<PAGE>
Filed Pursuant to Rule 424(b)2
Registration No. 333-36051
[LETTERHEAD OF OSWEGO CITY SAVINGS BANK APPEARS HERE]
November 12, 1997
Dear Shareholder:
We cordially invite you to attend a Special Meeting of Shareholders of Oswego
City Savings Bank (the "Bank"). The Special Meeting will be held at the main
office of the Bank, 214 West First Street, at 1:30 p.m., Eastern Standard Time,
on December 17, 1997.
The enclosed Notice of Special Meeting and Prospectus/Proxy Statement describe
the formal business to be transacted. During the Special Meeting we will also
report on the operations of the Bank. Directors and officers of the Bank, as
well as a representative of our independent auditors, will be present to respond
to any questions that shareholders may have.
The Special Meeting is being held so that shareholders may vote to approve (i)
the Bank's Stock Option Plan, (ii) the Bank's Recognition and Retention Plan,
and (iii) the reorganization of the Bank into a mid-tier stock holding company
by establishing Pathfinder Bancorp, Inc. a Delaware corporation, which will own
100% of the common stock of the Bank and which will be majority owned by
Pathfinder Bancorp, MHC, the Bank's mutual holding company parent.
The Board of Directors of the Bank has determined that approval of each of the
matters to be considered at the Special Meeting is in the best interests of the
Bank and its shareholders. For the reasons set forth in the Prospectus/Proxy
Statement, the Board of Directors unanimously recommends a vote "FOR" each
matter to be considered.
On behalf of the Board of Directors, we urge you to sign, date and return the
enclosed proxy card as soon as possible, even if you currently plan to attend
the Special Meeting. This will not prevent you from voting in person, but will
assure that your vote is counted if you are unable to attend the meeting. Your
vote is important, regardless of the number of shares that you own.
Sincerely,
/s/ Chris C. Gagas
Chris C. Gagas
President and Chief Executive Officer
<PAGE>
Oswego City Savings Bank
214 West First Street
Oswego, New York 13126
(315) 343-0057
NOTICE OF
SPECIAL MEETING OF SHAREHOLDERS
To Be Held On December 17, 1997
Notice is hereby given that the Special Meeting of Shareholders of Oswego
City Savings Bank, (the "Bank") will be held at the main office of the Bank, 214
West First Street, on December 17, 1997 at 1:30 p.m., Eastern Standard Time.
A Proxy Card and a Prospectus/Proxy Statement for the Special Meeting are
enclosed.
The Special Meeting is being held so that shareholders may vote on the
following matters:
1. The approval of the Oswego City Savings Bank 1997 Stock Option Plan;
2. The approval of the Oswego City Savings Bank 1997 Recognition and
Retention Plan;
3. The approval of an Agreement and Plan of Reorganization (the "Plan of
Reorganization") providing for the establishment of Pathfinder Bancorp,
Inc. (the "Stock Holding Company") as a stock holding company parent of
the Bank which stock holding company will be majority owned by
Pathfinder Bancorp, MHC (the "Mutual Holding Company"), the Bank's
mutual holding company. Pursuant to the Plan of Reorganization: (i) the
Bank will become a wholly-owned subsidiary of the Stock Holding
Company; (ii) the Stock Holding Company will become a majority owned
subsidiary of the Mutual Holding Company; and (iii) each outstanding
share of the Bank's common stock will be converted into one share of
the Stock Holding Company's common stock; and
such other matters as may properly come before the Special Meeting, or any
adjournments thereof. The Board of Directors is not aware of any other business
to come before the Special Meeting.
Any action may be taken on the foregoing proposals at the Special Meeting
on the date specified above, or on any date or dates to which the Special
Meeting may be adjourned. Shareholders of record at the close of business on
October 31, 1997, are the shareholders entitled to vote at the Special Meeting,
and any adjournments thereof.
EACH SHAREHOLDER, WHETHER HE OR SHE PLANS TO ATTEND THE SPECIAL MEETING, IS
REQUESTED TO SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD WITHOUT DELAY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE. ANY PROXY GIVEN BY THE SHAREHOLDER MAY BE
REVOKED AT ANY TIME BEFORE IT IS EXERCISED. A PROXY MAY BE REVOKED BY FILING
WITH THE SECRETARY OF THE BANK A WRITTEN REVOCATION OR A DULY EXECUTED PROXY
BEARING A LATER DATE. ANY SHAREHOLDER PRESENT AT THE SPECIAL MEETING MAY REVOKE
HIS OR HER PROXY AND VOTE PERSONALLY ON EACH MATTER BROUGHT BEFORE THE SPECIAL
MEETING. HOWEVER, IF YOU ARE A SHAREHOLDER WHOSE SHARES ARE NOT REGISTERED IN
YOUR OWN NAME, YOU WILL NEED ADDITIONAL DOCUMENTATION FROM YOUR RECORD HOLDER IN
ORDER TO VOTE PERSONALLY AT THE SPECIAL MEETING.
By Order of the Board of Directors
/s/ Melissa A. Dashnau
Melissa A. Dashnau
Secretary
November 12, 1997
- -------------------------------------------------------------------------------
IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE THE BANK THE EXPENSE OF
FURTHER REQUESTS FOR PROXIES. A SELF-ADDRESSED ENVELOPE IS ENCLOSED FOR YOUR
CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED WITHIN THE UNITED STATES.
- -------------------------------------------------------------------------------
<PAGE>
Prospectus/Proxy Statement
Oswego City Savings Bank
214 West First Street
Oswego, New York 13126
(315) 343-0057
SPECIAL MEETING OF SHAREHOLDERS
December 17, 1997
================================================================================
INTRODUCTION
================================================================================
This Prospectus/Proxy Statement is furnished in connection with the
solicitation of proxies on behalf of the Board of Directors of Oswego Savings
Bank (the "Bank") to be used at the Special Meeting of Shareholders of the Bank
(the "Special Meeting"), which will be held at the main office of the Bank, 214
West First Street, on December 17, 1997, at 1:30 p.m., Eastern Standard Time,
and all adjournments of the Special Meeting. The accompanying Notice of Special
Meeting of Shareholders and this Prospectus/Proxy Statement are first being
mailed to shareholders on or about November 12, 1997.
At the Special Meeting, in addition to being asked to vote on the approval
of the Oswego City Savings Bank 1997 Stock Option Plan and the Oswego City
Savings Bank 1997 Recognition and Retention Plan, shareholders will vote on the
approval of an Agreement and Plan of Reorganization (the "Plan of
Reorganization") pursuant to which the Bank and its mutual holding company
parent, Pathfinder Bancorp, MHC (the "Mutual Holding Company") will reorganize
into the "two-tier" mutual holing company structure. In the Reorganization, a
new Delaware chartered stock holding company, Pathfinder Bancorp, Inc. (the
"Stock Holding Company") will be established as a majority owned subsidiary of
the Mutual Holding Company and the Stock Holding Company will own 100% of the
common stock of the Bank, as described more specifically herein. Under the terms
of the proposed reorganization (the "Reorganization"), each outstanding share of
common stock of the Bank ("Common Stock") will be converted into one share of
common stock of the Stock Holding Company ("Holding Company Common Stock"), and
the holders of Common Stock will become the holders of all of the outstanding
Holding Company Common Stock. Accordingly, as a result of the Reorganization,
the owners of Common Stock other than the Mutual Holding Company ("Minority
Shareholders") will become minority shareholders of the Stock Holding Company.
Optional Exchange of Stock Certificates. After the Reorganization stock
certificates evidencing shares of Common Stock will represent, by operation of
law, the same number of shares of Holding Company Common Stock. Former holders
of the Common Stock will not be required to exchange their Common Stock
certificates for Holding Company Common Stock certificates, but will have the
option to do so. See "Proposed Formation of the Stock Holding Company --
Optional Exchange of Stock Certificates."
Please make note of the following considerations in connection with the
Reorganization:
. Operations of the Bank and the Mutual Holding Company. The
Reorganization will have no impact on the operations of the Bank and the Mutual
Holding Company. The Bank will continue its operations at the same locations,
with the same management, and subject to all the rights, obligations and
liabilities of the Bank existing immediately prior to the Reorganization.
. Reasons for Reorganization. The Board of Directors of the Bank
believes that forming a stock holding company will be in the best interest of
shareholders because it will offer greater operating flexibility than is
currently available to the Bank in its existing mutual holding company
structure. The stock holding company structure will enhance the Bank's ability
to make investments, acquire other institutions, and repurchase shares of common
stock. Currently, if the Mutual Holding Company makes investments, any gain on
such investment will only accrue to the Mutual Holding
<PAGE>
Company, not the Minority Shareholders. The Reorganization will
permit the entiry that issues stock (i.e., the Stock Holding Company) to make
investments, diversify business activities, or acquire other financial
institutions, for the benefit of all stockholders. Further, the stock holding
company structure will permit the repurchase of common stock without causing
adverse tax consequences. See "Proposed Formation of the Stock Holding Company
- -- Reasons for the Stock Holding Company Reorganization."
. Tax Consequences. The Bank has received an opinion of its special
counsel, Luse Lehman Gorman Pomerenk & Schick, P.C., Washington, D.C., as to
certain federal income tax consequences of the Reorganization, including that
the Reorganization will be treated as a nontaxable transaction for federal
income tax purposes. Please carefully read the section of this Prospectus/Proxy
Statement titled "Proposed Formation of the Stock Holding Company -- Tax
Consequences."
. Conditions to the Reorganization. The Plan of Reorganization sets
forth a number of conditions to the completion of the Reorganization, including:
(i) approval of the Plan of Reorganization by the holders of two-thirds of the
outstanding shares of Common Stock; (ii) receipt of an opinion of counsel that
the Reorganization will be treated as a non-taxable transaction for federal
income tax purposes; and (iii) receipt of any and all regulatory approvals
necessary for the lawful consummation of the Reorganization. See "Proposed
Formation of the Stock Holding Company -- Conditions to the Reorganization."
. Rights of Dissenting Shareholders. Pursuant to New York Banking law,
stockholders may dissent from the Plan of Reorganization and elect to have the
fair market value of their shares judicially determined and paid in cash. In
order to perfect dissenters' rights of appraisal, a stockholder must comply with
the provisions of New York law which include providing the Bank with notice of
the stockholder's intention to seek dissenters' rights of appraisal. Such notice
must be provided to the Bank prior to the Special Meeting. For further
instructions see "Proposed Formation of the Stock Holding Company -- Rights of
Dissenting Stockholders and Appendix D."
Please note that this list may not include all material terms of the
Reorganization, and must be read along with the more complete description of the
Reorganization included herein. For information regarding the interests of
management see "PROPOSAL III--Approval of the Proposed Formation of a Mid-Tier
Stock Holding Company--Indemnification of Officers and Limitation of Liability."
In addition, management and the Board of Directors have an interest in the
adoption of the Oswego City Savings Bank 1997 Stock Option Plan and Oswego City
Savings Bank 1997 Recognition and Retention Plan. Based upon the Common Stock's
closing price on October 31, 1997, the Voting Record Date, the aggregate dollar
value of the options awarded to executive officers and directors under the Stock
Option Plan would be $1,143,750, and the aggregate dollar value of Recognition
Plan awards to executive officers and directors would be $688,425. See "Proposal
I--Approval of the Oswego City Savings Bank 1997 Stock Option Plan" and
"Proposal II--Approval of the Oswego City Savings Bank 1997 Recognition and
Retention Plan."
THE COMMON STOCK OF PATHFINDER BANCORP, INC. (THE "STOCK HOLDING COMPANY") HAS
BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES
ACT OF 1933. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, THE NEW YORK BANKING DEPARTMENT, THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY STATE SECURITIES AUTHORITY, NOR HAS ANY
SUCH COMMISSION, DEPARTMENT, OFFICE OR AUTHORITY PASSED ON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS/PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
THE BANK'S MUTUAL HOLDING COMPANY, PATHFINDER BANCORP, MHC, BENEFICIALLY OWNS A
MAJORITY OF THE SHARES OF THE SHARES OF THE BANK OUTSTANDING AND ENTITLED TO
VOTE
2
<PAGE>
ON THE PROPOSAL TO ADOPT THE AGREEMENT AND PLAN OF REORGANIZATION, AND IT
INTENDS TO VOTE ITS SHARES IN FAVOR OF THE PROPOSAL.
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR DEPOSITS
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR
ANY OTHER GOVERNMENT AGENCY
THE COMMON STOCK WILL NOT BE GUARANTEED BY THE STOCKHOLDING COMPANY OR
THE BANK AND SUCH COMMON STOCK IS SUBJECT TO INCREASES OR DECREASES IN
VALUE.
The Bank currently files periodic reports and proxy materials in accordance
with the reporting requirements of the Securities Exchange Act of the 1934 (the
"Exchange Act"), as administered by the Federal Deposit Insurance Corporation
(the "FDIC"). Such reports and proxy materials can be obtained from the FDIC's
Registration Disclosure and Securities Operations Unit, 550 17th Street, N.W.,
Washington, D.C. 20429. Telephone - (202)898-8911 or (202) 898-8913 or
facsimile at (202) 898-3909. Upon completion of the transactions described
herein, the Stock Holding Company will register the publicly held shares of the
Holding Company Common Stock with the Securities and Exchange Commission (the
"SEC") under the Exchange Act and the Stock Holding Company will comply with the
periodic reporting requirements and proxy solicitation requirements imposed
pursuant to Section 12(g) of the Exchange Act.
- --------------------------------------------------------------------------------
REVOCATION OF PROXIES
- --------------------------------------------------------------------------------
Shareholders who execute proxies in the form solicited hereby retain the
right to revoke them in the manner described below. Unless so revoked, the
shares represented by such proxies will be voted at the Special Meeting and all
adjournments thereof. Proxies solicited on behalf of the Board of Directors of
the Bank will be voted in accordance with the directions given thereon. Where no
instructions are indicated, validly executed proxies will be voted "FOR" the
proposals set forth in this Prospectus/Proxy Statement for consideration at the
Special Meeting.
Proxies may be revoked by sending written notice of revocation to the
Secretary of the Bank, at the address of the Bank shown above, the submission of
a later dated proxy or by voting in person at the Special Meeting. The presence
at the Special Meeting of any shareholder who had returned a proxy shall not
revoke such proxy unless the shareholder delivers his or her ballot in person at
the Special Meeting or delivers a written revocation to the Secretary of the
Bank prior to the voting of such proxy.
- --------------------------------------------------------------------------------
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
- --------------------------------------------------------------------------------
Holders of record of the Bank's common stock, par value $1.00 per share
(the "Common Stock") as of the close of business on October 31, 1997 (the
"Record Date") are entitled to one vote for each share then held. As of the
Record Date, the Bank had 1,916,666 shares of Common Stock issued and
outstanding, 1,035,000 of which were held by Mutual Holding Company, and 881,666
of which were held by the Minority Shareholders. The presence in person or by
proxy of a majority of the outstanding shares of Common Stock entitled to vote
is necessary to constitute a quorum at the Special Meeting. The affirmative
vote of a majority of the Bank's shares held by Minority Shareholders is
required to approve Proposals I and II. The affirmative vote of two-thirds of
the total shares eligible to vote is required for approval of Proposal III.
Abstentions and broker non-votes will be counted for purposes of determining
that a quorum is present, but will not be counted as votes in favor of Proposals
I and II and will therefore have no effect on those proposals. Abstention and
broker non-votes will have the same effect as a vote against Proposal III. The
Mutual Holding Company intends to vote its shares of Common Stock in favor of
Proposal III.
Persons and groups who beneficially own in excess of five percent of the
Common Stock are required to file certain reports with the FDIC regarding such
ownership. The following table sets forth, as of the Record Date, the shares of
Common Stock beneficially owned by Directors individually, by executive officers
individually, by executive officers and Directors as a group and by each person
who was the beneficial owner of more than five percent of the Bank's outstanding
shares of Common Stock.
3
<PAGE>
In accordance with the provisions of the Bank's Restated Organization
Certificate ("Organization Certificate"), for a period of three years from
November 15, 1995, record holders of Common Stock, who beneficially own in
excess of 10% of the outstanding shares of Common Stock (the "Limit"), are not
entitled to any vote with respect to the shares held in excess of the Limit.
This limitation does not apply to the Mutual Holding Company which acquired its
ownership interest at the time of the Bank's mutual holding company
reorganization and minority stock issuance. The Bank's Charter authorizes the
Board of Directors (i) to make all determinations necessary to implement and
apply the Limit, including determining whether persons or entities are acting in
concert, and (ii) to demand that any person who is reasonably believed to
beneficially own stock in excess of the Limit supply information to the Bank to
enable the Board to implement and apply the Limit.
<TABLE>
<CAPTION>
Amount of Shares
Owned and Nature Percent of Shares
Name and Address of of Beneficial of Common Stock
Beneficial Owners Ownership (1) (4) (13) Outstanding
------------------- ---------------------- -----------------
<S> <C> <C>
Directors and Officers (2)
Chris C. Gagas 22,334 (5) 1.2%
Chris R. Burritt 8,637 (6) .4
Raymond W. Jung 2,756 .1
Bruce E. Manwaring 4,810 .3
L. William Nelson, Jr. 12,700 (7) .7
Victor S. Oakes 6,700 .3
Lawrence W. O'Brien 1,127 (8) *
Janette Resnick 200 (9) *
Corte J. Spencer 3,800 (10) .2
Thomas W. Schneider 200 (11) *
Melissa A. Dashnau 133 *
W. David Schermerhorn 667 (12) *
All Directors and Executive Officers 63,794 3.3
as a Group (12 persons) (3)
Principal Shareholders:
Pathfinder Bancorp, M.H.C. (3) 1,035,000 54.0
214 West First Street
Oswego, New York 13126
Pathfinder Bancorp, M.H.C. 1,101,594 57.3
and all Trustees and Officers
of Pathfinder Bancorp, MHC as a group (11 persons)
Oswego City Savings Bank (4) 61,716 2.6
Employee Stock Ownership Plan
214 West First Street
Oswego, New York 13126
Jewelcor Management Consulting Corp. 168,572 8.8
100 N. Wilkes-Barre Boulevard
Wilkes-Barre, Pennsylvania 18702
</TABLE>
- ---------------------------
* Less than one-tenth of 1%.
(1) For purposes of this table, a person is deemed to be the beneficial owner
of any shares of Common Stock if he has sole or shared voting or investment
power with respect to such security, or has a right to acquire beneficial
ownership at any time within 60 days from the Record
4
<PAGE>
Date. As used herein, "voting power" is the power to vote or direct the
voting of shares and "investment power" is the power to dispose or direct
the disposition of shares. Includes all shares held directly as well as by
spouses and minor children, in trust and other indirect ownership, over
which shares the named individuals effectively exercise sole or shared
voting and investment power. Unless otherwise indicated, the named
individual has sole voting and investment power.
(2) The mailing address for each person is listed as 214 West First Street,
Oswego, New York 13126
(3) Shares beneficially owned by directors and officers as a group represent
7.2% of the Minority Shares outstanding. The Bank's executive officers and
directors are also executive officers and trustees of Pathfinder Bancorp,
M.H.C. Therefore, the total voting power of the Bank's executive officers
and directors is 57.3% of the total shares outstanding.
(4) Includes 61,716 shares, of which 53,901 are unallocated and as to which the
Employee Stock Ownership Plan (the "ESOP") trustee has sole voting and
investment power, and 7.815 of which are allocated and as to which the ESOP
trustee has shared voting and sole investment power.
(5) Mr. Gagas has sole voting and investment power over 20,000 shares and
shared voting and investment power over 1,334 shares.
(6) Mr. Burritt has sole voting and investment power over 8,067 shares and
shared voting and investment power over 300 shares.
(7) Mr. Nelson has sole voting and investment power over 5,000 shares and
shared voting and investment power over 5,400 shares.
(8) Mr. O'Brien has shared voting and investment power over all shares
reported.
(9) Ms. Resnick has sole voting power over all shares reported.
(10) Mr. Spencer has shared voting and investment power over all shares
reported.
(11) Mr. Schneider has shared voting and investment power over all shares
reported.
(12) Mr. Schermerhorn has shared voting and investment power over all shares
reported.
(13) Does not include 75,000 shares underlying options which have been granted
to directors and executive officers under the Stock Plan, and 27,400 shares
which have been awarded to directors and executive officers under the
Recognition Plan. None of the (i) options granted pursuant to the Stock
Option Plan will be exercisable, or (ii) shares awarded pursuant to the
Recognition Plan will be beneficially owned within 60 days of the Record
Date. In addition, options to purchase 13,000 shares of Common Stock have
been granted, and Recognition Plan shares totaling 7,000 shares have been
awarded to all employees, not including executive officers, as a group. See
"Proposal I--Approval of the Oswego City Savings Bank 1997 Stock Option
Plan" and "Proposal II--Approval of the Oswego City Savings Bank 1997
Recognition and Retention Plan.
- --------------------------------------------------------------------------------
MARKET INFORMATION
- --------------------------------------------------------------------------------
The Common Stock is traded on the Nasdaq Small Cap Market under the symbol
"PBHC." As of the record date, there were approximately 450 shareholders of
record.
The following table sets forth market price and dividend information for
the Common Stock in each full quarterly period since completion of the Bank's
mutual holding company reorganization on November 15, 1995. On January 13, 1997,
the date immediately prior to the date the Bank's Board of Directors adopted the
Plan of Reorganization, the Common Stock last traded at $9.875 per share. On
October 31, 1997, the record date, the Common Stock traded at $25.125 per share.
<TABLE>
<CAPTION>
Quarter Ended High Low Dividends
- ------------- ---- --- ---------
<S> <C> <C> <C>
1995
- ----
December 31 $ 10.75 $ 8.375 N/A
1996
- ----
March 31 10.25 8.75 $ .05
June 30 9.00 8.25 .05
September 30 9.00 8.00 .05
December 31 10.625 8.75 .05
1997
- ----
March 31 13.00 9.375 .05
June 30 14.00 10.875 .07
September 30 22.125 18.00 .07
</TABLE>
- --------------------------------------------------------------------------------
DIVIDEND POLICY
- --------------------------------------------------------------------------------
The Bank has paid a quarterly cash dividend every quarter since the
completion of its mutual holding company reorganization and minority stock
issuance in November 1995. If Proposal II is approved by Shareholders, it is the
intention of the Stock Holding Company to continue to pay cash dividends on
outstanding Holding Company
5
<PAGE>
Common Stock. Dividends paid by the Stock Holding Company will be determined by
the Stock Holding Company's Board of Directors and will be based upon its
consolidated financial condition, results of operations, tax considerations,
economic conditions, regulatory restrictions on the payment of dividends by the
Bank to the Stock Holding Company and other factors. Under New York law, the
Bank's ability to pay dividends is limited to the Bank's net profits. The
approval of the New York Superintendent of Banking is required if the total of
all dividends declared in any calendar year exceeds the total net profits for
that year plus retained net profits for the preceding two years, less any
required transfers to surplus. No dividends may be paid so long as there is any
impairment of capital. There can be no assurance that dividends will be paid on
the Holding Company Common Stock or that, if paid, such dividends will not be
reduced or eliminated in the future.
The Stock Holding Company is not subject to regulatory restrictions on the
payment of dividends to its shareholders, although the source of such dividends
will be dependent upon the factors set forth above. The Stock Holding Company is
subject to the requirements of Delaware law which generally limit dividends to
an amount equal to the excess of net assets of the Stock Holding Company (the
amount by which total assets exceeds total liabilities) over its stated capital,
or if there is no such excess, of its net profits for the current and/or
preceding year. While the Board of Governors of the Federal Reserve System
("FRB") does not have the specific regulations governing the payment of
dividends by bank holding companies, the FRB will focus on the holding company's
capital position, its ability to meet its financial obligations and its capacity
to act as a source of strength to its subsidiaries.
Dividend Waivers by the Mutual Holding Company
In connection with the FRB's approval of the Bank's formation of the Mutual
Holding Company, the FRB imposed certain conditions on the waiver by the Mutual
Holding Company of dividends paid by the Bank on its Common Stock. These
conditions will continue to apply to any waiver by the Mutual Holding Company of
dividends paid on Holding Company Common Stock. In particular, the Mutual
Holding Company must obtain prior FRB approval before it may waive any
dividends. The amount of any waived dividends will not be available for payment
to Minority Shareholders and will be excluded from capital for purposes of
calculating dividends payable to Minority Shareholders. Moreover, the cumulative
amount of waived dividends must be maintained in a restricted capital account
which would be added to any liquidation account of the Bank, and would not be
available for distribution to Minority Shareholders. The restricted capital
account and liquidation account amounts would not be reflected in the Bank's
financial statements or the notes thereto, but would be considered as a
notational or memorandum account of the Bank, and would be maintained in
accordance with the rules, regulations and policy of the New York Superintendent
of Banks and the Federal Deposit Insurance Corporation ("FDIC") except that such
rules would be administered by the FRB, and any other rules and regulations
adopted by the FRB. As of December 31, 1996, the FRB had not given its approval
to any waiver, and the Mutual Holding Company had not waived any dividends paid
by the Bank.
The Reorganization is not expected to have an effect on whether or not the
Mutual Holding Company applies to the FRB for approval to waive dividends. After
the Reorganization, if the Mutual Holding Company decides that it is in its best
interest to waive a particular dividend to be paid by the Stock Holding Company,
and the FRB approves such waiver, then the Stock Holding Company would pay such
dividend only to Minority Shareholders, and the amount of the dividend waived by
the Mutual Holding Company would be treated in the manner described above. The
Mutual Holding Company's decision as to whether or not to waive a particular
dividend will depend on a number of factors, including the Mutual Holding
Company's capital needs, the investment alternatives available to the Mutual
Holding Company as compared to those available to the Bank, and regulatory
approvals. Management believes that, after the Reorganization, the factors
considered by the Mutual Holding Company in deciding whether or not to waive
dividends are not likely to change, except that it will also consider the
investment alternatives available to the Stock Holding Company, which, after the
Reorganization, will include the repurchase of Holding Company Common Stock.
There can be no assurance (i) that after the Reorganization the Mutual Holding
Company will waive dividends paid by the Stock Holding Company, (ii) that the
FRB will approve any dividend waivers by the Mutual Holding Company or (iii) of
the terms that may be imposed by the FRB on any dividend waiver.
6
<PAGE>
- --------------------------------------------------------------------------------
MANAGEMENT OF THE BANK
- --------------------------------------------------------------------------------
The following table sets forth for each director and executive officer of
the Bank such person's name, age, occupation and position with the Bank. With
respect to directors, additional information is provided regarding the year the
director first became a director and the number of shares and percentage of the
Common Stock beneficially owned by each director. Unless otherwise noted, all
directors and officers have held their position for at least five years.
<TABLE>
<CAPTION>
Shares of
Common Stock
Positions Beneficially
Held at the Director Current Term Owned on Percent
Name (1) Age Bank Since (2) to Expires Record Date (3) of Class
-------- --- ---- --------- ---------- --------------- --------
<S> <C> <C> <C> <C> <C> <C>
Chris C. Gagas 66 Chairman of the Board, 1966 1999 22,334 1.2%
President and
Chief Executive Officer
Chris R. Burritt 44 Director 1986 1999 8,367 .4
Raymond W. Jung 68 Director 1978 1999 2,756 .1
Bruce E. Manwaring 55 Director 1984 1997 4,810 .3
L. William Nelson, Jr. 53 Director 1986 1997 12,700 .7
Victor S. Oakes 73 Director 1982 1997 6,700 .3
Lawrence W. O'Brien 73 Director 1948 1998 1,127 *
Janette Resnick 58 Director 1996 1999 200 *
Corte J. Spencer 54 Director 1984 1998 3,300 .2
</TABLE>
- --------------------------
(1) The mailing address for each person listed is 214 West First Street,
Oswego, New York 13126. Each of the persons listed is also a Trustee of
Pathfinder Bancorp, M.H.C., which owns the majority of the Bank's issued
and outstanding shares of Common Stock.
(2) Reflects initial appointment to the Board of Trustees of the Bank's mutual
predecessor.
(3) See definition of "beneficial ownership" in the table in "Voting Securities
and Principal Holders Thereof."
* Less than one-tenth of one percent.
Executive Officers Who Are Not Directors
<TABLE>
<CAPTION>
Name Age Positions Held With Bank
---- --- ------------------------
<S> <C> <C>
Barry S. Thompson 43 Senior Vice President
Thomas W. Schneider 36 Vice President and Chief Financial Officer
W. David Schermerhorn 37 Vice President
Edgar J. Manwaring 52 Vice President
Melissa A. Dashnau 40 Vice President and Corporate Secretary
James A. Dowd 30 Controller
Gregory L. Mills 38 Vice President and Director of Marketing, Branch
Administration
</TABLE>
The principal occupation during the past five years of each Director of the
Bank is set forth below. All Directors have held their present positions for
five years unless otherwise stated.
Chris C. Gagas is Chairman, President and Chief Executive Officer of the
Bank. Mr. Gagas has served as an officer of the Bank since 1986.
7
<PAGE>
Chris R. Burritt is the president and general manager of R.M. Burritt
Motors, Inc./Chris Cross, Inc., an automobile dealership located in Oswego, New
York.
Raymond W. Jung is retired. Previously Mr. Jung was the owner of Raymond's
Jewelers in Oswego, New York.
Bruce E. Manwaring is retired. Previously, Mr. Manwaring was the owner and
manager of Oswego Printing Company, Inc., a commercial printing company located
in Oswego, New York.
L. William Nelson, Jr. is the owner and manager of Nelson Funeral Home
located in Oswego, New York.
Victor S. Oakes is retired. Previously, Mr. Oakes was a plant manager at
Hammermill Paper Company in Oswego, New York.
Lawrence W. O'Brien is presently the project coordinator with Neal-O'Brien
Building and Materials Corporation located in Oswego, New York. Until 1989, Mr.
O'Brien was Chairman of the Board and President of Neal-O'Brien Building and
Materials Corporation.
Janette Resnick is the Executive Director of Oswego Opportunities, a
private, not-for-profit human services agency located in Oswego, New York. She
was appointed to the Board of Directors in 1996.
Corte J. Spencer is the Chief Executive Officer and Administrator of Oswego
Hospital located in Oswego, New York.
Directors' Compensation
Each non-employee Director receives a meeting fee of $475 for each Board
meeting attended and $400 for each committee meeting attended. Employee
directors do not receive monthly meeting fees. The Bank paid a total of $75,525
in Director fees during the year ending December 31, 1996.
8
<PAGE>
Executive Compensation
The following table sets forth for the years ended December 31, 1996, 1995,
and 1994, certain information as to the total remuneration paid by the Bank to
Mr. Gagas, the Bank's chief executive officer. No other officer of the Bank
received cash compensation exceeding $100,000 in 1996. The Bank's second highest
paid officer during the year ended December 31, 1996 was Thomas W. Schneider who
received annual compensation of $71,100. The Bank's officers (six persons)
received aggregate compensation of $414,000 during the year ending December 31,
1996.
<TABLE>
<CAPTION>
====================================================================================================================================
SUMMARY COMPENSATION TABLE
====================================================================================================================================
Long-Term
Annual Compensation Compensation Awards
- -----------------------------------------------------------------------------------------------------------
Fiscal
Years Other Restricted
Ended Annual Stock Options/ All Other
Name and December Salary Bonus Compensation Award(s) SARs Compensation
Principal Position (1) 31 ($)(2) ($) ($)(3) ($) (#) Payouts ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Chris C. Gagas 1996 $175,000 -- $6,162 -- -- -- $4,035
President and Chief 1995 $165,000 -- -4- -- -- -- --
Executive Officer 1994 $149,000 -- 1,747 -- -- -- --
====================================================================================================================================
</TABLE>
(1) No other executive officer received salary and bonuses that in the aggregate
exceeded $100,000.
(2) Includes compensation deferred at the election of the named individual under
the Bank's cafeteria plan.
(3) Includes shares valued at $6,162 allocated to Mr. Gagas under the Bank's
Employee Stock Ownership Plan.
(4) The aggregate amount of such benefits did not exceed the lesser of $50,000
or 10% of cash compensation for the named individuals.
Benefits
Medical and Life Insurance and Educational Assistance. The Bank provides
full-time employees with medical and life and accidental death and dismemberment
insurance. In addition, the Bank maintains a "cafeteria plan" for employees,
which permits qualifying employees to allocate a portion of their compensation,
on a pre-tax basis, for the payment of medical, dental and dependent care
expenses as well as the payment of certain insurance premiums. Also, the Bank
offers educational assistance to full-time employees who have worked for the
Bank for one year and desire to take courses at any accredited school of
learning. The Bank also has purchased long-term disability income insurance for
all employees of the Bank to provide disability income equal to the lesser of
$6,000 per month or 60% of the employee's basic monthly earnings.
Defined Benefit Plans. The Bank maintains a tax-qualified noncontributory
defined benefit plan ("Retirement Plan"). All employees age 21 or older who have
worked at the Bank for a period of one year and been credited with 1,000 or more
hours of employment with the Bank during the year are eligible to accrue
benefits under the Retirement Plan. The Bank annually contributes an amount to
the Retirement Plan necessary to satisfy the actuarially determined minimum
funding requirements in accordance with the Employee Retirement Income Security
act of 1974, as amended ("ERISA").
At the normal retirement age of 65 the plan is designed to provide a life
annuity. The retirement benefit provided is an amount equal to 2% of a
participant's average monthly compensation based on the average of the three
consecutive years during the last 10 years of employment which provides the
highest monthly average compensation multiplied by the participant's years of
credited service (not to exceed 30 years) to the normal retirement date.
Retirement benefits are also payable upon retirement due to early and late
retirement. Benefits are also paid from the Retirement Plan upon a Participant's
disability or death. A reduced benefit is payable upon early retirement at or
after age 60, or the completion of 30 years of service with the Bank. Upon
termination of employment other than as specified above, a participant who was
employed by the Bank for a minimum of five years is eligible to receive his or
her accrued benefit reduced for early retirement or a deferred retirement
benefit commencing on such
9
<PAGE>
participant's normal retirement date. Benefits are payable in various annuity
forms. At December 31, 1996, the market value of the Retirement Plan trust fund
equaled approximately $2.8 million. For the plan year ended December 31, 1996,
the Bank made a contribution in the amount of $140,000 to the Retirement Plan.
The following table indicates the annual retirement benefit that would
be payable under the Retirement Plan upon retirement at age 65 in the plan year
1996, expressed in the form of a single life annuity for the final average
salary and benefit service classification specified below.
================================================================================
YEARS OF BENEFIT SERVICE AT RETIREMENT
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Final
Average Compensation 15 20 25 30
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$28,333 $7,500 $10,000 $12,500 $15,000
- --------------------------------------------------------------------------------
$50,000 $15,000 $20,000 $28,333 $30,000
- --------------------------------------------------------------------------------
$75,000 $22,500 $30,000 $37,500 $45,000
- --------------------------------------------------------------------------------
$100,000 $30,000 $40,000 $50,000 $60,000
- --------------------------------------------------------------------------------
$150,000(1) $45,000 $60,000 $75,000 $90,000
================================================================================
</TABLE>
- -------------------
(1) Under Section 401(a)(17) of the Code, the maximum amount of compensation
that may be taken into account under the Retirement Plan in the 1996 Plan
Year is $150,000.
As of December 31, 1996, Chris C. Gagas had 11 years of credited
services (i.e., benefit service) under the Retirement Plan.
Employee Savings Plan. The Bank maintains the Employee Savings Plan
which is a qualified, tax-exempt profit sharing plan with a cash or deferred
feature which is tax-qualified under Section 401(k) of the Internal Revenue Code
(the "401(k) Plan"). All employees who have attained age 21 and have completed
one year of employment during which they worked at least 1,000 hours are
eligible to participate.
Under the 401(k) Plan, participants are permitted to make salary
reduction contributions to the 401(k) Plan equal to a percentage of up to 15% of
compensation. For these purposes, "compensation" includes total compensation
(including salary reduction contributions made under the 401(k) Plan or the
flexible benefits plan sponsored by the Bank), but does not include compensation
in excess of the Code Section 401(a)(17) limits. The participants' salary
reduction contribution may be matched by the Bank, in its discretion, based upon
the level of profits of the Bank in the current fiscal year. All employee
contributions and earnings thereon are fully and immediately vested. All
employer matching contributions vest at the rate of 20% per year beginning at
the end of a participant's third year of service with the Bank until a
participant is 100% vested after seven years of service. Participants will also
vest in employer matching contributions upon the attainment of the normal
retirement age of 65 or later, death or disability.
Plan benefits will be paid to each participant in a lump sum. At
December 31, 1996, the market value of the 401(k) Plan trust fund was
approximately $466,000. For the Plan year ended December 31, 1996, the Bank
made a contribution in the amount of $35,000 to the 401(k) Plan Trust.
Executive Supplemental Retirement Income Master Agreement. The Bank
maintains a non-tax-qualified executive supplemental retirement income master
agreement (the "Master Agreement") for certain executives of the Bank. There
are three executives eligible to participate in the Master Agreement, including
Mr. Gagas. The Master Agreement provides a supplemental retirement income
benefit in an annual amount equal to the highest average compensation received
by the executive during any 36 month period while employed by the Bank,
multiplied by a wage replacement percentage designated in the individual
executive's joinder agreement, less the actual amount
10
<PAGE>
available to the executive from the Bank's other tax-qualified or nonqualified
plans. Benefits under the Master Agreement are payable to the executive upon the
benefit age designated in the individual executive's joinder agreement.
Benefits will be payable in monthly installments beginning on the executive's
benefit age and continuing for a period of months designated in the individual
executive's joinder agreement. Payments to an executive, or to his beneficiary,
may be made from the Master Agreement upon the executive's death, total or
permanent disability, or termination of service with the Bank.
Mr. Gagas' wage replacement percentage is 75% under the Master Agreement
and his benefit age is age 70. Assuming Mr. Gagas' highest average annual
compensation received during any 36 month period is $180,000 at the time that he
reaches his benefit age, Mr. Gagas would be entitled to an annual retirement
benefit of $135,000, reduced by amounts actually payable to Mr. Gagas under the
Bank's other tax-qualified and non-tax qualified plans. The retirement benefit
under the Master Agreement is payable to Mr. Gagas for 15 years.
The Master Agreement is considered an unfunded plan for tax and ERISA
purposes. All obligations arising under the Master Agreement are payable from
the general assets of the Bank. As of December 31, 1996, $89,000 was accrued
under the Master Agreement on behalf of the three participants, of which $80,000
was accrued on behalf of Mr. Gagas.
