727
========
Statement of Operations for the Period from
Inception (July 9, 1997) through September 30, 1997
---------------------------------------------------
(In Thousands)
Interest Income $ 102
Non-interest expense 79
--------
Income before income taxes and equity in undistributed earnings of subsidiary 23
Income tax expense 9
--------
Income before equity in undistributed earnings of subsidiary 14
Equity in undistributed earnings of subsidiary (for the year ended September 30, 1997) 742
--------
Net Income 756
========
</TABLE>
-50-
<PAGE>
GSB FINANCIAL CORPORATION
NOTES TO CONSOLIDATED STATEMENTS
Statement of Cash Flows for the Period from Inception (July 9, 1997)
Through September 30, 1997.
--------------------------------------------------------------------
(In Thousands)
<TABLE>
<CAPTION>
<S> <C>
Cash flows from operating activities:
Net income $ 756
Adjustments to reconcile net income to net cash provided by
operating activities
Equity in undistributed earnings of subsidiary (742)
Increase in accrued interest receivable (179)
Net amortization on investment securities-available for sale 9
Net amortization on mortgage-backed securities available for sale 1
Increase in accrued expenses and other liabilities 94
--------
Net cash used by operating activities (61)
--------
Cash flows from investing activities:
Purchase of investment securities-available for sale $ (5,169)
Purchase of mortgage-backed securities-available for sale (2,011)
Investment in common stock subsidiary (10,723)
Net increase in loans to ESOP (1,754)
--------
Net cash used by investing activities (19,657)
--------
Cash flows from financing activities:
Proceeds from issuance of common stock 21,447
--------
Net increase in cash and cash equivalents 1,729
Cash and cash equivalents:
Beginning of period 0
End of period $ 1,729
========
</TABLE>
-51-
<PAGE>
GSB FINANCIAL CORPORATION and GOSHEN SAVINGS BANK
DIRECTORS
<TABLE>
<CAPTION>
<S> <C>
CLIFFORD E. KELSEY, JR. ROY L. LIPPINCOTT
President and Chief Executive Officer, Retired President Lippincott Funeral
GSB Financial Corp. and Home Inc. and Lippincott
Goshen Savings Bank Funeral Chapel
RICHARD C. DURLAND STEPHEN O. HOPKINS
Executive Vice President and Representative R.D. Murray Fire
Treasurer Apparatus and S.V.I. Trucks
GSB Financial Corp. and
Goshen Savings Bank GENE J. GENGEL
Executive Director
HERBERT C. MUELLER Orange County Cerebral Palsy
Retired Veterinarian Assoc. Rehabilitation Center
THOMAS V. GUARINO
President, Hudson Valley
Investment Advisors, Inc.
GSB FINANCIAL CORPORATION - OFFICERS
CLIFFORD E. KELSEY, JR. DIANE D. KING
President and Chief Executive Officer Senior Vice President
And Assistant Treasurer
RICHARD C. DURLAND
Executive Vice President JENNY M. FORD
And Treasurer Vice President and
Secretary
STEPHEN W. DEDERICK
Chief Financial Officer
GOSHEN SAVINGS BANK - OFFICERS
CLIFFORD E. KELSEY, JR. DIANE D. KING
President and Chief Executive Officer Senior Vice President
And Assistant Treasurer
RICHARD C. DURLAND
Executive Vice President JENNY M. FORD
And Treasurer Vice President and
Secretary
STEPHEN W. DEDERICK
Chief Financial Officer RICHARD C. BURCH
Installment Loan Officer
BARBARA A. CARR JENNIFER A. TERPSTRA
Mortgage Officer Auditor
</TABLE>
-52-
<PAGE>
STOCKHOLDERS' INFORMATION
<TABLE>
<CAPTION>
<S> <C>
CORPORATE OFFICE TRANSFER AGENT AND REGISTRAR
GSB Financial Corporation Registrar and Transfer Company
1 South Church Street 10 Commerce Drive
Goshen, New York 10924 Cranford, NJ 07016-3572
(914) 294-6151
SPECIAL COUNSEL
COMMON STOCK Serchuk & Zelermyer, LLP
81 Main Street
The common stock of GSB White Plains, NY 10601
Financial Corporation is
traded on the NASDAQ INDEPENDENT AUDITORS
Stock Market under the
symbol "GOSB" Nugent and Haeussler, P.C.
900 Corporate Blvd., Suite 901
Newburgh, NY 12550
The high and low closing bids
were $17.125 and $14.00, respectively,
for the period from July 9, 1997 FORM 10K
to September 30, 1997.
GSB Financial Corporation will
file an Annual Report on Form 10K
The approximate number of for fiscal year 1997. Stockholders
stockholders of record was may obtain a copy free of charge by
527 at December 18, 1997. writing to:
No dividends were paid in 1997. Jenny M. Ford
GSB Financial Corporation
1 South Church Street
Goshen, NY 10924
</TABLE>
-53-
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
Goshen Savings Bank is the a wholly owned subsidiary of GSB Financial
Corporation. GSB Financial Corporation has no other subsidiaries.
<TABLE> <S> <C>
<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.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<CASH> 3,218
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 5,100
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 33,628
<INVESTMENTS-CARRYING> 5,653
<INVESTMENTS-MARKET> 5,766
<LOANS> 65,905
<ALLOWANCE> 139
<TOTAL-ASSETS> 117,046
<DEPOSITS> 82,983
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,430
<LONG-TERM> 0
0
0
<COMMON> 21,468
<OTHER-SE> 11,165
<TOTAL-LIABILITIES-AND-EQUITY> 117,046
<INTEREST-LOAN> 4,833
<INTEREST-INVEST> 2,245
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 7,078
<INTEREST-DEPOSIT> 3,128
<INTEREST-EXPENSE> 3,226
<INTEREST-INCOME-NET> 3,852
<LOAN-LOSSES> 20
<SECURITIES-GAINS> 94
<EXPENSE-OTHER> 2,979
<INCOME-PRETAX> 1,196
<INCOME-PRE-EXTRAORDINARY> 1,196
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 756
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 3.89
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 123
<CHARGE-OFFS> 14
<RECOVERIES> 10
<ALLOWANCE-CLOSE> 139
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 139
</TABLE>
<PAGE>
Exhibit 99.1
GSB FINANCIAL CORPORATION
One South Church Street
Goshen, New York 10924
(914) 294-6151
January 8, 1998
Dear Fellow Stockholder:
On behalf of the Board of Directors and management of GSB Financial Corporation
(the "Company"), we cordially invite you to attend our first Annual Meeting of
Stockholders of the Company. The meeting will be held at 4:00 p.m., New York
time, on February 25, 1998 at the main office of Goshen Savings Bank, One South
Church Street, Goshen, New York 10924.
At the meeting, stockholders will be asked to elect two directors to serve for
three year terms, to approve two stock-based compensation plans, and to ratify
the appointment of auditors. We urge you to exercise your rights as a
stockholder to vote and participate in this process. Your Board of Directors
unanimously recommends that you vote in favor of the directors nominated by the
Board and in favor of the three other proposals.
Please read the enclosed Proxy Statement and then complete, sign and date the
enclosed proxy card and return it in the accompanying postage prepaid return
envelope as promptly as possible. We encourage you to return the proxy card even
if you plan to attend the meeting. This will save the Company additional expense
of soliciting proxies and will ensure that your shares are represented at the
meeting.
Sincerely,
Clifford E. Kelsey, Jr.
President and
Chief Executive Officer
<PAGE>
GSB Financial Corporation
One South Church Street
Goshen, New York 10924
(914) 294-6151
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be Held on February 25, 1998
Notice is hereby given that the Annual Meeting of Stockholders (the
"Meeting") of GSB Financial Corporation (the "Company") will be held at 4:00
p.m., New York time, on February 25, 1998 at the main office of Goshen Savings
Bank, One South Church Street, Goshen, New York 10924.
A Proxy Card and a Proxy Statement for the Meeting are included with this
notice.
The Meeting is for the purpose of considering and acting upon:
1. The election of two directors, each to serve for a three year term and
until his successor has been duly elected and qualified;
2. The approval of the Company's Stock Option Plan;
3. The approval of the Company's Incentive Stock Award Plan; and
4. The ratification of the appointment of Nugent & Haeussler, P.C. as
auditors for the Company for the fiscal year ending September 30, 1998;
5. Such other matters as may properly come before the Meeting, or any
adjournments thereof. The Board of Directors is not aware of any other
business to come before the Meeting.
Any action may be taken on the foregoing proposals at the Meeting on the
date specified above, or on any date or dates to which the Meeting may be
adjourned. Stockholders of record at the close of business on December 26, 1997
(the "Record Date") are the stockholders entitled to vote at the Meeting and any
adjournments thereof.
You are requested to complete and sign the enclosed form of proxy, which is
solicited on behalf of the Board of Directors, and to mail it promptly in the
enclosed envelope. The proxy will not be used if you attend and vote at the
Meeting in person.
BY ORDER OF THE BOARD OF DIRECTORS
Goshen, New York
January 8, 1998
IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE THE COMPANY THE EXPENSE OF
FURTHER REQUESTS FOR PROXIES TO ENSURE A QUORUM AT THE MEETING. A SELF
ADDRESSED ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS REQUIRED
IF MAILED WITHIN THE UNITED STATES.
<PAGE>
PROXY STATEMENT
GSB Financial Corporation
ANNUAL MEETING OF STOCKHOLDERS
February 25, 1998
This Proxy Statement is furnished in connection with the solicitation on
behalf of the Board of Directors of GSB Financial Corporation (the "Company"),
the parent company of Goshen Savings Bank (the "Bank"), of proxies to be used at
the Annual Meeting of Stockholders of the Company (the "Meeting") which will be
held at the main office of the Bank, One South Church Street, Goshen, New York
10924 on February 25, 1998, at 4:00 p.m., New York time, and all adjournments of
the Meeting. The accompanying Notice of Meeting and this Proxy Statement are
first being mailed to stockholders on or about January 8, 1998.
At the Meeting, stockholders of the Company are being asked to consider and
vote upon the election of two directors for three year terms, to consider and
vote upon the proposals to ratify the adoption of the GSB Financial Corporation
Stock Option Plan (the "Stock Option Plan") and the GSB Financial Corporation
Incentive Stock Award Plan (the "ISAP") and to ratify the appointment of Nugent
& Haeussler, P.C. as the auditors of the Company for the fiscal year ending
September 30, 1998. The Board of Directors has fixed December 26, 1997 as the
Record Date for determining stockholders entitled to notice of and to vote at
the Meeting. As of the Record Date there were 2,248,250 shares of Common Stock,
par value $.01 per share, issued and outstanding.
Vote Required and Proxy Information
Each share of the Company's Common Stock, par value $.01 per share (the
"Common Stock"), is entitled to one vote on each matter to come before the
Meeting. Directors are elected by a plurality of the votes cast at the Meeting.
There is no cumulative voting in the election of directors. Proposals to ratify
the adoption of the Stock Option Plan and the ISAP require the affirmative vote
of the majority of shares entitled to vote at the meeting. The ratification of
the appointment of Nugent & Haeussler, P.C. requires the affirmative vote of a
majority of the votes cast. Properly executed proxies in the form solicited by
the Board of Directors which are received prior to or at the Meeting, and not
revoked, will be voted in accordance with the instructions thereon. If no
instructions are indicated, such proxies will be voted in favor of the proposals
set forth in this Proxy Statement. The Company does not know of any matters,
other than those described in this Proxy Statement, that are to come before the
Meeting. If any other matters are properly presented at the Meeting for action,
including the adjournment of the Meeting, the persons named in the enclosed form
of proxy will have the discretion to vote on such matters in accordance with
their best judgment. Proxies marked against the ratification of the Stock Option
Plan or the ISAP will not be voted in favor of an adjournment requested in order
to solicit additional votes in favor of such plans.
One-third of the shares of the Company's Common Stock, present in person or
represented by proxy, shall constitute a quorum for purposes of the Meeting.
Abstentions and broker non-votes are counted for purposes of determining a
quorum. Abstentions and broker non-votes will not affect the vote on the
election of directors or the ratification of the appointment of accountants.
However, abstentions and broker non-votes will have the same effect as a vote
against the Stock Option Plan and the ISAP.
A proxy given pursuant to this solicitation may be revoked at any time
before it is voted. Proxies may be revoked by: (i) filing with the Secretary of
the Company at or before the Meeting a written notice of revocation bearing a
later date than the proxy, (ii) duly executing a subsequent proxy relating to
the same shares and delivering it to the Secretary of the Company at or before
the Meeting, or (iii) attending the Meeting and voting in person (although
attendance at the Meeting will not in and of itself constitute revocation of a
1
<PAGE>
proxy). Any written notice revoking a proxy must be delivered to Jenny M. Ford,
Corporate Secretary, GSB Financial Corporation, One South Church Street, Goshen,
New York 10924.
In order for a stockholder to nominate a person for election as a director,
the stockholder must provide written notice to the Secretary of the Company
identifying the proposed nominee. The notice must set forth all information
required to be disclosed regarding such person in a proxy solicitation under
Schedule 14A of the regulations of the Securities and Exchange Commission and
such other information as is set forth in Article I Section 6(c) of the
Company's bylaws. For a stockholder to bring any other business before the an
annual meeting, the stockholder must give written notice thereof to the
Secretary of the Company setting forth a brief description of the proposed
business, the name and address of the stockholder proposing such business, the
number of shares of common stock owned by such stockholder, and any material
interest of such stockholder in such business. Such notice is generally required
to be received not less than 90 days prior to the date of an annual meeting,
provided, however, for this the first annual meeting of stockholders, and for
any future annual meeting held in more than 30 days in advance of the
anniversary of the prior annual meeting, the notice must be received not later
than the close of business on the tenth calendar day after the date the notice
of the meeting is first mailed to stockholders or public announcement of the
date of the meeting occurs. Notice must be received by the Company at its
principal executive offices, One South Church Street, Goshen, New York, 10924,
Attention: Jenny M. Ford, Secretary.
Voting Securities and Certain Holders Thereof
Stockholders of record as of the close of business on the Record Date will
be entitled to one vote for each share of Common Stock then held. As of that
date, the Company had 2,248,250 shares of Common Stock issued and outstanding.
The following table sets forth information regarding share ownership of (i)
those persons or entities known by management to own beneficially more than five
percent of the Common Stock, (ii) each of the Company's directors, (iii) each
officer of the Company and the Bank who made in excess of $100,000 (salary and
bonus) during the fiscal year ended September 30, 1997 (the "Named Officers");
and (iv) all directors and executive officers of the Company and the Bank as a
group. Except for ownership of shares of stock by the Company's Employee Stock
Ownership Plan, the Company is unaware of any person or group owning five
percent or more of the Common Stock as of the Record Date.
<TABLE>
<CAPTION>
Shares Beneficially Owned at Percent of
Beneficial Owner December 26, 1997 class(1)
- ---------------- ---------------------------- ----------
<S> <C> <C>
GSB Financial Corporation
Employee Stock Ownership
Plan(2) 179,860 8.00%
Clifford E. Kelsey, Jr., President
Chief Executive Officer and
Director 15,000(3) *
</TABLE>
______________________
(1) Based upon 2,248,250 shares outstanding on December 26, 1997. An asterisk
("*") means less than 1%.
(2) The amount reported represents shares held by the ESOP, Marine Midland Bank,
the trustee of the ESOP, may be deemed to own beneficially the shares held by
the ESOP none of which have been allocated to accounts of participants.
