<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 19, 1997
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
WARWICK COMMUNITY BANCORP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
DELAWARE 6036 BEING APPLIED FOR
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD (IRS EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NO.) IDENTIFICATION NO.)
</TABLE>
18 OAKLAND AVENUE
WARWICK, NEW YORK 10990-0591
(914) 986-2206
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
TIMOTHY A. DEMPSEY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
WARWICK COMMUNITY BANCORP, INC.
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
WITH COPIES TO:
DOUGLAS J. MCCLINTOCK, ESQ.
THACHER PROFFITT & WOOD
TWO WORLD TRADE CENTER
NEW YORK, NY 10048
(212) 912-7436
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
============================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SECURITIES TO AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$.01 per share........ 6,606,523 shares $10.00 $66,065,230 $20,020
============================================================================================================
</TABLE>
(1) Includes the maximum number of shares that may be issued in connection with
this offering, based on various assumptions relating thereto.
(2) Estimated solely for the purpose of calculating the registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.
================================================================================
<PAGE> 2
PROSPECTUS
[LOGO] WARWICK COMMUNITY BANCORP, INC.
(PROPOSED HOLDING COMPANY FOR THE WARWICK SAVINGS BANK)
5,577,500 SHARES OF COMMON STOCK
$10.00 PER SHARE
Warwick Community Bancorp, Inc. ("Company"), a Delaware corporation, is
offering up to 5,577,500 shares of its common stock, par value $.01 per share
("Common Stock"), in connection with the conversion of The Warwick Savings Bank
("Bank") from a New York mutual savings bank to a New York stock savings bank
pursuant to the Bank's amended plan of conversion ("Plan" or "Plan of
Conversion"). In certain circumstances, the Company may increase the amount of
Common Stock offered hereby to 6,414,100 shares. See footnote 4 to the table
below. The simultaneous conversion of the Bank to stock form, the issuance of
the Bank's stock to the Company, the offer and sale of the Common Stock by the
Company and the additional issuance to The Warwick Savings Foundation
("Foundation") equal to 3% of the number of shares sold by the Company are
referred to herein as the "Conversion." Consummation of the Conversion is
subject to, among other things, the approval of the Plan by the Bank's Eligible
Account Holders (as defined herein). See "The Conversion."
(continued on following page)
------------------------
THE COMMON STOCK IS SUBJECT TO INVESTMENT RISK, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL INVESTED. FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY EACH PROSPECTIVE INVESTOR, SEE "RISK FACTORS" BEGINNING ON PAGE 17
OF THIS PROSPECTUS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, THE SUPERINTENDENT OF BANKS OF THE STATE OF NEW YORK, THE
NEW YORK STATE BANKING BOARD, THE NEW YORK STATE BANKING DEPARTMENT, THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY STATE SECURITIES COMMISSION OR ANY OTHER
AGENCY, NOR HAS SUCH COMMISSION, SUPERINTENDENT, BOARD, DEPARTMENT, CORPORATION
OR ANY STATE SECURITIES COMMISSION OR OTHER AGENCY PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
ESTIMATED
UNDERWRITING
COMMISSIONS AND ESTIMATED NET
PURCHASE PRICE(1) OTHER EXPENSES(2) PROCEEDS(3)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Minimum Per Share.................................................... $10.00 $0.43 $9.57
- ------------------------------------------------------------------------------------------------------------------------------
Midpoint Per Share................................................... $10.00 $0.39 $9.61
- ------------------------------------------------------------------------------------------------------------------------------
Maximum Per Share.................................................... $10.00 $0.36 $9.64
- ------------------------------------------------------------------------------------------------------------------------------
Total Minimum(1)..................................................... $41,225,000 $1,781,000 $39,444,000
- ------------------------------------------------------------------------------------------------------------------------------
Total Midpoint(1).................................................... $48,500,000 $1,906,000 $46,594,000
- ------------------------------------------------------------------------------------------------------------------------------
Total Maximum(1)..................................................... $55,775,000 $2,031,000 $53,744,000
- ------------------------------------------------------------------------------------------------------------------------------
Total Maximum, as adjusted(4)........................................ $64,141,000 $2,175,000 $61,966,000
==============================================================================================================================
</TABLE>
(1) Determined in accordance with an independent appraisal prepared by FinPro,
Inc. ("FinPro"), dated as of September 18, 1997, which states that the
aggregate estimated pro forma market value of the Common Stock ranged from
$41,225,000 to $55,775,000 with a midpoint of $48,500,000 ("Valuation
Range"). FinPro's independent appraisal is based upon estimates and
projections that are subject to change, and the valuation must not be
construed as a recommendation as to the advisability of purchasing the
Common Stock nor an assurance that a purchaser will thereafter be able to
sell such shares at or above the $10.00 price per share ("Purchase Price")
to be paid for each share of Common Stock subscribed for or purchased in the
Offerings (as defined herein). Based on the Valuation Range, the Board of
Trustees of the Bank established the estimated price range of $41,225,000 to
$55,775,000 ("Estimated Price Range"), or between 4,122,500 and 5,577,500
shares of Common Stock at the Purchase Price. See "The Conversion -- Stock
Pricing" and "-- Number of Shares to be Issued."
(2) Consists of the estimated costs to the Bank and the Company arising from the
Conversion, including estimated fixed expenses of approximately $1.1 million
and marketing fees to be paid to Sandler O'Neill & Partners, L.P. ("Sandler
O'Neill") in connection with the Subscription and Community Offerings (as
defined herein), which fees are estimated to be $681 thousand and $931
thousand, respectively, at the minimum and the maximum of the Estimated
Price Range. See "The Conversion -- Marketing and Underwriting
Arrangements." Such fees may be deemed to be underwriting fees, and Sandler
O'Neill may be deemed to be an underwriter. See "Pro Forma Data" for the
assumptions used to arrive at these estimates. Actual fees and expenses may
vary from the estimates.
(3) Actual net proceeds may vary substantially from estimated amounts depending
on the number of shares sold in each of the Offerings (as defined herein)
and other factors. Includes the purchase of shares of Common Stock by the
Warwick Community Bancorp, Inc. Employee Stock Ownership Plan and related
trust ("ESOP"), which is intended to be funded by a loan from the Company to
the ESOP, which initially will be deducted from the Company's shareholders'
equity. See "Use of Proceeds" and "Pro Forma Data."
(4) As adjusted to give effect to the sale of up to an additional 15% of the
shares which may be offered at the Purchase Price, without resolicitation of
subscribers or any right of cancellation, due to regulatory considerations,
changes in the market and general financial and economic conditions. See
"Pro Forma Data" and "The Conversion -- Stock Pricing." For a discussion of
the distribution and allocation of the additional shares, if any, see "The
Conversion -- Subscription Offering and Subscription Rights," "-- Community
Offering" and "-- Limitations on Common Stock Purchases."
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR
DEPOSITS AND ARE NOT INSURED OR GUARANTEED BY THE BANK INSURANCE FUND OR THE
SAVINGS ASSOCIATION INSURANCE FUND OF THE FEDERAL DEPOSIT INSURANCE CORPORATION
OR BY ANY OTHER GOVERNMENT AGENCY.
Sandler O'Neill & Partners, L.P.
------------------------
The date of this Prospectus is November , 1997.
<PAGE> 3
(continued from previous page)
NON-TRANSFERABLE RIGHTS TO SUBSCRIBE FOR THE COMMON STOCK HAVE BEEN
GRANTED, IN ORDER OF PRIORITY, TO EACH OF THE BANK'S ELIGIBLE ACCOUNT HOLDERS
(AS DEFINED HEREIN) AND TO THE COMPANY'S AND THE BANK'S TAX-QUALIFIED STOCK
EMPLOYEE BENEFIT PLANS ("EMPLOYEE PLANS") IN A SUBSCRIPTION OFFERING
("SUBSCRIPTION OFFERING"). SUBSCRIPTION RIGHTS ARE NON-TRANSFERABLE. PERSONS
FOUND TO BE TRANSFERRING OR ATTEMPTING TO TRANSFER SUBSCRIPTION RIGHTS WILL BE
SUBJECT TO THE FORFEITURE OF SUCH RIGHTS AND POSSIBLE FURTHER SANCTIONS AND
PENALTIES IMPOSED BY THE NEW YORK STATE BANKING DEPARTMENT ("NYSBD"). Upon
completion of the Subscription Offering and subject to other limitations
described herein, any shares of Common Stock not subscribed for in the
Subscription Offering will be subsequently offered by the Company for sale in a
community offering ("Community Offering") to certain members of the general
public to whom a copy of this Prospectus is delivered. The Subscription Offering
and the Community Offering are referred to, together, as the "Subscription and
Community Offerings." It is anticipated that any shares not subscribed for in
the Subscription and Community Offerings will be offered to members of the
general public in a syndicated community offering ("Syndicated Community
Offering") (the Subscription and Community Offerings and the Syndicated
Community Offering are referred to, collectively, as the "Offerings"). If shares
of Common Stock are offered by the Company in a Syndicated Community Offering,
the Company will incur additional underwriting commissions, in accordance with
agreements to be entered into at the time of such offering. See "The
Conversion -- Syndicated Community Offering."
The Warwick Community Bancorp, Inc. Employee Stock Ownership Plan ("ESOP"),
which is an Employee Plan, intends to subscribe for 8% of the total number of
shares of Common Stock to be issued in the Conversion, including shares issued
to the Foundation. To the extent not purchased in the Subscription Offering, the
ESOP intends to purchase the remaining portion of such shares in open market
transactions following the Conversion. Shares purchased by the ESOP are
anticipated to be funded by a loan from the Company to be repaid over a period
of up to 10 years at an interest rate of 8%.
No Eligible Account Holder, in his or her capacity as such, may subscribe
in the Subscription Offering for more than $150,000 of the Common Stock offered
in the Conversion; no person, together with associates of and persons acting in
concert with such person, may purchase in the Community Offering and the
Syndicated Community Offering more than $150,000 of the Common Stock offered in
the Conversion; and, except for the Employee Plans, no person, together with
associates of and persons acting in concert with such person, may purchase in
the aggregate more than the overall maximum purchase limitation of 1.0% of the
total number of shares of Common Stock offered for sale in the Conversion. At
any time during the Conversion, the overall maximum purchase limitation may be
increased and the amount that may be subscribed for may be increased in the sole
discretion of the Bank or the Company without further approval of the Bank's
depositors. Prior to the consummation of the Conversion, if such amount is
increased, subscribers for the maximum amount will be, and certain other large
subscribers in the sole discretion of the Bank may be, given the opportunity to
increase their subscriptions up to the then applicable limit. The minimum
purchase is 25 shares. THE COMPANY AND THE BANK RESERVE THE RIGHT, IN THEIR
ABSOLUTE DISCRETION, TO ACCEPT OR REJECT, IN WHOLE OR IN PART, ANY OR ALL
SUBSCRIPTIONS IN THE COMMUNITY OFFERING AND THE SYNDICATED COMMUNITY OFFERING,
EITHER AT THE TIME OF RECEIPT OF AN ORDER OR AS SOON AS PRACTICABLE FOLLOWING
THE TERMINATION OF SUCH OFFERINGS. If an order is rejected, the funds submitted
with such order will be returned promptly with interest. If the Company rejects
a subscription in part, the subscriber will not have the right to cancel the
remainder of his or her subscription. See "The Conversion -- Subscription
Offering and Subscription Rights," "-- Community Offering" and "-- Limitations
on Common Stock Purchases."
Pursuant to the Plan, the Company intends to establish a charitable
foundation in connection with the Conversion. The Plan provides that the Bank
and the Company will create the Foundation and fund the Foundation with shares
of Common Stock contributed by the Company from authorized but unissued shares,
in an amount equal to 3% of the number of shares of Common Stock sold in the
Conversion. The Foundation will be dedicated to charitable purposes within the
Bank's local community. For a discussion of the Foundation and its effects on
the Conversion, see "Risk Factors -- Establishment of Charitable Foundation,"
"Pro Forma Data" and "The Conversion -- Establishment of The Warwick Savings
Foundation."
2
<PAGE> 4
(continued from previous page)
The Bank has engaged Sandler O'Neill & Partners, L.P. ("Sandler O'Neill")
to consult with and advise the Company and the Bank in the Offerings, and
Sandler O'Neill has agreed to use its best efforts to assist the Company with
the solicitation of subscriptions and purchase orders for shares of Common Stock
in the Offerings. Sandler O'Neill is not obligated to take or purchase any
shares of Common Stock in the Offerings. The Company and the Bank have agreed to
indemnify Sandler O'Neill against certain liabilities arising under the
Securities Act of 1933, as amended ("Securities Act"). See "The
Conversion -- Marketing and Underwriting Arrangements."
THE SUBSCRIPTION OFFERING WILL TERMINATE AT , EASTERN TIME, ON
DECEMBER , 1997 ("EXPIRATION DATE") UNLESS EXTENDED BY THE BANK AND THE
COMPANY, WITH THE APPROVAL OF THE SUPERINTENDENT OF BANKS OF THE STATE OF NEW
YORK ("SUPERINTENDENT") AND THE FEDERAL DEPOSIT INSURANCE CORPORATION ("FDIC"),
IF NECESSARY. The Community Offering, if any, shall commence upon the completion
of the Subscription Offering and shall terminate 14 days after the close of the
Subscription Offering unless extended by the Bank and the Company, with the
approval of the Superintendent and the FDIC, if necessary. Subscriptions paid by
cash, check, bank draft or money order will be placed in a segregated account at
the Bank and will earn interest at the Bank's rate of interest on passbook
accounts from the date of receipt until completion or termination of the
Conversion. Payments authorized by withdrawal from deposit accounts at the Bank
will continue to earn interest at the contractual rate until the Conversion is
completed or terminated; these funds otherwise will be unavailable to the
depositor until such time. Upon completion of the Conversion, funds withdrawn
from depositors' accounts for stock purchases will no longer be insured by the
FDIC. ORDERS SUBMITTED ARE IRREVOCABLE UNTIL THE COMPLETION OF THE CONVERSION;
provided, that, if the Conversion is not completed within 45 days after the
close of the Subscription Offering, unless such period has been extended with
the consent of the Superintendent and the FDIC, if necessary, all subscribers
will have their funds returned promptly with interest, and all withdrawal
authorizations will be canceled. If an extension of time has been granted, all
subscribers will be notified (i) of such extension, (ii) of any rights to
confirm their subscriptions or to modify or rescind their subscriptions and have
their funds returned promptly with interest and (iii) of the time period within
which the subscribers must notify the Bank of their intention to confirm, modify
or rescind their subscriptions. Each such extension may not exceed 60 days, and
such extensions, in the aggregate, may not last beyond , 1999.
A resolicitation of subscribers will be made if the pro forma market value of
the Common Stock is either more than 15% above the maximum of the Estimated
Price Range or less than the minimum of the Estimated Price Range. If an
affirmative response to any resolicitation is not received by the Bank and the
Company from a subscriber, such subscriber's order will be rescinded, and all
funds will be returned promptly with interest. See "The
Conversion -- Subscription Offering and Subscription Rights" and "-- Procedure
for Purchasing Shares in Subscription and Community Offerings."
The Company has received conditional approval from the Nasdaq Stock Market,
Inc. to have its Common Stock quoted on the Nasdaq National Market of the Nasdaq
Stock Market, Inc. ("Nasdaq National Market") under the symbol "WSBI" upon
completion of the Conversion. One of the requirements for continued quotation of
the Common Stock on the Nasdaq National Market is that there be at least two
market makers for the Common Stock. The Company will seek to encourage and
assist at least two market makers to make a market in the Common Stock. Sandler
O'Neill has advised the Company that it intends to make a market in the Common
Stock, but is under no obligation to do so. Prior to this offering there has not
been a public market for the Common Stock, and there can be no assurance that an
active and liquid trading market for the Common Stock will develop or that the
Common Stock will trade at or above the Purchase Price. The absence or
discontinuance of a market may have an adverse impact on both the price and
liquidity of the Common Stock. See "Risk Factors -- Absence of Market for Common
Stock."
EXPLANATORY NOTE: This Prospectus contains certain forward looking
statements consisting of estimates with respect to the financial condition,
results of operations and business of the Company and the Bank that are subject
to various factors which could cause actual results to differ materially from
these estimates. These factors include changes in general, economic and market
conditions, and the development of an adverse interest rate environment that
adversely affects the interest rate spread or other income anticipated from the
Company's and the Bank's operations and investments.
3
<PAGE> 5
[LOGO]
[THE WARWICK SAVINGS BANK]
[MAP SHOWING OFFICE LOCATIONS OF
THE WARWICK SAVINGS BANK]
[PRINTER TO PREPARE]
[Should show the following counties: Orange, Rockland, Sullivan, Ulster,
Duchess, Putnam, Passaic, Bergen and Sussex]
[Should separately identify Main Office, 3 Branch Offices and 3 Loan Production
Offices]
[Should show New York State and New Jersey with a blow-up for the counties
listed above]
4
<PAGE> 6
SUMMARY
This summary is qualified in its entirety by the more detailed information
and Financial Statements of the Bank and Notes thereto included elsewhere in
this Prospectus.
WARWICK COMMUNITY BANCORP, INC.
The Company is a Delaware corporation recently organized by the Bank for
the purpose of acquiring all of the capital stock of the Bank to be issued in
the Conversion. The Company will purchase all of the capital stock of the Bank
to be issued upon the Conversion in exchange for 50% of the net proceeds from
the Offerings, with the remaining net proceeds to be retained by the Company.
Funds retained by the Company will be used for general business activities.
Immediately following the Conversion, the only significant assets of the Company
will be the capital stock of the Bank, the loan that the Company intends to make
to the ESOP to enable the ESOP to purchase up to 8% of the Common Stock to be
issued in the Conversion, including shares issued to the Foundation, and the net
conversion proceeds retained by the Company. The net proceeds from the Offerings
are expected to be invested initially in federal funds, government and federal
agency mortgage-backed securities, other debt securities, high-grade short-term
marketable securities, equity securities, deposits of or loans to the Bank or a
combination thereof. See "Use of Proceeds." The principal business of the
Company will initially consist of managing its investment in the Bank. See
"Business of the Company," "Business of the Bank" and "Regulation and
Supervision -- Holding Company Regulation."
The Company's office is located at the main office of the Bank at 18
Oakland Avenue, Warwick, New York 10990-0591. The Company's telephone number is
(914) 986-2206.
THE WARWICK SAVINGS BANK
General
The Bank was founded in 1875 as a New York mutual savings bank. The Bank is
subject to extensive regulation, supervision and examination by the NYSBD, its
primary regulator, and the FDIC, which insures its deposits. The Bank has been,
and intends to continue to be, a community-oriented savings institution offering
a variety of financial services to meet the needs of the communities it serves.
The Bank maintains its headquarters in the village of Warwick in Orange County,
New York and operates three additional branch offices located in the village of
Monroe, the town of Woodbury and the city of Middletown, Orange County, New
York. The Bank's primary deposit gathering areas are currently concentrated in
proximity to its full service banking offices. The Bank's current primary
lending market includes Orange County, New York and surrounding New York
counties. The Bank has applied to the State of New Jersey Department of Banking
to form a mortgage banking subsidiary, WSB Mortgage Company of New Jersey, Inc.
("WSB Mortgage"), through which the Bank intends to establish a mortgage banking
operation in, and expand its commercial lending into, northeastern New Jersey.
See "Business of the Bank -- Market Area" and "-- Competition."
The Bank's principal business has been and continues to be attracting
retail deposits from the general public in the area surrounding its four
branches and investing those deposits, together with funds generated from
operations and borrowings, primarily in one- to four-family residential mortgage
loans, mortgage-backed securities, commercial and commercial real estate loans,
and various debt and equity securities. The Bank's residential lending
activities are conducted through its team of commissioned loan originators, who
regularly call upon realtors, builders and others in the real estate business to
solicit mortgage loan applications. In the normal course of business, the Bank
uses off-balance sheet financial instruments, including put options purchased
and forward commitments to sell mortgage loans, primarily as part of mortgage
banking hedging strategies. When effectively used, these instruments are
designed to moderate the impact on earnings as interest rates move up or down.
Additionally, the Bank originates home equity loans (Good Neighbor Home Loans)
and lines of credit, consumer loans, student loans and its own credit card
loans.
The Bank's revenues are derived principally from the interest on its
mortgages, securities, commercial and consumer loans and, to a lesser degree,
from its mortgage banking activities, loan and securities sales, servicing fee
income and income derived from investment products offered by its wholly owned
subsidiary,
5
<PAGE> 7
WSB Financial Services, Inc. ("WSB Financial"). The Bank's primary sources of
funds are deposits, borrowings, principal and interest payments on loans and
securities and proceeds from the sale of loans and securities.
At May 31, 1997, the Bank had total assets of $286.5 million, of which
$138.3 million was comprised of mortgage and other loans and $126.4 million was
comprised of securities. At such date, total deposits were $221.2 million,
borrowings were $28.3 million and net worth was $28.1 million. At that same
date, the Bank's leverage and total risk-based capital ratios were 9.53% and
20.33%, respectively, which exceeded all applicable regulatory capital
requirements. Additionally, the Bank's regulatory capital was in excess of the
amount necessary to be considered "well-capitalized" under the Federal Deposit
Insurance Corporation Improvement Act of 1991 ("FDICIA"). See "Regulatory
Capital Compliance," "Capitalization," "Pro Forma Data" and "Regulation and
Supervision -- New York Banking Regulation." The Bank's deposits are insured up
to the maximum allowable amount by the Bank Insurance Fund ("BIF") of the FDIC.
The Bank's net income was $2.87 million, $1.47 million and $504,000 for the
fiscal years ended May 31, 1997, 1996 and 1995, respectively. See "Selected
Financial and Other Data of the Bank," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business of the Bank."
The Bank is a member of the Federal Home Loan Bank of New York ("FHLBNY"),
which is one of the 12 regional banks which comprise the Federal Home Loan Bank
("FHLB") system.
Business Strategy
The Bank has historically employed an operating strategy that emphasizes
the origination of one- to-four-family residential mortgage loans in its market
area, with both fixed and adjustable rates, and, to an increasing degree over
the past 10 years, its commercial lending business, with mostly prime-based rate
loans secured by real estate located mainly in Orange County, New York. Due in
part to this strategy, the Bank historically has had profitable operations,
resulting in a strong regulatory capital position. The Bank's goal of
maintaining this position has lead to an overall strategy of managed growth in
both deposits and assets. The major elements of the Bank's operating strategy
are to: (i) grow and diversify the Bank's loan portfolio by continuing to
originate owner-occupied residential mortgage, commercial and commercial real
estate, construction and consumer loans in its market area (see "Risk
Factors -- Residential and Non-Residential Lending Risks" for a discussion of
the greater degree of credit risk associated with these types of loans); (ii)
complement the Bank's mortgage lending activities by investing in
mortgage-backed and other securities; (iii) maintain the Bank's relatively low
cost of funds and (iv) manage the Bank's level of interest rate risk. From time
to time, the Bank employs a leveraging strategy, whereby borrowings are used to
fund specific investments. This form of leveraging allows for a reasonable net
margin of return, the majority of which is locked in for a specific period. The
Bank also seeks to attract and retain customers by providing a high level of
personal service to its retail and business customers through extended office
hours, low turnover of employees and prompt, flexible and personalized
production of a variety of loan products. In addition, it is a goal of the Bank
to increase its market share in the communities it serves through the
acquisition or establishment of branch offices and, if appropriate, the
acquisition of smaller financial institutions. Additionally, it is a goal of the
Bank to penetrate new markets. For this reason, the Bank has recently applied
to, and approval is currently pending from, the State of New Jersey Department
of Banking for a license to establish a mortgage banking operation in, and
expand its commercial lending into, that state through WSB Mortgage. See "Use of
Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Management Strategy" and "Business of the Bank."
In making loans, the Bank considers both the estimated value of the
collateral securing loans and the creditworthiness of its prospective borrowers
and seeks to minimize risk of loss through its underwriting standards. As a
result of this strategy, historically, the Bank has had only minimal loss
experience in its lending operations. The Bank's ratio of non-performing loans
to total loans at year-end ranged from 0.78% to 2.42% during the five-year
period ended May 31, 1997 and was 1.02% at May 31, 1997. The Bank's ratio of
allowance for loan losses to non-performing loans was 86.09% at May 31, 1997.
See "Selected Financial and Other Data of the Bank" and "Business of the
Bank -- Asset Quality."
6
<PAGE> 8
The Bank's interest expense consists of the interest paid on savings
deposits and borrowed money. The Bank's savings deposits are derived principally
from its primary market area. The Bank's strategy has been to maintain a high
level of stable savings deposits by providing quality service to its customers
without significantly increasing its cost of funds. The Bank's low-cost deposit
base, consisting of passbook accounts, demand accounts, money market accounts,
NOW accounts and interest-on-checking demand accounts, totaled $146.2 million,
or 66.1% of total deposits, and had a weighted average effective rate of 2.88%
at May 31, 1997. The Bank has not and does not intend to use brokered deposits
as a source of funds. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources" and
"Business of the Bank -- Sources of Funds."
THE WARWICK SAVINGS FOUNDATION
In furtherance of the Bank's commitment to its local community, the Plan of
Conversion provides for the establishment of a charitable foundation in
connection with the Conversion, which will be incorporated under Delaware law as
a non-stock corporation. The Foundation will be funded with shares of Common
Stock contributed by the Company, as further described below. The Company and
the Bank believe that the funding of the Foundation with Common Stock of the
Company is a means of enhancing the common bond between the Bank and its
community and thereby enables the Bank's community to share in the potential
growth and success of the Company. While the Bank has made charitable
contributions in the past, the Bank has not previously formed a charitable
foundation nor has it made contributions to charitable organizations of the
magnitude of the contribution that will be made to the Foundation in the
Conversion. By further enhancing the Bank's visibility and reputation in its
local community, the Bank believes that the Foundation will enhance the
long-term value of the Bank's community banking franchise. See "The
Conversion -- Establishment of The Warwick Savings Foundation -- Structure of
the Foundation."
The authority for the affairs of the Foundation, including the management
of the Common Stock held by the Foundation, will be vested in the Foundation's
Board of Directors. A majority of the Board of Directors of the Foundation will
consist of individuals who are officers or trustees of the Bank, and the
remaining Board members will consist of certain members of the Bank's community.
However, establishment of the Foundation is subject to certain conditions,
including a requirement that the Common Stock of the Company held by the
Foundation be voted in the same ratio as all other shares of the Company's
Common Stock on all proposals considered by shareholders of the Company. See
"The Conversion -- Establishment of The Warwick Savings Foundation -- Regulatory
Conditions Imposed on the Foundation." Upon the establishment of the Foundation,
the directors of the Foundation will establish the Foundation's policies with
respect to grants or donations by the Foundation, consistent with the purposes
for which the Foundation was established.
The Company proposes to fund the Foundation by contributing to the
Foundation immediately following the Conversion a number of shares of authorized
but unissued Common Stock equal to 3% of the Common Stock sold in the Offerings,
or 123,675, 145,500 and 167,325 shares at the minimum, midpoint and maximum of
the Estimated Price Range, respectively. Such contribution, once made, will not
be recoverable by the Company or the Bank. Assuming the sale of shares at the
maximum of the Estimated Price Range, the Company will have 5,744,825 shares
issued and outstanding, of which the Foundation will own 167,325 shares, or
2.9%. DUE TO THE ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK TO THE
FOUNDATION, PERSONS PURCHASING SHARES IN THE CONVERSION WILL HAVE THEIR
OWNERSHIP AND VOTING INTERESTS IN THE COMPANY DILUTED BY 2.9%. SEE "PRO FORMA
DATA."
As a result of the establishment of the Foundation, the Company will
recognize an expense of the full amount of the contribution, offset, in part, by
a corresponding tax benefit, during the quarter in which the contribution is
made, which is expected to be the third quarter of the fiscal year ending May
31, 1998. Such expense will reduce earnings and will have a material impact on
the Company's earnings for such quarter and for the fiscal year in which such
quarter falls. Assuming a contribution of $1.7 million in Common Stock at such
time, based on the maximum of the Estimated Price Range, the Company estimates a
net tax effected expense of $1.0 million, based upon a 40% tax rate and without
regard to the annual deduction limitation of 10% of the Company's taxable
income. If the Foundation had been established in the fiscal year ended May 31,
1997, the Bank would have recorded net income of $1.9 million, rather than
recording net income of
7
<PAGE> 9
$2.9 million for the fiscal year ended May 31, 1997, based on the same tax
assumptions. In addition to the contribution of Common Stock by the Company to
the Foundation, the Bank expects to continue making ordinary charitable
contributions within its local community in the future. The Bank does not
anticipate making future charitable contributions to the Foundation during the
first five years following the initial contribution to the Foundation. For
further discussion of the Foundation and its impact on purchasers in the
Conversion, see "Risk Factors -- Establishment of Charitable Foundation."
The establishment of the Foundation in connection with the Conversion, and
the Superintendent's approval and the FDIC's non-objection to the Plan of
Conversion, may be subject to potential challenges which could result in delays
in the Conversion. See "Risk Factors -- Establishment of Charitable Foundation."
THE CONVERSION AND THE SUBSCRIPTION AND COMMUNITY OFFERINGS
On July 10, 1997, the Board of Trustees of the Bank adopted the Plan of
Conversion (which was amended as of August 19, 1997) pursuant to which the Bank
is converting from a New York mutual savings bank to a New York stock savings
bank, and all of the outstanding capital stock of the Bank will be acquired by
the Company in exchange for 50% of the net proceeds from the Offerings. The
Conversion and the Offerings are subject to the Superintendent's approval, which
was received on , 1997, the FDIC's non-objection, which was received
on , 1997, and approval of the Bank's Eligible Account Holders (as
defined below) at a special meeting to be held on December , 1997. See "The
Conversion -- General." The Bank is converting to increase its capital and to
structure itself in a form used by many commercial banks and other business
entities and a growing number of savings institutions. The Conversion will
enhance the Bank's ability to access capital markets, expand its current
operations, acquire other financial institutions or branch offices, provide
affordable home financing opportunities to the communities it serves and
diversify into other financial services to the extent allowable by applicable
law and regulation. The holding company form of organization will provide
additional flexibility to diversify the Bank's business activities through
newly-formed subsidiaries or through acquisitions of or mergers with both mutual
and stock institutions, as well as other companies. Although there are no
current arrangements, understandings or agreements, written or oral, regarding
any such opportunities, the Company will be in a position after the Conversion,
subject to regulatory limitations and the Company's financial position, to take
advantage of any such opportunities that may arise. See "The
Conversion -- Purposes of Conversion." The holding company form of organization
also provides certain anti-takeover protections. See "Risk Factors -- Certain
Anti-Takeover Provisions."
The Common Stock will be offered in the Subscription Offering and, upon
completion of the Subscription Offering and subject to other limitations
described herein, to the extent shares are available, in the Community Offering
to certain members of the general public to whom a copy of this Prospectus is
delivered. To the extent that shares are available after the expiration of the
Community Offering, such shares may be offered in the Syndicated Community
Offering. See "The Conversion -- Syndicated Community Offering." Common Stock
offered in the Subscription Offering will be offered first to depositors whose
deposits in qualifying accounts in the Bank totaled $100 or more on June 30,
1996 ("Eligible Account Holders") and then to the Employee Plans, including the
ESOP. Subscription rights will expire if not exercised by, and the Subscription
Offering will terminate at, , Eastern Time, on the Expiration Date,
unless extended by the Bank and the Company, for an initial period of up to 45
days and with the approval of the Superintendent and the FDIC, if necessary, for
additional periods of no more than 60 days each. Subject to the prior rights of
holders of subscription rights, Common Stock not subscribed for in the
Subscription Offering will be offered in the Community Offering upon the
completion of the Subscription Offering to certain members of the general
public. The Community Offering, if any, shall commence upon the completion of
the Subscription Offering and shall terminate 14 days after the close of the
Subscription Offering unless extended by the Bank and the Company, with the
approval of the Superintendent and the FDIC, if necessary. The Company and the
Bank reserve the absolute right to reject or accept any orders in the Community
Offering, in whole or in part, either at the time of receipt of an order or as
soon as practicable following the expiration of the Community Offering.
8
<PAGE> 10
The Bank and the Company have retained Sandler O'Neill as consultant and
advisor in connection with the Offerings and to assist in soliciting
subscriptions and purchase orders in the Offerings. The Bank and the Company
will pay a fee to Sandler O'Neill, which will be based on the aggregate Purchase
Price of the Common Stock sold in the Offerings. Neither Sandler O'Neill nor any
registered broker-dealer shall have any obligation to take or purchase any
shares of Common Stock in the Offerings. See "The Conversion -- Marketing and
Underwriting Arrangements."
PROSPECTUS DELIVERY AND PROCEDURE FOR PURCHASING SHARES OF COMMON STOCK
To ensure that each purchaser receives a prospectus at least 48 hours prior
to the Expiration Date (or the expiration of the Community Offering , as the
case may be) in accordance with Rule 15c2-8 of the Securities Exchange Act of
1934, as amended ("Exchange Act"), no prospectus will be mailed any later than
five days prior to any such date or hand delivered any later than two days prior
to any such date. Execution of the stock order form will confirm receipt of
delivery in accordance with Rule 15c2-8. Each stock order form distributed will
be accompanied by a prospectus and certification form. The Company and the Bank
are not obligated to accept or process orders that are submitted on facsimiled
or copied stock order forms. Stock order forms unaccompanied by an executed
original certification form will not be accepted. Payment by check, money order,
bank draft, cash or debit authorization to an existing account at the Bank must
accompany the stock order form and certification form. No wire transfers will be
accepted. The Bank is prohibited from lending funds to any person or entity for
the purpose of purchasing shares of Common Stock in the Conversion. See "The
Conversion -- Procedure for Purchasing Shares in Subscription and Community
Offerings."
In order to ensure that Eligible Account Holders are properly identified as
to their stock purchase priorities, depositors must list all accounts on the
stock order form, giving all names on each account and the account numbers.
Failure to list all such account numbers may result in the inability of the
Company and the Bank to fill all or part of a subscription order. See "The
Conversion -- Procedure for Purchasing Shares in Subscription and Community
Offerings."
RESTRICTIONS ON TRANSFER OF SUBSCRIPTION RIGHTS AND SHARES OF COMMON STOCK
Prior to the completion of the Conversion, no person may transfer or enter
into any agreement or understanding to transfer the legal or beneficial
ownership of the subscription rights issued under the Plan or the shares of
Common Stock to be issued upon their exercise. Each person exercising
subscription rights will be required to certify that any purchase of Common
Stock will be solely for the purchaser's own account and that there is no
agreement or understanding regarding the sale or transfer of any shares
purchased as a result of the exercise. The Company and the Bank will pursue any
and all legal and equitable remedies in the event they become aware of the
transfer of subscription rights and will not honor orders known by them to
involve the transfer of such rights. See "The Conversion -- Restrictions on
Transfer of Subscription Rights and Shares of Common Stock."
PURCHASE LIMITATIONS
The minimum purchase in the Offerings is 25 shares. Pursuant to the
subscription rights granted under the Plan, the ESOP intends to subscribe for 8%
of the shares of Common Stock to be issued in the Conversion, including shares
issued to the Foundation. No Eligible Account Holder, in his or her capacity as
such, may subscribe in the Subscription Offering for more than $150,000 of the
Common Stock offered; no person, together with associates of or persons acting
in concert with such person, may purchase in the Community Offering and the
Syndicated Community Offering in the aggregate more than $150,000 of the Common
Stock offered; and, except for the Employee Plans, no person, together with
associates of or persons acting in concert with such person, may purchase more
than the overall maximum purchase limitation of 1% of the total number of shares
of Common Stock offered for sale in the Offerings. At any time during the
Conversion and without further approval of the Bank's depositors, the Company
and the Bank may, in their sole discretion, increase the overall maximum
purchase limitation and increase the amount that may be subscribed for in the
Offerings to up to 5% of the shares offered for sale or, if orders for Common
Stock that exceed 5% of the total offering of shares do not, in the aggregate,
exceed 10% of the total shares offered for
9
<PAGE> 11
sale, to up to 9.99% of the total offering of shares. It is currently
anticipated that the overall maximum purchase limitation may be increased if,
after the Subscription and Community Offerings, the Company has not received
subscriptions for an aggregate amount equal to at least the minimum of the
Estimated Price Range. Prior to consummation of the Conversion, if such amount
is increased, subscribers for the maximum amount will be, and certain other
large subscribers in the sole discretion of the Bank may be, given the
opportunity to increase their subscriptions up to the then applicable limit. See
"The Conversion -- Limitations on Common Stock Purchases" and "The
Conversion -- Community Offering." In the event of an increase in the total
number of shares up to 15% above the maximum, the additional shares will be
distributed and allocated to fill unfilled orders in the Subscription Offering
and Community Offering, if any, without any resolicitation of subscribers, as
described in "The Conversion -- Subscription Offering and Subscription Rights"
and "-- Limitations on Common Stock Purchases."
STOCK PRICING AND NUMBER OF SHARES TO BE ISSUED IN THE CONVERSION
State and federal regulations require that the aggregate purchase price of
the Common Stock to be issued in the Conversion be consistent with an
independent appraisal of the estimated pro forma market value of the Common
Stock following the Conversion. FinPro, Inc. ("FinPro"), an independent
appraiser, has advised the Bank that in its opinion, dated September 18, 1997,
the aggregate estimated pro forma market value of the Common Stock ranged from
$41,225,000 to $55,775,000, with a midpoint of $48,500,000. See "The
Conversion -- Stock Pricing." FinPro's appraisal report is included as an
exhibit to the Company's Registration Statement ("Registration Statement") filed
with the Securities and Exchange Commission ("SEC" or "Commission"), of which
this Prospectus is a part. See "Additional Information." Based upon FinPro's
appraisal, the Board of Trustees of the Bank has established the Estimated Price
Range of $41,225,000 to $55,775,000, assuming the issuance of between 4,122,500
and 5,577,500 shares of Common Stock at the Purchase Price of $10.00 per share.
THE APPRAISAL OF THE COMMON STOCK IS NOT INTENDED TO BE AND SHOULD NOT BE
CONSTRUED AS A RECOMMENDATION OF ANY KIND AS TO THE ADVISABILITY OF PURCHASING
SUCH SHARES, NOR CAN ANY ASSURANCE BE GIVEN THAT PURCHASERS OF THE COMMON STOCK
IN THE CONVERSION WILL BE ABLE TO SELL SUCH SHARES AFTER THE COMPLETION OF THE
CONVERSION AT OR ABOVE THE PURCHASE PRICE.
All shares of Common Stock issued in the Conversion will be sold at the
Purchase Price. The actual number of shares to be issued in the Conversion will
be determined by the Company and the Bank based upon FinPro's final updated
valuation of the estimated pro forma market value of the Common Stock, giving
effect to the Conversion, at the completion of the Offerings. The number of
shares to be issued is expected to range from a minimum of 4,122,500 shares to a
maximum of 5,577,500 shares. Subject to approval of the Superintendent, the
Estimated Price Range may be increased or decreased to reflect market and
economic conditions prior to the completion of the Conversion, and, under such
circumstances, the Company may increase or decrease the number of shares of
Common Stock to be issued in the Conversion. The maximum of the Estimated Price
Range may be increased by up to 15% and the number of shares of Common Stock to
be issued in the Conversion may be increased to 6,414,100 shares due to
regulatory considerations, changes in the market and general financial and
economic conditions. No resolicitation of subscribers will be made, and
subscribers will not be permitted to modify or cancel their subscriptions unless
the gross proceeds from the sale of the Common Stock are less than the minimum
or more than 15% above the maximum of the current Estimated Price Range. See
"Pro Forma Data," "Risk Factors -- Possible Increase in Estimated Price Range
and Number of Shares Issued" and "The Conversion -- Stock Pricing" and
"-- Number of Shares to be Issued."
The Company will issue an amount of Common Stock to the Foundation from
authorized but unissued shares equal to 3% of Common Stock sold in the
Conversion (or 123,675 to 167,325 shares based on the minimum and maximum of the
Estimated Price Range, respectively) immediately following completion of the
Conversion. As a result, the Company will have a total of 5,744,825 shares of
Common Stock outstanding (based on the issuance of 5,577,500 shares of Common
Stock being offered for sale), which will have the effect of diluting the
ownership and voting interests of persons purchasing shares in the Conversion by
2.9%, since a greater number of shares will be outstanding upon completion of
the Conversion. See "Pro Forma Data" and "Risk Factors -- Establishment of
Charitable Foundation."
10
<PAGE> 12
USE OF PROCEEDS
Net proceeds from the sale of the Common Stock are estimated to be between
$39.4 million and $53.7 million, with a midpoint of $46.6 million, depending on
the number of shares sold and the expenses of the Conversion. In the event that
the Estimated Price Range is increased by 15%, the net proceeds from the sale of
the Common Stock are estimated to be $62.0 million. See "Pro Forma Data." The
Company will use the net proceeds from the sale of the Common Stock as follows:
1. The Company will purchase all of the capital stock of the Bank to
be issued in the Conversion in exchange for 50% of the net proceeds.
2. The remaining net proceeds will be retained by the Company. Net
proceeds to be retained by the Company after the purchase of the capital
stock of the Bank are estimated to be between $19.7 million and $26.9
million, with a midpoint of $23.3 million. In the event that the Estimated
Price Range is increased by 15%, the net proceeds retained by the Company
are estimated to be $31.0 million. Such net proceeds will be used for
general business activities. The net proceeds retained by the Company will
be invested primarily in federal funds, government and federal agency
mortgage-backed securities, other debt securities, high-grade short-term
marketable securities, equity securities, deposits of or loans to the Bank,
or a combination thereof.
3. The Company intends to use a portion of the retained net proceeds
to make a loan directly to the ESOP to enable the ESOP to purchase 8% of
the shares to be issued in the Conversion, including shares issued to the
Foundation. The amount of the loan to the ESOP is estimated to be between
$3.4 million and $4.6 million (or $5.3 million if the Estimated Price Range
is increased by 15%) to be repaid over a period of up to 10 years at an
interest rate of 8%. See "Management of the Bank -- Benefits -- Employee
Stock Ownership Plan and Trust."
Upon completion of the Conversion, the Board of Directors of the Company
will have the authority to adopt stock repurchase plans, subject to statutory
and regulatory requirements. In the event the Company determines to repurchase
stock, such repurchases will be made at market prices, which could be in excess
of the Purchase Price in the Conversion.
Any stock repurchases will be subject to the determination of the Company's
Board of Directors that both the Company and the Bank will be capitalized in
excess of all applicable regulatory requirements after any such repurchases and
that such capital will be adequate, taking into account, among other things, the
level of non-performing and other risk assets, the Company's and the Bank's
current and projected results of operations and asset/liability structure, the
economic environment and tax and other considerations.
The portion of the net proceeds received by the Bank from the Company's
purchase of the Bank's capital stock, estimated to be between $19.7 million at
the minimum of the Estimated Price Range and $26.9 million at the maximum of the
Estimated Price Range, will be added to the Bank's general funds to be used for
general corporate purposes, including: investment in one- to four-family
residential mortgage loans and other loans; investment in federal funds,
short-term, investment grade marketable securities and mortgage-backed
securities; and funding the purchase of stock to be awarded under the Company's
Recognition and Retention Plan ("RRP"), which the Company and the Bank intend to
adopt subsequent to the Conversion, to the extent that such plan is not funded
with authorized but unissued Common Stock of the Company. The net proceeds may
also be used to purchase or lease additional branch or office facilities inside
or outside of Orange County, New York. See "Use of Proceeds."
DIVIDENDS
The Board of Directors of the Company intends to consider a policy of
paying cash dividends on the Common Stock in the future. However, no decision
has been made as to the amount or timing of such dividends, if any. Declarations
of dividends by the Board of Directors will depend upon a number of factors,
including the amount of the net proceeds from the Offerings retained by the
Company, investment opportunities available to the Company or the Bank, capital
requirements, regulatory limitations, the
11
<PAGE> 13
Company's and the Bank's financial condition and results of operations, tax
considerations and general economic conditions. See "Dividend Policy."