Executive Deferred Compensation Master Agreement. The Bank sponsors a
non-tax qualified deferred compensation plan for the benefit of two of its
executives, Mr. Gagas and Mr. Manwaring (the "Executive Plan"). Under the
Executive Plan, the executive is entitled to defer a portion of his income
during the 60-month period commencing January 1, 1998. Deferred amounts are
payable upon attainment of the benefit age as designated in the executive's
joinder agreement, in the form of monthly installments commencing on the first
day of the month following attainment of the executive's benefit age and
continuing for the period designated in the individual executive's joinder
agreement. Payments to an executive, or his designated beneficiary, may also be
made from the Executive Plan upon the executive's death or total and permanent
disability. Under the Executive Plan, the executive will not recognize taxable
income until their benefits are actually distributed.
Employee Stock Ownership Plan and Trust. The Bank has established an
Employee Stock Ownership Plan and Related Trust ("ESOP") for eligible employees.
The ESOP is a tax-qualified plan subject to the requirements of ERISA and the
Code. Employees with a 12-month period of employment with the Bank during which
they worked at least 1,000 hours and who have attained age 21 are eligible to
participate. The ESOP has borrowed funds from an unrelated third party lender
and has purchased 50,000 shares in open market transactions. The Common Stock
purchased by the ESOP serves as collateral for the loan. The loan will be repaid
principally from the Bank's contributions to the ESOP over a period of up to
seven years. The interest rate for the loan is one percent below the prime rate.
Shares purchased by the ESOP will be held in a suspense account for allocation
among participants as the loan is repaid.
Contributions to the ESOP and shares released from the suspense account in
an amount proportional to the repayment of the ESOP loan will be allocated among
participants on the basis of compensation in the year of allocation, up to an
annual adjusted maximum level of compensation. Benefits generally become vested
after five years of credited service. Forfeitures will be reallocated
among remaining participating employees in the same proportion as contributions.
Benefits may be payable upon death, retirement, early retirement, disability or
separation from service. The Bank's contributions to the ESOP will not be fixed,
so benefits payable under the ESOP cannot be estimated.
In connection with the establishment of the ESOP, a committee consisting
of all nonemployee Directors was selected by the Bank to administer the ESOP and
the Bank's other stock benefit plan (the "Stock Benefits Committee"). An
unrelated corporate trustee for the ESOP initially was appointed. The Stock
Benefits Committee may instruct the trustee regarding investment of funds
contributed to the ESOP. The ESOP trustee generally will vote all shares of
Common Stock held under the ESOP in accordance with the written instructions of
the Stock Benefits Committee. In certain circumstances, however, the ESOP
trustee must vote all allocate shares held in the ESOP in accordance with the
instructions of participating employees, and unallocated shares and shares held
in the
11
<PAGE>
suspense account in a manner calculated to most accurately reflect the
instructions the ESOP trustee has received from participants regarding the
allocated stock, subject to an in accordance with the fiduciary duties under
ERISA owed by the ESOP trustee to the ESOP participants. Under ERISA, the
Secretary of Labor is authorized to bring an action against the ESOP trustee for
the failure of the ESOP trustee to comply with its fiduciary responsibilities.
Transactions with Certain Related Persons
All transactions between the Bank and its executive officers, directors,
holders of 10% or more of the shares of its Common Stock and affiliates thereof,
are on terms no less favorable to the Bank than could have been obtained by it
in arm's-length negotiations with unaffiliated persons. Such transactions must
be approved by a majority of independent outside directors of the Bank not
having any interest in the transaction.
Year 2000 Issue
Like may financial institutions, the Bank relies on computers for the
daily conduct of its business and for data processing generally. There is
concern that on January 1, 2000 computers will be unable to "read" the new year
and as a consequence there may be widespread computer malfunctions. Management
has reviewed that issue and has been advised by their data processing service
center that they have addressed this issue and that it should not affect the
Bank's external data processing. In addition, management has concluded that the
cost of addressing the year 2000 issue internally will not have a material
impact on the financial condition or results of operations of the Bank.
- --------------------------------------------------------------------------------
RECENT EVENTS
- --------------------------------------------------------------------------------
On September 5, 1997, the Bank entered into an Agreement and Plan of
Merger (the "Merger Agreement") with Oswego County Savings Bank ("County
Savings") providing for the merger of the Savings Bank with and into Bank with
the Bank as the surviving institution (the "Merger"). County Savings is a New
York chartered mutual savings bank located in Oswego, New York. At June 30,
1997, County Savings had assets of $113.5 million, deposits of $100.5 million
and retained earnings of $11.9 million.
The Merger Agreement provides that additional shares of the Bank's Common
Stock (or the Stock Holding Company if Proposal III is approved by stockholders
and the Reorganization is completed prior to the completion of the Merger) equal
to the fair value of County Savings will be transferred to the Mutual Holding
Company. The transfer of additional shares of the Bank's or Stock Holding
Company's Common Stock to the Mutual Holding Company is intended to represent
the value of the interest of the depositors of County Savings that is being
transferred to the Bank. Shareholders' equity interests will be significantly
diluted as a result of the Merger. At this time however, it is impossible to
quantify the extent of the dilution Minority Shareholders will experience in
their equity interest. Such dilution will depend upon the fair value of Oswego
County Savings Bank as determined by an independent appraisal, and the market
price of the Common Stock preceding the completion of the Merger. An independent
appraisal firm will determine the fair value of County Savings as if County
Savings were forming a mutual holding company and conducting a minority stock
offering.
The Merger is subject to various conditions, including receipt of
regulatory approvals from the FRB, the FDIC, and the Department, as well as
receipt of approval of the Bank's shareholders and if necessary County Savings'
depositors. As a result of regulatory review the terms of the Merger may be
significantly modified. The Merger is not affected by the Bank's reorganization
into a mid-tier mutual holding company. In the event that Proposal III is
approved by the Bank's shareholders and the Reorganization is completed, the
Stock Holding Company as sole shareholder of the Bank's Common Stock intends to
vote its shares in favor of the Merger. If the Reorganization is not completed
the Bank's stockholders will have the right under New York law to vote on the
Merger. Consequently, if the merger is consummated following completion of
Reorganization, the Bank's current stockholders will not have the right to vote
on the Merger unless of vote of Minority Shareholders is required by regulatory
authorities. For unaudited information regarding County Savings, as well as pro
forma financial information regarding the Merger, see Appendix H.
12
<PAGE>
- --------------------------------------------------------------------------------
PROPOSAL I--APPROVAL OF THE OSWEGO CITY SAVINGS BANK
1997 STOCK OPTION PLAN
- --------------------------------------------------------------------------------
On January 24, 1997, the Board of Directors adopted the Oswego City
Savings Bank 1997 Stock Option Plan (the "Stock Option Plan"), subject to
shareholder approval of the Stock Option Plan at the Meeting. The following
discussion describes the material features of the Stock Option Plan and is
qualified in its entirety by reference to the Stock Option Plan, a copy of which
is attached as Appendix A.
Certain directors, officers and employees of the Bank and its affiliates
will be eligible to participate in the Stock Option Plan. The Stock Option Plan
authorizes the grant of stock options and limited rights to purchase 88,167
shares, or 10% of the number of the minority shares of Common Stock outstanding.
Pursuant to the Stock Option Plan, grants may be made of (i) options to purchase
Common Stock intended to qualify as incentive stock options under Section 422 of
the Code, (ii) options that do not so qualify ("nonstatutory options") and (iii)
limited rights (described below) that are exercisable only upon a change in
control of the Bank (as defined). Nonemployee directors are eligible to receive
only nonstatutory options. In addition to shareholder approval, the Stock Option
Plan must be approved by the New York Superintendent of Banks (the
"Superintendent"). The Stock Option Plan has received the preliminary approval
of the Superintendent. The Superintendent's review of the Stock Option Plan
implies neither approval or disapproval of the Stock Option Plan's contents. The
Stock Option Plan must receive the final approval of the Superintendent. In the
event the Plan of Reorganization is approved by shareholders, all options will
be exercisable for shares of Holding Company Common Stock on the same terms as
they are for Common Stock.
Grants of options (with limited rights in the case of options granted to
employees) to purchase shares of Common Stock under the Stock Option Plan have
been made to named executive officers, executive officers as a group,
non-employee directors, and employees as a group as set forth below. Under New
York banking law, all awards are subject to the approval of the Stock Option
Plan by the Superintendent. New York banking law also requires that awards to
persons who are also Trustees of the Mutual Holding Company are subject to
shareholder approval of the Stock Option Plan. Directors who act in an
administrative capacity with respect to the Stock Option Plan are eligible to
receive grants of stock options.
<TABLE>
Number of Shares
Name and Dollar Value (1) to be Received Upon
Principal Position as of October 31, 1997 Exercise of Options
------------------- ---------------------- -------------------
<S> <C> <C>
Chris C. Gagas, Chairman of the Board,
President and Chief Executive Officer $ 366,600 24,000
Chris R. Burritt, Director 76,250 5,000
Raymond W. Jung, Director 76,250 5,000
Bruce E. Manwaring, Director 76,250 5,000
Leonard W. Nelson, Jr., Director 76,250 5,000
Victor S. Oakes, Director 76,250 5,000
Lawrence W. O'Brien, Director 76,250 5,000
Janette Resnick, Director 76,250 5,000
Corte J. Spencer, Director 76,250 5,000
All executive officers as a group (4 persons) 533,750 35,000
All non-employee directors
as a group (8 persons) 610,000 40,000
All employees, not including
executive officers, as a
group (8 persons) 198,250 13,000
</TABLE>
- -----------------------------------
13
<PAGE>
(1) The value of the stock options is based upon difference in the market price
of the Common Stock on October 31, 1997, which was $25.125 and the exercise
price of the option of $9.875 which was the fair market value of the Common
Stock at January 13, 1997, the date of the award.
(2) All options granted to non-employee directors will be nonstatutory stock
options.
Future grants may be made by the Board of Directors of the Bank or a stock
benefits committee, established by the Bank consisting of a least two
non-employee members of the Board of Directors (the "Stock Benefits Committee").
In granting options, the Stock Benefits Committee considers factors such as
salary, length of employment with the Bank, and the Employee's overall
performance. The Board of Directors determined that each non-employee director
should receive an equal stock option grant to purchase 5,000 shares. To the
extent shares are available under the Stock Option Plan, each newly appointed
non-employee director shall receive a stock option grant to purchase 5,000
shares of Common Stock. All stock options will be exercisable in five equal
annual installments of 20% commencing with the vesting of the first installment
one year from the date of grant, and succeeding installments on each anniversary
of the date of grant; provided, however, that all options will be 100%
exercisable in the event the optionee terminates his service due to normal
retirement, death or disability, or in the event of a change in control of the
Bank. Options must be exercised within 10 years from the date of grant. Stock
options may be exercised up to one year following termination of service or such
later period as determined by the Stock Benefits Committee. The exercise price
of the options will be at least 100% of the fair market value of the underlying
Common Stock at the time of the grant. The last sale price of the Common Stock
on the date of grant, January 13, 1997, as quoted on the "Electronic Bulletin
Board" was $9.875 per share. For further information on the Common Stock's price
history including its price at October 31, 1997, the Record Date, see "Market
Information" on page 5 of this Prospectus/Proxy Statement. The exercise price
may be paid in cash in Common Stock. Common Stock issued in connection with the
exercise of options may be treasury shares or authorized but unissued shares.
The issuance of authorized but unissued shares of Common Stock or treasury
shares will have a dilutive effect on the Common Stock holdings of existing
shareholders.
Incentive stock options will only be granted to employees of the Bank.
Nonemployee directors will be granted nonstatutory stock options. No stock
option granted in connection with the Stock Option Plan will be eligible to be
treated as an incentive stock option if it is exercised more than three months
after the date on which the optionee ceases to perform services for the Bank,
except that in the event of death or disability, a stock option may be eligible
to be treated as an incentive stock option if it is exercised within one year;
provided however, that if any optionee ceases to perform services for the Bank
due to normal retirement or following a change in control (as defined in the
Stock Option Plan), any incentive stock options exercised more than three months
following the date the optionee ceases to perform services shall be treated as a
nonstatutory stock option as described above.
Upon the exercise of "limited rights" in the event of a change in control,
the optionee will be entitled to receive a lump sum cash payment (or in certain
cases, shares of Common Stock) equal to the difference between the exercise
price of the option and the fair market value of the shares of Common Stock
subject to the option on the date of exercise of the right in lieu of purchasing
the stock underlying the option. In the event of death or disability, the Bank,
if requested by the optionee or beneficiary, may elect, in exchange for the
option, to pay the optionee, or beneficiary in the event of death, the amount by
which the fair market value of the Common Stock exceeds the exercise price of
the option on the date of the optionee's termination of service for death or
Disability.
Simultaneously with the grant of any stock option, the Committee may grant
a Dividend Equivalent Right with respect to all or some of the shares covered by
such stock option. The Dividend Equivalent Right provides the grantee with a
separate cash benefit equal to a 100% of the amount of any extraordinary
dividend declared by the Bank on shares of Common Stock subject to a stock
option. Under the terms of the Stock Option Plan, an extraordinary dividend is
any dividend paid on shares of Common Stock where the rate of the dividend
exceeds the Bank's weighted average cost of funds on interest bearing
liabilities for the current and preceding three quarters. Upon the payment of
an extraordinary dividend, the holder of a Dividend Equivalent Right will
receive, at the time of vesting of the related stock option, an amount of cash
or some other payment as determined under the Stock Option Plan, equal to 100%
of the extraordinary dividend paid on shares of Common Stock, multiplied by the
number of shares subject to the underlying stock option plus any earnings
thereon minus any tax withholding amounts. Payments shall be decreased by the
amount of any applicable tax withholding prior to distribution in accordance
with the Stock Option
14
<PAGE>
Plan. The Dividend Equivalent Right is transferable only when the underlying
stock option is transferable and under the same conditions.
The purpose of shareholder approval of the Stock Option Plan will be to
qualify the Stock Option Plan for the granting of incentive stock options. The
Board of Directors may amend, suspend or terminate the Stock Option Plan except
that such amendments may not impair awards previously granted. Stockholder
approval must be obtained in order to implement any amendment to the Stock
Option Plan that would increase the number of shares as to which options may be
granted, change the number of shares which may be optioned to an individual,
decrease an option exercise price, extend the term of the Stock Option Plan or
an option, or change the persons or category of persons eligible to be granted
options. The exercise of options will have a dilutive effect on the ownership
interests of existing shareholders. Further, the exercise of options may render
more difficult or discourage a merger, tender offer or other takeover attempt
even if such transaction would be beneficial to shareholders generally, the
assumption of control by a holder of a large block of the Company's securities,
a proxy contest or the removal of incumbent management.
Federal Income Tax Consequences
Under present Federal tax laws, options granted and exercised under the
Stock Option Plan will result in the following tax consequences:
1. The grant of an option will not by itself result in the recognition
of taxable income to the participant or entitle the Bank to a deduction at the
time of such grant.
2. The exercise of an option which is an "Incentive Stock Option"
within the meaning of Section 422 of the Internal Revenue Code generally will
not, by itself, result in the recognition of taxable income to the participant
or entitle the Bank 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. The alternative minimum
tax is incurred only when it exceeds the regular income tax. The participant
will recognize capital gain or loss upon resale of the shares received upon such
exercise, provided that such shares are held for at least one year after the
transfer of shares to the participant or two years after the grant of the
option, whichever is later. Generally, if the shares are not held for that
period, the participant will recognize ordinary income upon disposition in an
amount equal to the difference between the exercise price and the fair market
value on the date of exercise, or, if less, the sale proceeds of the shares
acquired pursuant to the option.
3. The exercise of a nonstatutory stock option will result in the
recognition of 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 Common Stock acquired pursuant to the
option.
4. The bank will be allowed a tax deduction equal to the amount of
taxable ordinary income recognized by the participant at the time the
participant recognizes such ordinary income.
ALL PROXIES MUST BE SIGNED AND RETURNED TO THE BANK IN ORDER FOR A
SHAREHOLDER'S VOTE TO BE COUNTED. UNLESS MARKED TO THE CONTRARY, THE SHARES
REPRESENTED BY THE ENCLOSED, SIGNED PROXY WILL BE VOTED FOR THE APPROVAL OF THE
1997 STOCK OPTION PLAN.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE 1997
STOCK OPTION PLAN.
15
<PAGE>
- --------------------------------------------------------------------------------
PROPOSAL II--APPROVAL OF THE OSWEGO CITY SAVINGS BANK
1997 RECOGNITION AND RETENTION PLAN
- --------------------------------------------------------------------------------
The Board of Directors of the Bank has adopted the 1997 Recognition and
Retention Plan (the "Recognition Plan") as a method of providing certain
employees and non-employee directors of the Bank with a proprietary interest in
the Bank and to provide these individuals with an incentive to increase the
value of the Bank. The following discussion describes the material features of
the Recognition Plan and is qualified in its entirety by reference to the
Recognition Plan, which is attached hereto as Appendix B.
The Bank intends to contribute sufficient funds for the Recognition Plan to
acquire shares of Common Stock of the Bank in an aggregate amount of 35,267
shares of Common Stock, or 4% of the minority shares outstanding. Under the
Recognition Plan, shares of Common Stock will at no cost to the recipient be
awarded in the following amounts to Named Executive Officers, executive officers
as a group, non-employee directors, and employees as a group. The Recognition
Plan may be funded through the acquisition of shares from authorized but
unissued shares or through open market purchases. Funding the Recognition Plan
with authorized but unissued shares will have a dilutive effect on the ownership
interests of existing stockholders. In the event the Plan of Reorganization is
approved by shareholders, all shares awarded under the Recognition Plan will
become shares of Holding Company Common Stock.
Awards to Officers, Employees and Non-Employee Directors
<TABLE>
<CAPTION>
Name and
Principal Position Dollar Value (1) Number of Shares
- ------------------ ---------------- ----------------
<S> <C> <C>
Chris C. Gagas, Chairman of the Board,
President and Chief Executive Officer $221,100 8,800
Chris R. Burritt, Director 45,225 1,800
Raymond W. Jung, Director 45,225 1,800
Bruce E. Manwaring, Director 45,225 1,800
Leonard W. Nelson, Jr., Director 45,225 1,800
Victor S. Oakes, Director 45,225 1,800
Lawrence W. O'Brien, Director 45,225 1,800
Janette Resnick, Director 45,225 1,800
Corte J. Spencer, Director 45,225 1,800
All executive officers as a group (4 persons) 326,625 13,000
All non-employee directors
as a group (8 persons) 361,800 14,400
All employees, not including
executive officers, as a
group (8 persons) 175,875 7,000
</TABLE>
- ----------------------------------------
(1) Based on the last sale price of the Common Stock on the Record Date.
The Stock Benefits Committee, composed of the non-employee directors of the
Bank, will administer the Recognition Plan, and make awards to officers and
employees pursuant to the Recognition Plan. However, awards to outside directors
will be fixed by the terms of the Recognition Plan. Awards of Common Stock that
are restricted by the Recognition Plan ("Restricted Stock") are nontransferable
and nonassignable. Awards of Restricted Stock will be made following receipt of
stockholder approval. Awards will be made following receipt of stockholder
approval. Participants in the Recognition Plan will earn (become vested in)
shares of Restricted Stock covered by an award and all restrictions will lapse
at a rate of 20% per year commencing with the first lapse of restrictions on the
first trading day of 1998, and succeeding installments being earned on the first
trading day of the following year; provided, however, that the Stock Benefits
Committee may accelerate or extend the earnings rate on any awards made to
officers
16
<PAGE>
and employees after the effective date of the Recognition Plan. Awards to
executive officers and outside directors become fully vested upon termination of
employment or service due to normal retirement, death or disability, or
following a termination of employment or service in connection with a change in
control (as defined therein) of the Bank. Upon termination of employment
or service for any other reason, unvested shares are forfeited. When a
participant's shares become vested in accordance with the Recognition Plan, the
participant will recognize income equal to the fair market value of the
Restricted Stock so vested at that time, unless the participant has made an
irrevocable election to be taxed on the shares of Restricted Stock awarded to
him in the year of the award. The amount of income recognized by a participant
will be a deductible expense of the Bank for Federal income tax purposes. After
Restricted Stock has been granted, but before the Restricted Stock has vested,
the recipient shall receive any cash dividends paid with respect to such shares.
Stock dividends declared by the Bank and paid on shares that have not been
earned shall be subject to the same restrictions as the Restricted Stock until
such shares are earned. Prior to vesting, recipients of awards under the
Recognition Plans may vote the shares of Restricted Stock allocated to them.
ALL PROXIES MUST BE SIGNED AND RETURNED TO THE BANK IN ORDER FOR A
SHAREHOLDER'S VOTE TO BE COUNTED. UNLESS MARKED TO THE CONTRARY, THE SHARES
REPRESENTED BY THE ENCLOSED, SIGNED PROXY WILL BE VOTED FOR THE APPROVAL OF THE
RECOGNITION PLAN.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE
RECOGNITION PLAN.
- --------------------------------------------------------------------------------
PROPOSAL III--APPROVAL OF THE PROPOSED FORMATION
OF A MID-TIER STOCK HOLDING COMPANY
- --------------------------------------------------------------------------------
Summary
The formation of a stock holding company will be accomplished under an
Agreement and Plan of Reorganization, dated January 14, 1997 (the "Plan of
Reorganization"), pursuant to which the Bank will become a wholly-owned
subsidiary of the Stock Holding Company, a newly formed Delaware stock
corporation which will be majority-owned by the Mutual Holding Company (the
"Reorganization"). Under the terms of the Plan of Reorganization, each
outstanding share of Common Stock will be converted into one share of common
stock par value $0.10 per share of the Stock Holding Company ("Holding Company
Common Stock"), and the holders of Common Stock will become the holders of all
of the outstanding Holding Company Common Stock. Accordingly, as a result of the
Reorganization, the owners of Common Stock other than the Mutual Holding Company
("Minority Shareholders") will become minority shareholders of the Stock Holding
Company. The Stock Holding Company was incorporated in August 1997 as a wholly
owned subsidiary of the Bank solely for the purpose of becoming a bank holding
company and has no prior operating history. The Reorganization will have no
impact on the operations of the Bank or the Mutual Holding Company. The Bank
will continue its operations at the same locations, with the same management,
and subject to all the rights, obligations and liabilities of the Bank existing
immediately prior to the Reorganization. The Reorganization is not expected to
result in any material increased expenses or regulatory burden to the Bank.
Following the Reorganization, the Stock Holding Company shall file periodic
reports and proxy materials with the SEC. The following discussion describes the
material features of the Reorganization and is qualified in its entirety by
reference to the Plan of Reorganization which is filed as Appendix C to the
Proxy Statement.
Reasons for the Stock Holding Company Reorganization
The Board of Directors of the Bank believes that the formation of the Stock
Holding Company as a subsidiary of the Mutual Holding Company will be in the
best interests of shareholders and will offer greater operating flexibility than
is currently available to the Bank in its existing mutual holding company.
structure. The Mutual Holding Company does not operate as a traditional holding
company at the present time because it is a mutual organization and represents
only the mutual ownership interest in the Bank. Establishing the Stock Holding
Company as a subsidiary of the Mutual Holding Company will permit the Stock
Holding Company to conduct activities and make
17
<PAGE>
investments for the benefit of all shareholders. It will also provide greater
flexibility to structure and complete acquisitions of other financial
institutions, repurchase shares of Stock Holding Company Common Stock as market
conditions permit, and diversify the Stock Holding Company's business
activities.
Enhanced Ability to Invest Through the Stock Holding Company. Under the
existing mutual holding company structure the Mutual Holding Company cannot
make investments in other financial institutions or business enterprises for the
benefit of all shareholders of the Bank, and the Bank itself is limited by law
or regulation in its permissible investment activities. For example, if the
Mutual Holding Company invests in 5% of the common stock of another bank or
thrift holding company, any gain on such investment would accrue only to the
Mutual Holding Company, and not to Minority Stockholders. The Reorganization
will permit the entity that issues stock (i.e. the Stock Holding Company) to
make investments, diversify business activities, or acquire other financial
institutions, for the benefit of all shareholders. No specific investments, new
business activities or acquisitions by the Stock Holding Company are planned at
the present time.
Facilitate Mergers and Acquisitions. The Reorganization will also
facilitate the approval and completion of mergers and acquisitions since the
Stock Holding Company, acting as the sole shareholder of the Bank, will be able
to approve mergers and acquisitions involving the Bank. This is consistent with
the way other stock holding companies are able to approve mergers of their bank
or savings institution subsidiaries. Moreover, the Reorganization will enable
the Stock Holding Company to acquire other financial institutions and to operate
them as separate subsidiaries for the benefit of all shareholders of the Stock
Holding Company.
Stock Repurchases. The Reorganization will enable the Stock Holding Company
to repurchase Holding Company Common Stock which, particularly in recent years,
has been an important, if not essential, means for banks and savings
institutions to enhance shareholder value and invest capital resources.
Historically, the Bank has used the percentage of taxable income method for
establishing its bad debt reserves for tax purposes. Federal tax laws generally
require that thrift institutions recapture into income (and pay tax on) their
excess bad debt reserves in the event of certain distributions and redemptions,
such as stock repurchases. Accordingly, if the Bank were to repurchase any of
its outstanding shares of Common Stock, it would cause recapture of all or part
of its pre-1988 excess tax bad debt reserves. Since entities, such as the Stock
Holding Company, that have not used the percentage of taxable income method bad
debt reserves are not subject to recapture, the Stock Holding Company will be
permitted to repurchase Holding Company Common Stock without causing any
recapture, the Stock Holding Company will be permitted to repurchase Holding
Company Common Stock without causing any recapture of the Bank's tax bad debt
reserves. The ability to repurchase Holding Company Common Stock is an important
means of enhancing shareholder value and investing capital resources. See
"Regulation of the Stock Holding Company--Repurchases of Holding Company Common
Stock."
Stock Holding Company Powers. The Stock Holding Company would be permitted
to engage in the activities that are permissible for bank holding companies
under the Bank Holding Company Act (i.e. activities that are closely related to
banking). These include several activities in which the Bank is not permitted to
engage, such as investing in certain equity securities and holding other savings
banks as subsidiaries. See "Stock Holding Company Regulation" herein.
Although the Reorganization will enable the Stock Holding Company's
shareholders to share in the rewards of the increased operating flexibility,
shareholders should also consider that the Stock Holding Company's shareholders
will also bear the risk that the transactions that are facilitated by the
increased operating flexibility may not ultimately prove to be advantageous to
the Stock Holding Company and its shareholders.
THE BOARD OF DIRECTORS OF THE BANK HAS UNANIMOUSLY APPROVED THE
REORGANIZATION AND RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE PLAN OF
REORGANIZATION.
18
<PAGE>
Plan of Reorganization
The Reorganization will be accomplished under the Plan of Reorganization,
which is attached as Appendix C hereto and is incorporated herein by reference.
The following discussion is qualified in its entirety by reference to the Plan
of Reorganization. The Plan of Reorganization was unanimously approved by the
Board of Directors on January 14, 1997.
The Stock Holding Company is a newly organized Delaware corporation which
was formed by the Bank solely for the purpose of effecting the Reorganization.
Therefore, the Stock Holding Company has no prior operating history.
The Reorganization will be accomplished as follows: (i) the Stock Holding
Company will organize an interim New York stock savings bank ("Interim") as a
wholly-owned subsidiary; (ii) Interim will merge into the Bank, with the Bank as
the surviving corporation; (iii) in connection with the merger in step (ii)
above, all of the issued and outstanding shares of Holding Company Common Stock
held by the Bank prior to the Reorganization will be canceled, all of the issued
and outstanding shares of Common Stock will be converted into and become an
equal number of shares of Holding Company Stock, and all of the issued and
outstanding shares of Interim, which are held by the Stock Holding Company, will
automatically be converted by operation of law into common stock of the Bank.
The use of Interim in order to complete the Reorganization is meant to qualify
the Reorganization as a tax-free transaction under the Internal Revenue Code. As
a result of steps (i) and (ii) above, the Bank will become the wholly owned
subsidiary of the Stock Holding Company, the Stock Holding Company will become
the majority-owned subsidiary of the Mutual Holding Company, and Minority
Shareholders will become minority shareholders of the Stock Holding Company.
The following diagram sets forth the Bank's current mutual holding company
structure:
[CHART APPEARS HERE]
-----------------------
Pathfinder Bancorp,
M.H.C.
-----------------------
54.0% of
Common Stock
----------------------- -----------------------
Oswego City Savings 46.0% of Minority
Bank Common Stock Shareholders
------------------------
----------------------- -----------------------
19
<PAGE>
The following diagram sets forth the Bank's proposed mutual holding company
structure following completion of the Reorganization:
------------------
Pathfinder Bancorp,
M.H.C.
------------------
54.0% of Share Holding Company
Common Stock
------------------ ------------
Pathfinder Bancorp 46.0% of Share Holding Minority
------------------ Company Common Stock Shareholders
------------
100% Owned
-------------------
Oswego City Savings
Bank
-------------------
Capitalization
The Board of Directors of the Bank presently intends to capitalize the
Stock Holding Company with up to $3 million, subject to the receipt of any
required regulatory approvals. The Stock Holding Company is being capitalized in
such amount so that it will be in a position to take advantage of investment
opportunities as they arise from time to time. These opportunities may include
investments in equity securities, acquisitions of other financial institutions
and repurchases of Holding Company Common Stock. Future capitalization of the
Stock Holding Company will depend upon earnings and dividends declared by the
Bank and any issuance of debt or equity securities. Although the Bank has the
authority is issue non-voting securities without obtaining shareholder approval,
it has no current intent to do so. The Board of Directors of the Stock Holding
Company has no present plans or intentions with respect to any future issuance
of securities at this time. Furthermore, at all times, the Mutual Holding
Company must own at least 51.0% of the Stock Holding Company's outstanding
voting stock so long as the Mutual Holding Company remains in existence.
After the Reorganization, the Bank will continue its existing business and
operations as a wholly-owned subsidiary of the Stock Holding Company, and the
consolidated capital, assets, liabilities, and form of financial statements of
the Stock Holding Company immediately following the Reorganization will be
substantially the same as those of the Bank immediately prior to consummation of
the Reorganization. The Organization Certificate and the Bylaws of the Bank will
continue in effect, and will not be affected in any manner by the
Reorganization. The corporate existence of the Bank will be unaffected by the
Reorganization.
Unless the Bank receives the nonobjection of the FDIC, the Bank may not
issue to any person other than Stock Holding Company (i) Common Stock, or (ii)
any equity security that would give the holder the right to acquire any equity
security of the Bank or that would give the holder an interest in the retained
earnings of the Bank. In addition, so long as the Mutual Holding Company is in
existence, no additional shares of Common Stock shall be offered for sale by the
Bank to any person other than Stock Holding Company unless the depositors of the
Bank are given the rights set forth in the FDIC's Rules and Regulations relating
to mutual-to-stock conversions of state-chartered savings banks. The Board of
Directors of the Bank has no present plans or intentions with respect to any
future issuance of securities of the Bank.
20
<PAGE>
Set forth below is the historical capitalization of the Bank and the pro
forma capitalization of the Bank and the Stock Holding Company as of September
30, 1997. For purposes of preparing the pro forma capitalization table of the
Bank it is assumed that no dissenters rights of appraisal will be asserted.
<TABLE>
<CAPTION>
Pro Forma
Consolidated
Historical Pro Forma Capitalization
Capitalization Capitalization of the Stock
of the Bank of the Bank Holding Company
----------- ----------- ---------------
<S> <C> <C> <C>
Deposits........................................ $ 156,079,500 $ 156,079,500 $ --
Borrowings...................................... 11,910,000 11,910,000 --
ESOP Debt....................................... 444,100 444,100 --
------------- ------------- -----------
Total Deposits and Borrowed Funds............... $ 168,433,600 $ 168,433,600 $ --
============= ============= ============
Capital Stock:
Common Stock at par value (1)
2,500,000 authorized,
1,916,666 outstanding.......................... $ 1,916,700 $ 1,916,700 $ --
Additional Paid in Capital...................... 3,777,400 3,777,400 3,000,000
Retained earnings, net.......................... 17,049,700 14,049,700 --
Unrealized appreciation in securities
available-for-sale............................. 593,500 593,500 --
Less:
Common Stock acquired by ESOP.................. (427,400) (427,400) --
------------- ------------- -----------
Total shareholders' equity (2)................. $ 22,909,900 $ 19,909,900 $ 3,000,000
============= ============= ============
</TABLE>
- ---------------
(1) The par value of the Bank's and Stock Holding Company's Common Stock is
$1.00 and $.10 per share, respectively.
(2) Estimated expenses of $75,000 will be capitalized and amortized over a five
year period.
Set forth below is a summary of the Bank's historical and pro forma
regulatory capital at September 30, 1997. Following completion of the
Reorganization, the Bank will exceed all regulatory capital requirements imposed
by the FDIC.
<TABLE>
<CAPTION>
Actual Pro Forma
------ ---------
Percent Percent
Amount of Assets Amount of Assets
------ --------- ------ ---------
<S> <C> <C> <C> <C> <C>
Tier 1 Leverage: Capital....... $18,632,600 9.8% $15,632,600 8.3%
Requirement... 7,572,900 4.0 7,572,900 4.0
----------- ---- ----------- ----
Excess........ $11,059,700 5.8% $ 8,059,700 4.3%
=========== ==== =========== ====
Tier 1 Risk-Based: Capital....... $18,632,600 16.2% $15,632,600 13.6%
Requirement... 4,599,200 4.0 4,599,200 4.0
----------- ---- ----------- ----
Excess........ $14,033,400 12.2% $11,033,400 9.6%
=========== ==== =========== ====
Total Risk-Based: Capital....... $22,909,900 19.9% $19,909,900 17.3%
Requirement... 9,198,400 8.0 9,198,400 8.0
----------- ---- ----------- ----
Excess........ $13,711,500 11.9% $10,711,500 9.3%
=========== ==== =========== ====
</TABLE>
Effective Date
The "Effective Date" of the Reorganization will be the date upon which the
Plan of Reorganization is filed with and approved by the New York Banking
Department.
21
<PAGE>
Optional Exchange of Stock Certificates
After the Effective Date stock certificates evidencing shares of Common
Stock will represent, by operation of law, the same number of shares of Holding
Company Common Stock. Former holders of the Common Stock will not be required to
exchange their Common Stock certificates for Holding Company Common Stock
certificates, but will have the option to do so. DO NOT SEND YOUR STOCK
CERTIFICATES TO THE BANK AT THIS TIME. Any shareholder desiring more information
about such exchange may request additional information from the Bank by writing
the Secretary of the Bank, Melissa A. Dashnau, 214 West First Street, Oswego,
New York 13126.
Rights of Dissenting Shareholders
New York law applicable to the Bank generally provides that a shareholder
of a New York-chartered savings bank which engages in a merger transaction shall
have the right to demand from the savings bank the payment of the fair or
appraised value of his or her stock in the savings bank, subject to the
satisfaction of specified procedural requirements. Pursuant to Section 604 of
the New York Banking Law ("NYBL"), holders of the Bank's Common Stock may
dissent from the Plan of Reorganization and elect to have the fair value of
their shares of Common Stock judicially determined and paid in cash, provided
such holder complies with the provisions of Section 6022 of the NYBL. The
following is a brief summary of the statutory procedures to be followed in order
to perfect dissenters' rights of appraisal under Section 6022 of the NYBL. This
summary is not intended to be complete and is qualified in its entirety by
reference to Section 6022, the text of which is attached as Appendix D to the
Prospectus/Proxy Statement.
If a holder of Common Stock elects to exercise his rights of appraisal,
such shareholder must satisfy the following conditions:
(i) such shareholder must deliver to the Bank a written objection to the
Reorganization and a demand that the shareholder intends to demand
payment for his shares if the Reorganization occurs. The written
objection must be filed with the Bank before a vote is taken of the
Plan of Reorganization.
(ii) such shareholder must not vote in favor of the Plan of
Reorganization.
(iii) within 20 days after receipt of written notice from the Bank, the
dissenting shareholder must file a written notice of his election to
dissent, stating his name, residence address, the number and class of
shares as to which he dissents and a demand for payment of the fair
value of his shares.
(iv) at the time of filing the notice of election to dissent or within one
month thereafter the shareholder must surrender his certificates
representing his Common Stock, to either the Bank or its transfer
agent, indicating on the stock certificate that the shareholder has
filed a notice of election to perfect dissenters' rights.
A dissenting shareholder may not dissent as to less than all of the shares
held by him of record and that he owns beneficially. A nominee or fiduciary may
not dissent on behalf of any beneficial owner as to less than all of the shares
of such owner held of record by such nominee or fiduciary.
Within 7 days after the expiration of the period within which shareholders
may file their notices of election to dissent, or within 7 days after the
proposed corporate action is consummated, whichever is later, the Stock Holding
Company shall make a written offer by registered mail to each shareholder who
has filed such notice of election to pay for his shares at a specified price
which the Stock Holding Company considers to be their fair value. Such offer
shall be made at the same price per share to all dissenting shareholders and
shall be accompanied by a balance sheet of the Bank as of the latest available
date, which shall not be earlier than 12 months before the making of such offer,
and a profit and loss statement or statements for not less than a 12 month
period ended on the date of the balance sheet. If within 30 days after the
making of such offer, the Stock Holding Company and any shareholder agree upon
22
<PAGE>
the price to be paid for his shares, payment shall be made within 60 days after
the making of such offer upon the surrender of the certificates representing
such shares.
In the event the Stock Holding Company fails to make such offer within such
period of 7 days, or if it makes the offer and any dissenting shareholder or
shareholders fail to agree on the price to be paid for their shares within a
period of 30 days thereafter, the Stock Holding Company shall, within 20 days
after the expiration of whichever is applicable of the two periods last
mentioned, institute a special proceeding in the supreme court in the judicial
district in which the office of the Stock Holding Company is located to
determine the rights of dissenting shareholders and to fix the fair value of
their shares. If the Stock Holding Company fails to institute such proceeding
within such period of 20 days, any dissenting shareholder may institute such
proceeding for the same purpose not later than 30 days after the expiration of
such 20 day period. If such proceeding is not instituted within such 30 day
period, all dissenters' rights shall be lost unless the Supreme Court, for good
cause shown, shall otherwise direct. All dissenting shareholders, other than
those who have agreed with the Stock Holding Company on the price to be paid for
their shares, shall be made parties to such proceeding. The Stock Holding
Company shall serve a copy of the petition in such proceeding upon each
dissenting shareholder who is a resident of New York state in the manner
provided by law for the service of a summons, and upon each nonresident
dissenting shareholder either by registered mail and publication, or in such
other manner as is permitted by law. The Supreme Court shall determine whether
each dissenting shareholder is entitled to receive payment for his shares. If
the Stock Holding Company does not request any such determination or if the
court finds that any dissenting shareholder is so entitled, the court shall
determine the value of the shares, which, shall be the fair value as of the
close of business on the day prior to the shareholders' authorization date,
excluding any appreciation or depreciation directly or indirectly induced by
such corporate action or its proposal. The Supreme Court may, if it so elects,
appoint an appraiser to receive evidence and recommend a decision on the
question of fair value. Such appraiser shall have the power, authority and
duties specified in the order appointing him, or any amendment thereof.