Unallocated shares held by the ESOP or allocated shares for which no voting
instructions are received are voted by the trustee in the same proportion as
allocated shares voted by participants.
(3) Includes 5,000 shares owned by Mr. Kelsey's Individual Retirement Account
("IRA").
2
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Richard C. Durland, Executive
Vice President and Director 6,000(4) *
Gene J. Gengel, Director 8,343(5) *
Thomas V. Guarino, Director 14,102(6) *
Stephen O. Hopkins, Director 2,500(7) *
Roy L. Lippincott, Director 15,000(8) *
Herbert C. Mueller, Director 14,360(9) *
Directors and executive officers
of the Company and the Bank,
as a group (10 persons) 76,545 3.4%
</TABLE>
_______________________
(4) Includes 600 shares owned in Mr. Durland's name as custodian for one of
his children and 400 shares owned directly by one of his children.
(5) All shares owned by Mr. Gengel's IRA.
(6) Includes 500 shares owned by Mr. Guarino's spouse and 1,000 shares owned by
him as custodian for his children.
(7) Includes 2,000 shares owned by Mr. Hopkins' IRA.
(8) All shares owned by a corporate profit sharing trust of which Mr. Lippincott
is the trustee and the beneficiary.
(9) Includes 5,000 shares owned by Mr. Mueller's IRA and 6,860 shares owned by
his spouse.
PROPOSAL I - ELECTION OF DIRECTORS
The Board of Directors of the Company currently consists of seven members.
The Board of Directors is divided into three classes and the Company's bylaws
provide that directors are elected for staggered three-year terms. Two directors
will be elected at the 1998 Annual Meeting to hold office until the Annual
Meeting of Stockholders in the year 2001 and until their successors have been
elected and qualified or until they are removed or replaced. Each nominee named
below has consented to being named herein and to serve if elected. In case any
nominee becomes unavailable for election for any presently unforeseen reason,
the persons authorized to cast the votes represented by the enclosed proxy will
have the right to use their discretion to vote for a substitute or to vote for
the remaining nominees.
INFORMATION CONCERNING THE BOARD OF
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is certain information, as of September 30, 1997, with
respect to the nominees for director, directors continuing in office and
executive officers. There are no arrangements or understandings pursuant to
which any director was selected to serve as such, and there are no family
relationships between any directors or executive officers of the Company. All
directors and nominees have been directors of the Company since it was formed in
March 1997.
3
<PAGE>
Directors Nominated For Terms Expiring In 2001
<TABLE>
<CAPTION>
Term as Director
Name and Age Position With the Company and the Bank Expires
- ------------ -------------------------------------- ----------------
<S> <C> <C>
Gene J. Gengel, 55 Director of the Company and the Bank 1998
Thomas V. Guarino, 43 Director of the Company and the Bank 1998
</TABLE>
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
THAT STOCKHOLDERS VOTE IN FAVOR OF THESE NOMINEES
Directors Whose Terms Will Continue Beyond The Meeting
<TABLE>
<CAPTION>
Term as Director
Name and Age Position With the Company and the Bank Expires
- ------------ -------------------------------------- ----------------
<S> <C> <C>
Clifford E. Kelsey, Jr., 64 Director, President and Chief Executive 2000
Officer of the Company and the Bank
Richard C. Durland, 53 Director of the Company and the Bank 1999
Herbert C. Mueller, 70 Director of the Company and the Bank 2000
Roy L. Lippincott, 56 Director of the Company and the Bank 2000
Stephen O. Hopkins, 58 Director of the Company and the Bank 1999
</TABLE>
Board of Directors - Biographical Information
Business experience for the directors listed below comprises experience for
at least the past five years.
Clifford E. Kelsey, Jr. serves as the President, Chief Executive Officer
and a director of the Bank and the Company. 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., 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, now retired, is the former President of Lippincott Funeral Chapel,
Inc. in Goshen, New York and of Lippincott Funeral Home Inc. in Chester, New
York. From 1968 until 1996, Mr. Lippincott was President of Ralston Lippincott
Hasbrouck Ingrasia Funeral Home, Inc. located in Middletown, New York. Mr.
Lippincott served as the Orange County Coroner from 1971 until 1985.
Stephen O. Hopkins has been a director of the Bank since 1980. Mr. Hopkins
has been the regional representative for the R.D. Murray Fire Apparatus company
4
<PAGE>
since May 1997 and S.V.I. Trucks since 1992, supplying fire and rescue apparatus
to fire stations. From 1981 to 1983, Mr. Hopkins served as the President of the
Cataract Engine & Hose Co. Mr. Hopkins presently serves on the Board of
Directors for the Goshen Historic Track and has served is that capacity since
its inception. He has been the Town Supervisor for the Town of Goshen since
1996. Mr. Hopkins served as the Mayor of the Village of Goshen from 1983 until
1989 and as the chief of the Goshen Fire District from 1975 to 1978.
Gene J. Gengel has been a director of the Bank since 1995. Mr. Gengel is
the Executive Director of the Orange County Cerebral Palsy Association
Rehabilitation Center, a position he has held since 1992. From 1965 to 1992, Mr.
Gengel held various management positions in the telephone industry including
General Manager with a subsidiary of the Rochester Telephone Corporation. 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, a position he has
held since 1995. Prior to that, he had been, since 1988, a Vice President of
Fleet Investment Advisors, Inc. 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
Executive officers are elected for one year terms and serve at the pleasure
of the Board of Directors. Provided below is certain information regarding the
executive officers of the Company and the Bank who are not directors.
Stephen W. Dederick joined the Bank in February 1997 as its Chief Financial
Officer. Prior to joining the Bank, he was the Vice President and Controller of
MSB Bank, where he also served on the Asset/Liability Committee and the
Investment Committee. Mr. Dederick joined MSB Bank in 1985. He is active in
scouting and is a member and past treasurer of the Pine Bush Lions Club.
Diane D. King has served as the Bank's Senior Vice President and Assistant
Treasurer since January 1997. Ms. King has been with the Bank for 29 years and
has served in various positions, including 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.
Meetings of the Board of Directors and Certain Committees
The Company's Board of Directors held six meetings during the 1997 fiscal
year. Each of the directors of the Company is also a director of the Bank. The
Board of Directors of the Company has a Compensation Committee and an Audit
Committee. The entire Board of Directors acts as a nominating committee. The
Bank also has a Compensation Committee.
5
<PAGE>
The Compensation Committee. The Compensation Committee is responsible for
compensation matters of the Company and will be responsible for administering
and making grants or awards under the Stock Option Plan and the Incentive Stock
Award Plan when and if approved by stockholders. The committee will also oversee
the Company's Employee Stock Ownership Plan (the "ESOP"). The Committee consists
of all directors who are not salaried officers of the Company or the Bank The
committee did not meet in fiscal 1997.
The Compensation Committee of the Bank consists of the same persons as the
Compensation Committee of the Company. The committee is responsible for
determining the compensation of executive officers and employees of the Bank.
The committee met three times during the 1997 fiscal year.
The Audit Committee of the Company, which also serves as the audit
committee of the Bank, consists of directors Mueller, Gengel and Guarino. The
Audit Committee (i) recommends and maintains communications with the independent
auditors; (ii) reviews the status of the annual audit; and (iii) supervises the
Bank's internal auditor. The Committee met five times in fiscal 1997.
No decision has been made as to whether the Board of Directors will
consider nominees for directorships submitted by stockholders. Any stockholder
desiring to suggest a nominee to the Board of Directors as a possible director
should submit in writing a detailed resume of such person and a statement of
such persons knowledge, expertise and experience in banking and financial
matters. Stockholders of record may nominate candidates as directors provided
that they must follow the procedural requirements discussed above under the
caption "Voting Required and Proxy Information."
Director Compensation
Directors who are not employees of the Company or the Bank or any of their
subsidiaries are paid a fee of $500 for each regular Board meeting and $300 for
each committee meeting of the Company or the Bank. Directors are also be
eligible for participation in the Stock Option Plan and Incentive Stock Award
Plan when and if ratified by stockholders.
Executive Compensation
The Company has not paid any compensation to its executive officers since
its formation. The Company does not presently anticipate paying any compensation
to such persons, except for stock-based compensation pursuant to its Employee
Stock Ownership Plan and the Stock Option Plan and the ISAP, until it becomes
actively involved in the operation or acquisition of businesses other than the
Bank. The Company has, however, entered into employment contracts with four of
its executive officers and has entered into a Retention Agreement with a fifth
executive officer.
The following table sets forth information concerning the compensation paid
to President and Chief Executive Officer Clifford E. Kelsey, the only executive
officer with a salary in excess of $100,000 for the 1997 fiscal year.
6
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Summary Compensation Table
- ------------------------------------------------------------------------------------------------------------------------------------
Long-Term Compensation
Annual Compensation Awards
- ------------------------------------------------------------------------------------------------------------------------------------
Options/
Stock
Restricted Appreciation
Name and Principal Fiscal Other Annual Stock Rights All Other
Position Year(10) Salary($) Bonus($) Compensation($)(11) Awarded($) ("SARs")(#) Compensation($)(12)
- -------------------------- ---------- ----------- ---------- ------------------- -------------- --------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Clifford E. Kelsey, Jr., 1997 $129,611 None None None None $5,712
President and
Chief Executive Officer 1996 $123,610 None None None None $4,717
====================================================================================================================================
</TABLE>
Compensation Committee Report on Executive Compensation
In fulfillment of Securities and Exchange Commission's requirements for
disclosure in proxy materials of the Compensation Committee Report on Executive
Compensation Committee's policies regarding compensation of executive officers,
the Committee has prepared the following report for inclusion in this proxy
statement.
General Policy Considerations. The Board of Directors of the Bank has
delegated to its Compensation Committee the responsibility and authority to
oversee the general compensation policies of the Bank and to establish
compensation plans and specific compensation levels for executive officers. The
Compensation Committee of the Company has been delegated the responsibility and
authority to oversee implementation of, and approve grants and awards under, the
Company's Stock Option Plan and the Company's Incentive Stock Award Plan. Both
committees consist of all the non-officer directors so decisions of the two
committees should be viewed together, and for the purposes of this discussion
they will be referred to as the Compensation Committee.
The Compensation Committee has developed an executive compensation policy
designed to: (i) offer competitive compensation to attract, motivate, retain and
reward executive officers who are crucial to the long-term success of the
Company; and (ii) encourage decision-making that maximizes long-term stockholder
value. The Compensation Committee seek to consider a multitude of factors in
establishing appropriate levels of compensation for executive officers, with no
one factor clearly overshadowing all the others. The overall determination is
based upon the subjective judgment of the committee members.
The compensation package provided to the executive officers of the Bank is
composed principally of base salary. The Compensation Committee anticipates that
the Stock Option Plan and the ISAP will be approved at the Meeting, thus
providing additional flexibility in fashioning compensation packages. The ESOP
also provides employees, and officers, with an additional equity-based incentive
to maximize long-term shareholder value. Stock-based compensation available now
and in the future will be considered by the Compensation Committee in making its
salary determinations for officers and employees in the future.
___________________
(10) In accordance with the revised rules on executive officer and director
compensation disclosure adopted by the Securities and Exchange Commission,
summary compensation information is excluded for the year ended September 30,
1995, as neither the Bank nor the Company were public companies during such
year.
(11) Mr. Kelsey did not receive additional benefits or perquisites which in the
aggregate exceeded 10% of his salary and bonus.
(12) Amount includes Company matching
contribution accrued to Mr. Kelsey's accounts under the Bank's 401(k) Plan of
$3,883 and $3,694 and life insurance premiums of $1,829 and $1,023 for 1997 and
1996, respectively.
7
<PAGE>
The Compensation Committee considers multiple factors in determining
executive compensation, some related to the specific work performed and expected
of the officer and others related to the Company, the Bank, the local business
climate and other general matters. For example, the Compensation Committee
considers, among other factors, the level of responsibility of each officer; the
expertise and skill level required to perform the position; satisfaction of
prior period goals and objectives; length of service; the complexity of work
that may be required in connection with strategic plans or special projects; and
prior compensation history. General considerations include the Bank's earnings,
capital and asset size; the results of government regulatory examinations; the
Bank's regulatory ratings on safety and soundness as well as Community
Reinvestment Act examinations; the ratio of salary and benefits expense to total
assets; and performance and compensation programs of peer group banks.
Employee benefit plans also represent an important component of any
compensation package. The defined benefit pension plan, contributions to the
401(k) plan and health insurance benefits available to all employees, including
executive officers, provide competitive benefits comparable to those available
at other institutions.
The Compensation Committee's decisions are discretionary and no
mathematical or similar formula is utilized to determine any compensation
package. The Compensation Committee believes that a competitive employee benefit
package is essential to achieving the goals of attracting and retaining highly
qualified employees.
Chief Executive Officer Compensation. The Compensation Committee determines
the salary of the Chief Executive Officer on a calendar year basis. Base salary
paid to Mr. Kelsey for calendar year 1997 was $128,622, and reflects a 5%
increase over Mr. Kelsey's base salary for calendar year 1996. In determining
total compensation to be paid to the Chief Executive Officer, the Compensation
Committee considered the factors discussed above and also considered a number of
specific matters including the efforts required to assure the successful
completion of the Bank's conversion to stock form and the efforts to improve the
Bank's interest rate spread through restructuring the Bank's loan and deposit
programs. The Compensation Committees also considered the Bank's return to
profitability in fiscal 1996, with net income of $558,000, after the net loss of
$462,000 in 1995 when it determined Mr. Kelsey's base salary for calendar year
1997.
This report is included herein at the direction of the Compensation
Committee members, directors, Herbert C. Mueller, Roy L. Lippincott, Stephen O.
Hopkins, Gene J. Gengel and Thomas V. Guarino.
Stock Performance Presentation
The Company completed its initial public offering of common stock at a
price of $10.00 per share on July 9, 1997. Accordingly, at this time it is not
possible to provide a performance graph comparing the yearly percentage change
in cumulative total stockholder return with broad market indices, industry
indices or any other relevant indices. The quoted closing price of the common
stock as reported on the Nasdaq National Market on December 18, 1997, was $18.00
per share.
Transactions with Directors and Officers
Some of the directors and executive officers of the Bank, as well as firms
and companies with which they are associated, are and have been customers of the
8
<PAGE>
Bank. All of the Bank's transactions with such persons and entities were
completed in the ordinary course of business and were on substantially the same
terms as those prevailing at the time for comparable transactions with the
general public.
In addition to such normal customer relationships, none of the directors or
executive officers of the Company (or members of their immediate families)
maintained, directly or indirectly, any significant business or personal
relationship with the Company or the Bank during the 1997 fiscal year.
Employment Agreements and Retention Agreements
The Company and the Bank have entered into separate employment
agreements with President and Chief Executive Officer Clifford Kelsey. The
agreements establish Mr. Kelsey's duties and are intended to ensure that the
Bank and the Company will be able to continue to benefit from Mr. Kelsey's
services.
The agreements provide for three-year terms beginning on May 1, 1997.
Each agreement provides that, commencing on the first anniversary date and
continuing each anniversary date thereafter, the Board of Directors may,
provided that Mr. Kelsey does not object and after a performance evaluation by
the Board, extend the agreement for an additional year. The agreements provide
that Mr. Kelsey's base salary will be reviewed annually. It is anticipated that
this review will be performed by the Compensation Committees of the Bank and the
Company, and approved by non-employee members of the Board. The agreements
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 agreements provide for termination by the Bank or the Company at any time
for cause as defined in the agreements.