BENEFITS TO MANAGEMENT AND DIRECTORS
The Board of Trustees of the Bank received information about various types
of benefit plans typically utilized by public companies in general and
converting thrift institutions in particular. After reviewing the anticipated
costs of establishing a customary program of benefits and the anticipated
benefits to the Company, the Board of Trustees determined that the benefit plans
helped significantly by providing a means to retain and attract executives of
the caliber needed to run a successful public company, to maintain their
attention and loyalty in change of control situations and to align their
interests with those of the Company's shareholders. Finally, the Board of
Trustees concluded that the cost of establishing and maintaining these benefit
plans would be justified by these benefits to the Company.
Stock Option Plan. Following the Conversion, the Company intends to adopt
the Stock Option Plan. If implemented within one year following the Conversion,
the adoption of the Stock Option Plan will be subject to shareholder approval
obtained at a meeting of shareholders to be held no earlier than six months
after the completion of the Conversion. Assuming such implementation, an amount
of shares of Common Stock equal to 10% of the Common Stock to be issued in the
Conversion, including shares issued to the Foundation, (424,617 shares and
574,482 shares at the minimum and maximum of the Estimated Price Range,
respectively) is expected to be reserved for issuance under the Stock Option
Plan. Upon exercise, these shares will be acquired either through open market
purchases, subject to the Superintendent's approval, if necessary, or from
authorized but unissued Common Stock. See "Risk Factors -- Possible Dilutive
Effect of Stock Options and Recognition and Retention Plan." No determinations
have been made by the Company as to the specific terms of the Stock Option Plan
or the amount of awards to be made thereunder. New York Banking Board ("NYBB")
regulations provide that no individual employee may receive more than 25% of the
options granted, and that non-employee directors may not receive more than 5%
individually or 30% in the aggregate of the options granted, under option plans
implemented within one year following the Conversion. See "Management of the
Bank -- Benefits -- Stock Option Plan."
Recognition and Retention Plan. Following the Conversion, the Company also
intends to adopt the RRP for the benefit of officers, employees and non-employee
directors of the Company and the Bank. If implemented within one year following
the Conversion, the adoption of the RRP will be subject to shareholder approval
obtained at a meeting of shareholders to be held no earlier than six months
after the completion of the Conversion. Assuming such implementation, the Bank
expects to contribute funds to the RRP to enable its related trust to acquire,
in the aggregate, up to 4% of the shares of Common Stock to be issued in the
Conversion, including shares issued to the Foundation, (169,847 shares and
229,793 shares at the minimum and maximum of the Estimated Price Range,
respectively). These shares will be acquired either through open market
purchases, subject to the Superintendent's approval, if necessary, or from
authorized but unissued Common Stock. See "Risk Factors -- Possible Dilutive
Effect of Stock Options and Recognition and Retention Plan." No determinations
have been made by the Company as to the specific terms of the RRP or the amount
of awards to be made thereunder. NYBB regulations provide that no individual
employee may receive more than 25% of the shares of any plan, and that
non-employee directors may not receive more than 5% of the shares individually
or 30% in the aggregate, in the case of plans implemented within one year
following the Conversion. Under the anticipated terms of the RRP, recipients
would receive shares without any cost and would vote any shares allocated to
them, and an independent trustee would vote unallocated shares in the same
proportion as the instructions it receives from recipients with respect to
allocated shares which have not been vested and distributed. See "Management of
the Bank -- Benefits -- Recognition and Retention Plan."
ESOP. The Bank and the Company have established the ESOP for the benefit
of eligible employees, including officers. The ESOP intends to subscribe for up
to 8% of the Common Stock to be issued in the Conversion, including shares
issued to the Foundation, and to finance its subscription with funds anticipated
to be borrowed from the Company for a period of up to 10 years at an interest
rate of 8% per annum. The Bank and the Company intend to make cash contributions
to the ESOP as required for debt service. The Common
12
<PAGE> 14
Stock acquired by the ESOP will initially be held in a suspense account and will
be allocated to eligible employees as the loan is repaid. See "Management of the
Bank -- Benefits -- Employee Stock Ownership Plan and Trust."
401(k) Plan. The Bank has amended The Warwick Savings Bank 401(k) Savings
Plan ("401(k) Plan"), in the connection with the Conversion to provide that the
Bank's matching contributions will be invested in an investment fund consisting
primarily of Common Stock. In addition, participating employees may elect to
invest all or a portion of their remaining account balances in such investment
fund or the other investment funds provided under the 401(k) Plan. Common Stock
held by the 401(k) Plan may be newly issued or treasury shares acquired from the
Company or outstanding shares purchased in the open market or in private
transactions. See "Management of the Bank -- Benefits -- 401(k) Plan."
Employment Agreements and Retention Agreements. The Company intends to
enter into employment agreements ("Employment Agreements"), effective as of the
Conversion, with four senior officers of the Bank that will provide for, among
other things, certain cash payments to be made, and certain benefits to be
continued, in the event of their termination of employment in certain
circumstances and upon a change of control of the Bank or the Company. The
provisions of these agreements may have the effect of increasing the cost of
acquiring the Company, thereby discouraging future attempts to take over the
Company or the Bank. Based on current compensation and benefit costs, cash
payments to be made in the event of a change of control of the Bank or the
Company pursuant to the terms of the Employment Agreements would be
approximately $3,474,000, of which approximately $1,677,000 would be payable to
Mr. Dempsey, $795,000 would be payable to Mr. Gentile, $572,000 would be payable
to Mr. Budich and $430,000 would be payable to Ms. Sobotor-Littell. However, the
actual amount to be paid under the Employment Agreements in the event of a
change of control of the Bank or the Company cannot be estimated at this time
because the actual amount is based on the compensation and benefit costs
applicable to these individuals and other factors existing at the time of the
change of control, which cannot be determined at this time. Such figures do not
include any estimate as to amounts that may be payable on account of the Stock
Option Plan or RRP because no options or shares have been allocated under such
plans. See "Management of the Bank -- Employment Agreements."
The Bank also intends to enter into employee retention agreements
("Retention Agreements"), effective as of the Conversion, with four other key
employees of the Bank. Based on current compensation and benefit costs
applicable to the four key employees expected to be covered by the Retention
Agreements, certain cash payments to be made, and certain benefits to be
continued, in the event of a change of control of the Bank or the Company would
be approximately $580,000. However, the actual amount to be paid under the
Retention Agreements in the event of a change of control of the Bank or the
Company cannot be estimated at this time because the actual amount is based on
the compensation and benefit costs applicable to such key employees and other
factors existing at the time of the change of control, which cannot be
determined at this time. Such figures do not include any estimate as to amounts
that may be payable on account of the Stock Option Plan or RRP because no
options or shares have been allocated under such plans. See "Management of the
Bank -- Employee Retention Agreements."
Other Change of Control Provisions. Certain anticipated provisions of the
Stock Option Plan and the RRP (which the Company intends to adopt and which will
only become effective prior to the first anniversary of the Conversion upon
shareholder approval obtained at a meeting of shareholders to be held no earlier
than six months after completion of the Conversion) provide for cash payments
and/or accelerated vesting in the event of a change of control of the Company or
the Bank, provided that such change of control occurs on or after the first
anniversary of the Conversion. The ESOP also provides for accelerated vesting in
the event of a change of control. These provisions may also have the effect of
increasing the cost of acquiring the Company. In addition, the existence of
these provisions could result in shareholders receiving less for their shares of
Common Stock than might otherwise be available in the event of an acquisition of
the Company. See "Restrictions on Acquisition of the Company and the
Bank -- Anti-Takeover Effects of the Company's Certificate of Incorporation and
By-Laws and Management Remuneration Plans Adopted in the Conversion,"
"Management of the Bank -- Benefits -- Employee Stock Ownership Plan and Trust,"
"-- Benefits -- Stock Option Plan," and "-- Benefits -- Recognition and
Retention Plan."
13
<PAGE> 15
Subscriptions by Executive Officers and Trustees. The Bank's executive
officers and trustees propose to purchase Common Stock in the Offerings in an
aggregate amount equal to $1,415,000 or 3.43% (based on the minimum of the
Estimated Price Range) or $1,415,000 or 2.54% (based on the maximum of the
Estimated Price Range) of the shares to be sold in the Offerings. If the
trustees emeritus of the Bank are included, the foregoing amounts and
percentages are $1,510,000 and 3.66%, and $1,510,000 and 2.71%, respectively.
See "Management of the Bank -- Subscriptions by Executive Officers and
Trustees."
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered by prospective investors.
14
<PAGE> 16
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF THE BANK
The selected consolidated financial data of the Bank as of May 31, 1997 and
1996, and for each of the years in the three-year period ended May 31, 1997, set
forth below is derived in part from, and should be read in conjunction with, the
audited Consolidated Financial Statements of the Bank and Notes thereto
presented elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT MAY 31,
------------------------------------------------------------
1997 1996 1995(8) 1994(8) 1993(8)
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL DATA:
Total assets........................ $286,545 $274,053 $258,679 $234,048 $224,851
Loans receivable, net(1)............ 138,323 108,897 122,663 108,598 108,848
Investment securities............... 126,393 144,284 110,333 105,433 93,013
Real estate owned, net.............. 224 330 493 306 --
Deposits............................ 221,211 232,965 229,011 207,527 200,564
FHLB advances....................... 5,250 3,600 -- -- --
Securities sold under repurchase
agreements........................ 23,090 4,700 -- -- --
Retained earnings................... 28,114 24,770 23,076 21,910 20,147
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31,
------------------------------------------------------------
1997 1996 1995 1994(8) 1993(8)
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Interest income..................... $ 20,691 $ 18,333 $ 16,253 $ 15,786 $ 16,549
Interest expense.................... 376 8,717 6,828 5,922 6,710
-------- -------- -------- -------- --------
Net interest income............... 11,315 9,616 9,425 9,864 9,839
Less provision for loan losses.... (130) (140) (261) (415) (548)
-------- -------- -------- -------- --------
Net interest income after
provision for loan losses...... 11,185 9,476 9,164 9,449 9,291
Other income:
Service and fee income............ 1,915 1,768 1,369 1,996 536
Securities transactions........... 816 356 (429) 845 243
Loan transactions................. 137 119 14 123 113
Other income or (loss)............ (89) (159) (79) (17) 120
-------- -------- -------- -------- --------
Total other income, net... 2,779 2,084 875 2,947 1,012
-------- -------- -------- -------- --------
Other expense:
Salaries and employee benefits.... 5,256 5,050 3,958 3,877 3,572
F.D.I.C. insurance................ 12 53 466 456 427
Occupancy and equipment........... 1,308 1,238 1,202 1,143 1,258
Data processing................... 640 484 414 341 318
Advertising....................... 152 129 112 69 119
Professional fees................. 240 325 222 270 324
Other operating expenses.......... 1,735 1,791 1,722 1,606 1,129
-------- -------- -------- -------- --------
Total other expenses...... 9,343 9,070 8,096 7,762 7,147
Income before cumulative effect of
change in accounting principle.... 4,621 2,490 1,943 4,634 3,156
Income tax expense.................. 1,756 1,024 794 2,115 1,370
-------- -------- -------- -------- --------
Income before cumulative effect of
change in accounting principle.... 2,865 1,466 1,149 2,519 1,786
Cumulative effect of change in
accounting principle.............. -- -- (645) -- --
-------- -------- -------- -------- --------
Net income................ $ 2,865 $ 1,466 $ 504 $ 2,519 $ 1,786
======== ======== ======== ======== ========
</TABLE>
15
<PAGE> 17
<TABLE>
<CAPTION>
AS OR FOR THE
YEAR ENDED MAY 31,
---------------------------------------------------
SELECTED FINANCIAL RATIOS AND OTHER DATA(2): 1997 1996 1995(8) 1994(8) 1993(8)
------ ------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
PERFORMANCE RATIOS:
Return on average assets................... 1.00% 0.56% 0.21% 1.11% 0.83%
Return on average retained earnings........ 11.02 6.31 2.32 12.11 9.33
Average retained earnings to average
assets.................................. 9.12 8.93 9.18 9.14 8.91
Retained earnings to total assets.......... 9.81 9.04 8.92 9.36 8.96
Core deposits to total deposits(3)......... 66.08 63.28 59.49 77.25 74.38
Net interest spread(4)..................... 3.62 3.48 3.84 3.92 4.08
Net interest margin(5)..................... 4.20 3.98 4.27 4.35 4.51
Operating expense to average assets........ 3.28 3.48 3.42 3.41 3.33
Average interest-earning assets to average
interest-bearing liabilities............ 1.17 1.14 1.14 1.16 1.13
Efficiency ratio(6)........................ 71.10 80.80 75.56 65.54 68.10
REGULATORY CAPITAL RATIOS(7):
Tangible capital........................... 9.53 9.51 9.79 9.95 9.38
Core capital............................... 19.46 17.52 16.00 20.00 17.00
Risk-based capital......................... 20.33 18.45 16.00 20.00 17.00
ASSETS QUALITY RATIOS:
Non-performing loans to total loans........ 1.02 0.78 1.78 2.02 2.42
Non-performing loans to total assets....... 0.50 0.31 0.85 0.95 1.18
Non-performing assets to total assets...... 0.58 0.44 1.04 1.08 1.18
Allowance for loan losses to total loans... 0.88 1.18 0.97 0.83 0.74
Allowance for loan losses to non-performing
loans................................... 86.09 151.22 54.77 41.06 30.38
OTHER DATA:
Branch Offices............................. 4 4 4 4 4
</TABLE>
- ---------------
(1) Loans receivable, net represents total loans less net deferred loan fees and
the allowance for loan losses.
(2) Regulatory Capital Ratios and Asset Quality Ratios are end of period ratios.
With the exception of period ratios, all ratios are based on average monthly
balances during the periods indicated.
(3) The Bank considers the following to be core deposits: checking accounts,
passbook accounts, NOW accounts and money market accounts.
(4) The interest rate spread represents the difference between the
weighted-average yield on interest-earning assets and the weighted-average
cost of interest-bearing liabilities.
(5) The net interest margin represents net interest income as a percentage of
average interest-earning assets.
(6) The efficiency ratio represents non-interest expense as a percentage of the
sum of net interest income and non-interest income excluding any gains or
losses on sales of assets.
(7) For definitions and further information relating to the Bank's regulatory
capital requirements, see "Regulation and Supervision -- Federal Banking
Regulation -- Capital Requirements." See "Regulatory Capital Compliance" for
the Bank's pro forma capital levels as a result of the Offerings.
(8) The selected financial data of the Bank as of May 31, 1995, 1994 and 1993,
and for each year in the two-year period ended May 31, 1994 are not derived
from audited financial statements.
16
<PAGE> 18
RISK FACTORS
The following risk factors, in addition to those discussed elsewhere in
this Prospectus, should be considered by prospective investors in deciding
whether to purchase the Common Stock offered hereby.
POTENTIAL IMPACT OF CHANGES IN INTEREST RATES
The Bank's profitability, like that of most financial institutions, is
dependent to a large extent upon its net interest income, which is the
difference between its interest income on interest-earning assets, such as loans
and securities, and its interest expense on interest-bearing liabilities, such
as savings deposits and borrowings. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Analysis of Net Interest
Income."
A substantial portion of the Bank's assets consist of fixed-rate one- to
four-family mortgage loans. At May 31, 1997, an aggregate of $46.1 million, or
33.1% of gross loans, were invested in such assets. In addition, at May 31,
1997, the Bank had an aggregate of $75.5 million in mortgage-backed securities
and collateralized mortgage obligations ("CMOs"), 86.5% of which provided for
fixed rates of interest. The Bank generally accepts savings deposits for
considerably shorter terms than its fixed-rate mortgage loans. As a result, at
May 31, 1997, the Bank's total interest-bearing liabilities maturing or
repricing within one year exceeded its total interest-earning assets maturing or
repricing in the same time period by $35.2 million, representing a one-year
interest sensitivity gap as a percentage of total assets of negative 12.28%.
Management anticipates that substantially all of the maturing or repricing
liabilities will be retained by the Bank at interest rates based on then
prevailing rates. As a result of the Bank's negative gap position, the yield on
interest-earning assets of the Bank will adjust to changes in interest rates at
a slower rate than the cost of the Bank's interest-bearing liabilities. As a
consequence, any significant increase in interest rates will have an adverse
effect on the Bank's results of operations. Increases in the level of interest
rates also may adversely affect the fair value of the Bank's securities and
other earning assets. Generally, the fair value of fixed-rate instruments
fluctuates inversely with changes in interest rates. As a result, increases in
interest rates could result in decreases in the fair value of interest-earning
assets, which could adversely affect the Bank's results of operations if sold
or, in the case of interest-earning assets classified as available-for-sale, the
Bank's equity if retained. Increases in interest rates also can affect the type
(fixed-rate or adjustable-rate) and amount of loans originated by the Bank and
the average life of loans and securities, which can adversely impact the yields
earned on the Bank's loan and securities portfolio. The Bank's loan sale and
servicing activity may also be adversely affected by a declining interest rate
environment to the extent such environment results in increased loan prepayment
activity of serviced loans or losses associated with the use of forward
commitment loan sale contracts. At May 31, 1997, the Bank was servicing $122.3
million of loans for others and at such date recorded an $835 thousand mortgage
servicing rights asset. To the extent loan prepayment activity of serviced loans
increased, it would result in a reduction in the Bank's mortgage servicing
rights, which would adversely affect net income. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Management of
Interest Rate Risk."
IMPACT OF THE ECONOMY ON OPERATIONS
Declines in the local economy, national economy or real estate market could
adversely affect the financial condition and results of operations of the Bank
by, among other things, decreasing demand for loans, increasing competition for
good loans and increasing non-performing loans and loan losses. Although
management of the Bank believes that the current allowance for loan losses is
adequate in light of current economic conditions, many factors may require
additions to the allowance for loan losses in future periods. These factors
include: (i) adverse changes in economic conditions and changes in interest
rates that may affect the ability of borrowers to make payments on loans, (ii)
changes in the financial capacity of individual borrowers, (iii) changes in the
local real estate market and the value of the Bank's loan collateral and (iv)
future review and evaluation of the Bank's loan portfolio, internally or by
regulators. The amount of the allowance for loan losses at any time represents
estimates made by management that are susceptible to significant changes due to
changes in values of collateral, national and regional economic conditions,
prevailing
17
<PAGE> 19
interest rates and other factors. Future adjustments to the allowance also may
be necessary if economic or other conditions differ substantially from those
underlying the assumptions used in making such estimates.
COMPETITION
The Bank faces significant and increasing competition both in making loans
and in attracting savings deposits. The Bank's market area has many financial
institutions, some of which have greater financial resources, name recognition
and market presence than the Bank, and all of which are competitors of the Bank
to varying degrees. The Bank's most direct competition for savings deposits
historically has come from other savings banks, savings and loan associations,
commercial banks and credit unions. In addition, the Bank faces increasing
competition for savings deposits from non-bank institutions such as brokerage
firms, insurance companies, money market mutual funds, other mutual funds (such
as corporate and government securities funds) and annuities. The Bank's
competition for loans comes principally from commercial banks, other savings
banks, savings and loan associations, mortgage banking companies, finance
companies and credit unions. Trends toward the consolidation of the banking
industry and the lifting of interstate banking and branching restrictions may
make it more difficult for smaller institutions, such as the Bank, to compete
effectively with large national and regional banking institutions. See "Business
of the Bank."
ESTABLISHMENT OF CHARITABLE FOUNDATION
Pursuant to the Plan, the Company intends to voluntarily establish a
charitable foundation in connection with the Conversion. The Foundation will be
incorporated under Delaware law as a non-stock corporation and will be funded
with shares of Common Stock contributed by the Company. The establishment and
funding of a charitable foundation as part of a conversion of a mutual savings
institution to stock form has, to the Bank's knowledge, been done on several
prior occasions. Nevertheless, the Foundation and the Superintendent's approval
of the Conversion and the FDIC's non-objection to the Conversion may be subject
to potential challenges notwithstanding that the Board of Directors of the
Company and the Board of Trustees of the Bank have carefully considered the
various factors involved in the establishing the Foundation. See "The
Conversion -- Establishment of The Warwick Savings Foundation -- Purpose of the
Foundation." If challenges to the establishment of the Foundation are raised, no
assurances can be made that the resolution of such challenges would not delay
the consummation of the Conversion or that the Company and the Bank would be
successful in defending against such challenges. Additionally, if the Company
and the Bank are forced to eliminate the Foundation, the Company may be required
to resolicit subscribers in the Offerings. The contribution of Common Stock to
the Foundation will be dilutive to the interests of shareholders, will have an
adverse impact on the reported earnings of the Company in the fiscal year ending
May 31, 1998, the fiscal year in which the Foundation is established, and will
have the other effects described below.
Dilution of Shareholders' Interests. The Company proposes to fund the
Foundation with Common Stock in an amount equal to 3% of the Common Stock to be
sold in the Conversion. At the minimum, midpoint and maximum of the Estimated
Price Range, the contribution to the Foundation would equal 123,675, 145,500 and
167,325 shares of Common Stock, with a value of $1.2 million, $1.5 million and
$1.7 million, respectively, based on the Purchase Price. Assuming the sale of
Common Stock at the maximum of the Estimated Price Range, upon completion of the
Conversion and establishment of the Foundation, the Company will have 5,744,825
shares of Common Stock issued and outstanding, of which the Foundation will own
167,325 shares, or 2.9%. AS A RESULT, PERSONS PURCHASING SHARES OF COMMON STOCK
IN THE CONVERSION WILL HAVE THEIR OWNERSHIP AND VOTING INTERESTS IN THE COMPANY
DILUTED BY 2.9%. SEE "PRO FORMA DATA."
Impact on Earnings. The contribution of Common Stock to the Foundation
will have an adverse impact on the Company's and the Bank's earnings in the
quarter and fiscal year in which the contribution is made. The Company will
recognize an expense in the amount of the contribution of Common Stock to the
Foundation in the quarter in which it occurs, which is expected to be the third
quarter of the fiscal year ending May 31, 1998. The contribution expense will be
partially offset by the tax benefit related to the expense. Assuming a
contribution of $1.7 million in Common Stock (based on the maximum of the
Estimated Price Range), the Company estimates a net tax effected expense of $1.0
million (based upon a 40% tax rate and without regard to the annual deduction
limitation of 10% of the Company's annual taxable income). If the
18
<PAGE> 20
Foundation had been established in the fiscal year ended May 31, 1997, the Bank
would have reported net income of $1.9 million, rather than reporting net income
of $2.9 million for the fiscal year ended May 31, 1997, based on the maximum of
the Estimated Price Range and the same tax assumptions. In addition to the
contribution to the Foundation, the Bank expects to continue making ordinary
charitable contributions within its community in the future, but the Company and
the Bank do not currently anticipate making additional contributions to the
Foundation within the first five years following the initial contribution.
Tax Considerations. The Company and the Bank have been advised by Thacher
Proffitt & Wood that an organization created for the above purposes would
qualify as an exempt organization under Section 501(c)(3) of the Internal
Revenue Code of 1986, as amended ("Code"), and would be classified as a private
foundation. The Foundation will submit a request to the IRS to be recognized as
an exempt organization. The opinion of Thacher Proffitt & Wood does not consider
the impact of the condition to be agreed to by the Foundation that Common Stock
issued to the Foundation be voted in the same ratio as all other shares of the
Company's Common Stock on all proposals considered by shareholders of the
Company. See "The Conversion -- Establishment of The Warwick Savings
Foundation -- Regulatory Conditions Imposed on the Foundation." Consistent with
this condition, in the event that the Company or the Foundation receives an
opinion of their legal counsel that compliance with the voting restriction would
have the effect of causing the Foundation to lose its tax-exempt status, or
would otherwise have a material and adverse tax consequence on the Foundation or
subject the Foundation to an excise tax under Section 4941 of the Code, the FDIC
shall waive such voting restriction upon submission of a legal opinion by the
Company or the Foundation that is satisfactory to the FDIC. Thacher Proffitt &
Wood's opinion further provides that there is substantial authority for the
position that the Company's contribution of its own stock to the Foundation
would not constitute an act of self-dealing, and that the Company would be
entitled to a deduction in the amount of the fair market value of the stock at
the time of the contribution less the nominal par value that the Foundation is
required to pay to the Company for such stock, subject to an annual limitation
based on 10% of the Company's annual taxable income (computed without regard to
charitable contributions). The Company, however, would be able to carry forward
any unused portion of the deduction for five years following the contribution,
subject, in each such year, to the 10% of taxable income limitation. Thus, while
the Company would have received a charitable contribution deduction of
approximately $447 thousand in the taxable year ended December 31, 1996 (based
upon the sale of stock at the maximum of the Estimated Price Range and a
contribution of $1.7 million of Common Stock and the Bank's pre-tax income of
approximately $4.47 million for 1996), the Company is permitted under the Code
to carry over the excess contribution to the five following years. Assuming the
sale of Common Stock at the midpoint of the Estimated Price Range, and no
subtantial decrease in the Company's income, the Company estimates that the
entire amount of the contribution should be deductible over the six-year period.
Although the Company and the Bank have received the opinion of Thacher Proffitt
& Wood that the Company will be entitled to the deduction for the charitable
contribution, there can be no assurances that the IRS will recognize the
Foundation as a Section 501(c)(3) exempt organization or that the deduction will
be permitted. If the deduction is not permitted, the Company's tax benefit
related to the Foundation would have to be fully expensed, resulting in a
further reduction in earnings in the year in which the IRS makes such a
determination.
Comparison of Valuation and Other Factors Assuming the Foundation is Not
Established as Part of the Conversion. The establishment of the Foundation was
taken into account by FinPro in determining the estimated pro forma market value
of the Common Stock of the Company. The pro forma aggregate price of the Common
Stock being offered for sale in the Conversion is currently estimated to be
between $41.2 million and $55.8 million, with a midpoint of $48.5 million. The
pro forma price to book ratio and the pro forma price to earnings ratio, at and
for the fiscal year ended May 31, 1997, are 72.05% and 12.20x, respectively, at
the midpoint of the Estimated Price Range. In the event that the Conversion does
not include the Foundation, FinPro has estimated the pro forma market value of
the Common Stock to be $51.5 million at the midpoint based on a pro forma price
to book ratio and a pro forma price to earnings ratio that are approximately the
same as the independent appraisal at 72.05% and 12.35x, respectively. The amount
of Common Stock being offered for sale in the Conversion at the midpoint of the
Estimated Price Range is approximately $3.0 million less than the estimated
amount of Common Stock that would be offered in the Conversion without the
Foundation based on the estimate provided by FinPro. Accordingly, certain
account holders of the Bank who
19
<PAGE> 21
subscribe to purchase Common Stock in the Subscription Offering would receive
fewer shares depending on the size of the depositor's stock order and the amount
of his or her qualifying deposits in the Bank and the overall level of
subscriptions. See "Comparison of Valuation and Pro Forma Information with No
Foundation." This estimate by FinPro was prepared solely for purposes of
providing Eligible Account Holders and subscribers with information with which
to make an informed decision on the Conversion. The decrease in the amount of
Common Stock being offered as a result of the contribution of Common Stock to
the Foundation will not have a significant effect on the Company or the Bank's
capital position. The Bank's regulatory capital is significantly in excess of
its regulatory capital requirements and will further exceed such requirements
following the Conversion. The Bank's leverage and risk-based capital ratios at
May 31, 1997 were 9.53% and 20.33%, respectively. Assuming the sale of shares at
the midpoint of the Estimated Price Range, the Bank's leverage and risk-based
capital ratios at May 31, 1997 would be 14.81% and 29.28%, respectively.
Potential Anti-Takeover Effect. Upon completion of the Conversion, the
Foundation will own 2.9% of the total shares of the Common Stock outstanding.
Such shares will be owned solely by the Foundation; however, pursuant to a
condition imposed by the FDIC and to be agreed to by the Foundation, the shares
of Common Stock held by the Foundation must be voted in the same proportion as
all other shares of the Common Stock on all proposals considered by the
shareholders of the Company. The Company and the Foundation will take the
necessary steps to provide for this voting restriction in the Foundation's
corporate governance documents. With such voting restriction, the Company does
not believe the Foundation will have a significant anti-takeover effect on the
Company. However, in the event that the FDIC were to waive this voting
restriction for the reasons described herein, as provided in the condition, the
Foundation's board of directors would exercise sole voting power over such
shares and would no longer be subject to the restriction. See "The
Conversion -- Establishment of The Warwick Savings Foundation -- Regulatory
Conditions Imposed on the Foundation." As a majority of the Foundation's Board
of Directors will be comprised of the members of the Board of Directors of the
Company and officers of the Company and the Bank, in the event the FDIC waived
the voting restriction, management of the Company and the Bank may benefit to
the extent that the Board of Directors of the Foundation determines to vote the
shares of Common Stock held by the Foundation in favor of proposals supported by
the Company and the Bank. However, as the Foundation sells its shares of Common
Stock over time, its ownership interest and voting power in the Company is
expected to decrease.
CONCENTRATION IN SECURITIES
The Bank has invested a significant amount of its assets in mortgage-backed
and other securities, including the investment in mortgage-backed securities
created by the securitization of loans originated by the Bank. The Bank's
securities consist of securities that management intends to hold to maturity and
also securities available-for-sale. The Bank's securities totaled $126.4
million, $144.3 million and $110.3 million at May 31, 1997, 1996 and 1995,
respectively. These amounts represented 44.1%, 52.6% and 42.7% of total assets,
respectively, at those dates. As a result of the Bank's level of securities, the
Bank's net interest income and net interest margin have been adversely affected
as the average yield on the Bank's average balance of securities has been lower
than the average yield on the average balance of its mortgage loans. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Analysis of Net Interest Income." The Bank expects to invest a
portion of the net Conversion proceeds in securities. In addition, the Bank
expects that income from securities will initially represent an even greater
percentage of total interest income after the Conversion than in prior periods.
It is expected that such securities will earn interest at rates lower than the
interest rates that would generally be earned on loans. In addition, securities
held as available-for-sale are required to be held at the lower of cost or
market value. As a result, changes in interest rates could cause fluctuations in
the value of such securities that affect the Bank's financial condition. See
"-- Potential Impact of Changes in Interest Rates." For these reasons, the Bank
intends to begin investing the net Conversion proceeds in mortgage loans,
commercial loans and consumer loans as soon as practicable after consummation of
the Conversion. However, there can be no assurance that the economy of the
counties in the Bank's market area will continue to grow at a rate that will
generate sufficient loan demand or that, even if sufficient loan demand exists
in such market area, the Bank will have the competitive position
20
<PAGE> 22
to gain an increasing share of the loan demand permitting the investment of the
net Conversion proceeds in loan products that meet the Bank's credit quality
standards.
IMPACT OF TECHNOLOGICAL ADVANCES
The banking industry is undergoing rapid technological changes with
frequent introductions of new technology-driven products and services. In
addition to improving customer services, the effective use of technology
increases efficiency and enables financial institutions to reduce costs. The
Company's future success will depend, in part, on its ability to address the
needs of its customers by using technology to provide products and services that
will satisfy customer demands for convenience, as well as to create additional
efficiencies in the Bank's operations. Many of the Bank's competitors have
substantially greater resources than the Bank to invest in technological
improvements. There can be no assurance that the Bank will be able to
effectively implement new technology-driven products and services or be
successful in marketing such products and services to the public.
RESIDENTIAL AND NON-RESIDENTIAL LENDING RISKS
The Bank has historically employed an operating strategy that emphasized
the origination of one- to four-family residential mortgage loans. The
profitability of the Bank's one- to four-family residential lending business
could be adversely impacted by competitive market forces and technological
advances of its competitors. See "-- Competition" and "-- Impact of
Technological Advances." At May 31, 1997, substantially all of the Bank's gross
loans were secured by properties or made to borrowers located in the Bank's
lending area. See "Business of the Bank -- Lending Activities." This lack of
geographic diversification could have an adverse impact on the Bank and the
Bank's profitability in the event that the Bank's lending area were to suffer a
substantial economic decline or a natural disaster.
In addition to one- to four-family residential mortgage loans, the Bank
originates commercial business and real estate loans, and construction, land,
development, multi-family residential and other loans in its lending area. These
loans are generally considered to involve a higher degree of credit risk than
one- to four-family residential mortgage loans. This greater risk is
attributable to several factors, including the higher concentration of principal
in a limited number of loans and borrowers, the effects of general economic
conditions on income-producing properties and the increased difficulty of
evaluating and monitoring these types of loans. Commercial loans, which comprise
16.76% of the Bank's loan portfolio at May 31, 1997, carry greater credit risks
than residential mortgage loans because their repayment is more dependent on (i)
the underlying financial condition of the borrower and the value of, or the cash
flow from, any property securing the loan or the business being financed and
(ii) general and local economic conditions. Furthermore, the repayment of loans
secured by multi-family residential and commercial real estate is typically
dependent upon sufficient cash flow from the related real estate project to
cover operating expenses and debt service. If the cash flow from the project is
reduced (for example, if leases are not obtained or renewed), the borrower's
ability to repay the loan may be impaired. See "Business of the Bank -- Lending
Activities."
CERTAIN ANTI-TAKEOVER PROVISIONS
Provisions in the Company's and the Bank's Governing Instruments. Certain
provisions in the Company's Certificate of Incorporation and By-Laws, and the
Bank's Restated Organization Certificate and By-Laws, as well as certain federal
regulations, assist the Company in maintaining its status as an independent
publicly owned corporation. These provisions provide for, among other things,
supermajority voting on certain matters, a staggered board of directors,
non-cumulative voting for directors, limits on the calling of special meetings,
certain uniform price provisions for certain business combinations and limits on
the ability to vote shares held in excess of 10% of the outstanding shares. NYBB
regulations prohibit, for a period of one year following the Conversion, offers
to acquire or the acquisition of beneficial ownership of more than 10% of the
outstanding stock of the Bank. The Bank's Restated Organization Certificate also
prohibits, for five years, the acquisition of, directly or indirectly, the
beneficial ownership of more than 10% of the Bank's equity securities. These
provisions in the Bank's and the Company's governing instruments may discourage
potential proxy contests and other potential takeover attempts, particularly
those that have not been negotiated with the Board
21
<PAGE> 23
of Directors and, accordingly, generally may serve to perpetuate current
management. See "Restrictions on Acquisition of the Company and the Bank."
Evaluation of Offers. The Certificate of Incorporation of the Company
provides that the Board of Directors of the Company, when evaluating certain
acquisition proposals from outside parties, may consider non-economic factors in
connection with the exercise of its judgment in determining what is in the best
interest of the Company and its shareholders. As a result, the Board of
Directors of the Company may be in a stronger position to oppose such a
transaction if the Board concludes that it would not be in the best interests of
the Company, even if the price offered is significantly greater than the then
market price of any equity security of the Company. See "Restrictions on
Acquisition of the Company and the Bank -- Restrictions in the Company's
Certificate of Incorporation and By-Laws -- Evaluation of Offers."
Voting Control of Officers and Directors. Trustees and executive officers
of the Bank and the Company expect to purchase approximately 3.43% or 2.54% of
the shares of Common Stock to be sold in the Conversion, based upon the minimum
and the maximum of the Estimated Price Range, respectively. In addition, the
ESOP intends to purchase 8% of the Common Stock to be issued in the Conversion,
including shares issued to the Foundation. As a result, assuming the RRP and
Stock Option Plan are implemented, trustees, executive officers and employees
have the potential to control the voting of approximately 25% of the Common
Stock on a fully diluted basis at the maximum of the Estimated Price Range,
including shares issued to the Foundation (based on the maximum of the Estimated
Price Range), thereby enabling them to prevent or render more difficult the
approval of transactions and other corporate actions requiring a supermajority
vote of shareholders, such as certain business combinations and the amendment of
certain charter provisions. Furthermore, in the event that the FDIC were to
waive the Foundation's voting restriction, when the Foundation's shares are
combined with shares purchased directly by officers and directors of the
Company, shares held by the RRP trust, and shares held by the ESOP trust, the
aggregate of such shares could approach 20% of the outstanding Common Stock,
which could enable management to defeat shareholder proposals requiring 80%
approval. Consequently, such potential voting control might preclude takeover
attempts that certain shareholders deem to be in their best interest and might
tend to perpetuate existing management. However, since the ESOP shares are
allocated to, and therefore voted by, all eligible employees of the Bank and any
unallocated shares will be voted by an independent trustee, and because the RRP
must first be approved by shareholders no sooner than six months following
completion of the Conversion, and awards under such proposed plans may be
granted to employees other than executive officers and trustees, management of
the Company does not expect to have voting control of all shares covered by the
ESOP and other stock-based benefit plans. See "Restrictions on Acquisition of
the Company and the Bank -- Restrictions in the Company's Certificate of
Incorporation and By-Laws."
Provisions in Management Contracts and Benefit Plans. Certain provisions
contained in the proposed Employment Agreements, Retention Agreements, the ESOP,
the Stock Option Plan and the RRP that provide for cash payments or the vesting
of benefits upon a change of control of the Company or the Bank may have an
anti-takeover effect and could result in shareholders receiving less for their
shares of Common Stock than otherwise might be available in the event of an
acquisition of the Company. See "Management of the Bank -- Employment
Agreements," "-- Employee Retention Agreements" and "-- Benefits -- Employee
Stock Ownership Plan and Trust," "-- Benefits -- Stock Option Plan" and
"-- Benefits -- Recognition and Retention Plan."
ABSENCE OF MARKET FOR COMMON STOCK
The Company, as a newly organized company, has never issued capital stock
and, consequently, there is no established market for the Common Stock at this
time. The Company has received conditional approval from the Nasdaq Stock Market
to have the Common Stock approved for quotation on the Nasdaq National Market
under the symbol "WSBI" upon completion of the Conversion. One of the
requirements for continued quotation of the Common Stock on the Nasdaq National
Market is that at least two market makers be a market maker for the Common
Stock. The Company will seek to encourage and assist at least two market makers
to make a market in the Common Stock. Sandler O'Neill has advised the Company
that it intends to make a market in the Company's Common Stock, but is under no
obligation to do so. While the Company
22
<PAGE> 24
anticipates that there will be other broker-dealers to act as market maker for
the Common Stock, there can be no assurance that there will be two or more
market makers for the Common Stock.
Making a market in securities involves maintaining bid and asked quotations
and being able, as principal, to effect transactions in reasonable quantities at
those quoted prices, subject to various securities laws and other regulatory
requirements. The development of a public trading market depends upon the
existence of willing buyers and sellers, the presence of which is not within the
control of the Company, the Bank or any market maker. Accordingly, there can be
no assurance that an active and liquid trading market for the Common Stock will
develop, or, once developed, will continue, nor can there be any assurances that
purchasers of the Common Stock will be able to sell their shares at or above the
Purchase Price. The absence or discontinuance of a market for the Common Stock
may have an adverse impact on both the price and liquidity of the Common Stock.
See "Market for the Common Stock."
POSSIBLE INCREASE IN ESTIMATED PRICE RANGE AND NUMBER OF SHARES ISSUED
The number of shares to be sold in the Conversion may be increased as a
result of an increase in the Estimated Price Range of up to 15% to reflect
changes in market and financial conditions following the commencement of the
Subscription Offering or Community Offering, if any. In the event that the
Estimated Price Range is so increased, it is expected that the Company will
issue up to 6,414,100 shares of Common Stock at the Purchase Price for aggregate
proceeds of up to $64,141,000. An increase in the number of shares issued would
decrease a subscriber's pro forma net earnings per share and shareholders'
equity per share but would increase the Company's pro forma consolidated
shareholders' equity and net earnings. Such an increase would also increase the
Purchase Price as a percentage of pro forma shareholders' equity per share and
net earnings per share.
POSSIBLE DILUTIVE EFFECT OF STOCK OPTIONS AND RECOGNITION AND RETENTION PLAN
An amount equal to 10% of the Common Stock to be issued in the Conversion,
including shares issued to the Foundation, has been reserved for issuance under
the Stock Option Plan, the implementation of which may be subject to the
approval of the shareholders of the Company. If all of the options intended to
be granted under the Stock Option Plan were to be exercised using authorized but
unissued shares of Common Stock, the voting interests of existing shareholders
would be diluted by approximately 9.1%, and, assuming that all options were
granted at the Purchase Price, the effect on pro forma net earnings per share
and shareholders' equity per share would be as set forth under "Pro Forma Data."
Also, following the Conversion, the RRP, if implemented, will acquire up to 4%
of the shares of Common Stock issued in the Conversion, either through open
market purchases, if necessary, or from the issuance of authorized but unissued
shares. If the RRP is funded by the issuance of authorized but unissued shares,
the interests of existing shareholders would be diluted by approximately 3.8%
(assuming no options are exercised). See "Pro Forma Data" for the effect on pro
forma net earnings per share and shareholders' equity per share. If the RRP is
funded by open market purchases, the voting interests of existing shareholders
would not be diluted, and, assuming that the shares were acquired at the
Purchase Price, the effect on pro forma net earnings per share and holders'
equity per share would be as set forth under "Pro Forma Data."
POSSIBLE ADVERSE INCOME TAX CONSEQUENCES OF THE DISTRIBUTION OF SUBSCRIPTION
RIGHTS
The Bank has received an opinion from FinPro that subscription rights
granted to Eligible Account Holders have no value. However, this opinion is not
binding on the Internal Revenue Service ("IRS"). If such subscription rights are
deemed to have an ascertainable value, Eligible Account Holders could be taxed
upon the receipt or exercise of the subscription rights in an amount equal to
such value. Additionally, the Bank could recognize a gain for tax purposes on
such distribution. Whether subscription rights are considered to have
ascertainable value is an inherently factual determination. See "The
Conversion -- Effects of Conversion" and "-- Effects of Conversion -- Tax
Aspects."
23
<PAGE> 25
WARWICK COMMUNITY BANCORP, INC.
The Company was recently organized at the direction of the Board of
Trustees of the Bank for the purpose of acquiring all of the capital stock to be
issued by the Bank in the Conversion. The Company has received approval from the
Board of Governors of the Federal Reserve Board ("FRB") to become a bank holding
company and, as such, will be subject to regulation by the FRB. See "Regulation
and Supervision -- Holding Company Regulation." and "The Conversion -- General."
Upon consummation of the Conversion, the Company's assets will consist of all of
the outstanding shares of the Bank's capital stock issued to the Company in the
Conversion and 50% of the net proceeds of the Offerings. The Company intends to
use part of the retained net proceeds to make a loan directly to the ESOP to
enable the ESOP to purchase 8% of the Common Stock to be issued in the
Conversion, including shares issued to the Foundation. The Company will have no
significant liabilities. See "Use of Proceeds." The management of the Company is
set forth under "Management of the Company." Initially, the Company will neither
own nor lease any property, but instead will use the premises and equipment of
the Bank. At the present time, the Company does not intend to employ any persons
other than officers, but will utilize the support staff of the Bank from time to
time. Additional employees will be hired as appropriate to the extent the
Company expands its business in the future. See "Business of the Company."
Management believes that the holding company structure will provide the
Company with additional flexibility to diversify its business activities, should
it decide to do so, through existing or newly-formed subsidiaries, or through
acquisitions of other financial institutions and financial services related
companies. Although there are no current arrangements, understandings or
agreements, written or oral, regarding any such opportunities or transactions,
the Company will be in a position after the Conversion, subject to regulatory
limitations and the Company's financial position, to take advantage of any such
acquisition and expansion opportunities that may arise. The initial activities
of the Company are anticipated to be funded by the Conversion proceeds retained
by the Company and earnings thereon or, alternatively, through dividends from
the Bank.
The Company's office is located at the main office of the Bank at 18
Oakland Avenue, Warwick, New York 10990-0591. The Company's telephone number is
(914) 986-2206.
THE WARWICK SAVINGS BANK
The Bank was founded in 1875 as a New York mutual savings bank. The Bank is
a community-oriented savings institution providing a variety of financial
services to meet the needs of the communities which it serves. The Bank conducts
business from its headquarters in the village of Warwick, New York and its
branches in the village of Monroe, the town of Woodbury and the city of
Middletown, New York. The Bank's primary deposit gathering areas are currently
concentrated in proximity to its full service banking offices. The Bank's
current primary lending market includes Orange County, New York and the
surrounding New York counties. The majority of the Bank's mortgages are secured
by properties located in its lending area. See "Business of the Bank -- Market
Area" and " -- Competition."