In the event the Supreme Court determines that the dissenting shareholder
is entitled to payment on his shares, the Supreme Court shall award the
dissenting shareholder interest from the shareholders' authorization date to the
date of payment. If the Supreme Court finds that the refusal of any shareholder
to accept the corporate offer of payment for his shares was arbitrary, vexatious
or otherwise not in good faith, no interest shall be paid.
The costs and expenses of such proceeding shall be determined by the court
and shall be assessed against the Stock Holding Company, except that all or any
part of such costs and expenses may be apportioned and assessed, as the Supreme
Court may determine, against any or all of the dissenting shareholders who are
parties to the proceeding if the Supreme Court finds that their refusal to
accept the corporate offer was arbitrary, vexatious or otherwise not in good
faith.
Within 60 days after final determination of the proceeding, the Stock
Holding Company shall pay to each dissenting shareholder the amount found to be
due him, upon surrender of the certificates representing his shares.
Tax Consequences
The Bank has received an opinion of its special counsel, Luse Lehman Gorman
Pomerenk & Schick, P.C., Washington, D.C., as to certain federal income tax
consequences of the Reorganization. This opinion of counsel, which is not
binding upon the Internal Revenue Service, provides substantially as follows:
(1) The merger of Interim with and into the Bank will constitute a
reorganization under Section 368 of the Internal Revenue Code of 1986, as
amended ("Code"), and the Stock Holding Company, the Bank and Interim will each
be a "party to a reorganization" within the meaning of Section 368(b) of the
Code, provided that the merger of Interim with and into the Bank qualifies as a
statutory merger under applicable law, after the transaction the Bank will hold
substantially all of the assets of Interim and Bank shareholders exchange
solely for Holding Company Common Stock an amount of Common Stock constituting
"control" of the Bank; (2) No gain or loss will be recognized by Bank
shareholders on the exchange of Common Stock for Holding Company Common Stock;
(3) No gain or loss will be recognized by the Holding Company on the receipt by
it of Common Stock solely in exchange for Holding Company Common Stock; (4) The
basis of Holding Company Common Stock received by the Bank's shareholders will
be the same as the basis of the
23
<PAGE>
Common Stock surrendered in exchange therefor; (5) The holding period of Holding
Company Common Stock to be received by Bank shareholders will include the
holding period of the Common Stock surrendered in exchange therefor, provided
the Bank Common Stock was held as a capital asset on the date of the exchange;
and (6) No gain or loss will be recognized by the Bank shareholders as a result
of conversion of their Bank stock options into options to purchase Stock Holding
Company Stock.
Each Bank shareholder should consult his own tax counsel as to specific
federal, state and local tax consequences of the Reorganization, if any, to such
shareholder.
Consequences Under Federal Securities Laws
The Common Stock is registered under Section 12 of the Securities Exchange
Act of 1934 (the "Exchange Act") as administered by the FDIC. Upon consummation
of the Reorganization, the Bank will no longer have the Common Stock registered
under the FDIC and the Bank will no longer file periodic reports and proxy
statements with the FDIC. Following the Reorganization, the Holding Company
Common Stock will be registered under the Section 12 of the Exchange Act as
administered by the Securities and Exchange Commission (the "SEC"). The Exchange
Act will apply to the Stock Holding Company to the same degree that it currently
applies to the Bank, except that the powers, functions and duties to administer
and enforce the Exchange Act requirements, including periodic and other reports,
proxies, tender offers, and short swing profits, and certain other requirements
that are vested in the FDIC with respect to securities of insured banks such as
the Bank, are vested in the SEC with respect to securities of corporations such
as the Stock Holding Company. In carrying out its responsibility to administer
such requirements, however, the FDIC is generally required by law to issue
substantially similar regulations to those adopted by the SEC.
Conditions to the Reorganization
The Plan of Reorganization sets forth a number of conditions to the
completion of the Reorganization, including: (i) approval of the Plan of
Reorganization by the required vote of holders of outstanding shares of Bank
Common Stock; (ii) receipt of an opinion of counsel as to the Federal income tax
consequences of the Reorganization; (iii) approval of the Reorganization by the
New York Banking Department (the "Department"); (iv) FRB approval of the
acquisition of control of the Bank by the Stock Holding Company; (v) approval of
the merger of Interim into the Bank by the FDIC and the Department; and (vi)
registration with the SEC under the Exchange Act of the Holding Company Common
Stock to be issued in the Reorganization and compliance by the Stock Holding
Company with all applicable state securities laws relating to the issuance of
Holding Company Common Stock.
The Mutual Holding Company, which owns a majority of the outstanding shares
of Common Stock, intends to vote its shares in favor of the Plan of
Reorganization. In addition, the Board of Directors and Management intend to
vote their shares in favor of the Plan of Reorganization. Furthermore, the Bank
has received an opinion of special counsel that the Reorganization will be
treated as a non-taxable transaction for federal income tax purposes.
Effect of the Reorganization on the Bank's Stock Based Benefit Plans
Following the Reorganization, shares of Common Stock held in the Bank's
ESOP shall be converted into Stock Holding Company Common Stock. Furthermore,
opinions granted under the Stock Option Plan will be exercisable for shares of
Stock Holding Company Common Stock and restricted stock awards under the
Recognition Plan shall automatically be converted into Stock Holding Company
shares.
Effect of the Reorganization on any Future Mutual-to-Stock Conversion of the
Mutual Holding Company
The Reorganization and the establishment of the Stock Holding Company is
not expected to have a material effect on the rights of Minority Shareholders in
the event of a mutual-to-stock conversion of the Mutual Holding Company. The
Mutual Holding Company has no current intention to engage in a mutual-to-stock
conversion.
24
<PAGE>
Amendment, Termination or Waiver
The Board of Directors of the Bank may cause the Plan of Reorganization to
be amended or terminated if the Board determines for any reason that such
amendment or termination would be advisable. Any amendment would be subject to
Department approval. Such amendment or termination may occur at any time prior
to the filing of Plan of Reorganization with the Department, provided that no
such amendment may be made to the Plan of Reorganization after shareholder
approval is such amendment is deemed to be materially adverse to the
shareholders of the Bank. Additionally, any of the terms or conditions of the
Plan of Reorganization may be waived by the party which is entitled to the
benefit thereof.
Business of the Bank
The Bank is a New York chartered savings bank headquartered in Oswego, New
York. The Bank has five full-service offices located in its market area
consisting of Oswego County. The Bank's deposits are insured by the Federal
Deposit Insurance Corporation ("FDIC"). The Bank was chartered as a New York
savings bank in 1859 as Oswego City Savings Bank. The Bank is a
consumer-oriented institution dedicated to providing mortgage loans and other
traditional financial services to its customers. The Bank is committed to
meeting the financial needs of its customers in Oswego County, New York, the
county in which it operates. At September 30, 1997, the Bank had total assets of
$193.0 million, total deposits of $156.1 million, and shareholders' equity of
$22.9 million.
The Bank is primarily engaged in the business of attracting deposits from
the general public in the Bank's market area, and investing such deposits,
together with other sources of funds, in loans secured by one- to four-family
residential real estate. At December 31, 1996, $100.7 million, or 90.8%, of the
Bank's total loan portfolio consisted of loans secured by real estate, of which
$74.4 million, or 73.8% of total real estate loans, were loans secured by one-
to four-family residences, $14.9 million, or 14.8% of total real estate loans,
were secured by commercial real estate, $2.3 million, or 2.3% of total real
estate loans, were secured by multi-family properties and $9.2 million, or 9.1%
of total real estate loans, were secured by second liens on residential
properties. The Bank also originates consumer and other loans which totaled
$10.1 million, or 9.1%, of the Bank's total loan portfolio. The Bank invests a
portion of its assets in securities issued by the United States Government,
state and municipal obligations, corporate debt securities, mutual funds, and
equity securities. The Bank also invests in mortgage-backed securities primarily
issued or guaranteed by the United States Government or agencies thereof. The
Bank's principal sources of funds are deposits and principal and interest
payments on loans and other borrowings. The principal source of income is
interest on loans and investment securities. The Bank's principal expenses are
interest paid on deposits and employee compensation and benefits.
On November 15, 1995, the Bank reorganized from a New York chartered mutual
savings bank into the mutual holding company form of ownership, chartering
Pathfinder Bancorp, M.H.C., a New York mutual holding company as its mutual
holding company, and concurrently amending its charter to read as a stock
charter. As part of the reorganization, the Bank issued 881,666 shares of common
stock to the public; 1,035,000 shares were issued to the Mutual Holding Company.
The Bank's executive office is located at 214 West First Street, Oswego,
New York, and its telephone number at that address is (315) 343-0057.
Business of the Stock Holding Company
General. The Stock Holding Company was formed only recently and currently
has no business activities. Upon the completion of the Reorganization, the Bank
will become a wholly-owned subsidiary of the Stock Holding Company and each
shareholder of the Bank will become a shareholder of the Stock Holding Company
with the same ownership interest therein as such shareholder's ownership
interest in the Bank immediately prior to the Reorganization.
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Immediately after consummation of the Reorganization, it is expected that
the Stock Holding Company will not engage in any business activity other than to
hold all of the stock of the Bank. The Stock Holding Company does not presently
have any arrangements or understandings regarding any acquisition or merger
opportunities. It is anticipated, however, in the future that the Stock Holding
Company may pursue other investment opportunities, including possible
diversification through acquisitions and mergers.
Property. The Stock Holding Company is not expected to own or lease real or
personal property initially. Instead, it intends initially to utilize the
premises, equipment and furniture of the Bank. The Stock Holding Company will
pay rental fees to the Bank for the use of the Bank's property.
Legal Proceedings. Since its organization, the Stock Holding Company has
not been a party to any legal proceedings.
Employees. At the present time, the Stock Holding Company does not intend
to employ any persons other than senior officers of the Bank. It will utilize
the support staff of the Bank from time to time. If the Stock Holding Company
acquires other savings institutions or pursues other lines of business, it may
hire additional employees at such time. The Stock Holding Company will reimburse
the Bank for services performed by the Bank's employees on behalf of the Stock
Holding Company.
Competition. It is expected that for the immediate future the primary
business of the Stock Holding Company will be the ownership of the Bank Common
Stock. Therefore, the competitive conditions to be faced by the Stock Holding
Company will be the same as those faced by the Bank.
Management of the Stock Holding Company
Directors. The directors of the Stock Holding Company are, and upon
completion of the Reorganization will continue to be, the same persons who are
at present the directors of the Bank. The three-year terms of the directors are
staggered to provide for the election of approximately one-third of the board
members each year.
Executive Officers. The executive officers of the Stock Holding Company
are, and upon completion of the Reorganization will be, the same persons who are
at present the executive officers of the Bank.
Remuneration. Since the formation of the Stock Holding Company, none of its
executive officers or directors has received any remuneration from the Stock
Holding Company. It is expected that initially no compensation will be paid to
its directors and officers in addition to compensation paid to them by the Bank.
Once the Stock Holding Company engages in business activity other than holding
the common stock of the Bank it intends to pay separate and additional
compensation as appropriate.
Indemnification of Officers and Directors and Limitation of Liability
General. Certain provisions of the Certificate of Incorporation of the
Stock Holding Company and the Bylaws of the Bank seek to ensure that the ability
of such companies' directors to exercise their best business judgment in
managing corporate affairs, subject to their continuing fiduciary duties of
loyalty to their companies and shareholders, is not unreasonably impeded by
exposure to the potentially high personal costs or other uncertainties of
litigation. The nature of the tasks and responsibilities undertaken by directors
and officers often requires such persons to make difficult judgments of
significant importance which can expose such persons to personal liability, but
from which they will acquire no personal benefit (other than as shareholders).
In recent years, litigation against corporations and their directors and
officers, often amounting to mere "second guessing" of good-faith judgments and
involving no allegations of personal wrongdoing, has become common. Such
litigation often claims damages in large amounts which bear no relationship to
the amount of compensation received by the directors or officers, particularly
in the case of directors who are not officers of the corporation, and the
expense of defending such litigation, regardless of whether it is well founded,
can be enormous. Individual directors and officers can seldom bear either the
legal defense costs involved or the risk of a large judgment.
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In order to attract and retain competent and conscientious directors and
officers in the face of these potentially serious risks, corporations have
historically provided for corporate indemnification and limitation of liability
in their articles and bylaws and have obtained liability insurance protecting
the company and its directors and officers against the cost of litigation and
related expenses. Such indemnification and limitation of liability provisions
may also benefit shareholders who indirectly assume the expense of litigation
and directors' and officers' liability insurance. The Bank currently has
insurance coverage for its directors and officers, and the Bank's management
expects that the Stock Holding Company will be able to obtain such coverage for
its directors and officers. The Stock Holding Company's Board of Directors and
officers, the individual members of which will benefit from the inclusion of the
indemnification and limitation of liability provisions, have a personal interest
in including these provisions in the Stock Holding Company's Certificate of
Incorporation.
The Bank's Organization Certificate and Bylaws do not contain any provision
limiting the liability of directors. The NYBL contains no provisions for the
limitation of director liability.
The Stock Holding Company's Certificate of Incorporation provides that a
director shall not be personally liable to the Stock Holding Company or its
shareholders for monetary damages for breach of such director's fiduciary duty
as a director, except for (i) breach of the director's duty of loyalty to the
Stock Holding Company or its shareholders, (ii) acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) certain unlawful distributions, or (iv) any transaction from which the
director derived an improper personal benefit. If the Delaware General
Corporation Law is amended to authorize action further eliminating or limiting
the personal liability of directors, then the liability of a director shall be
eliminated or limited to the fullest extent permitted under the amended law.
This provision eliminates the potential liability of the Stock Holding
Company's directors for failure, through negligence or gross negligence, to
satisfy their duty of care which requires directors to exercise informed
business judgment in discharging their duties. It may thus reduce the likelihood
of derivative litigation against directors and discourage or deter shareholders
or management from bringing a lawsuit against directors for breach of their duty
of care, even though such an action, if successful, might otherwise have been
beneficial to the Stock Holding Company and its shareholders. Shareholders will
thus be surrendering a cause of action based upon negligent business decisions,
including those relating to attempts to change control of the Stock Holding
Company. The provision will not, however, affect the right to pursue equitable
remedies for breach of the duty of care, although such remedies might not be
available as a practical matter. Federal banking and securities laws may limit
the effect of such limitation of liability provisions.
To the best of management's knowledge, there is currently no pending or
threatened litigation for which indemnification may be sought or any recent
litigation involving directors of the Bank that might have been affected by the
limited liability provision in the Stock Holding Company's Certificate of
Incorporation had it been in effect at the time of the litigation.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling the Stock
Holding Company, the Stock Holding Company has been informed that in the opinion
of the SEC such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable. In addition, Federal banking
regulations restrict the Bank or the Stock Holding Company from indemnifying
officers and directors for civil monetary penalties or judgments resulting from
administrative or civil actions instituted by any Federal banking agency, or any
other liability or legal expense with regard to any administrative proceeding or
civil action instituted by any Federal banking agency, which results in a final
order or settlement pursuant to which such person is assessed a civil monetary
penalty, removed from office or prohibited from participating in the conduct of
the affairs of an insured depository institution, or required to cease and
desist from or take certain actions.
Indemnification Provisions of the Bank's Bylaws. The Bank's Bylaws provide
that it shall indemnify every person who acts on behalf of the Bank against
judgments, fines, penalties, amounts paid in settlement and reasonable
expenses, provided that no indemnification shall be made if a judgment or other
final adjudication established that such
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person's acts were in bad faith or were the result of active and deliberate
dishonesty and were material to the cause of action so adjudicated, or that the
person had a financial gain as to which he was not entitled, and provided that
no indemnification shall be required with respect to a settlement or
non-adjudicated disposition unless the Bank has given its prior written consent
to such settlement or disposition.
Indemnification Provisions of the Stock Holding Company's Certificate of
Incorporation. The Certificate of Incorporation of the Stock Holding Company
provides that any individual who is or was a director, officer, employee or
agent of the Stock Holding Company in any proceeding in which the person has
been made a party or is otherwise involved as a result of his service in such
capacity shall be indemnified and held harmless to the fullest extent authorized
under the Delaware General Corporation Law. Under the Certificate of
Incorporation, an indemnified person may be reimbursed for all expenses,
liabilities and losses (including attorney's fees, judgments, fines, ERISA
excise taxes or penalties and amounts paid in settlement) reasonably incurred or
suffered. An indemnified person may be advanced expenses incurred in defending
any proceeding prior to final disposition to the extent permitted under Delaware
law. In accordance with Delaware law, an individual may not be indemnified (i)
in connection with a proceeding by or in the right of the Stock Holding Company
in which the individual was adjudged liable to the Stock Holding Company, or
(ii) in connection with any other proceeding charging improper personal benefit
to him in which he was adjudged liable on the basis that personal benefit was
improperly received by him, unless a court of competent jurisdiction determines
he is fairly and reasonably entitled to indemnification in view of all relevant
circumstances. Management does not have any plans to provide for indemnification
rights beyond those provided in the Stock Holding Company's Certificate of
Incorporation.
Comparison of Shareholder Rights and Certain Anti-Takeover Provisions
Introduction. As a result of the Reorganization, holders of Common Stock,
whose rights are presently governed by the New York Banking Law ("NYBL") and
the rules and regulations of the Department as well as the Bank's Organization
Certificate and Bylaws, will become shareholders of the Stock Holding Company, a
Delaware corporation. Accordingly, their rights will be governed by the
Certificate of Incorporation and Bylaws of the Stock Holding Company, and by the
NYBL only to the extent the NYBL addresses rights of shareholders of
Delaware-chartered savings bank holding companies. Certain differences arise
from this change of governing law, as well as from distinctions between the
Organization Certificate and Bylaws of the Bank and the Certificate of
Incorporation and Bylaws of the Stock Holding Company. The following discussion
is a summary only of the differences affecting the rights of shareholders of the
Bank and the Stock Holding Company. The Certificate of Incorporation and Bylaws
of the Stock Holding Company are attached hereto as Appendices E and F,
respectively, and should be reviewed for more detailed information.
A number of provisions of the Bank's Organization Certificate and Bylaws
and Stock Holding Company's Certificate of Incorporation and Bylaws deal with
matters of corporate governance and certain rights of shareholders. Some of
these provisions may be deemed to have potential anti-takeover effects in that
they may have the effect of discouraging a future takeover attempt or change of
control which is not approved by the Board of Directors but which a majority of
individual shareholders may deem to be in their best interests or in which
shareholders may receive a substantial premium for their shares over then
current prices. As a result, shareholders who desire to participate in such a
transaction may not have an opportunity to do so. Such provisions will also
render the removal of the current Board of Directors or management more
difficult.
Issuance of Capital Stock. The Bank's Organization Certificate authorizes
the issuance of 2,500,000 shares of capital stock, all of which are Common
Stock, par value $1.00 per share. The Certificate of Incorporation of the Stock
Holding Company authorizes the issuance of a million shares of Common Stock,
par value $.10 per share. Following the Reorganization, there will be same
number of shares of the Holding Company's Common Stock outstanding as there were
shares of Common Stock outstanding immediately prior to the Reorganization
(assuming there are no dissenting shareholders).
The Stock Holding Company has no present intention to issue additional
shares of stock at this time, other than upon the exercise of stock options and
in connection with the award of restricted stock. If the Stock Holding
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Company issues authorized but unissued shares of Holding Company Common Stock or
preferred stock it would not be required to obtain a vote of its shareholders,
or to give such shareholders a right to purchase shares. If additional shares
were issued, the percentage ownership interests of existing shareholders would
be reduced and, depending on the terms pursuant to which new shares are issued,
the book value and earnings per share of outstanding Holding Company Common
Stock might be diluted. Moreover, such additional share issuances could be
construed as having an anti-takeover effect. The ability to issue additional
shares, which exists under both the Bank's Organization Certificate and the
Stock Holding Company's Certificate of Incorporation, gives management greater
flexibility in financing corporate operations. As long as the Mutual Holding
Company is in existence it must own at least 51.0% of the outstanding voting
stock of the Stock Holding Company. Following completion of the Reorganization,
to the extent permitted under the NYBL and the Superintendent, the Bank will
continue to have the ability to issue debt, non-voting equity or convertible
securities to entities other than the Stock Holding Company although it has no
plans or intentions to do so.
Payment of Dividends. Under New York law savings banks may declare and pay
dividends only out of certain net profits, annually, semi-annually or quarterly,
but not more frequently. The approval of the Superintendent is required if the
total for all dividends declared in any calendar year exceeds the total net
profits for the year plus retained net profits of the preceding two years, less
any required transfers to surplus or to fund the retirement of preferred stock.
No dividends may be paid so long as there is any impairment of capital. The
ability of the Bank to pay dividends on Common Stock is restricted by tax
considerations related to state savings banks and by federal regulations
applicable to state chartered savings banks. Income appropriated to bad debt
reserves and deducted for federal income tax purposes may not be used to pay
cash dividends without the payment of federal income taxes by the Bank on the
amount of such income removed from reserves for such purpose at the then current
income tax rate. Additionally, the Bank is precluded from paying dividends on
its Common Stock if its regulatory capital could thereby be reduced below the
regulatory capital requirements prescribed for a state savings bank under
federal law. The Bank currently satisfies its applicable regulatory capital
requirements.
After the Reorganization, the Stock Holding Company's principal source of
income will initially consist of its equity in the earnings, if any, of the
Bank. Although the Stock Holding Company will not be subject to the above
dividend restrictions regarding dividend payments to its shareholders, the
restrictions on the Bank's ability to pay dividends to the Stock Holding Company
will continue in effect.
Under the Delaware General Corporation Law, dividends may be paid either
out of surplus or, if there is no surplus, out of net profits for the fiscal
year in which the dividend is declared and/or the preceding fiscal year. After
the Reorganization, the Stock Holding Company's principal source of income will
initially consist of its equity in the earnings, if any, of the Bank.
The payment of future cash dividends by the Bank, and thus by the Stock
Holding Company, will continue to depend upon the Bank's earnings, financial
condition and capital requirements, as well as the tax and regulatory
considerations discussed herein. Prior to declaring a dividend, the Bank's Board
of Directors considers many factors including the Bank's profitability,
maintenance of adequate capital, the Bank's current and anticipated future
income, outstanding loan commitments, adequacy of loan loss reserves, cash flow
requirements and economic conditions. Moreover, before declaring a dividend, the
Board of Directors must determine that the Bank will exceed its regulatory
capital requirements after the payment of the dividend.
Cumulative Voting. Neither the Bank's Organization Certificate not the
Stock Holding Company's Certificate of Incorporation provide for cumulative
voting. The absence of cumulative voting rights means that the holders of a
majority of the shares voted at a meeting of shareholders may elect all
directors of the Stock Holding Company thereby precluding minority shareholder
representation on the Board of Directors.
Rights of Shareholders to Dissent. Under the NYBL, shareholders of a New
York savings bank, such as the Bank, are generally entitled to dissenters'
rights of appraisal if they are entitled to vote on a merger of the Bank with or
into another savings institution. Shareholders of the Stock Holding Company will
have no dissenters' rights with respect to a merger or consolidation to which
the Stock Holding Company is a party if the class of shares of the
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company acquiring the Stock Holding Company has its stock listed on a national
securities exchange or the Nasdaq Stock Market.
Vacancies on the Board of Directors. Any vacancy occuring in the Bank's
Board of Directors may be filled by the affirmative vote of a majority of the
remaining directors. A director elected to fill a vacancy shall be elected to
serve for the balance of the unexpired term of the predecessor director. Any
directorship to be filled by reason of an increase in the number of directors
may be filled by election by the board of directors for a term of office
continuing for the balance of the term of the class to which the director was
elected.
The Stock Holding Company's Certificate of Incorporation provides that any
vacancy occurring in the Board of Directors, including any vacancy created by
reason of an increase in the number of directors, shall be filled by a majority
vote of the directors then in office. Any director so chosen shall serve until
the term of the class to which he was appointed shall expire and until his
successor is elected and qualified. When the number of directors is changed, the
Board of Directors shall determine the class or classes to which the increased
or decreased number of directors shall be apportioned, provided that no decrease
in the number of directors shall shorten the term of any incumbent director.
Number and Term of Directors. The Bank's stock Organization Certificate
provides that its Board of Directors shall consist of not less than seven nor
more than 30 members, as set forth in the Bylaws. The Stock Holding Company's
Bylaws provide that its Board of Directors shall consist of between five and 15
members, the exact number to be determined by the Board of Directors. The Board
of Directors of the Stock Holding Company has set the number of directors at 9
persons. Although the Stock Holding Company has no present intention of reducing
its number of directors below its present 9 members, the Board of Directors
believes that the ability to reduce the number of directors will result in
greater flexibility in the event of vacancies on the current Board.
The Bank's Organization Certificate provides for a classified board of
directors, consisting of three substantially equal classes of directors, each
serving for a three year term, with the term of each class of directors ending
in successive years. The Stock Holding Company's Certificate of Incorporation
also provides for a classified board of directors.
Presentation of New Business at Meetings of Shareholders. The Bank's
Bylaws generally provide that any shareholder desiring to make a proposal for
new business at a meeting of shareholders must submit written notice filed with
the Secretary of the Bank at least 45 days in advance of the meeting. Failure to
comply with these advance notice requirements will preclude such nominations or
new business from being considered at the meeting; such proposal however would
be laid over for action at an adjourned, special or annual meeting of
shareholders occurring at least 30 days after the original date of the
shareholders meeting.
Any shareholder entitled to vote generally in an election of directors may
nominate one or more persons for election as directors at a meeting, and, if
properly presented, may bring other business before an annual meeting of the
Stock Holding Company. For nominations or other business to be properly brought
before an annual meeting, written notice of such shareholder's intent must be
given not later than 120 days prior to the anniversary date of the mailing of
proxy materials by the Stock Holding Company in connection with the immediately
preceding annual meeting of shareholders of the Stock Holding Company or, in the
case of the first annual meeting of shareholders of the Stock Holding Company
following its acquisition of all of the outstanding capital stock of the Bank,
120 days prior to the anniversary date of the mailing of proxy materials by the
Bank in connection with the immediately preceding annual meeting of the Bank
prior to such acquisition. The Stock Holding Company's Certificate of
Incorporation specifies further procedural requirements that must be satisfied
for notice to be properly given.
Mutual Holding Company Ownership. So long as the Mutual Holding Company is
in existence, the Mutual Holding Company must own at least 51.0% of the
outstanding voting stock of the Bank. Following the Reorganization, the Mutual
Holding Company will be required to own at least 51.0% of the outstanding voting
stock of the Stock Holding Company. The Mutual Holding Company currently is able
to elect the Bank's directors and direct the affairs and business operations of
the Bank. After the Reorganization, the Mutual Holding Company will
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be able to elect the Stock Holding Company's directors and direct the affairs
and business operations of the Stock Holding Company. Following the
Reorganization, the Mutual Holding Company will continue to own 54% of the Stock
Holding Company's outstanding common stock. Upon completion of the Merger and as
a result of the issuance of additional shares representing the fair value of
County Savings, the Mutual Holding Company's percentage ownership in the Stock
Holding Company will increase, and Minority Shareholders' equity interests will
be significantly diluted as a result of the Merger. At this time however, it is
impossible to quantify the extent of the dilution Minority Shareholders will
experience in their equity interest. Such dilution will depend upon the fair
value of Oswego County Savings Bank as determined by an independent appraisal,
and the market price of the Common Stock preceding the completion of the Merger.
See "Recent Events."
Limitation on Voting Rights. The Organization Certificate of the Bank
provides that for a period of three years following the Bank's organization in
November 1995, no person shall directly or indirectly offer to acquire or
acquire the beneficial ownership of more than 10% of any class of any equity
security of the Bank. This limitation does not apply to the Mutual Holding
Company and would not apply to the Stock Holding Company. In the event shares
are acquired in violation of this provision, all shares beneficially owned by
any person in excess of 10% shall be considered "excess shares" and shall not be
counted as shares entitled to vote and shall not be voted by any person or
counted as voting shares in connection with any matters submitted to the
shareholders for a vote. The Organization Certificate provides that this
limitation shall not apply to a transaction in which the Bank forms a holding
company without change in the respective beneficial ownership interest of its
shareholders. The Stock Holding Company's Certificate of Incorporation contains
a similar provision regarding beneficial ownership of more than 10% of the Stock
Holding Company's shares which is not limited to a three year period.
Amendment of Certificate of Incorporation and Bylaws. Amendments to the
Stock Holding Company's Certificate of Incorporation must be approved by a
majority vote of its Board of Directors and also by a majority of the
outstanding shares of its voting stock, provided, however, that an affirmative
vote of at least 80% of the outstanding voting stock entitled to vote (after
giving effect to the provision limiting voting rights) is required to amend or
repeal certain provisions of the Certificate of Incorporation, including the
provision limiting voting rights, the provisions relating to approval of certain
business combinations, calling special meetings, the number and classification
of directors, and director and officer indemnification by the Stock Holding
Company. The Stock Holding Company's Bylaws may be amended by its Board of
Directors, or by a vote of 80% of the total votes eligible to be voted at a duly
constituted meeting of shareholders. The Bank's Organization Certificate may be
amended following receipt of the Department's approval and thereafter upon the
vote of 80% of the total votes outstanding and eligible to be cast at a
shareholders' meeting. The Bank's bylaws may be amended by a two-thirds majority
of the entire Board of Directors or by a majority of votes cast by shareholders
at a shareholders' meeting.
Shareholder Vote Required to Approve Business Combinations with Principal
Shareholders. The Certificate of Incorporation requires the approval of the
holders of at least 80% of the Stock Holding Company's outstanding shares of
voting stock to approve certain "Business Combinations," as defined therein, and
related transactions. Under the Delaware General Corporation Law, absent this
provision, Business Combinations, including mergers, consolidations and sales of
all or substantially all of the assets of a corporation, subject to exceptions,
must be approved by the vote of the holders of only a majority of the
outstanding shares of Holding Company Common Stock and any other affected class
of stock.
Under the Certificate of Incorporation, at least 80% approval of
shareholders is required in connection with any transaction involving an
Interested Shareholder (as defined below) except (i) in cases where the proposed
transaction has been approved in advance by a majority of those members of the
Stock Holding Company's Board of Directors who are unaffiliated with the
Interested Shareholder and were directors prior to the time when the Interested
Shareholder became an Interested Shareholder, or (ii) if the proposed
transaction met certain conditions set forth therein which are designed to
afford the shareholders a fair price in consideration for their shares, in which
cases approval of only a majority of the outstanding shares of voting stock is
required. The term "Interested Shareholder" is defined to include any
individual, corporation, partnership or other entity (other than the Stock
Holding Company or its subsidiaries) which owns beneficially or controls,
directly or indirectly, 10% or more of the outstanding shares of voting stock of
the Stock Holding Company. This provision of the Certificate of Incorporation
applies to any
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"Business Combination," which is defined to include (i) any merger or
consolidation of the Stock Holding Company or any of its subsidiaries with or
into any Interested Shareholder or Affiliate (as defined in the Certificate of
Incorporation) of an Interested Shareholder; (ii) any sale, lease, exchange,
mortgage, transfer, or other disposition to or with any Interested Shareholder
or Affiliate of 25% or more of the assets of the Stock Holding Company or
combined assets of the Stock Holding Company and its subsidiary; (iii) the
issuance or transfer to any Interested Shareholder or its Affiliate by the
Company (or any subsidiary) of any securities of the Stock Holding Company in
exchange for any assets, cash or securities the value of which equals or exceeds
25% of the fair market value of the Common Stock of the Stock Holding Company;
(iv) the adoption of any plan for the liquidation or dissolution of the Stock
Holding Company proposed by or on behalf of any Interested Shareholder or
Affiliate thereof; and (v) any reclassification of securities, recapitalization,
merger or consolidation of the Stock Holding Company which has the effect of
increasing the proportionate share of Holding Company Common Stock or any class
of equity or convertible securities of the Stock Holding Company owned directly
or indirectly, by an Interested Shareholder or Affiliate thereof. The Bank's
Organization Certificate does not include a similar supermajority vote
requirement.
Evaluation of Offers. The Certificate of Incorporation of the Stock Holding
Company further provides that the Board of Directors of the Stock Holding
Company, when evaluating any offer of another "Person" (as defined therein), to
(i) make a tender or exchange offer for any equity security of the Stock Holding
Company, (ii) merge or consolidate the Stock Holding Company with another
corporation or entity, or (iii) purchase or otherwise acquire all or
substantially all of the properties and assets of the Stock Holding Company,
may, in connection with the exercise of its judgment in determining what is in
the best interest of the Stock Holding Company, the Bank and the shareholders of
the Stock Holding Company, give due consideration to all relevant factors,
including, without limitation, the social and economic effects of acceptance of
such offer on the Stock Holding Company's customers and the Bank's present and
future account holders, borrowers and employees, on the communities in which the
Stock Holding Company and the Bank operate or are located, and on the ability of
the Stock Holding Company to fulfill its corporate objectives as a savings and
loan holding company and on the ability of the Bank to fulfill the objectives of
a stock savings bank under applicable statutes and regulations. By having these
standards in the Certificate of Incorporation of the Stock Holding Company, the
Board of Directors may be in a stronger position to oppose such a transaction if
the Board concludes that the transaction would not be in the best interest of
the Stock Holding Company, even if the price offered is significantly greater
than the then market price of any equity security of the Stock Holding Company.
The Bank's Organization Certificate does not contain a similar provision.
Delaware Corporate Law
In 1988 Delaware enacted a statute designed to provide Delaware
corporations with additional protection against hostile takeovers. The takeover
statute, which is codified in Section 203 of the Delaware General Corporation
Law ("Section 203"), is intended to discourage certain takeover practices by
impeding the ability of a hostile acquiror to engage in transactions with the
target company.
In general, Section 203 provides that a "Person" (as defined therein) who
owns 15% or more of the outstanding voting stock of a Delaware corporation (an
"Interested Shareholder") may not consummate a merger or other business
combination transaction with such corporation at any time during the three-year
period following the date such "Person" became an Interested Shareholder. The
term "business combination" is defined broadly to cover a wide range of
corporate transactions including mergers, sales of assets, issuances of stock,
transactions with subsidiaries and the receipt of disproportionate financial
benefits.
The statute exempts the following transactions from the requirements of
Section 203: (i) any business combination if, prior to the date a person became
an Interested Shareholder, the Board of Directors approved either the business
combination or the transaction which resulted in the shareholder becoming an
Interested Shareholder; (ii) any business combination involving a person who
acquired at least 85% of the outstanding voting stock in the transaction in
which he became an Interested Shareholder, calculated without regard to those
shares owned by the corporation's directors who are also officers or certain
employee stock plans; (iii) any business combination with an Interested
Shareholder that is approved by the Board of Directors and by a two-thirds vote
of the outstanding voting stock not owned by the Interested Shareholder; and
(iv) certain business combinations that are proposed after the
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corporation had received other acquisition proposals and which are approved or
not opposed by a majority of certain continuing members of the Board of
Directors. A corporation may exempt itself from the requirements of the statute
by adopting an amendment to its Certificate of Incorporation or Bylaws electing
not to be governed by Section 203. At the present time, the Board of Directors
of the Stock Holding Company does not intend to propose any such amendment.
Regulation of the Stock Holding Company
General. Upon completion of the Reorganization, the Stock Holding Company
will become will become a registered bank holding company pursuant to the Bank
Holding Company Act of 1956, as amended (the "BHCA"), by acquiring all of the
Common Stock. The Stock Holding Company will be subject to examination,
regulation and periodic reporting under the BHCA, as administered by the FRB.
The Mutual Holding Company is currently regulated by the FRB. The FRB has
adopted capital adequacy guidelines for bank holding companies (on a
consolidated basis) substantially similar to those of the FDIC. The Stock
Holding company's pro forma capital exceeds these requirements.
BHCA Activities and Other Limitations. The BHCA prohibits a bank holding
company from acquiring direct or indirect ownership or control of more than 5%
of the voting shares of any bank, or increasing such ownership or control of any
bank, without prior approval of the FRB. In determining whether to authorize a
bank holding company (or a company that will become a bank holding company) to
acquire control of a bank, the FRB takes into consideration the financial and
managerial resources of the bank holding company, as well as those of the bank
to be acquired, and considers whether the acquisition is likely to have
anti-competitive effects or other adverse effects. No approval under the BHCA is
required, however, for a bank holding company already owning or controlling 50%
or more of the voting shares of a bank to acquire additional shares of such
bank.
The BHCA also prohibits a bank holding company, with certain exceptions,
from more than 5% of the voting shares of any company that is not a bank and
from engaging in any business other than banking or managing or controlling
banks. Under the BHCA, the FRB is authorized to approve the ownership of shares
by a bank holding company in any company, the activities of which the FRB has
determined to be so closely related to banking or to managing or controlling
banks as to be a proper incident thereto. In making such determinations, the FRB
is required to weigh expected benefits to the public, such as greater
convenience, increased competition or gains in efficiency, against the possible
adverse effects, such as undue concentration of resources, decreased or unfair
competition, conflicts of interest or unsound banking practices.
Subsidiary banks of a bank holding company are subject to certain
restrictions imposed by the BHCA on extensions of credit to the bank holding
company or any of its subsidiaries, on investments in the stock or other
securities of the bank holding company or its subsidiaries, and on the taking of
such stock or securities as collateral for loans to any borrower. Furthermore,
under amendments to the BHCA and regulations of the FRB, a bank holding company
and its subsidiaries are prohibited from engaging in certain tie-in arrangements
in connection with any extension of credit or provision of credit or providing
and property or services. Generally, this provision provides that a bank may not
extend credit, lease or sell property, or furnish any service to a customer on
the condition that the customer provide additional credit or services to the
bank, to the bank holding company, or to any other subsidiary of the bank
holding company or on the condition that the customer not obtain other credit or
services from the competitor of the bank, the bank holding company, or any
subsidiary of the bank.