If the Bank or the Company terminates Mr. Kelsey's employment for
reasons other than for cause, or if he resigns from the Bank and the Company for
certain specified reasons, he would be entitled to a lump sum cash payment in an
amount equal to the sum of (a) the present value of his 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), (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 agreement and
(c) payments that would have been made under any incentive compensation plan
during the remaining term of the agreement. If permitted by applicable law,
provision will also be made for the cash out of stock options, appreciation
rights or restricted stock as if he were fully vested. The Bank and the Company
would also continue his life, health and any disability insurance or other
benefit plan coverage for specified periods. Reasons specified as grounds for
resignation 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
agreement), 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, a "change in control" will 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 compensation and benefit costs for fiscal
1997, cash payments to be made in the event of a change in control of the Bank
or the Company to Mr. Kelsey pursuant to the terms of the agreements is
estimated to be approximately $460,000.
Payments under the Bank's agreement with Mr. Kelsey are guaranteed by
the Company. If payments under the two agreements are duplicative, payments due
under the Company's agreement would be offset by amounts actually paid by the
Bank. Mr. Kelsey is entitled to reimbursement of certain costs incurred in
interpreting or enforcing the agreements.
9
<PAGE>
Cash and benefits paid to Mr. Kelsey pursuant to the agreements and
under other benefit plans following a "change in control" may constitute "excess
parachute" payments under Section 280G of the Internal Revenue Code, resulting
in a 20% excise tax payable by the recipient and the denial of the deduction for
such excess amounts to the Company and the Bank. The Company's agreement
includes a provision indemnifying Mr. Kelsey on an after-tax basis for any such
excise taxes.
The Company and the Bank also have employment agreements with executive
officers Richard Durland, Diane King and Jenny Ford which are substantially
similar in terms to the employment agreements with Mr. Kelsey. Based on
compensation and benefit costs for fiscal 1997, cash payments to be made in the
event of a change in control of the Bank or the Company to those three executive
officers, in the aggregate, pursuant to the terms of the agreements is estimated
to be approximately $816,000.
In addition, the Bank has Severance Agreements, which are guaranteed by
the Company, with executive officer Stephen W. Dederick and with three
non-executive officers. In general terms, such agreements provide for three year
assurance periods of employment after a change in control, although they do not
guaranty continued employment with the Bank prior to a change in control. If the
officer's employment terminates after a change in control under circumstance
comparable to those which would give rise to change in control payments under
the contract with Mr. Kelsey described above, the officer would be entitled to
severance payments comparable to those paid to Mr. Kelsey, based upon the salary
and benefits paid to the terminated officer prior to the termination. However,
in no event may the aggregate amount payable under such agreements exceed 299%
of average annual compensation paid to such officer during the five preceding
taxable years. Based on compensation and benefit costs for fiscal 1997, cash
payments to be made in the event of a change in control of the Bank or the
Company to those three executive officers, in the aggregate, pursuant to the
terms of the agreements is estimated to be approximately $816,000.
The actual amount that may be paid in the event of a change in control
pursuant to the Employment Agreements and Severance Agreements can only be
estimated at this time because the actual amount will be based on the
compensation and benefit costs and other factors existing at the time of the
change in control which cannot be determined at this time.
Pension Plan
The Bank maintains a non-contributory, tax-qualified defined benefit
pension plan (the "Pension Plan") for eligible employees. 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.
10
<PAGE>
<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 96,000
- ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
200,000 45,000 60,000 75,000 96,000
- ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
225,000 45,000 60,000 75,000 96,000
======================== ====================== ====================== ====================== ======================
</TABLE>
All employees and officers with more than 1,000 hours of service per year
who have attained age 21 and completed one year of service are eligible to
participate in the Pension Plan. The Pension Plan provides a benefit for each
participant. The annual benefit is equal to 2% of the participant's average
annual compensation multiplied by the participant's number of years of service.
A participant is entitled to a maximum of 30 years of service under the Pension
Plan. For the plan year beginning October 1, 1997, the maximum permitted average
annual compensation for determining pension benefits under the Bank's Pension
Plan was $160,000 and the maximum annual pension benefit was $96,000.
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.
At September 30, 1997, Mr. Kelsey had 30 years of credited service under
the Pension Plan.
PROPOSAL II - RATIFICATION OF THE STOCK OPTION PLAN
General
Establishment and implementation of the Stock Option Plan is subject to
ratification by stockholders. The Stock Option Plan is in compliance with OTS
regulations; however, the OTS has not endorsed or approved the Stock Option Plan
and no written or oral representation to the contrary is made hereby.
The Stock Option Plan has been adopted by the Board of Directors of the
Company, subject to ratification by stockholders at the Meeting. Ratification by
stockholders will ratify the awards described in "Awards Under the Stock Option
Plan" below, and will authorized the granting of additional options pursuant to
the provisions of the Stock Option Plan. The Company will reserve, either from
authorized but unissued shares or from issued shares reacquired and held as
treasury shares, 224,825 shares of the Common Stock (10% of the shares issued in
the Company's initial public offering) for use to satisfy the exercise of
options. Management may, to the extent practicable and feasible, fund the Stock
Option Plan from issued shares reacquired by the Company in the open market. To
the extent the Company utilizes authorized but unissued Common Stock to fund the
11
<PAGE>
Stock Option Plan, the exercise of stock options will have the effect of
diluting the holdings of persons who own the Common Stock. Assuming all options
under the Stock Option Plan are awarded and exercised through the use of
authorized but unissued Common Stock, the percentage ownership interest of
existing stockholders would be diluted by approximately 9.1%.
The Board of Directors believes that the Company should adopt a flexible
and comprehensive Stock Option Plan which permits the granting of a variety of
long-term incentive awards to directors, officers and employees as a means of
enhancing and encouraging the recruitment and retention of those individuals on
whom the continued success of the Company most depends. However, because the
awards are granted only to persons affiliated with the Company, the adoption of
the Stock Option Plan could make it more difficult for a third party to acquire
control of the Company and therefore could discourage offers for the Company's
stock that may be viewed by the Company's stockholders to be in their best
interest.
In addition, certain provisions included in the Company's Certificate of
Incorporation and Bylaws may discourage potential takeover attempts,
particularly takeover attempts that are not negotiated directly with the Board
of Directors of the Company. Included among these provisions are provisions (i)
limiting the voting power of shares held by persons owning 10% or more of the
Common Stock, (ii) requiring a super- majority vote of stockholders for approval
of certain business combinations, (iii) establishing a staggered Board of
Directors, (iv) permitting special meetings of stockholders to be called only by
the Board of Directors and (v) authorizing a class of preferred stock with terms
to be established by the Board of Directors. These provisions could prevent the
sale or merger of the Company even if a majority of the stockholders approve of
such transaction. Furthermore, until July 9, 2000 (three years after the
consummation of the conversion of the Bank to the stock form of ownership),
federal regulations prohibit any person from acquiring or offering to acquire
the beneficial ownership of more than 10% of the stock of a converted savings
institution or its holding company without prior approval of the OTS. Federal
law and regulations also require OTS approval prior to the acquisition of
"control" (as defined in the OTS regulations) of an insured institution,
including a holding company thereof. These regulations could have the effect of
discouraging takeover attempts of the Company.
Certain provisions of the Employment Agreements and Retention Agreements
discussed above, notably the payments which could become due upon a change in
control, could also have the effect of discouraging takeover attempts.
Attached hereto as Exhibit A to this Proxy Statement is the complete text
of the Stock Option Plan. The principal features of the Stock Option Plan are
summarized below.
Principal Features of the Stock Option Plan
The Stock Option Plan provides for awards in the form of stock options,
representing a right, or option, in favor of the grantee of the option to
purchase common stock of the Company. Each award shall be on such terms and
conditions, consistent with the Stock Option Plan and applicable OTS
regulations, as the committee administering the Stock Option Plan may determine.
Subject to certain exceptions described in the plan, in accordance with OTS
regulations awards under the plan may not vest more rapidly than 20% per year
beginning one year after stockholder approval of the Stock Option Plan, subject
to the participant maintaining continuous service to the Company or its
subsidiaries from the date of grant through the date of vesting.
Pursuant to OTS regulations, non-employee directors of the Company
individually, and all non-employee directors of the Company as a group, may not
be awarded more than 5% and 30%, respectively, of the total shares subject to
the Stock Option Plan. In addition, no individual may be granted awards with
respect to more than 25% of the total shares subject to the Stock Option Plan.
12
<PAGE>
Shares delivered upon the exercise of options granted pursuant to the Stock
Option Plan may be either authorized but unissued shares or reacquired shares
held by the Company in its treasury. If an option expires or is terminated
unexercised, one or more new options may be granted under the Stock Option Plan
for the same number of shares. Generally, no award or any right or interest
therein is assignable or transferable except under certain limited exceptions
set forth in the Stock Option Plan.
The Stock Option Plan is administered by the Compensation Committee of the
Board of Directors of the Company, which is comprised of directors Herbert C.
Mueller, Roy L. Lippincott, Stephen O. Hopkins, Gene J. Gengel and Thomas V.
Guarino. Pursuant to the terms of the Stock Option Plan, any director, officer
or employee of the Company or its affiliates is eligible to participate in the
Stock Option Plan, which currently includes approximately 40 persons. In
granting awards under the Stock Option Plan, the Compensation Committee expects
that it will consider, among other things, position and years of service, value
of the participants' services to the Company and the Bank and the added
responsibilities of such individuals as employees, directors and officers of a
public company.
Stock Options
The term of stock options may not exceed ten years from the date of grant.
The Compensation Committee may grant either "incentive stock options" as defined
under Section 422 of the Code, or stock options not intended to qualify as such
("non-qualified stock options").
In general, stock options will not be exercisable after the expiration of
their terms. Unless otherwise determined by the Compensation Committee, in the
event a participant ceases to maintain continuous service (as defined in the
Stock Option Plan) with the Company or one of its affiliates, for any reason
(excluding death, disability and termination for cause), an exercisable stock
option will continue to be exercisable for three months thereafter but in no
event after the expiration date of the option. Unless otherwise provided by the
Compensation Committee, in the event of disability of a participant during such
service, all options not then exercisable shall become exercisable in full and
remain exercisable for a period of three months from the date of such
disability. Unless otherwise provided by the Compensation Committee, in the
event of death of a participant, all options not then exercisable shall become
exercisable in full. Unless otherwise provided by the Compensation Committee, in
the event of the death of a participant during such service or within the
three-month period described above following termination of service described
above, an exercisable option will continue to be exercisable for one year, to
the extent exercisable by the participant immediately prior to his death, but in
no event later than ten years after grant. Following the death of any
participant, the Compensation Committee may, as an alternative means of
settlement of an option, elect to pay to the holder thereof an amount of cash
equal to the amount by which the market value of the shares covered by the
option on the date of exercise exceeds the exercise price. A stock option will
automatically terminate and will no longer be exercisable as of the date a
participant is notified of termination for cause.
The exercise price for the purchase of shares subject to a stock option at
the date of grant may not be less than 100% of the market value of the shares
covered by the option on that date. The exercise price must be paid in full in
cash or, if permitted by the Stock Plans Committee, shares of Common Stock, or a
combination of both.
13
<PAGE>
The Stock Option Plan provides for the automatic grant of a non-qualified
stock option to purchase 11,241 shares of Common Stock to each director who is
not a full-time employee of the Company, as of the date of stockholder
ratification of the Stock Option Plan. Such options have a term of ten years,
are not transferable, and vest at the rate of 20% per year commencing on the
one-year anniversary of the date of Stockholder approval. The exercise price per
share of such options shall be equal to the fair market value of the Common
Stock on the date of grant.
Limited Stock Appreciation Rights
Each option granted under the Stock Option Plan will be accompanied by a
Limited Stock Appreciation Right ("LSAR") that is exercisable for a period
commencing on the date on which a change in control (as defined in the Stock
Option Plan) occurs and ending six months after such date (or such later date as
does not subject the option holder to liability under Section 16 of the
Securities Exchange Act of 1934). Upon exercise of a LSAR, the optionee will be
entitled to receive an amount equal to (a) the excess of the fair market value
of the common stock over the exercise price per share specified in the LSAR,
multiplied by (b) the number of shares with respect to which the LSAR is being
exercised. The related stock option will then be canceled. Under the Stock
Option Plan, LSARs will be canceled upon a change of control if the acquiror has
agreed to make a monetary payment or provide substitute options or other
property equivalent in value to the value of the option being canceled.
Effect of Merger and Other Adjustments
Shares as to which awards may be granted under the Stock Option Plan, and
shares then subject to awards, will be adjusted appropriately by the
Compensation Committee in the event of any merger, consolidation,
reorganization, recapitalization (including any distribution of capital to
shareholders, whether taxable or otherwise), combination or exchange of shares,
stock dividend, stock split or other change in the corporate structure or Common
Stock of the Company.
Amendment and Termination
The Board of Directors of the Company may at any time amend, suspend or
terminate the Stock Option Plan or any portion thereof, subject to compliance
with OTS regulations, but may not, without the prior approval of the
stockholders, make any amendment which would be required to be approved by
stockholders in order for the Stock Option Plan to satisfy the requirement of
Section 422 of the Internal Revenue Code. For example, stockholder approval
would be required for an amendment which (i) increases the aggregate number of
securities which may be issued under the Stock Option Plan (except as
specifically set forth under the Stock Option Plan), (ii) materially increases
the benefits accruing to participants, (iii) materially changes the requirements
as to eligibility for participation in the Stock Option Plan or (iv) changes the
class of persons eligible to participate in the Stock Option Plan. No amendment,
suspension or termination may impair the rights of any participant, without his
consent, in any award made pursuant to the Stock Option Plan. Unless previously
terminated, the Stock Option Plan shall continue in effect for a term of ten
years, after which no further options may be granted under the Stock Option
Plan.
Federal Income Tax Consequences
Under present federal income tax laws, awards under the Stock Option Plan
will have the following consequences:
(1) The grant of an option will not, itself, result in the recognition of
taxable income to the participant or entitle the Company to a deduction at the
time of such grant.
(2) In order to qualify as an "Incentive Stock Option," a stock option
awarded under the Stock Option Plan must meet the conditions contained in
14
<PAGE>
Section 422 of the Code, including the requirement that the shares acquired upon
the exercise of the stock option be held for one year after the date of exercise
and two years after the grant of the option. The exercise of an Incentive Stock
Option will generally not, by itself, result in the recognition of taxable
income to the participant or entitle the Company to a deduction at the time of
such exercise. However, the difference between the exercise price and the fair
market value of the option shares on the date of exercise is an item of tax
preference which may, in certain situations, trigger the alternative minimum
tax.
(3) The exercise of a stock option which is not an Incentive Stock Option
will result in the recognition of taxable ordinary income by the participant on
the date of exercise in an amount equal to the difference between the exercise
price and the fair market value on the date of exercise of the shares acquired
pursuant to the stock option.
(4) The exercise of a LSAR will result in the recognition of taxable,
ordinary income by the participant on the date of exercise in an amount of cash
acquired pursuant to the exercise.
(5) The Company will be allowed a deduction at the time, and in the amount
of, any ordinary income recognized by the participant under the various
circumstances described above, provided that the Company meets its federal
withholding tax obligations.
Awards Under the Stock Option Plan
The following table presents information at with respect to the number of
awards of options which are currently intended to be granted under the Stock
Option Plan, subject to stockholder ratification of the Stock Option Plan, to
(i) the Named Officers and (ii) directors who are not executive officers of the
Company and the Bank as a group and (iv) all non-executive officer employees of
the Company or the Bank as a group. The amount of options which may be awarded
to other employees and officers has not been determined and is at the discretion
of the Compensation Committee. On December 18, 1997, the closing price for the
Common Stock as quoted on the Nasdaq Stock Market was $18.00 per share.