The Bank's principal business consists of gathering savings deposits from
the general public within its market area and investing those savings deposits
primarily in one- to four-family residential mortgage loans, mortgage-backed
securities and obligations of the U.S. Government. To a lesser extent, the Bank
makes commercial business and real estate loans, multi-family residential loans,
land, construction and development loans, consumer loans (including loans
secured by savings deposits and home improvement loans) and other loans. At May
31, 1997, the Bank had total assets of $286.5 million, of which $138.3 million
was comprised of mortgage and other loans and $126.4 million was comprised of
securities. At such date, total deposits were $221.2 million, borrowings were
$28.3 million and net worth was $28.1 million. The Bank's savings deposits are
insured up to the maximum allowable amount by the BIF. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business of the Bank."
The Bank is subject to extensive regulation, supervision and examination by
the NYSBD, its primary regulator, and the FDIC, which insures its savings
deposits. At May 31, 1997, the Bank exceeded all
24
<PAGE> 26
regulatory capital requirements with leverage and total risk-based capital
ratios of 9.53% and 20.33%, respectively. Additionally, the Bank's regulatory
capital was in excess of the amount necessary to be "well-capitalized" under
FDICIA. See "Regulation and Supervision -- Federal Banking Regulation." The Bank
is a member of the FHLBNY, which is one of the 12 regional banks which comprise
the FHLB system.
The Bank's main office is located at 18 Oakland Avenue, Warwick, New York
10990-0591. The Bank's telephone number is (914) 986-2206.
25
<PAGE> 27
USE OF PROCEEDS
Although the actual net proceeds from the sale of the Common Stock cannot
be determined until the Conversion is completed, it is presently anticipated
that the net proceeds from the sale of the Common Stock will be between $39.4
million and $53.7 million, with a midpoint of $46.6 million. In the event that
the Estimated Price Range is increased by 15%, the net proceeds from the sale of
the Common Stock are estimated to be $62.0 million. See "Pro Forma Data" and
"The Conversion -- Stock Pricing" for discussion of the assumptions used to
arrive at such amounts. The Company will be unable to utilize any of the net
proceeds of the Offerings until the consummation of the Conversion.
The Company will use the net proceeds from the sale of Common Stock as
follows:
1. The Company will purchase all of the capital stock of the Bank to
be issued in the Conversion in exchange for 50% of the net proceeds of the
Offerings.
2. The remaining net proceeds will be retained by the Company. Net
proceeds to be retained by the Company after the purchase of the capital
stock of the Bank are estimated to be between $19.7 million and $26.9
million, with a midpoint of $23.3 million. In the event that the Estimated
Price Range is increased by 15%, the net proceeds retained by the Company
are estimated to be $21.0 million. The net proceeds retained by the Company
will initially be invested primarily in federal funds, government and
federal agency mortgage-backed securities, other debt securities,
high-grade short-term marketable securities, equity securities, deposits of
or loans to the Bank, or a combination thereof, and will be used for
general business activities.
3. The Company intends to use a portion of the retained net proceeds
to make a loan directly to the ESOP to enable the ESOP to purchase 8% of
the Common Stock to be issued in the Conversion, including shares issued to
the Foundation. Based upon the issuance of 4,122,500 shares or 5,577,500
shares at the minimum and maximum of the Estimated Price Range,
respectively, the amount of the loan to the ESOP (if the loan is made by
the Company and not a third party) would be $3.4 million or $4.6 million,
respectively (or $5.3 million if the Estimated Price Range is increased by
15%), to be repaid over a period of up to 10 years at an interest rate of
8%. See "Management of the Bank -- Benefits -- Employee Stock Ownership
Plan and Trust."
The portion of the net proceeds received by the Bank from the Company's
purchase of the Bank's capital stock, estimated to be between $19.7 million at
the minimum of the Estimated Price Range and $26.9 million at the maximum of the
Estimated Price Range, will be added to the Bank's general funds to be used for
general corporate purposes, including: investment in one- to four-family
residential mortgage loans, commercial and other loans; investment in federal
funds, short-term, investment grade marketable securities, mortgage-backed and
equity securities; and funding the RRP. The Bank may also use such funds for the
expansion of its facilities and to expand operations through acquisitions of
other financial institutions, branch offices or other financial services
companies. The net proceeds may also be used to purchase or lease additional
branch or office facilities inside or outside of Orange County, New York. The
Bank has applied to the New Jersey Department of Banking to establish a mortgage
banking operation in Bergen, Passaic and Sussex Counties, New Jersey through its
mortgage banking subsidiary, WSB Mortgage. Except for the establishment of
mortgage banking operations in New Jersey, the Bank has no current agreements,
arrangements or understanding regarding any establishment or acquisition or any
other transaction related to the possible expansion of its operations.
The net proceeds retained by the Company may also be used to support the
future expansion of the Bank's operations through branch acquisitions and the
acquisition of other financial institutions or diversification into other
banking related businesses and for other business or investment purposes,
including possibly the payment of dividends and the repurchase of the Company's
Common Stock as permitted by the Superintendent. See "Dividend Policy" and
"Regulation and Supervision -- New York Banking Regulation -- Dividends." The
Company has no current arrangements, understandings or agreements, written or
oral, regarding any such transactions. The Company, upon completion of the
Conversion, will be a bank holding company, which, under existing laws,
generally would be restricted as to the types of business activities in which it
may
26
<PAGE> 28
engage. See "Regulation and Supervision -- Holding Company Regulation." for a
description of certain regulations applicable to the Company. In determining the
amount of net proceeds to be used to purchase the capital stock of the Bank,
consideration was given to such factors as the regulatory capital position of
the Bank, both before and after giving effect to the Conversion, and the rules
and regulations and policies of the NYBB and the FDIC governing the amount of
proceeds that may be retained by the Company.
Upon completion of the Conversion, the Company's Board of Directors will
have the authority to adopt stock repurchase plans, subject to statutory and
regulatory requirements. Based upon facts and circumstances that may arise
following the Conversion, and subject to applicable regulatory requirements, the
Company's Board of Directors may determine to repurchase stock in the future.
Such facts and circumstances may include: (i) market and economic factors such
as the price at which the stock is trading in the market, the volume of trading,
the attractiveness of other investment alternatives in terms of the rate of
return and risk involved in the investment, the ability to increase the book
value and/or earnings per share of the remaining outstanding shares and
improvement in the Company's return on equity; (ii) the avoidance of dilution to
shareholders by not having to issue additional shares to cover the exercise of
stock options or to fund employee stock benefit plans; and (iii) any other
circumstances under which repurchases would be in the best interests of the
Company and its shareholders. In the event the Company determines to repurchase
stock, such repurchases will be made at market prices, which could be in excess
of the Purchase Price in the Conversion.
Any stock repurchases will be subject to the determination of the Company's
Board of Directors that both the Company and the Bank will be capitalized in
excess of all applicable regulatory requirements after any such repurchases and
that such capital will be adequate, taking into account, among other things, the
level of non-performing and other risk assets, the Company's and the Bank's
current and projected results of operations and asset/liability structure, the
economic environment and tax and other considerations. In addition, unless
approved by the Superintendent, applicable NYBB regulations generally prohibit
the Company from repurchasing its own stock for a period of one year following
the Conversion. Any stock repurchases by the Company during the two years
thereafter are subject to the Superintendent's approval and generally are
required to be part of an open market program not involving greater than 5% of
the outstanding Common Stock during each twelve-month period. In addition, the
FDIC prohibits an insured mutual state savings bank that has converted from
mutual to stock form of ownership from repurchasing its capital stock within one
year following the date of its conversion to stock form, except that stock
repurchases of no greater than 5% of a bank's outstanding capital stock may be
repurchased during this one-year period where compelling and valid business
reasons are established to the satisfaction of the FDIC. Further, the Company
may not repurchase any of its Common Stock if the repurchases would cause the
Bank to become "undercapitalized" within the meaning of the FDIC prompt
corrective action regulation. See "Regulation and Supervision -- Federal Banking
Regulation -- Prompt Corrective Action."
The Board of Directors of the Company intends to consider a policy of
paying cash dividends on the Common Stock in the future. However, no decision
has been made as to the amount or timing of such dividends, if any. The payment
of dividends or repurchase of stock, however, would be prohibited if
shareholders' equity would be reduced below the amount required to maintain the
Bank's liquidation account. See "Dividend Policy," "The Conversion -- Certain
Restrictions on Purchase or Transfer of Shares After Conversion" and "-- Effects
of Conversion -- Liquidation Rights."
Neither the Bank nor the Company has yet determined the approximate amount
of net proceeds to be used for each of the purposes mentioned above.
DIVIDEND POLICY
Upon completion of the Conversion, the Board of Directors of the Company
will have the authority to declare dividends on the Common Stock. The Board of
Directors intends to consider a policy of paying cash dividends on the Common
Stock. However, no decision has been made as to the timing or amount of such
dividends, if any. In the future, declarations of dividends by the Board of
Directors, if any, will depend upon a number of factors, including the amount of
net proceeds retained by the Company in the Conversion, investment opportunities
available to the Company or the Bank, capital requirements, regulatory
limitations,
27
<PAGE> 29
the Company's and the Bank's financial condition and results of operations, tax
considerations, general economic conditions, industry standards and other
factors. No assurances can be given, however, that any dividends will be paid
or, if payment is commenced, that such dividend will continue to be paid.
As the principal asset of the Company, the Bank will provide the principal
source of funds for payment of dividends by the Company. The Bank will not be
permitted to pay dividends on its capital stock if, among other things, its
shareholders' equity would be reduced below the amount required for the
liquidation account. See "The Conversion -- Effects of Conversion -- Liquidation
Rights" and "Regulation and Supervision." Under the Banking Law of the State of
New York ("Banking Law"), dividends may be declared and paid only out of the net
profits of the Bank. The approval of the Superintendent is required if the total
of all dividends declared in any calendar year will exceed net profits for that
year plus the retained net profits of the preceding two years, less any required
transfer to surplus or a fund for the retirement of any preferred stock. In
addition, no dividends may be declared, credited or paid if the effect thereof
would cause the Bank's capital to be reduced below the amount required by the
Superintendent or the FDIC. See "Regulation and Supervision." As of May 31,
1997, the Bank had $4.4 million available for the payment of dividends without
prior approval of the Superintendent. Dividends or any repurchase by the Bank of
its stock in excess of the Bank's current and accumulated earnings could result
in the realization by the Bank of taxable income. See "Federal and State
Taxation -- Federal Taxation."
Unlike the Bank, the Company is not subject to the restrictions imposed by
the Banking Law on the payment of dividends to its shareholders, although the
source of such dividends will be dependent on the net proceeds retained by the
Company and earnings thereon and may be dependent, in part, upon dividends from
the Bank. The Company is subject, however, to the requirements which generally
limit dividends to an amount equal to the excess of the net assets of the
Company (the amount by which total assets exceed total liabilities) over its
statutory capital, or if there is no such excess, to its net profits for the
current and/or immediately preceding fiscal year.
Additionally, in connection with the Conversion, the Company and Bank have
committed to the FDIC that during the one-year period following the consummation
of the Conversion, the Company will not declare an extraordinary dividend to
shareholders which would be treated by recipient shareholders as a tax-free
return of capital for federal income tax purposes without prior approval of the
FDIC.
MARKET FOR THE COMMON STOCK
The Company and the Bank have not previously issued capital stock and,
consequently, there is currently no established market for the Common Stock. The
Company has received conditional approval from the Nasdaq National Market to
have the Common Stock quoted under the symbol "WSBI" upon completion of the
Conversion. One of the requirements for continued quotation of the Common Stock
on the Nasdaq National Market is that there be at least two market makers for
the Common Stock. The Company will seek to encourage and assist at least two
market makers to make a market in the Common Stock. Making a market involves
maintaining bid and asked quotations and being able, as principal, to effect
transactions in reasonable quantities at those quoted prices, subject to various
securities laws and other regulatory requirements. Sandler O'Neill has advised
the Company that it intends to make a market in the Common Stock, but is under
no obligation to do so. While the Company anticipates that there will be other
broker-dealers to act as market maker for the Common Stock, there can be no
assurance that there will be two or more market makers for the Common Stock.
Additionally, the development of a liquid public market depends on the existence
of willing buyers and sellers, the presence of which is not within the control
of the Company, the Bank or any market maker. The number of active buyers and
sellers of the Common Stock at any particular time may be limited. Under such
circumstances, investors in the Common Stock could have difficulty disposing of
their shares on short notice and should not view the Common Stock as a
short-term investment. There can be no assurance that an active and liquid
trading market for the Common Stock will develop or that, if developed, it will
continue, nor is there any assurance that persons purchasing shares will be able
to sell such shares at or above the Purchase Price or that quotations will be
available on the Nasdaq National Market as contemplated. See "Risk
Factors -- Absence of Market for Common Stock."
28
<PAGE> 30
REGULATORY CAPITAL COMPLIANCE
At May 31, 1997, the Bank exceeded all regulatory capital requirements. See
"Regulation and Supervision -- Federal Banking Regulation -- Capital
Requirements." Set forth below is a summary of the Bank's compliance with
regulatory capital standards at May 31, 1997, on a historical and pro forma
basis assuming that the indicated number of shares were sold as of such date and
receipt by the Bank of 50% of net Conversion proceeds. For purposes of the table
below, the amount expected to be borrowed by the ESOP and the cost of the shares
expected to be acquired by the RRP are deducted from pro forma regulatory
capital.
<TABLE>
<CAPTION>
PRO FORMA AT MAY 31, 1997 BASED UPON THE SALE AT $10.00 PER SHARE
-----------------------------------------------------------------------------------------------------------
6,414,100 SHARES
4,122,500 SHARES 4,850,000 SHARES 5,577,500 SHARES
(15% ABOVE MAXIMUM
HISTORICAL AT MAY (MINIMUM OF THE (MIDPOINT OF THE (MAXIMUM OF THE OF THE ESTIMATED
ESTIMATED PRICE ESTIMATED PRICE ESTIMATED PRICE
31, 1997 RANGE) RANGE) RANGE) PRICE RANGE)(1)
------------------- ------------------- ------------------- ------------------- -------------------
PERCENT PERCENT PERCENT PERCENT PERCENT
OF OF OF OF OF
AMOUNT ASSETS(2) AMOUNT ASSETS(2) AMOUNT ASSETS(2) AMOUNT ASSETS(2) AMOUNT ASSETS(2)
------- --------- ------- --------- ------- --------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GAAP(3) Capital..... $28,114 9.81% $43,236 14.33% $45,999 15.11% $48,761 15.87% $51,939 16.73%
======= ==== ======= ==== ======= ==== ======= ==== ======= ====
Leverage Capital:
Capital
Level(4)........ $27,495 9.53% $42,617 14.04% $45,380 14.81% $48,142 15.57% $51,320 16.43%
Requirement(5).... 11,535 4.00 12,134 4.00 12,256 4.00 12,366 4.00 12,493 4.00
------- ---- ------- ---- ------- ---- ------- ---- ------- ----
Excess............ $15,960 5.53% $30,483 10.04% $33,124 10.81% $35,776 11.57% $38,827 12.43%
======= ==== ======= ==== ======= ==== ======= ==== ======= ====
Risk-Based Capital:
Capital
Level(4)(6)..... $28,726 20.33% $43,848 28.03% $46,611 29.28% $49,373 30.49% $52,551 31.82%
Requirement....... 11,302 8.00 12,514 8.00 12,735 8.00 12,956 8.00 13,210 8.00
------- ---- ------- ---- ------- ---- ------- ---- ------- ----
Excess............ $17,424 12.33% $31,334 20.03% $33,876 21.28% $36,417 22.49% $39,341 23.82%
======= ==== ======= ==== ======= ==== ======= ==== ======= ====
</TABLE>
- ---------------
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Price Range of up to 15% as
a result of regulatory considerations or changes in market conditions or
general financial and economic conditions following the commencement of the
Subscription Offering or Community Offering, if any.
(2) Leverage capital levels are shown as a percentage of "total assets," and
risk-based capital levels are calculated on the basis of a percentage of
"risk-weighted assets," each as defined in the FDIC Regulations.
(3) GAAP is defined as Generally Accepted Accounting Principles.
(4) Pro forma capital levels assume receipt by the Bank of 50% of the net
proceeds from the shares of Common Stock sold at the minimum, midpoint and
maximum of the Estimated Price Range. These levels assume funding by the
Bank of the RRP equal to 4% of the Common Stock issued, including shares
issued to the Foundation and repayment of the Company's loan to the ESOP to
enable the ESOP to purchase 8% of the Common Stock issued, including shares
issued to the Foundation, valued at the minimum, midpoint and maximum of the
Estimated of the Estimated Price Range. See "Management of the
Bank -- Benefits" for a discussion of the RRP and ESOP.
(5) The current leverage capital requirement for savings banks is 3% of total
adjusted assets for savings banks that receive the highest supervisory
ratings for safety and soundness and that are not experiencing or
anticipating significant growth. The current leverage capital ratio
applicable to all other savings banks is 4% to 5%. See "Regulation and
Supervision -- Federal Banking Regulation -- Capital Requirements."
(6) Assumes net proceeds are invested in assets that carry risk-weighting equal
to the actual risk weighting of the Bank's assets as of May 31, 1997.
29
<PAGE> 31
CAPITALIZATION
The following table presents the historical capitalization of the Bank at
May 31, 1997, and the pro forma consolidated capitalization of the Company after
giving effect to the Conversion, based upon the sale of the number of shares
indicated in the table and the other assumptions set forth under "Pro Forma
Data."
<TABLE>
<CAPTION>
COMPANY PRO FORMA BASED UPON SALE AT $10.00 PER SHARE
---------------------------------------------------------------
4,122,500 5,577,500
SHARES 4,850,000 SHARES 6,414,100
(MINIMUM OF SHARES (MAXIMUM OF SHARES (15% ABOVE
ESTIMATED (MIDPOINT OF ESTIMATED MAXIMUM OF
BANK PRICE ESTIMATED PRICE ESTIMATED
HISTORICAL RANGE) PRICE RANGE) RANGE) PRICE RANGE)(1)
---------- ----------- ------------ ----------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Deposits(2)................. $ 221,211 $ 221,211 $221,211 $ 221,211 $ 221,211
======== ======== ======== ======== ========
Total deposits and borrowed
funds..................... $ 249,551 $ 249,551 $249,551 $ 249,551 $ 249,551
======== ======== ======== ======== ========
Shareholders' equity:
Preferred Stock, $.01 par
value, 5,000,000 shares
authorized; none to be
issued................. $ -- $ -- $ -- $ -- $ --
Common Stock, $.01 par
value, 15,000,000
shares authorized; to
be issued as
reflected.............. -- 42 50 57 66
Additional paid-in
capital(3)............. -- 40,639 47,999 55,360 63,824
Retained earnings(4)...... 27,495 27,495 27,495 27,495 27,495
Less:
Expense of contributions
to Foundation.......... -- (1,237) (1,455) (1,673) (1,924)
Plus:
Tax effect of contribution
to Foundation(5)....... -- 495 582 669 770
Net unrealized gain on
securities
available-for-sale, net
of taxes............... 619 619 619 619 619
Less:
Common Stock acquired by
the ESOP(6)............ -- (3,397) (3,996) (4,596) (5,285)
Common Stock acquired by
the RRP(7)............. (1,698) (1,998) (2,298) (2,643)
-------- -------- -------- -------- --------
Total shareholders'
equity.................... $ 28,114 $ 62,958 $ 69,296 $ 75,633 $ 82,922
======== ======== ======== ======== ========
</TABLE>
- ---------------
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Price Range of up to 15% as
a result of regulatory considerations or changes in market or general
financial and economic conditions following the commencement of the
Subscription Offering or Community Offering, if any.
(2) Does not reflect withdrawals from deposit accounts for the purchase of
Common Stock in the Conversion. Such withdrawals would reduce pro forma
deposits by the amount of such withdrawals.
(3) Reflects the issuance of shares sold in the Offerings and the issuance of
additional shares of Common Stock to the Foundation at a value of $10.00 per
share. No effect has been given to the issuance of additional shares of
Common Stock pursuant to the Company's proposed Stock Option Plan intended
to be adopted by the Company and presented for approval of shareholders at a
meeting of shareholders at least six months following the Conversion. The
Stock Option Plan would provide the grant of stock options to purchase an
amount of Common Stock equal to 10% of the shares of Common Stock issued in
30
<PAGE> 32
the Conversion, including shares issued to the Foundation. See "Management
of the Bank -- Benefits -- Stock Option Plan."
(4) The retained earnings of the Bank will be substantially restricted after the
Conversion. See "The Conversion -- Effects of Conversion -- Liquidation
Rights."
(5) Represents the tax effect of the contribution of Common Stock to the
Foundation based on a 40% tax rate. The realization of the deferred tax
benefit is limited annually to 10% of the Company's annual taxable income,
subject to the ability of the Company to carry forward any unused portion of
the deduction for five years following the year in which the contribution is
made.
(6) Assumes that 8% of the shares issued in connection with the Conversion,
including shares issued to the Foundation, will be purchased by the ESOP and
the funds used to acquire the ESOP shares will be borrowed from the Company.
The Common Stock acquired by the ESOP is reflected as reduction of
shareholders' equity. See "Management of the Bank -- Benefits -- ESOP" and
"-- Recognition and Retention Plan."
(7) Assumes that, subsequent to the Conversion, as amount equal to 4% of the
shares of Common Stock issued in the Conversion, including shares issued to
the Foundation, is purchased by the RRP through open market purchases. The
Common Stock purchased by the RRP is reflected as a reduction of
shareholders' equity. See "Risk Factors -- Possible Dilutive Effect of Stock
Options and Recognition and Retention Plan," Footnote 2 to the tables under
"Pro Forma Data" and "Management of the Bank -- Benefits -- Recognition and
Retention Plan."
31
<PAGE> 33
PRO FORMA DATA
The actual net proceeds from the sale of the Common Stock cannot be
determined until the Conversion is completed. However, net proceeds are
currently estimated to be between $39.4 million and $53.7 million (or $62.0
million in the event the Estimated Price Range is increased by 15%) based upon
the following assumptions: (i) 100% of the shares of Common Stock will be sold
in the Subscription Offering, as follows: (a) 8% will be sold to the ESOP and
150,000 shares will be sold to trustees, trustees emeritus, officers and
employees or members of such persons' immediate families and (b) the remainder
will be sold to Eligible Account Holders in the Subscription Offering; (ii)
Sandler O'Neill will receive a fee equal to 1.875% of the aggregate actual
purchase price of the shares sold to Eligible Account Holders in the
Subscription Offering, excluding shares purchased by trustees, trustees
emeritus, officers, employees and their families and the ESOP for which there is
no fee; and (iii) Conversion expenses, excluding the fees paid to Sandler
O'Neill, will be approximately $1.1 million. Actual Conversion expenses may vary
from these estimates.
Pro forma net earnings have been calculated assuming the Common Stock had
been sold at the beginning of the periods and the net proceeds had been invested
at an average yield of 5.78% for the year ended May 31, 1997, the one-year U.S.
Treasury bill rate in effect in May, 1997. The one-year U.S. Treasury bill rate,
rather than an arithmetic average of the average yield on interest-earning
assets and average rate paid on interest-bearing liabilities, has been used to
estimate income on net proceeds, because management believes that the one-year
U.S. Treasury bill rate provides a more accurate estimate of the rate that would
be obtained on an initial investment of the net proceeds from the Offerings. The
pro-forma after-tax yield is assumed to be 3.47% for this period, based on an
effective tax rate of 40% for such period. The effect of withdrawals from
savings deposit accounts for the purchase of Common Stock has not been
reflected. Historical and pro forma per share amounts have been calculated by
dividing historical and pro forma amounts by the indicated number of shares of
Common Stock, as adjusted (in the case of pro forma net earnings per share) to
give effect to the purchase of shares by the ESOP. Pro forma shareholders'
equity amounts have been calculated as if the Common Stock had been sold on May
31, 1997, and, accordingly, no effect has been given to the assumed earnings
effect of the transactions.
The following pro forma information may not be representative of the
financial effects of the foregoing transactions at the dates on which such
transactions actually occur and should not be taken as indicative of future
results of operations. Pro forma consolidated shareholders' equity represents
the difference between the projected amount of assets and liabilities of the
Company computed in accordance with GAAP. The pro forma shareholders' equity is
not intended to represent the fair market value of the Common Stock and may be
greater than amounts that would be available for distribution to shareholders in
the event of liquidation.
The following tables summarize historical data of the Bank and pro forma
data of the Company at or for the fiscal year ended May 31, 1997 based on the
assumptions set forth above and in the tables and should not be used as a basis
for projections of market value of the Common Stock following the Conversion.
The tables below give effect to the RRP, which is expected to be adopted by the
Company following the Conversion and which, if implemented prior to the first
anniversary of the Conversion, will be presented to shareholders for approval at
a meeting of shareholders to be held no earlier than six months after completion
of the Conversion. See footnote 3 to the tables. No effect has been given in the
tables to the possible issuance of additional shares reserved for future
issuance pursuant to the Stock Option Plan to be adopted by the Board of
Directors of the Company, nor does book value give any effect to the liquidation
account to be established for the benefit of Eligible Account Holders or the bad
debt reserve in liquidation. See footnote 4 to the tables below and "The
Conversion -- Effects of Conversion -- Liquidation Rights" and "Management of
the Bank -- Benefits -- Stock Option Plan."
32
<PAGE> 34
<TABLE>
<CAPTION>
AT OR FOR THE YEAR MAY 31, 1997
------------------------------------------------------------
6,414,100
4,122,500 4,850,000 5,577,500 SHARES SOLD
SHARES SOLD SHARES SOLD SHARES SOLD AT AT $10.00 PER
AT $10.00 AT $10.00 $10.00 SHARE (15%
PER SHARE PER SHARE PER SHARE ABOVE MAXIMUM
(MINIMUM (MIDPOINT OF (MAXIMUM OF OF ESTIMATED
OF ESTIMATED ESTIMATED ESTIMATED PRICE
PRICE RANGE) PRICE RANGE) PRICE RANGE) RANGE)(7)
------------ ------------ -------------- -------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Gross proceeds............................. $ 41,225 $ 48,500 $ 55,775 $64,141
Plus: Value of shares issued to Foundation
(equal to 3% of stock sold in
Conversion).............................. 1,237 1,455 1,673 1,924
------- ------- ------- -------
Pro forma market capitalization............ $ 42,462 $ 49,955 $ 57,448 $66,065
======= ======= ======= =======
Gross proceeds............................. $ 41,225 $ 48,500 $ 55,775 $64,141
Less: Offering expenses and commissions.... (1,781) (1,906) (2,031) (2,175)
------- ------- ------- -------
Estimated net proceeds..................... $ 39,444 $ 46,594 $ 53,744 $61,966
Less: Common Stock purchased by ESOP....... (3,397) (3,996) (4,596) (5,285)
Common Stock purchased by RRP............ (1,698) (1,998) (2,298) (2,643)
------- ------- ------- -------
Estimated net proceeds, as adjusted...... $ 34,349 $ 40,600 $ 46,850 $54,038
Net income(1):
Historical............................... $ 2,866 $ 2,866 $ 2,866 $ 2,866
Pro forma income on net proceeds, as
adjusted.............................. 1,191 1,408 1,625 1,874
Less: Pro forma ESOP adjustment(2)....... (204) (240) (276) (317)
Less: Pro forma RRP adjustment(3)........ (204) (240) (276) (317)
------- ------- ------- -------
Pro forma net income.................. $ 3,649 $ 3,794 $ 3,939 $ 4,106
======= ======= ======= =======
Per share net income(1):
Historical............................... $ 0.73 $ 0.62 $ 0.54 $ 0.47
Pro forma income on net proceeds, as
adjusted.............................. 0.30 0.30 0.30 0.31
Pro forma ESOP adjustment(2)............. (0.05) (0.05) (0.05) (0.05)
Pro forma RRP adjustment (3)............. (0.05) (0.05) (0.05) (0.05)
------- ------- ------- -------
Pro forma net income per share........ $ 0.93 $ 0.82 $ 0.74 $ 0.68
======= ======= ======= =======
Shareholders' equity:
Historical............................... $ 28,114 $ 28,114 $ 28,114 $28,114
Estimated net proceeds................... 39,444 46,594 53,744 61,966
Plus: Shares issued to Foundation........ 1,237 1,455 1,673 1,924
Less: Contribution to the Foundation..... (1,237) (1,455) (1,673) (1,924)
Plus: Tax benefit of the contribution to
the Foundation........................ 495 582 669 770
Less: Common Stock acquired by ESOP(2)... (3,397) (3,996) (4,596) (5,285)
Less: Common Stock acquired by RRP (3)... (1,698) (1,998) (2,298) (2,643)
------- ------- ------- -------
Pro forma shareholders'
equity(3)(4)(5)....................... $ 62,958 $ 69,296 $ 75,633 $82,922
======= ======= ======= =======
(See footnotes on next page)
</TABLE>
33
<PAGE> 35
<TABLE>
<CAPTION>
AT OR FOR THE YEAR MAY 31, 1997
6,414,100
4,122,500 4,850,000 5,577,500 SHARES SOLD
SHARES SOLD SHARES SOLD SHARES SOLD AT AT $10.00 PER
AT $10.00 AT $10.00 $10.00 SHARE (15%
PER SHARE PER SHARE PER SHARE ABOVE MAXIMUM
(MINIMUM (MIDPOINT OF (MAXIMUM OF OF ESTIMATED
OF ESTIMATED ESTIMATED ESTIMATED PRICE
PRICE RANGE) PRICE RANGE) PRICE RANGE) RANGE)(7)
------- ------- ------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Shareholders' equity per share(6):
Historical............................... $ 6.62 $ 5.63 $ 4.89 $ 4.26
Estimated net proceeds................... 9.29 9.33 9.36 9.38
Plus: Tax benefit of the contribution to
the Foundation........................ 0.12 0.12 0.12 0.12
Less: Common Stock acquired by ESOP(2)... (0.80) (0.80) (0.80) (0.80)
Less: Common Stock acquired by RRP(3).... (0.40) (0.40) (0.40) (0.40)
------- ------- ------- -------
Pro forma shareholders' equity per
share................................. $ 14.83 $ 13.88 $ 13.17 $ 12.56
======= ======= ======= =======
Offering price as a percentage of pro forma
shareholders' equity per share........... 67.43% 72.05% 75.93% 79.62%
Offering price to pro forma net earnings
per share................................ 10.75x 12.20x 13.51x 14.71x
</TABLE>
- ---------------
(1) Does not give effect to the non-recurring expense that will be recognized in
the fiscal year ending May 31, 1998 as a result of the establishment of the
Foundation. The Company will recognize an after-tax expense for the amount
of the contribution to the Foundation which is expected to be approximately
$742 thousand, $873 thousand, $1.0 million and $1.2 million at the minimum,
midpoint, maximum and maximum, as adjusted, of the Estimated Price Range,
respectively. Assuming the contribution to the Foundation was expensed
during the fiscal year ended May 31, 1997, pro forma net earnings per share
would be $0.93, $0.82, $0.74 and $0.68, at the minimum, midpoint, maximum
and maximum as adjusted, respectively. Per share net income data is based on
3,940,000, 4,636,000, 5,331,000 and 6,131,000 shares outstanding which
represents shares sold in the Conversion, shares contributed to the
Foundation and shares to be allocated or distributed under the ESOP and the
RRP for the period presented.
(2) It is assumed that 8% of the shares of Common Stock issued in connection
with the Conversion, including shares issued to the Foundation, will be
purchased by the ESOP. For purposes of this table, the funds used to acquire
such shares are assumed to have been borrowed by the ESOP from the Company.
The amount to be borrowed is reflected as a reduction of shareholders'
equity. The Bank intends to make annual contributions to the ESOP in an
amount at least equal to the principal and interest requirement of the debt.
The Bank's total annual payment of the ESOP debt is based upon 10 equal
annual installments of principal, with an assumed interest rate at 8.00%.
The pro forma net earnings assume: (i) that the Bank's contribution to the
ESOP is equivalent to the debt service requirement for the year ended
December 31, 1997, and was made at the end of the period; (ii) that 34,000,
40,000, 46,000 and 52,900 shares at the minimum, midpoint, maximum and 15%
above the maximum of the range, respectively, were committed to be released
during the year ended December 31, 1997 at an average fair value of $10.00
per share in accordance with SOP 93-6; and (iii) only the ESOP shares
committed to be released were considered outstanding for purposes of the net
earnings per share calculations. See "Management of the
Bank -- Benefits -- Employee Stock Ownership Plan and Trust."
(3) Gives effect to the RRP expected to be adopted by the Company following the
conversion and presented for approval at a meeting of shareholders. The RRP
intends to acquire an amount of Common Stock equal to 4% of the shares of
Common Stock issued in connection with the Conversion, including shares
issued to the Foundation, or 169,847, 199,820, 229,793 and 264,256 shares of
Common Stock at the minimum, midpoint, maximum and 15% above the maximum of
the Estimated Price Range, respectively, either through open market
purchases, if permissible, or from authorized but unissued shares of Common
Stock or treasury stock of the Company, if any. In calculating the pro forma
effect of the RRPs, it is assumed that the shares were acquired by the RRPs
at the beginning of the period presented in open
34
<PAGE> 36
market purchases at the Purchase Price and that 20% of the amount
contributed was an amortized expense during such period. The issuance of
authorized but unissued shares of the Company's Common Stock to the RRPs
instead of open market purchases would dilute the voting interests of
existing shareholders by approximately 3.8% and pro forma net earnings per
share would be $0.83, $0.73, $0.66 and $0.60 at the minimum, midpoint,
maximum and 15% above the maximum of the range, respectively and pro forma
stockholders equity per share would be $14.26, $13.34, $12.66 and $12.07 at
the minimum, midpoint, maximum and 15% above the maximum of the range,
respectively. There can be no assurance that the actual purchase price of
the shares granted under the RRP will be equal to the Purchase Price. See
"Management of the Bank -- Benefits -- Recognition and Retention Plan."
(4) No effect has been given to the issuance of additional shares of Common
Stock pursuant to the Stock Option Plan expected to be adopted by the
Company following the Conversion. The Company expects to present the Stock
Option Plan for approval at a meeting of shareholders. Under the Stock
Option Plan, an amount equal to 10% of the Common Stock issued in connection
with the Conversion, including shares issued to the Foundation, or 424,617,
499,550, 574,482 and 660,642 shares at the minimum, midpoint, maximum and
15% above the maximum of the Estimated Price Range, respectively, will be
reserved for future issuance upon the exercise of options to be granted
under the Stock Option Plan. The issuance of Common Stock pursuant to the
exercise of options under the Stock Option Plan will result in the dilution
of existing shareholders' interests. Assuming all options were exercised at
the end of the period at an exercise price of $10.00 per share, the pro
forma net earnings per share would be $0.78, $0.69, $0.62 and $0.56,
respectively, and the pro forma shareholders' equity per share would be
$13.48, $12.61, $11.97 and $11.41, respectively. See "Management of the
Bank -- Benefits -- Stock Option Plan."
(5) The retained earnings of the Bank will continue to be substantially
restricted after the Conversion. See "Dividend Policy," "The
Conversion -- Liquidation Rights" and "Regulation and Supervision -- New
York Banking Regulation."
(6) Shareholders' equity per share data is based upon 4,246,000, 4,996,000,
5,745,000 and 6,607,000 shares outstanding representing shares sold in the
conversion, shares contributed to the Foundation and shares purchased by the
ESOP and the RRP.
(7) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Price Range of up to 15% as
a result of regulatory considerations or changes in market or general
considerations or changes in market or general financial and economic
conditions following the commencement of the Subscription Offering or
Community Offering, if any.
35
<PAGE> 37
COMPARISON OF VALUATION AND PRO FORMA INFORMATION
WITH AND WITHOUT FOUNDATION
Assuming that the Foundation was not being established as part of the
Conversion, FinPro has estimated that the pro forma aggregate market
capitalization of the Company would be approximately $51.5 million at the
midpoint of the Estimated Price Range, which is approximately $1.5 million
greater than the pro forma aggregate market capitalization of the Company
including the Foundation, and would result in a $3.0 million increase in the
amount of Common Stock offered for sale in the Conversion. However, assuming the
midpoint, the pro forma price to book ratio would be the same under both the
current appraisal and the estimate of the value of the Company without the
Foundation. Further, pro forma shareholders' equity per share would be the same
at $13.88, with or without the Foundation. There is no assurance that in the
event the Foundation was not formed that the appraisal prepared at that time
would have concluded that the pro forma market value of the Company would be the
same as that estimated herein. Any appraisal prepared at that time would be
based on the facts and circumstances existing at that time, including, among
other things, market and economic conditions.
For comparative purposes only, set forth below are certain pricing ratios
and financial data and ratios, at the minimum, midpoint, maximum and maximum, as
adjusted of the Estimated Price Range, assuming the Conversion was completed at
May 31, 1997.
<TABLE>
<CAPTION>
AT THE MAXIMUM,
AT THE MINIMUM AT THE MIDPOINT AT THE MAXIMUM AS ADJUSTED
---------------------- ---------------------- ---------------------- ----------------------
WITH NO WITH NO WITH NO WITH NO
FOUNDATION FOUNDATION FOUNDATION FOUNDATION FOUNDATION FOUNDATION FOUNDATION FOUNDATION
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Estimated offering amount.... $ 41,225 $ 43,775 $ 48,500 $ 51,500 $ 55,775 $ 59,225 $ 64,141 $ 68,109
Pro forma market
capitalization............. 42,462 43,775 49,955 51,500 57,448 59,225 66,065 68,109
Total assets................. 321,389 323,240 327,727 329,905 334,064 336,569 341,353 344,234
Total liabilities............ 258,431 258,431 258,431 258,431 258,431 258,431 258,431 258,431
Pro forma shareholders'
equity..................... 62,958 64,809 69,296 71,474 75,633 78,138 82,922 85,803
Pro forma consolidated net
income..................... 3,649 3,719 3,794 3,877 3,939 4,034 4,106 4,214
Pro forma shareholders'
equity per share........... 14.83 14.80 13.88 13.88 13.17 13.20 12.56 12.60
Pro forma consolidated net
income per share........... 0.93 0.92 0.82 0.81 0.74 0.74 0.68 0.67
Pro Forma Pricing Ratios:
Offering price as a
percentage of pro forma
shareholders' equity per
share.................... 67.43% 67.57% 72.05% 72.05% 75.93% 75.76% 79.62% 79.37%
Offering price to pro forma
net income per share..... 10.75x 10.87x 12.20x 12.35x 13.51x 13.51x 14.71x 14.93x
Pro Forma Market
Capitalization to
assets................... 13.21% 13.54% 15.23% 15.61% 17.19% 17.60% 19.34% 19.79%
Pro Forma Financial Ratios:
Return on assets........... 1.14 1.15 1.16 1.18 1.17 1.20 1.20 1.22
Return on shareholders'
equity................... 5.80 5.74 5.47 5.42 5.21 5.16 4.59 4.91
Shareholders' equity to
assets................... 19.59 20.05 21.14 21.67 22.64 23.22 24.29 24.93
</TABLE>
36
<PAGE> 38
THE WARWICK SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
The following Consolidated Statements of Income of the Bank for each of the
years in the three year period ended May 31, 1997 have been audited by Arthur
Andersen LLP, independent public accountants, whose report thereon appears
elsewhere herein. These statements should be read in conjunction with the other
financial statements and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR
ENDED MAY 31,
-------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Interest and dividend income:
Interest on mortgage loans................... $ 7,151,702 $ 8,098,219 $ 6,922,109
Interest on other loans...................... 3,457,460 3,149,131 2,833,349
Interest and dividends on securities......... 10,049,163 6,728,913 6,228,600
Interest on federal funds sold............... 14,504 321,903 264,966
Interest on short-term money market
instruments................................ 18,290 34,870 3,633
----------- ----------- -----------
Total interest and dividend income...... 20,691,119 18,333,036 16,252,657
----------- ----------- -----------
Interest and dividend expense:
Dividends on deposits --
Time deposits................................ 3,984,829 5,108,712 2,808,198
Money market deposits........................ 882,979 936,218 1,041,512
Savings deposit.............................. 2,550,704 2,580,121 2,862,319
Mortgagors' deposits......................... 49,588 68,165 61,198
Interest on borrowings....................... 1,908,062 23,882 54,556
----------- ----------- -----------
Total interest and dividend expense..... 9,376,162 8,717,098 6,827,783
----------- ----------- -----------
Net interest and dividend income........ 11,314,957 9,615,938 9,424,874
----------- ----------- -----------
Provision for loan losses......................... (130,000) (140,000) (261,000)
----------- ----------- -----------
Net interest income after provision for loan
losses..................................... 11,184,957 9,475,938 9,163,874
----------- ----------- -----------
Other income (loss):
Service and fee income....................... 1,915,139 1,767,610 1,369,288
Securities transactions...................... 816,304 356,266 (428,611)
Loan transactions............................ 137,403 118,807 14,107
Other income (loss).......................... (89,079) (158,713) (79,105)
----------- ----------- -----------
Total other income, net................. 2,779,767 2,083,970 875,679
----------- ----------- -----------
Other expenses:
Salaries and employee benefits............... 5,255,869 5,049,942 3,958,063
FDIC insurance............................... 12,447 53,226 466,497
Occupancy.................................... 1,307,727 1,237,485 1,201,723
Data processing.............................. 639,654 483,572 413,961
Advertising.................................. 152,529 129,227 112,278
Professional fees............................ 240,513 325,392 221,754
Other........................................ 1,734,616 1,791,244 1,721,934
----------- ----------- -----------
Total other expenses.................... 9,343,355 9,070,088 8,096,210
----------- ----------- -----------
Income before provision for income taxes and
cumulative effect of change in accounting
principle.................................. 4,621,369 2,489,820 1,943,343
Provision for income taxes........................ 1,755,866 1,024,240 794,394
----------- ----------- -----------
Income before cumulative effect of change in
accounting principle....................... 2,865,503 1,465,580 1,148,949
Cumulative effect of change in accounting
principle....................................... -- -- (645,184)
----------- ----------- -----------
Net income.............................. $ 2,865,503 $ 1,465,580 $ 503,765
=========== =========== ===========
</TABLE>
See the accompanying notes to the consolidated financial statements.
37
<PAGE> 39
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company has only recently been formed and, accordingly, has no results
of operations. The Bank's results of operations are dependent primarily on net
interest income, which is the difference between the interest income earned on
its interest-earning assets, such as loans and securities, and the interest
expense on its interest-bearing liabilities, such as deposits and borrowed
funds. The Bank also generates other income, such as service charges and other
fees, primarily servicing fees received from residential mortgage loans sold
with servicing retained. Other expenses primarily consist of employee
compensation and benefits, occupancy expenses, federal deposit insurance
premiums, net costs of real estate owned, data processing fees and other
operating expenses. The Bank's results of operations are also significantly
affected by general economic and competitive conditions (particularly changes in
market interest rates), government policies, changes in accounting standards and
actions of regulatory agencies. See "Risk Factors." The Bank exceeded all of its
regulatory capital requirements at May 31, 1997. See "Regulatory Capital
Compliance" for a discussion of the historical and pro forma capital of the Bank
and capital requirements.
MANAGEMENT STRATEGY
The Bank has historically employed an operating strategy that emphasizes
the origination of one- to-four-family residential mortgage loans in its market
area with both fixed and variable rates and, to an increasing degree over the
past 10 years, its commercial lending business, with mostly prime-based rate
loans secured by real estate located mainly in Orange County, New York. Due in
part to this strategy, the Bank historically has had profitable operations,
resulting in a strong regulatory capital position. The Bank's goal of
maintaining this position has lead to an overall strategy of managed growth in
both deposits and assets. The major elements of the Bank's operating strategy
are to: (i) grow and diversify the Bank's loan portfolio by continuing to
originate owner-occupied residential mortgage, commercial and commercial real
estate, construction and consumer loans in its market area (see "Risk
Factors -- Residential and Non-Residential Lending Risks" for a discussion of
the greater degree of credit risk associated with these types of loans); (ii)
complement the Bank's mortgage lending activities by investing in
mortgage-backed and other securities; (iii) maintain the Bank's relatively low
cost of funds and (iv) manage the Bank's level of interest rate risk. From time
to time, the Bank employs a leveraging strategy, whereby borrowings are used to
fund specific investments. This form of leveraging allows for a reasonable net
margin of return, the majority of which is locked in for a specific period. The
Bank also seeks to attract and retain customers by providing a high level of
personal service to its retail and business customers through extended office
hours, low turnover of employees and prompt, flexible and personalized
production of a variety of loan products. In addition, it is a goal of the Bank
to increase its market share in the communities it serves through the
acquisition or establishment of branch offices and, if appropriate, the
acquisition of smaller financial institutions. Additionally, it is a goal of the
Bank to penetrate new markets. For this reason, the Bank has recently applied
to, and approval is currently pending from, the State of New Jersey Department
of Banking to expand its mortgage banking operations into that state. See "Use
of Proceeds" and "Business of the Bank."