The Stock Holding Company will not be, and the Bank is affected by the
monetary and fiscal policies of various agencies of the United States
Government, including the Federal Reserve System. In view of changing conditions
in the national economy and in the money markets, it is impossible for
management to accurately predict future changes in monetary policy or the effect
of such changes on the business or financial conditions of the Stock Holding
Company.
Regulatory Capital Requirements. The FRB has adopted capital adequacy
guidelines pursuant to which it assesses the adequacy of capital in examining
and supervising a bank holding company and in analyzing applications to it under
the BHCA. The FRB capital adequacy guidelines generally required bank holding
companies to maintain total capital equal to 8% of total risk-adjusted assets,
with at least one-half of that amount consisting of Tier 1 and up
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to one-half of that amount consisting of Tier 2 or supplementary capital. Tier
1 capital for bank holding companies generally consists of the sum of common
shareholders' equity and perpetual preferred stock (subject in the case of the
latter to limitations on the kind and amount of such preferred stock which may
be included as Tier 1 capital), less goodwill. Tier 2 capital generally
consists of hybrid capital instruments; perpetual preferred stock which is not
eligible to be included as Tier 1 capital; term subordinated debt and
intermediate-term preferred stock; and, subject to limitations, general
allowances for loan losses. Assets are adjusted under the risk-based guidelines
to take into account different risk characteristics, with the categories ranging
from 0% (requiring no additional capital) for assets such as cash to 100% for
the bulk of assets which are typically held by a bank holding company, including
multi-family residential and commercial real estate loans, commercial business
loans and consumer loans. One-to four-family residential first mortgage loans
which are not 90 days or more past due or nonperforming and which have been made
in accordance with prudent underwriting standards are assigned a 50% level in
the risk-weighting system, as are certain privately-issued mortgage-backed
securities representing indirect ownership loans. Off-balance sheet items also
are adjusted to take into account certain risk characteristics. The FRB has
indicated that bank holding companies anticipating significant growth will be
expected to maintain capital ratios in excess of the required minimums.
In addition to the risk-based capital requirements, the FRB requires bank
holding companies to maintain a minimum leverage capital ratio of Tier 1 capital
to total assets of 3.0%. Total assets for this purpose does not include
goodwill and any other intangible assets and investments that the FRB determines
should be deducted from Tier 1 capital. The FRB has announced that the 3.0%
Tier 1 leverage capital ratio requirement is the minimum for the top-rated bank
holding companies without any supervisory, financial or operational weaknesses
or deficiencies or those which are not experiencing or anticipating significant
growth. Other bank holding companies must maintain Tier 1 leverage capital
ratios of at least 4.0% to 5.0% or more, depending on their overall condition.
The Bank is a well-capitalized institution. For information regarding the
Bank's regulatory capital levels see "--Capitalization."
Repurchases of Holding Company Common Stock. Regulations promulgated by
the FRB provide that a bank holding company must file written notice with the
FRB prior to any repurchase of its equity securities if the gross consideration
for the purchase, when aggregated with the net consideration paid by the bank
holding company for all repurchases during the preceding 12 months, is equal to
10% or more of the bank holding company's consolidated net worth. This notice
requirement is not applicable, however, to a bank holding company, such as the
Stock Holding Company, that exceeds the thresholds established for a well
capitalized state member bank and that satisfies certain other regulatory
requirements.
Commitments to Affiliated Depository Institutions. Under FRB policy, the
Stock Holding Company will be expected to act as a source of financial strength
to the Bank and to commit resources to support the Bank in circumstances when it
might not do so absent such policy. The enforceability and precise scope of
this policy is unclear. However, in light of recent judicial precedent, should
the Bank require the support of additional capital resources, it should be
anticipated that the Stock Holding Company will be required to respond with any
such resources available to it. In addition, under the Federal Deposit
Insurance Act, any depository institution shall be liable for any loss incurred
by the FDIC in connection with the default of a commonly controlled insured
depository institution or assistance provided by the FDIC to any commonly
controlled depository institution in danger of default.
Federal Securities Law. The Stock Holding Company will be subject to the
information, proxy solicitation, insider trading restrictions and other
requirements under the Securities Exchange Act of 1934, as amended ("Exchange
Act").
Riegle-Neal Interstate Banking Act. The Riegle-Neal Interstate Banking and
Branching Efficiency Act ("Riegle-Neal Act") permits bank holding companies to
acquire banks in any state on or after September 29, 1995, unless the state
elected to opt out of the Act, and beginning July 1, 1997, holding companies
with banks in more than one state may convert all of their out-of-state banks
into interstate branches of one bank. Once a bank establishes a branch in
another state through an interstate acquisition or merger, such bank may
establish and acquire additional branches throughout the state. The Riegle-
Neal Act permits an interstate acquisition of only a branch (without acquisition
of an entire bank) only if the laws of the state in which the branch is located
permits out-of-state banks to acquire a branch of a bank in such state without
acquiring the Bank. Additionally, under the Riegle-Neal Act an
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institution may establish a de novo branch if the laws of the state in which the
branch is located permit out-of-state banks to do so.
Description of Capital Stock of the Stock Holding Company
General. The Stock Holding Company is authorized to issued 6 million
shares of common stock having a par value of $.10 per share. In the
Reorganization the Stock Holding Company will issue a number of shares of
Holding Company Common Stock equal to the number of shares of Common Stock
outstanding immediately prior to the Reorganization (assuming no dissenting
shareholders). Each share of the Holding Company Common Stock will have the
same relative rights as, and will be identical in all respects with, each other
share of Holding Company Common Stock. The Stock Holding Company's Certificate
of Incorporation does not authorize the issuance of preferred stock.
The Holding Company Common Stock will represent nonwithdrawable capital,
will not be an account of an insurable type, and will not be insured by the FDIC
or any government agency.
Common Stock
Dividends. The Stock Holding Company can pay dividends out of statutory
surplus or form certain net profits if, as, and when declared by its Board of
Directors. The payment of dividends by the Stock Holding Company is subject to
limitations which are imposed by law and applicable regulation. The holders of
Holding Company Common Stock will be entitled to receive and share equally in
such dividends as may be declared by the Board of Directors of the Stock Holding
Company out of funds legally available therefor. If the Stock Holding Company
issues preferred stock, the holders thereof any have a priority over the holders
of the Holding Company Common Stock with respect to dividends.
Voting Rights. The holders of Holding Company Common Stock will possess
exclusive voting rights in the Stock Holding Company. Each share of Holding
Company Common Stock shall be entitled to one vote on matters to be considered
and voted on by stockholders. Shareholders will not be entitled to cumulate
their votes for the election of directors. They will elect the Stock Holding
Company's Board of Directors and act on such other matter as are required to be
presented to them under Delaware law or as are otherwise presented to them by
the Board of Directors. Certain matters require an 80% shareholder vote.
Liquidation. In the event of any liquidation, dissolution or winding up of
the Bank, the Stock Holding Company, as holder of the Bank's capital stock,
would be entitled to receive, after payment or provision for payment of all
debts and liabilities of the Bank (including all deposit accounts and accrued
interest thereon and the payment of the liquidation account established at the
time of the Bank's mutual holding company reorganization (the "Liquidation
Account") and Minority Stock issuance to persons having deposits with the Bank
as of September 30, 1994), all assets of the Bank available for distribution.
In the event of liquidation, dissolution or winding up of the Stock Holding
Company, the holders of its Holding Company Common Stock would be entitled to
receive, after payment or provision for payment of all its debts and
liabilities, all of the assets of the Stock Holding Company available for
distribution. If preferred stock is issued, the holders thereof may have a
priority over the holders of the Holding Company Common Stock in the event of
liquidation of dissolution. The establishment of the Stock Holding Company and
reorganization into the two-tier form of ownership will not affect the rights of
depositors with rights in the Liquidation Account.
Preemptive Rights. Holders of the Holding Company Common Stock will not be
entitled to preemptive rights with respect to any shares which may be issued.
The Holding Common Stock is not subject to redemption.
Accounting Treatment
The transactions comprising the Reorganization are deemed a reorganization
under common control treated similar to a pooling of interests for accounting
purposes. Therefore, the consolidated capitalization, assets, liabilities,
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income and financial statements of the Stock Holding Company immediately
following the Reorganization will be substantially the same as those of the Bank
immediately prior to consummation of the Reorganization, all of which will be
recorded by the Stock Holding Company at their historical values. The Bank's
Annual Report on Form F-2 for the year ended December 31, 1996 which includes
the financial statements of the Bank is incorporated by reference into the Proxy
Statement/Prospectus. Financial Statements of the Stock Holding Company are not
included because the Stock Holding Company was only recently incorporated and
has no prior operating history. Since the Reorganization will not result in a
change in such financial statements, this document does not include financial
statements of the Bank or the Stock Holding Company.
Vote Required
Approval of the Plan of Reorganization requires the affirmative vote of
two-thirds of the total votes eligible to be cast at the Special Meeting.
Failure to vote or a vote to abstain is equivalent to voting against the Plan of
Reorganization. The Board of Directors recommends a vote "FOR" the approval of
the Plan of Reorganization.
This description of the material terms proposed Stock Holding Company for
the Bank does not purport to be complete, but is qualified in its entirety by
the Plan of Reorganization and Certificate of Incorporation and Bylaws of the
Stock Holding Company attached as Appendices C, E and F to this Prospectus/Proxy
Statement.
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SHAREHOLDER PROPOSALS
- --------------------------------------------------------------------------------
In the event the Reorganization is not completed, in order to be eligible
for inclusion in the Bank's proxy materials for next year's Annual Meeting of
Shareholders, any shareholder proposal to take action at such meeting must be
received at the Bank's executive office, 214 West First Street, Oswego, New York
13126, no later than December 20, 1997. In the event the Reorganization is
completed, proposals submitted by December 20, 1997 shall be eligible for
inclusion in the Company's proxy materials. Any such proposals shall be subject
to the requirements of the proxy rules adopted under the Securities Exchange Act
of 1934.
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EXPERTS
- --------------------------------------------------------------------------------
The financial statements of the Bank, included in the Annual Report on Form
F-2 of the Bank for the year ended December 31, 1996, which have been filed by
the Stock Holding Company as an exhibit to the registration statement of which
this Prospectus/Proxy Statement is a part, have been audited by Coopers &
Lybrand LLP, independent accountants, as set forth in their report dated
February 17, 1997, accompanying such financial statements, and are incorporated
herein by reference in reliance upon the report of such firm, which report is
given upon their authority as experts in accounting and auditing.
Any financial statements and schedules hereafter incorporated by reference in
the registration statement that have been audited and are the subject of a
report by independent accountants will be so incorporated by reference in
reliance upon such reports and upon the authority of such firms as experts in
accounting and auditing to the extent covered by consents filed with the SEC.
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ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
The Stock Holding Company has filed with the SEC a registration statement
under the Securities Act with respect to the Common Stock offered hereby. As
permitted by the rules and regulations of the SEC, the Prospectus does not
contain all the information set forth in the registration statement. Such
information can be examined without charge at the public reference facilities of
the SEC located at 450 Fifth Street, N.W., Washington, D.C. 20549, and copies of
such material can be obtained from the SEC at prescribed rates. In addition, the
SEC maintains a web site (http://www.sec.gov) that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the SEC, including the Stock Holding Company. This
Prospectus contains a description of the material terms and features of all
material contracts, reports or exhibits to the Registration Statement
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required to be described. The statements contained in this Prospectus as to the
contents of any contract or other document filed as an exhibit to the
registration statement are, of necessity, brief descriptions thereof and are not
necessarily complete; each such statement is qualified by reference to such
contract or document.
In connection with the Plan of Reorganization, the Stock Holding Company
will register its Common Stock with the SEC under the Exchange Act and, upon
such registration, the Stock Holding Company and the holders of its stock will
become subject to the proxy solicitation rules, reporting requirements and
restrictions on stock purchases and sales by directors, officers and greater
than 10% shareholders, the annual and periodic reporting and certain other
requirements of the Exchange Act.
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OTHER MATTERS
- --------------------------------------------------------------------------------
The Board of Directors is not aware of any business to come before the
Special Meeting other than the matters described above in the Prospectus/Proxy
Statement. However, if any matters should properly come before the Special
Meeting, it is intended that holders of the proxies will act as directed by a
majority of the Board of Directors, except for matters related to the conduct of
the Special Meeting, as to which they shall act in accordance with their best
judgment.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
- --------------------------------------------------------------------------------
The following documents filed with the FDIC by the Bank pursuant to the
Exchange Act and filed by the Stock Holding Company as exhibits to the
Registration Statement, are incorporated by reference in their entirety in this
Prospectus/Proxy Statement:
1. The Bank's Annual Report on Form F-2 for the year ended
December 31,1996;
2. The Bank's Quarterly Reports on Form F-4 for each of the quarterly
periods ended March 31, 1997 and June 30, 1997; and
3. The Bank's Current Report on Form 8-K filed with the FDIC on
September 11, 1997.
All documents and reports filed with the FDIC by the Bank pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Prospectus/Proxy Statement and prior to the completion of the Reorganization
will also be filed with the SEC by the Stock Holding Company and shall be deemed
to be incorporated by reference in this Prospectus/Proxy Statement and to be
part hereof from the date of filing of such documents or reports. Any statement
contained in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus/Proxy Statement to the extent that a statement contained herein or in
any other subsequently filed document that also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus/Proxy Statement.
This Prospectus/Proxy Statement incorporates documents by reference that
are not presented herein or delivered herewith. These documents (other than
exhibits to such documents unless such exhibits are specifically incorporated by
reference) are available upon request to each person to whom a copy of this
Prospectus/Proxy Statement is delivered, without charge, upon written or
telephone request to Melissa A. Dashnau, Secretary, Oswego City Savings Bank,
214 West First Street, Oswego, New York 13126, or call at (315) 343-0057.
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MISCELLANEOUS/FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The costs of solicitation of proxies will be borne by the Bank. The Bank
will reimburse brokerage firms and other custodians, nominees and fiduciaries
for reasonable expenses incurred by them in sending proxy materials to the
beneficial owners of Common Stock. In addition to solicitations by mail,
directors, officers and regular employees of the Bank may solicit proxies
personally or by telegraph or telephone without additional compensation.
<PAGE>
AN ANNUAL STATEMENT CONTAINING FINANCIAL STATEMENTS FOR THE FISCAL YEAR
ENDED DECEMBER 31, 1996 WAS PREVIOUSLY FURNISHED TO SHAREHOLDERS. A COPY OF THE
BANK'S ANNUAL REPORT ON FORM F-2 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996,
WHICH ALSO CONSTITUTES THE BANK'S ANNUAL DISCLOSURE STATEMENT, AS WELL AS THE
BANK'S QUARTERLY REPORT ON FORM F-4 FOR THE QUARTER ENDED JUNE 30, 1997, WILL BE
FURNISHED WITHOUT CHARGE TO SHAREHOLDERS AS OF THE RECORD DATE UPON WRITTEN OR
TELEPHONIC REQUEST TO MELISSA DASHNAU, SECRETARY, OSWEGO CITY SAVINGS BANK, 214
WEST FIRST STREET, OSWEGO, NEW YORK 13126,OR CALL AT 315/343-0057.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Melissa A. Dashnau
Melissa A. Dashnau
Secretary
Oswego, New York
November 12, 1997
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APPENDIX A
OSWEGO CITY SAVINGS BANK
1997 STOCK OPTION PLAN
1. Purpose
The purpose of the Oswego City Savings Bank ("Bank") 1997 Stock Option Plan
(the "Plan") is to advance the interests of the Bank and its stockholders by
providing Key Employees and Outside Directors of the Bank and its Affiliates,
including Pathfinder Bancorp, M.H.C. ("Company"), upon whose judgment,
initiative and efforts the successful conduct of the business of the Bank and
its Affiliates largely depends, with an additional incentive to perform in a
superior manner as well as to attract people of experience and ability. In the
event the Company shall be reorganized into a Stock Holding Company, such Stock
Holding Company shall inure to the rights and obligations of the Bank as
provided in this Plan and all awards set forth hereunder shall be converted into
awards of stock of the resultant institution.
2. Definitions
"Affiliate" means any "parent corporation" or "subsidiary corporation" of
the Bank or the Company, as such terms are defined in Section 424(e) or 424(f),
respectively, of the Code, or a successor to a parent corporation or subsidiary
corporation.
"Award" means an Award of Non-Statutory Stock Options, Incentive Stock
Options, Limited Rights, and/or Dividend Equivalent Rights granted under the
provisions of the Plan.
"Bank" means Oswego City Savings Bank, or a successor corporation.
"Beneficiary" means the person or persons designated by a Participant to
receive any benefits payable under the Plan in the event of such Participant's
death. Such person or persons shall be designated in writing on forms provided
for this purpose by the Committee and may be changed from time to time by
similar written notice to the Committee. In the absence of a written
designation, the Beneficiary shall be the Participant's surviving spouse, if
any, or if none, his estate.
"Board" or "Board of Directors" means the board of directors of the Bank or
its Affiliate, as applicable.
"Cause" means personal dishonesty, willful misconduct, any breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, or the willful violation of any law, rule or regulation (other than
traffic violations or similar offenses) or a final cease-and-desist order, any
of which results in a material loss to the Company or an Affiliate.
"Change in Control" of the Bank or the Company shall mean:
(1) a reorganization, merger, merger conversion, consolidation or sale of
all or substantially all of the assets of the Bank, the Company or the Stock
Holding Company, or a similar transaction in which the Bank, the Company or the
Stock Holding Company is not the resulting entity and that is not approved by a
majority of the Board of Directors of the Bank, the Company or the Stock Holding
Company;
(2) individuals who constitute the Incumbent Board of the Bank, the
Company, or the Stock Holding Company cease for any reason to constitute a
majority thereof; provided that any person becoming a director subsequent to the
date hereof whose election was approved by a vote of at least three-fourths of
the directors composing the Incumbent Board or whose nomination for election by
the Bank's or Company's stockholders or members was approved by the same
nominating committee serving under the Incumbent Board shall be, for purposes of
this Section, considered as though he were a member of the Incumbent Board; or
(3) an acquisition of "control" of the Bank or the Company as defined in
the Bank Holding Company Act of 1956, as amended and applicable rules and
regulations promulgated thereunder as in effect at the time of the Change in
Control (collectively, the "BHCA"), as determined by the Board of Directors of
the Bank or the Company; or
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(4) an acquisition of the Bank's stock requiring submission of notice
under the change in Bank Control Act; provided, however, that a Change in
Control shall not be deemed to have occurred under (1), (3) or (4) of this
section if the transaction(s) constituting a Change in Control is approved by a
majority of the Board of Directors of the Bank or the Company, as the case may
be.
(5) In the event that the Company converts to the Stock Holding Company
on a stand-alone basis, a "Change in Control" of the Bank or the Stock Holding
Company (a) shall mean an event of a nature that would be required to be
reported in response to Item 1 of the current report on Form 8-K, as in effect
on the date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (the "Exchange Act"), or results in a Change in Control of the Bank
or the Stock Holding Company within the meaning of the BHCA; or (b) without
limitation shall be deemed to have occurred at such time as (i) any "person" (as
the term is used in Section 13(d) and 14(d) of the Exchange Act) other than the
Stock Holding Company is or becomes a "beneficial owner" (as defined in Rule 13-
d under the Exchange Act) directly or indirectly, of securities of the Bank
representing 25% or more of the Bank's outstanding securities ordinarily having
the right to vote at the election of directors except for any securities of the
Bank received by the Stock Holding Company in connection with the Reorganization
and any securities purchased by the Bank's employee stock ownership plan and
trust shall not be counted in determining whether such plan is the beneficial
owner of more than 25% of the Bank's securities, (ii) a proxy statement
soliciting proxies from stockholders of the Bank, by someone other than the
current management of the Bank, seeking stockholder approval of a plan of
reorganization, merger or consolidation of the Stock Holding Company of the Bank
or similar transaction with one or more corporations as a result of which the
outstanding shares of the class of securities then subject to the plan or
transaction are exchanged or converted into cash or property or securities not
issued by the Bank or the Stock Holding Company, or (iii) a tender offer is made
for 25% or more of the voting securities of the Bank and the shareholders owning
beneficially or of record 25% or more of the outstanding securities of the Bank
have tendered or offered to sell their shares pursuant to such tender offer and
such tendered shares have been accepted by the tender offeror.
Notwithstanding, the foregoing, a "Change in Control" of the Bank or the
Company shall not be deemed to have occurred if the Company ceases to own at
least 51% of all outstanding shares of stock of the Bank in connection with a
conversion of the Company from mutual to stock form.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means a Committee appointed or approved by the Board which (i)
following abstention or recusal of all members who are not Non-Employee
Directors, is composed solely of two or more Non-Employee Directors, or (ii)
includes a subcommittee, composed solely of two or more Non-Employee Directors,
or (iii) consists of the entire Board of the Bank. None of the members of the
Committee shall be under consideration for a grant of options at the time the
Committee acts.
"Common Stock" means shares of the common stock of the Bank, par value
$1.00 per share.
"Company" means Pathfinder Bancorp, M.H.C., or a successor corporation.
"Continuous Service" means employment as a Key Employee and/or service as
an Outside Director without any interruption or termination of such employment
and/or service. Continuous Service shall also mean a continuation as a member of
the Board of Directors following a cessation of employment as a Key Employee. In
the case of a Key Employee, employment shall not be considered interrupted in
the case of sick leave, military leave or any other leave of absence approved by
the Bank or in the case of transfers between payroll locations of the Bank or
between the Bank, its parent, its subsidiaries or its successor.
"Date of Grant" means the actual date on which an Award is granted by the
Committee.
"Director" means a member of the Board.
"Disability" means the permanent and total inability by reason of mental or
physical infirmity, or both, of an employee to perform the work customarily
assigned to him, or of a Director to serve as such. Additionally, in the case of
an employee, a medical doctor selected or approved by the Board must advise the
Committee that it is either not possible to determine when such Disability will
terminate or that it appears probable that such Disability will be permanent
during the remainder of said employee's lifetime.
"Dividend Equivalent Rights" means the right to receive an amount of cash
based upon the terms set forth in Section 10 hereof.
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"Effective Date" means the date of, or a date determined by, the Board
following approval of the Plan by the Bank's stockholders.
"Fair Market Value" means, when used in connection with the Common Stock on
a certain date, the reported closing price of the Common Stock as reported by
the Nasdaq stock market (as published by the Wall Street Journal, if published)
on such date, or if the Common Stock was not traded on the day prior to such
date, on the next preceding day on which the Common Stock was traded; provided,
however, that if the Common Stock is not reported on the Nasdaq stock market,
Fair Market Value shall mean the average sale price of all shares of Common
Stock sold during the 30-day period immediately preceding the date on which such
stock option was granted, and if no shares of stock have been sold within such
30-day period, the average sale price of the last three sales of Common Stock
sold during the 90-day period immediately preceding the date on which such stock
option was granted. In the event Fair Market Value cannot be determined in the
manner described above, then Fair Market Value shall be determined by the
Committee. The Committee is authorized, but is not required, to obtain an
independent appraisal to determine the Fair Market Value of the Common Stock.
"Incentive Stock Option" means an Option granted by the Committee to a
Participant, which Option is designated as an Incentive Stock Option pursuant to
Section 8.
"Key Employee" means any person who is currently employed by the Bank or an
Affiliate who is chosen by the Committee to participate in the Plan.
"Limited Right" means the right to receive an amount of cash based upon the
terms set forth in Section 9.
"Non-Statutory Stock Option" means an Option granted by the Committee to
(i) an Outside Director or (ii) to any other Participant and such Option is
either (A) not designated by the Committee as an Incentive Stock Option, or (B)
fails to satisfy the requirements of an Incentive Stock Option as set forth in
Section 422 of the Code and the regulations thereunder.
"Non-Employee Director" means, for purposes of the Plan, a Director who (a)
is not employed by the Bank or an Affiliate; (b) does not receive compensation
directly or indirectly as a consultant (or in any other capacity than as a
Director) greater than $60,000; (c) does not have an interest in a transaction
requiring disclosure under Item 404(a) of Regulation S-K; or (d) is not engaged
in a business relationship for which disclosure would be required pursuant to
Item 404(b) of Regulation S-K.
"Normal Retirement" means for a Key Employee, retirement at the normal or
early retirement date set forth in the Bank's Employee Stock Ownership Plan, or
any successor plan. Normal Retirement for an Outside Director means a cessation
of service on the Board of Directors for any reason other than removal for
Cause, after reaching 60 years of age and maintaining at least 10 years of
Continuous Service.
"Offering" means the November 15, 1995 subscription offering of the Common
Stock of the Bank.
"Outside Director" means a Director of the Bank or an Affiliate who is not
an employee of the Bank or an Affiliate.
"Option" means an Award granted under Section 7 or Section 8.
"Participant" means a Key Employee or Outside Director of the Bank or its
Affiliates who receives or has received an award under the Plan.
"Superintendent" means the New York Superintendent of Banks.
"Termination for Cause" means the termination of employment or termination
of service on the Board caused by the individual's personal dishonesty, willful
misconduct, any breach of fiduciary duty involving personal profit, intentional
failure to perform stated duties, or the willful violation of any law, rule or
regulation (other than traffic violations or similar offenses), or a final
cease-and-desist order, any of which results in material loss to the Company or
one of its Affiliates.
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3. Plan Administration Restrictions
The Plan shall be administered by the Committee. The Committee is
authorized, subject to the provisions of the Plan, to establish such rules and
regulations as it deems necessary for the proper administration of the Plan and
to make whatever determinations and interpretations in connection with the Plan
it deems necessary or advisable. All determinations and interpretations made by
the Committee shall be binding and conclusive on all Participants in the Plan
and on their legal representatives and beneficiaries.
All transactions involving a grant, award or other acquisition from the
Bank shall be approved by the Committee. With respect to awards to Directors,
options shall be granted by the Committee in accordance with the Plan.
4. Types of Awards
Awards under the Plan may be granted in any one or a combination of: (a)
Incentive Stock Options; (b) Non-Statutory Stock Options; (c) Limited Rights;
and (d) Dividend Equivalent Rights.
5. Stock Subject to the Plan
Subject to adjustment as provided in Section 14, the maximum number of
shares reserved for issuance under the Plan is 88,167 shares. To the extent that
Options or rights granted under the Plan are exercised, the shares covered will
be unavailable for future grants under the Plan; to the extent that Options
together with any related rights granted under the Plan terminate, expire or are
canceled without having been exercised or, in the case of Limited Rights
exercised for cash, new Awards may be made with respect to these shares.
6. Eligibility
Key Employees of the Bank and its Affiliates shall be eligible to receive
Incentive Stock Options, Non-Statutory Stock Options, Limited Rights and/or
Dividend Equivalent Rights under the Plan. Outside Directors shall be eligible
to receive Non-Statutory Stock Options and Dividend Equivalent Rights under the
Plan.
7. Non-Statutory Stock Options
7.1 Grant of Non-Statutory Stock Options
(a) Grants to Outside Directors. Each Outside Director, who is serving in
such capacity on the Effective Date of the Plan, shall be granted Options to
purchase shares of Common Stock of the Bank, subject to adjustment pursuant to
Section 16, as follows: Chris R. Burritt, 5,000 shares; Raymond W. Jung, 5,000
shares; Bruce E. Manwaring, 5,000 shares; L. William Nelson, Jr., 5,000 shares;
Victor S. Oakes, 5,000 shares; Lawrence W. O'Brien, 5,000 shares, Janette
Resnick, 5,000 shares, and Corte J. Spencer, 5,000 shares. Each person who
becomes an Outside Director subsequent to the Effective Date, shall be granted
Nonstatutory Stock Options to purchase 5,000 shares of the Common Stock, subject
to adjustment pursuant to Section 16, to the extent shares remain available
under the Plan. Nonstatutory Stock Options granted under the Plan are subject to
the terms and conditions set forth in this Section 7.
(b) Grants to Key Employees. The Committee may, from time to time, grant
Non-Statutory Stock Options to eligible Key Employees, and, upon such terms and
conditions as the Committee may determine, grant Non-Statutory Stock Options in
exchange for and upon surrender of previously granted Awards under the Plan.
Non-Statutory Stock Options granted under the Plan, including Non-Statutory
Stock Options granted in exchange for and upon surrender of previously granted
Awards, are subject to the terms and conditions set forth in this Section 7. The
maximum number of shares subject to a Non-Statutory Option that may be awarded
under the Plan to any Key Employee shall be 10,000.
(c) Option Agreement. Each Option shall be evidenced by a written option
agreement between the Company and the Participant specifying the number of
shares of Common Stock that may be acquired through its exercise and containing
the terms and conditions of the option which shall not be inconsistent with the
terms of the Plan.
(d) Price. The purchase price per share of Common Stock deliverable upon
the exercise of each Non-Statutory Stock Option shall be the Fair Market Value
of the Common Stock of the Bank on the date the Option
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is granted. Shares may be purchased only upon full payment of the purchase price
in one or more of the manners set forth in Section 12 hereof, as determined by
the Committee.
(e) Manner of Exercise and Vesting. A Non-Statutory Stock Option granted
under the Plan shall vest in a Participant at the rate or rates determined by
the Committee. A vested Option may be exercised from time to time, in whole or
in part, by delivering a written notice of exercise to the President or Chief
Executive Officer of the Bank, or his designee. Such notice shall be irrevocable
and must be accompanied by full payment of the purchase price in cash or shares
of Common Stock at the Fair Market Value of such shares, determined on the
exercise date in the manner described in Section 2 hereof. If previously
acquired shares of Common Stock are tendered in payment of all or part of the
exercise price, the value of such shares shall be determined as of the date of
such exercise.
(f) Terms of Options. The term during which each Non-Statutory Stock
Option may be exercised shall be determined by the Committee, but in no event
shall a Non-Statutory Stock Option be exercisable in whole or in part more than
10 years from the Date of Grant. No Options shall be earned by a Participant
unless the Participant maintains Continuous Service until the vesting date of
such Option, except as set forth herein. The shares comprising each installment
may be purchased in whole or in part at any time after such installment becomes
purchasable. The Committee may, in its sole discretion, accelerate the time at
which any Non-Statutory Stock Option may be exercised in whole or in part by Key
Employees and/or Outside Directors. Notwithstanding any other provision of this
Plan, in the event of a Change in Control of the Company or the Bank, all Non-
Statutory Stock Options that have been awarded shall become immediately
exercisable for three years following such Change in Control.
(g) Termination of Employment or Service. Upon the termination of a Key
Employee's employment or upon termination of an Outside Director's service for
any reason other than, Normal Retirement, death, Disability, Change in Control
or Termination for Cause, the Participant's Non-Statutory Stock Options shall be
exercisable only as to those shares that were immediately purchasable on the
date of termination and only for one year following termination. In the event of
Termination for Cause, all rights under a Participant's Non-Statutory Stock
Options shall expire upon termination. In the event of the Normal Retirement,
death or Disability of any Participant, all Non-Statutory Stock Options held by
the Participant, whether or not exercisable at such time, shall be exercisable
by the Participant or his legal representative or beneficiaries for five years
following the date of his Normal Retirement, death or cessation of employment
due to Disability, provided that in no event shall the period extend beyond the
expiration of the Non-Statutory Stock Option term.
(h) Transferability. No Non-Statutory Stock Option granted hereunder is
transferable except by will or the laws of descent and distribution and may only
be exercised during his or her lifetime by the Participant, or by a guardian or
legal representative of the Participant.
8. Incentive Stock Options
8.1 Grant of Incentive Stock Options
The Committee may, from time to time, grant Incentive Stock Options to Key
Employees. Each Key Employee who is also a Director, who is serving in such
capacity on the Effective Date of the Plan, shall be granted Options to purchase
shares of Common Stock of the Bank, subject to adjustment pursuant to Section
16, as follows: Chris C. Gagas, 24,000 shares. Incentive Stock Options granted
pursuant to the Plan shall be subject to the following terms and conditions:
(a) Option Agreement. Each Option shall be evidenced by a written option
agreement between the Company and the Key Employee specifying the number of
shares of Common Stock that may be acquired through its exercise and containing
the terms and conditions of the option which shall not be inconsistent with the
terms of the Plan.
(b) Price. Subject to Section 14 of the Plan and Section 422 of the Code,
the purchase price per share of Common Stock deliverable upon the exercise of
each Incentive Stock Option shall be not less than 100% of the Fair Market Value
of the Bank's Common Stock on the date the Incentive Stock Option is granted.
However, if a Key Employee owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Bank or its Affiliates (or
under Section 424(d) of the Code is deemed to own stock representing more than
10% of the total combined voting power of all classes of stock of the Company or
its Affiliates by reason of the ownership of such classes of stock, directly or
indirectly, by or for any brother, sister, spouse, ancestor or lineal descendent
of such Key Employee, or by or for any corporation, partnership, estate or trust
of which such Key Employee is a shareholder, partner or Beneficiary), the
purchase price per share of Common Stock deliverable upon the exercise
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of each Incentive Stock Option shall not be less than 110% of the Fair Market
Value of the Bank's Common Stock on the date the Incentive Stock Option is
granted. Shares may be purchased only upon payment of the full purchase price in
one or more of the manners set forth in Section 12 hereof, as determined by the
Committee.
(c) Manner of Exercise. Incentive Stock Options granted under the Plan
shall vest in a Participant at the rate or rates determined by the Committee.
The vested Options may be exercised from time to time, in whole or in part, by
delivering a written notice of exercise to the President or Chief Executive
Officer of the Company or his designee. Such notice is irrevocable and must be
accompanied by full payment of the purchase price in cash or shares of Common
Stock at the Fair Market Value of such shares determined on the exercise date by
the manner described in Section 2.
(d) Amounts of Options. Incentive Stock Options may be granted to any
eligible Key Employee in such amounts as determined by the Committee; provided
that the amount granted is consistent with the terms of Section 422 of the Code.
Notwithstanding the above, the maximum number of shares that may be subject to
an Incentive Stock Option awarded under the Plan to any Key Employee shall be
30,000. In granting Incentive Stock Options, the Committee shall consider such
factors as it deems relevant, which factors may include, among others, the
position and responsibilities of the Key Employee, the length and value of his
or her service to the Bank, the Company, or the Affiliate, the compensation paid
to the Key Employee and the Committee's evaluation of the performance of the
Bank, the Company, or the Affiliate, according to measurements that may include,
among others, key financial ratios, levels of classified assets, and independent
audit findings. In the case of an Option intended to qualify as an Incentive
Stock Option, the aggregate Fair Market Value (determined as of the time the
Option is granted) of the Common Stock with respect to which Incentive Stock
Options granted are exercisable for the first time by the Participant during any
calendar year (under all plans of the Company and its Affiliates) shall not
exceed $100,000. The provisions of this Section 8.1(d) shall be construed and
applied in accordance with Section 422(d) of the Code and the regulations, if
any, promulgated thereunder.
(e) Terms of Options. The term during which each Incentive Stock Option
may be exercised shall be determined by the Committee, but in no event shall an
Incentive Stock Option be exercisable in whole or in part more than 10 years
from the Date of Grant. If any Key Employee, at the time an Incentive Stock
Option is granted to him, owns stock representing more than 10% of the total
combined voting power of all classes of stock of the Bank or its Affiliate (or,
under Section 424(d) of the Code, is deemed to own stock representing more than
10% of the total combined voting power of all classes of stock, by reason of the
ownership of such classes of stock, directly or indirectly, by or for any
brother, sister, spouse, ancestor or lineal descendent of such Key Employee, or
by or for any corporation, partnership, estate or trust of which such Key
Employee is a shareholder, partner or Beneficiary), the Incentive Stock Option
granted to him shall not be exercisable after the expiration of five years from
the Date of Grant.
The Committee shall determine the date on which each Incentive Stock Option
shall become exercisable and may provide that an Incentive Stock Option shall
become exercisable in installments. The Committee may also determine as of the
Date of Grant any other specific conditions or specific performance goals which
must be satisfied prior to the Incentive Stock Option becoming exercisable. The
shares comprising each installment may be purchased in whole or in part at any
time after such installment becomes purchasable, provided that the amount able
to be first exercised in a given year is consistent with the terms of Section
422 of the Code. To the extent required by Section 422 of the Code, the
aggregate Fair Market Value (determined at the time the option is granted) of
the Common Stock for which Incentive Stock Options are exercisable for the first
time by a Participant during any calendar year (under all plans of the Bank and
its Affiliates) shall not exceed $100,000.
The Committee may, in its sole discretion, accelerate the time at which any
Incentive Stock Option may be exercised in whole or in part, provided that it is
consistent with the terms of Section 422 of the Code. Notwithstanding the above,
in the event of a Change in Control of the Bank, all Incentive Stock Options
that have been awarded shall become immediately exercisable, unless the Fair
Market Value of the amount exercisable as a result of a Change in Control shall
exceed $100,000 (determined as of the Date of Grant). In such event, the first
$100,000 of Incentive Stock Options (determined as of the Date of Grant) shall
be exercisable as Incentive Stock Options and any excess shall be exercisable as
Non-Statutory Stock Options.
(f) Termination of Employment. Upon the termination of a Key Employee's
service for any reason other than Disability, Normal Retirement, Change in
Control, death or Termination for Cause, the Key Employee's Incentive Stock
Options shall be exercisable only as to those shares that were immediately
purchasable by such Key Employee at the date of termination and only for a
period of three months following termination. In the event of Termination for
Cause all rights under the Incentive Stock Options shall expire upon
termination.
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Upon termination of a Key Employee's employment due to Normal Retirement,
death, Disability, or following a Change in Control, all Incentive Stock Options
held by such Key Employee, whether or not exercisable at such time, shall be
exercisable for a period of five years following the date of his cessation of
employment, provided however, that any such Option shall not be eligible for
treatment as an Incentive Stock Option in the event such Option is exercised
more than three months following the date of his Normal Retirement or
termination of employment following a Change in Control; and provided further,
that no Option shall be eligible for treatment as an Incentive Stock Option in
the event such Option is exercised more than one year following termination of
employment due to Disability and provided further, in order to obtain Incentive
Stock Option treatment for Options exercised by heirs or devisees of an
Optionee, the Optionee's death must have occurred while employed or within three
(3) months of termination of employment. In no event shall the exercise period
extend beyond the expiration of the Incentive Stock Option term.
(g) Transferability. No Incentive Stock Option granted under the Plan is
transferable except by will or the laws of descent and distribution and is
exercisable during his lifetime only by the Key Employee to which it is granted.
(h) Compliance with Code. The options granted under this Section 8 are
intended to qualify as Incentive Stock Options within the meaning of Section 422
of the Code, but the Company makes no warranty as to the qualification of any
Option as an Incentive Stock Option within the meaning of Section 422 of the
Code. If an Option granted hereunder fails for whatever reason to comply with
the provisions of Section 422 of the Code, and such failure is not or cannot be
cured, such Option shall be a Non-Statutory Stock Option.