<TABLE>
<CAPTION>
====================================================================================================================
1998 STOCK OPTION PLAN
====================================================================================================================
Name and Position Dollar Value (13) Number of Shares
==================================================== ============================== ================================
<S> <C> <C>
Clifford E. Kelsey, Jr. President and Chief
Executive Officer............................... None 56,206
Non-Executive Director Group
(5 persons)..................................... None 55,205
==================================================== ============================== ================================
</TABLE>
Subject to the conditions of the Stock Option Plan, the proposed awards
described in the preceding table will vest in five equal annual installments
with the first installment vesting on the one-year anniversary of the date of
stockholder approval of the Stock Option Plan and the additional installments
vesting ratably on each subsequent anniversary of such approval. Pursuant to the
terms of the Stock Option Plan, all options are required to be granted with an
exercise price equal to not less than the fair market value of the shares on the
date of grant. To the extent permitted under applicable law, all options granted
to officers are intended to be incentive stock options. All awards to directors
who are not full time employees of the Company will be non-qualified stock
options.
________________
(13) Any value realized will be the difference between the exercise price and
the market value upon exercise. Since the options have not been granted, there
is no current value.
15
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE
RATIFICATION OF THE ADOPTION OF THE STOCK OPTION PLAN.
PROPOSAL III - RATIFICATION OF THE INCENTIVE STOCK AWARD PLAN
General
Establishment and implementation of the ISAP is subject to ratification by
stockholders. The ISAP is in compliance with OTS regulations; however, the OTS
has not endorsed or approved the ISAP and no written or oral representation to
the contrary is made hereby.
The ISAP has been adopted by the Board of Directors of the Company, subject
to stockholder ratification. The ISAP is designed to provide directors, officers
and employees with a proprietary interest in the Company so as to encourage such
individuals to remain with the Company and the Bank. Ratification by
stockholders of the adoption of the ISAP will ratify the awards proposed
thereunder and as described in "Awards under the ISAP" herein, and will ratify
the granting of additional restricted stock awards pursuant to the provisions of
the ISAP. Pursuant to the ISAP, 89,930 shares of Common Stock (or 4.0% of the
shares sold in the Bank's conversion to stock form), funded from either
authorized but unissued shares or issued shares subsequently reacquired and held
as treasury shares, will be available for awards. Management currently intends,
to the extent practicable and feasible, to fund the ISAP from issued shares
reacquired in the open market. The costs and expenses of administering the ISAP
will be borne by the Company, but dividends paid on shares not awarded may be
used to defer expenses.
To the extent the Company utilizes authorized but unissued shares to fund
the ISAP, the interests of current stockholders will be diluted. Assuming all
ISAP Shares are awarded through the use of authorized but unissued Common Stock,
the percentage ownership interest of existing stockholders would be diluted by
approximately 3.85%. Upon ratification of the ISAP by stockholders, it is
expected that 44,962 shares of Common Stock will be awarded to non-employee
directors and the chief executive officer of the Company and the Bank, which
will leave 44,968 shares available for awards to other officers and employees of
the Company and the Bank.
The ISAP will be effectuated through the creation of a trust (the "Trust")
by the Company. The Company will fund the Trust, or cause the Trust to be
funded, with such money or property as is determined by the Board of Directors
of the Company. Participant contributions are not permitted. In no event will
the assets of the Trust be used to purchase more than 89,930 shares of Common
Stock, less any shares contributed in kind to the Trust. Attached as Exhibit B
to this Proxy Statement is the complete text of the form of the ISAP. The
principal features of the ISAP are summarized below.
Principal Features of the ISAP
The ISAP provides for the award of shares of Common Stock ("ISAP Shares")
subject to the restrictions described below. The ISAP is administered by the
Company's Compensation Committee. Each award under the ISAP will be made on such
terms and conditions, consistent with the terms of the ISAP and applicable OTS
regulations, as the Compensation Committee shall determine.
16
<PAGE>
The Compensation Committee will select the recipients and terms of awards
pursuant to the ISAP. In determining to whom and in what amount to grant awards,
the Compensation Committee considers the position and responsibilities of
eligible individuals, the value of their services to the Company and the Bank
and other factors it deems relevant. Pursuant to the terms of the ISAP, any
director, officer or employee of the Company or its affiliates is eligible to
participate in the ISAP, which currently includes eligible participants of
approximately 40 persons.
As required by OTS regulations, award recipients earn (i.e., become vested
in) awards, over a period of time as determined by the Compensation Committee at
the time of grant, provided that no award may vest earlier than one year from
the date of stockholder approval of the ISAP and shall not vest at a rate in
excess of 20% of the initial award per year except in the event of death or
disability. As soon as practicable after shares are vested, the trustee of the
Trust will transfer the shares to the recipient. Pursuant to the terms of the
ISAP, no director who is not an employee of the Company shall be granted awards
with respect to more than 5% of the total shares subject to the ISAP. All
non-employee directors of the Company, in the aggregate, may not be granted
awards with respect to more than 30% of the total ISAP Shares and no individual
shall be granted awards with respect to more than 25% of the total ISAP Shares.
It is intended that no award granted to an executive officer of the Company or
its affiliates shall vest in any fiscal year (and shall be carried over to the
subsequent fiscal year) in which the Bank fails to meet all of its fully
phased-in capital requirements.
Subject to compliance with OTS regulations, the Compensation Committee may,
in its discretion, accelerate the time at which any or all restrictions will
lapse, or may remove any or all of the restrictions. In the event a participant
ceases to maintain continuous service with the Company or the Bank by reason of
death or disability, ISAP Shares still subject to restrictions will be fully
vested, free of these restrictions and shall not be forfeited. In the event of
termination for any other reason, all shares not yet vested will be forfeited
and returned to the Company.
Awards pursuant to the ISAP are held in trust until vested. An individual
to whom an award is granted is entitled to exercise voting rights and receive
cash dividends with respect to stock subject to awards granted to him whether or
not vested. The Compensation Committee will exercise voting rights with respect
to shares in the Trust that have not been allocated to reflect the voting
directions of shares granted under the ISAP. Each individual who receives and
award under the ISAP is entitled to direct the manner of response to any tender
offer, exchange offer or other offer made to shareholders with respect to stock
subject to awards granted to him whether or not vested. If no direction is
given, the shares will not be tendered or exchanged. For shares that are not yet
awarded, the ISAP Committee will direct the Trustee to respond to reflect the
responses given with respect to shares awarded.
The ISAP provides for an award of 4,496 shares to each director who is not
a full-time employee of the Company, as of the date of stockholder ratification
of the ISAP. No ISAP Shares granted to a director who is not full-time employee
shall be earned in any fiscal year (and shall be carried over to the subsequent
fiscal year) in which the Bank fails to meet all of its fully phased-in capital
requirements.
Federal Income Tax Consequences
Holders of ISAP Shares will recognize ordinary income on the date that the
ISAP Shares are no longer subject to a substantial risk of forfeiture
(ordinarily the date on which the ISAP Shares vest), in an amount equal to the
fair market value of the shares on that date. In certain circumstances, a holder
may elect to recognize ordinary income and determine such fair market value on
the date of the grant of the ISAP Shares. Holders of ISAP Shares will also
17
<PAGE>
recognize ordinary income equal to their dividend or dividend equivalent
payments when such payments are received. Generally, the amount of income
recognized by participants will be a deductible expense for tax purposes for the
Company.
Termination or Amendment of the ISAP
The Board of Directors of the Company may amend, suspend or terminate the
ISAP or any portion thereof at any time, provided, however, that no amendment or
termination may affect outstanding awards and all amendments are subject to OTS
regulations which may require Stockholder approval of certain amendments.
Awards Under the ISAP
The following table presents information at December 18, 1997 with respect
to the number of ISAP Shares which are currently intended to be granted under
the ISAP, subject to stockholder ratification of the ISAP, to (i) the Named
Officers, and (ii) directors who are not employees of the Company or the Bank as
a group. Awards to other officers and employees have not been determined.
<TABLE>
<CAPTION>
====================================================================================================================
1997 INCENTIVE STOCK AWARD PLAN
- ---------------------------------------------------- ------------------------------ --------------------------------
Name and Position Dollar Value (14) Number of Shares
<S> <C> <C>
==================================================== ============================== ================================
Clifford E. Kelsey, Jr. President and Chief
Executive Officer.............................. $404,676 22,482
Non-Executive Director Group
(5 persons)..................................... $404,640 22,480
==================================================== ============================== ================================
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS
VOTE "FOR" THE RATIFICATION OF THE ADOPTION OF THE
1997 INCENTIVE STOCK AWARD PLAN.
PROPOSAL IV - RATIFICATION OF APPOINTMENT OF AUDITORS
The Company's Board of Directors appointed Nugent & Haeussler, P.C. as
independent public accountants to audit the books of the Company for the fiscal
year ended September 30, 1998, subject to ratification by the stockholders at
the Meeting. Nugent & Haeussler, P.C. has been employed regularly by the Company
since it was formed in 1997 and by the Bank for more than 25 years to examine
their books and accounts and for other purposes.
Representatives of Nugent & Haeussler, P.C. are expected to be present at
the Annual Meeting and will have an opportunity to make such statements as they
may desire. Such representatives are expected to be available to respond to
appropriate questions from stockholders.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
THAT STOCKHOLDERS VOTE IN FAVOR OF THE
RATIFICATION OF THE APPOINTMENT OF AUDITORS
___________________________
(14) Assumes an aggregate market value of the ISAP Shares based on the
closing price of the Common Stock of $18.00 as reported on the Nasdaq National
Market System on December 18, 1997.
18
<PAGE>
OTHER BUSINESS
The management has no reason to believe that any other business will be
presented at the Annual Meeting, but if any other business shall be presented,
the proxies will vote on such matters in accordance with their judgment of the
best interests of the Company.
GENERAL
The Company's Annual Report to its Stockholders for the fiscal year ended
September 30, 1997, including financial statements, is being concurrently
furnished with this Proxy Statement to stockholders of record on the Record
Date. The Annual Report is not part of the proxy solicitation material.
All shares represented by valid proxies sent to the Company to be voted at
the Meeting will be voted if received in time. Each proxy will be voted in
accordance with the directions of the stockholder executing such proxy. If no
directions are given, such proxy will be voted "FOR" all the proposals set forth
in this Proxy Statement.
The cost of soliciting proxies relating to the Meeting will be borne by the
Company. In addition, directors, officers and regular employees of the Company
and the Bank may solicit proxies personally, by telephone or by other means
without additional compensation. In addition, the Company will, upon the request
of brokers, dealers, banks and voting trustees, and their nominees, who were
holders of record of shares of the Company's capital stock or participants in
depositories on the Record Date, bear their reasonable expenses for mailing
copies of this Proxy Statement, the form of proxy and the Notice of the Annual
Meeting, to the beneficial owners of such shares.
1999 ANNUAL MEETING
The Company's Board of Directors will establish the date for the 1999
Annual Meeting of Stockholders. In order for a stockholder to be entitled, under
the regulations of the Securities and Exchange Commission, to have a stockholder
proposal included in the Company's Proxy Statement for the 1999 meeting, the
proposal must be received by the Company at its principal executive offices, One
South Church Street, Goshen, New York, 10924, Attention: Jenny M. Ford,
Secretary, not less than 120 days in advance of the date in 1999 which
corresponds to the date in 1998 on which these proxy materials are released to
stockholders. The stockholder must also satisfy the other requirements of SEC
Rule 14a-8.
THE COMPANY WILL FURNISH, WITHOUT CHARGE TO ANY STOCKHOLDER SUBMITTING A WRITTEN
REQUEST, A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR 1997 REQUIRED TO
BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. SUCH WRITTEN REQUEST
SHOULD BE DIRECTED TO JENNY M. FORD, SECRETARY, AT THE COMPANY'S ADDRESS STATED
HEREIN. THE FORM 10-K REPORT IS NOT A PART OF THE PROXY SOLICITATION MATERIALS.
PLEASE SIGN, DATE AND MAIL YOUR PROXY NOW
Goshen, New York, January 8, 1998
19
<PAGE>
EXHIBIT A TO PROXY STATEMENT
GSB FINANCIAL CORPORATION
STOCK OPTION PLAN FOR
OUTSIDE DIRECTORS, OFFICERS AND EMPLOYEES
TABLE OF CONTENTS
ARTICLE I
PURPOSE
Section 1.1 General Purpose of the Plan ................................ A-1
ARTICLE II
DEFINITIONS
Section 2.1 Bank........................................................ A-1
Section 2.2 Board....................................................... A-1
Section 2.3 Change in Control........................................... A-1
Section 2.4 Code........................................................ A-2
Section 2.5 Committee................................................... A-2
Section 2.6 Company..................................................... A-2
Section 2.7 Disability.................................................. A-2
Section 2.8 Disinterested Board Member.................................. A-2
Section 2.9 Effective Date.............................................. A-2
Section 2.10 Eligible Director.......................................... A-2
Section 2.11 Eligible Employee.......................................... A-2
Section 2.12 Employer................................................... A-2
Section 2.13 Exchange Act............................................... A-3
Section 2.14 Exercise Price............................................. A-3
Section 2.15 Fair Market Value.......................................... A-3
Section 2.16 Family Member.............................................. A-3
Section 2.17 Incentive Stock Option..................................... A-3
Section 2.18 Limited Stock Appreciation Right........................... A-3
Section 2.19 Non-Profit Organization.................................... A-3
Section 2.20 Non-Qualified Stock Option................................. A-3
Section 2.21 Option..................................................... A-3
Section 2.22 Option Period.............................................. A-3
Section 2.23 OTS Regulations............................................ A-3
Section 2.24 Person..................................................... A-4
Section 2.25 Plan....................................................... A-4
Section 2.26 Retirement................................................. A-4
Section 2.27 Share...................................................... A-4
Section 2.28 Termination for Cause...................................... A-4
ARTICLE III
AVAILABLE SHARES
Section 3.1 Available Shares.............................................A-5
<PAGE>
ARTICLE IV
ADMINISTRATION
Section 4.1 Committee................................................... A-5
Section 4.2 Committee Action.............................................A-5
Section 4.3 Committee Responsibilities...................................A-6
ARTICLE V
STOCK OPTIONS FOR ELIGIBLE DIRECTORS
Section 5.1 In General...................................................A-6
Section 5.2 Exercise Price...............................................A-6
Section 5.3 Option Period................................................A-6
ARTICLE VI
STOCK OPTIONS FOR ELIGIBLE EMPLOYEES
Section 6.1 Size of Option...............................................A-7
Section 6.2 Grant of Options.............................................A-7
Section 6.3 Exercise Price...............................................A-8
Section 6.4 Option Period................................................A-8
Section 6.5 Required Regulatory Provisions...............................A-8
Section 6.6 Additional Restrictions on Incentive Stock Options...........A-9
ARTICLE VII
OPTIONS -- IN GENERAL
Section 7.1 Method of Exercise...........................................A-10
Section 7.2 Limitations on Options.......................................A-11
Section 7.3 Limited Stock Appreciation Rights............................A-12
ARTICLE VIII
AMENDMENT AND TERMINATION
Section 8.1 Termination..................................................A-12
Section 8.2 Amendment....................................................A-13
Section 8.3 Adjustments in the Event of a Business Reorganization........A-13
ARTICLE IX
MISCELLANEOUS
Section 9.1 Status as an Employee Benefit Plan...........................A-13
Section 9.2 No Right to Continued Employment.............................A-14
<PAGE>
Section 9.3 Construction of Language.....................................A-14
Section 9.4 Governing Law................................................A-14
Section 9.5 Headings.....................................................A-14
Section 9.6 Non-Alienation of Benefits...................................A-14
Section 9.7 Taxes........................................................A-14
Section 9.8 Approval of Shareholders.....................................A-15
Section 9.9 Notices......................................................A-15
<PAGE>
GSB FINANCIAL CORPORATION STOCK OPTION PLAN
FOR
OUTSIDE DIRECTORS, OFFICERS AND EMPLOYEES
ARTICLE I
PURPOSE
SECTION 1.1 GENERAL PURPOSE OF THE PLAN.