MANAGEMENT OF INTEREST RATE RISK
The principal objectives of the Bank's interest rate risk management
activities are to: (i) evaluate the interest rate risk included in certain
balance sheet accounts, (ii) determine the level of risk appropriate given the
Bank's business focus, operating environment, capital and liquidity requirements
and performance objectives, (iii) establish prudent asset concentration
guidelines and (iv) manage the risk consistent with Board approved policies and
guidelines. Through such management, the Bank seeks to reduce the vulnerability
of its operating results to changes in interest rates and to manage the ratio of
interest rate sensitive assets to interest rate sensitive liabilities within
specified maturities or repricing dates. The Bank closely monitors its interest
rate risk as such risk relates to its operating strategies. The extent of the
movement of interest rates, higher or lower, is an uncertainty that could have a
negative impact on the earnings of the Bank.
38
<PAGE> 40
Historically, the Bank had been a traditional thrift lender, but
differentiated itself from other thrifts by also focusing on commercial lending
since the late 1980's and commission-based mortgage banking operations since
1995. The Bank also adopted a more competitive pricing policy, more efficient
lock-in policies to close loans faster and more streamlined Federal National
Mortgage Association ("FNMA") approved processing and underwriting procedures.
Additionally, the Bank's array of products has expanded to include Federal
Housing Authority ("FHA"), Veterans Administration ("VA") and State of New York
Mortgage Association ("SONYMA") loans. As a result, the Bank has invested a
relatively large amount of its earning assets in fixed-rate loans and fixed-rate
mortgage-backed securities with contractual maturities of up to 30 years. At May
31, 1997, an aggregate of $112 million, or 42% of total earning assets, were
invested in such assets. Based upon the assumptions used in the following table,
at May 31, 1997, the Bank's total interest-bearing liabilities maturing or
repricing within one year exceeded its total interest-earning assets maturing or
repricing in the same time period by $35.2 million, representing a one year
cumulative "gap," as defined below, as a percentage of total assets of negative
12.28%. Accordingly, the Bank is viewed as having a manageable gap position, but
is still slightly vulnerable to a rising interest rate environment.
The Bank has taken several actions, under various market conditions,
designed to manage its level of interest rate risk. These actions have included:
(i) increasing the percentage of the loan portfolio consisting of
adjustable-rate mortgage loans and prime-based commercial loans through
originations, as market conditions permit, (ii) selling fixed-rate loans, but
retaining the servicing rights, (iii) purchasing shorter-term investment
securities and (iv) seeking to maintain a relatively high percentage of deposits
as checking accounts. Additionally, in the normal course of business, the Bank
uses off-balance sheet financial instruments primarily as part of mortgage
banking hedging strategies. Such instruments generally include put options
purchased and forward commitments to sell mortgage loans. As a result of
interest rate fluctuations, these financial instruments will develop unrealized
gains or losses that mitigate changes in the underlying hedged portion of the
balance sheet. When effectively used, these instruments are designed to moderate
the impact on earnings as interest rates move up or down.
Gap Analysis. The matching of assets and liabilities may be analyzed by
examining the extent to which such assets and liabilities are "interest rate
sensitive" and by monitoring an institution's interest rate sensitivity "gap."
An asset or liability is said to be interest rate sensitive within a specific
time period if it will mature or reprice within that time period. The interest
rate sensitivity gap is defined as the difference between the amount of
interest-earning assets maturing or repricing within a specific time period and
the amount of interest-bearing liabilities maturing or repricing within that
same time period. A gap is considered positive when the amount of interest rate
sensitive assets exceeds the amount of interest rate sensitive liabilities. A
gap is considered negative when the amount of interest rate sensitive
liabilities exceeds the amount of interest rate sensitive assets. During a
period of rising interest rates, therefore, a negative gap would tend to
adversely affect net interest income. Conversely, during a period of falling
interest rates, a negative gap position would tend to result in an increase in
net interest income.
The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at May 31, 1997, which are anticipated
by the Bank, based upon certain assumptions, to reprice or mature in each of the
future time periods shown. Except as stated below, the amount of assets and
liabilities shown which reprice or mature during a particular period were
determined based on the earlier of term to repricing or the term to repayment of
the asset or liability. The table is intended to provide an approximation of the
projected repricing of assets and liabilities at May 31, 1997 on the basis of
contractual maturities, anticipated prepayments and scheduled rate adjustments
within a three-month period and subsequent selected time intervals. The loan
amounts in the table reflect principal balances expected to be reinvested and/or
repriced as a result of contractual amortization and anticipated early payoffs
of adjustable-rate loans and fixed-rate loans, and as a result of contractual
rate adjustments on adjustable-rate loans. For loans on one- to four-family
residential properties, projected prepayment rates were assumed to range from 9%
to 19% annually. Assumed annual run-off rates for NOW accounts, money market
accounts and regular savings and statement
39
<PAGE> 41
savings accounts were 55%, 55% and 45% in the first year and 19%, 38% and 15%,
respectively, thereafter. See "Business of the Bank -- Lending Activities,"
"-- Investment Activities" and "-- Sources of Funds."
<TABLE>
<CAPTION>
AT MAY 31, 1997
------------------------------------------------------------------------------------------------
THREE MORE THAN MORE THAN MORE THAN MORE THAN
MONTHS THREE MONTHS TO ONE YEAR THREE YEARS FIVE YEARS MORE THAN
OR LESS TWELVE MONTHS TO THREE YEARS TO FIVE YEARS TO TEN YEARS TEN YEARS TOTAL
------- --------------- -------------- ------------- ------------ --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Mortgage loans(1)(2)........... $17,493 $ 13,008 $ 10,099 $10,744 $ 5,063 $32,968 $ 89,375
Other loans (3)................ 20,493 595 5,545 14,490 7,786 1,417 50,326
Mortgage-backed securities,
fixed(2)..................... 10,073 -- 2,757 2,567 1,280 48,608 65,285
Mortgage-backed securities,
variable(2).................. 3,263 6,876 82 -- -- -- 10,221
Federal funds sold............. 1,315 -- -- -- -- -- 1,315
Mutual funds and preferred
stock........................ -- 1,990 -- -- -- 3,811 5,801
Investment securities:
held-to-maturity............. -- 365 5,620 107 -- -- 6,092
Investment securities:
available-for-sale........... 1,500 6,970 4,835 5,025 18,734 829 37,893
------- -------- -------- ------- ------- ------- -------
Total interest-earning
assets............... 54,137 29,804 28,938 32,933 32,863 87,633 266,308
Net deferred loan fees and
costs(4)..................... (22) (17) (19) (29) (15) (44) (146)
Net interest-earning
assets............... 54,115 29,787 28,919 32,904 32,848 87,589 266,162
------- -------- -------- ------- ------- ------- -------
INTEREST-BEARING LIABILITIES:
Passbook accounts(5)........... -- 16,035 -- -- -- 64,140 80,175
Escrow accounts................ -- -- -- -- -- 1,398 1,398
NOW accounts................... -- -- -- -- -- 15,024 15,024
Money market accounts.......... 27,119 -- -- -- -- -- 27,119
Certificates of deposit........ 19,032 50,218 3,792 1,996 -- -- 75,038
Borrowed funds................. 6,690 -- 6,000 15,650 -- 28,340
------- -------- -------- ------- ------- ------- -------
Total interest-bearing
liabilities.......... 52,841 66,253 9,792 17,646 -- 80,562 227,094
------- -------- -------- ------- ------- ------- -------
Interest rate sensitivity
gap.......................... $ 1,274 $ (36,466) $ 19,127 $15,258 $ 32,848 $ 7,027 $ 39,068
======= ======== ======== ======= ======= ======= =======
Cumulative interest rate
sensitivity gap.............. $ 1,274 $ (35,192) $(16,065) $ (807) $ 32,041 $39,068
======= ======== ======== ======= ======= =======
Cumulative interest rate
sensitivity gap as a
percentage of total assets... 0.44% (12.28)% (5.61)% (0.28)% 11.18% 13.63%
Cumulative net interest-earning
assets as a percentage of
cumulative interest-bearing
liabilities.................. 102.41% 70.45% 87.54% 99.45% 121.87% 117.20%
</TABLE>
- ---------------
(1) For purposes of the gap analysis, mortgage and other loans are not reduced
for the allowance for loan losses and non-performing loans.
(2) For loans on residential properties an average prepayment rate of 19.05% is
utilized. Mortgage-backed securities are assumed to prepay at an average
annual rate of 15.43%.
(3) For purposes of the gap analysis, second mortgage loans are included in the
"Other loans" category.
(4) For purposes of the gap analysis, unearned fees and deferred loan
origination costs are pro-rated.
(5) For purposes of the gap analysis, based upon the Bank's historical
experience, management traditionally and conservatively slots 20% of the
Bank's total savings account balances into the twelve month time horizon.
The remaining 80% are viewed as long-term deposits.
Certain shortcomings are inherent in the method of analysis presented in
the foregoing table. For example, although certain assets and liabilities may
have similar maturities or periods to repricing, they may react in different
degrees to changes in market interest rates. Also, the interest rates on certain
types of assets and liabilities may fluctuate in advance of changes in market
interest rates, while interest rates on other types of assets may lag behind
changes in market rates. Additionally, certain assets such as adjustable-rate
loans, have features which restrict changes in interest rates both on a
short-term basis and over the life of the asset. Further, in the event of a
change in interest rates, prepayment and early withdrawal levels would likely
deviate significantly from those assumed in calculating the table. Finally, the
ability of many borrowers to make scheduled payments on their adjustable-rate
loans may decrease in the event of an interest rate increase.
40
<PAGE> 42
ANALYSIS OF NET INTEREST INCOME
Net interest income represents the difference between income on
interest-earning assets and expense on interest-bearing liabilities. Net
interest income depends upon the relative amounts of interest-earning assets and
interest-bearing liabilities and the interest rates earned or paid on them.
Average Balance Sheets. The following tables set forth certain information
relating to the Bank at May 31, 1997 and for each of the years in the three-year
period then ended. The yields and costs were derived by dividing interest income
or expense by the average balance of assets or liabilities, respectively, for
the periods shown. Average balances were computed based on month-end balances.
Management believes that the use of average monthly balances instead of average
daily balances does not have a material effect on the information presented. The
yields include deferred fees and discounts which are considered yield
adjustments.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31,
---------------------------------------------------------------------------------------------
1997 1996 1995
----------------------------- ----------------------------- -----------------------------
AVERAGE AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST BALANCE INTEREST COST
-------- -------- ------- -------- -------- ------- -------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-earning assets:
Mortgage loans, net............. $ 90,771 $ 7,152 7.88% $103,854 $ 8,098 7.80% $ 84,338 $ 6,922 8.21%
Consumer and other loans, net... 36,160 3,457 9.56 33,127 3,150 9.51 30,027 2,834 9.44
Mortgage-backed securities...... 80,255 5,897 7.35 19,612 1,617 8.24 16,165 938 5.80
Federal funds sold.............. 283 15 5.29 6,058 322 5.31 5,031 265 5.27
Interest earning accounts at
banks......................... 395 18 4.56 93 5 5.39 17 1 6.06
Investment securities........... 61,508 4,152 6.75 78,681 5,141 6.53 85,344 5,293 6.20
-------- ------- -------- ------ --------
Total interest-earning
assets.................. 269,372 20,691 7.68 241,425 18,333 7.59 220,922 16,253 7.36
------- ------ ------ ------ ------ ------
Non-interest earning assets....... 15,856 19,149 15,578
-------- -------- --------
Total assets.............. $285,228 $260,574 $236,500
======== ======== ========
LIABILITIES AND RETAINED EARNINGS:
Interest-bearing liabilities:
Passbook accounts............... $ 78,132 $ 2,323 2.97% $ 77,868 $ 2,365 3.04% $ 87,962 $ 2,677 3.04%
Escrow deposits................. 1,020 50 4.90 2,345 68 2.90 2,122 61 2.87
NOW accounts.................... 14,117 227 1.61 12,638 215 1.70 9,856 186 1.89
Money market accounts........... 27,016 883 3.27 28,674 936 3.26 34,225 1,042 3.04
Certificate accounts.............. 79,155 3,985 5.03 89,831 5,109 5.69 59,005 2,808 4.76
-------- ------- -------- ------ -------- ------
Total deposits............ 199,440 7,468 3.74 211,356 8,693 4.11 193,170 6,774 3.51
Borrowed funds............ 31,249 1,908 6.11 489 24 4.91 906 54 5.96
-------- ------- -------- ------ -------- ------
Total interest-bearing
liabilities............. 230,689 9,376 4.06 211,845 8,717 4.11 194,076 6,828 3.52
------- ------ ------ ------ ------ ------
Non-interest bearing
liabilities..................... 28,528 25,432 20,716
-------- -------- --------
Total liabilities......... 259,217 237,277 214,792
Retained earnings................. 26,011 23,297 21,708
-------- -------- --------
Total liabilities and
retained earnings....... $285,228 $260,574 $236,500
======== ======== ========
Net interest income/interest rate
spread.......................... $ 11,315 3.62% $ 9,616 3.48% $ 9,425 3.84%
======= ====== ====== ====== ====== ======
Net interest-earning assets/net
interest margin................. $ 38,683 4.20% $ 29,580 3.98% $ 26,846 4.27%
======== ====== ======== ====== ======== ======
Ratio of interest-earning assets
to interest-bearing
liabilities..................... 116.77% 113.96% 113.83%
====== ====== ======
</TABLE>
- ---------------
(1) In computing the average balance of loans, non-accrual loans have been
included.
(2) Interest rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
41
<PAGE> 43
(3) Net interest margin on interest-earning assets represents net interest
income as a percentage of average interest-earning assets.
Rate/Volume Analysis. The following table presents the extent to which
changes in interest rates and changes in the volume of interest-earning assets
and interest-bearing liabilities have affected the Bank's interest income and
interest expense during the periods indicated. Information is provided in each
category with respect to (i) changes attributable to changes in volume (changes
in volume multiplied by prior rate), (ii) changes attributable to changes in
rate (changes in rate multiplied by prior volume) and (iii) the net change. The
changes attributable to the combined impact of volume and rate have been
allocated proportionately to the changes due to volume and the changes due to
rate.
<TABLE>
<CAPTION>
YEAR ENDED MAY 31, 1997 YEAR ENDED MAY 31, 1996
COMPARED TO COMPARED TO
YEAR ENDED MAY 31, 1996 YEAR ENDED MAY 31, 1995
INCREASE (DECREASE) INCREASE (DECREASE)
IN NET INTEREST INCOME IN NET INTEREST INCOME
---------------------------- --------------------------
DUE TO DUE TO
VOLUME RATE NET VOLUME RATE NET
------- ------ ------- ------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Mortgage loans, net...................... $(1,020) $ 74 $ (946) $1,602 $(426) $1,176
Consumer and other loans, net............ 288 19 307 292 24 316
Mortgage-backed securities............... 5,000 (720) 4,280 200 (479) 679
Federal funds sold....................... (307) -- (307) 54 3 57
Interest earning accounts at banks....... 16 (3) 13 5 (1) 4
Investment securities.................... (1,122) 133 989 (13) 261 152
------- ---- ------ ------ ----- ------
Total.......................... 2,855 497 2,358 1,740 340 2,080
------- ---- ------ ------ ----- ------
INTEREST-BEARING LIABILITIES:
Passbook accounts........................ 8 (50) (42) (307) (5) (312)
Escrow accounts.......................... (39) 20 (18) 6 1 7
NOW accounts............................. 25 (13) 12 53 (24) 29
Money market accounts.................... (54) 1 (53) (169) 63 (106)
Certificates of deposits................. (607) (517) (1,124) 1,467 834 2,301
Borrowed funds........................... 1,510 374 1,884 (25) (5) (30)
------- ---- ------ ------ ----- ------
Total.......................... 843 (185) 659 1,024 864 1,889
------- ---- ------ ------ ----- ------
Net change in net interest income........ $ 2,012 $ 313 $ 1,699 $ 715 $(524) $ 191
======= ==== ====== ====== ===== ======
</TABLE>
COMPARISON OF FINANCIAL CONDITION AT MAY 31, 1997 AND MAY 31, 1996
Total assets increased $12.4 million to $286.5 million at May 31, 1997,
from $274.1 million at May 31, 1996, reflecting the Bank's ongoing strategy of
managed growth. The asset growth was funded primarily through borrowings, which
increased $20.0 million to $28.3 million at May 31, 1997. As of May 31, 1997,
the Bank had $23.1 million in securities sold under repurchase agreements and
$5.2 million in term loans from the FHLBNY. Deposit liabilities declined by
$11.8 million to $221.2 million at May 31, 1997 from $233.0 million at May 31,
1996, primarily due to continued decreases in rollovers of a February 1995
offering of a nine-month certificate of deposit account, initially priced
slightly above local market rates to provide the Bank with additional liquidity
at the time of the failure of Nationar, one of the Bank's correspondent banks
("Premium Certificates"). See "-- Liquidity and Capital Resources." FHLBNY
advances and other borrowings are used by the Bank as an alternative to
traditional retail deposits and take on the form of overnight advances, repriced
daily, and one-month lines of credit, repriced monthly.
Asset growth was concentrated in mortgage loans, net, which increased $25.5
million to $97.4 million at May 31, 1997 from $71.9 million at May 31, 1996.
This loan growth (net of amortizations and satisfactions)
42
<PAGE> 44
contrasts to a decrease of $17.6 million for the year ended May 31, 1996. In
addition, other loans, net increased $4.1 million to $36.1 million at May 31,
1997 from $32.0 million at May 31, 1996. Total securities were $126.4 million at
May 31, 1997 compared to $144.3 million at May 31, 1996, reflecting the
reinvestment of funds from the securities portfolio into higher yielding loans.
Securities held-to-maturity at May 31, 1997 totaled $6.1 million, representing a
$1 million decline from $7.1 million of securities held-to-maturity at May 31,
1996. The Bank had $120.3 million of securities available-for-sale at May 31,
1997, representing a decline of $14.9 million from $135.2 million of securities
available-for-sale at May 31, 1996. The Bank's available-for-sale portfolio was
adjusted for an unrealized gain of $1.1 million (pre-tax, $500 thousand after-
tax) for the fiscal year ended May 31, 1997. See "-- Impact of Accounting
Standards."
Other assets decreased by $4.3 million to $2.8 million at May 31, 1997,
primarily due to the satisfactory liquidation of the Bank's $3.9 million claim
against the Superintendent, as receiver for Nationar, regarding the
Superintendent's seizure of Nationar in early February 1995.
Other real estate owned ("OREO"), which represents properties acquired
through legal foreclosure, decreased $106 thousand to $224 thousand at May 31,
1997, from $330 thousand at May 31, 1996. The Bank's OREO has historically
involved only a few properties, representing a relatively insignificant
percentage of total assets.
In the fiscal year ending May 31, 1996, the Bank prospectively adopted SFAS
No. 122 "Accounting for Mortgage Servicing Rights." SFAS No. 122 required that a
mortgage banking enterprise recognize rights to service mortgage loans for
others, however those servicing rights are acquired. As a result of adopting
SFAS No. 122, the Bank capitalized $444 thousand of originated mortgage
servicing rights during fiscal year 1996. The cost of mortgage servicing rights
(purchased or originated rights with related loans sold) is amortized in
proportion to, and over the period of, estimated net servicing revenues.
Impairment of mortgage servicing rights is assessed based on the fair value of
those rights. For purposes of measuring impairment, the servicing rights are
stratified based on the predominant risk characteristics of the underlying
loans, i.e., loan type and origination or securitization date.
Total net worth increased $3.3 million to $28.1 million at May 31, 1997
from $24.8 million at May 31, 1996, resulting from net income of $2.8 million
and approximately $500 thousand of unrealized appreciation on securities
available for sale, net.
COMPARISON OF OPERATING RESULTS FOR THE FISCAL YEARS ENDED MAY 31, 1997 AND 1996
General. Net income for the fiscal year ended May 31, 1997 was $2.8
million, compared to $1.5 million for the fiscal year ended May 31, 1996. The
increase of $1.3 million resulted primarily from an 18% increase in the Bank's
net interest margin and greater profits on sales of mortgage-backed securities.
Also contributing to the increase in net income was a decline in the Bank's
provision for income taxes due to a change in tax regulations from an effective
tax rate of 41% in fiscal 1996 to 38% in fiscal 1997.
Net Interest Income. Net interest income, or the difference between
interest and dividend income and interest expense, for the fiscal year ended May
31, 1997 increased $1.7 million, or 17.7%, to $11.3 million. This increase
reflects the overall rise in the Bank's average interest rate spread of 14 basis
points to 3.62%, and a rise in the Bank's net interest margin of 22 basis points
to 4.20% for the 1997 fiscal year, as well as a greater increase in
interest-earning assets than interest-bearing liabilities.
Market interest rates were slightly higher in the 1997 fiscal year across
the entire U.S. Treasury yield curve than in the 1996 fiscal year. While the
Bank realized a higher overall yield of nine basis points on its average
interest-earning assets, yields on the Bank's interest-bearing liabilities
declined by five basis points.
Interest and Dividend Income. Interest and dividend income totaled $20.7
million for the fiscal year ended May 31, 1997, compared to $18.3 million for
the fiscal year ended May 31, 1996. This increase of $2.4 million, or 13.1%,
reflects an increase of more than $3.3 million in interest and dividends on
securities due to the securitization of approximately $50 million of the Bank's
mortgages in April and May 1996, offset, in part, by a decrease in the average
yield of the Bank's mortgage-backed securities of 89 basis points. The increase
in interest and dividends was offset, in part, by a decline of over $600,000 in
interest income on mortgage and
43
<PAGE> 45
other loans due to the decreased volume of such loans resulting mainly from such
securitization, mitigated somewhat by an increase of 28 basis points in the
average yield of such loans. Interest income on federal funds sold decreased
substantially in the fiscal year ended May 31, 1997, as compared to the prior
years, due to management's focus on extending maturities slightly, in its
efforts to increase yield in a flattening yield curve environment.
Interest Expense. Interest expense on deposits and borrowings increased
$660 thousand to $9.4 million for the fiscal year ended May 31, 1997, compared
to $8.7 million for the fiscal year ended May 31, 1996. This increase reflects
an increase in average interest-bearing liabilities of $18.8 million during the
1997 fiscal year and a decrease in the average rate paid on such liabilities of
five basis points over the same period. The increase in average interest-bearing
liabilities is primarily attributable to an increase in the average balance of
borrowed funds to $31.2 million for the 1997 fiscal year from $489 thousand for
the 1996 fiscal year. Average certificate of deposit accounts declined by
approximately $10.7 million in fiscal year 1997, partially due to the maturity
of the Premium Certificates, attributable to the Bank's decision not to offer
premium rates in a highly competitive rate environment. While there was a 12%
decline in average certificate of deposit accounts, there was a 22% decline in
the interest expense associated with such accounts, from $5.1 million in the
fiscal year ended 1996 to $4.0 million in the 1997 fiscal year. As a result, the
Bank's total cost of funds decreased by five basis points, from 4.11% to 4.06%,
despite the increases in market interest rates in fiscal year 1997.
Provision for Loan Losses. The provision for loan losses decreased to
$130,000 for the fiscal year ended May 31, 1997 from $140,000 for the fiscal
year ended May 31, 1996, although there was an increase in non-performing loans
(consisting of loans over 90 days past due and non-accrual loans) to $1.4
million at May 31, 1997, from $863 thousand at May 31, 1996. At May 31, 1997,
the percentage of the allowance for loan losses to total loans was 0.88%, as
compared to 1.18% as of May 31, 1996. However, management's analysis shows that
the majority of the non-performing loans are one- to-four-family residential
mortgage loans. Moreover, management believes that most of these loans are
adequately secured by properties affording low loan-to-value ratios, based upon
current evaluations. In addition, management performs a quarterly in depth
analysis of its allowance for loan losses. Based upon loan types and volumes,
loan review and classification systems, and the factors described above and
various other factors, management has made regular determinations that its
allowance and monthly provisions are adequate. See "Business of the
Bank -- Asset Quality."
Other Income. Other income, net, for the fiscal year ended May 31, 1997
increased $696 thousand to $2.8 million from $2.1 million for the fiscal year
ended May 31, 1996. This increase was primarily attributable to increased gains
on sales of mortgage-backed securities, emanating from the Bank's mortgage
banking operation. Total service and fee income increased by 8% to $1.9 million
in the fiscal year ended May 31, 1997, due to service charges and other fees
reflecting increased loan and loan servicing activity, as well as increases in
certain transaction fees during the 1997 fiscal year.
Other Expenses. Other expenses increased $273 thousand to $9.3 million for
the fiscal year ended May 31, 1997 from $9.1 million for the fiscal year ended
May 31, 1996. The increase in other expenses primarily reflects increases in
salaries and employee benefits and occupancy costs. Salaries and employee
benefits expense increased $206 thousand to $5.3 million for the 1997 fiscal
year compared to $5.0 million for the 1996 fiscal year. This increase was
primarily attributable to a general increase in salaries. Data processing costs
and advertising costs increased by $156 thousand, or 32%, and $23 thousand, or
18%, respectively. The Bank's ratio of other expenses to average assets
decreased to 3.28% in the 1997 fiscal year from 3.48% in the 1996 fiscal year.
Income Tax Expense. Income tax expense increased $732 thousand, or 71%,
for the fiscal year ended May 31, 1997 from slightly more than $1 million for
the fiscal year ended May 31, 1996. This increase was due to the increase of
$2.1 million, or 86%, in pre-tax income, offset by savings due to a change in
the Bank's effective tax rate from 41% in fiscal 1996 to 38% in fiscal 1997.
COMPARISON OF FINANCIAL CONDITION AT MAY 31, 1996 AND MAY 31, 1995
Total assets increased $15.3 million to $274.0 million at May 31, 1996 from
$258.7 million at May 31, 1995, reflecting the Bank's ongoing strategy of
controlled growth. The asset growth was funded primarily
44
<PAGE> 46
through borrowings, in the form of securities sold under repurchase agreements
and FHLBNY advances, which increased by $4.7 million and $3.6 million,
respectively. Deposit liabilities increased $4.0 million to $233.0 million at
May 31, 1996 from $229.0 million at May 31, 1995.
Asset growth was concentrated in securities, which increased $34.0 million
to $144.3 million. Loans, net, showed a decrease of $13.8 million to $108.9
million at May 31, 1996. These changes resulted in part from the Bank's
securitization in April and May of 1996 of approximately $50 million in
self-originated residential mortgages, which had the effect of reducing loans,
net, and increasing securities. The securitization represented the pooling of
the Bank's own residential mortgages into FNMA mortgage-backed securities, held
in the Bank's investment securities portfolio, to reduce the Bank's credit risk
inherent with respect to those residential mortgage loans.
Real estate owned, net decreased $163 thousand to $330 thousand at May 31,
1996 from $493 thousand at May 31, 1995.
The Bank's total net worth increased $1.7 million to $24.8 million at May
31, 1996 from $23.1 million at May 31, 1995, primarily due to net income for the
fiscal year.
COMPARISON OF OPERATING RESULTS FOR THE FISCAL YEARS ENDED MAY 31, 1996 AND 1995
General. Net income for the fiscal year ended May 31, 1996 was $1.5
million compared to $504 thousand for the fiscal year ended May 31, 1995. The
$1.0 million increase was due mainly to an increase in total other income of
$1.2 million and gains on sales of securities of $356 thousand in fiscal year
1996, as compared to losses on sales of securities of $429 thousand for fiscal
year 1995, as well as an increase of $191 thousand in net interest income for
the 1996 fiscal year. Additionally, the Bank reduced its provision for loan
losses by $121 thousand for the 1996 fiscal year to $140 thousand, from $261
thousand in the fiscal year ended in 1995. The increase in net income was
offset, in part, by an increase of $1.1 million in salaries and employee
benefits.
Net Interest Income. Net interest income for the fiscal year ended May 31,
1996 increased $191 thousand to $9.6 million. This increase occurred despite a
decline in the Bank's interest rate spread and margin from 3.84% and 4.27%,
respectively, for the fiscal year ended May 31, 1995 to 3.48% and 3.98%,
respectively, for the fiscal year ended May 31, 1996, due, in part, to
management's offering of the slightly higher costing Premium Certificates in
February 1995, which increased the Bank's average cost and balances on
certificates of deposit by 93 basis points and $30.8 million, respectively.
Interest and Dividend Income. Interest and dividend income increased $2.1
million to $18.3 million for the fiscal year ended May 31, 1996, compared to
$16.2 million for the fiscal year ended May 31, 1995. This increase reflects an
increase of 23 basis points in the average yield on the Bank's interest-earning
assets to 7.59% for the 1996 fiscal year from 7.36% for the 1995 fiscal year, as
well as an increase of $20.5 million in the average balance of interest-earning
assets, due primarily to an increase of $19.5 million in the average balance of
mortgage loans, net. While the level of overall interest rates was declining in
fiscal year 1996, the effects of lower rates were partially offset by the Bank's
sales of lower yielding securities and purchases of higher yielding securities
in the Bank's investment securities portfolio, which served to increase average
investment securities yields by 33 basis points from the 1995 fiscal year. In
addition, the average yields on mortgage-backed securities increased to 8.24%,
and the average balance of such securities increased $3.4 million in the 1996
fiscal year as compared to the year earlier period.
Interest Expense. Interest expense on deposits and borrowings increased
$1.9 million to $8.7 million for the fiscal year ended May 31, 1996, compared to
$6.8 million for the fiscal year ended May 31, 1995. This increase primarily
reflects an increase in the average rate paid on interest-bearing liabilities of
59 basis points during the 1996 fiscal year compared to the 1995 fiscal year,
due to the higher costing Premium Certificates offered by the Bank in February
1995. As a result of this offering, the average cost of all certificates of
deposit in fiscal year 1996 increased to 5.69% from 4.76% in fiscal year 1995.
While the average cost of passbook accounts remained unchanged between fiscal
years 1995 and 1996, average balances in this type of account
45
<PAGE> 47
declined by $10.1 million, essentially shifting to the higher cost Premium
Certificates, the average balances of which increased by more than $30.8 million
in fiscal year 1996, as compared to fiscal year 1995.
Provision for Loan Losses. The provision for loan losses decreased to
$140,000 for the fiscal year ended May 31, 1996 from $261,000 for the fiscal
year ended May 31, 1995. This was attributable to a decrease in non-performing
loans to $863 thousand at May 31, 1996 from $2.2 million at May 31, 1995. At May
31, 1996, the percentage of the allowance for loan losses to non-performing
loans was 151%, representing an increase from 54.77% at May 31, 1995. As a
percentage of total loans, the allowance for loan losses was 1.18% at May 31,
1996 compared to 0.97% at May 31, 1995. The percentage of non-performing loans
to total loans decreased to 0.78% at May 31, 1996 from 1.78% at May 31, 1995.
See "Business of the Bank -- Asset Quality."
Other Income. Other income for the fiscal year ended May 31, 1996
increased $1.2 million to $2.1 million, an increase from $876 thousand for the
fiscal year ended May 31, 1995. This increase was primarily attributable to a
net gain on sale of securities of $356 thousand for the 1996 fiscal year
compared to a net loss on sale of securities of $429 thousand for the 1995
fiscal year. Other income was also affected by an increase of $399 thousand, or
29%, in service and fee income associated with a newly introduced value added
checking account and increased loan servicing fees from the mortgage banking
operation. Gains on loan sales also increased by about $105 thousand in fiscal
year 1996, as compared to the year earlier period.
Other Expenses. Other expenses increased $974 thousand to $9.1 million for
the fiscal year ended May 31, 1996 from $8.1 million for the fiscal year ended
May 31, 1995. The Bank's other expenses increased because of the start-up costs
associated with adding additional capacity to the Bank's mortgage origination
operations, including back office costs, which, in part, caused a $1.1 million
increase in salaries and employee benefits. Other operating expenses, such as
data processing fees, increased by $70 thousand in fiscal year ended 1996 to
$484 thousand, and professional fees increased $103 thousand to $325 thousand
for the 1996 fiscal year, compared to $414 thousand and $222 thousand,
respectively, for the 1995 fiscal year. These items were partially offset by a
decline of $413 thousand in FDIC assessments to $53 thousand in fiscal 1996.
Income Tax Expense. Income tax expense increased $230 thousand to $1.0
million for the fiscal year ended May 31, 1996 from $794 thousand for the fiscal
year ended May 31, 1995. This increase was primarily due to the $546 thousand
increase in pre-tax income.
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
The Bank changed its method of accounting for the cost of post-retirement
health care and life insurance benefits in the fiscal year ended in the 1995
upon adoption of SFAS No. 106, "Employers' Accounting for Post-retirement
Benefits Other Than Pensions." The cumulative effect of this accounting change
was fully recognized as a liability in fiscal year ended 1995 equal to the full
amount of the Bank's accumulated benefit obligation. Under SFAS No. 106, the
cost of post-retirement health care and life insurance benefits is recognized on
an accrual basis as such benefits are earned by active employees. Prior to
fiscal 1995, the Bank recognized the cost of these benefits on a pay-as-you-go
(cash) basis.
LIQUIDITY AND CAPITAL RESOURCES
The Bank's primary sources of funds are retail deposits, wholesale funding
from FHLBNY or other bank borrowings, securities sold under repurchase
agreements, principal and interest payments on loans and securities and, to a
lesser extent, proceeds from the sale of securities. While maturities and
scheduled amortization of loans and securities provide an indication of the
timing of the receipt of funds, changes in interest rates, economic conditions,
and competition strongly influence mortgage prepayment rates and deposit flows,
reducing the predictability of the timing of sources of funds.
The Bank has no required regulatory liquidity ratios or balances to
maintain, however, it does adhere to a Liquidity and Funds Management policy
approved by its Board of Trustees, which sets minimum internal guidelines for
liquidity purposes. The Bank remits monthly reports to the NYSBD, including a
liquidity calculation.
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<PAGE> 48
The primary investing activities of the Bank are the origination of one- to
four-family residential mortgage loans, commercial real estate and commercial
business loans, a variety of consumer loans, and the purchase of mortgage-backed
and mortgage related securities, and debt and equity securities. During the
years ended May 31, 1997, 1996 and 1995, the Bank's disbursements for loan
originations totaled $100.6 million, $108.4 million and $41.9 million,
respectively. Purchases of mortgage-backed securities totaled $23.2 million and
$12.1 million for the years ended May 31, 1997 and 1996, respectively; no such
purchases were made in 1995. Other debt and equity securities purchased during
the years ended May 31, 1997, 1996, and 1995 were $26.1 million, $24 million and
$33.8 million, respectively. The Bank's investing activities are funded
primarily by borrowings, net deposit inflows, sales of loans and securities and
principal repayments on loans and securities. The Bank increased borrowings at
May 31, 1997 and 1996 by $20 million and $8.3 million, respectively, to fund its
investments. For the fiscal year ended May 31, 1995, the Bank experienced a net
increase in deposits of $21.5 million. This increase reflects the general
increase in market interest rates which made deposit products a more attractive
investment alternative for the Bank's customers, as well the offering of the
above market Premium Certificates to increase the Bank's liquidity at the time
of the failure of Nationar and the lack of a viable liquidity source at that
time, since the Bank had not yet become a member of the FHLBNY. During the month
of February 1995, the Bank managed to gather nearly $44 million in a nine-month
certificate of deposit at a cost of 6.82% due to extensive advertising.
As a member of the FHLBNY, the Bank has the availability of two lines of
credit for borrowings in the amounts of $14.4 million each, one on an overnight
and the other on a 30-day term basis. In accordance with the FHLBNY's credit
policy, the Bank now has total facilities available of $86.5 million, inclusive
of the aforementioned amounts, before the delivery of qualifying collateral is
required. Additionally, the Bank has other sources of liquidity if the need
arises. One source is to borrow up to $5 million from a commercial bank on an
unsecured basis and the other is the ability to sell securities under repurchase
agreements in an amount up to $10 million from a securities investment company.
On February 6, 1995, the Superintendent took possession of Nationar, a
check-clearing and trust company, freezing all of Nationar's assets. On that
date, the Bank had demand accounts with Nationar of approximately $3.9 million.
Management charged-off approximately $97 thousand of its investment in Nationar
securities in the fiscal year ended in 1995. On June 27, 1996, the Bank received
payment of $3.5 million and subsequently received additional payments totaling
$291 thousand later in 1996 and early 1997. The Bank does not expect to receive
any further payments in any material amounts with respect to Nationar.
At May 31, 1997, the Bank had outstanding loan origination commitments of
$30 million and unadvanced/unused commercial lines of credit of $4.3 million.
The Bank anticipates that it will have sufficient funds available to meet its
current origination and other lending commitments. Certificates of deposit
scheduled to mature in one year or less from May 31, 1997 totaled $69 million
and based upon recent experience and pricing strategy, management believes that
a significant portion of such deposits will remain with the Bank.
At May 31, 1997, the Bank exceeded all of its regulatory capital
requirements with a Tier 1 capital level of $27.4 million, or 9.53% of average
assets, which is well above the required level of $11.5 million, or 4% of
average assets. The Bank's ratio of Tier 1 capital to risk weighted assets of
19.46% at May 31, 1997 is also well above the required level of 4%. The Bank's
ratio of total capital to risk weighted assets is 20.33%, which is well above
the required level of 8%. See "Regulatory Capital Compliance" and "Regulation
and Supervision -- Federal Banking Regulation -- Capital Requirements."
IMPACT OF INFLATION AND CHANGING PRICES
The Financial Statements and Notes thereto presented herein have been
prepared in accordance with GAAP, which require the measurement of financial
position and operating results in terms of historical dollars without
considering the changes in the relative purchasing power of money over time due
to inflation. The impact of inflation is reflected in the increased cost of the
Bank's operations. Unlike industrial companies, nearly all of the assets and
liabilities of the Bank are monetary in nature. As a result, interest rates have
a
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<PAGE> 49
greater impact on the Bank's performance than do the effects of general levels
of inflation. Interest rates do not necessarily move in the same direction or to
the same extent as the price of goods and services.
IMPACT OF NEW ACCOUNTING STANDARDS
Accounting for Long Lived Assets. In 1995, the FASB issued Statement of
Financial Accounting Standards No. 121, "Accounting for Impairment of Long-Lived
Assets to be Disposed of" ("SFAS No. 121"). This Statement established
accounting standards for the impairment of long-lived assets, certain
identifiable intangibles, and goodwill related to those assets to be held and
used and for long-lived assets and certain identifiable intangibles to be
disposed of. This Statement became effective for fiscal years beginning after
December 15, 1995, although earlier implementation was permitted. Adoption of
this Statement did not have a material effect on the Bank's financial
statements.
Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities. In June 1996, the FASB issued SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities" ("SFAS No. 125"), which supersedes SFAS No. 122. This Statement
provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities based on consistent
application of a financial-components approach that focuses on control. It
distinguishes transfers of financial assets that are sales from transfers that
are secured borrowings. Under the financial-components approach, after a
transfer of financial assets, an entity recognizes all financial and servicing
assets it controls and liabilities it has incurred and derecognizes financial
assets it no longer controls and liabilities that have been extinguished. The
financial-components approach focuses on the assets and liabilities that exist
after the transfer. Many of these assets and liabilities are components of
financial assets that existed prior to the transfer. If a transfer does not meet
the criteria for a sale, the transfer is accounted for as a secured borrowing
with pledge of collateral. The Statement is effective for transfers and
servicing of financial assets and extinguishments of liabilities occurring after
December 31, 1996, and should be applied prospectively. Earlier or retroactive
application of this Statement is not permitted. Adoption of this Statement did
not have a material effect on the Bank's financial statements.
Accounting for Earnings per Share. In March 1997, the FASB issued SFAS No.
128, "Earnings per Share." SFAS No. 128 specifies the computations,
presentation, and disclosure requirements for Earnings per Share by all entities
with publicly held common stock or potential stock. SFAS 128 supersedes
Accounting Principles Board Opinion No. 15 "Earnings per Share." SFAS No. 128 is
effective for financial statements for interim and annual periods ending after
December 15, 1997.
Accounting for the Disclosure of Information about Capital Structure. In
March 1997, the FASB issued SFAS No. 129, "Disclosure of Information about
Capital Structure." SFAS No. 129 is effective for financial statements for
periods ending after December 15, 1997. SFAS No. 129 does not change disclosure
requirements for the Bank.
Accounting for Reporting Comprehensive Income and Disclosures about
Segments of an Enterprise and Related Information. In June 1997, the FASB
issued SFAS No. 130, "Reporting Comprehensive Income" and SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." These
Statements are effective for fiscal years beginning after December 15, 1997 and
restatement of financial statements or information for earlier periods provided
for comparative purposes is required. The provisions of these Statements will
not affect the Bank's results of operations or financial condition.
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<PAGE> 50
BUSINESS OF THE COMPANY
GENERAL
The Company was organized as a Delaware corporation on September 10, 1997
at the direction of the Board of Trustees of the Bank for the purpose of
becoming the holding company to own all of the outstanding capital stock of the
Bank upon consummation of the Conversion. The Company filed an application with,
and received the approval of, the FRB to become a bank holding company and to
acquire the Bank. Upon completion of the Conversion, the Company will be a bank
holding company and, as such, will be subject to the regulations of the FRB. See
"Regulation and Supervision -- Holding Company Regulation."
BUSINESS
The Company is not an operating company. Following the Conversion, in
addition to directing, planning and coordinating the business activities of the
Bank, the Company will initially invest primarily in federal funds, government
and federal agency mortgage-backed securities, other debt securities, high-grade
short-term marketable securities, equity securities, deposits of or loans to the
Bank or a combination thereof. In addition, the Company intends to fund the loan
to the ESOP to enable the ESOP to subscribe for up to 8% of the Common Stock to
be issued in the Conversion, including shares issued to the Foundation. In the
future, the Company may acquire or organize other operating subsidiaries,
including other financial institutions, or it may merge with or acquire other
financial institutions and financial services related companies, although there
are no current arrangements, understandings or agreements, written or oral,
regarding any such expansion. See "Use of Proceeds." Initially, the Company will
neither own nor lease any property but will instead use the premises, equipment
and furniture of the Bank. At the present time, the Company does not intend to
employ any persons other than certain officers of the Bank who will not be
separately compensated by the Company. The Company may utilize the support staff
of the Bank from time to time, if needed. Additional employees will be hired as
appropriate to the extent the Company expands its business in the future.
49
<PAGE> 51
BUSINESS OF THE BANK
GENERAL
The Bank is a community-oriented mutual savings bank, which was chartered
by the State of New York in 1875. The Bank's principal business has been and
continues to be attracting retail deposits from the general public in the area
surrounding its four branches and investing those deposits, together with funds
generated from operations and borrowings, primarily in one- to four-family
residential mortgage loans, mortgage-backed securities, commercial and
commercial real estate loans and various debt and equity securities. The Bank
also originates home equity loans (Good Neighbor Home Loans) and lines of
credit, consumer loans, student loans and its own credit card loans.
Additionally, the Bank sells Savings Bank Life Insurance.
The Bank's revenues are derived principally from the interest on its
mortgages, securities, commercial and consumer loans and, to a lesser degree,
from its mortgage banking activities, loan and securities sales, servicing fee
income and income derived from non-traditional investment products offered
through its wholly owned subsidiary, WSB Financial. The Bank's primary sources
of funds are deposits, borrowings, principal and interest payments on loans and
securities and proceeds from the sale of loans and securities.