9. Limited Rights
9.1 Grant of Limited Rights
The Committee may grant a Limited Right simultaneously with the grant of
any Option to any Key Employee of the Bank, with respect to all or some of the
shares covered by such Option. Limited Rights granted under the Plan are subject
to the following terms and conditions:
(a) Terms of Rights. In no event shall a Limited Right be exercisable in
whole or in part before the expiration of six months from the date of grant of
the Limited Right. A Limited Right may be exercised only in the event of a
Change in Control of the Bank or the Company.
The Limited Right may be exercised only when the underlying Option is
eligible to be exercised, provided that the Fair Market Value of the underlying
shares on the day of exercise is greater than the exercise price of the related
Option.
Upon exercise of a Limited Right, the related Option shall cease to be
exercisable. Upon exercise or termination of an Option, any related Limited
Rights shall terminate. The Limited Rights may be for no more than 100% of the
difference between the exercise price and the Fair Market Value of the Common
Stock subject to the underlying Option. The Limited Right is transferable only
when the underlying Option is transferable and under the same conditions.
(b) Payment. Upon exercise of a Limited Right, the holder shall promptly
receive from the Bank an amount of cash equal to the difference between the Fair
Market Value on the Date of Grant of the related Option and the Fair Market
Value of the underlying shares on the date the Limited Right is exercised,
multiplied by the number of shares with respect to which such Limited Right is
being exercised. In the event of a Change in Control in which pooling accounting
treatment is a condition to the transaction, the Limited Right shall be
exercisable solely for shares of stock of the Bank, or in the event of a merger
transaction, for shares of the acquiring corporation or its parent, as
applicable. The number of shares to be received on the exercise of such Limited
Right shall be determined by dividing the amount of cash that would have been
available under the first sentence above by the Fair Market Value at the time of
exercise of the shares underlying the Option subject to the Limited Right.
10. Dividend Equivalent Rights
Simultaneously with the grant of any Option to a Participant, the Committee
may grant a Dividend Equivalent Right with respect to all or some of the shares
covered by such Option. Dividend Equivalent Rights granted under this Plan are
subject to the following terms and conditions:
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(a) Terms of Rights. The Dividend Equivalent Right provides the
Participant with a cash benefit per share for each share underlying the
unexercised portion of the related Option equal to the amount of any
extraordinary dividend (as defined in Section 10(c)) per share of Common Stock
declared by the Bank. The terms and conditions of any Dividend Equivalent Right
shall be evidenced in the Option agreement entered into with the Participant and
shall be subject to the terms and conditions of the Plan. The Dividend
Equivalent Right is transferable only when the related Option is transferable
and under the same conditions.
(b) Payment. Upon the payment of an extraordinary dividend, the
Participant holding a Dividend Equivalent Right with respect to Options or
portions thereof which have vested shall promptly receive from the Bank the
amount of cash equal to the amount of the extraordinary dividend per share of
Common Stock, multiplied by the number of shares of Common Stock underlying the
unexercised portion of the related Option. With respect to options or portions
thereof which have not vested, the amount that would have been received pursuant
to the Dividend Equivalent Right with respect to the shares underlying such
unvested Option or portion thereof shall be paid to the Participant holding such
Dividend Equivalent Right together with earnings thereon, on such date as the
Option or portion thereof becomes vested. Payments shall be decreased by the
amount of any applicable tax withholding prior to distribution to the
Participant as set forth in Section 18.
(c) Extraordinary Dividend. For purposes of this Section 10, an
extraordinary dividend is any dividend paid on shares of Common Stock where the
rate of the dividend exceeds the Bank's weighted average cost of funds on
interest-bearing liabilities for the current and preceding three quarters.
11. Surrender of Option
In the event of a Participant's termination of employment or termination of
service as a result of death, Disability or Normal Retirement, the Participant
(or his or her personal representative(s), heir(s), or devisee(s)) may, in a
form acceptable to the Committee make application to surrender all or part of
the Options held by such Participant in exchange for a cash payment from the
Bank of an amount equal to the difference between the Fair Market Value of the
Common Stock on the date of termination of employment or the date of termination
of service on the Board and the exercise price per share of the Option. Whether
the Bank accepts such application or determines to make payment, in whole or
part, is within its absolute and sole discretion, it being expressly understood
that the Bank is under no obligation to any Participant whatsoever to make such
payments. In the event that the Bank accepts such application and determines to
make payment, such payment shall be in lieu of the exercise of the underlying
Option and such Option shall cease to be exercisable.
12. Alternate Option Payment Mechanism
The Committee has sole discretion to determine what form of payment it will
accept for the exercise of an Option. The Committee may indicate acceptable
forms in the agreement with the Participant covering such Options or may reserve
its decision to the time of exercise. No Option is to be considered exercised
until payment in full is accepted by the Committee or its agent.
(a) Cash Payment. The exercise price may be paid in cash or by certified
check. To the extent permitted by law, the Committee may permit all or a portion
of the exercise price of an Option to be paid through borrowed funds.
(b) Cashless Exercise. Subject to vesting requirements, if applicable, a
Participant may engage in a "cashless exercise" of the Option. Upon a cashless
exercise, the Participant shall give the Bank written notice of the exercise of
the Option together with an order to a registered broker-dealer or equivalent
third party, to sell part or all of the Common Stock subject to the Option and
to deliver enough of the proceeds to the Bank to pay the Option exercise price
and any applicable withholding taxes. If the Participant does not sell the
Common Stock subject to the Option through a registered broker-dealer or
equivalent third party, the Optionee can give the Bank written notice of the
exercise of the Option and the third party purchaser of the Common Stock subject
to the Option shall pay the Option exercise price plus applicable withholding
taxes to the Bank.
(c) Exchange of Common Stock. The Committee may permit payment of the
Option exercise price by the tendering of previously acquired shares of Common
Stock. All shares of Common Stock tendered in payment of the exercise price of
an Option shall be valued at the Fair Market Value of the Common Stock on the
date prior to the date of exercise.
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13. Rights of a Stockholder
A Participant shall have no rights as a stockholder with respect to
any shares covered by a Non-Statutory and/or Incentive Stock Option until the
date of issuance of a stock certificate for such shares. Nothing in the Plan or
in any Award granted confers on any person any right to continue in the employ
of the Bank or its Affiliates or to continue to perform services for the Bank or
its Affiliates or interferes in any way with the right of the Bank or its
Affiliates to terminate his services as an officer, director or employee at any
time.
14. Agreement with Participants
Each Award of Options, and/or Limited Rights will be evidenced by a
written agreement, executed by the Participant and the Bank or its Affiliates
that describes the conditions for receiving the Awards including the date of
Award, the purchase price, applicable periods, and any other terms and
conditions as may be required by the Board or applicable securities law.
15. Designation of Beneficiary
A Participant may, with the consent of the Committee, designate a
person or persons to receive, in the event of death, any stock option or Limited
Rights Award to which he would then be entitled. Such designation will be made
upon forms supplied by and delivered to the Bank and may be revoked in writing.
If a Participant fails effectively to designate a Beneficiary, then his estate
will be deemed to be the Beneficiary.
16. Dilution and Other Adjustments
In the event of any change in the outstanding shares of Common Stock
of the Bank by reason of any stock dividend or split, pro rata return of capital
to all shareholders, recapitalization, merger, consolidation, spin-off,
reorganization, combination or exchange of shares, or other similar corporate
change, or other increase or decrease in such shares without receipt or payment
of consideration by the Bank, the Board of Directors, subject to the
Superintendent's approval, will make such adjustments to previously granted
Awards, to prevent dilution or enlargement of the rights of the Participant,
including any or all of the following:
(a) adjustments in the aggregate number of shares of Common Stock
that may be awarded under the Plan;
(b) adjustments in the aggregate number of shares of Common Stock
that may be awarded to any single individual under the Plan;
(c) adjustments in the aggregate number of shares of Common Stock
covered by Awards already made under the Plan; or
(d) adjustments in the purchase price of outstanding Incentive and/or
Non-Statutory Stock Options, or any Limited Rights attached to
such Options.
No such adjustments may, however, materially change the value of
benefits available to a Participant under a previously granted Award. With
respect to Incentive Stock Options, no such adjustment shall be made if it would
be deemed a "modification" of the Award under Section 424 of the Code.
17. Effect of a Change in Control on Option Awards
In the event of a Change in Control, the Committee and the Board of
Directors will take one or more of the following actions to be effective as of
the date of such Change in Control:
(a) provide that such Options shall be assumed, or equivalent options
shall be substituted, ("Substitute Options") by the acquiring or succeeding
corporation (or an affiliate thereof), provided that: (A) any such Substitute
Options exchanged for Incentive Stock Options shall meet the requirements of
Section 424(a) of the Code, and (B) the shares of stock issuable upon the
exercise of such Substitute Options shall constitute securities registered in
accordance with the Securities Act of 1933, as amended ("1933 Act") or such
securities shall be exempt from such registration in accordance with Sections
3(a)(2) or 3(a)(5) of the 1933 Act, (collectively, "Registered Securities"), or
in the alternative, if the securities issuable upon the exercise of such
Substitute Options shall not constitute Registered Securities, then the
Participant will receive upon consummation of the Change in Control a cash
payment
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for each Option surrendered equal to the difference between the (1) Fair Market
Value of the consideration to be received for each share of Common Stock in the
Change in Control times the number of shares of Common Stock subject to such
surrendered Options, and (2) the aggregate exercise price of all such
surrendered Options, or
(b) in the event of a transaction under the terms of which the
holders of Common Stock of the Bank will receive upon consummation thereof a
cash payment (the "Merger Price") for each share of Common Stock exchanged in
the Change in Control transaction, to make or to provide for a cash payment to
the Participants equal to the difference between (A) the Merger Price times the
number of shares of Common Stock subject to such Options held by each Optionee
(to the extent then exercisable at prices not in excess of the Merger Price) and
(B) the aggregate exercise price of all such surrendered Options in exchange for
such surrendered Options.
18. Withholding
There may be deducted from each distribution of cash and/or Common
Stock under the Plan the amount of tax required by any governmental authority to
be withheld.
19. Amendment of the Plan
The Board may at any time, and from time to time, modify or amend the
Plan in any respect, or modify or amend an Award received by Key Employees
and/or Outside Directors subject only to the Superintendent's approval;
provided, however, that the approval of the holders of a majority of the Bank's
outstanding capital stock shall be required for any amendment (other than an
adjustment made pursuant to Section 16 of this Plan) which would:
(i) increase the number of shares as to which options may be
granted;
(ii) change the number of shares which may be optioned to any single
individual;
(iii) decrease an Option price;
(iv) extend the term of the Plan or of an Option; or
(v) change the persons or category of persons eligible to be granted
Options.
No such termination, modification or amendment may affect the rights of a
Participant, without his consent, under an outstanding Award.
20. Effective Date of Plan
The Plan shall become effective upon the date of, or a date determined
by the Board of Directors following, approval of the Plan by the Bank's
stockholders.
21. Termination of the Plan
The right to grant Awards under the Plan will terminate upon the
earlier of (i) 10 years after the Effective Date, or (ii) the date on which the
exercise of Options or related rights equaling the maximum number of shares
reserved under the Plan occurs, as set forth in Section 5. The Board may suspend
or terminate the Plan at any time, provided that no such action will, without
the consent of a Participant, adversely affect his rights under a previously
granted Award.
22. Applicable Law
The Plan will be administered in accordance with the laws of the State
of New York. The Plan is subject to the provisions of New York Banking Law,
Section 140-a, the regulations of the New York Banking Board and any other
applicable law or regulation.
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IN WITNESS WHEREOF, the Bank has caused the Plan to be executed by its
duly authorized officers and the corporate seal to be affixed and duly attested,
as of the ____ day of ________, 1997.
Date Approved by Stockholders: _____________
Effective Date: _____________
ATTEST: OSWEGO CITY SAVINGS BANK
- --------------------- ---------------------------
Secretary Chief Executive Officer
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APPENDIX B
OSWEGO CITY SAVINGS BANK
1997 RECOGNITION AND RETENTION PLAN
1. Establishment of the Plan
Oswego City Savings Bank (the "Bank") hereby establishes the Bank
Recognition and Retention Plan (the "Plan") upon the terms and conditions
hereinafter stated in the Plan.
2. Purpose of the Plan
The purpose of the Plan is to advance the interests of the Bank and
its stockholders by providing Key Employees and Outside Directors of the Bank
and its Affiliates, including Pathfinder Bancorp, M.H.C. (the "Company"), upon
whose judgment, initiative and efforts the successful conduct of the business of
the Bank and its Affiliates largely depends, with compensation for their
contributions to the Bank and its Affiliates and an additional incentive to
perform in a superior manner, as well as to attract people of experience and
ability. In the event the Company shall be reorganized into a Stock Holding
Company, such Stock Holding Company shall inure to the rights and obligations of
the Bank as provided in this Plan and all awards set forth hereunder shall be
converted into awards of stock of the resultant institution.
3. Definitions
The following words and phrases when used in this Plan with an initial
capital letter, unless the context clearly indicates otherwise, shall have the
meanings set forth below. Wherever appropriate, the masculine pronoun shall
include the feminine pronoun and the singular shall include the plural:
"Affiliate"" means any "parent corporation" or "subsidiary
corporation" of the Bank or the Company, as such terms are defined in Section
424(e) and (f), respectively, of the Code, or a successor to a parent
corporation or subsidiary corporation.
"Award" means the grant by the Committee of Restricted Stock, as
provided in the Plan.
"Bank" means Oswego City Savings Bank, or a successor corporation.
"Beneficiary" means the person or persons designated by a Recipient to
receive any benefits payable under the Plan in the event of such Recipient's
death. Such person or persons shall be designated in writing on forms provided
for this purpose by the Committee and may be changed from time to time by
similar written notice to the Committee. In the absence of a written
designation, the Beneficiary shall be the Recipient's surviving spouse, if any,
or if none, his estate.
"Board" or "Board of Directors" means the Board of Directors of the
Bank or an Affiliate, as applicable. For purposes of Section 4 of the Plan,
"Board" shall refer solely to the Board of the Bank.
"Cause" means personal dishonesty, willful misconduct, any breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, or the willful violation of any law, rule or regulation (other than
traffic violations or similar offenses) or a final cease-and-desist order, any
of which results in a material loss to the Company or an Affiliate.
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(1) a reorganization, merger, merger conversion, consolidation or sale
of all or substantially all of the assets of the Bank, the Company or the Stock
Holding Company, or a similar transaction in which the Bank, the Company or the
Stock Holding Company is not the resulting entity and that is not approved by a
majority of the Board of Directors of the Bank, the Company or the Stock Holding
Company;
(2) individuals who constitute the Incumbent Board of the Bank, the
Company, or the Stock Holding Company cease for any reason to constitute a
majority thereof; provided that any person becoming a director subsequent to the
date hereof whose election was approved by a vote of at least three-fourths of
the directors composing the Incumbent Board or whose nomination for election by
the Bank's or Company's stockholders or members was approved by the same
nominating committee serving under the Incumbent Board shall be, for purposes of
this Section, considered as though he were a member of the Incumbent Board; or
(3) an acquisition of "control" of the Bank or the Company as defined
in the Bank Holding Company Act of 1956, as amended and applicable rules and
regulations promulgated thereunder as in effect at the time of the Change in
Control (collectively, the "BHCA"), as determined by the Board of Directors of
the Bank or the Company; or
(4) an acquisition of the Bank's stock requiring submission of notice
under the change in Bank Control Act; provided, however, that a Change in
Control shall not be deemed to have occurred under (1), (3) or (4) of this
section if the transaction(s) constituting a Change in Control is approved by a
majority of the Board of Directors of the Bank or the Company, as the case may
be.
(5) In the event that the Company converts to the Stock Holding
Company on a stand-alone basis, a "Change in Control" of the Bank or the Stock
Holding Company (a) shall mean an event of a nature that would be required to be
reported in response to Item 1 of the current report on Form 8-K, as in effect
on the date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (the "Exchange Act"), or results in a Change in Control of the Bank
or the Stock Holding Company within the meaning of the BHCA; or (b) without
limitation shall be deemed to have occurred at such time as (i) any "person" (as
the term is used in Section 13(d) and 14(d) of the Exchange Act) other than the
Stock Holding Company is or becomes a "beneficial owner" (as defined in Rule 13-
d under the Exchange Act) directly or indirectly, of securities of the Bank
representing 25% or more of the Bank's outstanding securities ordinarily having
the right to vote at the election of directors except for any securities of the
Bank received by the Stock Holding Company in connection with the Reorganization
and any securities purchased by the Bank's employee stock ownership plan and
trust shall not be counted in determining whether such plan is the beneficial
owner of more than 25% of the Bank's securities, (ii) a proxy statement
soliciting proxies from stockholders of the Bank, by someone other than the
current management of the Bank, seeking stockholder approval of a plan of
reorganization, merger or consolidation of the Stock Holding Company of the Bank
or similar transaction with one or more corporations as a result of which the
outstanding shares of the class of securities then subject to the plan or
transaction are exchanged or converted into cash or property or securities not
issued by the Bank or the Stock Holding Company, or (iii) a tender offer is made
for 25% or more of the voting securities of the Bank and the shareholders owning
beneficially or of record 25% or more of the outstanding securities of the Bank
have tendered or offered to sell their shares pursuant to such tender offer and
such tendered shares have been accepted by the tender offeror.
Notwithstanding, the foregoing, a "Change in Control" of the Bank or
the Company shall not be deemed to have occurred if the Company ceases to own at
least 51% of all outstanding shares of stock of the Bank in connection with a
conversion of the Company from mutual to stock form.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means a Committee of the Board which (i) following
abstention or recusal of all members who are not Non-Employee Directors of the
Bank, is composed solely of two or more Non-Employee Directors, or
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(ii) includes a subcommittee, composed solely of two or more Non-Employee
Directors, or (iii) consists of the entire Board of the Bank.
"Common Stock" means shares of the common stock of the Bank, par
value $1.00 per share.
"Company" means Pathfinder Bancorp, M.H.C., the stock holding
company of the Bank, or a successor corporation.
"Continuous Service" means employment as a Key Employee and/or service
as an Outside Director without any interruption or termination of such
employment and/or service. Continuous Service shall also mean a continuation as
a member of the Board of Directors following a cessation of employment as a Key
Employee. In the case of a Key Employee, employment shall not be considered
interrupted in the case of sick leave, military leave or any other leave of
absence approved by the Bank or in the case of transfers between payroll
locations of the Bank or between the Bank, its parent, its subsidiaries or its
successor.
"Director" means a member of the Board.
"Disability" means the permanent and total inability by reason of
mental or physical infirmity, or both, of an employee to perform the work
customarily assigned to him, or of a Director to serve as such. Additionally,
in the case of an employee, a medical doctor selected or approved by the Board
must advise the Committee that it is either not possible to determine when such
Disability will terminate or that it appears probable that such Disability will
be permanent during the remainder of such employee's lifetime.
"Effective Date" means the date of, or a date determined by, the Board
of Directors following approval of the Plan by the Bank's stockholders.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"Key Employee" means any person who is currently employed by the Bank
or an Affiliate who is chosen by the Committee to participate in the Plan.
"Non-Employee Director" means, for purposes of the Plan, a Director
who (a) is not employed by the Bank or an Affiliate; (b) does not receive
compensation directly or indirectly as a consultant (or in any other capacity
than as a Director) greater than $60,000; (c) does not have an interest in a
transaction requiring disclosure under Item 404(a) of Regulation S-K; or (d) is
not engaged in a business relationship for which disclosure would be required
pursuant to Item 404(b) of Regulation S-K.
"Normal Retirement" means for a Key Employee, retirement at the normal
or early retirement date set forth in the Bank's Employee Stock Ownership Plan,
or any successor plan. Normal Retirement for an Outside Director means a
cessation of service on the Board of Directors for any reason other than removal
for Cause, after reaching 60 years of age and maintaining at least 10 years of
Continuous Service.
"Offering" means the November 15, 1995 subscription offering of the
Common Stock of the Bank.
"Outside Director" means a Director of the Bank or an Affiliate who
is not an employee of the Company or an Affiliate.
"Recipient" means a Key Employee or Outside Director of the Bank or
its Affiliates who receives or has received an Award under the Plan.
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"Restricted Period" means the period of time selected by the Committee
for the purpose of determining when restrictions are in effect under Section 6
with respect to Restricted Stock awarded under the Plan.
"Restricted Stock" means shares of Common Stock that have been
contingently awarded to a Recipient by the Committee subject to the restrictions
referred to in Section 6, so long as such restrictions are in effect.
4. Administration of the Plan.
4.01 Role of the Committee. The Plan shall be administered and
interpreted by the Committee, which shall have all of the powers allocated to it
in the Plan. The interpretation and construction by the Committee of any
provisions of the Plan or of any Award granted hereunder shall be final and
binding. The Committee shall act by vote or written consent of a majority of its
members. Subject to the express provisions and limitations of the Plan, the
Committee may adopt such rules and procedures as it deems appropriate for the
conduct of its affairs. The Committee shall report its actions and decisions
with respect to the Plan to the Board at appropriate times, but in no event less
than one time per calendar year.
4.02 Role of the Board. The members of the Committee shall be
appointed or approved by, and will serve at the pleasure of, the Board. The
Board may in its discretion from time to time remove members from, or add
members to, the Committee. The Board shall have all of the powers allocated to
it in the Plan, may take any action under or with respect to the Plan that the
Committee is authorized to take, and may reverse or override any action taken or
decision made by the Committee under or with respect to the Plan, provided,
however, that except as provided in Section 6.02, the Board may not revoke any
Award except in the event of revocation for Cause or with respect to unearned
Awards in the event the Recipient of an Award voluntarily terminates employment
with the Bank prior to Normal Retirement.
4.03 Plan Administration Restrictions. All transactions involving a
grant, award or other acquisitions from the Bank shall:
(a) be approved by the Bank's full Board or by the Committee;
(b) be approved, or ratified, in compliance with Section 14 of the
Exchange Act, by either: the affirmative vote of the holders of a majority of
the shares present, or represented and entitled to vote at a meeting duly held
in accordance with the laws under which the Bank is incorporated; or the written
consent of the holders of a majority of the securities of the issuer entitled to
vote provided that such ratification occurs no later than the date of the next
annual meeting of shareholders; or
(c) result in the acquisition of common stock that is held by the
Recipient for a period of six months following the date of such acquisition.
4.04 Limitation on Liability. No member of the Board or the Committee
shall be liable for any determination made in good faith with respect to the
Plan or any Awards granted under it. If a member of the Board or the Committee
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of anything done or not done by him in such capacity
under or with respect to the Plan, the Bank or the Company shall indemnify such
member against expense (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him in connection with
such action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in the best interests of the Bank and the Company and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful.
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5. Eligibility; Awards
5.01 Eligibility. Key Employees and Outside Directors are eligible to
receive Awards.
5.02 Awards to Key Employees and Outside Directors. The Committee may
determine which of the Key Employees and Outside Directors referenced in Section
5.01 will be granted Awards and the number of shares covered by each Award;
provided, however, that in no event shall any Awards be made that will violate
the Bank's Restated Organization Certificate and Bylaws, the Company's Charter
and Bylaws, or any applicable federal or state law or regulation. Shares of
Restricted Stock that are awarded by the Committee shall, on the date of the
Award, be registered in the name of the Recipient and transferred to the
Recipient, in accordance with the terms and conditions established under the
Plan. The aggregate number of shares that shall be issued under the Plan is
35,267.
In the event Restricted Stock is forfeited for any reason, the
Committee, from time to time, may determine which of the Key Employees and
Outside Directors will be granted additional Awards to be awarded from forfeited
Restricted Stock.
In selecting those Key Employees and Outside Directors to whom Awards
will be granted and the amount of Restricted Stock covered by such Awards, the
Committee shall consider such factors as it deems relevant, which factors may
include, among others, the position and responsibilities of the Key Employees
and Outside Directors, the length and value of their services to the Bank and
its Affiliates, the compensation paid to the Key Employees or fees paid to the
Outside Directors, and the Committee may request the written recommendation of
the Chief Executive Officer and other senior executive officers of the Bank, the
Company and its Affiliates or the recommendation of the full Board. All
allocations by the Committee shall be subject to review, and approval or
rejection, by the Board.
No Restricted Stock shall be earned unless the Recipient maintains
Continuous Service with the Bank or an Affiliate until the restrictions lapse.
5.03 Manner of Award. As promptly as practicable after a determination
is made pursuant to Section 5.02 to grant an Award, the Committee shall notify
the Recipient in writing of the grant of the Award, the number of shares of
Restricted Stock covered by the Award, and the terms upon which the Restricted
Stock subject to the Award may be earned. Upon notification of an Award of
Restricted Stock, the Recipient shall execute and return to the Bank a
restricted stock agreement (the "Restricted Stock Agreement") setting forth the
terms and conditions under which the Recipient shall earn the Restricted Stock,
together with a stock power or stock powers endorsed in blank. Thereafter, the
Recipient's Restricted Stock and stock power shall be deposited with an escrow
agent specified by the Bank who shall hold such Restricted Stock under the terms
and conditions set forth in the Restricted Stock Agreement. Each certificate in
respect of shares of Restricted Stock Awarded under the Plan shall be registered
in the name of the Recipient.
5.04 Treatment of Forfeited Shares. In the event shares of Restricted
Stock are forfeited by a Recipient, such shares shall be returned to the Bank
and shall be held and accounted for pursuant to the terms of the Plan until such
time as the Restricted Stock is re-awarded to another Recipient, in accordance
with the terms of the Plan and the applicable state and federal laws, rules and
regulations.
6. Terms and Conditions of Restricted Stock
The Committee shall have full and complete authority, subject to the
limitations of the Plan, to grant awards of Restricted Stock to Key Employees
and Outside Directors and, in addition to the terms and conditions contained in
Sections 6.01 through 6.08, to provide such other terms and conditions (which
need not be identical among Recipients) in respect of such Awards, and the
vesting thereof, as the Committee shall determine.
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6.01 General Rules. Subject to any such other terms and conditions as
the Committee shall provide with respect to Awards, shares of Restricted Stock
may not be sold, assigned, transferred (within the meaning of Code Section 83),
pledged or otherwise encumbered by the Recipient, except as hereinafter
provided, during the Restricted Period. The Committee shall have the authority,
in its discretion, to accelerate the time at which any or all of the
restrictions shall lapse with respect to a Restricted Stock Award, or to remove
any or all of such restrictions. No shares shall be earned for any year in which
the Bank is not meeting all of its fully phased-in capital requirements.
6.02 Continuous Service; Forfeiture. Except as provided in Section
6.03, a Recipient must maintain Continuous Service throughout the vesting period
of the award in order to vest in all shares of Restricted Stock awarded
hereunder. If a Recipient ceases to maintain Continuous Service for any reason
(other than death, Disability, Change in Control or Normal Retirement), unless
the Committee shall otherwise determine, all shares of Restricted Stock
theretofore awarded to such Recipient and which at the time of such termination
of Continuous Service are subject to the restrictions imposed by Section 6.01
shall, upon such termination of Continuous Service, be forfeited. Any stock
dividends or declared but unpaid cash dividends attributable to such shares of
Restricted Stock shall also be forfeited.
6.03 Exception for Termination Due to Death, Disability, Normal
Retirement or Following a Change in Control Notwithstanding the general rule
contained in Section 6.01, Restricted Stock awarded to a Recipient whose
employment with or service on the Board of the Bank or an Affiliate terminates
due to death, Disability, Normal Retirement or following a Change in Control
shall be deemed earned as of the Recipient's last day of employment with the
Company or an Affiliate, or last day of service on the Board of the Company or
an Affiliate; provided that Restricted Stock awarded to a Key Employee who at
any time also serves as a Director, shall not be deemed earned until both
employment and service as a Director have been terminated.
6.04 Revocation for Cause. Notwithstanding anything hereinafter to the
contrary, the Board may by resolution immediately revoke, rescind and terminate
any Award, or portion thereof, previously awarded under the Plan, to the extent
Restricted Stock has not been redelivered by the Escrow Agent to the Recipient,
whether or not yet earned, in the case of a Key Employee whose employment is
terminated by the Bank or an Affiliate or an Outside Director whose service is
terminated by the Bank or an Affiliate for Cause or who is discovered after
termination of employment or service on the Board to have engaged in conduct
that would have justified termination for Cause.
6.05 Restricted Stock Legend. Each certificate in respect of shares of
Restricted Stock awarded under the Plan shall be registered in the name of the
Recipient and deposited by the Recipient, together with a stock power endorsed
in blank, with the Escrow Agent and shall bear the following (or a similar)
legend:
"The transferability of this certificate and the
shares of stock represented hereby are subject to the terms and
conditions (including forfeiture) contained in the Oswego City
Savings Bank 1997 Recognition and Retention Plan. Copies of such
Plan are on file in the offices of the Secretary of Oswego City
Savings Bank, 214 West First Street, Oswego, New York 13126."
6.06 Payment of Dividends and Return of Capital. After an Award has
been granted but before such Award has been earned, the Recipient shall receive
any cash dividends paid with respect to such shares, or shall share in any pro-
rata return of capital to all shareholders with respect to the Common Stock.
Stock dividends declared by the Bank and paid on Awards that have not yet been
earned shall be subject to the same restrictions as the Restricted Stock and the
certificate(s) or other instruments representing or evidencing such shares shall
be legended in the manner provided in Section 6.05 and shall be delivered to the
Escrow Agent for distribution to the Recipient when the Restricted Stock upon
which such dividends were paid are earned. Unless the Recipient has made an
election under Section 83(b) of the Code, cash dividends or other amounts so
paid on shares that have not yet been earned by the Recipient shall be treated
as compensation income to the Recipient when paid. If dividends are paid with
respect to
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shares of Restricted Stock under the Plan that have been issued but not awarded,
or that have been forfeited and returned to the Bank or to a trust established
to hold issued and unawarded or forfeited shares, the Committee can determine to
award such dividends to any Recipient or Recipients under the Plan, to any other
employee or director of the Bank, or can return such dividends to the Bank.
6.07 Voting of Restricted Shares. After an Award has been granted, the
Recipient as conditional owner of the Restricted Stock shall have the right to
vote such shares.
6.08 Delivery of Earned Shares. At the expiration of the restrictions
imposed by Section 6.01, the Escrow Agent shall redeliver to the Recipient (or
where the relevant provision of Section 6.02 applies in the case of a deceased
Recipient, to his Beneficiary) the certificate(s) and any remaining stock power
deposited with it pursuant to Section 5.03 and the shares represented by such
certificate(s) shall be free of the restrictions referred to Section 6.01.
7. Adjustments upon Changes in Capitalization
In the event of any change in the outstanding shares subsequent to the
Effective Date by reason of any reorganization, recapitalization, stock split,
stock dividend, combination or exchange of shares, merger, consolidation or any
change in the corporate structure or shares of the Bank, the maximum aggregate
number and class of shares as to which Awards may be granted under the Plan
shall be appropriately adjusted by the Committee, whose determination shall be
conclusive. Any shares of stock or other securities received, as a result of
any of the foregoing, by a Recipient with respect to Restricted Stock shall be
subject to the same restrictions and the certificate(s) or other instruments
representing or evidencing such shares or securities shall be legended and
deposited with the Escrow Agent in the manner provided in Section 6.05.
8. Assignments and Transfers
No Award nor any right or interest of a Recipient under the Plan in
any instrument evidencing any Award under the Plan may be assigned, encumbered
or transferred (within the meaning of Code Section 83) except, in the event of
the death of a Recipient, by will or the laws of descent and distribution until
such Award is earned.
9. Key Employee Rights under the Plan
No Key Employee shall have a right to be selected as a Recipient nor,
having been so selected, to be selected again as a Recipient and no Key Employee
or other person shall have any claim or right to be granted an Award under the
Plan or under any other incentive or similar plan of the Bank or any Affiliate.
Neither the Plan nor any action taken thereunder shall be construed as giving
any Key Employee any right to be retained in the employ of the Bank or any
Affiliate.
10. Outside Director Rights under the Plan
Neither the Plan nor any action taken thereunder shall be construed as
giving any Outside Director any right to be retained in the service of the Bank
or any Affiliate.
11. Withholding Tax
Upon the termination of the Restricted Period with respect to any
shares of Restricted Stock (or at any such earlier time, if any, that an
election is made by the Recipient under Section 83(b) of the Code, or any
successor provision thereto, to include the value of such shares in taxable
income), the Bank or the Company shall have the right to require the Recipient
or other person receiving such shares to pay the Bank or the Company the amount
of any taxes
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that the Bank or the Company is required to withhold with respect to such
shares, or, in lieu thereof, to retain or sell without notice, a sufficient
number of shares held by it to cover the amount required to be withheld. The
Bank or the Company shall have the right to deduct from all dividends paid with
respect to shares of Restricted Stock the amount of any taxes which the Bank or
the Company is required to withhold with respect to such dividend payments.
12. Amendment or Termination
The Board of the Bank may amend, suspend or terminate the Plan or any
portion thereof at any time, provided, however, that no such amendment,
suspension or termination shall impair the rights of any Recipient, without his
consent, in any Award theretofore made pursuant to the Plan. Any amendment or
modification of the Plan or an outstanding Award under the Plan, including but
not limited to the acceleration of vesting of an outstanding Award for reasons
other than death, Disability, Normal Retirement or termination following a
Change in Control, shall be approved by the Committee, or the full Board of the
Bank.
13. Governing Law
The Plan shall be governed by the laws of the State of New York.
14. Term of Plan
The Plan shall become effective on the date of, or a date determined
by the Board of Directors following, approval of the Plan by the Bank's
stockholders. It shall continue in effect until the earlier of (i) fifteen
years from the Effective Date unless sooner terminated under Section 12 hereof,
or (ii) the date on which all shares of Common Stock available for award
hereunder, have vested in the Recipients of such Awards.
IN WITNESS WHEREOF, the Bank has caused the Plan to be executed by its
duly authorized officers and the corporate seal to be affixed and duly attested,
as of the ____ day of _________, 1997.
Date Approved by Shareholders:
------------
Effective Date:
------------
ATTEST: OSWEGO CITY SAVINGS BANK
- --------------------- -----------------------------------------
Secretary Executive Officer
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APPENDIX C
OSWEGO CITY SAVINGS BANK
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION, dated January 14, 1997, is
by and between OSWEGO CITY SAVINGS BANK, a New York chartered stock savings bank
(the "Bank"); PATHFINDER BANCORP, a Delaware corporation (in formation) (the
"Stock Holding Company"); and OSWEGO CITY INTERIM SAVINGS BANK, a to-be-formed
interim New York stock savings bank ("Interim").
The parties hereto desire to enter into an Agreement and Plan of
Reorganization whereby the corporate structure of the Bank will be reorganized
into the stock holding company form of ownership. The result of such
reorganization will be that immediately after the Effective Date (as defined in
Article V below), all of the issued and outstanding shares of common stock, par
value $1.00 per share, of the Bank will be held by the Stock Holding Company,
and the holders of the issued and outstanding shares of common stock of the Bank
will become the holders of the issued and outstanding shares of common stock of
the Stock Holding Company.
The reorganization of the Bank will be accomplished by the following
steps: (1) the formation of the Stock Holding Company as a wholly owned
subsidiary of the Bank; (2) the formation of an interim New York stock savings
bank ("Interim"), which will be wholly owned by the Stock Holding Company; and
(3) the merger of Interim into the Bank, with the Bank as the surviving
corporation. Pursuant to such merger: (i) each of the issued and outstanding
shares of common stock of the Bank will be converted by operation of law into an
equal number of issued and outstanding shares of common stock of the Stock
Holding Company; (ii) each of the issued and outstanding shares of common stock
of Interim will be converted automatically by operation of law into an equal
number of issued and outstanding shares of common stock of the Bank; and (iii)
the shares of common stock of the Stock Holding Company held by the Bank will be
canceled.
NOW, THEREFORE, in order to consummate this Agreement and Plan of
Reorganization, and in consideration of the mutual covenants herein set forth,
the parties agree as follows:
ARTICLE I
MERGER OF INTERIM INTO
THE BANK AND RELATED MATTERS
----------------------------
1.1 On the Effective Date, Interim will be merged with and into the
Bank (the "Merger") and the separate existence of Interim shall cease, and all
assets and property (real, personal and mixed, tangible and intangible, choses
in action, rights and credits) then owned by Interim, or which would inure to
it, shall immediately and automatically, by operation of law and without any
conveyance, transfer, or further action, become the property of the Bank. The
Bank shall be deemed to be a continuation of Interim, and the Bank shall succeed
to the rights and obligations of Interim.
1.2 Following the Merger, the existence of the Bank shall continue
unaffected and unimpaired by the Merger, with all the rights, privileges,
immunities and powers, and subject to all the duties and liabilities, of a
savings bank organized under New York law. The Organization Certificate (the
"Charter") and Bylaws of the Bank, as presently in effect, shall continue in
full force and effect and shall not be changed in any manner whatsoever by the
Merger.
<PAGE>
1.3 From and after the Effective Date, and subject to the actions of
the Board of Directors of the Bank, the business presently conducted by the Bank
(whether directly or through its subsidiaries) will continue to be conducted by
it, as a wholly owned subsidiary of Stock Holding Company, and the present
directors and officers of the Bank will continue in their present positions. The
home office and branch offices of the Bank in existence immediately prior to the
Effective Date shall continue to be the home office and branch offices,
respectively, of the Bank from and after the Effective Date.
ARTICLE II
CONVERSION OF STOCK
-------------------
2.1 The terms and conditions of the Merger, the mode of carrying the
same into effect, and the manner and basis of converting the common stock of the
Bank into common stock of the Stock Holding Company pursuant to this Agreement
shall be as follows:
A. On the Effective Date, each share of common stock, par value
$1.00 per share, of the Bank issued and outstanding immediately prior to the
Effective Date shall automatically by operation of law be converted into and
shall become one share of common stock, par value $0.10 per share, of the Stock
Holding Company (the "Stock Holding Company Common Stock"). Each share of common
stock of Interim issued and outstanding immediately prior to the Effective Date
shall, on the Effective Date, automatically by operation of law be converted
into and become one share of common stock, $.10 par value per share, of the Bank
and shall not be further converted into shares of the Stock Holding Company, so
that from and after the Effective Date all of the issued and outstanding shares
of common stock of the Bank shall be held by the Stock Holding Company.