The purpose of the Plan is to promote the growth and profitability of
GSB FINANCIAL CORPORATION (the "Company") by providing eligible directors,
certain key officers and employees of the Company, and its affiliates with an
incentive to achieve corporate objectives, and by allowing the Company to
attract and retain individuals of outstanding competence by offering such
individuals an equity interest in the Company.
ARTICLE II
DEFINITIONS
The following definitions shall apply for the purposes of this Plan,
unless a different meaning is plainly indicated by the context:
SECTION 2.1 BANK means Goshen Savings Bank, a federally chartered
savings institution, and any successor thereto.
SECTION 2.2 BOARD means the board of directors of the Company.
SECTION 2.3 CHANGE IN CONTROL means any of the following events:
(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 ("Exchange Act")), other than (A) a trustee or other fiduciary holding
securities under an employee benefit plan maintained for the benefit of
employees of the Company; (B) a corporation owned, directly or indirectly, by
the stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company; or (C) any group constituting a person in
which employees of the Company are substantial members, becomes the "beneficial
owner" (as defined in Rule 13d-3 promulgated under the Exchange Act), directly
or indirectly, of securities issued by the Company representing 25% or more of
the combined voting power of all of the Company's then outstanding securities;
or
(b) the occurrence of any event upon which the individuals who on the
date the Plan is adopted are members of the Board, together with individuals
whose election by the Board or nomination for election by the Company's
stockholders was approved by the affirmative vote of at least two-thirds of the
members of the Board then in office who were either members of the Board on the
date this Plan is adopted 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 Company (as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act); or
(c) the shareholders of the Company approve either:
A-1
<PAGE>
(i) a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation following which both of the
following conditions are satisfied:
(A) either (I) the members of the Board of the
Company 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 (II) the shareholders of the Company own
securities of the institution resulting from such merger or consolidation
representing 80% or more of the combined voting power of all such securities of
the resulting institution then outstanding in substantially the same proportions
as their ownership of voting securities of the Company immediately 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 Company's obligations under the Plan; or
(ii) a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or substantially all
of its assets; and
(d) any event that would be described in section 2.3(a), (b) or (c) if
"the Bank" were substituted for "the Company" therein.
SECTION 2.4 CODE means the Internal Revenue Code of 1986 (including the
corresponding provisions of any succeeding law).
SECTION 2.5 COMMITTEE means the Committee described in section 4.1.
SECTION 2.6 COMPANY means GSB Financial Corporation, a corporation
organized and existing under the laws of the State of Delaware, and any
successor thereto.
SECTION 2.7 DISABILITY means a condition of total incapacity, mental or
physical, for further performance of duty with the Company which the Committee
shall have determined, on the basis of competent medical evidence, is likely to
be permanent.
SECTION 2.8 DISINTERESTED BOARD MEMBER means a member of the Board who
(a) is not a current employee of the Company or a subsidiary, and (b) satisfies
all other requirements which may be necessary so that the Plan qualifies for the
maximum available benefits under Section 162(m) of the Code and any applicable
rules of the Securities Exchange Commission under Section 16 of the Exchange
Act.
SECTION 2.9 EFFECTIVE DATE means the date on which this Plan is
approved by Shareholders pursuant to section 9.8 hereof.
SECTION 2.10 ELIGIBLE DIRECTOR means a member of the board of directors
of an Employer who is not also an employee of an Employer.
SECTION 2.11 ELIGIBLE EMPLOYEE means any employee whom the Committee
may determine to be a key officer or employee of an Employer and select to
receive a grant of an Option pursuant to the Plan.
SECTION 2.12 EMPLOYER means the Company, the Bank and any successor
thereto and, with the prior approval of the Board, and subject to such terms and
conditions as may be imposed by the Board, any other savings bank, savings and
loan association, bank, corporation, financial institution or other business
organization or institution. With respect to any Eligible Employer or Eligible
Director, the Employer shall mean the entity which employs such person or upon
whose board of directors such person serves.
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SECTION 2.13 EXCHANGE ACT means the Securities Exchange Act of 1934, as
amended.
SECTION 2.14 EXERCISE PRICE means the price per Share at which Shares
subject to an Option may be purchased upon exercise of the Option, determined in
accordance with section 5.4.
SECTION 2.15 FAIR MARKET VALUE means, with respect to a Share on a
specified date:
(a) the final reported sales price on the date in question (or if there
is no reported sale on such date, on the last preceding date on which any
reported sale occurred) as reported in the principal consolidated reporting
system with respect to securities listed or admitted to trading on the principal
United States securities exchange on which the Shares are listed or admitted to
trading; or
(b) if the Shares are not listed or admitted to trading on any such
exchange, the closing bid quotation with respect to a Share on such date on the
National Association of Securities Dealers Automated Quotations System, or, if
no such quotation is provided, on another similar system, selected by the
Committee, then in use; or
(c) if sections 2.15(a) and (b) are not applicable, the fair market
value of a Share as the Committee may determine.
SECTION 2.16 FAMILY MEMBER means the spouse, parent, child or sibling
of an Eligible Director or Eligible Employee.
SECTION 2.17 INCENTIVE STOCK OPTION means a right to purchase Shares
that is granted to Eligible Employees pursuant to section 6.1, that is
designated by the Committee to be an Incentive Stock Option and that is intended
to satisfy the requirements of section 422 of the Code.
SECTION 2.18 LIMITED STOCK APPRECIATION RIGHT means a right granted
pursuant to section 7.3.
SECTION 2.19 NON-PROFIT ORGANIZATION means any organization which is
exempt from federal income tax under section 501(c)(3), (4), (5), (6), (7), (8)
or (10) of the Internal Revenue Code.
SECTION 2.20 NON-QUALIFIED STOCK OPTION means a right to purchase
Shares that is granted pursuant to section 5.1 or 6.1. For Eligible Employees,
an Option will be a Non-Qualified Stock Option if (a) it is not designated by
the Committee to be an Incentive Stock Option, or (b) it does not satisfy the
requirements of section 422 of the Code.
SECTION 2.21 OPTION means either an Incentive Stock Option or a Non-
Qualified Stock Option.
SECTION 2.22 OPTION PERIOD means the period during which an Option may
be exercised, determined in accordance with section 5.3 and 6.4.
SECTION 2.23 OTS REGULATIONS means the regulations issued by the Office
of Thrift Supervision and applicable to the Plan, the Bank or the Company.
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SECTION 2.24 PERSON means an individual, a corporation, a bank, a
savings bank, a savings and loan association, a financial institution, a
partnership, an association, a joint-stock company, a trust, an estate, an
unincorporated organization and any other business organization or institution.
SECTION 2.25 PLAN means this Stock Option Plan for Outside Directors,
Officers and Employees, as amended from time to time.
SECTION 2.26 RETIREMENT means retirement at or after the normal or
early retirement date set forth in any tax-qualified retirement plan of the
Bank.
SECTION 2.27 SHARE means a share of Common Stock, par value $.01 per
share, of the Company.
SECTION 2.28 TERMINATION FOR CAUSE means one of the following:
(a) for an Eligible Employee who is not an officer or employee of any
bank or savings institution regulated by the Office of Thrift Supervision,
"Termination for Cause" means termination of employment with the Employer upon
the occurrence of any of the following: (i) the employee intentionally engages
in dishonest conduct in connection with his performance of services for the
Employer resulting in his conviction of a felony; (ii) the employee is convicted
of, or pleads guilty or nolo contendere to, a felony or any crime involving
moral turpitude; (iii) the employee willfully fails or refuses to perform his
duties under any employment or retention agreement and fails to cure such breach
within sixty (60) days following written notice thereof from the Employer; (iv)
the employee breaches his fiduciary duties to the Employer for personal profit;
or (v) the employee's willful breach or violation of any law, rule or regulation
(other than traffic violations or similar offenses), or final cease and desist
order in connection with his performance of services for the Employer;
(b) for an Eligible Employee who is an officer or employee of a bank or
savings institution regulated by the Office of Thrift Supervision, "Termination
for Cause" means termination of employment for 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 breach of any material provision of this
Agreement, in each case as measured against standards generally prevailing at
the relevant time in the savings and community banking industry; provided,
however, that such individual 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, which notice shall be given to such individual not later than
five (5) business days after the board of directors of the Employer adopts, and
shall be accompanied by, a resolution duly approved by affirmative vote of a
majority of the entire board of directors of the Employer at a meeting called
and held for such purpose (which meeting shall be held not less than fifteen
(15) days nor more than thirty (30) days after notice to the individual), at
which meeting there shall be a reasonable opportunity for the individual to make
oral and written presentations to the members of the board of directors of the
Employer, 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 of directors of the Employer grounds exist
for discharging the individual for cause.
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ARTICLE III
AVAILABLE SHARES
SECTION 3.1 AVAILABLE SHARES.
Subject to section 8.3, the maximum aggregate number of Shares with
respect to which Options may be granted at any time shall not exceed 224,825 and
shall be equal to the excess of:
(a) 224,825 Shares; over
(b) the sum of:
(i) the number of Shares with respect to which previously
granted Options may then or may in the future be exercised; plus
(ii) the number of Shares with respect to which previously
granted Options have been exercised.
ARTICLE IV
ADMINISTRATION
SECTION 4.1 COMMITTEE.
The Plan shall be administered by the Compensation Committee of the
Board, all whose members shall be Disinterested Board Members. If the Committee
consists of fewer than two Disinterested Board Members, then the Board shall
appoint to the Committee such additional Disinterested Board Members as shall be
necessary to provide for a Committee consisting of at least two Disinterested
Board Members. Said Committee shall constitute a compensation committee as that
term is used in section 162(m) of the Code, and the regulations thereunder, and
such committee shall have the authority described therein. If, for any reason, a
member of the Compensation Committee is not or ceases to be a Disinterested
Board Member, then any action taken by such person as a member of said Committee
shall be void and shall be disregarded for all purposes. Said person shall be
retroactively deemed not to have been a member of said Committee since said
person ceased being a Disinterested Board Member.
SECTION 4.2 COMMITTEE ACTION.
The Committee shall hold such meetings, and may make such
administrative rules and regulations, as it may deem proper. A majority of the
members of the Committee shall constitute a quorum, and the action of a majority
of the members of the Committee present at a meeting at which a quorum is
present, as well as actions taken pursuant to the unanimous written consent of
all of the members of the Committee without holding a meeting, shall be deemed
to be actions of the Committee. All actions of the Committee shall be final and
conclusive and shall be binding upon the Company and all other interested
parties. Any Person dealing with the Committee shall be fully protected in
relying upon any written notice, instruction, direction or other communication
signed by the secretary of the Committee and one member of the Committee, by two
members of the Committee or by a representative of the Committee authorized to
sign the same in its behalf.
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SECTION 4.3 COMMITTEE RESPONSIBILITIES.
Subject to the terms and conditions of the Plan and such limitations as
may be imposed from time to time by the Board, the Committee shall be
responsible for the overall management and administration of the Plan and shall
have such authority as shall be necessary or appropriate in order to carry out
its responsibilities, including, without limitation, the authority:
(a) to interpret and construe the Plan, and to determine all questions
that may arise under the Plan as to eligibility for participation in the Plan,
the number of Shares subject to the Options, if any, to be granted, and the
terms and conditions thereof;
(b) to adopt rules and regulations and to prescribe forms for the
operation and administration of the Plan; and
(c) to take any other action not inconsistent with the provisions of
the Plan that it may deem necessary or appropriate.
ARTICLE V
STOCK OPTIONS FOR ELIGIBLE DIRECTORS
SECTION 5.1 IN GENERAL.
(a) On the Effective Date, each Eligible Director shall be granted an
Option to purchase 11,241 Shares.
(b) Any Option granted under this section 5.1 shall be evidenced by a
written agreement which shall specify the number of Shares covered by the
Option, the Exercise Price for the Shares subject to the Option and the Option
Period, all as determined pursuant to this Article V. The Option agreement shall
also set forth specifically or incorporate by reference the applicable
provisions of the Plan.
SECTION 5.2 EXERCISE PRICE.
The price per Share at which an Option granted to an Eligible Director
under section 5.1 may be exercised shall be the Fair Market Value of a Share on
the date on which the Option is granted.
SECTION 5.3 OPTION PERIOD.
(a) Subject to section 5.3(b), the Option Period during which an Option
granted to an Eligible Director under section 5.1 may be exercised shall
commence on the date the Option is granted and shall expire on the earlier of:
(i) removal for cause in accordance with the Employer's
bylaws; or
(ii) the last day of the ten-year period commencing on the
date on which the Option was granted.
(b) During the Option Period, the maximum number Shares as to which an
outstanding Option may be exercised shall be as follows:
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(i) prior to the first anniversary of the Effective Date, the
Option shall not be exercisable;
(ii) on and after the first anniversary, but prior to the
second anniversary, of the Effective Date, the Option may be exercised as to a
maximum of twenty percent (20%) of the Shares subject to the Option;
(iii) on and after the second anniversary, but prior to the
third anniversary, of the Effective Date, the Option may be exercised as to a
maximum of forty percent (40%) of the Shares subject to the Option, when
granted, including in such number any optioned Shares purchased prior to such
second anniversary;
(iv) on and after the third anniversary, but prior to the
fourth anniversary, of the Effective Date, the Option may be exercised as to a
maximum of sixty percent (60%) of the Shares subject to the Option, when
granted, including in such number any optioned Shares purchased prior to such
third anniversary;
(v) on and after the fourth anniversary, but prior to the
fifth anniversary, of the Effective Date, the Option may be exercised as to a
maximum of eighty percent (80%) of the Shares subject to the Option, when
granted, including in such number any optioned Shares purchased prior to such
fourth anniversary; and
(vi) on and after the fifth anniversary of the Effective Date,
and for the remainder of the Option Period, the Option may be exercised as to
the entire number of optioned Shares not theretofore purchased;
provided, however, that such an Option shall become fully exercisable, and all
optioned Shares not previously purchased shall become available for purchase, on
the date of the Option holder's death or Disability; and provided, further, that
to the extent not inconsistent with section 563b.3(g)(4) of the OTS Regulations,
all Options granted under section 5.1(b) after one year after the consummation
of the Conversion of the Bank to the stock form of ownership shall not be
subject to the foregoing provisions of section 5.3(b), but shall instead be
exercisable immediately upon grant or as otherwise determined by the Committee.
ARTICLE VI
STOCK OPTIONS FOR ELIGIBLE EMPLOYEES
SECTION 6.1 SIZE OF OPTION.
Subject to sections 6.2 and 6.5 and such limitations as the Board may
from time to time impose, the number of Shares as to which an Eligible Employee
may be granted Options shall be determined by the Committee, in its discretion.
SECTION 6.2 GRANT OF OPTIONS.