MARKET AREA
The Bank has been, and intends to continue to be, a community-oriented
savings institution offering a variety of financial services to meet the needs
of the communities it serves. The Bank maintains its headquarters in the village
of Warwick in Orange County, New York and operates three additional branch
offices located in the village of Monroe, the town of Woodbury and the city of
Middletown, Orange County, New York. The Bank's primary deposit gathering areas
are currently concentrated in proximity to its full service banking offices. The
Bank's current primary lending market includes not only Orange County, New York,
but also Rockland, Dutchess, and to a lesser extent, Westchester, Putnam and
Sullivan Counties, New York, by virtue of the various loan originators servicing
these areas. In addition, with the proposed establishment of the Bank's mortgage
banking subsidiary, WSB Mortgage, and its attendant loan production office in
West Milford, Passaic County, New Jersey, the Bank anticipates that it will
penetrate into the northeastern New Jersey market.
Although the Bank's market area is predominantly rural with many small
towns, many of the area's residents work in northern New Jersey, western
Connecticut and New York City. Some of the county's major employers are ShopRite
Supermarkets, the Arden Hill Hospital and related life care complex, Horton
Memorial Hospital, Yellow Freight, the Wakefern Corporation and the United
States Military Academy at West Point.
The Bank's market area grew significantly in population during the 1980's
as rising housing prices closer to New York City, coupled with the abundance of
vacant land in Orange County, led to a boom in housing construction. As the
economy throughout the region declined in the late 1980's and early 1990's,
communities surrounding the Bank's offices, particularly in the Warwick area,
continued to experience growth, but more slowly. The conversion of Stewart
International Airport, approximately 20 miles to the northeast of the Bank's
main office in Warwick, into a full-service commercial airport in 1990 gave the
Bank's market area an additional boost. However, the health of the economy in
the New York City metropolitan area has, and will continue to have, a direct
impact on the economic well-being of residents and businesses in the Bank's
market area.
COMPETITION
The Bank faces substantial competition for both deposits and loans. The
deregulation of the financial services industry has led to increased competition
among savings banks and other financial institutions for a significant portion
of the deposit and lending activity that had traditionally been the arena of
savings banks and savings and loan associations. The Bank competes for savings
deposits with other savings banks, savings and loan associations, commercial
banks, credit unions, money market mutual funds, insurance companies, brokerage
firms and other financial institutions, many of which are substantially larger
in size than the Bank.
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<PAGE> 52
The Bank's competition for loans comes principally from savings banks,
savings and loan associations, commercial banks, mortgage bankers, finance
companies and other institutional lenders, many of whom maintain offices in the
Bank's market area. The Bank's principal methods of competition include
providing personal customer service, a variety of financial services and
competitive loan and deposit pricing, as well as implementing advertising and
marketing programs.
While the Bank is subject to competition from other financial institutions,
some of which have much greater financial and marketing resources, the Bank
believes it benefits by its community bank orientation as well as its relatively
high core deposit base. See "Risk Factors -- Competition." Management believes
that the variety, depth and stability of the communities in which the Bank is
located support the service and lending activities conducted by the Bank. The
relative economic stability of the Bank's lending area is reflected in the small
number of mortgage delinquencies experienced by the Bank.
LENDING ACTIVITIES
Loan Portfolio Composition. The Bank's loan portfolio consists primarily
of conventional first mortgage loans secured by one- to four-family residences.
At May 31, 1997, the Bank had total gross loans outstanding of $139.7 million
(before deducting the allowance for loan losses and net deferred loan fees), of
which $81.8 million, or 59%, were one- to four-family, owner-occupied
residential first mortgage loans. The remainder consisted of $23.4 million of
commercial and commercial real estate loans, or 17% of total loans, $13.4
million in home equity loans, or 10% of total loans, $2.0 million in residential
construction mortgage loans (net of undisbursed portion), or 1% of total loans,
and $13.5 million in consumer loans, or 10% of total loans. Additionally, the
Bank originates VA guaranteed loans and FHA insured loans. For the fiscal year
ended May 31, 1997, the Bank originated $5.9 million of such loans. The Bank is
active in the origination of SONYMA loans, which are subject to certain customer
eligibility requirements and are subsequently sold to the State of New York. For
the fiscal year ending May 31, 1997, the Bank originated $8.2 million in SONYMA
loans. The Bank continues to service these loans for such agency and, instead of
a servicing fee, the Bank obtains a state (franchise) income tax credit.
The types of loans that the Bank may originate are subject to federal and
state laws and regulations. Interest rates charged by the Bank on loans are
affected by the demand for such loans, the supply of money available for lending
purposes and the rates offered by competitors. These factors are in turn
affected by, among other things, economic conditions, monetary policies of the
federal government, including the FRB and legislative tax policies.
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<PAGE> 53
The following table sets forth the composition of the Bank's loan portfolio
in dollar amounts and as a percentage of the portfolio at the dates indicated:
<TABLE>
<CAPTION>
AT MAY 31,
-------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
----------------- ----------------- ----------------- ----------------- -----------------
PERCENT PERCENT PERCENT PERCENT PERCENT
OF OF OF OF OF
AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MORTGAGE LOANS:
Conventional one- to
four-family loans.......... $ 81,803 58.56% $ 61,936 56.18% $ 78,562 63.34% $ 71,762 65.42% $ 78,489 71.40%
Mortgage loans held for
sale....................... 4,832 3.46 5,054 4.59 2,968 2.39 -- 0.00 -- 0.00
VA or FHA loans.............. 749 0.54 376 0.34 182 0.15 211 0.19 695 0.63
Home equity loans............ 13,449 9.63 11,040 10.01 9,714 7.83 10,051 9.16 7,660 6.97
Residential construction
loans...................... 4,110 2.94 961 0.87 2,901 2.34 1,613 1.47 1,801 1.64
Undisbursed portion of
construction loans......... (2,118) (1.52) (1,838) (1.66) (1,307) (1.05) (1,169) (1.06) (685) (0.62)
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total mortgage loans..... 102,825 73.61 77,529 70.33 93,020 75.00 82,468 75.18 87,960 80.01
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
CONSUMER AND OTHER LOANS:
Commercial................... $ 23,418 16.76% $ 19,385 17.59% $ 17,772 14.33% $ 15,472 14.10% $ 10,992 10.00%
Automobile................... 7,738 5.54 7,496 6.80 7,483 6.03 6,621 6.04 6,388 5.81
Student...................... 1,332 0.95 1,533 1.39 1,732 1.40 1,438 1.31 1,457 1.33
Credit card.................. 1,334 0.95 1,195 1.08 1,165 0.94 1,285 1.17 1,035 0.94
Other consumer loans......... 3,054 2.19 3,102 2.81 2,855 2.30 2,410 2.20 2,100 1.91
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total consumer and other
loans.................. 36,876 26.39 32,711 29.67 31,007 25.00 27,226 24.82 21,972 19.99
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total loans.......... $139,701 100.00% $110,240 100.00% $124,027 100.00% $109,694 100.00% $109,932 100.00%
======== ====== ======== ====== ======== ====== ======== ====== ======== ======
Discounts, premiums and
deferred loan fees, net.... (146) (38) (158) (187) (276)
Allowance for loan loss...... (1,232) (1,305) (1,206) (909) (808)
Total loans, net..... $138,323 $108,897 $122,663 $108,598 $108,848
======== ======== ======== ======== ========
</TABLE>
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Loan Maturity. The following table shows the contractual maturity of the
Bank's loans at May 31, 1997. The table reflects the entire unpaid principal
balance in the maturity period that includes the final loan payment date and,
accordingly, does not give effect to periodic principal repayments or possible
prepayments. Principal repayments and prepayments totaled $18.4 million, $23.6
million and $10.5 million for the years ended May 31, 1997, 1996 and 1995,
respectively. Additionally, since the Bank regularly sells and securitizes
residential mortgage loans as part of its mortgage banking operation, these
activities have resulted in $6.2 million and $21.6 million in loan sales and
securitizations, respectively, for the fiscal year ended in 1997 and $3.7
million and $74.7 million, respectively, for the fiscal year ended in 1996.
There were no loan sales or securitizations for the fiscal year ending May 31,
1995, the year in which the Bank commenced mortgage banking operations. Further,
it should be noted that the Bank's securitization of $38.5 million of the $74.7
million in securitizations accomplished as of the fiscal year ended 1996 were
seasoned loans, which means these loans did not represent current (within one
year) production. The purpose for securitizing these $38.5 million in loans was
to eliminate credit risk from the Bank's loan portfolio with respect to these
loans.
<TABLE>
<CAPTION>
AT MAY 31, 1997
--------------------------------------------------------------------------------
CONSUMER, HOME EQUITY, COMMERCIAL AND
OTHER LOANS
MORTGAGE LOANS -----------------------------------------
---------------------- HOME
ADJUSTABLE EQUITY
FIXED RATE RATE COMMERCIAL LINES OF CONSUMER OTHER TOTAL LOANS
MORTGAGES MORTGAGES LOANS CREDIT LOANS LOANS RECEIVABLE
---------- --------- ---------- -------- -------- ------ -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Amounts due:
Within one year......................... $ 1,512 $ -- $ 4,081 $ -- $ 556 $ -- $ 6,149
After one year:
One to three years.................... 374 -- 6,609 -- 5,510 1,367 13,860
Three to five years................... 831 33 6,537 -- 6,501 -- 13,902
Five to 10 years...................... 2,599 947 3,602 223 5,973 -- 13,344
Over 10 years......................... 40,861 42,217 2,588 4,808 554 1,417 92,445
------- ------- ------- ------ ------- ------ --------
Total due after one year............ 44,665 43,197 19,336 5,031 18,538 2,784 133,551
------- ------- ------- ------ ------- ------ --------
Total amounts due............... $ 46,177 $43,197 $ 23,417 $5,031 $19,094 $2,784 $ 139,700
======= ======= ======= ====== ======= ====== ========
Discounts, premiums and deferred loan
fees, net............................. (146)
Allowance for loan losses............... (1,232)
--------
Loans receivable, net................... $ 138,322
========
</TABLE>
The following table sets forth the dollar amounts in each loan category at
May 31, 1997 that are contractually due after May 31, 1998, and whether such
loans have fixed interest rates or adjustable interest rates.
<TABLE>
<CAPTION>
DUE AFTER MAY 31, 1998
-----------------------------------
FIXED ADJUSTABLE TOTAL
------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Mortgage loans...................................... $44,665 $ 43,197 $ 87,862
Commercial loans.................................... 8,074 11,262 19,336
Home equity lines of credit......................... -- 5,031 5,031
Consumer loans...................................... 18,246 292 18,538
Other loans......................................... 2,784 -- 2,784
------- ------- -------
Total loans......................................... $73,769 $ 59,782 $133,551
======= ======= =======
</TABLE>
Origination, Purchase, Sale and Servicing of Loans. The Bank's residential
lending activities are conducted through its team of commissioned loan
originators, who regularly call upon realtors, builders and others in the real
estate business in an effort to solicit mortgage loan applications. The loans
are all self-originated, as the Bank does not use mortgage brokers, with
applications taken at the Bank's various branch offices and loan production
offices. Thereafter, the applications are processed, underwritten and prepared
for
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<PAGE> 55
closing at the Monroe branch office, and the data is electronically linked
together during the various stages of the application process to facilitate
tracking and monitoring at the Bank's Warwick office.
The Bank originates both adjustable-rate and fixed-rate mortgage loans. Its
ability to originate loans is dependent upon the relative customer demand for
fixed-rate or adjustable-rate mortgage loans, which is affected by the current
and expected future levels of interest rates. During the fiscal year ended May
31, 1997, the Bank experienced a decrease in fixed-rate mortgage loan
originations, as compared to a slight increase in originations of
adjustable-rate mortgage loans. This was attributed to the increased refinancing
activity that occurred during the 1996 fiscal year following the generally
higher interest rate environment during the 1995 fiscal year. The Bank currently
holds for its portfolio all adjustable-rate, bi-weekly mortgage loans and any
non-conforming loans it originates. Periodically, the Bank considers the
possible sale of its jumbo loans; however, management believes it has the
ability to build relationships with jumbo mortgage customers to create
cross-selling opportunities.
The residential loan products currently offered by the Bank include VA
guaranteed and FHA insured mortgage loans, a variety of loans that conform to
the underwriting standards specified by FNMA ("conforming loans"), SONYMA loans
and, to a much lesser extent, non-conforming loans, i.e., jumbo loans. The Bank
sells most of the conforming mortgage loans it originates to FNMA in exchange
for FNMA mortgage-backed securities through purchase and guarantee programs
sponsored by FNMA. The Bank then sells such FNMA mortgage-backed securities to
private investors and retains the servicing rights. In those cases in which
non-conforming loans are sold to private institutional investors, servicing
rights are typically released. SONYMA loans are all originated for sale back to
SONYMA, with servicing retained (in exchange for tax credits).
During the time between the processing of a residential mortgage loan
application and the final disposition or sale of such loan after it is closed,
the Bank is exposed to movements in the market price due to changes in market
interest rates. The Bank attempts to manage this risk by utilizing forward sales
of mortgage-backed securities and put options on mortgage-backed securities to
securities brokers and dealers, as well as cash sales to FNMA. Depending upon
market conditions, interest rate expectations, economic data and other factors,
the Bank's Hedging Committee, comprised of various members of senior operating
management, which meets daily, attempts to cover certain percentages of its
pipeline and warehouse. However, there can be no assurance that the Bank will be
successful in its efforts to mitigate the risk of interest rate fluctuation
between the time of application origination and the ultimate disposition or sale
of such loans. At May 31, 1997, the Bank had $2 million of forward sale
commitments representing 53% of closed loans and 30-year fixed rate conforming
loan commitments, at specified interest rates at such date. See "Risk
Factors -- Potential Impact of Changes in Interest Rates."
Currently, the Bank services all of its one- to four-family loans,
commercial and commercial real estate, home equity and consumer loans. All FHA
and VA loans are sold on a servicing-released basis, as are other selected loans
sold to private institutional investors. Additionally, the Bank services a large
volume of conforming fixed-rate and adjustable-rate loans that it has previously
securitized and kept in its securities portfolio or sold outright to private
investors. At May 31, 1997, the Bank was servicing $122.3 million of residential
mortgage loans for others. For the fiscal years ended May 31, 1997, 1996 and
1995, loan servicing fees totaled $335 thousand, $158 thousand and $97 thousand,
respectively. Loan servicing includes collecting and remitting loan payments,
accounting for principal and interest, making inspections as required of
mortgaged premises, contacting delinquent mortgagors, supervising foreclosures
and property dispositions in the event of unremedied defaults, ensuring the
status of insurance and tax payments on behalf of the borrowers and generally
administering the loans.
54
<PAGE> 56
The following table sets forth the Bank's loan originations, repayments and
other portfolio activity for the periods indicated.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31,
----------------------------------
1997 1996 1995
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
MORTGAGE LOANS (GROSS):
At beginning of period................................... $ 66,669 $ 83,306 $ 72,540
Mortgage loans originated:
Fixed rate mortgages..................................... 50,069 70,117 13,901
Adjustable rate mortgages................................ 18,776 15,133 7,392
-------- -------- --------
Total mortgage loan originated................... 68,845 85,250 21,293
Principal repayments..................................... (18,376) (23,592) (10,527)
Sale of loans............................................ (6,172) (3,731) --
Securitizations.......................................... (21,590) (74,744) --
-------- -------- --------
At end of period......................................... $ 89,376 $ 66,489 $ 83,306
======== ======== ========
OTHER LOANS (GROSS):
At beginning of period................................... 43,751 40,861 37,336
Commercial loans originated.............................. 14,966 12,186 11,667
Consumer loans originated................................ 16,774 10,936 8,918
Commercial repayments.................................... (10,933) (10,573) (9,368)
Consumer repayments...................................... (9,039) (9,839) (7,832)
Other loans sold......................................... (5,194) -- --
-------- -------- --------
At end of period......................................... $ 50,325 $ 43,571 $ 40,721
======== ======== ========
</TABLE>
One- to Four-Family Mortgage Lending. The Bank offers both fixed-rate and
adjustable-rate mortgage and construction loans, with maturities up to 30 years,
which are secured by one- to four-family, owner-occupied residences. The
majority of such loans are secured by property located in Orange County, New
York, however, there are a number of loans secured by property located in
Rockland and Dutchess Counties, New York, and to a lesser extent in Westchester,
Putnam and Sullivan Counties, New York. See "-- Origination, Purchase, Sale and
Servicing of Loans."
At May 31, 1997, the Bank's total gross loans outstanding were $139.7
million, of which $81.8 million, or 59%, were one- to four-family residential
mortgage loans. Of the one- to four-family residential mortgage loans
outstanding at that date, 51.7%, or $46.2 million, were fixed-rate loans and
48.3%, or $43.1 million, were adjustable-rate loans. The interest rates for the
majority of the Bank's adjustable-rate mortgage loans are indexed to the yield
on one-year U.S. Treasury securities. The Bank currently offers adjustable-rate
mortgage loan programs with interest rates that adjust either every one or three
years. An adjustable-rate mortgage loan may carry an initial interest rate that
is less than the fully-indexed rate for the loan. All adjustable-rate mortgage
loans offered have lifetime interest rate caps or ceilings. Generally,
adjustable-rate mortgage loans pose credit risks somewhat greater than the
credit risk inherent in fixed-rate loans primarily because, as interest rates
rise, the underlying payments of the borrowers rise, increasing the potential
for default. The Bank currently has no mortgage loans that are subject to
negative amortization.
Commercial Lending. As part of the Bank's commercial lending program, the
Bank originates various types of secured and unsecured commercial business loans
and lines of credit and commercial real estate and construction loans. The
Bank's commercial loan portfolio consisted of the following types of commercial
loans at the dated indicated.
55
<PAGE> 57
<TABLE>
<CAPTION>
AT MAY 31,
-------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
----------------- ----------------- ----------------- ----------------- -----------------
PERCENT PERCENT PERCENT PERCENT PERCENT
OF OF OF OF OF
TOTAL TOTAL TOTAL TOTAL TOTAL
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
COMMERCIAL LOANS BY TYPE:
Non-farm and
non-residential........... $10,372 7.42% $8,288 7.52% $6,749 5.44% $5,046 4.59% $2,495 2.27%
One-to four-family.......... 1,157 0.83 1,161 1.05 1,387 1.12 1,593 1.45 1,297 1.18
Multi-family................ 3,022 2.16 1,565 1.42 501 0.40 390 0.36 148 0.13
Farm........................ 318 0.23 156 0.14 471 0.38 491 0.45 258 0.23
Acquisition, development &
construction.............. 2,781 1.99 2,414 2.19 2,819 2.27 2,393 2.18 625 0.57
Term loans.................. 258 0.18 108 0.10 188 0.15 494 0.45 563 0.51
Installment loans........... 1,796 1.29 1,617 1.47 1,542 1.24 1,920 1.75 1,477 1.34
Demand loans................ 498 0.36 444 0.40 456 0.37 627 0.57 218 0.20
Time loans.................. 300 0.21 174 0.16 150 0.12 306 0.28 109 0.10
S.B.A. loans................ 636 0.46 546 0.50 657 0.53 223 0.20 391 0.36
Lines-of-credit............. 2,166 1.55 2,861 2.60 2,763 2.23 1,922 1.75 3,235 2.94
Loans and draws disburse.... 88 0.06 -- -- -- -- -- -- -- --
Non-accrual................. 26 0.02 51 0.05 89 0.07 67 0.06 176 0.16
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total................... $23,418 16.76% $19,385 17.58% $17,772 14.33% $15,472 14.09% $10,992 10.00%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
Commercial business loans generally carry greater credit risks than
residential mortgage loans because their repayment is more dependent on (i) the
underlying financial condition of the borrower and/or the value of any property
or the cash flow from any property securing the loan or the business being
financed and (ii) general as well as local economic conditions. See "Risk
Factors -- Residential and Non-Residential Lending Risks." Mortgage loans
secured by commercial real estate properties, including construction and
development lending, are generally larger and involve a higher degree of risk
than one- to four-family residential mortgage loans. This risk is attributable
to the uncertain realization of projected income-producing cash flows, which are
affected by vacancy rates, the ability to maintain rent levels against
competitively-priced properties and the ability to collect rent from tenants on
a timely basis. Also, in the case of construction and development lending, risk
is largely dependent upon the accuracy of the initial estimate of the property's
value at completion of construction or development compared to the estimated
cost (including interest payments) of construction and other assumptions. In
addition, commercial construction loans are subject to many of the same risks as
residential construction loans. See "-- Residential Construction Lending."
Commercial Business Lending. The Bank also offers various types of
short-term and medium-term commercial business loans on a secured and unsecured
basis to borrowers located in the Bank's market area. Borrowers in the
commercial market are generally local companies engaged in retailing and
construction that require traditional working capital financing with cyclical
repayments coming primarily from asset conversion. These loans include time and
demand loans, term loans and lines of credit. The Bank is also an approved Small
Business Administration ("SBA") lender. At May 31, 1997, the Bank's commercial
business loan portfolio amounted to $6.0 million, or 4.3% of total gross loans
outstanding. The largest commercial business loan outstanding at May 31, 1997
was a $500 thousand loan to a borrower whose business in Monroe, New York,
specializes in industrial flooring. In addition, the Bank has committed a line
of credit of $2.5 million to the Warwick Valley Telephone Company. At May 31,
1997, $400 thousand of such line was outstanding. See "Management of the
Bank -- Transactions with Related Persons."
The Bank's lines of credit are typically established for one year and are
subject to renewal upon satisfactory review of the borrower's financial
statements and credit history. Secured short-term commercial business loans are
usually collateralized by real estate and are generally guaranteed by a
principal of the borrower. Interest on these loans is usually payable monthly at
fixed rates or rates that fluctuate based on a spread above the prime rate. The
Bank offers term loans with terms generally not exceeding five years or less.
Typically, term loans have floating interest rates based on a spread above the
prime rate. The Bank also offers business loans on a revolving basis, whereby
the borrower pays interest only. Interest on such loans fluctuates
56
<PAGE> 58
based on the prime rate. Normally these loans require periodic interest payments
during the loan term, with full repayment of principal and interest at maturity.
The Bank offers business and merchant credit cards to its corporate customers,
however, these services are provided through third party vendors. The Bank bears
the credit risk in the case of business cards, but credit risk is borne by the
third party on merchant credit cards, with the Bank receiving a fee in the
latter case. In approving commercial business loans the Bank will consider
adequate cash flow from the borrower to repay the loan, a secondary source of
repayment and the borrowers' credit standing.
Commercial Real Estate and Construction Lending. The Bank originates
commercial real estate mortgage loans that are generally secured by a
combination of residential property for development and retail facilities and
properties used for business purposes, such as small office buildings and
apartment buildings located in the Bank's market area. Loans are also made to
develop land and for land acquisition. The Bank's loan policy and underwriting
procedures provide that commercial real estate loans may be made in amounts up
to the lesser of (i) 80% of the lesser of the appraised value or purchase price
of the property, in the case of improved, existing commercial, investment type,
(ii) 75% of the lesser of the appraised value or purchase price of the property,
in the case of commercial, multi-family and non-residential construction types,
(iii) 70% of the lesser of the appraised value or purchase price of the
property, in the case of commercial land development, generally for subdivision
or industrial park land development types and (iv) 60% of the lesser of the
appraised value or purchase price of the property in the case of raw land. In
addition to restrictions on loan to value, the Bank's underwriting procedures
provide that commercial real estate loans may be made in amounts up to the
lesser of (i) $2.5 million or (ii) the Bank's current loans-to-one borrower
limit. Regarding (iii) and (iv), the Bank usually engages in this type of
lending only with experienced local developers operating in the Bank's primary
market. Such loans are typically offered for the construction of properties that
are pre-sold or for which permanent financing has been secured. At May 31, 1997,
the Bank had $2.7 million in a variety of acquisition, development and
construction ("ADC") loans in its commercial lending area. The Bank's policy is
not to make construction loans for purposes of speculation, so that the borrower
must have secured permanent financing commitments from generally recognized
lenders for an amount greater than the amount of the loan. In most cases, the
Bank itself provides the permanent financing. While the number and volume of
this type of specialized lending is presently limited, it should be noted that
the Bank intends to continue to emphasize its commercial real estate, including
ADC, loan activity as it expands its mortgage origination operations into New
Jersey through WSB Mortgage. The largest commercial real estate loan in the
Bank's portfolio as of May 31, 1997 was a $1.8 million loan secured by a rental
apartment complex known as Highland Park Village in Middletown, New York.
The Bank's commercial mortgage loans are generally prime-based and may be
made with terms up to ten years, generally with a five-year or ten-year balloon
maturity and a 30-year amortization schedule. In reaching its decision as to
whether to make a commercial real estate loan, the Bank considers the
qualifications of the borrower as well as the underlying property. Some of the
factors considered are: the net operating income of the mortgaged premises
before debt service and depreciation, the debt service ratio (the ratio of the
property's net cash flow to debt service requirements), which must be a minimum
of 1.25, the ratio of loan amount to appraised value and the credit worthiness
of the borrower.
Residential Construction Lending. The Bank originates loans for the
acquisition and development of property to individuals in its market area. The
Bank's residential construction loans primarily have been made to finance the
construction one- to four-family, owner-occupied residential properties. The
Bank offers construction to permanent financing loans with one or two closings,
and will not make residential construction loans unless the borrower has been
approved for permanent financing. The interest rate charged during the
construction phase of the loan is based on the 30-year fixed mortgage rate. The
Bank's policies provide that construction loans may be made in amounts up to 95%
of the appraised value of the completed property. At May 31, 1997, the Bank had
$2.0 million of residential construction loans (net of undisbursed portion),
which amounted to 1.4% of the Bank's gross loans outstanding.
Construction lending generally involves additional risks to the lender as
compared with residential mortgage lending. These risks are attributable to the
fact that loan funds are advanced upon the security of the project under
construction, predicated on the present value of the property and the
anticipated future value of
57
<PAGE> 59
the property upon completion of construction or development. Moreover, because
of the uncertainties inherent in delays resulting from labor problems, materials
shortages, weather conditions and other contingencies, it is relatively
difficult to evaluate the total funds required to complete a project and to
establish the loan-to-value ratio. If the Bank's initial estimate of the
property's value at completion is inaccurate, the Bank may be confronted with a
project that, when completed, has an insufficient value to assure full
repayment. See "Risk Factors -- Residential and Non-Residential Lending."
Home Equity Lending. The Bank offers fixed-rate, fixed-term home equity
loans, called the Good Neighbor Home Loan, and adjustable-rate home equity lines
of credit in its market area. Both the loan and line of credit are offered in
amounts up to 80% of the appraised value of the property (including the first
mortgage) with a maximum loan amount of up to $100 thousand. The fixed-rate,
fixed-term Good Neighbor Home Loan is offered with terms of up to 15 years. The
home equity line of credit is offered for terms up to 20 years, with the first
five years being offered on a revolving basis, requiring payments of interest
only; thereafter, the line converts to an amortizing loan. As of May 31, 1997,
$13.4 million, or 9.6%, of the Bank's gross loans were home equity loans.
Consumer Lending. The Bank offers various types of secured and unsecured
consumer loans, including automobile loans, home improvement loans, personal
loans, student loans and credit cards (VISA). The Bank's consumer loans have
original maturities of not more than five years. Interest rates charged on such
loans are set at competitive rates, taking into consideration the type and term
of the loan. Consumer loan applications are reviewed and approved in conformance
with the Bank's board-approved lending policy. At May 31, 1997, the Bank's
consumer loan portfolio totaled $13.5 million, or 9.7% of the total gross loans
outstanding.
Loan Approval Procedures and Authority. The Board of Trustees establishes
the lending policies and loan approval limits of the Bank. Conforming
residential mortgage loans are approved in accordance with FNMA guidelines by
the Bank's underwriting group. Certain conforming loans and all non-conforming
loans are approved by either the Bank's Executive Vice President or President.
The Board of Trustees has established the following lending authority for
commercial lending, including commercial real estate lending: (i) various
officers have limited individual authority up to $25 thousand; (ii) certain
officers have joint authority up to $100 thousand; and (iii) the Bank's
Commercial Loan Committee has authority to approve loans of up to $500 thousand.
All of the aforementioned loans are subsequently ratified by the Executive
Committee of the Board of Trustees. Loans in excess of $500 thousand but not
more than $1 million must be approved by the Executive Committee of the Board of
Trustees, which meets on a weekly basis. Loans in excess of $1 million must be
approved by the full Board of Trustees, which meets on a monthly basis. The
approval of consumer loans generally requires the dual authorization of two
lending officers for loans over certain amounts ($5 thousand-unsecured and $10
thousand-secured for consumer). Likewise, home equity loan or lines of credit
also require dual authorizations. The foregoing lending limits are reviewed and
reaffirmed annually by the Board of Trustees.
For all loans originated by the Bank, upon receipt of a completed loan
application from a prospective borrower, a credit report is ordered and certain
other information is verified by an independent credit agency, and, if
necessary, additional financial information is required to be submitted by the
borrower. An appraisal of any real estate intended to secure the proposed loan
is required, which appraisal currently is performed by an independent appraiser
designated and approved by the Bank. The Board of Trustees annually approves the
independent appraisers used by the Bank and approves the Bank's appraisal
policy. It is the Bank's policy to obtain title and hazard insurance on all real
estate loans. In connection with a borrower's request for a renewal of a
multi-family or commercial mortgage loan with a balloon maturity, the Bank
evaluates both the borrower's ability to service the renewed loan applying an
interest rate that reflects prevailing market conditions, as well as the value
of the underlying collateral property. The reevaluation of the property
typically requires a new appraisal, depending upon the loan amount and other
factors. It is the Bank's policy to note all exceptions to policy in the
respective credit files and report such exceptions to the original
decision-making body (i.e., Commercial Loan Committee, Executive Committee or
Board of Trustees) prior to closing if a condition of the original approval is
not met.
58
<PAGE> 60
ASSET QUALITY
Non-Performing Loans. Management and the Board of Trustees perform a
monthly review of delinquent loans. The actions taken by the Bank with respect
to delinquencies vary depending on the nature of the loan and period of
delinquency. The Bank's policies on residential mortgage loans provide that
delinquent mortgage loans be reviewed and that a late charge notice be mailed no
later than the 15th day of delinquency, with the delinquency charge assessed on
the 16th day. The Bank's collection policies on residential mortgage loans
essentially mirror those shown in the FNMA servicing agreements. On other loans,
telephone contact and various delinquency notices at different intervals are the
methods used to collect past due loans.
It is the Bank's general policy to discontinue accruing interest on all
loans when management has determined that the borrower will be unable to meet
contractual obligations or when unsecured interest or principal payments are 90
days past due. Generally, when residential mortgage or secured consumer loans
are delinquent 180 days, they are placed on nonaccrual basis. When a loan is
classified as nonaccrual, the recognition of interest income ceases. Interest
previously accrued and remaining unpaid is reversed against income. Cash
payments received are applied to principal, and interest income is not
recognized unless management determines that the financial condition and payment
record of the borrower warrant the recognition of income. If a foreclosure
action is commenced and the loan is not brought current, paid in full or an
acceptable workout arrangement is not agreed upon before the foreclosure sale,
the real property securing the loan is generally sold at foreclosure. Property
acquired by the Bank as a result of foreclosure on a mortgage loan is classified
as "real estate owned" and is recorded at the lower of the unpaid balance or
fair value less costs to sell at the date of acquisition and thereafter. Upon
foreclosure, it is the Bank's policy to generally require an appraisal of the
property and, thereafter, appraise the property on an as-needed basis.
The following table sets forth information regarding non-accrual loans,
other past due loans and OREO. There were no troubled debt restructuring within
the meaning of SFAS No. 15 at any of the dates presented below.
<TABLE>
<CAPTION>
AT MAY 31,
--------------------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Non-accrual mortgage loans delinquent more
than 90 days................................ $1,111 $ 582 $1,093 $1,217 $ 165
Non-accrual other loans delinquent more than
90 days..................................... 83 82 131 69 176
Total non-accrual loans....................... 1,194 664 1,224 1,286 341
Total 90 days or more delinquent and still
accruing.................................... 237 199 978 928 2,319
------ ------ ------ ------ ------
Total non-performing loans.................... 1,431 863 2,202 2,214 2,660
------ ------ ------ ------ ------
Total foreclosed real estate, net of related
allowance for losses........................ 224 330 493 306 --
Investment in real estate, net of related
allowance for losses........................ -- -- -- -- --
Total non-performing assets................... $1,655 $1,193 $2,695 $2,520 $2,660
====== ====== ====== ====== ======
Non-performing loans to total loans........... 1.02% 0.78% 1.78% 2.02% 2.42%
Total non-performing assets to total assets... 0.58% 0.44% 1.04% 1.08% 1.18%
</TABLE>
Other Real Estate Owned. At May 31, 1997, the Bank's OREO, net, which
consisted of three single family residential properties, totaled $224 thousand
and was held directly by the Bank.
Classified Assets. Federal regulations and the Bank's Internal Loan Review
and Grading System, which is a part of the Bank's loan policy, require that the
Bank utilize an internal asset classification system as a means of reporting
problem and potential problem assets. The Bank limits its loan review procedure
to the higher risk commercial and commercial real estate loans, commercial loans
greater than $25,000 and jumbo residential mortgage loans.
59
<PAGE> 61
At each regularly scheduled Board of Trustees meeting, a watch list is
presented, showing all loans listed as "Special Mention," "Substandard,"
"Doubtful" and "Loss." An asset is considered Substandard if it is inadequately
protected by the current net worth and paying capacity of the obligor or of the
collateral pledged, if any. Substandard assets included those characterized by
the distinct possibility that the insured institution will sustain some loss if
the deficiencies are not corrected. Assets classified as Doubtful have all the
weaknesses inherent in those classified Substandard with the added
characteristic that the weaknesses present make collection or liquidation in
full, on the basis of currently existing facts, conditions and values, highly
questionable and improbable. Assets classified as Loss are those considered
uncollectible and viewed as non-bankable assets, worthy of charge-off. Assets
which do not currently expose the Bank to sufficient risk to warrant
classification in one of the aforementioned categories, but possess weaknesses
which may or may not be out of the control of management, are deemed to be
"Special Mention."
When an insured institution classifies one or more assets, or portions
thereof, as Substandard or Doubtful, it is required to establish a general
valuation allowance for loan losses in an amount deemed prudent by management.
General valuation allowances, which is a regulatory term, represent loss
allowances which have been established to recognize the inherent risk associated
with lending activities, but which, unlike specific allowances, have not been
allocated to specific problem assets. When an insured institution classifies one
or more assets, or proportions thereof, as "Loss," it is required either to
establish a specific allowance for losses equal to 100% of the amount of the
asset so classified or to charge-off such amount.
The Bank's determination as to the classification of its assets and the
amount of its valuation allowances is subject to review by the FDIC and the
NYSBD, which can order the establishment of additional general or specific loss
allowances. The FDIC, in conjunction with the other federal banking agencies,
has adopted an interagency policy statement on the allowance for loan and lease
losses. The policy statement provides guidance for financial institutions on
both the responsibilities of management for the assessment and establishment of
adequate allowances and guidance for banking agency examiners to use in
determining the adequacy of general valuation guidelines. Generally, the policy
statement recommends that (i) institutions have effective systems and controls
to identify, monitor and address asset quality problems; (ii) management has
analyzed all significant factors that affect the collectibility of the portfolio
in a reasonable manner; and (iii) management has established acceptable
allowance evaluation processes that meet the objectives set forth in the policy
statement. Management believes it has established an adequate allowance for
possible loan and lease losses and analyzes its process regularly, with
modifications made if needed, and reports those results four times per year at
the Bank's Board of Trustees meetings. However, there can be no assurance that
the regulators, in reviewing the Bank's loan portfolio, will not request the
Bank to materially increase its allowance for loan and lease losses at that
time. Although management believes that adequate specific and general loan loss
allowances have been established, actual losses are dependent upon future events
and, as such, further additions to the level of specific and general loan loss
allowances may become necessary.
At May 31, 1997, the Bank had $504 thousand of assets classified as
Substandard and $616 thousand of assets classified as Special Mention. There
were no assets classified as Doubtful or Loss as of May 31, 1997. The $504
thousand of loans classified as Substantial were also impaired under SFAS No.
114, "Accounting by Creditors for Impairment of a Loan," as amended by SFAS No.
118, "Accounting by Creditors for Impairment of a Loan -- Income Recognition
Disclosures," which the Bank adopted in fiscal 1995. SFAS No. 114 defines an
impaired loan as a loan for which it is probable, based on current information,
that the lender will not collect all amounts due under the contractual terms of
the loan agreement.
60
<PAGE> 62
The following table sets forth delinquencies in the Bank's loan portfolio
at the dates indicated:
<TABLE>
<CAPTION>
AT MAY 31, 1997 AT MAY 31, 1996
------------------------------------------- -------------------------------------------
60-89 DAYS 90 DAYS MORE 60-89 DAYS 90 DAYS OR MORE
-------------------- -------------------- -------------------- --------------------
PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL
NUMBER BALANCE NUMBER BALANCE NUMBER BALANCE NUMBER BALANCE
OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS
-------- --------- -------- --------- -------- --------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family....... 7 $ 475 16 $ 1,214 11 $ 792 11 $ 692
Multi-family.............. -- -- -- -- -- -- -- --
Commercial loans.......... 5 724 5 121 7 710 4 58
Home equity lines of
credit.................. -- -- 2 57 1 11 2 57
Other loans............... 8 16 17 39 9 33 28 56
-- -- -- --
------ ------ ------ ----
Total loans..... 20 $ 1,215 40 $ 1,431 28 $ 1,546 45 $ 863
== ====== == ====== == ====== == ====
</TABLE>
<TABLE>
<CAPTION>
AT MAY 31, 1995
-------------------------------------------
60-89 DAYS 90 DAYS MORE
-------------------- --------------------
PRINCIPAL PRINCIPAL
NUMBER BALANCE NUMBER BALANCE
OF LOANS OF LOANS OF LOANS OF LOANS
-------- --------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family....... 13 $ 495 25 $ 1,497
Multi-family.............. -- -- -- --
Commercial loans.......... 3 167 2 586
Home equity lines of
credit.................. -- -- 3 43
Other loans............... 13 38 29 76
-- --
---- ------
Total loans..... 29 $ 700 59 $ 2,202
== ==== == ======
</TABLE>
Allowance for Loan and Lease Losses. The allowance for loan and lease
losses is based upon management's periodic evaluation of the loan portfolio
under current economic conditions, considering factors such as asset
classifications, the Bank's past loss experience, known and inherent risks in
the portfolio, adverse situations that may affect the borrower's ability to
repay and the estimated value of the underlying collateral. The allowance for
loan and lease losses is maintained at an amount management considers adequate
to cover loan and lease losses that are deemed probable and estimable. At May
31, 1997, the Bank's allowance for loan and lease losses was $1.2 million, or
0.89% of total loans, as compared to $1.3 million, or 1.20%, at May 31, 1996.
The Bank had non-performing loans of $1.4 million and $863 thousand at May 31,
1997 and May 31, 1996, respectively. The Bank will continue to monitor and
modify its allowance for loan losses as conditions dictate. Various regulatory
agencies, as an integral part of their examination process, periodically review
the Bank's allowance for loan losses. These agencies may require the Bank to
establish additional valuation allowances, based on their judgments of the
information available at the time of the examination.
61
<PAGE> 63
The following table sets forth activity in the Bank's allowance for loan
losses for the periods indicated.
<TABLE>
<CAPTION>
AT OR FOR THE
YEAR ENDED MAY 31,
------------------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ----- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR LOAN LOSSES:
Balance at beginning of period................ $1,305 $1,206 $ 909 $ 808 $ 381
CHARGE-OFFS:
Real estate mortgage loans.................... (119) (25) (61) (195) --
Commercial loans.............................. -- -- -- (126) (113)
Consumer loans................................ (94) (125) (47) (58) (53)
------ ------ ------ ----- -----
Total charge-offs..................... (213) (150) (108) (379) (166)
RECOVERIES:
Real estate mortgage loans.................... -- 18 123 8 --
Commercial loans.............................. -- 74 13 33 38
Consumer loans................................ 10 16 8 24 5
------ ------ ------ ----- -----
Total recoveries...................... 10 108 145 65 44
Provision for loan losses..................... 130 140 261 415 549
------ ------ ------ ----- -----
Balance at end of period...................... $1,232 $1,305 $1,206 $ 909 $ 808
====== ====== ====== ===== =====
Ratio of net charge-offs during the period to
average loans outstanding.................. 0.16% 0.03% N/A 0.29% 0.11%
Ratio of allowance for loan losses to total
loans at end of period..................... 0.89% 1.20% 0.98% 0.84% 0.74%
Ratio of allowance for loan losses to
non-performing loans....................... 86.09% 151.22% 54.77% 41.06% 30.38%
</TABLE>
The following table sets forth the Bank's allowance for loan losses
allocated by loan category, the percent of the allocated allowances to the total
allowance and the percent of loans in each category to total loans at the dates
indicated.
<TABLE>
<CAPTION>
AT MAY 31,
-------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
----------------- ----------------- ----------------- ----------------- -----------------
% OF % OF % OF % OF % OF
LOANS IN LOANS IN LOANS IN LOANS IN LOANS IN
CATEGORY CATEGORY CATEGORY CATEGORY CATEGORY
TO TOTAL TO TOTAL TO TOTAL TO TOTAL TO TOTAL
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
------ -------- ------ -------- ------ -------- ------ -------- ------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Allowance for mortgage
loan loss............ $ 224 73.60% $ 393 70.33% $ 403 75.00% $288 75.21% $504 80.01%
Allowance for consumer
loan loss............ 436 9.63 310 12.09 311 10.67 258 10.67 18 9.99
Allowance for
commercial loan
loss................. 572 16.76 602 17.58 493 14.33 362 14.33 286 10.00
------ ------ ------ ------ ------ ------ ---- ------ ---- ------
Total allowances for
loan loss............ $1,232 100.00% $1,305 100.00% $1,206 100.00% $909 100.00% $808 100.00%
====== ====== ====== ====== ====== ====== ==== ====== ==== ======
</TABLE>
ENVIRONMENTAL ISSUES
The Bank encounters certain environmental risks in its lending activities.
Under federal and state environmental laws, lenders may become liable for costs
of cleaning up hazardous materials found on properties securing their loans. In
addition, the existence of hazardous materials may make it unattractive for a
lender to foreclose on such properties. Although environmental risks are usually
associated with loans
62
<PAGE> 64
secured by commercial real estate, risks also may be substantial for residential
real estate loans if environmental contamination makes security property
unsuitable for use. As of May 31, 1997, the Bank was not aware of any
environmental issues that would subject the Bank to material liability. No
assurance, however, can be given that the values of properties securing loans in
the Bank's portfolio will not be adversely affected by unforseen environmental
contamination.
INVESTMENT ACTIVITIES
Investment Policies. The investment policy of the Bank, which is
established by the Board of Trustees, is contained in the Bank's Liquidity and
Funds Management Policy. It is based upon asset/liability management goals and
emphasizes high credit quality and diversified investments while seeking to
optimize net interest income within acceptable limits of safety and liquidity.
The Bank also considers the investment advice it receives from some of its
outside investment advisers. Recently the Bank has engaged in leveraging
activities to enhance returns on equity. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Management
Strategy," "-- Management of Interest Rate Risk" and "-- Liquidity and Capital
Resources." The policy is designed to provide and maintain liquidity to meet
day-to-day, cyclical and long-term changes in the Bank's asset/liability
structure, and to provide needed flexibility to meet loan demand. Approximately
86% of the Bank's debt security portfolio at May 31, 1997 is classified as
available-for-sale.
The Bank's investment policy permits it to invest in U.S. government
obligations, securities of various government-sponsored agencies, including
mortgage-backed securities issued/guaranteed by FNMA, the Federal Home Loan
Mortgage Corporation ("FHLMC") and the Government National Mortgage Association
("GNMA"), certain types of equity securities (such as institutional mutual
funds), certificates of deposit of insured banks, federal funds and investment
grade corporate debt securities and commercial paper.