B. On the Effective Date, any stock based benefit plans of the
Bank (the "Benefit Plans") in effect at the Effective Date shall automatically,
by operation of law, be continued as Benefit Plans of the Bank and/or the Stock
Holding Company. Each option to purchase shares of the Bank common stock under
the Bank's stock option plan outstanding at that time will be automatically
converted into an identical option, with identical price, terms and conditions,
to purchase an identical number of shares of Stock Holding Company Common Stock
in lieu of shares of the Bank common stock. The Stock Holding Company and the
Bank may make appropriate amendments to the Benefit Plans to reflect the
adoption of the Benefit Plans as the plans of the Stock Holding Company, without
adverse effect on the Benefit Plans and their participants.
C. From and after the Effective Date, each holder of an
outstanding certificate or certificates that, prior thereto, represented shares
of the Bank common stock, shall, upon surrender of the same to the designated
agent of the Bank, be entitled to receive in exchange therefor a certificate or
certificates representing the number of whole shares of Stock Holding Company
Common Stock into which the shares theretofore represented by the certificate or
certificates so surrendered shall have been converted, as provided in the
foregoing provisions of this Section 2.1. Until so surrendered, each such
outstanding certificate which, prior to the Effective Date, represented shares
of the Bank common stock shall be automatically deemed for all purposes to
evidence the ownership of the equal number of whole shares of Stock Holding
Company Common Stock. Former holders of shares of the Bank common stock will not
be required to exchange their the Bank common stock certificates for new
certificates evidencing the same number of shares of Stock Holding Company
Common Stock. If in the future the Stock Holding Company determines to effect an
exchange of stock certificates, instructions will be sent to all holders of
record of Stock Holding Company Common Stock.
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D. All shares of Stock Holding Company Common Stock into which
shares of the Bank common stock shall have been converted pursuant to this
Article II shall be deemed to have been issued in full satisfaction of all
rights pertaining to such converted shares.
E. On the Effective Date, the holders of certificates formerly
representing the Bank common stock outstanding on the Effective Date shall cease
to have any rights with respect to the common stock of the Bank, and their sole
rights shall be with respect to the Stock Holding Company Common Stock into
which their shares of the Bank common stock shall have been converted by the
Merger.
ARTICLE III
CONDITIONS
----------
3.1 The obligations of the Bank, Stock Holding Company and Interim to
effect the Merger and otherwise consummate the transactions which are the
subject matter hereof shall be subject to satisfaction of the following
conditions:
A. To the extent required by applicable law, rules, and
regulations, the holders of the outstanding shares of the Bank common stock
shall, at a meeting of the stockholders of the Bank duly called, have approved
this Agreement by the necessary required affirmative vote (under state law) of
the outstanding shares of the Bank common stock.
B. Any and all approvals from the Federal Reserve Board (the
"FRB"), the Securities and Exchange Commission and any other state or federal
governmental agency having jurisdiction necessary for the lawful consummation of
the Merger and the issuance and delivery of Stock Holding Company Common Stock
as contemplated by this Agreement shall have been obtained.
C. The Bank shall have received either (i) a ruling from the
Internal Revenue Service or (ii) an opinion from its legal counsel, to the
effect that the Merger will be treated as a non-taxable transaction under
applicable provisions of the Internal Revenue Code of 1986, as amended, and that
no gain or loss will be recognized by the stockholders of the Bank upon the
exchange of the Bank common stock held by them solely for Stock Holding Company
Common Stock.
ARTICLE IV
TERMINATION
-----------
4.1 This Agreement may be terminated at the election of any of the
parties hereto if any one or more of the conditions to the obligations of any of
them hereunder shall not have been satisfied and shall have become incapable of
fulfillment and shall not be waived. This Agreement may also be terminated at
any time prior to the Effective Date by the mutual consent of the respective
Boards of Directors of the parties.
4.2 In the event of the termination of this Agreement pursuant to any
of the foregoing provisions, no party shall have any further liability or
obligation of any nature to any other party under this Agreement.
3
<PAGE>
ARTICLE V
EFFECTIVE DATE OF MERGER
------------------------
Upon satisfaction or waiver (in accordance with the provisions of this
Agreement) of each of the conditions set forth in Article III, the parties
hereto shall execute and cause to be filed the Merger Agreement and such
certificates or further documents as shall be required by New York law to be
filed with the New York Banking Department or the New York Secretary of State.
Upon approval and filing of the Merger Agreement by the Superintendent of Banks
and the approval by the Superintendent of Banks of the Plan of Reorganization
under New York law, the Merger and other transactions contemplated by this
Agreement shall become effective.
ARTICLE VI
MISCELLANEOUS
-------------
6.1 Any of the terms or conditions of this Agreement, which may
legally be waived, may be waived at any time by any party hereto that is
entitled to the benefit thereof, or any of such terms or conditions may be
amended or modified in whole or in part at any time, to the extent authorized by
applicable law, by an agreement in writing, executed in the same manner as this
Agreement.
6.2 Any of the terms or conditions of this Agreement may be amended
or modified in whole or in part at any time, to the extent permitted by
applicable law, rules, and regulations, by an amendment in writing, provided
that any such amendment or modification is not materially adverse to the Bank,
the Stock Holding Company or their stockholders. In the event that any
governmental agency requests or requires that the transactions contemplated
herein be modified in any respect as a condition of providing a necessary
regulatory approval or favorable ruling, or that in the opinion of counsel such
modification is necessary to obtain such approval or ruling, this Agreement may
be modified, at any time before or after adoption thereof by the stockholders of
the Bank, by an instrument in writing, provided that the effect of such
amendment would not be materially adverse to the Bank, the Stock Holding Company
or their stockholders.
6.3 This Agreement shall be governed by and construed under the laws
of the State of New York.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement and Plan of Reorganization as of the date first above written.
OSWEGO CITY SAVINGS BANK
By:/s/ Chris C. Gagas
----------------------------------------
Chris C. Gagas
President and Chief Executive Officer
PATHFINDER BANCORP
By:/s/ Chris C. Gagas
----------------------------------------
Chris C. Gagas
President and Chief Executive Officer
OSWEGO CITY INTERIM SAVINGS BANK
(information)
By:/s/ Chris C. Gagas
----------------------------------------
Chris C. Gagas
President and Chief Executive Officer
<PAGE>
APPENDIX D
(S) 6022. Procedure to enforce stockholder's right to receive
payment for shares
1. A stockholder intending to enforce his right under a section of
this chapter to receive payment for his shares if the proposed corporate action
referred to therein is taken shall file with the corporation, before the meeting
of stockholders at which the action is submitted to a vote, or at such meeting
but before the vote, written objection to the action. The objection shall
include a statement that he intends to demand payment for his shares if the
action is taken. Such objection is not required from any stockholder to whom the
corporation did not give notice of such meeting in accordance with this chapter
or where the proposed action is authorized by written consent of stockholders
without a meeting.
2. Within ten days after the stockholders' authorization date, which
term as used in this section means the date on which the stockholders' vote
authorizing such action was taken, or the date on which such consent without a
meeting was obtained from the requisite stockholders, the corporation shall give
written notice of such authorization or consent by registered mail to each
stockholder who filed written objection or from whom written objection was not
required, excepting any who voted for or consented in writing to the proposed
action.
3. Within twenty days after the giving of notice to him, any
stockholder to whom the corporation was required to give such notice and who
elects to dissent shall file with the corporation a written notice of such
election, stating his name and residence address, the number and classes of
shares as to which he dissents and a demand for payment of the fair value of his
shares.
4. A stockholder may not dissent as to less than all of the shares,
held by him of record, that he owns beneficially. A nominee or fiduciary may not
dissent on behalf of any beneficial owner as to less than all of the shares of
such owner held of record by such nominee or fiduciary.
5. Upon filing a notice of election to dissent, the stockholder
shall cease to have any of the rights of a stockholder except the right to be
paid the fair value of his shares and any other rights under this section.
Withdrawal of a notice of election shall require the written consent of the
corporation. If a notice of election is withdrawn, or the proposed corporate
action is abandoned or rescinded, or a court shall determine that the
stockholder is not entitled to receive payment for his shares, or the
stockholder shall otherwise lose his dissenter's rights, he shall not have the
right to receive payment for his shares and he shall be reinstated to all his
rights as a stockholder as of the filing of his notice of election, including
any intervening preemptive rights and the right to payment of any intervening
dividend or other distribution or, if any such rights have expired or any such
dividend or distribution other than in cash has been completed, in lieu thereof,
at the election of the corporation, the fair value thereof in cash as determined
by the board as of the time of such expiration or completion, but without
prejudice otherwise to any corporate proceedings that may have been taken in the
interim.
6. At the time of filing the notice of election to dissent or within
one month thereafter the stockholder shall submit the certificates representing
his shares to the corporation, or to its transfer agent, which shall forthwith
note conspicuously thereon that a notice of election has been filed and shall
return the certificates to the stockholder or other person who submitted them on
his behalf. Any stockholder who fails to submit his certificates for such
notation as herein specified shall, at the option of the corporation exercised
by written notice to him within fortyfive days from the date of filing of such
notice of election to dissent, lose his dissenter's rights unless a court, for
good cause shown, shall otherwise direct. Upon transfer of a certificate bearing
such notation, each new certificate issued therefor shall bear a similar
notation together with the name of the original dis-
<PAGE>
senting holder of the shares and a transferee shall acquire no rights in the
corporation except those which the original dissenting stockholder had after
filing his notice of election.
7. Within seven days after the expiration of the period within which
stockholders may file their notices of election to dissent, or within seven days
after the proposed corporate action is consummated, whichever is later, the
corporation or, in the case of a merger, the receiving corporation, shall make a
written offer by registered mail to each stockholder who has filed such notice
of election to pay for his shares at a specified price which the corporation
considers to be their fair value. Such offer shall be made at the same price per
share to all dissenting stockholders of the same class, or if divided into
series, of the same series and shall be accompanied by a balance sheet of the
corporation whose shares the dissenting stockholder holds as of the latest
available date, which shall not be earlier than twelve months before the making
of such offer, and a profit and loss statement or statements for not less than a
twelve month period ended on the date of such balance sheet or, if the
corporation was not in existence throughout such twelve month period, for the
portion thereof during which it was in existence. If within thirty days after
the making of such offer, the corporation making the offer and any stockholder
agree upon the price to be paid for his shares, payment therefor shall be made
within sixty days after the making of such offer upon the surrender of the
certificates representing such shares.
8. The following procedure shall apply if the corporation fails to
make such offer within such period of seven days, or if it makes the offer and
any dissenting stockholder or stockholders fail to agree with it within the
period of thirty days thereafter upon the price to be paid for their shares:
(a) The corporation or, in the case of a merger, the receiving
corporation shall, within twenty days after the expiration of whichever is
applicable of the two periods last mentioned, institute a special proceeding in
the supreme court in the judicial district in which the office of the
corporation is located to determine the rights of dissenting stockholders and to
fix the fair value of their shares.
(b) If the corporation fails to institute such proceeding within such
period of twenty days, any dissenting stockholder may institute such proceeding
for the same purpose not later than thirty days after the expiration of such
twenty day period. If such proceeding is not instituted within such thirty day
period, all dissenter's rights shall be lost unless the supreme court, for good
cause shown, shall otherwise direct.
(c) All dissenting stockholders, excepting those who, as provided in
subdivision seven, have agreed with the corporation upon the price to be paid
for their shares, shall be made parties to such proceeding, which shall have the
effect of an action quasi in rem against their shares. The corporation shall
serve a copy of the petition in such proceeding upon each dissenting stockholder
who is a resident of this state in the manner provided by law for the service of
a summons, and Upon each nonresident dissenting stockholder either by registered
mail and publication, or in such other manner as is permitted by law. The
jurisdiction of the court shall be plenary and exclusive.
(d) The court shall determine whether each dissenting stockholder, as
to whom the corporation requests the court to make such determination, is
entitled to receive payment for his shares. If the corporation does not request
any such determination or if the court finds that any dissenting stockholder is
so entitled, it shall proceed to fix the value of the shares, which, for the
purpose of this section, shall be the fair value as of the close of business on
the day prior to the stockholders' authorization date, excluding any
appreciation or depreciation directly or indirectly
2
<PAGE>
induced by such corporate action or its proposal. The court may, if it so
elects, appoint an appraiser to receive evidence and recommend a decision on the
question of fair value. Such appraiser shall have the power, authority and
duties specified in the order appointing him, or any amendment thereof.
(e) The final order in the proceeding shall be entered against the
corporation in favor of each dissenting stockholder who is a party to the
proceeding and is entitled thereto for the value of his shares so determined.
(f) The final order shall include an allowance for interest at such
rate as the court finds to be equitable, from the stockholders' authorization
date to the date of payment. If the court finds that the refusal of any
stockholder to accept the corporate over of payment for his shares was
arbitrary, vexatious or otherwise not in good faith, no interest shall be
allowed to him.
(g) The costs and expenses of such proceeding shall be determined by
the court and shall be assessed against the corporation, or, in the case of a
merger, the receiving corporation, except that all or any part of such costs and
expenses may be apportioned and assessed, as the court may determine, against
any or all of the dissenting stockholders who are parties to the proceeding if
the court finds that their refusal to accept the corporate offer was arbitrary,
vexatious or otherwise not in good faith. Such expenses shall include reasonable
compensation for and the reasonable expenses of the appraiser, but shall exclude
the fees and expenses of counsel for and experts employed by any party unless
the court, in its discretion, awards such fees and expenses. In exercising such
discretion, the court shall consider any of the following: (A) that the fair
value of the shares as determined materially exceeds the amount which such
corporation offered to pay; (B) that no offer was made by such corporation; and
(C) that such corporation failed to institute the special proceeding within the
period specified therefor.
(h) Within sixty days after final determination of the proceeding,
the corporation or, in the case of a merger, the receiving corporation shall pay
to each dissenting stockholder the amount found to be due him, upon surrender of
the certificates representing his shares.
9. Shares acquired by the corporation upon the payment of the agreed
value therefor or of the amount due under the final order, as provided in this
section, shall be dealt with as provided in section five thousand fourteen,
except that, in the case of a merger, they shall be disposed of as provided in
the plan of merger or consolidation.
10. The enforcement by a stockholder of his right to receive payment
for his shares in the manner provided herein shall exclude the enforcement by
such stockholder of any other right to which he might otherwise be entitled by
virtue of share ownership, except as provided in subdivision five, and except
that this section shall not exclude the right of such stockholder to bring or
maintain an appropriate action to obtain relief on the ground that such
corporate action will be or is illegal or fraudulent as to him.
11. Except as otherwise expressly provided in this section, any
notice to be given by a corporation to a stockholder under this section shall be
given in the manner provided in section six thousand five.
Added L.1964, c. 849, g Jeff. Sept. 1, 1964.
3
<PAGE>
Appendix E
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
BEFORE PAYMENT OF CAPITAL
OF
PATHFINDER BANCORP, INC.
FIRST: That Paragraph A of Article FOURTH of the Certificate of Incorporation
be and hereby is amended to read as follows:
FOURTH:
------
A. The total number of shares of all classes of stock which the Corporation
shall have authority to issue is nine million (9,000,000) all of which consists
of shares of Common Stock, par value ten cents ($.10) per share (the "Common
Stock").
SECOND: That the corporation has not received any payment for any of its stock.
THIRD: That the amendment was duly adopted in accordance with the provisions of
Section 241 of the General Corporation Law of the State of Delaware.
1
<PAGE>
IN WITNESS WHEREOF, Pathfinder Bancorp, Inc. has caused this Certificate to
be signed by its sole incorporator this 6th day of October, 1997.
/s/ Edward A. Quint
-----------------------------------------
Edward A. Quint
Incorporator
2
<PAGE>
CERTIFICATE OF INCORPORATION
OF
PATHFINDER BANCORP, INC.
FIRST: The name of the Corporation is Pathfinder Bancorp, Inc. (hereinafter
-----
referred to as the "Corporation").
SECOND: The address of the registered office of the Corporation in the
------
State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City
of Wilmington, County of New Castle. The name of the registered agent at that
address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
-----
activity for which a corporation may be organized under the General Corporation
Law of Delaware.
FOURTH:
------
A. The total number of shares of all classes of stock which the
Corporation shall have authority to issue is six million (6,000,000) all of
which consists of shares of Common Stock, par value ten cents ($.10) per share
(the "Common Stock").
B. 1. Notwithstanding any other provision of this Certificate of
Incorporation, in no event shall any record owner of any outstanding Common
Stock which is beneficially owned, directly or indirectly, by a person who, as
of any record date for the determination of stockholders entitled to vote on any
matter, beneficially owns in excess of 10% of the then-outstanding shares of
Common Stock (the "Limit"), be entitled, or permitted to any vote in respect of
the shares held in excess of the Limit. The Limit shall not be applicable to
shares held by Pathfinder Bancorp, M.H.C. The number of votes which may be cast
by any record owner by virtue of the provisions hereof in respect of Common
Stock beneficially owned by such person owning shares in excess of the Limit
shall be a number equal to the total number of votes which a single record owner
of all Common Stock owned by such person would be entitled to cast, multiplied
by a fraction, the numerator of which is the number of shares of such class or
series which are both beneficially owned by such person and owned of record by
such record owner and the denominator of which is the total number of shares of
Common Stock beneficially owned by such person owning shares in excess of the
Limit.
2. The following definitions shall apply to this Section B of this
Article FOURTH:
(a) "Affiliate" shall have the meaning ascribed to it in Rule
12b-2 of the General Rules and Regulations under the
Securities Act of 1934, as in effect on the date of filing of
this Certificate of Incorporation. However, the term
Affiliate shall not include Pathfinder Bancorp, M.H.C.
(b) "Beneficial ownership" shall be determined pursuant to Rule
13d-3 of the General Rules and Regulations under the
Securities Exchange Act of 1934 (or any successor rule or
statutory provision), or, if said Rule 13d-3 shall be
rescinded and there shall be no successor rule or statutory
provision thereto, pursuant to said Rule 13d-3 as in effect
on the date of filing of this Certificate of Incorporation;
provided, however, that a person shall, in any event, also be
deemed the "beneficial owner" of any Common Stock:
<PAGE>
(1) which such person or any of its affiliates beneficially
owns, directly or indirectly; or
(2) which such person or any of its affiliates has (i) the
right to acquire (whether such right is exercisable
immediately or only after the passage of time), pursuant
to any agreement, arrangement or understanding (but
shall not be deemed to be the beneficial owner of any
voting shares solely by reason of an agreement,
contract, or other arrangement with this Corporation to
effect any transaction which is described in any one or
more of clauses of Section A of Article EIGHTH) or upon
the exercise of conversion rights, exchange rights,
warrants, or options or otherwise, or (ii) sole or
shared voting or investment power with respect thereto
pursuant to any agreement, arrangement, understanding,
relationship or otherwise (but shall not be deemed to be
the beneficial owner of any voting shares solely by
reason of a revocable proxy granted for a particular
meeting of stockholders, pursuant to a public
solicitation of proxies for such meeting, with respect
to shares of which neither such person nor any such
affiliate is otherwise deemed the beneficial owner); or
(3) which are beneficially owned, directly or indirectly, by
any other person with which such first mentioned person
or any of its affiliates acts as a partnership, limited
partnership, syndicate or other group pursuant to any
agreement, arrangement or understanding for the purpose
of acquiring, holding, voting or disposing of any shares
of capital stock of this Corporation;
and provided further, however, that (1) no Director or
Officer of this Corporation (or any affiliate of any such
Director or Officer) shall, solely by reason of any or all of
such Directors or Officers acting in their capacities as
such, be deemed, for any purposes hereof, to beneficially own
any Common Stock beneficially owned by another such Director
or Officer (or any affiliate thereof), and (2) neither any
employee stock ownership plan or similar plan of this
Corporation or any subsidiary of this Corporation, nor any
trustee with respect thereto or any affiliate of such trustee
(solely by reason of such capacity of such trustee), shall be
deemed, for any purposes hereof, to beneficially own any
Common Stock held under any such plan. For purposes of
computing the percentage beneficial ownership of Common Stock
of a person the outstanding Common Stock shall include shares
deemed owned by such person through application of this
subsection but shall not include any other Common Stock which
may be issuable by this Corporation pursuant to any
agreement, or upon exercise of conversion rights, warrants or
options, or otherwise. For all other purposes, the
outstanding Common Stock shall include only Common Stock then
outstanding and shall not include any Common Stock which may
be issuable by this Corporation pursuant to any agreement, or
upon the exercise of conversion rights, warrants or options,
or otherwise.
(c) A "person" shall mean any individual, firm, corporation, or
other entity.
3. The Board of Directors shall have the power to construe and apply
the provisions of this section and to make all determinations necessary or
desirable to implement such provisions, including but not limited to matters
with respect to (i) the number of shares of Common Stock beneficially owned
2
<PAGE>
by any person, (ii) whether a person is an affiliate of another, (iii) whether a
person has an agreement, arrangement, or understanding with another as to the
matters referred to in the definition of beneficial ownership, (iv) the
application of any other definition or operative provision of the section to the
given facts, or (v) any other matter relating to the applicability or effect of
this section.
4. The Board of Directors shall have the right to demand that any
person who is reasonably believed to beneficially own Common Stock in excess of
the Limit (or holds of record Common Stock beneficially owned by any person in
excess of the Limit) supply the Corporation with complete information as to (i)
the record owner(s) of all shares beneficially owned by such person who is
reasonably believed to own shares in excess of the Limit, (ii) any other factual
matter relating to the applicability or effect of this section as may reasonably
be requested of such person.
5. Except as otherwise provided by law or expressly provided in this
section, the presence, in person or by proxy, of the holders of record of shares
of capital stock of the Corporation entitling the holders thereof to cast a
majority of the votes (after giving effect, if required, to the provisions of
this section) entitled to be cast by the holders of shares of capital stock of
the Corporation entitled to vote shall constitute a quorum at all meetings of
the stockholders, and every reference in this Certificate of Incorporation to a
majority or other proportion of capital stock (or the holders thereof) for
purposes of determining any quorum requirement or any requirement for
stockholder consent or approval shall be deemed to refer to such majority or
other proportion of the votes (or the holders thereof) then entitled to be cast
in respect of such capital stock.
6. Any constructions, applications, or determinations made by the
Board of Directors pursuant to this section in good faith and on the basis of
such information and assistance as was then reasonably available for such
purpose shall be conclusive and binding upon the Corporation and its
stockholders.
7. In the event any provision (or portion thereof) of this section
shall be found to be invalid, prohibited or unenforceable for any reason, the
remaining provisions (or portions thereof) of this section shall remain in full
force and effect, and shall be construed as if such invalid, prohibited or
unenforceable provision had been stricken herefrom or otherwise rendered
inapplicable, it being the intent of this Corporation and its stockholders that
such remaining provision (or portion thereof) of this section remain, to the
fullest extent permitted by law, applicable and enforceable as to all
stockholders, including stockholders owning an amount of stock over the Limit,
notwithstanding any such finding.
FIFTH: The following provisions are inserted for the management of the
-----
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its Directors and stockholders:
A. The business and affairs of the Corporation shall be managed
by or under the direction of the Board of Directors. In addition to the
powers and authority expressly conferred upon them by statute or by this
Certificate of Incorporation or the Bylaws of the Corporation, the
Directors are hereby empowered to exercise all such powers and do all such
acts and things as may be exercised or done by the Corporation.
B. The Directors of the Corporation need not be elected by
written ballot unless the Bylaws so provide.
C. Any action required or permitted to be taken by the
stockholders of the Corporation must be effected at a duly called annual or
special meeting of stockholders of the Corporation and may not be effected
by any consent in writing by such stockholders.
3
<PAGE>
D. Special meetings of stockholders of the Corporation may be
called only by the Board of Directors pursuant to a resolution adopted by a
majority of the total number of authorized directorships (whether or not
there exist any vacancies in previously authorized directorships at the
time any such resolution is presented to the Board for adoption) (the
"Whole Board") or as otherwise provided in the Bylaws.
SIXTH:
-----
A. The number of Directors shall be fixed from time to time exclusively
by the Board of Directors pursuant to a resolution adopted by a majority of the
Whole Board. The Directors shall be divided into three classes, as nearly equal
in number as reasonably possible, with the term of office of the first class to
expire at the first annual meeting of stockholders, the term of office of the
second class to expire at the annual meeting of stockholders one year thereafter
and the term of office of the third class to expire at the annual meeting of
stockholders two years thereafter. At each annual meeting of stockholders
following such initial classification and election, Directors elected to succeed
those Directors whose terms expire shall be elected for a term of office to
expire at the third succeeding annual meeting of stockholders after their
election.
B. Newly created directorships resulting from any increase in the
authorized number of Directors or any vacancies in the Board of Directors
resulting from death, resignation, retirement, disqualification, removal from
office or other cause may be filled only by a majority vote of the Directors
then in office, though less than a quorum, and Directors so chosen shall hold
office for a term expiring at the annual meeting of stockholders at which the
term of office of the class to which they have been chosen expires. No decrease
in the number of Directors constituting the Board of Directors shall shorten the
term of any incumbent Director.
C. Advance notice of stockholder nominations for the election of
Directors and of business to be brought by stockholders before any meeting of
the stockholders of the Corporation shall be given in the manner provided in the
Bylaws of the Corporation.
D. Any Director, or the entire Board of Directors, may be removed from
office at any time, but only for cause and only by the affirmative vote of the
holders of at least 80 percent of the voting power of all of the then-
outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of Directors (after giving effect to the provisions of
Article FOURTH of this Certificate of Incorporation ("Article FOURTH")), voting
together as a single class.
SEVENTH: The Board of Directors is expressly empowered to adopt, amend or
-------
repeal the Bylaws of the Corporation. Any adoption, amendment or repeal of the
Bylaws of the Corporation by the Board of Directors shall require the approval
of two-thirds of the Whole Board. The stockholders shall also have power to
adopt, amend or repeal the Bylaws of the Corporation; provided, however, that,
in addition to any vote of the holders of any class or series of stock of the
Corporation required by law or by this Certificate of Incorporation, the
affirmative vote of the holders of at least 80 percent of the voting power of
all of the then-outstanding shares of the capital stock of the Corporation
entitled to vote generally in the election of Directors (after giving effect to
the provisions of Article FOURTH), voting together as a single class, shall be
required to adopt, amend or repeal any provisions of the Bylaws of the
Corporation.
EIGHTH:
------
A. In addition to any affirmative vote required by law or this
Certificate of Incorporation, and except as otherwise expressly provided in this
section:
4
<PAGE>
1. any merger or consolidation of the Corporation or any Subsidiary
(as hereinafter defined) with (i) any Interested Stockholder (as
hereinafter defined) or (ii) any other corporation (whether or not itself
an Interested Stockholder) which is, or after such merger or consolidation
would be, an Affiliate (as hereinafter defined) of an Interested
Stockholder; or
2. any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions) to or with any
Interested Stockholder, or any Affiliate of any Interested Stockholder, of
any assets of the Corporation or any Subsidiary having an aggregate Fair
Market Value (as hereinafter defined) equaling or exceeding 25% or more of
the combined assets of the Corporation and its Subsidiaries; or
3. the issuance or transfer by the Corporation or any Subsidiary (in
one transaction or a series of transactions) of any securities of the
Corporation or any Subsidiary to any Interested Stockholder or any
Affiliate of any Interested Stockholder in exchange for cash, securities or
other property (or a combination thereof) having an aggregate Fair Market
Value (as hereinafter defined) equaling or exceeding 25% of the combined
Fair Market Value of the then-outstanding common stock of the Corporation
and its Subsidiaries, except pursuant to an employee benefit plan of the
Corporation or any Subsidiary thereof; or
4. the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation proposed by or on behalf of an Interested
Stockholder or any Affiliate of an Interested Stockholder; or
5. any reclassification of securities (including any reverse stock
split), or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its Subsidiaries or any other
transaction (whether or not with or into or otherwise involving an
Interested Stockholder) which has the effect, directly or indirectly, of
increasing the proportional share of the outstanding shares of any class of
equity or convertible securities of the Corporation or any Subsidiary which
is directly or indirectly owned by an Interested Stockholder or any
Affiliate of an Interested Stockholder;
shall require the affirmative vote of the holders of at least 80% of the voting
power of the then-outstanding shares of stock of the Corporation entitled to
vote in the election of Directors (the "Voting Stock") (after giving effect to
the provision of Article FOURTH), voting together as a single class. Such
affirmative vote shall be required notwithstanding the fact that no vote may be
required, or that a lesser percentage may be specified, by law or by any other
provisions of this Certificate of Incorporation or in any agreement with any
national securities exchange or otherwise.
The term "Business Combination" as used in this Article EIGHTH shall mean
any transaction which is referred to in any one or more of paragraphs 1 through
5 of Section A of this Article EIGHTH.
B. The provisions of Section A of this Article EIGHTH shall not be
applicable to any particular Business Combination, and such Business Combination
shall require only the affirmative vote of the majority of the outstanding
shares of capital stock entitled to vote, or such vote as is required by law or
by this Certificate of Incorporation, if, in the case of any Business
Combination that does not involve any cash or other consideration being received
by the stockholders of the Corporation solely in their capacity as stockholders
of the Corporation, the condition specified in the following paragraph 1 is met
or, in the case of any other Business Combination, all of the conditions
specified in either of the following paragraphs 1 or 2 are met:
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1. The Business Combination shall have been approved by two-thirds of
the Disinterested Directors (as hereinafter defined).
2. All of the following conditions shall have been met:
(a) The aggregate amount of the cash and the Fair Market Value as
of the date of the consummation of the Business Combination of
consideration other than cash to be received per share by the
holders of Common Stock in such Business Combination shall at
least be equal to the higher of the following:
(1) (if applicable) the Highest Per Share Price (as hereinafter
defined), including any brokerage commissions, transfer
taxes and soliciting dealers' fees, paid by the Interested
Stockholder or any of its Affiliates for any shares of
Common Stock acquired by it (i) within the two-year period
immediately prior to the first public announcement of the
proposal of the Business Combination (the "Announcement
Date"), or (ii) in the transaction in which it became an
Interested Stockholder, whichever is higher.
(2) the Fair Market Value per share of Common Stock on the
Announcement Date or on the date on which the Interested
Stockholder became an Interested Stockholder (such latter
date is referred to in this Article EIGHTH as the
"Determination Date"), whichever is higher.
(b) The aggregate amount of the cash and the Fair Market Value as
of the date of the consummation of the Business Combination of
consideration other than cash to be received per share by
holders of shares of any class of outstanding Voting Stock
other than Common Stock shall be at least equal to the highest
of the following (it being intended that the requirements of
this subparagraph (b) shall be required to be met with respect
to every such class of outstanding Voting Stock, whether or not
the Interested Stockholder has previously acquired any shares
of a particular class of Voting Stock):
(1) (if applicable) the Highest Per Share Price (as hereinafter
defined), including any brokerage commissions, transfer
taxes and soliciting dealers' fees, paid by the Interested
Stockholder for any shares of such class of Voting Stock
acquired by it (i) within the two-year period immediately
prior to the Announcement Date, or (ii) in the transaction
in which it became an Interested Stockholder, whichever is
higher;
(2) (if applicable) the highest preferential amount per share
to which the holders of shares of such class of Voting
Stock are entitled in the event of any voluntary or
involuntary liquidation, dissolution or winding up of the
Corporation; and
(3) the Fair Market Value per share of such class of Voting
Stock on the Announcement Date or on the Determination
Date, whichever is higher.
(c) The consideration to be received by holders of a particular
class of outstanding Voting Stock (including Common Stock)
shall be in cash or in the same form as the Interested
Stockholder has paid for shares of such class of Voting Stock.
If the
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Interested Stockholder has previously paid for shares of any
class of Voting Stock with varying forms of consideration, the
form of consideration to be received per share by holders of
shares of such class of Voting Stock shall be either cash or
the form used to acquire the largest number of shares of such
class of Voting Stock previously acquired by the Interested
Stockholder. The price determined in accordance with
subparagraph B.2 of this Article EIGHTH shall be subject to
appropriate adjustment in the event of any stock dividend,
stock split, combination of shares or similar event.
(d) After such Interested Stockholder has become an Interested
Stockholder and prior to the consummation of such Business
Combination: (1) except as approved by a majority of the
Disinterested Directors, there shall have been no failure to
declare and pay at the regular date therefor any full quarterly
dividends (whether or not cumulative) on any outstanding stock
having preference over the Common Stock as to dividends or
liquidation; (2) there shall have been (i) no reduction in the
annual rate of dividends paid on the Common Stock (except as
necessary to reflect any subdivision of the Common Stock),
except as approved by a majority of the Disinterested
Directors, and (ii) an increase in such annual rate of
dividends as necessary to reflect any reclassification
(including any reverse stock split), recapitalization,
reorganization or any similar transaction which has the effect
of reducing the number of outstanding shares of the Common
Stock, unless the failure to so increase such annual rate is
approved by a majority of the Disinterested Directors; and (3)
neither such Interested Stockholder or any of its Affiliates
shall have become the beneficial owner of any additional shares
of Voting Stock except as part of the transaction which results
in such Interested Stockholder becoming an Interested
Stockholder.
(e) After such Interested Stockholder has become an Interested
Stockholder, such Interested Stockholder shall not have
received the benefit, directly or indirectly (except
proportionately as a stockholder), of any loans, advances,
guarantees, pledges or other financial assistance or any tax
credits or other tax advantages provided by the Corporation,
whether in anticipation of or in connection with such Business
Combination or otherwise.
(f) A proxy or information statement describing the proposed
Business Combination and complying with the requirements of the
Securities Exchange Act of 1934 and the rules and regulations
thereunder (or any subsequent provisions replacing such Act,
rules or regulations) shall be mailed to stockholders of the
Corporation at least 30 days prior to the consummation of such
Business Combination (whether or not such proxy or information
statement is required to be mailed pursuant to such Act or
subsequent provisions).
C. For the purposes of this Article EIGHTH:
1. A "Person" shall include an individual, a group acting in concert,
a corporation, a partnership, an association, a joint venture, a pool, a
joint stock company, a trust, an unincorporated organization or similar
company, a syndicate or any other group formed for the purpose of
acquiring, holding or disposing of securities.
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2. "Interested Stockholder" shall mean any person (other than the
Corporation or any holding company or Subsidiary thereof) who or which:
(a) is the beneficial owner, directly or indirectly, of more than
10% of the voting power of the outstanding Voting Stock; or
(b) is an Affiliate of the Corporation and at any time within the
two-year period immediately prior to the date in question was the
beneficial owner, directly or indirectly, of 10% or more of the voting
power of the then-outstanding Voting Stock; or
(c) is an assignee of or has otherwise succeeded to any shares of
Voting Stock which were at any time within the two-year period
immediately prior to the date in question beneficially owned by an
Interested Stockholder, if such assignment or succession shall have
occurred in the course of a transaction or series of transactions not
involving a public offering within the meaning of the Securities Act of
1933.
3. For purposes of this Article EIGHTH, "beneficial ownership" shall
be determined in the manner provided in Section B of Article FOURTH hereof.
4. "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations
under the Securities Exchange Act of 1934, as in effect on the date of
filing of this Certificate of Incorporation.
5. "Subsidiary" means any corporation of which a majority of any class
of equity security is owned, directly or indirectly, by the Corporation;
provided, however, that for the purposes of the definition of Interested
Stockholder set forth in paragraph 2 of this section, the term "Subsidiary"
shall mean only a corporation of which a majority of each class of equity
security is owned, directly or indirectly, by the Corporation.
6. "Disinterested Director" means any member of the Board of Directors
who is unaffiliated with the Interested Stockholder and was a member of the
Board of Directors prior to the time that the Interested Stockholder became
an Interested Stockholder, and any Director who is thereafter chosen to
fill any vacancy of the Board of Directors or who is elected and who, in
either event, is unaffiliated with the Interested Stockholder and in
connection with his or her initial assumption of office is recommended for
appointment or election by a majority of Disinterested Directors then on
the Board of Directors.
7. "Fair Market Value" means: (a) in the case of stock, the highest
closing sales price of the stock during the 30-day period immediately
preceding the date in question of a share of such stock on the National
Association of Securities Dealers Automated Quotation System or any system
then in use, or, if such stock is admitted to trading on a principal United
States securities exchange registered under the Securities Exchange Act of
1934, Fair Market Value shall be the highest sales price reported during
the 30-day period preceding the date in question, or, if no such quotations
are available, the Fair Market Value on the date in question of a share of
such stock as determined by the Board of Directors in good faith, in each
case with respect to any class of stock, appropriately adjusted for any
dividend or distribution in shares of such stock or any stock split or
reclassification of outstanding shares of such stock into a greater number
of shares of such stock or any combination or reclassification of
outstanding shares of such stock into a smaller number of shares of such
stock, and (b) in the case of property other than cash or stock, the Fair
Market
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Value of such property on the date in question as determined by the Board
of Directors in good faith.
8. Reference to "Highest Per Share Price" shall in each case with
respect to any class of stock reflect an appropriate adjustment for any
dividend or distribution in shares of such stock or any stock split or
reclassification of outstanding shares of such stock into a greater number
of shares of such stock or any combination or reclassification of
outstanding shares of such stock into a smaller number of shares of such
stock.
9. In the event of any Business Combination in which the Corporation
survives, the phrase "consideration other than cash to be received" as used
in subparagraphs (a) and (b) of paragraph 2 of Section B of this Article
EIGHTH shall include the shares of Common Stock and/or the shares of any
other class of outstanding Voting Stock retained by the holders of such
shares.
D. A majority of the Directors of the Corporation shall have the power
and duty to determine for the purposes of this Article EIGHTH, on the basis of
information known to them after reasonable inquiry (a) whether a person is an
Interested Stockholder; (b) the number of shares of Voting Stock beneficially
owned by any person; (c) whether a person is an Affiliate or Associate of
another; and (d) whether the assets which are the subject of any Business
Combination have, or the consideration to be received for the issuance or
transfer of securities by the Corporation or any Subsidiary in any Business
Combination has an aggregate Fair Market Value equaling or exceeding 25% of the
combined Fair Market Value of the Common Stock of the Corporation and its
Subsidiaries. A majority of the Directors shall have the further power to
interpret all of the terms and provisions of this Article EIGHTH.
E. Nothing contained in this Article EIGHTH shall be construed to relieve
any Interested Stockholder from any fiduciary obligation imposed by law.
F. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the Voting Stock required by law, this Certificate
of Incorporation, the affirmative vote of the holders of at least 80 percent of
the voting power of all of the then-outstanding shares of the Voting Stock,
voting together as a single class, shall be required to alter, amend or repeal
this Article EIGHTH.