(a) Subject to the limitations of the Plan, the Committee may, in its
discretion, grant to an Eligible Employee an Option to purchase Shares. The
Option for such Eligible Employees must be designated as either an Incentive
Stock Option or a Non-Qualified Stock Option and, if not designated as either,
shall be a Non-Qualified Stock Option.
(b) Any Option granted under this section 6.2 shall be evidenced by a
written agreement which shall:
(i) specify the number of Shares covered by the Option;
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(ii) specify the Exercise Price, determined in accordance with
section 6.3, for the Shares subject to the Option;
(iii) specify the Option Period determined in accordance with
section 6.4;
(iv) set forth specifically or incorporate by reference the
applicable provisions of the Plan; and
(v) contain such other terms and conditions not inconsistent
with the Plan as the Committee may, in its discretion, prescribe with respect to
an Option granted to an Eligible Employee.
SECTION 6.3 EXERCISE PRICE.
The price per Share at which an Option granted to an Eligible Employee
shall be determined by the Committee, in its discretion; provided, however, that
the Exercise Price shall not be less than the Fair Market Value of a Share on
the date on which the Option is granted.
SECTION 6.4 OPTION PERIOD.
Subject to section 6.5, the Option Period during which an Option
granted to an Eligible Employee may be exercised shall commence on the date
specified by the Committee in the Option agreement and shall expire on the date
specified in the Option agreement or, if no date is specified, on the earliest
of:
(a) the close of business on the last day of the three-month period
commencing on the date of the Eligible Employee's termination of employment with
the Employer, other than on account of death or Disability, Retirement or a
Termination for Cause;
(b) the close of business on the last day of the one-year period
commencing on the date of the Eligible Employee's termination of employment due
to death, Disability or Retirement;
(c) the date and time when the Eligible Employee ceases to be an
employee of the Employer due to a Termination for Cause; and
(d) the last day of the ten-year period commencing on the date on which
the Option was granted.
SECTION 6.5 VESTING PROVISIONS.
Unless otherwise permitted by OTS Regulations and approved by the
Committee, each Option granted to an Eligible Employee shall become exercisable
as follows:
(i) prior to the first anniversary of the Effective Date, the
Option shall not be exercisable;
(ii) on and after the first anniversary, but prior to the
second anniversary, of the Effective Date, the Option may be exercised as to a
maximum of twenty percent (20%) of the Shares subject to the Option when
granted;
(iii) on and after the second anniversary, but prior to the
third anniversary, of the Effective Date, the Option may be exercised as to a
maximum of forty percent (40%) of the Shares subject to the Option when granted,
including in such forty percent (40%) any optioned Shares purchased prior to
such second anniversary;
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(iv) on and after the third anniversary, but prior to the
fourth anniversary, of the Effective Date, the Option may be exercised as to a
maximum of sixty percent (60%) of the Shares subject to the Option when granted,
including in such sixty percent (60%) any optioned Shares purchased prior to
such third anniversary;
(v) on and after the fourth anniversary, but prior to the
fifth anniversary, of the Effective Date, the Option may be exercised as to a
maximum of eighty percent (80%) of the Shares subject to the Option when
granted, including in such eighty percent (80%) any optioned Shares purchased
prior to such fourth anniversary; and
(vi) on and after the fifth anniversary of the Effective Date,
and for the remainder of the Option Period, the Option may be exercised as to
the entire number of optioned Shares not theretofore purchased;
provided, however, that such an Option shall become fully exercisable, and all
optioned Shares not previously purchased shall become available for purchase, on
the date of the Option holder's death or Disability; provided, further, that the
Committee may establish a different vesting schedule if not inconsistent with
section 563b.3(g) of OTS Regulations.
(d) The Option Period of any Option granted to an Eligible Employee
hereunder, whether or not previously vested, shall be suspended as of the time
and date at which the Option holder has received notice from the Board that his
or her employment is subject to a possible Termination for Cause. Such
suspension shall remain in effect until the Option holder receives official
notice from the Board that he or she has been cleared of any possible
Termination for Cause, at which time, the original Exercise Period shall be
reinstated without any adjustment for the intervening suspended period. In the
event that the Option Period under section 6.4 expires during such suspension
for any of the reasons specified in sections 6.4(a), (b) or (d), other than
voluntary resignation not constituting Retirement, the Company shall pay to the
Eligible Employee, damages equal to the value of the expired Options less the
Exercise Price of such Options if it is determined that there had not existed
justification for Termination for Cause on the date of such expiration.
(e) No Option granted to an Eligible Employee hereunder, whether or not
previously vested, shall be exercised after the time and date at which the
Option holder's employment with the Employer is terminated in a Termination for
Cause.
SECTION 6.6 ADDITIONAL RESTRICTIONS ON INCENTIVE STOCK OPTIONS.
In addition to the limitations of section 7.3, an Option granted to an
Eligible Employee designated by the Committee to be an Incentive Stock Option
shall be subject to the following limitations:
(a) If, for any calendar year, the sum of (i) plus (ii) exceeds
$100,000, where (i) equals the Fair Market Value (determined as of the date of
the grant) of Shares subject to an Option intended to be an Incentive Stock
Option which first become available for purchase during such calendar year, and
(ii) equals the Fair Market Value (determined as of the date of grant) of Shares
subject to any other options intended to be Incentive Stock Options and
previously granted to the same Eligible Employee which first become exercisable
in such calendar year, then that number of Shares optioned which causes the sum
of (i) and (ii) to exceed $100,000 shall be deemed to be Shares optioned
pursuant to a Non-Qualified Stock Option or Non-Qualified Stock Options, with
the same terms as the Option or Options intended to be an Incentive Stock
Option;
(b) The Exercise Price of an Incentive Stock Option granted to an
Eligible Employee who, at the time the Option is granted, owns Shares comprising
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more than 10% of the total combined voting power of all classes of stock of the
Company shall not be less than 110% of the Fair Market Value of a Share, and if
an Option designated as an Incentive Stock Option shall be granted at an
Exercise Price that does not satisfy this requirement, the designated Exercise
Price shall be observed and the Option shall be treated as a Non-Qualified Stock
Option;
(c) The Option Period of an Incentive Stock Option granted to an
Eligible Employee who, at the time the Option is granted, owns Shares comprising
more than 10% of the total combined voting power of all classes of stock of the
Company, shall expire no later than the fifth anniversary of the date on which
the Option was granted, and if an Option designated as an Incentive Stock Option
shall be granted for an Option Period that does not satisfy this requirement,
the designated Option Period shall be observed and the Option shall be treated
as a Non-Qualified Stock Option;
(d) An Incentive Stock Option that is exercised during its designated
Option Period but more than:
(i) three (3) months after the termination of employment with
the Company, a parent or a subsidiary (other than on account of disability
within the meaning of section 22(e)(3) of the Code or death) of the Eligible
Employee to whom it was granted; and
(ii) one (1) year after such individual's termination of
employment with the Company, a parent or a subsidiary due to disability (within
the meaning of section 22(e)(3) of the Code);
may be exercised in accordance with the terms but shall at the time of
exercise be treated as a Non-Qualified Stock Option; and
(e) Except with the prior written approval of the Committee, no
individual shall dispose of Shares acquired pursuant to the exercise of an
Incentive Stock Option until after the later of (i) the second anniversary of
the date on which the Incentive Stock Option was granted, or (ii) the first
anniversary of the date on which the Shares were acquired.
ARTICLE VII
OPTIONS -- IN GENERAL
SECTION 7.1 METHOD OF EXERCISE.
(a) Subject to the limitations of the Plan and the Option agreement, an
Option holder may, at any time during the Option Period, exercise his or her
right to purchase all or any part of the Shares to which the Option relates;
provided, however, that the minimum number of Shares which may be purchased at
any time shall be 100, or, if less, the total number of Shares relating to the
Option which remain unpurchased. An Option holder shall exercise an Option to
purchase Shares by:
(i) giving written notice to the Secretary of the Company, in
such form and manner as the Committee may prescribe, of his intent to exercise
the Option;
(ii) delivering to the Secretary of the Company, full payment,
consistent with section 7.1(b), for the Shares as to which the Option is to be
exercised; and
(iii) satisfying such other conditions as may be prescribed in
the Option agreement.
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If, at anytime that any Option is exercisable there is not a duly appointed
Secretary of the Company, then notice of intent to exercise shall be given, in
writing, accompanied by payment in full, to the Board of Directors of the
Company.
(b) The Exercise Price of Shares to be purchased upon exercise of any
Option shall be paid in full in cash (by certified or bank check or such other
instrument as the Company may accept) or, if and to the extent permitted by the
Committee, by one or more of the following: (i) in the form of Shares already
owned by the Option holder having an aggregate Fair Market Value on the date the
Option is exercised equal to the aggregate Exercise Price to be paid; (ii) by
requesting the Company to cancel without payment Options outstanding to such
Person for that number of Shares whose aggregate Fair Market Value on the date
of exercise, when reduced by their aggregate Exercise Price, equals the
aggregate Exercise Price of the Options being exercised; or (iii) by a
combination thereof. Payment for any Shares to be purchased upon exercise of an
Option may also be made by delivering a properly executed exercise notice to the
Company, together with a copy of irrevocable instructions to a broker to deliver
promptly to the Company the amount of sale or loan proceeds to pay the purchase
price. To facilitate the foregoing, the Company may enter into agreements for
coordinated procedures with one or more brokerage firms.
(c) When the requirements of section 7.1(a) and (b) have been
satisfied, the Committee shall take such action as is necessary to cause the
issuance of a stock certificate evidencing the Option holder's ownership of such
Shares. The Person exercising the Option shall have no right to vote or to
receive dividends, nor have any other rights with respect to the Shares, prior
to the date as of which such Shares are transferred to such Person on the stock
transfer records of the Company, and no adjustments shall be made for any
dividends or other rights for which the record date is prior to the date as of
which such transfer is effected, except as may be required under section 8.3.
SECTION 7.2 LIMITATIONS ON OPTIONS.
(a) An Option by its terms shall not be transferable by the Option
holder other than to Family Members or Non-profit Organizations or by will or by
the laws of descent and distribution and shall be exercisable, during the
lifetime of the Option holder, only by the Option holder, a Family Member or a
Non-profit Organization. Any such transfer shall be effected by written notice
to the Company given in such form and manner as the Committee may prescribe and
shall be recognized only if such notice is received by the Company prior to the
death of the person giving it. Thereafter, the transferee shall have, with
respect to such Option, all of the rights, privileges and obligations which
would attach thereunder to the transferor if the Option were issued to such
transferor. If a privilege of the Option depends on the life, employment or
other status of the transferor, such privilege of the Option for the transferee
shall continue to depend on the life, employment or other status of the
transferor. The Committee shall have full and exclusive authority to interpret
and apply the provisions of this Plan to transferees to the extent not
specifically described herein. Notwithstanding the foregoing, an Incentive Stock
Option is not transferable by an Eligible Employee other than by will or the
laws of descent and distribution, and is exercisable, during his lifetime,
solely by him.
(b) The Company's obligation to deliver Shares with respect to an
Option shall, if the Committee so requests, be conditioned upon the receipt of a
representation as to the investment intention of the Option holder to whom such
Shares are to be delivered, in such form as the Committee shall determine to be
necessary or advisable to comply with the provisions of applicable federal,
state or local law. It may be provided that any such representation shall become
inoperative upon a registration of the Shares or upon the occurrence of any
other event eliminating the necessity of such representation. The Company shall
not be required to deliver any Shares under the Plan prior to (i) the admission
of such Shares to listing on any stock exchange on which Shares may then be
listed, or (ii) the completion of such registration or other qualification under
any state or federal law, rule or regulation as the Committee shall determine to
be necessary or advisable.
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SECTION 7.3 LIMITED STOCK APPRECIATION RIGHTS.
(a) Each Option granted under this Plan shall be accompanied by a
Limited Stock Appreciation Right that is exercisable at the times and upon the
terms and conditions set forth herein. Each Limited Stock Appreciation Right
granted hereunder shall be exercisable for a period commencing on the date on
which a Change in Control occurs and ending six (6) months after such date or,
if later in the case of any Person, thirty (30) days after the earliest date on
which such Person may exercise the Limited Stock Appreciation Right without
subjecting himself to liability under section 16 of the Securities Exchange Act
of 1934, as amended, provided, however, that a Limited Stock Appreciation Right
shall not be exerciseable if and to the extent that the exercise thereof is
prohibited by any then-applicable OTS Regulations. A Person in possession of a
Limited Stock Appreciation Right granted hereunder may exercise such Limited
Stock Appreciation Right by:
(i) giving written notice to the Committee, in such form and manner as
the Committee may prescribe, of his intent to exercise the Limited Stock
Appreciation Right; and
(ii) agreeing in such written notice to the cancellation of Options
then outstanding to him for a number of Shares equal to the number of Shares for
which the Limited Stock Appreciation Right is being exercised.
Except as provided in this Plan, within ten (10) days after the giving of such a
notice, the Committee shall cause the Company to deliver to such Person a
monetary payment in an amount per Share equal to the amount by which the Fair
Market Value of the Share on the date of exercise exceeds the Exercise Price per
Share of each of the Options being canceled.
(b) Notwithstanding anything herein contained to the contrary, the
Limited Stock Appreciation Rights granted hereunder shall be canceled at the
effective time of a Change in Control resulting from a transaction between the
Company and another party pursuant to a written agreement whereby the
consummation of the transaction is conditioned upon the delivery to each Option
holder, upon the closing of such transaction and in exchange for the
cancellation of all of such Option holder's outstanding Options, of a monetary
payment or property (including but not limited to options to purchase securities
of the entity resulting from such transaction) with a value equivalent to the
value of the Options being canceled.
ARTICLE VIII
AMENDMENT AND TERMINATION
SECTION 8.1 TERMINATION.
The Board may suspend or terminate the Plan in whole or in part at any
time prior to the tenth anniversary of the Effective Date by giving written
notice of such suspension or termination to the Committee. Unless sooner
terminated, the Plan shall terminate automatically on the day preceding the
tenth anniversary of the Effective Date. In the event of any suspension or
termination of the Plan, all Options theretofore granted under the Plan that are
outstanding on the date of such suspension or termination of the Plan shall
remain outstanding and exercisable for the period and on the terms and
conditions set forth in the Option agreements evidencing such Options.
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SECTION 8.2 AMENDMENT.
The Board may amend or revise the Plan in whole or in part at any time
whether before or after approval of the Plan by the Shareholders of the Company;
provided, however, that, to the extent required to comply with section 162(m)
and Section 422 of the Code, no such amendment or revision shall be effective if
it amends a material term of the Plan unless approved by the holders of a
majority of the voting Shares of GSB Financial Corporation.
SECTION 8.3 ADJUSTMENTS IN THE EVENT OF A BUSINESS REORGANIZATION.
(a) In the event of any merger, consolidation, or other business
reorganization in which the Company is the surviving entity, and in the event of
any stock split, stock dividend or other event generally affecting the number of
Shares held by each Person who is then a holder of record of Shares, the number
of Shares covered by each outstanding Option and the number of Shares available
pursuant to section 3.1 shall be adjusted to account for such event. Such
adjustment shall be effected by multiplying such number of Shares by an amount
equal to the number of Shares that would be owned after such event by a Person
who, immediately prior to such event, was the holder of record of one Share, and
the Exercise Price of outstanding Options shall be adjusted by dividing the
aggregate Exercise Price for all Shares covered by each Option by the adjusted
number of Shares covered by such Option; provided, however, that the Committee
may, in its discretion, establish another appropriate method of adjustment.