The Bank's investment policy prohibits investment in certain types of
mortgage derivative securities that management considers to be high risk. The
Bank generally purchases only short- and medium-term classes of CMOs guaranteed
by FNMA or FHLMC. At May 31, 1997, the Bank held no securities issued by any one
entity with a total carrying value in excess of 10% of the Bank's equity at that
date, except for obligations of the U.S. government and government-sponsored
agencies and certain mortgage-backed securities, which are fully collateralized
by mortgages held by single purpose entities and guaranteed by
government-sponsored agencies.
Mortgage-Backed Securities. The Bank invests in mortgage-backed securities
and uses such investments to complement its mortgage lending activities. At May
31, 1997, the amortized cost of mortgage-backed securities totaled $72.8
million, or 25.4% of total assets. The fair value of all mortgage-backed
securities totaled $73.3 million at May 31, 1997. All of the Bank's
mortgage-backed securities are included in its available-for-sale portfolio.
Additionally, the Bank's securities portfolio includes CMOs, with an amortized
cost of $2.7 million and a fair value of $2.7 million. A CMO is a special type
of debt security in which the stream of principal and interest payments on the
underlying mortgages or mortgage-backed securities is used to create classes
with different maturities and, in some cases, amortization schedules as well as
a residual interest, with each class possessing different risk characteristics.
However, management regularly monitors the risks inherent in its CMOs and
believes these securities may represent attractive alternatives relative to
other investments due to the wide variety of maturity, repayment and interest
rate options available.
At May 31, 1997, all securities in the Bank's mortgage-backed securities
portfolio were directly or indirectly insured or guaranteed by GNMA, FNMA or
FHLMC. The Bank's mortgage-backed securities portfolio had a weighted average
yield of 7.35% at May 31, 1997.
Mortgage-backed securities generally yield less than the loans that
underlie such securities because of the cost of payment guarantees or credit
enhancements that reduce credit risk. In addition, mortgage-backed securities
are more liquid than individual mortgage loans and may be used to collateralize
borrowings of the Bank. In general, mortgage-backed securities issued or
guaranteed by GNMA, FNMA and FHLMC are weighted at no more than 20% for
risk-based capital purposes, compared to the 50% risk weighting assigned to most
non-securitized residential mortgage loans.
63
<PAGE> 65
While mortgage-backed securities carry a reduced credit risk as compared to
whole loans, such securities remain subject to the risk that a fluctuating
interest rate environment, along with other factors, such as the geographic
distribution of the underlying mortgage loans, may alter the prepayment rate of
such mortgage loans and so affect both the prepayment speed and value of such
securities. In contrast to mortgage-backed pass-through securities in which cash
flow is received (and, hence, prepayment risk is shared) pro rata by all
securities holders, the cash flows from the mortgages or mortgage-backed
securities underlying CMOs are segmented and paid in accordance with a
pre-determined priority to investors holding various tranches of such securities
or obligations. A particular tranche of a CMO may therefore carry prepayment
risk that differs from that of both the underlying collateral and other
tranches. It is the Bank's strategy to purchase tranches of CMOs that are
categorized as "planned amortization classes," "targeted amortization classes"
or "very accurately defined maturities" and are intended to produce stable cash
flows in different interest rate environments.
The following table sets forth activity in the Bank's securities portfolio
for the periods indicated.
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED MAY 31,
----------------------------------
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
BEGINNING BALANCE.......................................... $144,284 $110,333 $105,433
-------- -------- --------
Debt securities purchased -- held-to-maturity.............. 200 526 347
Debt securities purchased -- available-for-sale............ 23,687 18,723 27,780
Equity securities purchased -- available-for-sale.......... 2,277 4,723 5,632
Mortgage-backed securities purchased -- held-to-maturity... -- -- --
Mortgage-backed securities
purchased -- available-for-sale.......................... 23,221 12,101 --
Mortgage-backed securities formed by securitizing
originated mortgage loans................................ 21,358 72,325 --
LESS:
Sale of debt securities -- available-for-sale.............. 18,199 7,184 9,500
Sale of equity securities -- available-for-sale............ 5,317 1,876 4,355
Sale of mortgage-backed securities available-for-sale...... 25,375 -- --
Sale of mortgage-backed securities formed by securitizing
originated mortgage loans -- trading..................... 17,486 22,668 --
Principal repayments on mortgage-backed securities and debt
securities............................................... 10,469 3,637 3,421
Maturities and called debt securities...................... 12,425 39,576 12,067
Accretion of discount/amortization of (premium)............ (82) 75 (643)
Change in gross unrealized gains (losses) on
available-for-sale securities............................ 720 419 1,127
-------- -------- --------
ENDING BALANCE............................................. $126,393 $144,284 $110,333
======== ======== ========
</TABLE>
64
<PAGE> 66
The following table sets forth the amortized cost and fair value of the
Bank's securities by accounting classification category and by type of security,
at the dates indicated:
<TABLE>
<CAPTION>
AT MAY 31,
------------------------------------------------------------------
1997 1996 1995
-------------------- -------------------- --------------------
AMORTIZED MARKET AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE COST VALUE
--------- -------- --------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Debt securities held-to-maturity:
U.S. Government obligations......... $ -- $ -- $ -- $ -- $ 16,891 $ 17,474
Agency securities................... 5,685 5,706 6,603 6,568 17,249 17,205
Municipal bonds..................... 407 410 432 437 485 494
Other debt obligations.............. -- -- 83 83 14,187 14,201
--------- -------- --------- -------- --------- --------
Total debt securities
held-to-maturity............... 6,092 6,116 7,118 7,088 48,812 49,374
--------- -------- --------- -------- --------- --------
Debt securities available-for-sale:
U.S. Government obligations......... 9,079 9,165 21,684 21,716 11,201 11,228
Agency securities................... 20,822 20,856 15,328 15,206 8,461 8,419
Other debt obligations.............. 7,991 8,029 16,203 16,256 20,102 20,255
--------- -------- --------- -------- --------- --------
Total debt securities
available-for-sale............. 37,892 38,050 53,215 53,178 39,764 39,902
--------- -------- --------- -------- --------- --------
Equity securities available-for-sale:
Preferred stock..................... 204 204 305 277 305 281
Mutual funds........................ 5,597 6,091 8,636 8,821 5,789 5,648
--------- -------- --------- -------- --------- --------
Total equity securities
available-for-sale............. 5,801 6,295 8,941 9,098 6,094 5,929
--------- -------- --------- -------- --------- --------
Total debt and equity
securities..................... 49,785 50,461 69,274 69,364 94,670 95,205
--------- -------- --------- -------- --------- --------
Mortgage-backed securities trading
FNMA................................ -- -- 1,992 1,934 -- --
--------- -------- --------- -------- --------- --------
Total mortgage-backed securities
trading........................ -- -- 1,992 1,934 -- --
--------- -------- --------- -------- --------- --------
Mortgage-backed securities held-to-
maturity
FHLMC............................... -- -- -- -- -- --
GNMA................................ -- -- -- -- 20 20
FNMA................................ -- -- -- -- 137 131
CMOs................................ -- -- -- -- -- --
--------- -------- --------- -------- --------- --------
Total mortgage-backed securities
held-to-maturity............... -- -- -- -- 157 151
--------- -------- --------- -------- --------- --------
Mortgage-backed securities available-
for-sale
FHLMC............................... 11,062 11,029 10,395 10,322 7,231 7,272
GNMA................................ 29,230 29,190 4,396 4,348 640 657
FNMA................................ 32,519 33,052 54,871 53,336 -- --
CMOs................................ 2,696 2,685 4,973 4,950 7,672 7,603
--------- -------- --------- -------- --------- --------
Total mortgage-backed securities
available-for-sale............. 75,507 75,956 72,635 72,956 15,543 15,532
--------- -------- --------- -------- --------- --------
Total mortgage-backed
securities..................... 75,507 75,956 74,627 74,890 15,700 15,683
--------- -------- --------- -------- --------- --------
Net unrealized (losses) gains on
available-for-sale securities....... 1,101 441 (37)
--------- --------- ---------
Total securities............ $ 126,393 $126,417 $ 144,284 $144,254 $ 110,333 $110,888
======== ======== ======== ======== ======== ========
</TABLE>
65
<PAGE> 67
The following table sets forth the composition of the Bank's securities
portfolio at the dates indicated.
<TABLE>
<CAPTION>
AT MAY 31,
---------------------------------------------------------------------
1997 1996 1995
--------------------- --------------------- ---------------------
CARRYING PERCENT OF CARRYING PERCENT OF CARRYING PERCENT OF
VALUE TOTAL VALUE TOTAL VALUE TOTAL
-------- ---------- -------- ---------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Debt securities:
U.S. Government obligations....... $ 9,165 7.25% $ 22,433 15.55% $ 28,119 25.49%
Agency securities................. 26,541 21.00 21,093 14.62 25,669 23.27
Municipal bonds................... 407 0.32 432 0.30 485 0.44
Other debt obligations............ 8,029 6.35 16,338 1.32 34,441 31.22
-------- ------ -------- ------ -------- ------
Total debt securities.......... 44,142 34.92 60,296 41.79 88,714 80.41
-------- ------ -------- ------ -------- ------
Equity securities:
Preferred stock................... 204 0.16 277 0.19 281 0.25
Mutual funds...................... 6,091 4.82 8,821 6.11 5,648 5.12
-------- ------ -------- ------ -------- ------
Total equity securities........ 6,295 4.98 9,098 6.31 5,929 5.37
-------- ------ -------- ------ -------- ------
Mortgage-backed securities
FHLMC............................. 11,029 8.73 10,322 7.15 7,273 6.59
GNMA.............................. 29,190 23.09 4,348 3.01 677 0.61
FNMA.............................. 33,052 26.15 55,270 38.31 137 0.12
CMOs.............................. 2,685 2.12 4,950 3.43 7,603 6.89
-------- ------ -------- ------ -------- ------
Total mortgage-backed
securities................... 75,956 60.10 74,890 51.90 15,690 14.22
-------- ------ -------- ------ -------- ------
Total securities.......... $126,393 100.00% $144,284 100.00% $110,333 100.00%
======== ====== ======== ====== ======== ======
Debt and equity securities
available-for-sale............. 44,345 35.09 62,276 43.16 45,831 41.54
Debt and equity securities
held-to-maturity............... 6,092 4.82 7,118 4.93 48,813 44.24
-------- ------ -------- ------ -------- ------
Total debt and equity
securities................... 50,437 39.90 69,394 48.10 94,644 85.78
-------- ------ -------- ------ -------- ------
Mortgage-backed securities
trading........................ -- 0.00 1,934 1.34% -- 0.00
Mortgage-backed securities
available-for-sale............. 75,956 60.10 72,956 50.56 15,532 14.08
Mortgage-backed securities
held-to-maturity............... -- 0.00 -- 0.00 157 0.14
-------- ------ -------- ------ -------- ------
Total mortgage-backed
securities................... 75,956 60.10 74,890 51.90 15,689 14.22
-------- ------ -------- ------ -------- ------
Total securities.......... $126,393 100.00% $144,284 100.00% $110,333 100.00%
======== ====== ======== ====== ======== ======
</TABLE>
66
<PAGE> 68
The following table sets forth certain information regarding the carrying
value and weighted average yield of the Bank's securities at May 31, 1997, by
remaining period to contractual maturity. Actual maturities may differ from
contractual maturities because certain security issuers may have the right to
call or prepay their obligations.
<TABLE>
<CAPTION>
AT MAY 31, 1997
-----------------------------------------------------------------------------------------------------------
MORE THAN MORE THAN
ONE YEAR FIVE YEARS MORE THAN
ONE YEAR OR LESS TO FIVE YEARS TO TEN YEARS TEN YEARS TOTAL
------------------- ------------------- ------------------- ------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED WEIGHTED
CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE
VALUE YIELD VALUE YIELD VALUE YIELD VALUE YIELD VALUE YIELD
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Held-to-maturity:
Municipal bonds.... $ 300 4.93% $ 107 6.82% $ -- --% $ -- --% $ 407 5.43%
U.S. Government
obligations...... 65 4.89 655 5.99 -- -- -- -- 720 5.89
Agency
securities....... -- -- 4,965 6.17 -- -- -- -- 4,965 6.17
------- ------- ------- ------- --------
Total
held-to-maturity... 365 4.93 5,727 6.16 -- -- -- -- 6,092 6.09
------- ------- ------- ------- --------
Available-for-sale:
Mortgage backed
securities:
Variable Rate:
FHLMC.......... 1,816 7.39 99 7.52 -- -- -- -- 1,915 7.40
GNMA........... 3,593 6.47 -- -- -- -- -- -- 3,593 6.47
FNMA........... 2,874 7.13 -- -- -- -- -- -- 2,874 7.13
CMOs........... 1,983 6.09 -- -- -- -- -- -- 1,983 6.09
Fixed Rate:
FHLMC.......... 460 6.01 3,716 6.34 616 7.31 4,322 7.52 9,114 6.95
GNMA........... -- -- 7 8.00 59 7.73 25,530 7.94 25,596 7.94
FNMA........... -- -- 2,020 6.80 881 8.20 27,277 7.65 30,178 7.61
CMOs........... -- -- 17 5.15 685 4.92 -- -- 702 4.93
------- ------- ------- ------- --------
Total
mortgage-backed
securities... 10,726 6.71 5,859 6.52 2,241 6.94 57,129 7.77 75,955 7.50
------- ------- ------- ------- --------
Debt securities:
U.S. Government
obligations...... 3,516 6.91 4,654 7.49 995 6.41 -- -- 9,165 7.15
Agency
securities....... 824 6.15 2,998 7.12 17,034 7.63 -- -- 20,856 7.50
Other debt
obligations...... 4,999 6.07 2,271 5.43 760 7.06 -- -- 8,030 5.98
------- ------- ------- ------- --------
Total debt
securities... 9,339 6.39 9,923 6.91 18,789 7.54 -- -- 38,051 7.10
------- ------- ------- ------- --------
Equity Securities:
Preferred stock.... -- -- -- -- -- -- 205 6.70 205 6.70
Mutual funds....... 1,996 6.11 -- -- -- -- 4,094 11.52 6,090 9.75
------- ------- ------- ------- --------
Total equity
securities... 1,996 6.11 -- -- -- -- 4,299 11.29 6,295 9.65
------- ------- ------- ------- --------
Total
available-for-sale... 22,061 6.52 15,782 6.76 21,030 7.48 61,428 8.02 120,301 7.48
------- ------- ------- ------- --------
Total
securities... $22,426 6.50 $21,509 6.60 $21,030 7.48 $61,428 8.02 $126,393 7.42
======= ======= ======= ======= ========
</TABLE>
67
<PAGE> 69
SOURCES OF FUNDS
General. Deposits, borrowings, loan and security repayments and
prepayments, proceeds from sales of securities and cash flows generated from
operations are the primary sources of the Bank's funds for use in lending,
investing and for other general purposes. Management intends to increase its
deposit base through competitive pricing but continually evaluates wholesale
funding through FHLBNY advances and other sources, depending upon market
conditions. The Bank has only been a member of the FHLBNY since 1995, so this
additional source of funding was not historically available.
Deposits. The Bank offers a variety of deposit accounts with a range of
interest rates and terms. The Bank's deposits consist of regular (passbook)
savings accounts, statement savings accounts, checking accounts, NOW accounts,
basic banking accounts, money market accounts and certificates of deposit. In
recent years, the Bank has offered certificates of deposit with maturities of up
to 60 months. At May 31, 1997, the Bank's core deposits, which the Bank
considers to consist of checking accounts, NOW accounts, money market accounts,
regular savings accounts and statement savings accounts, constituted 66% of
total deposits. The flow of deposits is influenced significantly by general
economic conditions, changes in money market rates, prevailing interest rates
and competition. The Bank's deposits are obtained predominantly from the areas
in proximity to its office locations. The Bank relies primarily on customer
service and long-standing relationships with customers to attract and retain
these deposits; however, market interest rates and rates offered by competing
financial institutions significantly affect the Bank's ability to attract and
retain deposits. Certificate accounts in excess of $100,000 are not actively
solicited by the Bank, nor does the Bank use brokers to obtain deposits.
The following table presents the deposit activity of the Bank for the
periods indicated.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MAY 31,
--------------------------------
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Deposits..................................... $777,214 $817,610 $770,794
Withdrawals.................................. 796,578 822,470 755,487
-------- -------- --------
(Withdrawals) in excess of deposits.......... (19,364) (4,860) 15,307
Interest credited on deposits................ 7,610 8,814 6,177
-------- -------- --------
Net increase (decrease) in deposits.......... $(11,754) $ 3,954 $ 21,484
======== ======== ========
</TABLE>
At May 31, 1997 the Bank has $5.2 million in certificate of deposit
accounts in amounts of $100,000 or more, maturing as follows:
<TABLE>
<CAPTION>
WEIGHTED
AMOUNT AVERAGE RATE
------ ------------
(IN THOUSANDS)
<S> <C> <C>
Maturity Period
Three months or less................................. $1,754 4.97%
Over 3 through 6 months.............................. 922 5.01
Over 6 through 12 months............................. 2,124 5.43
Over 12 months....................................... 374 5.42
------
Total............................................. $5,174 5.21%
====== ====
</TABLE>
68
<PAGE> 70
The following table sets forth the distribution of the Bank's deposit
accounts and the related weighted average interest rates at the dates indicated.
<TABLE>
<CAPTION>
AT MAY 31,
------------------------------------------------------------------------------------------------
1997 1996 1995
------------------------------ ------------------------------ ------------------------------
WEIGHTED WEIGHTED WEIGHTED
PERCENT AVERAGE PERCENT AVERAGE PERCENT AVERAGE
AVERAGE OF TOTAL NOMINAL AVERAGE OF TOTAL NOMINAL AVERAGE OF TOTAL NOMINAL
BALANCE DEPOSITS RATE BALANCE DEPOSITS RATE BALANCE DEPOSITS RATE
-------- -------- -------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Checking accounts.......... $ 18,629 8.54% -- $ 18,834 8.18% -- $ 18,362 8.68% --
Passbook accounts.......... 78,132 39.18 3.00% 77,868 36.84 3.00% 87,962 45.54 3.00%
NOW accounts............... 7,040 3.53 2.25 7,095 3.36 2.25 6,902 3.57 2.25
Interest-on-checking
accounts................. 7,077 3.55 1.00 5,543 2.62 1.00 2,955 1.53 1.00
-------- ------ -------- ------ -------- ------
Total passbook, NOW and
interest-on-checking
accounts................. 92,249 46.25 2.79 90,506 42.82 2.82 97,819 50.64 2.89
-------- ------ -------- ------ -------- ------
Money market accounts...... 27,017 13.55 3.27 28,674 13.57 3.26 34,225 17.72 3.02
-------- ------ -------- ------ -------- ------
Certificate accounts:
Certificates of
deposit -- one year and
less................... 59,118 29.64 4.98 69,453 32.86 5.74 40,825 21.13 5.35
IRA Certificates of
deposit -- one year and
less................... 7,330 3.68 5.13 7,200 3.41 5.83 5,970 3.09 4.82
Certificates of
deposit -- more than
one year............... 7,603 3.81 5.16 7,595 3.59 5.17 6,879 3.56 4.29
IRA Certificates of
deposit -- more than
one year............... 5,104 2.56 5.35 5,584 2.64 5.53 5,331 2.76 4.95
-------- ------ -------- ------ -------- ------
Total certificates..... 79,155 39.69 5.03 89,832 42.50 5.69 59,005 30.55 5.12
-------- ------ -------- ------ -------- ------
Escrow deposits...... 1,020 0.51 2.00 2,346 1.11 2.00 2,122 1.10 2.00
-------- ------ -------- ------ -------- ------
Total deposits..... $218,070 100.00% 3.42% $230,192 100.00% 3.76% $211,533 100.00% 3.27%
======== ====== ======== ====== ======== ======
</TABLE>
The following table presents, by interest rate ranges, the amount of
certificate accounts outstanding at the dates indicated and the period to
maturity of the certificate accounts outstanding at May 31, 1997.
<TABLE>
<CAPTION>
AT MAY 31,
-------------------------------
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Certificate accounts:
3.99% or less............................................... $ -- $ -- $ 7,098
4.00% to 4.99%.............................................. 8,505 34,167 10,469
5.00% to 5.99%.............................................. 65,816 47,516 25,846
6.00% to 6.99%.............................................. 717 3,091 48,032
7.00% to 7.99%.............................................. -- 776 1,120
8.00% to 8.99%.............................................. -- -- 201
------- ------- -------
Total............................................... $75,038 $85,550 $92,766
======= ======= =======
</TABLE>
Borrowings. The Bank historically had not used borrowings as a source of
funds. However, the Bank became a member of the FHLBNY in 1995 and has used this
source considerably since. FHLBNY advances may also be used to acquire certain
other assets as may be deemed appropriate for investment purposes, including
leveraging opportunities. This form of leveraging allows for a reasonable net
margin of return, the majority of which is locked in for a specified period.
Since the locked-in period might cover only a part of the investment's term (up
to its call date in the majority of the transactions), such a practice might
result in limited degree of interest rate risk, since the earlier maturing
borrowings are required to be rolled over to fund the remaining lives of the
particular investments. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Management of Interest Rate Risk." FHLBNY
advances are to be
69
<PAGE> 71
collateralized primarily by certain of the Bank's mortgage loans and
mortgage-backed securities and secondarily by the Bank's investment in capital
stock of the FHLBNY. See "Regulation and Supervision -- Federal Home Loan Bank
System." Such advances may be made pursuant to several different credit
programs, each of which has its own interest rate and range of maturities. The
maximum amount that the FHLBNY will advance to member institutions, including
the Bank, fluctuates from time to time in accordance with the policies of the
FHLBNY. At May 31, 1997, the Bank had $5.3 million in FHLBNY advances and the
capability to borrow additional funds of $28.8 million upon complying with the
FHLBNY collateral requirements. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
The Bank at times sells securities under agreements to repurchase, which
transactions are treated as financings, and the obligation to repurchase the
securities sold is reflected as a liability in the statements of financial
condition. The dollar amount of securities underlying the agreements remains in
the asset account and are held in safekeeping. There were $23.1 million, $4.7
million and $0 of securities sold under repurchase agreements outstanding at May
31, 1997, 1996 and 1995, respectively.
The following table sets forth certain information regarding borrowed funds
for the dates indicated.
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED MAY
31,
-----------------------------
1997 1996 1995
------- ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
FHLBNY Advances:
Average balance outstanding................................... $11,563 $ 388 $ --
Maximum amount outstanding at any month-end during the
period..................................................... 17,450 3,600 --
Balance outstanding at end of period.......................... 5,250 3,600 --
Weighted-average interest rate during the period.............. 5.53% 5.41% --
Weighted-average interest rate at end of period............... 5.71% 6.00% --
Other Borrowings:
Average balance outstanding................................... $19,685 $ 101 $ 875
Maximum amount outstanding at any month-end during the
period..................................................... 23,300 4,700 4,500
Balance outstanding at end of period.......................... 23,090 4,700 --
Weighted-average interest rate during the period.............. 6.20% 6.32% 5.82%
Weighted-average interest rate at end of period............... 6.50% 6.32% --
Total Borrowings:
Average balance outstanding................................... $31,249 $ 489 $ 906
Maximum amount outstanding at any month-end................... 38,850 8,300 4,500
Balance outstanding at end of period.......................... 28,340 8,300 --
Weighted-average interest rate during the period.............. 6.10% 5.60% 5.89%
Weighted-average interest rate at end of period............... 6.30% 6.18% --
</TABLE>
SUBSIDIARY ACTIVITIES
The Bank has three wholly owned subsidiaries, WSB Financial, Warsave
Development, Inc. ("Warsave") and WSB Mortgage. The Bank offers mutual funds and
tax deferred annuities through WSB Financial to the Bank's customers and members
of the community. WSB Financial contributed $92 thousand, $90 thousand and $151
thousand in net income, before taxes, to the Bank's net income in the fiscal
years ended May 31, 1997, 1996 and 1995, respectively.
Warsave was formed to acquire and hold real estate. Its single asset as of
May 31, 1997 is a two-story house situated adjacent to the Bank's Warwick
office. The building, which may ultimately be used for future expansion, is
presently rented for the purpose of generating rental income.
WSB Mortgage was recently formed and has applied for the approval of the
New Jersey Department of Banking to commence mortgage banking operations in that
state.
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<PAGE> 72
PROPERTIES
The Bank conducts its business through its main office in Warwick, New York
and its three branch offices located in Monroe, Woodbury and Middletown, New
York. On August 29, 1997, the Bank acquired a five-acre parcel of land located
approximately one-half mile from its present Middletown location. The Bank
intends to construct a new 14,000 square foot building and maintain a
full-service branch office with drive-up and ATM facilities and ample parking to
serve its commercial and retail customers. Upon receipt of required regulatory
approvals, the Bank intends to close its existing Middletown branch and relocate
to the new facility, which is expected to be completed and available for
occupancy during the first quarter of fiscal 1998. In addition, the Bank intends
to relocate its commercial lending operations from its Warwick office to this
new facility. Management expects approximately 7,000 square feet of the building
will be rented to professional companies, including a local accounting firm that
management believes will help to complement its business. The costs associated
with the Bank's relocation of its Middletown branch are estimated to be
approximately $2.7 million.
Management believes that the Bank's current facilities, including the
relocation of the Middletown branch office, are adequate to meet the present and
immediately foreseeable needs of the Bank and the Company. However, the Bank has
plans to open additional branch offices and intends to conduct comprehensive
market studies shortly following the Conversion for the purpose of identifying
locations for the establishment or acquisition of other branch offices to expand
the Bank's activities.
The following sets forth the Bank's branches and loan production offices at
May 31, 1997, including the loan production office opened in New Jersey in
connection with its application to the New Jersey Banking Department to commence
mortgage banking activities in that state.
<TABLE>
<CAPTION>
LEASED DATE LEASE NET BOOK
OR LEASED OR EXPIRATION VALUE AT
OWNED ACQUIRED DATE MAY 31, 1997
-------- ---------- ---------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Main Office:
18 Oakland Avenue
Warwick, New York 10990.................... Owned 1972 N/A $749.3
Branches:
591 Route 17M
Monroe, New York 10950..................... Owned 1976 N/A 442.6
556 Route 32
Highland Mills, New York 10930............. Owned 1979 N/A 204.0
The Galleria at Crystal Run
1N Galleria Drive, Suite 137
Middletown, New York 10941................. Leased 1991 06/30/98 186.1
Loan Production Offices:
Taconic Plaza Shopping Center,
Store # 10
Route 52
East Fishkill, New York 12533.............. Leased 1997 01/31/98 --
151 South Main Street, Suite 104
New City, New York......................... Leased 1997 04/30/98 --
1435 Union Valley Road, 1st Floor
West Milford, New Jersey................... Leased 1997 04/30/98 --
</TABLE>
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<PAGE> 73
LEGAL PROCEEDINGS
The Bank is not involved in any pending legal proceedings other than
routine legal proceedings occurring in the ordinary course of business. Such
routine legal proceedings in the aggregate are believed by management to be
immaterial to the Bank's and Company's financial condition and results of
operations.
PERSONNEL
As of May 31, 1997, the Bank had 101 full-time and 37 part-time employees.
The Bank has experienced a very low turnover rate among its employees and, as of
May 31, 1997, 57 of the Bank's employees had been with the Bank for more than
five years. The employees are not represented by a collective bargaining unit,
and the Bank considers its relationship with its employees to be good. See
"Management of the Bank -- Benefits" for a description of certain compensation
and benefit programs offered to the Bank's employees.
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<PAGE> 74
FEDERAL AND STATE TAXATION
FEDERAL TAXATION
General. The following is a discussion of material federal income tax
matters and does not purport to be a comprehensive description of the federal
income tax rules applicable to the Bank or the Company. The Bank has been
audited by the IRS for the tax years ending December 31, 1993 and December 31,
1995 (in progress). For federal income tax purposes, after the Conversion, the
Company and the Bank may file consolidated income tax returns and report their
income on a fiscal year basis using the accrual method of accounting and will be
subject to federal income taxation in the same manner as other corporations with
some exceptions, including particularly the Bank's tax reserve for bad debts,
discussed below.
Tax Bad Debt Reserves. The Small Business Job Protection Act of 1996 ("the
1996 Act"), which was enacted on August 20, 1996, made significant changes to
provisions of the Code relating to a savings institution's use of bad debt
reserves for federal income tax purposes and requires such institutions to
recapture (i.e., take into income) certain portions of their accumulated bad
debt reserves. The effect of the 1996 Act on the Bank is discussed below. Prior
to the enactment of the 1996 Act, the Bank was permitted to establish tax
reserves for bad debts and to make annual additions thereto, which additions,
within specified formula limits, were deducted in arriving at the Bank's taxable
income. The Bank's deduction with respect to "qualifying loans," which are
generally loans secured by certain interests in real property, was permitted to
be computed using an amount based on a six-year moving average of the Bank's
charge-offs for actual losses ("Experience Method"), or a percentage equal to 8%
of the Bank's taxable income ("PTI Method"), computed without regard to this
deduction and with additional modifications and reduced by the amount of any
permitted addition to the non-qualifying reserve. The Bank's deduction with
respect to non-qualifying loans was required to be computed under the Experience
Method. Each year the Bank reviewed the most favorable way to calculate the
deduction attributable to an addition to the tax bad debt reserves.
The 1996 Act. Under the 1996 Act, the PTI Method was repealed for thrifts
and the Bank, as a "small bank" (one with assets having an adjusted basis of
$500 million or less) will be required to use the Experience Method of computing
additions to its bad debt reserves for the tax year beginning January 1, 1996.
In addition, the Bank will be required to recapture (i.e., take into income)
over a six-year period the excess of the balance of its bad debt reserves for
losses on non-qualifying and qualifying loans as of December 31, 1995 over the
greater of (a) the balance of such reserves as of December 31, 1987 or (b) an
amount that would have been the balance of such reserves as of December 31, 1995
had the Bank always computed the additions to its reserves using the Experience
Method. However, such recapture requirements were suspended for each of the two
successive taxable years beginning January 1, 1996 in which the Bank originates
a minimum amount of certain residential loans during such years that is not less
than the average of the principal amounts of such loans made by the Bank during
its six taxable years preceding January 1, 1996. The Bank's post-December 31,
1987 nonqualifying and qualifying bad debt reserves at May 31, 1997 was
approximately $850,000 which will require the Bank to report an additional tax
liability of approximately $289,000. As of May 31, 1997, this liability has
already been provided and will not require an adverse impact to the Bank's
financial condition or results of operations.
Distributions. Under the 1996 Act, if the Bank makes "non-dividend
distributions" to the Company, such distributions will be considered to have
been made from the Bank's unrecaptured tax bad debt reserves (including the
balance of its reserves as of December 31, 1987) and then from the Bank's
supplemental reserve for losses on loans, to the extent thereof, and an amount
based on the amount distributed (but not in excess of the amount of such
reserves) will be included in the Bank's income. Non-dividend distributions
include distributions in excess of the Bank's current and accumulated earnings
and profits, as calculated for federal income tax purposes, distributions in
redemption of stock, and distributions in partial or complete liquidation.
Dividends paid out of the Bank's current or accumulated earnings and profits
will not be so included in the Bank's income.
The amount of additional taxable income created from a non-dividend
distribution is an amount that, when reduced by the tax attributable to the
income, is equal to the amount of the distribution. Thus, if, after
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<PAGE> 75
the Conversion, the Bank makes a non-dividend distribution to the Company,
approximately one and one-half times the amount of such distribution (but not in
excess of the amount of such reserves) would be includible in income for federal
income tax purposes, assuming a 34% federal corporate income tax rate. See
"Regulation and Supervision" and "Dividend Policy" for limits on the payment of
dividends by the Bank. The Bank does not intend to pay dividends that would
result in a recapture of any portion of its tax bad debt reserves.
Corporate Alternative Minimum Tax. The Code imposes a tax ("AMT") on
alternative minimum taxable income ("AMTI") at a rate of 20%. Only 90% of AMTI
can be offset by net operating loss carryovers of which the Bank currently has
none. AMTI is also adjusted by determining the tax treatment of certain items in
a manner that negates the deferral of income resulting from the regular tax
treatment of those items. Thus, the Bank's AMTI is increased by an amount equal
to 75% of the amount by which the Bank's adjusted current earnings exceeds its
AMTI (determined without regard to this adjustment and prior to reduction for
net operating losses). The Bank does not expect to be subject to the AMT.
Elimination of Dividends; Dividends Received Deduction. The Company may
exclude from its income 100% of dividends received from the Bank as a member of
the same affiliated group of corporations.
STATE TAXATION
New York State Taxation. The Bank is subject to the New York State
Franchise Tax on Banking Corporations in an annual amount equal to the greater
of (i) 9% of the Bank's "entire net income" allocable to New York State during
the taxable year, or (ii) the applicable alternative minimum tax. The
alternative minimum tax is generally the greatest of (a) 0.01% of the value of
the taxable assets allocable to New York State with certain modifications, (b)
3% of the Bank's "alternative entire net income" allocable to New York State or
(c) $250. Entire net income is similar to federal taxable income, subject to
certain modifications and alternative entire net income is equal to entire net
income without certain adjustments. For purposes of computing its entire net
income, the Bank is permitted a deduction for an addition to the reserve for
losses on qualifying real property loans. For New York State purposes, the
applicable percentage to calculate bad debt deduction under the percentage of
taxable income method is 32%.
New York State passed legislation in August 1996 that incorporated into New
York State tax law provisions for the continued use of bad debt reserves in a
manner substantially similar to the provisions that applied under federal law
prior to the enactment of the 1996 Act discussed above. This legislation enabled
the Bank to avoid the recapture of the New York State tax bad debt reserves that
otherwise would have occurred as a result of the changes in federal law and to
continue to utilize the reserve method for computing its bad debt deduction.
However, the New York bad debt reserve is subject to recapture for "non-dividend
distributions" in a manner similar to the recapture of federal bad debt reserves
for such distributions. See "-- Federal Taxation -- Distributions." Also, the
New York bad debt reserve is subject to recapture in the event that the Bank
fails to satisfy certain definitional tests relating to its assets and the
nature of its business.
A Metropolitan Business District Surcharge on banking corporations doing
business in the metropolitan district has been applied since 1982. The Bank does
all of its business within this District and is subject to this surcharge. For
the tax year ending December 31, 1997 the surcharge rate is 17%.
Delaware State Taxation. As a Delaware holding company not earning income
in Delaware, the Company is exempted from Delaware Corporate income tax but is
required to file annual returns and pay annual fees and a franchise tax to the
State of Delaware.
REGULATION AND SUPERVISION
GENERAL
The Bank is a New York mutual savings bank, and its deposit accounts are
insured up to applicable limits by the FDIC under the BIF. The Bank is subject
to extensive regulation by the NYSBD as its chartering agency, and by the FDIC
as the deposit insurer. The Bank must file reports with the NYSBD and the FDIC
concerning its activities and financial condition, and it must obtain regulatory
approval prior to entering into
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<PAGE> 76
certain transactions, such as mergers with, or acquisitions of, other depository
institutions and opening or acquiring branch offices. The NYSBD and the FDIC
conduct periodic examinations to assess the Bank's compliance with various
regulatory requirements. This regulation and supervision establishes a
comprehensive framework of activities in which a savings bank can engage and is
intended primarily for the protection of the deposit insurance funds and
depositors. The regulatory structure also gives the regulatory authorities
extensive discretion in connection with their supervisory and enforcement
activities and examination policies, including policies with respect to the
classification of assets and the establishment of adequate loan loss reserves
for regulatory purposes. Any change in such regulation, whether by the NYSBD or
the FDIC or through legislation, could have a material adverse impact on the
Company and the Bank and their operations and stockholders. The Company is also
required to file certain reports with, and otherwise comply with, the rules and
regulations of the FRB and the NYSBD and with the rules and regulations of the
SEC under the federal securities laws.
Certain of the laws and regulations applicable to the Bank and to the
Company are summarized below or elsewhere herein. These summaries do not purport
to be complete and are qualified in their entirety by reference to such laws and
regulations.
NEW YORK BANKING REGULATION
Activity Powers. The Bank derives its lending, investment and other
activity powers primarily from the applicable provisions of Banking Law and the
regulations adopted thereunder. Under these laws and regulations, savings banks,
including the Bank, may invest in real estate mortgages, consumer and commercial
loans, certain types of debt securities, including certain corporate debt
securities and obligations of federal, state and local governments and agencies,
certain types of corporate equity securities and certain other assets. A savings
bank may also exercise trust powers upon approval of the Banking Department. The
exercise of these lending, investment and activity powers are limited by federal
law and the regulations thereunder. See "-- Federal Banking
Regulation -- Activity Restrictions on State-Chartered Banks."
Loans-to-One-Borrower Limitations. With certain limited exceptions, a New
York chartered savings bank may not make loans or extend credit for commercial,
corporate or business purposes (including lease financing) to a single borrower
and to certain entities related to the borrower, the aggregate amount of which
would exceed 15% of the bank's net worth, plus an additional 10% of the bank's
net worth if secured by the requisite collateral. The Bank currently complies
with all applicable loans-to-one-borrower limitations.
Community Reinvestment Act. The Bank is also subject to provisions of the
Banking Law that, like the provisions of the federal Community Reinvestment Act
("CRA"), impose continuing and affirmative obligations upon a banking
institution organized in the State of New York to serve the credit needs of its
local community ("NYCRA"). The obligations of the NYCRA are similar to those
imposed by the CRA. Pursuant to the NYCRA, a bank must file with the Banking
Department an annual NYCRA report and copies of all federal CRA reports. The
NYCRA requires the Banking Department to make an annual written assessment of a
bank's compliance with the NYCRA, utilizing a four-tiered rating system with
respect to 5 performance categories and 12 other factors, and to make such
assessment available to the public. The Bank's latest NYCRA rating, received by
letter dated March 29, 1996 from the Banking Department, was a rating of
"Satisfactory". The NYCRA also requires the Superintendent to consider a bank's
NYCRA rating when reviewing a bank's application to engage in certain
transactions, including mergers, asset purchases and the establishment of branch
offices or automated teller machines, and provides that such assessment may
serve as a basis for the denial of any such application. The regulations
currently implementing the NYCRA require the Superintendent to the utilize a
four-tiered rating system with respect to 5 performance categories and 12 other
factors, and the Superintendent's analysis focuses on a bank's activities in
complying with the NYCRA. The Superintendent has recently proposed replacing the
current process-focused regulations with performance-focused regulations that
are intended to parallel the current CRA regulations of the federal banking
agencies and to promote consistency in CRA evaluations by considering more
objective criteria.
Dividends. Under the Banking Law, the Bank, as a stock savings bank, will
not be able to declare, credit or pay any dividends if such dividends would
result in any impairment of capital stock. In addition, the
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Banking Law provides that, without regulatory approval, the Bank cannot declare
and pay dividends in any calendar year in excess of its "net profits" for such
year combined with its "retained net profits" of the two preceding years, less
any required transfer to surplus or a fund for the retirement of preferred
stock.
Enforcement. Under the Banking Law, the Superintendent may issue an order
to a New York-chartered banking institution to appear and explain an apparent
violation of law, to discontinue unauthorized or unsafe practices and to keep
prescribed books and accounts. Upon a finding by the Superintendent that any
director, trustee or officer of any banking organization has violated any law,
or has continued unauthorized or unsafe practices in conducting the business of
the banking organization after having been notified by the Superintendent to
discontinue such practices, the Superintendent may remove such director, trustee
or officer from office after notice and an opportunity to be heard. The Bank
does not know of any past or current practice, condition or violation that might
lead to any proceeding by the Superintendent or the Banking Department against
the Bank or any of its trustees or officers.
FEDERAL BANKING REGULATION
Capital Requirements. FDIC regulations require BIF-insured banks, such as
the Bank, to maintain minimum levels of capital. The regulations establish a
minimum leverage capital requirement of not less than 3.0% Tier 1 capital to
total assets for banks in the strongest financial and managerial condition, with
a CAMEL Rating of 1 (the highest examination rating of the FDIC for banks). For
all other banks, the minimum leverage capital requirement is 3% plus an
additional cushion of at least 100 to 200 basis points. Tier 1 capital is
comprised of the sum of common stockholders' equity (excluding the net
unrealized appreciation or depreciation, net of tax, from available-for-sale
securities), non-cumulative perpetual preferred stock (including any related
surplus) and minority interests in consolidated subsidiaries, minus all
intangible assets (other than qualifying servicing rights), and any net
unrealized loss on marketable equity securities.
The FDIC also requires that savings banks meet a risk-based capital
standard. The risk-based capital standard requires the maintenance of total
capital (which is defined as Tier 1 capital and Tier 2 capital) to risk-weighted
assets of at least 8% and Tier 1 capital to risk-weighted assets of at least 4%.
In determining the amount of risk-weighted assets, all assets, plus certain off
balance sheet items, are multiplied by a risk-weight of 0% to 100%, based on the
risks the FDIC believes are inherent in the type of asset or item. The
components of Tier 1 capital are equivalent to those discussed above under the
3% leverage requirement. The components of Tier 2 capital currently include
cumulative perpetual preferred stock, certain perpetual preferred stock for
which the dividend rate may be reset periodically, mandatory convertible
securities, subordinated debt, intermediate preferred stock and allowance for
possible loan losses. Allowance for possible loan losses includible in Tier 2
capital is limited to a maximum of 1.25% of risk-weighted assets. Overall, the
amount of Tier 2 capital that may be included in total capital cannot exceed
100% of Tier 1 capital.
The federal banking agencies, including the FDIC, have also adopted
regulations to require an assessment of an institution's exposure to declines in
the economic value of a bank's capital due to changes in interest rates when
assessing the bank's capital adequacy. Under such a risk assessment, examiners
will evaluate a bank's capital for interest rate risk on a case-by-case basis,
with consideration of both quantitative and qualitative factors. According to
the agencies, applicable considerations include the quality of the bank's
interest rate risk management process, the overall financial condition of the
bank and the level of other risks at the bank for which capital is needed.
Institutions with significant interest rate risk may be required to hold
additional capital. The agencies also issued a joint policy statement providing
guidance on interest rate risk management, including a discussion of the
critical factors affecting the agencies' evaluation of interest rate risk in
connection with capital adequacy. The agencies determined not to proceed with a
previously issued proposal to develop a supervisory framework for measuring
interest rate risk and an explicit capital component for interest rate risk.
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The following table shows the Bank's leverage ratio, its Tier 1 risk-based
capital ratio, and its total risk-based capital ratio, at May 31, 1997 on a
historical basis and a pro forma basis assuming the sale of shares at the
maximum of the Estimated Price Range.
<TABLE>
<CAPTION>
AT MAY 31, 1997
---------------------------------------------------------------------------
HISTORICAL PERCENT OF PRO FORMA PERCENT OF CAPITAL PERCENT OF
CAPITAL ASSETS(1) CAPITAL ASSETS REQUIREMENT ASSETS(1)
---------- ---------- --------- ---------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Regulatory Tier 1 leverage
capital.......................... $ 27,495 9.53% $48,142 15.57% $12,366 4.0%
Tier 1 risk-based capital.......... 27,495 19.46 48,142 29.73 6,478 4.0
Total risk-based capital........... 28,726 20.33 49,373 30.49 12,956 8.0
</TABLE>
- ---------------
(1) For purpose of calculating Regulatory Tier 1 leverage capital, assets
include adjusted total average assets. In calculating Tier 1 risked-based
capital and total risk-based capital, assets include total risk-weighted
assets.
As the preceding table shows, the Bank exceeded the minimum capital adequacy
requirements at the date indicated.
Activity Restrictions on State-Chartered Banks. Section 24 of the Federal
Deposit Insurance Act, as amended ("FDIA"), which was added by FDICIA, generally
limits the activities and investments of state-chartered FDIC insured banks and
their subsidiaries to those permissible for federally chartered national banks
and their subsidiaries, unless such activities and investments are specifically
exempted by Section 24 or consented to by the FDIC.