NINTH: The Board of Directors of the Corporation, when evaluating any
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offer of another Person (as defined in Article EIGHTH hereof) to (A) make a
tender or exchange offer for any equity security of the Corporation, (B) merge
or consolidate the Corporation with another corporation or entity or (C)
purchase or otherwise acquire all or substantially all of the properties and
assets of the Corporation, may, in connection with the exercise of its judgment
in determining what is in the best interest of the Corporation and its
stockholders, give due consideration to all relevant factors, including, without
limitation, the social and economic effect of acceptance of such offer on the
Corporation's present and future customers and employees and those of its
Subsidiaries (as defined in Article EIGHTH hereof); on the communities in which
the Corporation and its Subsidiaries operate or are located; on the ability of
the Corporation to fulfill its corporate objectives as a savings bank holding
company and on the ability of its subsidiary savings bank to fulfill the
objectives of a stock savings bank under applicable statutes and regulations.
TENTH:
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A. Each person who was or is made a party or is threatened to be made a
party to or is otherwise involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (hereinafter a "proceeding"),
by reason of the fact that he or she is or was a Director or an Officer of the
Corporation or is or was serving at the request of the Corporation as a
Director, Officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to an
employee benefit plan (hereinafter an "indemnitee"), whether the basis of such
proceeding is alleged action in an official capacity as a Director, Officer,
employee or agent or in any other capacity while serving as a Director, Officer,
employee or agent, shall be indemnified and held harmless by the Corporation to
the fullest extent authorized by the Delaware General Corporation Law, as the
same exists or may hereafter be amended (but, in the case of any such amendment,
only to the extent that such amendment permits the Corporation to provide
broader indemnification rights than such law permitted the Corporation to
provide prior to such amendment), against all expense, liability and loss
(including attorneys' fees, judgments, fines, ERISA excise taxes or penalties
and amounts paid in settlement) reasonably incurred or suffered by such
indemnitee in connection therewith; provided, however, that, except as provided
in Section C hereof with respect to proceedings to enforce rights to
indemnification, the Corporation shall indemnify any such indemnitee in
connection with a proceeding (or part thereof) initiated by such indemnitee only
if such proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation.
B. The right to indemnification conferred in Section A of this Article
TENTH shall include the right to be paid by the Corporation the expenses
incurred in defending any such proceeding in advance of its final disposition
(hereinafter an "advancement of expenses"); provided, however, that, if the
Delaware General Corporation Law requires, an advancement of expenses incurred
by an indemnitee in his or her capacity as a Director of Officer (and not in any
other capacity in which service was or is rendered by such indemnitee,
including, without limitation, service to an employee benefit plan) shall be
made only upon delivery to the Corporation of an undertaking (hereinafter an
"undertaking"), by or on behalf of such indemnitee, to repay all amounts so
advanced if it shall ultimately be determined by final judicial decision from
which there is no further right to appeal (hereinafter a "final adjudication")
that such indemnitee is not entitled to be indemnified for such expenses under
this Section or otherwise. The rights to indemnification and to the advancement
of expenses conferred in Sections A and B of this Article TENTH shall be
contract rights and such rights shall continue as to an indemnitee who has
ceased to be a Director, Officer, employee or agent and shall inure to the
benefit of the indemnitee's heirs, executors and administrators.
C. If a claim under Section A or B of this Article TENTH is not paid in
full by the Corporation within sixty days after a written claim has been
received by the Corporation, except in the case of a claim for an advancement of
expenses, in which case the applicable period shall be twenty days, the
indemnitee may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim. If successful in whole or in part in
any such suit, or in a suit brought by the Corporation to recover an advancement
of expenses pursuant to the terms of an undertaking, the indemnitee shall be
entitled to be paid also the expense of prosecuting or defending such suit. In
(i) any suit brought by the indemnitee to enforce a right to indemnification
hereunder (but not in a suit brought by the indemnitee to enforce a right to an
advancement of expenses) it shall be a defense that, and (ii) in any suit by the
Corporation to recover an advancement of expenses pursuant to the terms of an
undertaking the Corporation shall be entitled to recover such expenses upon a
final adjudication that, the indemnitee has not met any applicable standard for
indemnification set forth in the Delaware General Corporation Law. Neither the
failure of the Corporation (including its Board of Directors, independent legal
counsel, or its stockholders) to have made a determination prior to the
commencement of such suit that indemnification of the indemnitee is proper in
the circumstances because the indemnitee has met the applicable standard of
conduct set forth in the Delaware General Corporation Law, nor an actual
determination by the
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Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the indemnitee to
enforce a right to indemnification or to an advancement of expenses hereunder,
or by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the burden of proving that the indemnitee is not
entitled to be indemnified, or to such advancement of expenses, under this
Article TENTH or otherwise shall be on the Corporation.
D. The rights to indemnification and to the advancement of expenses
conferred in this Article TENTH shall not be exclusive of any other right which
any person may have or hereafter acquire under any statute, the Corporation's
Certificate of Incorporation, Bylaws, agreement, vote of stockholders or
disinterested Directors or otherwise.
E. The Corporation may maintain insurance, at its expense, to protect
itself and any Director, Officer, employee or agent of the Corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss
under the Delaware General Corporation Law.
F. The Corporation may, to the extent authorized from time to time by the
Board of Directors, grant rights to indemnification and to the advancement of
expenses to any employee or agent of the Corporation to the fullest extent of
the provisions of this Article TENTH with respect to the indemnification and
advancement of expenses of Directors and Officers of the Corporation.
ELEVENTH: A Director of this Corporation shall not be personally liable to
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the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a Director, except for liability (i) for any breach of the Director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the Director derived an improper
personal benefit. If the Delaware General Corporation Law is amended to
authorize corporate action further eliminating or limiting the personal
liability of Directors, then the liability of a Director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the Delaware
General Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the stockholders
of the Corporation shall not adversely affect any right or protection of a
Director of the Corporation existing at the time of such repeal or modification.
TWELFTH: The Corporation reserves the right to amend or repeal any
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provision contained in this Certificate of Incorporation in the manner
prescribed by the laws of the State of Delaware and all rights conferred upon
stockholders are granted subject to this reservation; provided, however, that,
notwithstanding any other provision of this Certificate of Incorporation or any
provision of law which might otherwise permit a lesser vote or no vote, but in
addition to any vote of the holders of any class or series of the stock of the
Corporation required by law or by this Certificate of Incorporation, the
affirmative vote of the holders of at least 80 percent of the voting power of
all of the then-outstanding shares of the capital stock of the Corporation
entitled to vote generally in the election of Directors (after giving effect to
the provisions of Article FOURTH), voting together as a single class, shall be
required to amend or repeal this Article TWELFTH, Section B of Article FOURTH,
Sections C or D of Article FIFTH, Article SIXTH, Article SEVENTH, Article EIGHTH
or Article TENTH.
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THIRTEENTH: The name and mailing address of the sole incorporator are as
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follows:
Name Mailing Address
---- ---------------
Edward A. Quint 5335 Wisconsin Avenue, N.W.
Suite 400
Washington, D.C. 20015
I, THE UNDERSIGNED, being the incorporator, for the purpose of forming a
corporation under the laws of the State of Delaware, do make, file and record
this Certificate of Incorporation, do certify that the facts herein stated are
true, and accordingly, have hereto set my hand this 5th day of August, 1997.
/s/ Edward A. Quint
----------------------
Edward A. Quint
Incorporator
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APPENDIX F
PATHFINDER BANCORP, INC.
BYLAWS
ARTICLE I - STOCKHOLDERS
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Section 1. Annual Meeting. An annual meeting of the stockholders, for the
election of Directors to succeed those whose terms expire and for the
transaction of such other business as may properly come before the meeting,
shall be held at such place, on such date, and at such time as the Board of
Directors shall each year fix, which date shall be within thirteen (13) months
subsequent to the later of the date of incorporation or the last annual meeting
of stockholders.
Section 2. Special Meetings. Subject to the rights of the holders of any
class or series of preferred stock of the Corporation, special meetings of
stockholders of the Corporation may be called by the Board of Directors pursuant
to a resolution adopted by a majority of the total number of Directors which the
Corporation would have if there were no vacancies on the Board of Directors
(hereinafter the "Whole Board").
Section 3. Notice of Meetings. Written notice of the place, date, and
time of all meetings of the stockholders shall be given, not less than ten (10)
nor more than sixty (60) days before the date on which the meeting is to be
held, to each stockholder entitled to vote at such meeting, except as otherwise
provided herein or required by law (meaning, here and hereinafter, as required
from time to time by the Delaware General Corporation Law or the Certificate of
Incorporation of the Corporation).
When a meeting is adjourned to another place, date or time, written notice
need not be given of the adjourned meeting if the place, date and time thereof
are announced at the meeting at which the adjournment is taken; provided,
however, that if the date of any adjourned meeting is more than thirty (30) days
after the date for which the meeting was originally noticed, or if a new record
date is fixed for the adjourned meeting, written notice of the place, date, and
time of the adjourned meeting shall be given in conformity herewith. At any
adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
Section 4. Quorum. At any meeting of the stockholders, the holders of a
majority of all of the shares of the stock entitled to vote at the meeting,
present in person or by proxy (after giving effect to the Article FOURTH of the
Corporation's Certificate of Incorporation), shall constitute a quorum for all
purposes, unless or except to the extent that the presence of a larger number
may be required by law. Where a separate vote by a class or classes is required,
a majority of the shares of such class or classes present in person or
represented by proxy shall constitute a quorum entitled to take action with
respect to that vote on that matter.
If a quorum shall fail to attend any meeting, the chairman of the meeting
or the holders of a majority of the shares of stock entitled to vote who are
present, in person or by proxy, may adjourn the meeting to another place, date,
or time.
If a notice of any adjourned special meeting of stockholders is sent to all
stockholders entitled to vote thereat, stating that it will be held with those
present constituting a quorum, then except as otherwise required by law, those
present at such adjourned meeting shall constitute a quorum, and all matters
shall be determined by a majority of the votes cast at such meeting.
<PAGE>
Section 5. Organization. Such person as the Board of Directors may have
designated or, in the absence of such a person, the Chairman of the Board of the
Corporation or, in his or her absence, the Chief Executive Officer or, in his or
her absence, such person as may be chosen by the holders of a majority of the
shares entitled to vote who are present, in person or by proxy, shall call to
order any meeting of the stockholders and act as chairman of the meeting. In the
absence of the Secretary of the Corporation, the secretary of the meeting shall
be such person as the chairman appoints.
Section 6. Conduct of Business.
(a) The chairman of any meeting of stockholders shall determine
the order of business and the procedure at the meeting, including such
regulation of the manner of voting. The rules of conduct at any meeting of
stockholders shall be determined by the Board of Directors prior to the meeting
and shall be made available for inspection at the stockholders meeting. The date
and time of the opening and closing of the polls for each matter upon which the
stockholders will vote at the meeting shall be announced at the meeting.
(b) At any annual meeting of the stockholders, only such
business shall be conducted as shall have been brought before the meeting: (i)
by or at the direction of the Board of Directors; or (ii) by any stockholder of
the Corporation who is entitled to vote with respect thereto and who complies
with the notice procedures set forth in this Section 6(b). For business to be
properly brought before an annual meeting by a stockholder, the business must
relate to a proper subject matter for stockholder action and the stockholder
must have given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice must be delivered or mailed to
and received at the principal executive offices of the Corporation not less than
one hundred and twenty (120) calendar days in advance of the date of the
Corporation's proxy statement released to security holders in connection with
the previous year's annual meeting of stockholders or, in the case of the first
annual meeting of stockholders of the Corporation following its acquisition of
all of the outstanding capital stock of Oswego City Savings Bank, one hundred
and twenty (120) calendar days prior to the anniversary date of the mailing of
proxy materials by Oswego City Savings Bank in connection with the immediately
preceding annual meeting of Oswego Savings Bank prior to such acquisition. A
stockholder's notice to the Secretary shall set forth as to each matter such
stockholder proposes to bring before the annual meeting: (i) a brief description
of the business desired to be brought before the annual meeting and the reasons
for conducting such business at the annual meeting; (ii) the name and address,
as they appear on the Corporation's books, of the stockholder proposing such
business; (iii) the class and number of shares of the Corporation's capital
stock that are beneficially owned by such stockholder; and (iv) any material
interest of such stockholder in such business. Notwithstanding anything in these
Bylaws to the contrary, no business shall be brought before or conducted at an
annual meeting except in accordance with the provisions of this Section 6(b).
The Officer of the Corporation or other person presiding over the annual meeting
shall, if the facts so warrant, determine and declare to the meeting that
business was not properly brought before the meeting in accordance with the
provisions of this Section 6(b) and, if he or she should so determine, he or she
shall so declare to the meeting and any such business so determined to be not
properly brought before the meeting shall not be transacted.
At any special meeting of the stockholders, only such business shall be
conducted as shall have been brought before the meeting by or at the direction
of the Board of Directors.
(c) Only persons who are nominated in accordance with the
procedures set forth in these Bylaws shall be eligible for election as
Directors. Nominations of persons for election to the Board of Directors of the
Corporation may be made at a meeting of stockholders at which Directors are to
be elected only: (i) by or at the direction of the Board of Directors; or (ii)
by any stockholder of the Corporation entitled to vote for the election of
Directors at the meeting who complies with the notice procedures set forth in
this Section 6(c). Such nominations, other than those made by or at the
direction
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of the Board of Directors, shall be made by timely notice in writing to the
Secretary of the Corporation. To be timely, a stockholder's notice shall be
delivered or mailed to and received at the principal executive offices of the
Corporation not less than one hundred and twenty (120) calendar days in advance
of the date of the Corporation's proxy statement released to security holders in
connection with the previous year's annual meeting of stockholders. Such
stockholder's notice shall set forth: (i) as to each person whom such
stockholder proposes to nominate for election or re-election as a Director, all
information relating to such person that is required to be disclosed in
solicitations of proxies for the election of Directors, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities Exchange
Act of 1934 (including such person's written consent to being named in the proxy
statement as a nominee and to serving as a Director if elected); and (ii) as to
the stockholder giving notice, (x) the name and address, as they appear on the
Corporation's books, of such stockholder and (y) the class and number of shares
of the Corporation's capital stock that are beneficially owned by such
stockholder. At the request of the Board of Directors any person nominated by
the Board of Directors for election as a Director shall furnish to the Secretary
of the Corporation that information required to be set forth in a stockholder's
notice of nomination which pertains to the nominee. No person shall be eligible
for election as a Director of the Corporation unless nominated in accordance
with the provisions of this Section 6(c). The Officer of the Corporation or
other person presiding at the meeting shall, if the facts so warrant, determine
that a nomination was not made in accordance with such provisions and, if he or
she should so determine, he or she shall declare to the meeting and the
defective nomination shall be disregarded.
Section 7. Proxies and Voting. At any meeting of the stockholders, every
stockholder entitled to vote may vote in person or by proxy authorized by an
instrument in writing or by a transmission permitted by law filed in accordance
with the procedure established for the meeting. Any copy, facsimile
telecommunication or other reliable reproduction of the writing or transmission
created pursuant to this paragraph may be substituted or used in lieu of the
original writing or transmission for any and all purposes for which the original
writing or transmission could be used, provided that such copy, facsimile
telecommunication or other reproduction shall be a complete reproduction of the
entire original writing or transmission.
All voting, including on the election of Directors but excepting where
otherwise required by law or by the governing documents of the Corporation, may
be by a voice vote; provided, however, that upon demand therefor by a
stockholder entitled to vote or by his or her proxy, a stock vote shall be
taken. Every stock vote shall be taken by ballots, each of which shall state the
name of the stockholder or proxy voting and such other information as may be
required under the procedure established for the meeting. The Corporation shall,
in advance of any meeting of stockholders, appoint one or more inspectors to act
at the meeting and make a written report thereof. The Corporation may designate
one or more persons as alternate inspectors to replace any inspector who fails
to act. If no inspector or alternate is able to act at a meeting of
stockholders, the person presiding at the meeting shall appoint one or more
inspectors to act at the meeting. Each inspector, before entering upon the
discharge of his or her duties, shall take and sign an oath faithfully to
execute the duties of inspector with strict impartiality and according to the
best of his or her ability.
All elections shall be determined by a plurality of the votes cast, and
except as otherwise required by the Certificate of Incorporation or by law, all
other matters shall be determined by a majority of the votes present and cast at
a properly called meeting of stockholders.
Section 8. Stock List. A complete list of stockholders entitled to vote
at any meeting of stockholders, arranged in alphabetical order for each class of
stock and showing the address of each such stockholder and the number of shares
registered in his or her name, shall be open to the examination of any such
stockholder, for any purpose germane to the meeting, during ordinary business
hours for a period of at least ten (10) days prior to the meeting, either at a
place within the city where the meeting is to be
3
<PAGE>
held, which place shall be specified in the notice of the meeting, or if not so
specified, at the place where the meeting is to be held.
The stock list shall also be kept at the place of the meeting during the
whole time thereof and shall be open to the examination of any such stockholder
who is present. This list shall presumptively determine the identity of the
stockholders entitled to vote at the meeting and the number of shares held by
each of them.
Section 9. Consent of Stockholders in Lieu of Meeting. Subject to the
rights of the holders of any class or series of preferred stock of the
Corporation, any action required or permitted to be taken by the stockholders of
the Corporation must be effected at an annual or special meeting of stockholders
of the Corporation and may not be effected by any consent in writing by such
stockholders.
ARTICLE II - BOARD OF DIRECTORS
---------- ------------------
Section 1. General Powers, Number and Term of Office. The business and
affairs of the Corporation shall be under the direction of its Board of
Directors. The number of Directors who shall constitute the Whole Board shall
be such number as the Board of Directors shall from time to time have
designated, except that in the absence of any such designation, such number
shall be five (5). The Board of Directors shall annually elect a Chairman of
the Board from among its members who shall, when present, preside at its
meetings.
The Directors, other than those who may be elected by the holders of any
class or series of Preferred Stock, shall be divided, with respect to the time
for which they severally hold office, into three classes, with the term of
office of the first class to expire at the first annual meeting of stockholders,
the term of office of the second class to expire at the annual meeting of
stockholders one year thereafter and the term of office of the third class to
expire at the annual meeting of stockholders two years thereafter, with each
Director to hold office until his or her successor shall have been duly elected
and qualified. At each annual meeting of stockholders, commencing with the
first annual meeting, Directors elected to succeed those Directors whose terms
then expire shall be elected for a term of office to expire at the third
succeeding annual meeting of stockholders after their election, with each
Director to hold office until his or her successor shall have been duly elected
and qualified.
Section 2. Vacancies and Newly Created Directorships. Subject to the
rights of the holders of any class or series of preferred stock, and unless the
Board of Directors otherwise determines, newly created Directorships resulting
from any increase in the authorized number of Directors or any vacancies in the
Board of Directors resulting from death, resignation, retirement,
disqualification, removal from office or other cause may be filled only by a
majority vote of the Directors then in office, though less than a quorum, and
Directors so chosen shall hold office for a term expiring at the annual meeting
of stockholders at which the term of office of the class to which they have been
elected expires and until such Director's successor shall have been duly elected
and qualified. No decrease in the number of authorized Directors constituting
the Board shall shorten the term of any incumbent Director.
Section 3. Regular Meetings. Regular meetings of the Board of Directors
shall be held at such place or places, on such date or dates, and at such time
or times as shall have been established by the Board of Directors and publicized
among all Directors. A notice of each regular meeting shall not be required.
Section 4. Special Meetings. Special meetings of the Board of Directors
may be called by one-third (1/3) of the Directors then in office (rounded up to
the nearest whole number) or by the Chairman of the Board and shall be held at
such place, on such date, and at such time as they or he or she shall fix.
Notice of the place, date, and time of each such special meeting shall be given
to each Director by whom
4
<PAGE>
it is not waived by mailing written notice not less than five (5) days before
the meeting or be telegraphing or telexing or by facsimile transmission of the
same not less than twenty-four (24) hours before the meeting. Unless otherwise
indicated in the notice thereof, any and all business may be transacted at a
special meeting.
Section 5. Quorum. At any meeting of the Board of Directors, a majority
of the Whole Board shall constitute a quorum for all purposes. If a quorum
shall fail to attend any meeting, a majority of those present may adjourn the
meeting to another place, date, or time, without further notice or waiver
thereof.
Section 6. Participation in Meetings By Conference Telephone. Members of
the Board of Directors, or of any committee thereof, may participate in a
meeting of such Board or committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other and such participation shall constitute presence in
person at such meeting.
Section 7. Conduct of Business. At any meeting of the Board of Directors,
business shall be transacted in such order and manner as the Board may from time
to time determine, and all matters shall be determined by the vote of a majority
of the Directors present, except as otherwise provided herein or required by
law. Action may be taken by the Board of Directors without a meeting if all
members thereof consent thereto in writing, and the writing or writings are
filed with the minutes of proceedings of the Board of Directors.
Section 8. Powers. The Board of Directors may, except as otherwise
required by law, exercise all such powers and do all such acts and things as may
be exercised or done by the Corporation, including, without limiting the
generality of the foregoing, the unqualified power:
(1) To declare dividends from time to time in accordance with
law;
(2) To purchase or otherwise acquire any property, rights or
privileges on such terms as it shall determine;
(3) To authorize the creation, making and issuance, in such
form as it may determine, of written obligations of every kind, negotiable or
non-negotiable, secured or unsecured, and to do all things necessary in
connection therewith;
(4) To remove any Officer of the Corporation with or without
cause, and from time to time to devolve the powers and duties of any Officer
upon any other person for the time being;
(5) To confer upon any Officer of the Corporation the power to
appoint, remove and suspend subordinate Officers, employees and agents;
(6) To adopt from time to time such stock, option, stock
purchase, bonus or other compensation plans for Directors, Officers, employees
and agents of the Corporation and its subsidiaries as it may determine;
(7) To adopt from time to time such insurance, retirement, and
other benefit plans for Directors, Officers, employees and agents of the
Corporation and its subsidiaries as it may determine; and
(8) To adopt from time to time regulations, not inconsistent
with these Bylaws, for the management of the Corporation's business and affairs.
5
<PAGE>
Section 9. Compensation of Directors. Directors, as such, may receive,
pursuant to resolution of the Board of Directors, fixed fees and other
compensation for their services as Directors, including, without limitation,
their services as members of committees of the Board of Directors.
ARTICLE III - COMMITTEES
----------- ----------
Section 1. Committee of the Board of Directors. The Board of Directors,
by a vote of a majority of the Whole Board, may from time to time designate
committees of the Board, with such lawfully delegable powers and duties as it
thereby confers, to serve at the pleasure of the Board and shall, for those
committees and any others provided for herein, elect a Director or Directors to
serve as the member or members, designating, if it desires, other Directors as
alternate members who may replace any absent or disqualified member at any
meeting of the committee. Any committee so designated may exercise the power
and authority of the Board of Directors to declare a dividend, to authorize the
issuance of stock or to adopt a certificate of ownership and merger pursuant to
Section 253 of the Delaware General Corporation Law if the resolution which
designates the committee or a supplemental resolution of the Board of Directors
so provides. In the absence or disqualification of any member of any committee
and any alternate member in his or her place, the member or members of the
committee present at the meeting and not disqualified from voting, whether or
not he or she or they constitute a quorum, may by unanimous vote appoint another
member of the Board of Directors to act at the meeting in the place of the
absent or disqualified member.
Section 2. Conduct of Business. Each committee may determine the
procedural rules for meeting and conducting its business and shall act in
accordance therewith, except as otherwise provided herein or required by law.
Adequate provision shall be made for notice to members of all meetings; one-
third (1/3) of the members shall constitute a quorum unless the committee shall
consist of one (1) or two (2) members, in which event one (1) member shall
constitute a quorum; and all matters shall be determined by a majority vote of
the members present. Action may be taken by any committee without a meeting if
all members thereof consent thereto in writing, and the writing or writings are
filled with the minutes of the proceedings of such committee.
Section 3. Nominating Committee. The Board of Directors shall appoint a
Nominating Committee of the Board, consisting of not less than three (3)
members, one of which shall be the Chairman of the Board. The Nominating
Committee shall have authority (a) to review any nominations for election to the
Board of Directors made by a stockholder of the Corporation pursuant to Section
6(c)(ii) of Article I of these Bylaws in order to determine compliance with such
Bylaw provision and (b) to recommend to the Whole Board nominees for election to
the Board of Directors to replace those Directors whose terms expire at the
annual meeting of stockholders next ensuing.
ARTICLE IV - OFFICERS
---------- --------
Section 1. Generally.
(a) The Board of Directors as soon as may be practicable after
the annual meeting of stockholders shall choose a Chairman of the Board, a
President and Chief Executive Officer, one or more Vice Presidents, and a
Secretary and from time to time may choose such other Officers as it may deem
proper. The Chairman of the Board shall be chosen from among the Directors. Any
number of offices may be held by the same person.
(b) The term of office of all Officers shall be until the next
annual election of Officers and until their respective successors are chosen,
but any Officer may be removed from office at any time
6
<PAGE>
by the affirmative vote of a majority of the authorized number of Directors then
constituting the Board of Directors.
(c) All Officers chosen by the Board of Directors shall each
have such powers and duties as generally pertain to their respective offices,
subject to the specific provisions of this Article IV. Such Officers shall also
have such powers and duties as from time to time may be conferred by the Board
of Directors or by any committee thereof.
Section 2. Chairman of the Board.
The Chairman of the Board shall, subject to the provisions of these Bylaws
and to the direction of the Board of Directors, serve in a general executive
capacity and, when present, shall preside at all meetings of the Board of
Directors or the stockholders of the Corporation. The Chairman of the Board
shall perform all duties and have all powers which are commonly incident to the
office of Chairman of the Board or which are delegated to him or her by the
Board of Directors. He or she shall have power to sign all stock certificates,
contracts and other instruments of the Corporation which are authorized.
Section 3. President and Chief Executive Officer.
The President and Chief Executive Officer (the "President") shall have
general responsibility for the management and control of the business and
affairs of the Corporation and shall perform all duties and have all powers
which are commonly incident to the offices of President and Chief Executive
Officer or which are delegated to him or her by the Board of Directors. Subject
to the direction of the Board of Directors, the President shall have power to
sign all stock certificates, contracts and other instruments of the Corporation
which are authorized and shall have general supervision of all of the other
Officers (other than the Chairman of the Board), employees and agents of the
Corporation.
Section 4. Vice President. The Vice President or Vice Presidents shall
perform the duties of the President in his or her absence or during his or her
disability to act. In addition, the Vice Presidents shall perform the duties
and exercise the powers usually incident to their respective offices and/or such
other duties and powers as may be properly assigned to them by the Board of
Directors, the Chairman of the Board or the President. A Vice President or Vice
Presidents may be designated as Executive Vice President or Senior Vice
President.
Section 5. Secretary. The Secretary or an Assistant Secretary shall issue
notices of meetings, shall keep their minutes, shall have charge of the seal and
the corporate books, shall perform such other duties and exercise such other
powers as are usually incident to such offices and/or such other duties and
powers as are properly assigned thereto by the Board of Directors, the Chairman
of the Board or the President.
Section 6. Assistant Secretaries and Other Officers. The Board of
Directors may appoint one or more Assistant Secretaries and such other Officers
who shall have such powers and shall perform such duties as are provided in
these Bylaws or as may be assigned to them by the Board of Directors, the
Chairman of the Board or the President.
Section 7. Action with Respect to Securities of Other Corporations.
Unless otherwise directed by the Board of Directors, the President or any
Officer of the Corporation authorized by the President shall have power to vote
and otherwise act on behalf of the Corporation, in person or in which the
Corporation may hold securities and otherwise to exercise any and all rights and
powers which the Corporation may possess by reason of its ownership of
securities in such other corporation.
7
<PAGE>
ARTICLE V - STOCK
--------- -----
Section 1. Certificates of Stock. Each stockholder shall be entitled to a
certificate signed by, or in the name of the Corporation by, the Chairman of the
Board or the President, and by the Secretary or an Assistant Secretary, or any
Treasurer or Assistant Treasurer, certifying the number of shares owned by him
or her. Any or all of the signatures on the certificate may be by facsimile.
Section 2. Transfers of Stock. Transfers of stock shall be made only upon
the transfer books of the Corporation kept at an office of the Corporation or by
transfer agents designated to transfer shares of the stock of the Corporation.
Except where a certificate is issued in accordance with Section 4 of Article V
of these Bylaws, an outstanding certificate for the number of shares involved
shall be surrendered for cancellation before a new certificate is issued
therefor.
Section 3. Record Date. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders, or
to receive payment of any dividend or other distribution or allotment of any
rights or to exercise any rights in respect of any change, conversion or
exchange of stock or for the purpose of any other lawful action, the Board of
Directors may fix a record date, which record date shall not precede the date on
which the resolution fixing the record date is adopted and which record date
shall not be more than sixty (60) nor less than ten (10) days before the date of
any meeting of stockholders, nor more than sixty (60) days prior to the time for
such other action as hereinbefore described; provided, however, that if no
record date is fixed by the Board of Directors, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day next preceding the day on which notice is
given or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held, and, for determining
stockholders entitled to receive payment of any dividend or other distribution
or allotment of rights or to exercise any rights of change, conversion or
exchange of stock or for any other purpose, the record date shall be at the
close of business on the day on which the Board of Directors adopts a resolution
relating thereto.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
Section 4. Lost, Stolen or Destroyed Certificates. In the event of the
loss, theft or destruction of any certificate of stock, another may be issued in
its place pursuant to such regulations as the Board of Directors may establish
concerning proof of such loss, theft or destruction and concerning the giving of
a satisfactory bond or bonds of indemnity.
Section 5. Regulations. The issue, transfer, conversion and registration
of certificates of stock shall be governed by such other regulations as the
Board of Directors may establish.
ARTICLE VI - NOTICES
---------- -------
Section 1. Notices. Except as otherwise specifically provided herein or
required by law, all notices required to be given to any stockholder, Director,
Officer, employee or agent shall be in writing and may in every instance be
effectively given by hand delivery to the recipient thereof, by depositing such
notice in the mails, postage paid, or by sending such notice by prepaid telegram
or mailgram or other courier. Any such notice shall be addressed to such
stockholder, Director, Officer, employee or agent at his or her last known
address as the same appears on the books of the Corporation. The time when such
notice is received, if hand delivered, or dispatched, if delivered through the
mails or by telegram or mailgram or other courier, shall be the time of the
giving of the notice.
8
<PAGE>
Section 2. Waivers. A written waiver of any notice, signed by a
stockholder, Director, Officer, employee or agent, whether before or after the
time of the event for which notice is to be given, shall be deemed equivalent to
the notice required to be given to such stockholder, Director, Officer, employee
or agent. Neither the business nor the purpose of any meeting need be specified
in such a waiver.
ARTICLE VII - MISCELLANEOUS
----------- -------------
Section 1. Facsimile Signatures. In addition to the provisions for use of
facsimile signatures elsewhere specifically authorized in these Bylaws,
facsimile signatures of any Officer or Officers of the Corporation may be used
whenever and as authorized by the Board of Directors or a committee thereof.
Section 2. Corporate Seal. The Board of Directors may provide a suitable
seal, containing the name of the Corporation, which seal shall be in the charge
of the Secretary. If and when so directed by the Board of Directors or a
committee thereof, duplicates of the seal may be kept and used by the Treasurer
or by an Assistant Secretary or an assistant to the Treasurer.
Section 3. Reliance upon Books, Reports and Records. Each Director, each
member of any committee designated by the Board of Directors, and each Officer
of the Corporation shall, in the performance of his or her duties, be fully
protected in relying in good faith upon the books of account or other records of
the Corporation and upon such information, opinions, reports or statements
presented to the Corporation by any of its Officers or employees, or committees
of the Board of Directors so designated, or by any other person as to matters
which such Director or committee member reasonably believes are within such
other person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Corporation.
Section 4. Fiscal Year. The fiscal year of the Corporation shall be as
fixed by the Board of Directors.
Section 5. Time Periods. In applying any provision of these Bylaws which
requires that an act be done or not be done a specified number of days prior to
an event or that an act be done during a period of a specified number of days
prior to an event, calendar days shall be used, the day of the doing of the act
shall be excluded, and the day of the event shall be included.
ARTICLE VIII - AMENDMENT
------------ ---------
The Board of Directors may amend, alter or repeal these Bylaws at any
meeting of the Board, provided notice of the proposed change is given not less
than two days prior to the meeting. The stockholders shall also have power to
amend, alter or repeal these Bylaws at any meeting of stockholders, provided
notice of the proposed change was given in the Notice of the Meeting; provided,
however, that, notwithstanding any other provisions of these Bylaws or any
provision of law which might otherwise permit a lesser vote or no vote, but in
addition to any affirmative vote of the holders of any particular class or
series of the Voting Stock Designation or these Bylaws, the affirmative votes of
the holders of at least eighty percent (80%) of the voting power of all the
then-outstanding shares of the Voting Stock, voting together as a single class,
shall be required to alter, amend or repeal any provisions of these Bylaws.
9
<PAGE>
1996 Annual Report
Financial Highlights
APPENDIX G
On November 15, 1995, the Bank completed its reorganization into a mutual
holding company. As part of the reorganization, the Bank organized a new
state-chartered stock savings bank (the "Savings Bank") and transferred
substantially all its assets and liabilities to the Savings Bank in exchange for
a majority of the common stock of the Savings Bank outstanding upon consummation
of the reorganization. The Savings Bank retained the name Oswego City Savings
Bank.
Concurrent with the reorganization, 881,666 shares of the Savings Bank's common
stock were sold at $7.50 per share. As of December 31, 1996, the Savings Bank's
total assets and shareholders' equity were $189.9 million and $21.4 million,
respectively.
Oswego City Savings Bank's common stock currently trades on the Electronic
Bulletin Board under symbol "PBHC".
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR (In thousands)
Interest Income $13,213 $12,205 $10,443 $9,858 $10,074
Interest Expense 6,414 6,259 4,697 4,062 5,204
Net Interest Income 6,799 5,946 5,746 5,796 4,870
Net Income 1,272 990 1,146 1,802 1,301
PER COMMON SHARE
Net Income:
Primary 0.68 0.10(a) NA NA NA
Fully diluted 0.68 0.10(a) NA NA NA
Book Value 10.83 10.50 NA NA NA
Stock Price:
IOP 7.500 7.500
High 10.650 10.750 NA NA NA
Low 8.000 8.375 NA NA NA
Close 9.375 10.500 NA NA NA
YEAR END (In Thousands)
Total assets $189,937 $180,752 $170,715 $129,270 $126,757
Interest-earning deposits at
other financial institutions 1,550 8,200 13,627 7,962 3,213
Investment securities 36,673 41,932 48,135 33,776 31,427
Mortgage-backed securities 22,829 7,953 992 1,408 2,542
Loans Receivable, net:
Real estate 99,047 91,023 83,563 74,150 74,710
Consumer and other 9,695 9,126 6,105 4,663 3,656
Total loans receivable, net 108,742 100,149 89,668 78,813 78,366
Intangible assets 3,921 4,236 4,552 -- --
Deposits 158,998 158,324 155,764 115,344 114,605
Borrowed funds 7,610 -- -- -- --
Notes Payable ESOP 486 425 -- -- --
Equity 21,390 20,751 13,990 12,953 11,151
SELECTED PERFORMANCE RATIOS
Return on average assets 0.69% 0.56% 0.74% 1.40% 1.05%
Return on average equity 6.09 6.31 8.20 14.99 12.26
Return on tangible equity 7.28 5.99 12.14 13.91 11.67
Average equity to average assets 11.32 8.84 9.00 9.33 8.58
Equity to total assets 11.26 11.47 8.19 10.02 8.80
Net interest rate spread 3.88 3.72 4.01 4.68 4.10
Noninterest expense to total assets 2.82 2.94 2.83 2.72 2.70
Nonperforming loans to
net loans receivable 0.92 0.92 1.24 1.00 1.12
Nonperforming assets to
total assets 0.83 0.83 1.01 1.24 1.62
Allowance for loan losses
to net loans receivable 0.83 0.35 0.35 0.36 0.38
Number of full service offices 5 5 5 3 3
</TABLE>
(a) Earnings per share for 1995 are based on the period from November 15,
1995 to December 31, 1995.