(b) In the event of any merger, consolidation, or other business
reorganization in which the Company is not the surviving entity, any Options
granted under the Plan which remain outstanding may be canceled as of the
effective date of such merger, consolidation, business reorganization,
liquidation or sale by the Board upon 30 days' written notice to the Option
holder; provided, however, that on or as soon as practicable following the date
of cancellation, each Option holder shall receive a monetary payment in such
amount, or other property of such kind and value, as the Board determines in
good faith to be equivalent in value to the Options that have been canceled.
(c) In the event that the Company shall declare and pay any dividend
with respect to Shares (other than a dividend payable in Shares) which results
in a nontaxable return of capital to the holders of Shares for federal income
tax purposes or otherwise than by dividend makes distribution of property to the
holders of its Shares, the Company shall make an equivalent payment to each
Person holding an outstanding Option as of the record date for such dividend.
Such payment shall be made at substantially the same time, in substantially the
same form and in substantially the same amount per optioned Share as the
dividend or other distribution paid with respect to outstanding Shares;
provided, however, that if any dividend or distribution on outstanding Shares is
paid in property other than cash, the Company, in its discretion applied
uniformly to all outstanding Options, may make such payment in a cash amount per
optioned Share equal in fair market value to the fair market value of the
non-cash dividend or distribution.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 STATUS AS AN EMPLOYEE BENEFIT PLAN.
This Plan is not intended to satisfy the requirements for qualification
under section 401(a) of the Code or to satisfy the definitional requirements for
an "employee benefit plan" under section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended. It is intended to be a non-qualified incentive
A-13
<PAGE>
compensation program that is exempt from the regulatory requirements of the
Employee Retirement Income Security Act of 1974, as amended. The Plan shall be
construed and administered so as to effectuate this intent.
SECTION 9.2 NO RIGHT TO CONTINUED EMPLOYMENT.
Neither the establishment of the Plan nor any provisions of the Plan
nor any action of the Board or the Committee with respect to the Plan nor the
grant of any Option or Limited Stock Appreciation Rights shall be held or
construed to confer upon any Eligible Director or Eligible Employee any right to
a continuation of his or her position as a director or employee of the Company.
The Employer reserves the right to remove any Eligible Director or dismiss any
Eligible Employee or otherwise deal with any Eligible Director or Eligible
Employee to the same extent as though the Plan had not been adopted.
SECTION 9.3 CONSTRUCTION OF LANGUAGE.
Whenever appropriate in the Plan, words used in the singular may be
read in the plural, words used in the plural may be read in the singular, and
words importing the masculine gender may be read as referring equally to the
feminine or the neuter. Any reference to an Article or section number shall
refer to an Article or section of this Plan unless otherwise indicated.
SECTION 9.4 GOVERNING LAW.
The Plan shall be construed, administered and enforced according to the
laws of the State of New York without giving effect to the conflict of laws
principles thereof, except to the extent that such laws are preempted by federal
law. The Plan shall be construed to comply with applicable OTS Regulations.
SECTION 9.5 HEADINGS.
The headings of Articles and sections are included solely for
convenience of reference. If there is any conflict between such headings and the
text of the Plan, the text shall control.
SECTION 9.6 NON-ALIENATION OF BENEFITS.
The right to receive a benefit under the Plan shall not be subject in
any manner to anticipation, alienation or assignment, nor shall such right be
liable for or subject to debts, contracts, liabilities, engagements or torts,
except to the extent provided in a qualified domestic relations order as defined
in section 414(p) of the Code.
SECTION 9.7 TAXES.
The Company shall have the right to deduct from all amounts paid by the
Company in cash with respect to an Option under the Plan any taxes required by
law to be withheld with respect to such Option. Where any Person is entitled to
receive Shares pursuant to the exercise of an Option, the Company shall have the
right to require such Person to pay the Company the amount of any tax which the
Company is required to withhold with respect to such Shares, or, in lieu
thereof, to retain, or to sell without notice, a sufficient number of Shares to
cover the amount required to be withheld.
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<PAGE>
SECTION 9.8 APPROVAL OF SHAREHOLDERS.
The Plan shall not be effective or implemented unless approved by
shareholders of the Company. The Plan shall become effective on the date of such
shareholder approval. Shareholder approval shall not be obtained earlier than
six months following such conversion unless permitted by the Office of Thrift
Supervision. No Option or Limited Stock Appreciation Rights shall be granted
prior to shareholder approval of the Plan.
SECTION 9.9 NOTICES.
Any communication required or permitted to be given under the Plan,
including any notice, direction, designation, comment, 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:
(a) If to the Committee:
GSB Financial Corporation
One South Church Street
Goshen, New York 10924
Attention: President
(b) If to an Option holder, to the Option holder's address as shown in
the Employer's records.
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<PAGE>
EXHIBIT B TO PROXY STATEMENT
INCENTIVE STOCK AWARD PLAN FOR DIRECTORS, OFFICERS AND
EMPLOYEES OF GSB FINANCIAL CORPORATION
TABLE OF CONTENTS
ARTICLE I
Section 1.1 General Purpose of the Plan................................... B-1
ARTICLE II
DEFINITIONS
Section 2.1 Award......................................................... B-1
Section 2.2 Award Date.................................................... B-1
Section 2.3 Bank.......................................................... B-1
Section 2.4 Beneficiary................................................... B-1
Section 2.5 Board......................................................... B-1
Section 2.6 Change of Control............................................. B-1
Section 2.7 Code.......................................................... B-2
Section 2.8 Committee..................................................... B-2
Section 2.9 Company....................................................... B-2
Section 2.10 Disability................................................... B-2
Section 2.11 Disinterested Board Member................................... B-2
Section 2.12 Effective Date............................................... B-2
Section 2.13 Eligible Director............................................ B-2
Section 2.14 Eligible Employee............................................ B-3
Section 2.15 Employer..................................................... B-3
Section 2.16 Exchange Act................................................. B-3
Section 2.17 OTS Regulations.............................................. B-3
Section 2.18 Person....................................................... B-3
Section 2.19 Plan......................................................... B-3
Section 2.20 Share........................................................ B-3
Section 2.21 Trust........................................................ B-3
Section 2.22 Trust Agreement.............................................. B-3
Section 2.23 Trust Fund................................................... B-3
Section 2.24 Trustee...................................................... B-3
ARTICLE III
SHARES AVAILABLE UNDER PLAN
Section 3.1 Shares Available Under Plan................................... B-3
<PAGE>
ARTICLE IV
ADMINISTRATION
Section 4.1 Committee..................................................... B-4
Section 4.2 Committee Action.............................................. B-4
Section 4.3 Committee Responsibilities.................................... B-4
ARTICLE IV
THE TRUST FUND
Section 5.1 Contributions................................................. B-4
Section 5.2 The Trust Fund................................................ B-5
Section 5.3 Investments................................................... B-5
ARTICLE VI
AWARDS
Section 6.1 Awards To Eligible Directors.................................. B-5
Section 6.2 Awards To Eligible Employees.................................. B-5
Section 6.3 Awards in General............................................. B-5
Section 6.4 Shares Allocations............................................ B-5
Section 6.5 Dividend Rights............................................... B-6
Section 6.6 Voting Rights................................................. B-6
Section 6.7 Tender Offers................................................. B-6
Section 6.8 Limitations on Awards......................................... B-7
ARTICLE VII
DISTRIBUTION OF SHARES
Section 7.1 Designation of Beneficiary.................................... B-7
Section 7.2 Manner of Distribution........................................ B-7
Section 7.3 Taxes......................................................... B-8
ARTICLE VIII
AMENDMENT AND TERMINATION
Section 8.1 Termination................................................... B-8
Section 8.2 Amendment..................................................... B-8
Section 8.3 Adjustments in the Event of a Business Reorganization......... B-8
ARTICLE IX
MISCELLANEOUS
Section 9.1 Status as an Employee Benefit Plan............................ B-9
Section 9.2 No Right to Continued Employment.............................. B-9
Section 9.3 Construction of Language...................................... B-9
Section 9.4 Governing Law................................................. B-9
Section 9.5 Headings...................................................... B-9
Section 9.6 Non-Alienation of Benefits.................................... B-9
Section 9.7 Notices....................................................... B-9
Section 9.8 Approval of Shareholders...................................... B-10
<PAGE>
INCENTIVE STOCK AWARD PLAN FOR DIRECTORS, OFFICERS AND
EMPLOYEES OF GSB FINANCIAL CORPORATION
ARTICLE I
PURPOSE
SECTION 1.1 GENERAL PURPOSE OF THE PLAN.
The purpose of the Plan is to promote the growth and profitability of
GSB Financial Corporation and to provide eligible directors, certain key
officers and employees of GSB Financial Corporation with an incentive to achieve
corporate objectives, to attract and retain directors, key officers and
employees of outstanding competence and to provide such directors, officers and
employees with an equity interest in GSB Financial Corporation.
ARTICLE II
DEFINITIONS
The following definitions shall apply for the purposes of this Plan,
unless a different meaning is plainly indicated by the context:
SECTION 2.1 AWARD means a grant of Shares to an Eligible Director or
Eligible Employee pursuant to section 6.1 or 6.2.
SECTION 2.2 AWARD DATE means, with respect to a particular Award, the
date specified by the Committee in the notice of the Award issued to the
Eligible Director or Eligible Employee by the Committee, pursuant to section 6.1
or 6.2.
SECTION 2.3 BANK means Goshen Savings Bank, a federally chartered stock
savings bank, and any successor thereto.
SECTION 2.4 BENEFICIARY means the Person designated by an Eligible
Director or Eligible Employee pursuant to section 7.3, to receive distribution
of any Shares available for distribution to such Eligible Director or Eligible
Employee, in the event such Eligible Director or Eligible Employee dies prior to
receiving distribution of such Shares.
SECTION 2.5 BOARD means the Board of Directors of the Company.
SECTION 2.6 CHANGE OF CONTROL means any of the following events:
(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 ("Exchange Act")), other than (A) a trustee or other fiduciary holding
securities under an employee benefit plan maintained for the benefit of
employees of the Company; (B) a corporation owned, directly or indirectly, by
the stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company; or (C) any group constituting a person in
which employees of the Company are substantial members, becomes the "beneficial
owner" (as defined in Rule 13d-3 promulgated under the Exchange Act), directly
or indirectly, of securities issued by the Company representing 25% or more of
the combined voting power of all of the Company's then outstanding securities;
or
(b) the occurrence of any event upon which the individuals who on the
date the Plan is adopted are members of the Board, together with individuals
whose election by the Board or nomination for election by the Company's
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stockholders was approved by the affirmative vote of at least two-thirds of the
members of the Board then in office who were either members of the Board on the
date this Plan is adopted 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 Company (as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act); or
(c) the shareholders of the Company approve either:
(i) a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation following which both of the
following conditions are satisfied:
(A) either (1) the members of the Board of the Company
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 (H) the shareholders of the Company own securities
of the institution resulting from such merger or consolidation representing 80%
or more of the combined voting power of all such securities of the resulting
institution then outstanding in substantially the same proportions as their
ownership of voting securities of the Company immediately 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 Company's obligations
under the Plan; or
(ii) a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or substantially all
of its assets; and
(d) any event that would be described in section 2.6(a), (b)
or (c) if "the Bank" were substituted for "the Company" therein.
SECTION 2.7 CODE means the Internal Revenue Code of 1986
(including the corresponding provisions of any succeeding law).
SECTION 2.8 COMMITTEE means the Committee described in section 4. 1.
SECTION 2.9 COMPANY means GSB Financial Corporation, a corporation
organized and existing under the laws of the State of Delaware, and any
successor thereto.
SECTION 2.10 DISABILITY means a condition of total incapacity, mental
or physical, for further performance of duty with the Company which the
Committee shall have determined, on the basis of competent medical evidence, is
likely to be permanent.
SECTION 2.11 DISINTERESTED BOARD MEMBER means a member of the Board who
(a) is not a current employee of the Company or a subsidiary, and (b) satisfies
all other requirements which may be necessary so that the Plan qualifies for the
maximum available benefits under Section 162(m) of the Code and any applicable
rules of the Securities Exchange Commission under Section 16 of the Exchange
Act.
SECTION 2.12 EFFECTIVE DATE means the date on which the plan is
approved by Shareholders pursuant to section 9.8.
SECTION 2.13 ELIGIBLE DIRECTOR means a member of the board of directors
of the Employer who is not also an employee of the Employer.
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<PAGE>
SECTION 2.14 ELIGIBLE EMPLOYEE means any employee whom the Committee
may determine to be a key officer or employee of the Employer and select to
receive an Award pursuant to the Plan.
SECTION 2.15 EMPLOYER means the Company, the Bank and any successor
thereto and, with the prior approval of the Board, and subject to such terms and
conditions as may be imposed by the Board, any other savings bank, savings and
loan association, bank, corporation, financial institution or other business
organization or institution. With respect to any Eligible Employee or Eligible
Director, the Employer shall mean the entity which employs such person or upon
whose board of directors such person serves.
SECTION 2.16 EXCHANGE ACT means the Securities Exchange Act of 1934, as
amended.
SECTION 2.17 OTS REGULATIONS means the regulations issued by the Office
of Thrift Supervision and applicable to the Plan, the Bank or the Company.
SECTION 2.18 PERSON means an individual, a corporation, a bank, a
savings bank, a savings and loan association, a financial institution, a
partnership, an association, a joint-stock company, a trust, an estate, an
unincorporated organization and any other business organization or institution.
SECTION 2.19 PLAN means This Incentive Stock Award Plan for Directors,
Officers and Employees of the Company as amended from time to time.
SECTION 2.20 SHARE means a share of common stock of the Company, par
value $.01 per share.
SECTION 2.21 TRUST means the legal relationship created by the Trust
Agreement pursuant to which the Trustee holds the Trust Fund in trust. The Trust
may be referred to as the "Incentive Stock Award Plan Trust of GSB Financial
Corporation."
SECTION 2.22 TRUST AGREEMENT means the agreement between GSB Financial
Corporation and the Trustee therein named or its successor pursuant to which the
Trust Fund shall be held in trust.
SECTION 2.23 TRUST FUND means the corpus (consisting of contributions
paid over to the Trustee, and investments thereof), and all earnings,
appreciations or additions thereof and thereto, held by the Trustee under the
Trust Agreement in accordance with the Plan, less any depreciation thereof and
any payments made therefrom pursuant to the Plan.
SECTION 2.24 TRUSTEE means the Trustee of the Trust Fund from time to
time in office. The Trustee shall serve as Trustee until it is removed or
resigns from office and is replaced by a successor Trustee or Trustees appointed
by the Company.
ARTICLE III
SHARES AVAILABLE UNDER PLAN
SECTION 3.1 SHARES AVAILABLE UNDER PLAN.
The maximum number of Shares under the Plan shall be 89,930.
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<PAGE>
ARTICLE IV
ADMINISTRATION
SECTION 4.1 COMMITTEE.
The Plan shall be administered by the members of the Compensation
Committee of the Company, all of whose members shall be Disinterested Board
Members. If the Committee consists of fewer than two Disinterested Board
Members, then the Board shall appoint to the Committee such additional
Disinterested Board Members as shall be necessary to provide for a Committee
consisting of at least two Disinterested Board Members.
SECTION 4.2 COMMITTEE ACTION.