Section 24 provides an exception for investments by a bank in common and
preferred stocks listed on a national securities exchange or the shares of
registered investment companies if (1) the bank held such types of investments
during the 14-month period from September 30, 1990 through November 26, 1991,
(2) the state in which the bank is chartered permitted such investments as of
September 30, 1991, and (3) the bank notifies the FDIC and obtains approval from
the FDIC to make or retain such investments. Upon receiving such FDIC approval,
an institution's investment in such equity securities will be subject to an
aggregate limit up to the amount of its Tier 1 capital. The Bank received
approval from the FDIC to retain and acquire such equity investments subject to
a maximum permissible investment equal to the lesser of 100% of the Bank's Tier
1 capital or the maximum permissible amount specified by the Banking Law.
Section 24 also contains an exception for certain majority owned subsidiaries,
but the activities of such subsidiaries are limited to those permissible for a
national bank, permissible under Section 24 of the FDIA and the FDIC regulations
issued pursuant thereto, or as approved by the FDIC.
Any bank that held an impermissible investment or engaged in an
impermissible activity and that did not receive FDIC approval to retain such
investment or to continue such activity was required to submit to the FDIC a
plan for divesting of such investment or activity as quickly and prudently as
possible. Before making a new investment or engaging in a new activity not
permissible for a national bank or otherwise permissible under Section 24 or the
FDIC regulations thereunder, an insured bank must seek approval from the FDIC to
make such investment or engage in such activity. The FDIC will not approve the
activity unless such bank meets its minimum capital requirements and the FDIC
determines that the activity does not present a significant risk to the FDIC
insurance funds.
Enforcement. The FDIC has extensive enforcement authority over insured
savings banks, including the Bank. This enforcement authority includes, among
other things, the ability to assess civil money penalties, to issue cease and
desist orders and to remove directors and officers. In general, these
enforcement actions may be initiated in response to violations of laws and
regulations and to unsafe or unsound practices.
The FDIC is required, with certain exceptions, to appoint a receiver or
conservator for an insured state bank if that bank is "critically
undercapitalized." For this purpose, "critically undercapitalized" means having
a ratio of tangible capital to total assets of less than 2%. See "-- Prompt
Corrective Action." The FDIC may also appoint a conservator or receiver for a
state bank on the basis of the institution's financial condition or upon the
occurrence of certain events, including: (i) insolvency (whereby the assets of
the bank are less than
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its liabilities to depositors and others); (ii) substantial dissipation of
assets or earnings through violations of law or unsafe or unsound practices;
(iii) existence of an unsafe or unsound condition to transact business; (iv)
likelihood that the bank will be unable to meet the demands of its depositors or
to pay its obligations in the normal course of business; and (v) insufficient
capital, or the incurring or likely incurring of losses that will deplete
substantially all of the institution's capital with no reasonable prospect of
replenishment of capital without federal assistance.
Deposit Insurance. Pursuant to FDICIA, the FDIC established a system for
setting deposit insurance premiums based upon the risks a particular bank or
savings association posed to its deposit insurance funds. Under the risk-based
deposit insurance assessment system, the FDIC assigns an institution to one of
three capital categories based on the institution's financial information, as of
the reporting period ending six months before the assessment period, consisting
of (1) well capitalized, (2) adequately capitalized or (3) undercapitalized, and
one of three supervisory subcategories within each capital group. With respect
to the capital ratios, institutions are classified as well capitalized, or
adequately capitalized using ratios that are substantially similar to the prompt
corrective action capital ratios discussed below. Any institution that does not
meet these two definitions is deemed to be undercapitalized for this purpose.
The supervisory subgroup to which an institution is assigned is based on a
supervisory evaluation provided to the FDIC by the institution's primary federal
regulator and information that the FDIC determines to be relevant to the
institution's financial condition and the risk posed to the deposit insurance
funds (which may include, if applicable, information provided by the
institution's state supervisor). An institution's assessment rate depends on the
capital category and supervisory category to which it is assigned. Under the
final risk-based assessment system, there are nine assessment risk
classifications (i.e., combinations of capital groups and supervisory subgroups)
to which different assessment rates are applied. Assessments rates for deposit
insurance currently range from 0 basis points to 27 basis points. The capital
and supervisory subgroup to which an institution is assigned by the FDIC is
confidential and may not be disclosed. A bank's rate of deposit insurance
assessments will depend upon the category and subcategory to which the bank is
assigned by the FDIC. Any increase in insurance assessments could have an
adverse effect on the earnings of the Bank.
Under the Deposit Insurance Funds Act of 1996 ("Funds Act"), the assessment
base for the payments on the bonds ("FICO bonds") issued in the late 1980's by
the Financing Corporation to recapitalize the now defunct Federal Savings and
Loan Insurance Corporation was expanded to include, beginning January 1, 1997,
the deposits of BIF-insured institutions, such as the Bank. Until December 31,
1999, or such earlier date on which the last savings association ceases to
exist, the rate of assessment for BIF-assessable deposits shall be one-fifth of
the rate imposed on deposits insured by the Savings Association Insurance Fund
("SAIF"). The annual rate of assessments for the payments on the FICO bonds for
the semi-annual period beginning on January 1, 1997 was 0.0130% for
BIF-assessable deposits and 0.0648% for SAIF-assessable deposits and for the
semi-annual period beginning on July 1, 1997 was 0.0126% for BIF-assessable
deposits and 0.0630% for SAIF-assessable deposits.
Under the FDIA, insurance of deposits may be terminated by the FDIC upon a
finding that the institution has engaged in unsafe or unsound practices, is in
an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule, order or condition imposed by the FDIC. The
management of the Bank does not know of any practice, condition or violation
that might lead to termination of deposit insurance.
Transactions with Affiliates of the Bank. Transactions between an insured
bank, such as the Bank, and any of its affiliates is governed by Sections 23A
and 23B of the Federal Reserve Act. An affiliate of a bank is any company or
entity that controls, is controlled by or is under common control with the bank.
Currently, a subsidiary of a bank that is not also a depository institution is
not treated as an affiliate of the bank for purposes of Sections 23A and 23B,
but the FRB has proposed treating any subsidiary of a bank that is engaged in
activities not permissible for bank holding companies under the Bank Holding
Company Act of 1956, as amended ("BHCA"), as an affiliate for purposes of
Sections 23A and 23B. Generally, Sections 23A and 23B (i) limit the extent to
which the bank or its subsidiaries may engage in "covered transactions" with any
one affiliate to an amount equal to 10% of such institution's capital stock and
surplus, and limit on all such transactions with all affiliates to an amount
equal to 20% of such capital stock and surplus and (ii) require that
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<PAGE> 80
all such transactions be on terms that are consistent with safe and sound
banking practices. The term "covered transaction" includes the making of loans,
purchase of assets, issuance of guarantees and other similar types of
transactions. Further, most loans by a bank to any of its affiliate must be
secured by collateral in amounts ranging from 100 to 130 percent of the loan
amounts. In addition, any covered transaction by a bank with an affiliate and
any purchase of assets or services by a bank from an affiliate must be on terms
that are substantially the same, or at least as favorable, to the institution as
those that would be provided to a non-affiliate.
Prohibitions Against Tying Arrangements. Banks are subject to the
prohibitions of 12 U.S.C. sec. 1972 on certain tying arrangements and extensions
of credit by correspondent banks. In general, a depository institution is
prohibited, subject to certain exceptions, from extending credit to or offering
any other service, or fixing or varying the consideration for such extension of
credit or service, on the condition that the customer obtain some additional
service from the institution or certain of its affiliates or not obtain services
of a competitor of the institution.
Uniform Real Estate Lending Standards. Pursuant to FDICIA, the federal
banking agencies adopted uniform regulations prescribing standards for
extensions of credit that are secured by liens on interests in real estate or
made for the purpose of financing the construction of a building or other
improvements to real estate. Under the joint regulations adopted by the banking
agencies, all financial institutions must adopt and maintain written policies
that establish appropriate limits and standards for extensions of credit that
are secured by liens or interests in real estate or are made for the purpose of
financing permanent improvements to real estate. These policies must establish
loan portfolio diversification standards, prudent underwriting standards
(including loan-to-value limits) that are clear and measurable, loan
administration procedures, and documentation, approval and reporting
requirements. The real estate lending policies must reflect consideration of the
Interagency Guidelines for Real Estate Lending Policies ("Interagency
Guidelines") that have been adopted by the federal bank regulators.
The Interagency Guidelines, among other things, require a depository
institution to establish internal loan-to-value limits for real estate loans
that are not in excess of the following supervisory limits: (i) for loans
secured by raw land, the supervisory loan-to-value limit is 65% of the value of
the collateral; (ii) for land development loans (i.e., loans for the purpose of
improving unimproved property prior to the erection of structures), the
supervisory limit is 75%; (iii) for loans for the construction of commercial,
multi-family or other non-residential property, the supervisory limit is 80%;
(iv) for loans for the construction of one- to four-family properties, the
supervisory limit is 85%; and (v) for loans secured by other improved property
(e.g., farmland, completed commercial property and other income-producing
property including non-owner occupied, one- to four-family property), the limit
is 85%. Although no supervisory loan-to-value limit has been established for
owner-occupied, one to four-family and home equity loans, the Interagency
Guidelines state that for any such loan with a loan-to-value ratio that equals
or exceeds 90% at origination, an institution should require appropriate credit
enhancement in the form of either mortgage insurance or readily marketable
collateral.
Community Reinvestment Act. Under the CRA, as implemented by FDIC and FRB
regulations, a savings bank has a continuing and affirmative obligation
consistent with its safe and sound operation to help meet the credit needs of
its entire community, including low and moderate income neighborhoods. The CRA
does not establish specific lending requirements or programs for financial
institutions nor does it limit an institution's discretion to develop the types
of products and services that it believes are best suited to its particular
community. The CRA requires the FDIC, in connection with its examination of a
savings institution, to assess the institution's record of meeting the credit
needs of its community and to take such record into account in its evaluation of
certain applications by such institution.
In April 1995, the FDIC and the other federal banking agencies amended
their CRA regulations. Among other things, the amended CRA regulations
substitute for the prior process-based assessment factors a new evaluation
system that would rate an institution based on its actual performance in meeting
community needs. In particular, the proposed system would focus on three tests:
(a) a lending test, to evaluate the institution's record of making loans in its
service areas; (b) an investment test, to evaluate the institution's record of
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investing in community development projects, affordable housing, and programs
benefitting low or moderate income individuals and businesses; and (c) a service
test, to evaluate the institution's delivery of services through its branches,
ATMs, and other offices. Small banks would be assessed pursuant to a streamlined
approach focusing on a lesser range of information and performance standards.
The CRA requires the FDIC to provide a written evaluation of an
institution's CRA performance utilizing a four-tiered descriptive rating system
and requires public disclosure of an institution's CRA rating. The Bank's latest
CRA rating, received from the FDIC by letter dated December 4, 1995, was a
rating of "satisfactory."
Safety and Soundness Standards. Pursuant to the requirements of FDICIA, as
amended by the Riegle Community Development and Regulatory Improvement Act of
1994, each federal banking agency, including the FDIC, has adopted guidelines
establishing general standards relating to internal controls, information and
internal audit systems, loan documentation, credit underwriting, interest rate
exposure, asset growth, asset quality, earnings, and compensation, fees and
benefits. In general, the guidelines require, among other things, appropriate
systems and practices to identify and manage the risks and exposures specified
in the guidelines. The guidelines prohibit excessive compensation as an unsafe
and unsound practice and describe compensation as excessive when the amounts
paid are unreasonable or disproportionate to the services performed by an
executive officer, employee, director, or principal shareholder. In addition,
the FDIC adopted regulations to require a bank that is given notice by the FDIC
that it is not satisfying any of such safety and soundness standards to submit a
compliance plan to the FDIC. If, after being so notified, a bank fails to submit
an acceptable compliance plan or fails in any material respect to implement an
accepted compliance plan, the FDIC may issue an order directing corrective and
other actions of the types to which a significantly undercapitalized institution
is subject under the "prompt corrective action" provisions of FDICIA. If a bank
fails to comply with such an order, the FDIC may seek to enforce such an order
in judicial proceedings and to impose civil monetary penalties.
Prompt Corrective Action. FDICIA also established a system of prompt
corrective action to resolve the problems of undercapitalized institutions. The
FDIC, as well as the other federal banking regulators, adopted regulations
governing the supervisory actions that may be taken against undercapitalized
institutions. The regulations establish five categories, consisting of "well
capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized" and "critically undercapitalized." The FDIC's regulations
defines the five capital categories as follows: Generally, an institution will
be treated as "well capitalized" if its ratio of total capital to risk-weighted
assets is at least 10%, its ratio of Tier 1 capital to risk-weighted assets is
at least 6%, its ratio of Tier 1 capital to total assets is at least 5%, and it
is not subject to any order or directive by the FDIC to meet a specific capital
level. An institution will be treated as "adequately capitalized" if its ratio
of total capital to risk-weighted assets is at least 8%, its ratio of Tier 1
capital to risk-weighted assets is at least 4%, and its ratio of Tier 1 capital
to total assets is at least 4% (3% if the bank receives the highest rating on
the CAMEL financial institutions rating system) and it is not a well-capitalized
institution. An institution that has total risk-based capital of less than 8%,
Tier 1 risk-based-capital of less than 4% or a leverage ratio that is less than
4% (or less than 3% if the institution is rated a composite "1" under the CAMEL
rating system) would be considered to be "undercapitalized." An institution that
has total risk-based capital of less than 6%, Tier 1 capital of less than 3% or
a leverage ratio that is less than 3% would be considered to be "significantly
undercapitalized," and an institution that has a tangible capital to assets
ratio equal to or less than 2% would be deemed to be "critically
undercapitalized."
The severity of the action authorized or required to be taken under the
prompt corrective action regulations increases as a bank's capital deteriorates
within the three undercapitalized categories. All banks are prohibited from
paying dividends or other capital distributions or paying management fees to any
controlling person if, following such distribution, the bank would be
undercapitalized. The FDIC is required to monitor closely the condition of an
undercapitalized bank and to restrict the growth of its assets. An
undercapitalized bank is required to file a capital restoration plan within 45
days of the date the bank receives notice that it is within any of the three
undercapitalized categories, and the plan must be guaranteed by any parent
holding company. The aggregate liability of a parent holding company is limited
to the lesser of: (i) an amount equal to the five percent of the bank's total
assets at the time it became "undercapitalized," and
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(ii) the amount that is necessary (or would have been necessary) to bring the
bank into compliance with all capital standards applicable with respect to such
bank as of the time it fails to comply with the plan. If a bank fails to submit
an acceptable plan, it is treated as if it were "significantly
undercapitalized." Banks that are significantly or critically undercapitalized
are subject to a wider range of regulatory requirements and restrictions.
The FDIC has a broad range of grounds under which it may appoint a receiver
or conservator for an insured depositary bank. If one or more grounds exist for
appointing a conservator or receiver for a bank, the FDIC may require the bank
to issue additional debt or stock, sell assets, be acquired by a depository bank
holding company or combine with another depository bank. Under FDICIA, the FDIC
is required to appoint a receiver or a conservator for a critically
undercapitalized bank within 90 days after the bank becomes critically
undercapitalized or to take such other action that would better achieve the
purposes of the prompt corrective action provisions. Such alternative action can
be renewed for successive 90-day periods. However, if the bank continues to be
critically undercapitalized on average during the quarter that begins 270 days
after it first became critically undercapitalized, a receiver must be appointed,
unless the FDIC makes certain findings that the bank is viable.
LOANS TO A BANK'S INSIDERS
Federal Regulation. A bank's loans to its executive officers, directors,
any owner of 10% or more of its stock (each, an "insider") and any of certain
entities affiliated to any such person (an "insider's related interest") are
subject to the conditions and limitations imposed by Section 22(h) of the
Federal Reserve Act and the FRB's Regulation O thereunder. Under these
restrictions, the aggregate amount of the loans to any insider and the insider's
related interests may not exceed the loans-to-one-borrower limit applicable to
national banks, which is comparable to the loans-to-one-borrower limit
applicable to the Bank's loans for commercial, corporate or business purposes.
See "-- New York Banking Regulation -- Loans-to-One Borrower Limitations." All
loans by a bank to all such persons and related interests in the aggregate may
not exceed the bank's unimpaired capital and unimpaired surplus. Regulation O
also requires that any proposed loan to an insider or a related interest of that
insider be approved in advance by a majority of the board of directors of the
bank, with any interested director not participating in the voting, if such
loan, when aggregated with any existing loans to that insider and the insider's
related interests, would exceed either (a) $500,000 or (b) the greater of
$25,000 or 5% of the bank's unimpaired capital and surplus. Such loans must be
made on substantially the same terms as, and follow credit underwriting
procedures that are not less stringent than, those that are prevailing at the
time for comparable transactions with other persons.
In addition, provisions of the BHCA prohibit extensions of credit to a
bank's insiders and their related interests by any other institution that has a
correspondent banking relationship with the bank, unless such extension of
credit is on substantially the same terms as those prevailing at the time for
comparable transactions with other persons and does not involve more than the
normal risk of repayment or present other unfavorable features.
New York Regulation. Applicable New York law imposes conditions and
limitations on a stock savings bank's loans to its directors and executive
officers that are comparable in most respects to the conditions and limitations
imposed under federal law, as discussed above. However, there are a number of
differences. The New York law does not affect loans to shareholders owning 10%
or more of the savings bank's stock. Loans to an executive officer, other than
loans for the education of the officer's children and certain loans secured by
the officer's residence, may not exceed the lesser of (a) $100,000 or (b) the
greater of $25,000 or 2.5% of the bank's capital stock, surplus fund and
undivided profits.
FEDERAL HOME LOAN BANK SYSTEM
The Bank is a member of the FHLBNY, which is one of the 12 regional Federal
Home Loan Banks that comprise the FHLB system. Each of the Federal Home Loan
Banks are subject to supervision and regulation by the Federal Housing Finance
Board ("FHFB"), and each acts as a central credit facility primarily for its
member institutions. As a member of the FHLBNY, the Bank is required to acquire
and hold shares of capital
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stock in the FHLBNY in an amount at least equal to the greater of 1% of the
aggregate unpaid principal of its home mortgage loans, home purchase contracts,
and similar obligations at the beginning of each year, or 1/20 of its advances
(borrowings) from the FHLBNY. The Bank was in compliance with this requirement
with an investment in FHLBNY stock at May 31, 1997, of $1.7 million.
Each FHLB serves as a reserve or central bank for its member institutions
within its assigned region. Each is funded primarily from proceeds derived from
the sale of consolidated obligations of the FHLB System. It offers advances to
members in accordance with policies and procedures established by the FHFB and
the board of directors of the FHLB. Long-term advances may only be made for the
purpose of providing funds for residential housing finance.
FEDERAL RESERVE SYSTEM
Under FRB regulations, the Bank is required to maintain
non-interest-earning reserves against its transaction accounts (primarily NOW
and regular checking accounts). The FRB regulations generally require that
reserves of 3% must be maintained against aggregate transaction accounts of
$49.3 million or less (subject to adjustment by the FRB) and an initial reserve
of $1,479,000 plus 10% (subject to adjustment by the FRB between 8% and 14%)
against that portion of total transaction accounts in excess of $49.3 million.
The first $4.4 million of otherwise reservable balances (subject to adjustments
by the FRB) are exempted from the reserve requirements. The Bank is in
compliance with the foregoing requirements. Because required reserves must be
maintained in the form of either vault cash, a non-interest-bearing account at a
Federal Reserve Bank or a pass-through account as defined by the FRB, the effect
of this reserve requirement is to reduce the Bank's interest-earning assets.
HOLDING COMPANY REGULATION
Federal Regulation. Following the consummation of the Conversion, the
Company will be subject to examination, regulation and periodic reporting under
the BHCA, as administered 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 for the Bank. See, "Federal Regulation -- Capital
Requirements." On a pro forma basis after the Conversion, the Company's pro
forma total capital and Tier 1 capital ratios will exceed these minimum capital
requirements.
The Company will be required to obtain the prior approval of the FRB to
acquire all, or substantially all, of the assets of any bank or bank holding
company. Prior FRB approval will be required for the Company to acquire direct
or indirect ownership or control of any voting securities of any bank or bank
holding company if, after giving effect to such acquisition, it would, directly
or indirectly, own or control more than 5% of any class of voting shares of such
bank or bank holding company.
The Company will be required to give the FRB prior written notice of any
purchase or redemption of its outstanding equity securities if the gross
consideration for the purchase or redemption, when combined with the net
consideration paid for all such purchases or redemptions during the preceding 12
months, will be equal to 10% or more of the Company's consolidated net worth.
The FRB may disapprove such a purchase or redemption if it determines that the
proposal would constitute an unsafe and unsound practice, or would violate any
law, regulation, FRB order or directive, or any condition imposed by, or written
agreement with, the FRB. Such notice and approval is not required for a bank
holding company that would be treated as "well capitalized" under applicable
regulations of the FRB, that has received a composite "1" or "2" rating at its
most recent bank holding company inspection by the FRB, and that is not the
subject of any unresolved supervisory issues.
The status of the Company as a registered bank holding company under the
BHCA does not exempt it from certain federal and state laws and regulations
applicable to corporations generally, including, without limitation, certain
provisions of the federal securities laws.
In addition, a bank holding company is generally prohibited from engaging
in, or acquiring direct or indirect control of any company engaged in,
non-banking activities. One of the principal exceptions to this
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prohibition is for activities found by the FRB to be so closely related to
banking or managing or controlling banks as to be a proper incident thereto.
Some of the principal activities that the FRB has determined by regulation to be
so closely related to banking as to be a proper incident thereto are: (i) making
or servicing loans; (ii) performing certain data processing services; (iii)
providing discount brokerage services; (iv) acting as fiduciary, investment or
financial advisor, (v) leasing personal or real property; (vi) making
investments in corporations or projects designed primarily to promote community
welfare; and (vii) acquiring a savings and loan association.
Under the Financial Institutions Reform, Recovery, and Enforcement Act of
1989 ("FIRREA"), depository institutions are liable to the FDIC for losses
suffered or anticipated by the FDIC in connection with the default of a commonly
controlled depository institution or any assistance provided by the FDIC to such
an institution in danger of default. This law would have potential applicability
if the Company ever acquired as a separate subsidiary a depository institution
in addition to the Bank. There are no current plans for such an acquisition.
Subsidiary banks of a bank holding company are subject to certain
quantitative and qualitative restrictions imposed by the Federal Reserve Act on
any extension of credit to, or purchase of assets from, or letter of credit on
behalf of, the bank holding company or its subsidiaries, and on the investment
in or acceptance of stocks or securities of such holding company or its
subsidiaries as collateral for loans. In addition, provisions of the Federal
Reserve Act and FRB regulations limit the amounts of, and establish required
procedures and credit standards with respect to, loans and other extensions of
credit to officers, directors and principal shareholders of the Bank, the
Company, any subsidiary of the Company and related interests of such persons.
Moreover, banks are prohibited from engaging in certain tie-in arrangements
(with the bank's parent holding company or any of the holding company's
subsidiaries) in connection with any extension of credit, lease or sale of
property or furnishing of services.
New York Regulation. Under the Banking Law, certain companies owning or
controlling banks are regulated as a bank holding company. For the purposes of
the Banking Law, the term "bank holding company," is defined generally to
include any "company" that, directly or indirectly, either (a) controls the
election of a majority of the directors or (b) owns, controls or holds with
power to vote more than 10% of the voting stock of a bank holding company or, if
the company is a banking institution, another banking institution, or 10% or
more of the voting stock of each of two or more banking institutions. The term
"company" is defined to include corporations, partnerships and other types of
business entities, chartered or doing business in New York, and the term
"banking institution" is defined to include commercial banks, stock savings
banks and stock savings and loan associations. A company controlling, directly
or indirectly, only one banking institution will not be deemed to be a bank
holding company for the purposes of the Banking Law. Under the Banking Law, the
prior approval of the New York Banking Board is required before: (1) any action
is taken that causes any company to become a bank holding company; (2) any
action is taken that causes any banking institution to become or to be merged or
consolidated with a subsidiary of a bank holding company; (3) any bank holding
company acquires direct or indirect ownership or control of more than 5% of the
voting stock of a banking institution; (4) any bank holding company or
subsidiary thereof acquires all or substantially all of the assets of a banking
institution; or (5) any action is taken that causes any bank holding company to
merge or consolidate with another bank holding company. Additionally, certain
restrictions apply to New York State bank holding companies regarding the
acquisition of banking institutions that have been chartered for five years or
less and are located in smaller communities. Directors, officers and employees
of a New York State bank holding company are subject to limitations regarding
their affiliation with securities underwriting or distribution firms and with
other bank holding companies, and directors and executive officers are subject
to limitations regarding loans obtained from certain of the holding company's
banking subsidiaries. Although the Company will not be a bank holding company
for purposes of the Banking Law upon the Effective Date of the Conversion, any
future acquisition of ownership, control, or the power to vote 10% or more of
the voting stock of another banking institution or bank holding company would
cause it to become such.
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ACQUISITION OF THE HOLDING COMPANY
Federal Restrictions. Under the federal Change in Bank Control Act
("CBCA"), a notice must be submitted to the FRB if any person (including a
company), or group acting in concert, seeks to acquire 10% or more of the
Company's shares of Common Stock outstanding, unless the FRB has found that the
acquisition will not result in a change in control of the Company. Under the
CBCA, the FRB has 60 days within which to act on such notices, taking into
consideration certain factors, including the financial and managerial resources
of the acquiror, the convenience and needs of the communities served by the
Company and the Bank, and the anti-trust effects of the acquisition. Under the
BHCA, any company would be required to obtain prior approval from the FRB before
it may obtain "control" of the Company within the meaning of the BHCA. Control
generally is defined to mean the ownership or power to vote 25% more of any
class of voting securities of the Company or the ability to control in any
manner the election of a majority of the Company's directors. See "Holding
Company Regulation."
New York Change in Bank Control Restrictions. In addition to the CBCA, the
Banking Law generally requires prior approval of the New York Banking Board
before any action is taken that causes any company to acquire direct or indirect
control of a banking institution that is organized in the State of New York. For
this purpose, the term "company" is defined to include corporations,
partnerships and other types of business entities, chartered or doing-business
in New York, and an individual or combination of individuals acting in concert
and residing or doing business in New York, and the term "control" is defined
generally to mean the power to direct or cause the direction of the management
and policies of the banking institution and is presumed to exist if the company
owns, controls or holds with power to vote 10% or more of the voting stock of
the banking institution.
INTERSTATE BANKING AND BRANCHING
In the past, interstate banking has been limited under the BHCA to those
states that permitted interstate banking by statute. New York was one of a
number of states that permitted, subject to the reciprocity conditions of the
Banking Law, out-of-state bank holding companies to acquire New York banks. By
1995, most states had adopted statutes permitting multistate bank holding
companies.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
("Interstate Banking Act") was enacted on September 29, 1994. As of September
29, 1995, the Interstate Banking Act permitted approval under the BHCA of the
acquisition by a bank holding company that is well capitalized and managed of a
bank outside of the holding company's home state regardless of whether the
acquisition was permitted under the law of the state of the bank to be acquired.
The FRB may not approve an acquisition under the BHCA that would result in the
acquiring holding company controlling more than 10% of the deposits in the
United States or more than 30% of the deposits in any particular state.
In the past, branching across state lines was not generally available to a
state bank, such as the Bank. While out-of-state branches were authorized under
the Banking Law, similar authority was not generally available under the laws of
most other states. Beginning June 1, 1997, the Interstate Banking Act, permitted
the responsible federal banking agencies to approve merger transactions between
banks located in different states, regardless of whether the merger would be
prohibited under state law. Accordingly, the Interstate Banking Act permits a
bank to have branches in more than one state.
Before any bank acquisition can be completed, prior approval thereof may
also be required to be obtained from other agencies having supervisory
jurisdiction over the bank to be acquired, including the Banking Department. See
"Acquisition of the Holding Company." The Interstate Banking Act will facilitate
the consolidation of the banking industry that has taken place over recent years
and will allow the creation of larger, presumably more efficient, banking
networks.
FEDERAL SECURITIES LAWS
The Company has filed with the SEC a registration statement under the
Securities Act for the registration of the Common Stock to be issued pursuant to
the Conversion. Upon completion of the
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Conversion, the Company's Common Stock will be registered with the SEC under the
Exchange Act. The Company will then be subject to the information, proxy
solicitation, insider trading restrictions and other requirements under the
Exchange Act.
Shares of the Common Stock purchased by persons who are not affiliates of
the Company may be resold without registration. Shares purchased by an affiliate
of the Company will be subject to the resale restrictions of Rule 144 under the
Securities Act. If the Company meets the current public information requirements
of Rule 144 under the Securities Act, each affiliate of the Company who complies
with the other conditions of Rule 144 (including those that require the
affiliate's sale to be aggregated with those of certain other persons) would be
able to sell in the public market, without registration, a number of shares not
to exceed, in any three-month period, the greater of (a) 1% of the outstanding
shares of the Company or (b) the average weekly volume of trading in such shares
during the preceding four calendar weeks. Provision may be made in the future by
the Company to permit affiliates to have their shares registered for sale under
the Securities Act under certain circumstances.
In the event that the holding company form of organization is not utilized,
the shares of the Bank's common stock to be issued and sold in the Conversion
would be exempt from registration under Section 3(a)(5) of the Securities Act.
Prior to the sale of all shares of its common stock in such a case, the Bank
would register its capital stock under Section 12(g) of the Exchange Act. Upon
such registration, the proxy rules, tender offer rules, insider trading
restrictions, annual and periodic reporting and other requirements of the
Exchange Act would also be applicable to the Bank but under the jurisdiction of
the FDIC. The Bank would be required by the FDIC to maintain said registration
for a period of at least three years following Conversion and to register with
and report to the FDIC, not to the SEC.
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MANAGEMENT OF THE COMPANY
The Board of Directors of the Company is divided into three classes, each
of which contains approximately one-third of the Board. The directors shall be
elected by the shareholders of the Company for staggered three-year terms, or
until their successors are elected and qualified. One class of directors,
consisting of Timothy A. Dempsey, Fred M. Knipp, and Henry L. Nielsen, Jr., has
a term of office expiring at the first annual meeting of shareholders; a second
class, consisting of Ronald J. Gentile, Emil R. Krahulik and Thomas F. Lawrence,
Jr. has a term of office expiring at the second annual meeting of shareholders;
and a third class, consisting of Frances M. Gorish, R. Michael Kennedy, John W.
Sanford III and Robert N. Smith has a term of office expiring at the third
annual meeting of shareholders. Biographical information with respect to each
individual is set forth under "Management of the Bank -- Biographical
Information."
The following individuals are executive officers of the Company and hold
the offices set forth below opposite their names.
<TABLE>
<CAPTION>
NAME POSITIONS HELD WITH THE COMPANY
------------------------------ -------------------------------------------------------------
<S> <C>
Timothy A. Dempsey............ President and Chief Executive Officer
Ronald J. Gentile............. Executive Vice President and Chief Operating Officer
Arthur W. Budich.............. Senior Vice President, Treasurer and Chief Financial Officer
Laurence D. Haggerty.......... Senior Vice President
Donna M. Lyons................ Senior Vice President/Auditor
Barbara A. Rudy............... Senior Vice President
Nancy L. Sobotor-Littell...... Corporate Secretary and Director of Human Resources
</TABLE>
The executive officers of the Company are elected annually and hold office
until their respective successors have been elected and qualified or until
death, resignation or removal by the Board of Directors.
Since the formation of the Company, none of the executive officers,
directors or other personnel has received remuneration from the Company. It is
currently expected that, unless and until the Company becomes actively involved
in business activities separate from those conducted by the Bank, no separate
compensation will be paid to the directors and employees of the Company.
However, directors of the Company or the Bank who are not employees of the
Company or the Bank or any of their subsidiaries ("Outside Directors") may be
entitled to participate in stock incentive plans established by the Company. See
"Management of the Bank -- Benefits -- Stock Option Plan" and "-- Recognition
and Retention Plan." The Company will also guarantee certain obligations of the
Bank to the Bank's executive officers, employees and directors, as described
below. Information concerning the principal occupations, employment and
compensation of the directors and officers of the Company during the past five
years is set forth under "Management of the Bank -- Biographical Information."
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MANAGEMENT OF THE BANK
TRUSTEES
The directors of the Company are also the trustees of the Bank. Upon
consummation of the Conversion, the current trustees of the Bank will become
directors of the stock chartered Bank. The following table sets forth certain
information regarding the Board of Trustees of the Bank.
<TABLE>
<CAPTION>
TRUSTEE TERM
NAME AGE(1) POSITIONS HELD WITH THE BANK SINCE EXPIRES(2)
- -------------------------- ------ ----------------------------------------- ------- ----------
<S> <C> <C> <C> <C>
Timothy A. Dempsey........ 63 President, Chief Executive Officer and 1974 1998
Trustee
Ronald J. Gentile......... 48 Executive Vice President, Chief Operating 1990 1999
Officer and Trustee
Frances M. Gorish......... 70 Trustee 1979 2000
R. Michael Kennedy........ 46 Trustee 1997 2000
Fred M. Knipp............. 66 Trustee 1992 1998
Emil R. Krahulik.......... 64 Trustee 1984 1999
Thomas F. Lawrence, 69 Trustee 1965 1999
Jr. ....................
Henry L. Nielsen, Jr. .... 71 Trustee 1962 1998
John W. Sanford III....... 60 Trustee 1986 2000
Robert N. Smith........... 48 Trustee 1994 2000
</TABLE>
- ---------------
(1) At December 1, 1997.
(2) The year in which the term of the individual as a director of the Company
would expire.
EXECUTIVE OFFICERS
The executive officers of the Bank are Mr. Dempsey and Mr. Gentile who are
trustees of the Bank, and Mr. Budich, Mr. Haggerty, Ms. Lyons, Ms. Rudy and Ms.
Sobotor-Littell, who are not trustees of the Bank. See "Management of the
Company." Each of the executive officers of the Bank will retain his or her
office in the converted Bank until the annual meeting of the Board of Trustees
of the Bank held immediately after the first annual meeting of shareholders of
the Company subsequent to Conversion and until their successors are elected and
qualified or until they are removed or replaced. Officers are re-elected by the
Board of Directors annually.
BIOGRAPHICAL INFORMATION
Positions held by trustees or executive officers of the Bank have been held
for at least the past five years unless stated otherwise.
Trustees
Timothy A. Dempsey serves as the President, Chief Executive Officer and a
trustee of the Bank. Mr. Dempsey has been involved in the financial institutions
industry for more than 45 years and has served as President and Chief Executive
Officer of the Bank since 1985 and as a trustee since 1974. He also serves as
President and Chief Executive Officer of the Bank's wholly owned subsidiaries,
including Warsave, WSB Financial and WSB Mortgage. In addition, he serves as the
Executive Vice President and a director of the Institutional Investors Capital
Appreciation Fund, Inc., a director of the M.S.B. Fund Inc. and Chairman of the
Orange County Water Authority.
Ronald J. Gentile serves as the Executive Vice President, Chief Operating
Officer and a trustee of the Bank. Mr. Gentile joined the Bank and has been a
trustee since 1990. In addition, he serves as Vice President of the Bank's
wholly owned subsidiaries, including Warsave, WSB Financial and WSB Mortgage.
Prior to joining the Bank, Mr. Gentile served as a senior bank examiner for the
FDIC. He is also a member of the
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board of directors of the TriState Health System, Inc. and Winslow Therapeutic
Riding Unlimited, and a former President and member of the board of directors of
the Warwick Valley Rotary Club.
Frances M. Gorish joined the Bank in 1944 and has served as a trustee since
1979. Now retired, she served in various capacities for the Bank, most recently
as Vice President and Corporate Secretary. In addition, she serves as treasurer
of the Salvation Army, Lorena Abbott Service Unit, and the treasurer of the
Florida Historical Society.
R. Michael Kennedy became a trustee of the Bank in 1997. Mr. Kennedy is a
general partner and manager of various real estate companies, all managed
through Kennedy Companies. He is also the general managing partner of The
Fireplace Restaurant.
Fred M. Knipp has served as a trustee of the Bank since 1992. He is the
President, Chief Executive Officer and director of the Warwick Valley Telephone
Company and a director of Centrex Communications Corporation.
Emil R. Krahulik has served as a trustee of the Bank since 1984. He is a
partner in the law firm of Beattie & Krahulik and serves as the Bank's general
counsel.
Thomas F. Lawrence, Jr. has been a trustee of the Bank since 1965. Mr.
Lawrence, now retired, formerly served as President of Warwick Auto Company Inc.
He is also President of the Warwick Cemetery Association. Mr. Lawrence is Nancy
L. Sobotor-Littell's father.
Henry L. Nielsen, Jr. has served as a trustee of the Bank since 1962. He is
the President of Nielsen Construction Co., Inc. and is a director of the Warwick
Valley Telephone Company. He is also a trustee of the Warwick Historical Society
and the Warwick Cemetery Association.
John W. Sanford III has been a trustee since 1986. Mr. Sanford also serves
as President of John W. Sanford & Son, Inc., an insurance agency, and is a
partner in Maple Terrace Farms, a dairy beef business.
Robert N. Smith has served as a trustee since 1994. He is currently the
President of Lazear-Smith and Vander-Plaat Memorial Home and Lazear-Smith
Funeral Home. Mr. Smith is also sole proprietor of Smith and Gesell Associates,
a bookkeeping and tax preparation service.
Executive Officers who are not Trustees
Arthur W. Budich, age 47, has been the Senior Vice President, Treasurer and
Chief Financial Officer of the Bank since 1992 and has been employed by the Bank
in various capacities since 1986. He also serves as Treasurer of the Bank's
wholly owned subsidiaries, which include Warsave Development, Inc., WSB
Financial Services, Inc. and WSB Mortgage Company of New Jersey, Inc.
Laurence D. Haggerty, age 54, is the Senior Vice President, Commercial Loan
Department of the Bank. He has served in such capacity since 1991.
Donna M. Lyons, age 42, has served as the Senior Vice President of the Bank
since 1992 and Auditor of the Bank since 1989.
Barbara A. Rudy, age 44, has served as Senior Vice President, Loan
Servicing since 1991. She has been employed by the Bank in various capacities
since 1972.
Nancy L. Sobotor-Littell, age 40, is the Corporate Secretary and Director
of Human Resources of the Bank, positions she has held since 1988. She has been
employed by the Bank in various capacities since 1975. In addition, she serves
as Corporate Secretary of the Bank's wholly-owned subsidiaries, including
Warsave, WSB Financial and WSB Mortgage. Ms. Sobotor-Littell is Thomas F.
Lawrence, Jr.'s daughter.
Significant Employee
Arthur S. Anderson, age 39, has served as the Executive Director of the
Bank's Mortgage Department since 1995. Mr. Anderson is also the Vice President
of WSB Mortgage. Prior to joining the Bank,
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Mr. Anderson served as Vice President of The Bank of New York Mortgage Company
from March, 1989 until February, 1995.
COMMITTEES AND MEETINGS OF THE BOARDS OF THE COMPANY AND THE BANK
The Board of Trustees of the Bank meets on a monthly basis and may have
additional special meetings from time to time. During the fiscal year ended May
31, 1997, the Board of Trustees of the Bank met 12 times. No current trustee
attended fewer than 75% of the total number of Board meetings and committee
meetings of which such trustee was a member.
Effective as of the Conversion, the Company and/or the Bank will maintain
the following committees of each of their respective Boards of Directors:
The Executive Committee of both the Company and the Bank consists of
Messrs. Dempsey, Nielsen, Lawrence, Krahulik and Sanford and Ms. Gorish. Each
such committee generally oversees the affairs of the Bank and Company, considers
proposals from management in relation to the election of officers and makes
recommendations to the Board regarding those individuals nominated to officer
positions.
The Audit Committee of both the Company and the Bank consists of Messrs.
Nielsen, Knipp, Sanford and Kennedy. Each Audit Committee meets periodically
with its independent certified public accountants to arrange the Bank's annual
financial statement audit and to review and evaluate recommendations made during
the annual audit. The Audit Committee also reviews and evaluates the procedures
and performance of the Bank's internal auditing staff.
The Compensation Committee of both the Company and the Bank consists of
Messrs. Lawrence, Nielsen and Kennedy and Ms. Gorish. The Compensation Committee
is responsible for overseeing the development, implementation and conduct of the
Company's and the Bank's employment and personnel policies, notices and
procedures, including the administration of the Company's and the Bank's
compensation and benefit programs.
The Bank also maintains the following committees: the Building Committee,
the CRA Committee, the Public Relations Committee and the Re-Inspection
Committee.
TRUSTEES' COMPENSATION
Fee Arrangements. Currently, each trustee of the Bank who is not an
employee of the Bank receives a fee of $400 for each Board meeting attended and
$250 for each committee meeting attended. In addition, the members of the
Re-Inspection Committee each receive an annual $250 fee. The aggregate amount of
fees paid to such trustees by the Bank for the year ended May 31, 1997 was
approximately $115,475. Directors of the Company will not be separately
compensated for their services as such. It is anticipated that directors will
also be covered by the Stock Option Plan and RRP expected to be implemented by
the Company. See "-- Benefits -- Stock Option Plan" and "-- Recognition and
Retention Plan."
TRUSTEES EMERITUS
The Bank maintains a Board of Trustees Emeritus which currently consists of
four former trustees of the Bank. The four trustees emeriti are Harry C. Sayre,
Jr., M.D., John W. Sanford, Jr., Robert A. Schoonover and Wilbur L. Smith.
Pursuant to the Bank's By-Laws, trustees must retire in the year they reach age
75, and any trustee who retires because of such age limitation is eligible to be
elected as trustee emeritus. Trustees emeritus have no vote and receive the same
meeting fees as trustees of the Bank. Recognizing the importance of past
experience in present operations and future planning, the Bank has found the
trustee emeritus program extremely beneficial.
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EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth the cash
compensation paid by the Bank for services rendered in all capacities during the
fiscal year ended May 31, 1997 to the Chief Executive Officer and all executive
officers of the Bank who received compensation in excess of $100,000 ("Named
Executive Officers").
<TABLE>
<CAPTION>
LONG TERM COMPENSATION AWARDS(2)
ANNUAL ------------------------------------------
COMPENSATION(1) RESTRICTED
----------------- STOCK ALL OTHER
SALARY BONUS AWARDS(3) OPTIONS(3) COMPENSATION(4)
NAME AND PRINCIPAL POSITIONS YEAR ($) ($) ($) (#) ($)
- -------------------------------- ---- -------- ----- --------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Timothy A. Dempsey
President and Chief Executive
Officer....................... 1997 $189,750 -- -- -- $ 5,052
Ronald J. Gentile
Executive Vice President and
Chief Operating Officer....... 1997 $123,862 -- -- -- $ 3,618
</TABLE>
- ---------------
(1) Under Annual Compensation, the column titled "Salary" includes base salary
and payroll deductions for health insurance under the Bank's health
insurance plan and for each individual's contributions under The Warwick
Savings Bank 401(k) Savings Plan ("401(k) Plan"). In addition, Mr. Gentile's
salary amount includes $108.28 per week, which the Bank has added to his
compensation in lieu of providing him with the use of an automobile.
(2) For the fiscal year ended May 31, 1997, there were no: (a) perquisites with
an aggregate value for any named individual in excess of the lesser of
$50,000 or 10% of the total of the individual's salary and bonus for the
year; (b) payments of above-market preferential earnings on deferred
compensation; (c) payments of earnings with respect to long-term incentive
plans prior to settlement or maturation; or (d) preferential discounts on
stock. For 1997 the fiscal year ended May 31, the Bank had no restricted
stock or stock related plans in existence.
(3) During the fiscal year ended May 31, 1997, the Bank did not maintain any
restricted stock, stock options or other long-term incentive plans.
(4) Reflects matching contributions made by the Bank under the 401(k) Plan.
EMPLOYMENT AGREEMENTS
Effective upon the Conversion, the Company intends to enter into Employment
Agreements with each of Mr. Dempsey, Mr. Gentile, Mr. Budich and Ms.
Sobotor-Littell ("Senior Executives"). These Employment Agreements establish the
respective duties and compensation of the Senior Executives and are intended to
ensure that the Company will be able to maintain a stable and competent
management base after the Conversion. The continued success of the Company
depends to a significant degree on the skills and competence of the Senior
Executives.