<PAGE>
APPENDIX H
UNAUDITED FINANCIAL INFORMATION REGARDING
OSWEGO COUNTY SAVINGS BANK AND PRO FORMA DATE
<PAGE>
OSWEGO COUNTY SAVINGS BANK
STATEMENTS OF CONDITION
June 30, 1997 and December 31, 1996
(unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1997 1996
------ ------------ ------------
<S> <C> <C>
Cash and due from banks $ 5,421,363 $ 6,102,983
Federal funds sold 450,000 10,950,000
------------ ------------
Total cash and cash equivalents 5,871,363 17,052,983
Investment securities 19,865,535 10,670,675
Mortgage-backed securities 167,797 179,560
Loans:
Real Estate 81,514,531 82,010,883
Consumer and Other 2,544,189 3,089,853
------------ ------------
Total Loans 84,058,720 85,100,736
Less: Allowance for loan losses 1,105,124 485,799
------------ ------------
Loans receivable, net 82,953,596 84,614,937
Premises and equipment 2,322,131 2,095,089
Accrued interest receivable 1,028,666 815,825
Other real estate 557,528 691,521
Other assets 708,092 366,840
------------ ------------
$113,474,708 $116,487,430
============ ============
<CAPTION>
LIABILITIES AND NET WORTH
-------------------------
Due to depositors 100,491,807 103,749,080
Other liabilities 1,127,692 779,904
------------ ------------
Total liabilities 101,619,499 104,528,984
Net Worth
Surplus Fund 3,728,639 3,728,639
Undivided Profits 8,124,804 8,229,807
Unrealized appreciation in securities available for sale 1,766 0
------------ ------------
Total Net Worth 11,855,209 11,958,446
------------ ------------
$113,474,708 $116,487,430
============ ============
</TABLE>
<PAGE>
OSWEGO COUNTY SAVINGS BANK
STATEMENTS OF INCOME
(unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended For the Years Ended
------------------------ -------------------
06/30/97 06/30/96 12/31/96 12/31/95
-------------- ---------------- -------------- --------------
<S> <C> <C> <C> <C>
Interest and dividend Income:
Loans receivable $3,429,306 $3,440,768 $6,847,056 $7,107,196
Mortgage-backed securities 8,017 8,967 16,573 20,772
Investment securities 562,664 256,126 461,542 355,590
Interest-earning deposits 158,066 386,045 860,840 597,113
-------------- ---------------- -------------- --------------
Total interest income 4,158,053 4,091,906 8,186,011 8,080,671
Interest Expense:
Savings and checking deposits 1,882,495 1,983,937 3,972,550 3,572,768
-------------- ---------------- -------------- --------------
Total interest expense 1,882,495 1,983,937 3,972,550 3,572,768
Provision for loan losses 858,064 75,000 226,481 60,000
-------------- ---------------- -------------- --------------
Net Interest Income after provision
for loan losses 1,417,494 2,032,969 3,986,980 4,447,903
Noninterest Income:
Service charges on deposit accounts 129,270 124,220 321,735 255,528
Gain(loss) on sale of mortgage-backed
and investment securities and loans, net - (60,000) (14,189) (111,921)
Other charges, commissions & fees 121,536 122,543 197,551 205,827
-------------- ---------------- -------------- --------------
Total noninterest income 250,806 186,763 505,097 349,434
-------------- ---------------- -------------- --------------
Noninterest Expense:
Compensation and employee benefits 975,242 914,389 2,263,210 1,802,540
Occupancy costs 305,108 278,694 535,709 567,696
Data processing 140,863 123,139 247,688 218,545
Professional and other services 119,595 67,328 121,651 124,206
Deposit insurance premiums 6,106 1,000 1,833 114,369
Other expenses 296,389 241,037 601,880 501,150
-------------- ---------------- -------------- --------------
Total noninterest expense 1,843,303 1,625,587 3,771,971 3,328,506
-------------- ---------------- -------------- --------------
Income before income taxes (175,003) 594,145 720,106 1,468,831
Income taxes (70,000) 269,517 214,137 579,179
-------------- ---------------- -------------- --------------
Net (Loss) income ($105,003) $324,628 $505,969 $889,652
============== ================ ============== ==============
</TABLE>
<PAGE>
OSWEGO COUNTY SAVINGS BANK
STATEMENTS OF CHANGES IN NET WORTH
FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE SIX MONTHS ENDED JUNE 30, 1997
(unaudited)
<TABLE>
<CAPTION>
Unrealized
Appreciation
in Available-
Surplus Undivided For-Sale
Fund Profits Securities Total
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Balance at January 1, 1996 $ 3,728,639 $ 7,723,838 $ 11,452,477
Net income 324,628 324,628
------------- ------------- ------------- -------------
Balance at June 30, 1996 $ 3,728,639 $ 8,048,466 $ - $ 11,777,105
============= ============= ============= =============
Balance at January 1, 1996 $ 3,728,639 $ 7,723,838 $ 11,452,477
Net income 505,969 505,969
------------- ------------- ------------- -------------
Balance at December 31, 1996 3,728,639 8,229,807 - 11,958,446
------------- ------------- ------------- -------------
Balance at December 31, 1996 3,728,639 8,229,807 11,958,446
Net (Loss) (105,003) (105,003)
Change in unrealized net appreciation
on investment securities 1,766 1,766
------------- ------------- ------------- -------------
Balance at June 30, 1997 $ 3,728,639 $ 8,124,804 $ 1,766 $ 11,855,209
============= ============= ============= =============
</TABLE>
<PAGE>
OSWEGO COUNTY SAVINGS BANK
STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
-----------------------------
June 30, June 30,
1997 1996
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net (Loss) Income ($105,003) $ 324,624
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Provision for loan, investment and other real estate losses 1,017,764 195,000
Deferred income taxes (328,387) 20,452
Net loss on sale of other real estate - -
Net loss on sale of property, plant and equipment - -
Depreciation 85,988 82,135
Net amortization of premiums and discounts on
investment securities (3,459) 9,040
(Increase)decrease in accounts receivable (212,841) 57,731
(Increase) in other assets (49,752) 22,483
Increase(decrease) in other liabilities 383,498 31,572
------------ ------------
Net cash provided by operating activities 787,808 743,037
------------ ------------
INVESTING ACTIVITIES
Purchase of investment securities available for sale (7,015,312) -
Purchase of investment securities held to maturity (4,485,184) (3,310,791)
Proceeds from maturities and principle reductions of
investment securities held to maturity 2,323,801 2,350,109
Net decrease in loans 571,145 2,884,622
Purchase of premises and equipment (313,030) (52,466)
Proceeds from sale of P P & E - -
Proceeds from sale of other real estate owned 206,425 96,899
------------ ------------
Net cash used in investing activities (8,712,155) 1,968,373
------------ ------------
FINANCING ACTIVITIES
Net (decrease)increase in demand deposits, NOW accounts savings accounts,
money market deposit accounts
and escrow deposits (7,133) 867,790
Net (decrease)increase in time deposits (3,250,140) 1,150,591
------------ ------------
Net cash (used in) provided by financing activities (3,257,273) 2,018,381
(Decrease)increase in cash and cash equivalents (11,181,620) 4,729,791
Cash and cash equivalents at beginning of year 17,052,983 17,701,091
------------ ------------
Cash and cash equivalents at end of year $ 5,871,363 $ 22,430,882
============ ============
</TABLE>
<TABLE>
<CAPTION>
For the Years Ended
----------------------------
December 31, December 31,
1996 1995
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net (Loss) Income $ 505,970 $ 889,651
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Provision for loan, investment and other real estate losses 326,970 316,921
Deferred income taxes (154,387) (40,903)
Net loss on sale of other real estate - 18,927
Net loss on sale of property, plant and equipment 15,570 -
Depreciation 152,653 186,437
Net amortization of premiums and discounts on
investment securities 18,196 (1,494)
(Increase)decrease in accounts receivable 2,593 (107,571)
(Increase) in other assets (4,907) (133,469)
Increase(decrease) in other liabilities 373,529 (76,115)
------------ ------------
Net cash provided by operating activities 1,236,187 1,052,384
------------ ------------
INVESTING ACTIVITIES
Purchase of investment securities available for sale (7,836,014) (3,751,116)
Purchase of investment securities held to maturity - -
Proceeds from maturities and principle reductions of
investment securities held to maturity 4,303,150 2,643,067
Net decrease in loans 1,328,531 490,892
Purchase of premises and equipment (153,780) (38,398)
Proceeds from sale of P P & E 39,600 -
Proceeds from sale of other real estate owned 233,850 466,669
------------ ------------
Net cash used in investing activities (2,084,663) (188,886)
------------ ------------
FINANCING ACTIVITIES
Net (decrease)increase in demand deposits, NOW accounts savings accounts,
money market deposit accounts
and escrow deposits (1,144,605) (4,007,462)
Net (decrease)increase in time deposits 1,344,973 10,642,145
------------ ------------
Net cash (used in) provided by financing activities 200,368 6,634,683
(Decrease)increase in cash and cash equivalents (648,108) 7,498,181
Cash and cash equivalents at beginning of year 17,701,091 10,202,910
------------ ------------
Cash and cash equivalents at end of year $ 17,052,983 $ 17,701,091
============ ============
</TABLE>
<PAGE>
OSWEGO COUNTY SAVINGS BANK
STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended For the Years Ended
------------------------------ ------------------------------
June 30, June 30, December 31, December 31,
1997 1996 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CASH PAID DURING THE PERIOD FOR:
Interest $1,882,473 $1,984,129 $3,972,765 $3,572,700
Income Taxes 25,408 125,981 193,822 600,216
NON-CASH INVESTING ACTIVITY:
Transfer of loans to other real estate 252,132 230,666 645,935 468,057
Change in unrealized depreciation in
securities available for sale 1,962 - - -
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(dollars in thousands)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of operations
Oswego County Savings Bank (the "Bank"), is a New York chartered mutual
savings bank headquartered in Oswego, New York. The Bank operates four
full service offices located in Oswego County, its principal market area.
The Bank attracts deposits from the general public throughout its market
area, and invests such deposits in loans secured by residential real estate
and investment securities.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Cash and Cash Equivalents
Cash and cash equivalents includes cash on hand, amounts due from banks,
interest-bearing deposits (with original maturity of three months or less)
and federal funds sold. Generally, federal funds are purchased and sold
for one-day periods.
Investment Securities
The Bank classifies investment securities as held-to-maturity or available-
for-sale. Held-to-maturity securities are those which the Bank has the
positive intent and ability to hold to maturity, and are reported at cost,
adjusted for amortization of premiums and accretion of discounts.
Investment securities not classified as held-to-maturity are classified as
available-for-sale and are reported at fair value, with net unrealized
gains and losses reflected as a separate component of net worth, net of the
applicable income tax affect. None of the Bank's investment securities
have been classified as trading securities.
Gains or losses on investment securities are based on quoted market prices,
where available If quoted market prices are not available, fair values are
based on quoted market prices of comparable instruments.
Loans
Loans are stated at unpaid principal balances, less the allowance for loan
losses. Interest income is generally recognized when income is earned
using the interest method. Net nonrefundable loan fees received and
related direct costs incurred are not significant and recognized as
received and incurred, respectively.
Allowance for Possible Loan Losses
The allowance for loan losses is maintained at a level considered adequate
to provide for potential loan losses. The allowance is increased by
provisions charged to expense and reduced by net charge-offs. The level of
the allowance is based upon management's evaluation of potential losses
related to outstanding loans, as well as prevailing economic conditions.
During 1995 and 1996 the Bank had no loans for which impairment was
measured under SFAS No. 114 "Accounting by Creditors for Impairment of a
Loan".
1
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(dollars in thousands)
Income Recognition on Impaired and Nonaccrual Loans
Loans, including impaired loans, are generally classified as nonaccrual if
they are past due as to maturity or payment of principle or interest for a
period of more than 90 days. When a loan is classified as nonaccrual and
the future collectibility of the recorded loan balance is doubtful,
collections of interest and principal are generally applied a reduction to
principal outstanding.
When future collectibility of the recorded loan balance is expected,
interest income may be recognized on a cash basis. In the case where a
nonaccrual loan had been partially charged off, recognition of interest on
a cash basis is limited to that which would have been recognized on the
recorded loan balance at the contractual interest rate. Cash interest
receipts in excess of that amount are recorded as recoveries to the
allowance for possible loan losses until prior charge-offs have been fully
recovered.
Premises and Equipment
Premises and equipment are stated at cost, less accumulated depreciation.
Depreciation is computed generally on a straight-line basis over the
estimated useful lives of the related assets. Maintenance and repairs are
charged to operating expenses as incurred.
Other Real Estate
Properties acquired through foreclosure, or by deed in lieu of foreclosure,
are carried at the lower of cost (fair value at the date of foreclosure) or
fair value less estimated disposal costs.
Deposits
Interest on deposits is accrued and paid to the depositors or credited to
the depositors' accounts monthly, quarterly or annually.
Income Taxes
Provisions for income taxes are based on taxes currently payable or
refundable and deferred income taxes on temporary differences between the
tax bases of assets and liabilities and their reported amounts in the
financial statements. Deferred tax assets and liabilities are reported in
the financial statements at currently enacted income tax rates applicable
to the period in which the deferred tax assets and liabilities are expected
to be realized or settled.
3
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(dollars in thousands)
NOTE 2: INVESTMENT SECURITIES
The amortized cost and estimated market value of investment securities are
summarized as follows:
<TABLE>
<CAPTION>
June 30, 1997
------------------
Gross
Amortized Market
Cost Value
<S> <C> <C>
Held-to-maturity:
Bond Investments:
U.S. Treasury $ 4,632 $ 4,632
U.S. Agency 2,660 2,649
State & Political Subdivisions 200 200
Corporate 5,356 5,441
Mortgage-Backed 168 168
------- -------
Total Held to Maturity $13,016 $13,090
=======
Available-for-Sale:
Bond Investments:
U.S. Treasury $ 5,017 $ 5,022
U.S. Agency 1,993 1,990
-------
Total 7,010 7,008
Stock Investments:
Available Equity Securities 5 5
------- -------
Total Available for Sale $ 7,015 $ 7,017
=======
Net Unrealized Loss on Available for Sale 2
-------
Grand Total Carrying Value $20,033
=======
December 31, 1996
-----------------
Gross
Amortized Market
Cost Value
Held-to-maturity:
Bond Investments:
U.S. Treasury $ 3,645 $ 3,654
U.S. Agency 1,708 1,712
State & Political Subdivisions 400 401
Corporate 4,912 4,988
Mortgage-Backed 180 180
------- -------
Total Held to Maturity $10,845 $10,935
=======
Stock Investments:
Available Equity Securities 5 5
------- -------
Total Available for Sale $ 5 $ 5
------- =======
Net Unrealized Loss on Available for Sale -
-------
Grand Total Carrying Value $10,855
=======
</TABLE>
4
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(dollars in thousands)
The amortized cost and estimated market value of debt investments at June 30,
1997 by contractual maturity, are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without penalties.
<TABLE>
<CAPTION>
Available for Sale Held to Maturity
June 30, 1997 June 30, 1996
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Due in one year or less $ 2,001 $ 1,995 $ 6,810 $ 6,813
Due after one year through three years 4,021 4,030 3,560 3,621
Due after three years through five years 993 992 1,985 1,979
Due after five years through ten years - - 67 70
Due after ten years - - 594 607
--------- --------- --------- ---------
Totals $ 7,015 $ 7,017 $ 13,016 $ 13,090
========= ========= ========= =========
</TABLE>
NOTE 3: LOANS
Major classifications of loans are as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
-------- ------------
<S> <C> <C>
Real estate mortgages:
Conventional $78,469 $78,931
FHA insured 78 94
VA guaranteed 82 98
Second mortgage loans 2,828 2,823
Construction 58 65
------- -------
Total $81,515 $82,011
------- -------
Other loans:
Student $ 60 $ 81
Consumer 1,833 2,326
Passbook loans 366 383
Commercial 285 300
------- -------
Total 2,544 3,090
------- -------
Grand Total $84,059 $85,101
======= =======
</TABLE>
The Bank grants mortgage and consumer loans to customers throughout Oswego and
parts of Onondaga counties. Although the Bank has a diversified loan portfolio,
a substantial portion of its debtors' ability to honor their contracts is
dependent upon the counties employment and economic conditions.
At June 30, 1997, loans to officers and directors were not significant.
5
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(dollars in thousands)
NOTE 4: ALLOWANCES FOR LOAN LOSSES
Changes in the allowance for loan losses are presented in the following summary:
<TABLE>
<CAPTION>
June 30, December 31, December 31,
1997 1996 1995
-------- ------------ ------------
<S> <C> <C> <C>
Balance at beginning of period $ 486 $ 362 $ 462
Recoveries credited 4 11 6
Provision for loan losses 858 226 60
Loans charged off 243 113 166
------ ----- -----
Balance at end of period $1,105 $ 486 $ 362
====== ===== =====
</TABLE>
NOTE 5: PREMISES AND EQUIPMENT
A summary of premises and equipment is as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
-------- ------------
<S> <C> <C>
Land $ 631 $ 631
Buildings 2,250 2,250
Furniture, fixture and equipment 1,953 1,669
Construction in progress 32 3
-------- -------
4,867 4,553
Less: Accumulated Depreciation 2,544 2,458
-------- -------
$ 2,322 $ 2,095
======== =======
</TABLE>
NOTE 6: DEPOSITS
A summary of amounts due to depositors is shown as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
<S> <C> <C>
Savings accounts $ 50,205 $ 50,787
Money market accounts 815 833
Time accounts 40,357 43,542
Demand deposits interest bearing 48 41
Demand deposits noninterest bearing 9,067 8,546
-------- --------
$100,492 $103,749
======== ========
</TABLE>
6
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(dollars in thousands)
NOTE 7: EMPLOYEE BENEFITS
The Bank has a noncontributory defined benefit pension plan covering
substantially all employees. Under the plan, retirement benefits are primarily
a function of both the years of service and level of compensation. It is the
Bank's policy to fund the plan in amounts sufficient to pay liabilities.
Plan assets consist primarily of temporary cash investments and listed stocks
and bonds. The following table represents a reconciliation of the funded status
of the plan at September 30, 1996 (date of the most recent actuarial study) and
September 30, 1995.
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Plan assets at fair value $3,465,257 $3,046,937
---------- ----------
Actuarial present value of benefit obligations
Vested benefits 2,280,200 2,208,043
Nonvested benefits 144,200 139,638
---------- ----------
Accumulated benefit obligations $2,424,400 $2,347,681
Effect of future salary increases 587,300 568,733
---------- ----------
Projected benefit obligation $3,011,700 $2,916,414
---------- ----------
Plan assets in excess of (less than) projected benefit
obligation 453,557 130,523
Unrecognized net (gain)loss (107,791) 191,513
Unrecognized transition asset (107,747) (132,460)
---------- ----------
Prepaid pension asset included in other assets $ 242,463 $ 194,986
========== ==========
Net periodic pension cost for the years ended December 31 is as follows:
1996 1995
Service cost benefits earned during the year $ 76,968 $ 69,269
Interest cost on projected benefit obligations 212,702 201,025
Actual return on plan assets (238,024) (195,876)
Net amortization and deferral (23,747) (18,029)
---------- ----------
Net periodic pension expense $ 27,899 $ 56,389
========== ==========
</TABLE>
The actuarial present value of the projected benefit obligation shown in the
above table is based on a discount rate of 7.75% and 7.5% for 1996 and 1995,
respectively and an assumed rate of increase in future compensation levels of
5.5%. The expected long-term rate of return on assets was 8% for 1996 and 1995.
Changes in actuarial assumptions, principally the decrease in discount rate,
increased the projected benefit obligation by approximately $142,000.
7
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(dollars in thousands)
NOTE 8: COMMITMENTS
The Bank is a party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of its Customers. These
financial instruments consist primarily of commitments to extend credit, which
involve, to varying degrees, elements of credit risk in excess of the amount
recognized tin the statement of condition. The contract amount of those
commitment to extend credit reflects the extent of involvement the Bank has in
this particular class of financial instrument. The Bank's exposure to credit
loss in the event of nonperformance by the other party to the financial
instrument for commitments to extend credit is represented by the contractual
amount of the instrument. The Bank uses the same credit policies in making
commitments as it does for on-balance sheet instruments.
<TABLE>
<CAPTION>
Contract Amount
Financial instruments whose contract amounts represent credit risk at
<S> <C>
June 30, 1997 $ 476
December 31, 1996 1,120
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since some of the commitment amounts are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's
creditworthiness on a case by case basis. The amount of collateral obtained,
if deemed necessary by the Bank upon extension of credit, is based on
management's credit evaluation of the counter party. Collateral held varies but
may include residential real estate and income-producing commercial properties
NOTE 9: INCOME TAXES
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
For the Six Months For the Years Ended,
June 30, 1997 1996 1995
------------------- --------- --------
<S> <C> <C> <C>
Current $(70,000) $ 368,000 $620,000
Deferred - (154,000) (41,000)
-------- --------- --------
$(70,000) $ 214,000 $579,000
======== ========= ========
</TABLE>
8
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(dollars in thousands)
NOTE 10: REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guideline and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier 1 capital (as defined in the regulations) to risk-
weighted assets (as defined), and of Tier 1 capital (as defined) to average
assets (as defined). Management believes, as of June 30, 1997, that the Bank
meets all capital adequacy requirements to which it is subject and is "well
capitalized" under the regulatory framework for prompt corrective action. To be
categorized as "well capitalized" the Bank must maintain minimum total risk-
based, Tier 1 risk based, and Tier 1 leverage ratios as set forth in the
following table.
<TABLE>
<CAPTION>
To be "Well
Capitalized"
For Capital Under Prompt
Adequacy Corrective Action
Actual Purposes Provisions
Amount Ratio Amount Ratio Amount Ratio
------- ----- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
As of June 30, 1997:
Total Core Capital $12,960 20.8% $4,992 8.0% $6,240 10.0%
(to Risk Weighted Assets)
Tier 1 Capital $11,855 19.0% $2,496 4.0% $3,744 6.0%
(to Risk Weighted Assets)
Tier 1 Capital $11,855 10.4% $4,539 4.0% $5,674 5.0%
(to Total Assets)
As of December 31, 1996:
Total Core Capital $12,444 19.0% $5,226 8.0% $6,533 10.0%
(to Risk Weighted Assets)
Tier 1 Capital $11,958 18.3% $2,613 4.0% $3,920 6.0%
(to Risk Weighted Assets)
Tier 1 Capital $11,958 10.3% $4,659 4.0% $5,824 5.0%
(to Total Assets)
</TABLE>
NOTE 11: RECENT EVENTS
On September 5, 1997, the Board of Trustees of the Oswego County Savings Bank,
in conjunction with the Board of Directors of Oswego City Savings Bank,
announced the adoption of a definitive merger agreement under which the Banks
will be combined. The proposed transaction is subject to regulatory approval,
as well as the approval of the shareholders' of Oswego City Savings Bank.
9
<PAGE>
PRO FORMA COMBINED FINANCIAL INFORMATION
The following tables set forth selected unaudited condensed pro forma financial
data giving effect to the Merger. The pro forma balance sheet has been prepared
as if the Merger were consummated as of June 30, 1997, and the pro forma income
statements have been prepared as if the Merger were consummated as of the
beginning of the periods presented. The pro forma information has been prepared
assuming that Oswego City Savings Bank will issue to its mutual holding company
parent, Pathfinder Bancorp, MHC, additional shares of Oswego City common stock
equal to the fair value of Oswego County Savings Bank. The fair value and
resulting shares issued will be based upon a preliminary valuation of Oswego
County Savings Bank and the average of the bid and asking price of Oswego City
Savings Bank common stock over the last ten trading days immediately preceding
the closing date. The preliminary valuation has been performed by an independent
appraiser in order to estimate the fair value of Oswego County Savings Bank for
the purpose of determining the number of additional shares to be issued to
Pathfinder Bancorp, MHC. The pro forma financial information included in this
Proxy Statement is presented for illustrative purposes only. Such pro forma
financial information does not necessarily reflect what the actual results of
Oswego City Savings Bank would be following completion of the merger.
The following pro forma information does not give effect to any potential cost
savings, expenses or non-recurring charges which may be realized or incurred as
a result of the Merger.
<PAGE>
PRO FORMA UNAUDITED COMBINED CONDENSED BALANCE SHEET AS OF JUNE 30, 1997
The following unaudited pro forma combined balance sheet information reflects
(i) the historical consolidated balance sheets of Oswego City Savings Bank and
Oswego County Savings Bank as of June 30, 1997, and (ii) the pro forma combined
condensed balance sheet of Oswego City Savings Bank at the respective date after
giving effect to the Merger. The Merger has been reflected as a "pooling of
interests". The unaudited information should be read in conjunction with the
historical financial statements of Oswego City Savings Bank, including the notes
thereto, incorporated by reference in this Proxy statement.
<TABLE>
<CAPTION>
Oswego City
and Oswego
Oswego City Oswego County Pro Forma County Savings
Savings Bank Savings Bank Adjustments (1) Bank Combined
------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
ASSETS:
Cash and due from banks ......................................... $ 4,156,902 $ 5,421,363 $ 9,578,265
Federal funds sold .............................................. 2,510,000 450,000 2,960,000
------------- ------------- -------------
Total cash and cash equivalents ............................. 6,666,902 5,871,363 12,538,265
Investment securities ........................................... 36,787,595 19,865,535 56,653,130
Mortgage-backed securities ...................................... 22,678,576 167,797 22,846,373
Loans:
Real Estate .................................................. 102,682,774 81,514,531 184,197,305
Consumer and Other ........................................... 10,108,078 2,544,189 12,652,267
------------- ------------- -------------
Total Loans ................................................ 112,790,852 84,058,720 196,849,572
Less: Unearned discounts and origination fees ................ 364,221 0 364,221
Allowance for loan losses .............................. 1,026,567 1,105,124 2,131,691
------------- ------------- -------------
Loans Receivable, net ...................................... 111,400,064 82,953,596 194,353,660
Premises and equipment .......................................... 3,544,747 2,322,131 5,866,878
Accrued interest receivable ..................................... 1,548,939 1,028,666 2,577,605
Other real estate ............................................... 533,433 557,528 1,090,961
Intangible assets ............................................... 3,762,754 0 3,762,754
Other assets .................................................... 3,976,413 708,092 4,684,505
------------- ------------- -------------
Total Assets .......................................... $ 190,899,423 $ 113,474,708 $ 304,374,131
============= ============= =============
LIABILITIES:
Due to Depositors ............................................... 158,614,361 100,491,807 259,106,168
Borrowed Funds .................................................. 8,050,000 0 8,050,000
Note payable - ESOP ............................................. 458,026 0 458,026
Other liabilities ............................................... 1,392,195 1,127,692 2,519,887
------------- ------------- -------------
Total liabilities ..................................... 168,514,582 101,619,499 270,134,081
SHAREHOLDERS' EQUITY:
Common stock, par value $1.00 per share; authorized
2,500,000 shares; 1,916,666 shares issued and outstanding .. 1,916,666 0 1,161,946 3,078,612
Paid in Capital .............................................. 3,762,530 0 3,762,530
Retained earnings ............................................ 16,700,983 11,853,443 (1,161,946) 27,392,480
Unrealized appreciation (depreciation) in securities
available for sale ......................................... 448,685 1,766 450,451
Unearned ESOP shares ......................................... (444,023) 0 (444,023)
------------- ------------- ------------- -------------
Total shareholders' equity ................................. 22,384,841 11,855,209 34,240,050
------------- ------------- ------------- -------------
Total liabilities and shareholders' equity ...................... $ 190,899,423 $ 113,474,708 $ 304,374,131
============= ============= ============= =============
</TABLE>
(1) Reflects additional issuance of 1,161,946 shares to Pathfinder Bancorp, MHC
to represent the fair value of Oswego County Savings Bank. The shares
issued are derived by dividing the preliminary valuation of Oswego County
Savings Bank by the average of the bid and asked price for Oswego City
Savings Bank over the ten day trading period immediately preceding the
period date of June 30, 1997. Also assumes approval by shareholders of
additional authorized shares of common stock.
10
<PAGE>
PRO FORMA UNAUDITED COMBINED CONDENSED STATEMENTS OF INCOME
The following unaudited pro forma combined condensed statements of income
reflect the historical statements of income of Oswego City Savings Bank and
Oswego County Savings Bank, as indicated below, for each period presented and
the pro forma combined condensed statements of income of Oswego City Savings
Bank, after giving effect to the Merger. The Merger has been reflected as a
"pooling of interests". The pro forma combined condensed statements of income
for the six month period ended June 30, 1997 and the years ended December 31,
1996 and 1995 were prepared on the assumption that the Merger had been effected
as of the beginning of the appplicable six month or annual period. As such, the
per share data reflects an additional number of shares issued to represent the
fair value of Oswego County Savings Bank based upon the preliminary valuation
applied retroactively to the beginning of the period book value. The earnings
per share information presented below is based upon a minimum, midpoint, and
maximum range of the preliminary valuation. The midpoint represents the expected
fair value and the minimum and maximum result from 15% adjustments to the
midpoint to create a range of variance. There can be no assurance that the
actual valuation will be the same as the preliminary valuation of Oswego County
Savings Bank of $16 million as of June 30, 1997.
PRO FORMA UNAUDITED COMBINED CONDENSED STATEMENTS OF INCOME FOR THE SIX MONTHS
ENDED JUNE 30, 1997.
<TABLE>
<CAPTION>
Oswego City
and Oswego
Oswego City Oswego County County Savings
Savings Bank Savings Bank Bank Combined
-------------- -------------- --------------
<S> <C> <C> <C>
Interest income ................................ $ 6,971,717 $ 4,158,053 $ 11,129,770
Interest expense ............................... 3,366,345 1,882,495 5,248,840
-------------- -------------- --------------
Net interest income ............................ 3,605,372 2,275,558 5,880,930
Provision for possible loan losses ............. 127,351 858,064 985,415
-------------- -------------- --------------
Net interest income after provision for possible
loan losses .................................. 3,478,021 1,417,494 4,895,515
Non-interest income ............................ 718,679 250,806 969,485
Non-interest expense ........................... 2,593,521 1,843,303 4,436,824
-------------- -------------- --------------
Earnings before income tax expense ............. 1,603,179 (175,003) 1,428,176
Income tax expense ............................. 465,965 (70,000) 395,965
-------------- -------------- --------------
Net income ..................................... $ 1,137,214 $ (105,003) $ 1,032,211
============== ============== ==============
Earnings per share minimum ..................... $0.61 $0.31 (1)
Earnings per share midpoint .................... $0.61 $0.29 (2)
Earnings per share maximum ..................... $0.61 $0.27 (3)
</TABLE>
(1) The number of additional shares issued to represent the fair value of
County Savings is based upon an estimated valuation of $13.7 million at
the minimum of the range and an average trading price for City Savings
stock of $9.625.
(2) The number of additional shares issued to represent the fair value of
County Savings is based upon an estimated valuation of $16.1 million at
the midpoint of the range and an average trading price for City Savings
stock of $9.625.
(3) The number of additional shares issued to represent the fair value of
County Savings is based upon an estimated valuation of $18.6 million at
the maximum of the range and an average trading price for City Savings
stock of $9.625.
11
<PAGE>
PRO FORMA UNAUDITED COMBINED CONDENSED STATEMENTS OF INCOME FOR THE YEAR ENDED
DECEMBER 31, 1996.
<TABLE>
<CAPTION>
Oswego City
and Oswego
Oswego City Oswego County County Savings
Savings Bank Savings Bank Bank Combined
------------ ------------ --------------
<S> <C> <C> <C>
Interest income ................................ $13,212,719 $ 8,186,011 $21,398,730
Interest expense ............................... 6,413,724 3,972,550 10,386,274
----------- ----------- -----------
Net interest income ............................ 6,798,995 4,213,461 11,012,456
Provision for possible loan losses ............. 636,410 240,670 877,080
----------- ----------- -----------
Net interest income after provision for possible
loan losses .................................. 6,162,585 3,972,791 10,135,376
Non-interest income ............................ 922,047 519,286 1,441,333
Non-interest expense ........................... 5,307,034 3,771,971 9,079,005
----------- ----------- -----------
Earnings before income tax expense ............. 1,777,598 720,106 2,497,704
Income tax expense ............................. 505,838 214,137 719,975
----------- ----------- -----------
Net income ..................................... $ 1,271,760 $ 505,969 $ 1,777,729
=========== =========== ===========
Earnings per share minimum ..................... $ 0.65 $0.57 (1)
Earnings per share mid-point ................... $ 0.65 $0.53 (2)
Earnings per share maximum ..................... $ 0.65 $0.50 (3)
</TABLE>
(1) The number of additional shares issued to represent the fair value of
County Savings is based upon an estimated valuation of $13.1 million at
the minimum of the range and an average trading price for City Savings
stock of $10.50.
(2) The number of additional shares issued to represent the fair value of
County Savings is based upon an estimated valuation of $15.5 million at
the midpoint of the range and an average trading price for City Savings
stock of $10.50.
(3) The number of additional shares issued to represent the fair value of
County Savings is based upon an estimated valuation of $17.8 million at
the maximum of the range and an average trading price for City Savings
stock of $10.50.
PRO FORMA UNAUDITED COMBINED CONDENSED STATEMENTS OF INCOME FOR THE YEAR ENDED
DECEMBER 31, 1995.
<TABLE>
<CAPTION>
Oswego City
and Oswego
Oswego City Oswego County County Savings
Savings Bank Savings Bank Bank Combined
------------ ------------- --------------
<S> <C> <C> <C>
Interest income ................................ $ 12,204,523 $ 8,080,671 $ 20,285,194
Interest expense ............................... 6,258,866 3,572,768 9,831,634
------------ ------------ ------------
Net interest income ............................ 5,945,657 4,507,903 10,453,560
Provision for possible loan losses ............. 102,500 60,000 162,500
------------ ------------ ------------
Net interest income after provision for possible
loan losses .................................. 5,843,157 4,447,903 10,291,060
Non-interest income ............................ 815,776 349,434 1,165,210
Non-interest expense ........................... 5,309,044 3,328,506 8,637,550
------------ ------------ ------------
Earnings before income tax expense ............. 1,349,889 1,468,831 2,818,720
Income tax expense ............................. 360,000 579,179 939,179
------------ ------------ ------------
Net income ..................................... $ 989,889 $ 889,652 $ 1,879,541
============ ============ ============
Earnings per share minimum ..................... $0.66 $0.50 (1)
Earnings per share mid-point ................... $0.66 $0.45 (2)
Earnings per share maximum ..................... $0.66 $0.41 (3)
</TABLE>
(1) The number of additional shares issued to represent the fair value of
County Savings is based upon an estimated valuation of $12.1 million at
the minimum of the range and the initial offering price for City Savings
stock of $7.50.
(2) The number of additional shares issued to represent the fair value of
County Savings is based upon an estimated valuation of $15.5 million at
the minimum of the range and the initial offering price for City Savings
stock of $7.50.
(3) The number of additional shares issued to represent the fair value of
County Savings is based upon an estimated valuation of $17.8 million at
the minimum of the range and the initial offering price for City Savings
stock of $7.50.
12
<PAGE>
OSWEGO CITY SAVINGS BANK
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
ON RECENT EVENT
GENERAL
On September 5, 1997, the Board of Directors of the Oswego City Savings Bank
(the "Bank"), in conjunction with the Board of Trustees of Oswego County Savings
Bank ("County"), announced the adoption of a definitive merger agreement under
which the banks will be combined. The proposed transaction is subject to
regulatory approval, as well as approval of the shareholders of the Bank. The
Bank will issue to its mutual holding company parent, Pathfinder Bancorp, MHC
additional shares of Oswego City Savings Bank common stock equal to the fair
value of Oswego County Savings Bank. The number of shares issued will be based
on the average of the bid and asked price of the Bank's common stock over the
ten trading days immediately preceding the closing date.
The following discussion reviews the expected impact of the merger on the
combined bank's financial condition and results of operations.
FINANCIAL CONDITION
Assets
- ------
As a result of the merger total assets will increase significantly. At June 30,
1997, the total assets of the combined entity on a pro forma basis would be
$304.4 million , an increase of 59.2% to the Bank's total assets at that period.
Total loans on a pro forma basis at June 30, 1997, would increase to $196.8
million, a 74.5% increase. The vast majority of such increase will occur in 1 to
4 family residential mortgages. Total investments will increase to $79.5
million, or 33.7%, on a pro forma basis at June 30, 1997. The majority of the
investment increase will be in U.S. Treasury and agency securities. The affect
of this combination will cause loans to increase and investment securities to
decrease as a percentage of total assets. Other assets categories, including
cash and due from banks, federal funds sold, premises and equipment, and other
real estate owned will not change significantly as a percentage of total assets.
Liabilities
- -----------
The merger will result in a significant increase in total deposits and increase
total deposits as a percentage of total assets. The deposit mix between
checking, savings, and time deposits is similar for the Bank and County. On a
pro forma basis at June 30, 1997, total deposits would increase by $100 million,
or 63.9%. County presently has no borrowed funds and it is not anticipated that
the combination would result in an increase to borrowed funds. It is anticipated
that other liabilities will decrease slightly as a percentage of total assets.
1
<PAGE>
OSWEGO CITY SAVINGS BANK
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
ON RECENT EVENT
Liquidity and Capital Resources
- -------------------------------
The primary source of funds for both banks are deposits, amortization and
prepayments of loans, maturities of investment securities and other short-term
investments, earnings and funds provided from operations. It is not anticipated
that the merger will have a significant impact on liquidity.
Shareholders' equity is expected to decrease as a percentage of total assets,
while the Tier 1 Capital ratio is expected to increase. At June 30, 1997, the
Bank's total capital to total assets was 11.73% and the Tier 1 Capital ratio was
9.95%, while the same ratios for County were 10.45%. The June 30, 1997, pro
forma total capital and Tier 1 capital ratios are 11.25% and 10.14%,
respectively. It is expected that the combined bank will be classified as "well
capitalized" under FDIC capital requirement guidelines. (For further information
regarding the Bank's regulatory capital levels see "Capitalization" in the proxy
statement.
Asset Quality
- -------------
The Bank's asset quality is expected to be adversely impacted as a result of the
merger. Non-performing assets as a percentage of total assets is significantly
higher for County than the Bank, however, on a pro forma basis at June 30, 1997,
the allowance for loan losses to total loans will increase as a result of the
merger from .54% to .70%. It is reasonably possible that increased levels of
loan loss provisions may continue to be needed after the merger to appropriately
recognize potential losses.
RESULTS OF OPERATIONS
The Bank's net income, as percentage of assets, is expected to be adversely
impacted as a result of the merger for the first two years of operation. This
will result primarily from costs associated with non-recurring merger expenses,
oreo expenses, and lower operational efficiency. It is anticipated that these
conditions will improve as the combined organizations consolidate operations and
eliminate duplicative operating expenses and resolve troubled assets. On a pro
forma basis for the six months ended June 30, 1997, net income decreases from
$1.1 million to $1.0 million.
2
<PAGE>
OSWEGO CITY SAVINGS BANK
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
ON RECENT EVENT
Net Interest Income
- -------------------
It is expected that net interest income will be not be significantly impacted as
result of the merger. On a pro forma basis for the six months ended June 30,
1997, the net interest margin decreases from 4.13% to 4.11%.
Provision for Loan Losses
- -------------------------
For the six months ended June 30, 1997, the Bank's provision for loan losses was
.07% of total assets, while County's provision was .76% of total assets. On a
pro forma basis for the six months ended June 30, 1997, the provision for loan
loss is .32% of total assets. It is reasonably possible that increased levels of
loan loss provisions may continue to be needed after the merger to appropriately
recognize potential losses.
Noninterest Income
- ------------------
Noninterest income, as a percentage of assets, will initially be negatively
impacted as a result of the merger. The Bank's noninterest income for the six
months ended June 30, 1997, was .37% of total assets, while County's was .22% of
total assets. On a pro forma basis for the six months ended June 30, 1997,
noninterest income as a percent of total assets is .32%. It is anticipated that
fees and service charges on deposits accounts at County will be adjusted upward
shortly after the merger to ameliorate this negative impact.
Noninterest Expense
- -------------------
Noninterest expense, as measured by overhead and efficiency ratios, is expected
to be negatively as a result of the merger. The Bank's noninterest expense for
the six months ended June 30, 1997, was 2.71%, annualized while County's ratio,
on an annual basis, of noninterest expense to total assets was 3.25% for the
same period. On a pro forma basis for the six months ended June 30, 1997,
noninterest expense to total assets is 2.92%, annually. It is anticipated that
non-recurring charges associated with the merger, as well as the assimilation of
the two institutions and the rectification of troubled assets will continue to
adversely affect noninterest expense over the first twenty -four months of
combined operation. Thereafter, the economies of scale resultant from the
combination of resources and elimination of duplicative costs should have a
significantly positive impact on noninterest expense.
3
<PAGE>
Income Taxes
- ------------
It is not anticipated that any negative tax ramifications will result from the
merger or that the effective tax rate of the combined organizations will change
significantly.
4