The Committee shall hold such meetings, and may make such
administrative rules and regulations, as it may deem proper. A majority of the
members of the Committee shall constitute a quorum, and the action of a majority
of the members of the Committee present at a meeting at which a quorum is
present, as well as actions taken pursuant to the unanimous written consent of
all of the members of the Committee without holding a meeting, shall be deemed
to be actions of the Committee. All actions of the Committee shall be final and
conclusive and shall be binding upon the Company and all other interested
parties. Any Person dealing with the Committee shall be fully protected in
relying upon any written notice, instruction, direction or other communication
signed by the Secretary of the Committee and one member of the Committee, by two
members of the Committee or by a representative of the Committee authorized to
sign the same in its behalf.
SECTION 4.3 COMMITTEE RESPONSIBILITIES.
Subject to the terms and conditions of the Plan and such limitations as
may be imposed by the Board, the Committee shall be responsible for the overall
management and administration of the Plan and shall have such authority as shall
be necessary or appropriate in order to carry out its responsibilities,
including, without limitation, the authority:
(a) to interpret and construe the Plan, and to determine all questions
that may arise under the Plan as to eligibility for Awards under the Plan, the
amount of Shares, if any, to be granted pursuant to an Award, and the terms and
conditions of such Award;
(b) to adopt rules and regulations and to prescribe forms for the
operation and administration of the Plan; and
(c) to take any other action not inconsistent with the provisions of
the Plan that it may deem necessary or appropriate.
ARTICLE V
THE TRUST FUND
SECTION 5.1 CONTRIBUTIONS.
The Company shall contribute, or cause to be contributed, to the Trust,
from time to time, such amounts of money or property as shall be determined by
the Board, in its discretion. No contributions by Eligible Directors or Eligible
Employees shall be permitted.
B-4
<PAGE>
SECTION 5.2 THE TRUST FUND.
The Trust Fund shall be held and invested under the Trust Agreement
with the Trustee. The provisions of the Trust Agreement shall include provisions
conferring powers on the Trustee as to investment, control and disbursement of
the Trust Fund, and such other provisions not inconsistent with the Plan as may
be prescribed by or under the authority of the Board. No bond or security shall
be required of any Trustee at any time in office.
SECTION 5.3 INVESTMENTS.
The Trustee shall invest the Trust Fund in Shares and in such other
investments as may be permitted under the Trust Agreement, including savings
accounts, time or other interest bearing deposits in or other interest bearing
obligations of the Company, in such proportions as shall be determined by the
Committee; provided, however, that in no event shall the Trust Fund be used to
purchase more than 89,930 Shares. Notwithstanding the immediately preceding
sentence, the Trustee may temporarily invest the Trust Fund in short-term
obligations of, or guaranteed by, the U.S. Government or an agency thereof, or
the Trustee may retain the Trust Fund uninvested or may sell assets of the Trust
Fund to provide amounts required for purposes of the Plan.
ARTICLE VI
AWARDS
SECTION 6.1 AWARDS TO ELIGIBLE DIRECTORS.
On the Effective Date, each Person who is then an Eligible Director
shall be granted an Award of 4,496 Shares.
SECTION 6.2 AWARDS TO ELIGIBLE EMPLOYEES.
Subject to section 6.8 and such limitations as the Board may from time
to time impose, the number of Shares as to which an Eligible Employee may be
granted an Award shall be determined by the Committee in its discretion;
provided however, that in no event shall the number of Shares allocated to an
Eligible Employee in an Award exceed the number of Shares then held in the Trust
and not allocated in connection with other Awards.
SECTION 6.3 AWARDS IN GENERAL.
Any Award shall be evidenced by a written notice issued by the
Committee to the Eligible Director or Eligible Employee, which notice shall:
(a) specify the number of Shares covered by the Award;
(b) specify the Award Date;
(c) specify the dates on which such Shares shall become available for
distribution to the Eligible Director or Eligible Employee, in accordance with
sections 7.1 and 7.2; and
(d) contain such other terms and conditions not inconsistent with the
Plan as the Board may, in its discretion, prescribe.
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<PAGE>
SECTION 6.4 SHARE ALLOCATIONS.
Upon the grant of an Award to an Eligible Director or Eligible
Employee, the Committee shall notify the Trustee of the Award and of the number
of Shares subject to the Award. Thereafter, until such time as the Shares
subject to such Award become vested or are forfeited, the books and records of
the Trustee shall reflect that such number of Shares are being held for the
benefit of the Award recipient.
SECTION 6.5 DIVIDEND RIGHTS.
(a) Any cash dividends or distributions declared and paid with respect
to Shares in the Trust Fund that are, as of the record date for such dividend,
allocated to an Eligible Director or Eligible Employee in connection with an
Award shall be promptly paid to such Eligible Director or Eligible Employee. Any
cash dividends declared and paid with respect to Shares that are not, as of the
record date for such dividend, allocated to any Eligible Director or Eligible
Employee in connection with any Award shall, at the direction of the Committee,
be held in the Trust or used to pay the administrative expenses of the Plan,
including any compensation due to the Trustee.
(b) Any dividends or distributions declared and paid with respect to
Shares in property other than cash shall be held in the Trust Fund. If, as of
the record date for such dividend or distribution, the Shares with respect to
which it is paid are allocated to an Eligible Director or Eligible Employee in
connection with an Award, the property so distributed shall be similarly
allocated such Eligible Director or Eligible Employee in connection with such
Award and shall be held for distribution or forfeiture in accordance with the
terms and conditions of the Award.
SECTION 6.6 VOTING RIGHTS.
(a) Each Eligible Director or Eligible Employee to whom an Award has
been made that is not fully vested shall have the right to direct the manner in
which all voting rights appurtenant to the Shares related to such Award will be
exercised while such Shares are held in the Trust Fund. Such a direction shall
be given by completing and filing, with the inspector of elections, the Trustee
or such other person who shall be independent of the Company as the Committee
shall designate in the direction, a written direction in the form and manner
prescribed by the Committee. If no such direction is given by an Eligible
Director or Eligible Employee, then the voting rights appurtenant to the Shares
allocated to him shall not be exercised.
(b) To the extent that the Trust Fund contains Shares that are not
allocated in connection with an Award, all voting rights appurtenant to such
Shares shall be exercised by the Trustee in such manner as the Committee shall
direct to reflect the voting directions given by Eligible Director or Eligible
Employees with respect to Shares allocated in connection with their Awards.
(c) The Committee shall furnish, or cause to be furnished, to each
Eligible Director or Eligible Employee, all annual reports, proxy materials and
other information furnished by GSB Financial Corporation, or by any proxy
solicitor, to the holders of Shares.
SECTION 6.7 TENDER OFFERS.
(a) Each Eligible Director or Eligible Employee to whom an Award has
been made that is not fully vested shall have the right to direct, with respect
to the Shares related to such Award, the manner of response to any tender offer,
exchange offer or other offer made to the holders of Shares. Such a direction
shall be given by completing and filing, with the inspector of elections, the
Trustee or such other person who shall be independent of the Company as the
Committee shall designate in the direction, a written direction in the form and
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<PAGE>
manner prescribed by the Committee. If no such direction is given by an Eligible
Director or Eligible Employee, then the Shares shall not be tendered or
exchanged.
(b) To the extent that the Trust Fund contains Shares that are not
allocated in connection with an Award, all responses to tender, exchange and
other offers appurtenant to such Shares shall be given by the Trustee in such
manner as the Committee shall direct to reflect the responses given by Eligible
Director or Eligible Employees with respect to Shares allocated in connection
with their Awards.
(c) The Committee shall furnish, or cause to be furnished, to each
Eligible Director or Eligible Employee, all information furnished by the offer
or to the holders of Shares.
SECTION 6.8 LIMITATIONS ON AWARDS.
(a) Notwithstanding anything in the Plan to the contrary, each Award
shall become vested and distributable ratably so that 20% of the award shall
become vested on each of the first five anniversaries of the Effective Date,
provided, however, that such an Award shall become fully vested on the date of
the Award holder's death or Disability; and provided, further, that the
Committee may establish a different vesting schedule if not inconsistent with
section 563b.3(g) of OTS Regulations.
(b) An Award by its terms shall not be transferable by the Eligible
Director or Eligible Employee other than by will or by the laws of descent and
distribution, and the Shares granted pursuant to such Award shall be
distributable, during the lifetime of the Recipient, only to the Recipient.
ARTICLE VII
DISTRIBUTION OF SHARES
SECTION 7.1 DESIGNATION OF BENEFICIARY.
An Eligible Director or Eligible Employee who has received an Award may
designate a Beneficiary to receive any undistributed Shares that are, or become,
available for distribution on, or after, the date of his death. Such designation
(and any change or revocation of such designation) shall be made in writing in
the form and manner prescribed by the Committee. In the event that the
Beneficiary designated by an Eligible Director or Eligible Employee dies prior
to the Eligible Director or Eligible Employee, or in the event that no
Beneficiary has been designated, any undistributed Shares that are, or become,
available for distribution on, or after, the Eligible Director's or Eligible
Employee's death shall be paid to the executor or administrator of the Eligible
Director's or Eligible Employee's estate, or if no such executor or
administrator is appointed within such time as the Committee, in its sole
discretion, shall deem reasonable, to such one or more of the spouse and
descendants and blood relatives of such deceased person as the Committee may
select.
SECTION 7.2 MANNER OF DISTRIBUTION.
(a) As soon as practicable following the date any Shares granted
pursuant to an Award become vested as set forth in section 6.8, the Committee
shall take such actions as are necessary to cause the transfer of record
ownership of the Shares that have become vested from the Trustee to the Award
holder and shall cause the Trustee to distribute to the Award holder all
property other than Shares then being held in connection with the Shares being
distributed.
(b) The Company's obligation to deliver Shares with respect to an Award
shall, if the Committee so requests, be conditioned upon the receipt of a
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<PAGE>
representation as to the investment intention of the Eligible Director or
Eligible Employee or Beneficiary to whom such Shares are to be delivered, in
such form as the Committee shall determine to -be necessary or advisable to
comply with the provisions of applicable federal, state or local law. It may be
provided that any such representation shall become inoperative upon a
registration of the Shares or upon the occurrence of any other event eliminating
the necessity of such representation. The Company shall not be required to
deliver any Shares under the Plan prior to (i) the admission of such Shares to
listing on any stock exchange on which Shares may then be listed, or (ii) the
completion of such registration or other qualification under any state or
federal law, rule or regulation as the Committee shall determine to be necessary
or advisable.
SECTION 7.3 TAXES.
The Company, the Committee or the Trustee shall have the right to
require any person entitled to receive Shares pursuant to an Award to pay the
amount of any tax which is required to be withheld with respect to such Shares,
or, in lieu thereof, to retain, or to sell without notice, a sufficient number
of Shares to cover the amount required to be withheld.
ARTICLE VIII
TERMINATION AND AMENDMENT
SECTION 8.1 TERMINATION.
The Board may suspend or terminate the Plan in whole or in part at any
time by giving written notice of such suspension or termination to the
Committee; provided, however, that the Plan may not be terminated while there
are outstanding Awards that may thereafter become vested. Upon the termination
of the Plan, the Trustee shall make distributions from the Trust Fund in such
amounts and to such persons as the Committee may direct and shall return the
remaining assets of the Trust Fund, if any, to GSB Financial Corporation
SECTION 8.2 AMENDMENT.
The Board may amend or revise the Plan in whole or in part at any time.
SECTION 8.3 ADJUSTMENTS IN THE EVENT OF A BUSINESS REORGANIZATION.
(a) In the event of any merger, consolidation, or other business
reorganization (including but not limited to a Change of Control) in which the
Company is the surviving entity, and in the event of any stock split, stock
dividend or other event generally affecting the number of Shares held by each
person who is then a holder of record of Shares, the number of Shares held in
the Trust Fund, including Shares covered by Awards, shall be adjusted to account
for such event. Such adjustment shall be effected by multiplying such number of
Shares by an amount equal to the number of Shares that would be owned after such
event by a person who, immediately prior to such event, was the holder of record
of one Share; provided, however, that the Committee may, in its discretion,
establish another appropriate method of adjustment.
(b) In the event of any merger, consolidation, or other business
reorganization (including but not limited to a Change of Control) in which the
Company is not the surviving entity, the Trustee shall hold in the Trust Fund
any money, stock, securities or, other property received by holders of record of
Shares in connection with such merger, consolidation, or other business
reorganization. Any Award with respect to which Shares had been allocated to an
Eligible Director or Eligible Employee shall be adjusted by allocating to the
Eligible Director or Eligible Employee receiving such Award the amount of money,
stock, securities or other property received by the Trustee for the Shares
allocated to such Eligible Director or Eligible Employee.
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ARTICLE IX
MISCELLANEOUS
SECTION 9.1 STATUS AS AN EMPLOYEE BENEFIT PLAN.
This Plan is not intended to satisfy the requirements for qualification
under section 401(a) of the Code or to satisfy the definitional requirements for
an "employee benefit plan" under section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended. It is intended to be a non-qualified incentive
compensation program that is exempt from the regulatory requirements of the
Employee Retirement Income Security Act of 1974, as amended. The Plan shall be
construed and administered so as to effectuate this intent.
SECTION 9.2 NO RIGHT TO CONTINUED EMPLOYMENT.
Neither the establishment of the Plan nor any provisions of the Plan
nor any action of the Board or the Committee with respect to the Plan shall be
held or construed to confer upon any Eligible Director or Eligible Employee any
right to a continuation of employment by the Company. The Employers reserve the
right to dismiss any Eligible Director or Eligible Employee or otherwise deal
with any Eligible Director or Eligible Employee to the same extent as though the
Plan had not been adopted.
SECTION 9.3 CONSTRUCTION OF LANGUAGE.
Whenever appropriate in the Plan, words used in the singular may be
read in the plural, words used in the plural may be read in the singular, and
words importing the masculine gender may be read as referring equally to the
feminine or the neuter. Any reference to an Article or section number shall
refer to an Article or section of this Plan unless otherwise indicated.
SECTION 9.4 GOVERNING LAW.
The Plan shall be construed and enforced in accordance with the laws of
the State of New York without giving effect to the conflict of laws principles
thereof, except to the extent that such laws are preempted by the federal laws
of the United States of America. The Plan shall be construed to comply with
applicable OTS Regulations.
SECTION 9.5 HEADINGS.
The headings of Articles and sections are included solely for
convenience of reference. If there is any conflict between such headings and the
text of the Plan, the text shall control.
SECTION 9.6 NON-ALIENATION OF BENEFITS.
The right to receive a benefit under the Plan shall not be subject in
any manner to anticipation, alienation or assignment, nor shall such right be
liable for or subject to debts, contracts, liabilities, engagements or torts,
except to the extent provided in a qualified domestic relations order as defined
in section 414(p) of the Code.
SECTION 9.7 NOTICES.
Any communication required or permitted to be given under the Plan,
including any notice, direction, designation, comment, instruction, objection or
waiver, shall be in writing and shall be deemed to have been given at such time
as it is personally delivered or 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:
(a) If to the Stock Plans Committee:
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GSB Financial Corporation
One South Church Street
Goshen, New York 10924
Attention: President
(b) If to an Eligible Director or Eligible Employee, to the Eligible
Director's or Eligible Employee's address as shown in the Employer's records.
SECTION 9.8 APPROVAL OF SHAREHOLDERS.
The Plan shall not be effective or implemented prior to the one year
anniversary of the conversion of Goshen Savings Bank to stock form unless
approved by the holders of a majority of the total votes eligible to be cast at
any duly called annual or special meeting of the Company, in which case the Plan
shall be effective as of the date of such approval. If not effective prior to
such one year anniversary, the Plan shall be effective on such later date as is
specified by the Board.
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