The Employment Agreements provide for three-year terms, with automatic
daily extensions such that the remaining terms of the Employment Agreements
shall be three years unless written notice of non-renewal is given by the
Company or the Senior Executive. The Employment Agreements provide that the
Senior Executive's base salary will be reviewed annually. It is anticipated that
this review will be performed by the Company's Compensation Committee and
approved by non-employee members of the Board, and the Senior Executive's base
salary may be increased on the basis of such officer's job performance and the
overall performance of the Company. The base salaries for Mr. Dempsey, Mr.
Gentile, Mr. Budich and Ms. Sobotor-Littell for 1997 are $200,000, $125,000,
$85,000 and $63,000, respectively. The Employment Agreements also provide for,
among other things, entitlement to participation in stock, retirement and
welfare benefit plans and reimbursement for ordinary and necessary business
expenses. Senior Executives would also be entitled to reimbursement of certain
costs incurred in interpreting or enforcing the Employment Agreements. The
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Employment Agreements provide for termination by the Company at any time for
"cause" as defined in the Employment Agreements.
In the event the Company chooses to terminate a Senior Executive's
employment for reasons other than for cause, in the event of a Senior
Executive's resignation from the Company for certain reasons specified in the
Employment Agreements or in the event of a "change of control" as defined in the
Employment Agreements, the Senior Executive (or, in the event of the Senior
Executive's death, such Senior Executive's estate) would be entitled to a lump
sum cash payment in an amount generally equal to (a) the Senior Executive's
earned but unpaid salary, (b) the present value of the amount the Senior
Executive would have earned in salary had he or she continued working through
the unexpired term of the Employment Agreement and (c) the present value of the
additional contributions or benefits that such Senior Executive would have been
earned under the specified employee benefit plans or programs of the Bank or the
Company during the remaining term of the Employment Agreement and payments that
would have been made under any incentive compensation plan during the remaining
term of the Employment Agreement. The Employment Agreements also provide for the
cash out of any stock options, appreciation rights or restricted stock as if the
Senior Executive was fully vested. The Bank and the Company would also continue
the Senior Executive's life, health and any disability insurance or other
benefit plan coverage for the remaining terms of the Employment Agreements.
Reasons specified as grounds for resignation for purposes of the Employment
Agreements are: failure to elect or re-elect the Senior Executive to such
officer's position; failure to vest in the Senior Executive the functions,
duties or authority associated with such position; if the Senior Executive is a
member of the Board of Directors of the Bank or Company, failure to renominate
or re-elect such Senior Executive to such Board; any material breach of contract
by the Bank or the Company which is not cured within 30 days after written
notice thereof; a change in the Senior Executive's principal place of employment
for a distance in excess of 50 miles from the Bank's principal office in
Warwick, New York. In general, for purposes of the Employment Agreements and the
plans maintained by the Company or the Bank, a "Change of Control" will
generally be deemed to occur when a person or group of persons acting in concert
acquires beneficial ownership of 25% or more of any class of equity security of
the Company or the Bank, upon shareholder approval of a merger or consolidation
of the Company or the Bank, upon liquidation or sale of substantially all the
assets of the Company or the Bank or upon a contested election of directors
which results in a change in the majority of the Board of Directors. Based on
current compensation and benefit costs, cash payments to be made in the event of
a Change of Control of the Bank or the Company pursuant to the terms of the
Employment Agreements would be approximately $3,474,000, of which approximately
$1,677,000 would be payable to Mr. Dempsey, $795,000 would be payable to Mr.
Gentile, $572,000 would be payable to Mr. Budich and $430,000 would be payable
to Ms. Sobotor-Littell. However, the actual amount to be paid under the
Employment Agreements in the event of a Change of Control of the Bank or the
Company cannot be estimated at this time, because the actual amount is based on
the compensation and benefit costs applicable to these individuals and other
factors existing at the time of the Change of Control which cannot be determined
at this time. Such figures do not include any estimate as to amounts that may be
payable on account of the Stock Option Plan or RRP because no options or shares
have been allocated under such plans.
Cash and benefits paid to a Senior Executive under the Employment Agreement
together with payments under other benefit plans following a Change of Control
of the Bank or the Company may constitute an "excess parachute payment" under
Section 280G of the Code, resulting in the imposition of a 20% excise tax on the
recipient and the denial of the deduction for such excess amounts to the Company
and the Bank. In the event that any amounts paid to a Senior Executive following
a Change of Control would constitute excess parachute payments, the Employment
Agreements provide that such Senior Executives will be indemnified for any
excise taxes imposed due to such excess parachute payments, and any additional
excise, income and employment taxes imposed as a result of such tax
indemnification.
EMPLOYEE RETENTION AGREEMENTS
Effective upon the Conversion, the Bank intends to enter into Retention
Agreements with the following four employees: Laurence D. Haggerty, Donna M.
Lyons, Barbara A. Rudy and Arthur S. Anderson ("Contract Employees"). The
purpose of the Retention Agreements is to secure the Contract Employees'
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continued availability and attention to the Bank's affairs, relieved of
distractions arising from the possibility of a corporate change of control. The
Retention Agreements do not impose an immediate obligation on the Bank to
continue the Contract Employees' employment, but provide for a period of assured
employment ("Assurance Period") in the event of a "Change of Control" as defined
in the Retention Agreements, which definition is similar to the definition of
change of control contained in the Employment Agreement. The Retention
Agreements provide for an initial Assurance Period of one year commencing on the
date of a Change of Control. In general, the applicable Assurance Periods will
be automatically extended on a daily basis under the Retention Agreements until
written notice of non-extension is given by the Bank or the Contract Employee,
in which case an Assurance Period would end on the first anniversary of the date
such notice is given.
If a Contract Employee is discharged without "cause" as defined in the
Retention Agreements during the Assurance Period, or prior to the commencement
of the Assurance Period but within 3 months of, and in connection with a Change
of Control, or the Contract Employee voluntarily resigns during the Assurance
Period following a failure to elect or re-elect the Contract Employee to such
officer's position; failure to vest in the Contract Employee the functions,
duties or authority associated with such position; if the Contract Employee is a
member of the Board of Directors of the Bank or Company, failure to renominate
or reelect such Contract Employee such Board; any material breach of contract by
the Bank or the Company which is not cured within 30 days after written notice
thereof; a change in the Contract Employee's principal place of employment for a
distance in excess of 50 miles from the Bank's principal office in Warwick, New
York, the Contract Employee (or, in the event of such employee's death, such
employee's estate) would be entitled to a lump sum cash payment in an amount
generally equal to (a) the Contract Employee's earned but unpaid salary, (b) the
present value of the amount the Contract Employee would have earned in salary
had he or she continued working during the remaining term of the Assurance
Period and (c) the present value of the additional contributions or benefits
that such that Contract Employee would have earned under the specified employee
benefit plans or programs of the Bank or Company during the remaining term of
the Assurance Period. The Retention Agreements also provide for the cashout of
stock options, appreciation rights or restricted stock as if the Contract
employee was fully vested. Each Contract Employee's life, health and disability
coverage would also be continued during the Assurance Period. The total amount
of termination benefits payable to each Contract Employee under the Retention
Agreements is limited to three times the Contract Employee's average total
compensation for the prior five calendar years. Payments to the Contract
Employees under their respective Retention Agreements will be guaranteed by the
Company to the extent that the required payments are not made by the Bank. Based
on current compensation and benefit costs applicable to the Contract Employees
expected to be covered by the Retention Agreements, cash payments to be made in
the event of a Change of Control would be approximately $580,000. However, the
actual amount to be paid under the Retention Agreements in the event of a change
of control of the Bank or the Company cannot be estimated at this time because
it will be based on the compensation and benefit costs applicable to the
Contract Employees and other factors existing at the time of the change of
control which cannot be determined at this time. Such figures do not include any
estimate as to amounts that may be payable on account of the Stock Option Plan
or RRP because no options or shares have been allocated under such plans.
BENEFITS
Pension Plan. The Bank maintains The Warwick Savings Bank Defined Benefit
Pension Plan, a non-contributory, tax-qualified defined benefit pension plan
("Pension Plan") for eligible employees. All employees, except (i) those paid on
an hourly basis or contract basis, (ii) leased employees or (iii) employees
regularly employed by outside employers for maintenance of properties, are
eligible to participate in the Pension Plan upon the later of (i) the end of the
12-month period in which he or she completes 1,000 hours of service or (ii) the
date he or she attains age 21. The Pension Plan provides an annual benefit for
each participant, including the executive officers named in the Summary
Compensation Table above, equal to 2% of the participant's average annual
compensation, multiplied by the participant's years of credited service, up to a
maximum of 30 years.
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Average annual compensation is the average of a Participant's compensation
over the three years of employment out of the Participant's last 10-year period
of employment during which the participant's compensation is the highest. A
participant is fully vested in his or her pension benefit after five years of
service. The Pension Plan is funded by the Bank on an actuarial basis, and all
assets are held in trust by the Pension Plan trustee.
Benefit Restoration Plan. The Bank has adopted the Benefit Restoration
Plan of The Warwick Savings Bank ("BRP") to provide eligible employees with the
benefits that would be due to such employees under the Pension Plan, the 401(k)
Plan and the ESOP if such benefits were not limited under the Code. The BRP is
also intended to make up allocations lost by participants of the ESOP who retire
prior to the complete repayment of the ESOP loan. BRP benefits to be provided
with respect to the Pension Plan are reflected in the pension table.
The Bank intends to establish an irrevocable grantor's trust to hold the
assets of the BRP. This trust would be funded with contributions of the Bank for
the purpose of providing the benefits under the BRP. The assets of the trust are
considered to be part of the general assets of the Bank and are subject to
claims of the Bank's creditors. Earnings on the trust's assets are taxable to
the Bank.
Pension Plan Table. The following table sets forth the estimated annual
benefits payable under the Pension Plan upon a participant's normal retirement
at age 65, expressed in the form of a single life annuity, and any related
amounts payable under the BRP, for the average annual compensation and years of
credited service specified.
PENSION PLAN TABLE(1)
<TABLE>
<CAPTION>
YEARS OF CREDITED SERVICE AT RETIREMENT
AVERAGE ANNUAL -----------------------------------------------------------
COMPENSATION 15 20 25 30 35(2)
- -------------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$125,000 $37,500 $ 50,000 $ 62,500 $ 75,000 $ 75,000
150,000 45,000 60,000 75,000 90,000 90,000
175,000(3) 52,500 70,000 87,500 105,000 105,000
200,000(3) 60,000 80,000 100,000 120,000 120,000
225,000(3) 67,500 90,000 112,500 135,000(4) 135,000(4)
250,000(3) 75,000 100,000 125,000 150,000(4) 150,000(4)
</TABLE>
- ---------------
(1) The annual benefits shown in the table above assume the participant would
receive his retirement benefits under the Pension Plan and the BRP in the
form of a straight life annuity at normal retirement age.
(2) Normal retirement benefits are limited to 60% of average annual earnings.
(3) For the Pension Plan year ending September 30, 1997, the annual compensation
for calculating benefits may not exceed $150,000 (as adjusted for subsequent
years pursuant to Code provisions). The limitation is $160,000 for the plan
year beginning October 1, 1997, and will be adjusted to reflect cost of
living increases after 1997 in accordance with Section 401(a)(17) of the
Code. The table reflects amounts payable in conjunction with the BRP.
(4) These are hypothetical benefits based upon the Pension Plan's normal
retirement benefit formula. The maximum annual benefit permitted under
Section 415 of the Code in 1997 is $125,000 in 1997, or, if higher, a
member's current accrued benefit as of December 31, 1982 (but not more than
$136,425). The $125,000 ceiling will be adjusted to reflect cost of living
increases after 1997 in accordance with Section 415 of the Code. The BRP
will provide the difference between the amounts appearing in this table and
the maximum amount allowed by the Code.
The following table sets forth the years of credited service and the
average monthly compensation (as defined above) determined as of May 31, 1997,
for each of the individuals named in the Summary
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Compensation Table. The Average Annual Earnings includes the base salary
component of the figures shown in the salary column of the Summary Compensation
Table.
<TABLE>
<CAPTION>
YEARS OF
CREDITED SERVICE
---------------- AVERAGE ANNUAL
YEARS MONTHS COMPENSATION
----- ------ --------------
<S> <C> <C> <C>
Mr. Dempsey........................................... 24 3 $178,349
Mr. Gentile........................................... 7 0 $112,168
</TABLE>
401(k) Plan. The Bank maintains The Warwick Savings Bank 401(k) Savings
Plan ("401(k) Plan"), a tax-qualified profit-sharing plan under Sections 401(a)
and 401(k) of the Code. Employees who satisfy prescribed eligibility
requirements may make pre-tax salary deferrals under section 401(k) of the Code.
Salary deferrals are made by election and are limited to 15% of compensation up
to $160,000 (for 1997), or to a limit imposed under the Code ($9,500 for 1997).
The Bank makes matching contributions equal to a percentage of salary
contributions determined annually by the Bank, up to 3% of salary. Employees are
fully vested in their salary deferrals, and become incrementally vested in the
Bank's contribution after one year and fully vested in the Bank's contributions
after seven years.
The Bank has amended the 401(k) Plan in connection with the Conversion to
provide that the Bank's matching contributions will be invested in an investment
fund consisting primarily of Common Stock of the Company. In addition,
participating employees may elect to invest all or a portion of their remaining
account balances in such investment fund or the other investment funds provided
under the 401(k) Plan. Common Stock held by the 401(k) Plan may be newly issued
or treasury shares acquired from the Company or outstanding shares purchased in
the open market or in privately negotiated transactions. All Common Stock held
by the 401(k) Plan will be held by an independent trustee and allocated to the
accounts of individual participants. Participants will control the exercise of
voting and tender rights relating to the Common Stock held in their accounts.
Employee Stock Ownership Plan and Trust. The Company has established, and
the Bank has adopted, for the benefit of eligible employees, an ESOP and related
trust to become effective upon completion of the Conversion. Substantially all
employees of the Bank or the Company who have complete 1,000 hours of service
during a consecutive 12-month period will be eligible to become participants in
the ESOP. The ESOP intends to purchase 8% of the Common Stock to be issued in
the Conversion, including shares to be issued to the Foundation. As part of the
Conversion and in order to fund the ESOP's purchase of the Common Stock to be
issued in the Conversion, the Bank or the Company expects to contribute to the
ESOP sufficient funds to pay the par value of the Common Stock to be purchased,
and the ESOP intends to borrow funds from the Company equal to the balance of
the aggregate purchase price of the Common Stock. Although contributions to the
ESOP will be discretionary, the Company and the Bank intend to make annual
contributions to the ESOP in an aggregate amount at least equal to the principal
and interest requirement on the debt. It is expected that this loan will be for
a term of up to 10 years, will bear interest at the rate of 8% per annum and
will call for annual payments of principal and all accrued but unpaid interest
on the outstanding balance of the loan. It is anticipated that the loan will
also permit optional pre-payment. The Company and the Bank may make additional
annual contributions to the ESOP to the maximum extent deductible for federal
income tax purposes.
Shares purchased by the ESOP will initially be pledged as collateral for
the loan and will be held in a suspense account until released for allocation
among participants in the ESOP as the loan is repaid. The pledged shares will be
released annually from the suspense account in an amount proportional to the
repayment of the ESOP loan for each plan year. The released shares will be
allocated among the accounts of participants who are employees of the Bank or
the Company on the last day of the on the basis of the participants' total
taxable compensation for the year of allocation. Benefits generally become
vested at the rate of 20% per year beginning on a participant's third year of
service with 100% vesting after seven years of service (including past service).
Participants also become immediately vested upon termination of employment due
to death, retirement at age 65 or older, permanent disability or upon the
occurrence of a change of control. Forfeitures will be reallocated among
remaining participating employees, in the same proportion as contribu-
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tions. Vested benefits may be paid in a single sum or installment payments and
are payable upon death, retirement at age 65 or older, disability or separation
from service.
In connection with the establishment of the ESOP, a Plan Administrator was
appointed to administer the ESOP ("Plan Administrator"). An unrelated corporate
trustee for the ESOP will be appointed prior to the Conversion and will continue
thereafter. The Plan Administrator may instruct the trustee regarding investment
of funds contributed to the ESOP. The ESOP trustee, subject to its fiduciary
duty, must vote all allocated shares held in the ESOP in accordance with the
instructions of the participating employees. Under the ESOP, unallocated shares
will be voted in a manner calculated to most accurately reflect the instructions
received from participants regarding the allocated stock as long as such vote is
in accordance with the provisions of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA").
The ESOP may purchase additional shares of Common Stock in the future, in
the open market or otherwise, and may do so either on a leveraged basis with
borrowed funds or with cash dividends, periodic employer contributions or other
cash flow. Whether such purchases will be made and the terms and conditions of
any such purchases will be determined by the ESOP's fiduciaries taking into
account such factors as they consider relevant at the time, including their
judgment as to the attractiveness of the Common Stock as an investment, the
price at which Common Stock may be purchased and, in the case of leveraged
purchases, the terms and conditions on which borrowed funds are available and
the willingness of the Company or the Bank to offer purchase money financing or
guarantee purchase money financing offered by third parties.
Stock Option Plan. Following the Conversion, the Board of Directors of the
Company intends to adopt a stock-based benefit plan ("Stock Option Plan") which
would provide for the granting of options to purchase Common Stock to eligible
officers, employees and Outside Directors of the Company and Bank. At a meeting
of shareholders of the Company following the Conversion, which under applicable
NYBB regulations may be held no earlier than six months after the completion of
the Conversion, the Board of Directors intends to present the Stock Option Plan
to shareholders for approval. An amount of shares of Common Stock equal to 10%
of the shares of Common Stock to be issued in the Conversion, including shares
to be issued to the Foundation, is expected to be reserved for issuance under
the Stock Option Plan. No determinations have been made by the Board of
Directors as to the specific terms of the Stock Option Plan or the amount of
awards thereunder. However, NYBB regulations provide that, in the event that
such plans are implemented within one year following the Conversion, no
individual officer or employee may receive more than 25% of the options granted
and that Outside Directors may not receive more than 5% individually or more
than 30% in the aggregate of the options granted. NYBB and FDIC regulations also
provide that the exercise price of any option granted must be the market price
of Common Stock as of the date of grant.
The purpose of Stock Option Plan will be to attract and retain qualified
personnel in key positions, provide directors, officers and key employees with a
proprietary interest in the Company as an incentive to contribute to the success
of the Company and its subsidiaries and reward officers and key employees for
outstanding performance. Although the terms of the Stock Option Plan have not
yet been determined, it is expected that the Stock Option Plan will provide for
the grant of: (i) options to purchase the Company's Common Stock intended to
qualify as incentive stock options under Section 422 of the Code ("Incentive
Stock Options"); (ii) options that do not so qualify ("Non-Statutory Stock
Options"); and (iii) Limited Rights (discussed below) which will be exercisable
only upon a change of control of the Bank or the Company. Outside Directors of
the Company are not eligible to be granted Incentive Stock Options. Unless
sooner terminated, any Stock Option Plan adopted will be in effect for a period
of 10 years.
The Stock Option Plan will be administered by a Committee of the Board of
Directors ("Stock Option Committee"), and such committee will determine which
officers and employees will be granted options and Limited Rights, whether such
options will be Incentive Stock Options or Non-Statutory Stock Options, the
number of shares subject to each option, the exercise price of each
Non-Statutory Stock Option, whether such options may be exercised by delivering
other shares of Common Stock and when such options become exercisable. It is
expected that any Stock Option Plan will permit options to be granted for terms
of up to 10 years (5 years in the case of Incentive Stock Options granted to
employees who are 10% shareholders) and at exercise prices no less than the fair
market value at date of grant (110% of fair market value in the case of
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Incentive Stock Options granted to employees who are 10% shareholders). It is
expected that in the event of death or disability, upon termination of
employment as an officer or employee or upon termination of service as an
Outside Director, grants would become 100% vested.
It is anticipated that the Stock Option Plan will also provide for Limited
Rights which, upon a change of control, will allow the holder to exercise such
Limited Rights and thereby be entitled to receive a lump sum cash payment equal
to the difference between the exercise price of the related option and the fair
market value of the shares of Common Stock subject to the option on the date of
exercise of the right in lieu of purchasing the stock underlying the option. It
is also anticipated that these Limited Rights could be canceled by an acquiror
in the contract for an acquisition if such acquiror commits to substitute other
consideration (including substitute options on the acquiror's stock) having
equivalent value to the options being canceled.
An employee will not be deemed to have received taxable income upon grant
or exercise of any Incentive Stock Option; provided, however, that shares
received through the exercise of such option are not disposed of for at least
one year after the date the stock is received in connection with the option
exercise and two years after the date of grant of the option. No compensation
deduction may be taken by the Company as a result of the grant or exercise of
Incentive Stock Options, provided such shares are not disposed of before the
expiration of the period described above (a "disqualifying disposition"). In the
case of a Non-Statutory Stock Option and in the case of a disqualifying
disposition of an Incentive Stock Option, an employee will be deemed to receive
ordinary income upon exercise of the stock option in an amount equal to the
amount by which the exercise price is exceeded by the fair market value of the
Common Stock purchased on the date of exercise. The amount of any ordinary
income deemed to be received by an optionee upon the exercise of a Non-Statutory
Stock Option or due to a disqualifying disposition of an Incentive Stock Option
may be a deductible expense for tax purposes for the Company. In the case of
Limited Rights, upon exercise, the option holder would have to include the
amount paid to him or her upon exercise in his or her gross income for federal
income tax purposes in the year in which the payment is made and the Company may
be entitled to a deduction for federal income tax purposes of the amount paid.
Grants to Outside Directors under the Stock Option Plan are expected to be
self-executing. It is anticipated that the exercise price per share of each
option granted to Outside Directors will be equal to the fair market value of
the shares of Common Stock on the date the option is granted.
Recognition and Retention Plan. Following the Conversion, the Company also
intends to establish the RRP as a method of providing officers, employees and
Outside Directors of the Bank and Company with a proprietary interest in the
Company in a manner designed to encourage such persons to remain with the Bank
and the Company. The Company intends to present the RRP for shareholder approval
at a meeting of shareholders, which pursuant to applicable NYBB regulations, may
be held no earlier than six months after the completion of the Conversion.
If the RRP is implemented, the Company expects to contribute funds to the
RRP to enable the RRP trust to acquire, in the aggregate, an amount up to 4% of
the shares of Common Stock to be issued in the Conversion, including shares to
be issued to the Foundation. Shares used to fund the RRP may be acquired through
open market purchases, if permitted, or from authorized but unissued shares. No
determinations have been made as to the specific terms of the RRP or the amount
of awards thereunder. Although no specific award determinations have been made,
the Company anticipates that, if the RRP is implemented, the Company will
provide awards to eligible officers, employees and directors to the extent
permitted by applicable regulations. Current NYBB regulations provide that no
individual employee may receive more than 25% of the shares of any plan and that
non-employee directors may not receive more than 5% of the shares individually
or 30% in the aggregate for all directors, in the case of plans implemented
within one year following the Conversion.
Any RRP adopted shall be administered by a Committee of the Board of
Directors ("RRP Committee"). Any grants or allocations under the RRP for the
benefit of Outside Directors are expected to be self-executing. All awards are
expected to be granted in the form of shares of Common Stock held by the RRP at
no cost to the recipients of such awards. The Board intends to appoint an
independent fiduciary to serve as trustee of the trust to be established
pursuant to any RRP. The RRP is expected to provide for the vesting of
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awards granted thereunder in the manner specified by the RRP Committee. It is
also expected that, in the event of death or disability, grants would be 100%
vested upon termination of employment of an officer or employee, or upon
termination of service as a director.
When shares become vested in accordance with the RRP, the participants will
recognize income equal to the fair market value of the Common Stock at that
time. The amount of income recognized by the participants may be a deductible
expense for tax purposes for the Company. When shares become vested and are
actually distributed in accordance with the RRP, the participants will also
receive amounts equal to any accrued dividends with respect thereto. Prior to
vesting, recipients of grants may direct the voting of the shares awarded to
them. Shares not subject to grants will be voted by the trustee of the RRP in
proportion to the directions provided with respect to shares subject to grants.
Vested shares will be distributed to recipients as soon as practicable following
the day on which they are vested. Any awards to Outside Directors under the RRP
implemented prior to the first anniversary of the Conversion and the material
terms and conditions thereof, will be specified in a plan document approved by
shareholders.
In the event that additional authorized but unissued shares are acquired by
the RRP after the Conversion, the interests of existing shareholders will be
diluted. See "Pro Forma Data."
TRANSACTIONS WITH CERTAIN RELATED PERSONS
FIRREA requires that all loans or extensions of credit to executive
officers and directors must be made on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions with the general public and must not involve more than the normal
risk of repayment or present other unfavorable features. The Bank has made loans
or extended credit to executive officers and also to certain persons related to
executive officers and trustees. All such loans were made by the Bank in the
ordinary course of business and were not made with more favorable terms nor did
they involve more than the normal risk of collectibility or present unfavorable
features. The outstanding principal balance of such loans to executive officers
and their associates totaled $54,700 or 0.1% of the Bank's retained earnings at
May 31, 1997 and 0.01% of the Bank's pro forma stockholders' equity at May 31,
1997, after giving effect to the Conversion, and assuming the sale of Common
Stock at the maximum of the Estimated Price Range. In addition, the Bank has
committed a line of credit of $2.5 million to the Warwick Valley Telephone
Company, of which $400 thousand was outstanding at May 31, 1997. Mr. Knipp is
the Chief Executive Officer and Mr. Nielsen is a director of Warwick Valley
Telephone Company.
Mr. Krahulik is a partner in the law firm of Beattie & Krahulik, which the
Bank retains to provide certain legal services. In the fiscal year ended May 31,
1997, the Bank paid $112,875 for legal services provided during such period. In
addition, the firm received fees in the amount of approximately $395,017 from
third parties pursuant to its representation of the Bank in loan closings and
other legal matters for the fiscal year ended May 31, 1997. WSB Mortgage and
Beattie & Krahulik are co-tenants on the lease for WSB Mortgage's office in West
Milford, New Jersey. See "Business of the Bank -- Properties."
The Company intends that all transactions in the future between the Company
and its executive officers, directors, holders of 10% or more of the shares of
any class of its common stock and affiliates thereof, will contain terms no less
favorable to the Company than could have been obtained by it in arm's-length
negotiations with unaffiliated persons and will be approved by a majority of
independent Outside Directors of the Company not having any interest in the
transaction.
SUBSCRIPTIONS BY EXECUTIVE OFFICERS AND TRUSTEES
The following table sets forth the number of shares of Common Stock the
Bank's executive officers and trustees propose to purchase in the Offerings,
assuming shares of Common Stock are issued at the minimum and maximum of the
Estimated Price Range and that sufficient shares will be available to satisfy
their
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subscriptions. The table also sets forth the total expected beneficial ownership
of Common Stock as to all directors and executive officers as a group.
<TABLE>
<CAPTION>
AT THE MINIMUM AT THE MAXIMUM
OF THE ESTIMATED OF THE ESTIMATED
PRICE RANGE(1)(2) PRICE RANGE(1)(2)
-------------------------- --------------------------
AS A PERCENT AS A PERCENT
NUMBER OF SHARES NUMBER OF SHARES
NAME AMOUNT OF SHARES OFFERED OF SHARES OFFERED
- ---------------------------------- ---------- --------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C>
Timothy A. Dempsey................ $ 150,000 15,000 0.36% 15,000 0.27%
Ronald J. Gentile................. 150,000 15,000 0.36 15,000 0.27
Frances M. Gorish................. 30,000 3,000 0.07 3,000 0.05
R. Michael Kennedy................ 150,000 15,000 0.36 15,000 0.27
Fred M. Knipp..................... 150,000 15,000 0.36 15,000 0.27
Emil R. Krahulik.................. 30,000 3,000 0.07 3,000 0.05
Thomas F. Lawrence, Jr............ 20,000 2,000 0.05 2,000 0.04
Henry L. Nielsen, Jr.............. 150,000 15,000 0.36 15,000 0.27
John W. Sanford III............... 35,000 3,500 0.08 3,500 0.06
Robert N. Smith................... 100,000 10,000 0.24 10,000 0.18
Arthur W. Budich.................. 150,000 15,000 0.36 15,000 0.27
Laurence D. Haggerty.............. 150,000 15,000 0.36 15,000 0.27
Donna M. Lyons.................... 75,000 7,500 0.18 7,500 0.13
Barbara A. Rudy................... 50,000 5,000 0.12 5,000 0.09
Nancy L. Sobotor-Littell.......... 25,000 2,500 0.06 2,500 0.04
---------- ------- ---- ------- ----
All trustees and executive
officers as a group............. $1,415,000 141,500 3.43% 141,500 2.54%
========== ======= ==== ======= ====
</TABLE>
- ---------------
(1) The individual maximum purchase limitation is equal to $150,000. The above
table, however, includes proposed subscriptions by Associates (See "The
Conversion -- Limitations on Common Stock Purchases"). Does not include
subscription orders by the ESOP. The ESOP is expected to purchase 8% of the
shares to be issued in the Conversion, including shares to be issued to the
Foundation. See "-- Benefits -- Employee Stock Ownership Plan and Trust."
(2) The table does not reflect additional shares that the following persons, who
serve as trustees emeritus of the Bank, propose to purchase in the Offerings
in the amounts indicated: Harry C. Sayre, Jr., M.D. -- $20,000, John W.
Sanford, Jr. -- $25,000, Wilbur L. Smith -- $50,000. Such purchases, when
aggregated with the purchases set forth in the table, amount to $1,510,000
or 151,000 shares (3.66% of shares offered at the minimum of the Estimated
Price Range and 2.71% of shares offered at the maximum of the Estimated
Price Range).
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THE CONVERSION
THE BOARD OF TRUSTEES OF THE BANK AND THE SUPERINTENDENT OF BANKS OF THE
STATE OF NEW YORK HAVE APPROVED THE PLAN OF CONVERSION, SUBJECT TO APPROVAL BY
THE BANK'S ELIGIBLE ACCOUNT HOLDERS ENTITLED TO VOTE ON THE MATTER AND THE
SATISFACTION OF CERTAIN OTHER CONDITIONS. SUCH APPROVAL, HOWEVER, DOES NOT
CONSTITUTE A RECOMMENDATION OR ENDORSEMENT OF THE PLAN BY THE SUPERINTENDENT.
GENERAL
On July 10, 1997, the Bank's Board of Trustees unanimously adopted the Plan
of Conversion pursuant to which the Bank will be converted from a New York
mutual savings bank to a New York stock savings bank. The Plan was amended by
the Board of Trustees as of August 19, 1997. It is currently intended that all
of the outstanding capital stock issued by the Bank pursuant to the Plan will be
held by the Company, which is incorporated under Delaware law. The Plan was
approved by the Superintendent, and the Bank has received a notice of intent not
to object to the Plan from the FDIC, subject to, among other things, approval of
the Plan by the Bank's Eligible Account Holders. A special meeting of Eligible
Account Holders has been called for this purpose to be held on December ,
1997.
The Company has received approval from the FRB to become a bank holding
company and to acquire all of the capital stock of the Bank to be issued in the
Conversion. The Company plans to retain 50% of the net proceeds from the sale of
the Common Stock and to use the remaining net proceeds to purchase all of the
then to be issued and outstanding capital stock of the Bank. The Conversion will
be effected only upon completion of the sale of all of the shares of Common
Stock of the Company (or of the Bank, if the holding company form of
organization is not utilized) to be issued pursuant to the Plan.
The Plan provides that the Board of Trustees of the Bank may, at any time
prior to the issuance of the Common Stock and for any reason, decide not to use
the holding company form of organization. Such reasons may include possible
delays resulting from overlapping regulatory processing or policies which could
adversely affect the Bank's or the Company's ability to consummate the
Conversion and transact its business as contemplated herein and in accordance
with the Bank's operating policies. In the event such a decision is made, the
Bank will withdraw the Company's registration statement from the SEC and take
steps necessary to complete the Conversion without the Company, including filing
any necessary documents with the Superintendent and the FDIC. In such event, and
provided there is no regulatory action, directive or other consideration upon
which basis the Bank determines not to complete the Conversion, if permitted by
the Superintendent, the Bank will issue and sell the common stock of the Bank
and subscribers will be notified of the elimination of a holding company and
will be solicited (i.e., be permitted to affirm their orders, in which case they
will need to affirmatively reconfirm their subscriptions prior to the expiration
of the resolicitation offering or their funds will be promptly refunded with
interest at the Bank's passbook rate of interest; or be permitted to modify or
rescind their subscriptions), and notified of the time period within which the
subscriber must affirmatively notify the Bank of such subscriber's intention to
affirm, modify or rescind such subscriber's subscription. The following
description of the Plan assumes that a holding company form of organization will
be used in the Conversion. In the event that a holding company form of
organization is not used, all other pertinent terms of the Plan as described
below will apply to the conversion of the Bank from the mutual to stock form of
organization and the sale of the Bank's common stock.
The Plan provides generally that (i) the Bank will convert from a mutual
savings bank to a capital stock savings bank and (ii) the Company will offer
shares of Common Stock for sale in the Subscription Offering to the Bank's
Eligible Account Holders and then to the Employee Plans, including the ESOP. The
Plan also provides that shares not subscribed for in the Subscription Offering
may be offered in a Community Offering to certain members of the general public.
It is anticipated that all shares not subscribed for in the Subscription and
Community Offerings will be offered for sale by the Company to the general
public in a Syndicated Community Offering. The Company and the Bank have
reserved the right to accept or reject, in whole or in
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part, any orders to purchase shares of the Common Stock received in the
Community Offering or in the Syndicated Community Offering. See "-- Community
Offering" and "-- Syndicated Community Offering."
The aggregate price of the shares of Common Stock to be issued in the
Conversion within the Estimated Price Range, currently estimated to be between
$41,225,000 and $55,775,000, is based upon an independent appraisal prepared by
FinPro, a consulting firm experienced in the valuation and appraisal of savings
institutions, of the estimated pro forma market value of the Common Stock of the
Company. All shares of Common Stock to be issued and sold in the Conversion will
be sold at the same price. The independent appraisal will be affirmed or, if
necessary, updated at the completion of the Offerings. See "-- Stock Pricing"
for additional information as to the determination of the estimated pro forma
market value of the Common Stock.
The following is a brief summary of pertinent aspects of the Conversion.
The summary is qualified in its entirety by reference to the provisions of the
Plan. A copy of the Plan is available from the Bank upon written request and is
available for inspection at the offices of the Bank and at the office of the
Superintendent. The Plan is also filed as an Exhibit to the Registration
Statement of which this Prospectus is a part, copies of which may be obtained
from the SEC. See "Additional Information."
PURPOSES OF CONVERSION
The Bank, as a New York mutual savings bank, does not have shareholders and
has no authority to issue capital stock. By converting to the capital stock form
of organization, the Bank will be structured in the form used by commercial
banks, many other business entities and a growing number of savings
institutions. The Conversion will be important to the future growth and
performance of the Bank by providing a larger capital base on which the Bank may
operate, enhanced future access to capital markets, enhanced ability to
diversify into other financial services related activities and enhanced ability
to render services to the public.
The holding company form of organization, if used, would provide additional
flexibility to diversify the Bank's business activities through newly-formed
subsidiaries, or through acquisitions of or mergers with both mutual and stock
institutions, as well as other companies. Although there are no current
arrangements, understandings or agreements, written or oral, regarding any such
opportunities, the Company will be in a position after the Conversion, subject
to regulatory limitations and the Company's financial position, to take
advantage of any such opportunities that may arise. While there are benefits
associated with the holding company form of organization, such form of
organization may involve additional costs associated with its maintenance and
regulation as a savings and loan company, such as additional administrative
expenses, taxes and regulatory filings or examination fees.
The potential impact of the Conversion upon the Bank's capital base is
significant. The Bank had Tier 1 Leverage Capital of $27.5 million, or 9.53% of
assets, at May 31, 1997. Assuming that $53.7 million of net proceeds are
realized from the sale of Common Stock (being the maximum of the Estimated Price
Range established by the Board of Directors based on the Valuation Range which
has been estimated by FinPro to be from a minimum of $41,225,000 to a maximum of
$55,775,000 (see "Pro Forma Data" for the basis of this assumption)) and
assuming that $26.9 million of the net proceeds are used by the Company to
purchase the capital stock of the Bank, the Bank's Tier 1 Leverage capital
ratio, on a pro forma basis, will increase to 15.57% after the Conversion. In
the event that the holding company form of organization is not utilized and all
of the net proceeds from the Offerings, at the maximum of the Estimated Price
Range, are retained by the Bank, the Bank's Tier 1 Leverage capital ratio on a
pro forma basis, will increase to 22.45% after Conversion. The investment of the
net proceeds from the sale of the Common Stock will provide the Bank with
additional income to further enhance its capital position. The additional
capital may also assist the Bank in offering new programs and expanded services
to its customers.
After completion of the Conversion, the unissued common and preferred stock
authorized by the Company's Certificate of Incorporation will permit the
Company, subject to market conditions and regulatory approval of an offering, to
raise additional equity capital through further sales of securities and to issue
securities in connection with possible acquisitions. At the present time, the
Company has no plans with respect to additional offerings of securities, other
than the issuance of additional shares to the Foundation or upon
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exercise of stock options granted pursuant to the Stock Option Plan or the
possible issuance of authorized but unissued shares to the RRP. Following the
Conversion, the Company will also be able to use stock-related incentive
programs to attract and retain executive and other personnel for itself and its
subsidiaries. See "Management of the Bank -- Executive Compensation."
EFFECTS OF CONVERSION
General. Each depositor in a mutual savings bank has both a deposit
account in the institution and a pro rata ownership interest in the equity of
the institution based upon the balance in such depositor's account, which
interest may only be realized in the event of a liquidation of the institution.
However, this ownership interest is tied to the depositor's account and has no
tangible market value separate from such deposit account. Any depositor who
opens a deposit account obtains a pro rata ownership interest in the equity of
the institution without any additional payment beyond the amount of the deposit.
A depositor who reduces or closes such depositor's account receives the balance
in the account but receives nothing for such depositor's ownership interest in
the equity of the institution, which is lost to the extent that the balance in
the account is reduced.
Consequently, depositors of a mutual savings bank have no way to realize
the value of their ownership interest, which has realizable value only in the
unlikely event that the mutual savings bank is liquidated. In such event, the
depositors of record at that time, as owners, would share pro rata in any
residual surplus and reserves after other claims, including claims of depositors
to the amounts of their deposits, are paid.
When a mutual savings bank converts to stock form, permanent
non-withdrawable capital stock is created to represent the ownership of the
institution's equity and the former pro rata ownership of depositors is
thereafter represented exclusively by their liquidation rights. See "--
Liquidation Rights." Such common stock is separate and apart from deposit
accounts and cannot be and is not insured by the FDIC or any other governmental
agency. Certificates are issued to evidence ownership of the capital stock. The
stock certificates are transferable, and, therefore, the stock may be sold or
traded if a purchaser is available with no effect on any account the seller may
hold in the institution.
Continuity. While the Conversion is being accomplished, and after the
consummation of the Conversion, the normal business of the Bank of accepting
deposits and making loans will continue without interruption. The Bank will
continue to be subject to regulation by the Superintendent and the FDIC. After
Conversion, the Bank will continue to provide services for depositors and
borrowers under current policies by its present management and staff.
The trustees serving the Bank immediately before the Conversion will serve
as directors of the Bank after the Conversion. The directors of the Company will
consist of all of the individuals currently serving on the Board of Trustees of
the Bank. It is anticipated that all officers of the Bank serving immediately
before the Conversion will retain their positions after the Conversion. See
"Management of the Company" and "Management of the Bank."
Deposit Accounts and Loans. Under the Plan, each depositor in the Bank at
the time of Conversion will automatically continue as a depositor after the
Conversion, and each such deposit account will remain the same with respect to
deposit balance, interest rate and other terms, except to the extent affected by
withdrawals made to purchase Common Stock in the Conversion. See "-- Procedure
for Purchasing Shares in Subscription and Community Offerings." Each such
account will be insured by the FDIC to the same extent as before the Conversion
(i.e., up to $100,000 per depositor). Depositors will continue to hold their
existing certificates of deposit, passbooks and other evidences of their
accounts.
Furthermore, no loan outstanding from the Bank will be affected by the
Conversion, and the amount, interest rate, maturity and security for each loan
will remain as they were contractually fixed prior to the Conversion.
Voting Rights of Depositors. It is current mutual form, voting rights and
control of the Bank are vested exclusively in the Board of Trustees. After the
Conversion, direction of the Bank will be under the control of the Board of
Directors of the Bank. The Company, as the holder of all of the outstanding
common stock of the
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Bank, will have exclusive voting rights with respect to any matters concerning
the Bank requiring shareholder approval, including the election of directors of
the Bank.
After the Conversion, subject to the rights of the holders of preferred
stock that may be issued in the future, the holders of the Common Stock will
have exclusive voting rights with respect to any matters concerning the Company.
Each holder of Common Stock will, subject to the restrictions and limitations
set forth in the Company's Certificate of Incorporation discussed below, be
entitled to vote on any matters to be considered by the Company's shareholders,
including the election of directors of the Company.
Liquidation Rights. In the unlikely event of a complete liquidation of the
Bank in its present mutual form, each depositor would receive such depositor's
pro rata share of any assets of the Bank remaining after payment of claims of
all creditors (including the claims of all depositors to the withdrawal value of
their accounts). Each depositor's pro rata share of such remaining assets would
be in the same proportion as the value of such depositor's deposit account was
to the total value of all deposit accounts in the Bank at the time of
liquidation. After the Conversion, each depositor, in the event of a complete
liquidation, would have a claim as a creditor of the same general priority as
the claims of all other general creditors of the Bank. However, except as
described below, such depositor's claim would be solely in the amount of the
balance in such depositor's deposit account plus accrued interest. Such
depositor would not have an interest in the value or assets of the Bank above
that amount.
The Plan provides for the establishment, upon the completion of the
Conversion, of a special "liquidation account" for the benefit of Eligible
Account Holders in an amount equal to the surplus and reserves of the Bank as of
the date of its latest balance sheet contained in the final Prospectus used in
connection with the Conversion. Each Eligible Account Holder, if such account
holder were to continue to maintain such account holder's deposit account at the
Bank, would be entitled, on a complete liquidation of the Bank after the
Conversion, to an interest in the liquidation account prior to any payment to
the shareholders of the Bank. Each Eligible Account Holder would have an initial
interest in such liquidation account for each deposit account, including
passbook accounts, demand deposits transaction accounts such as NOW/Super NOW
accounts, money market deposit accounts and certificates of deposit, with an
aggregate balance of $100 or more held in the Bank on June 30, 1996 ("Qualifying
Deposit"). Each Eligible Account Holder will have a pro rata interest in the
total liquidation account for such account holder's deposit accounts based on
the proportion that the aggregate balance of such person's Qualifying Deposits
on the Eligibility Record Date, bore to the total amount of all Qualifying
Deposits of all Eligible Account Holders.
If, however, on any annual closing date (i.e., the anniversary of the
Eligibility Record Date of the Bank, commencing on or after the effective date
of the Conversion, the amount in any deposit account is less than the amount in
such deposit account on June 30, 1996 or any other annual closing date, then the
interest in the liquidation account relating to such deposit account would be
reduced from time to time by the proportion of any such reduction, and such
interest will cease to exist if such deposit account is closed. For purposes of
the liquidation account, time deposit accounts shall be deemed to be closed upon
maturity regardless of renewal. In addition, no interest in the liquidation
account would ever be increased despite any subsequent increase in the related
deposit account. Any assets remaining after the above liquidation rights of
Eligible Account Holders are satisfied would be distributed to the Company as
the sole shareholder of the Bank.
Tax Aspects. Consummation of the Conversion is expressly conditioned upon
the receipt by the Bank of either a favorable ruling from the IRS and New York
taxing authorities or opinions of counsel with respect to federal and New York
income taxation, to the effect that the Conversion will not be a taxable
transaction to the Company, the Bank or Eligible Account Holders, except as
noted below.
No private ruling will be received from the IRS with respect to the
proposed Conversion. Instead, the Bank has received an opinion of its counsel,
Thacher Proffitt & Wood, based on customary certificates delivered by management
of the Company and the Bank, that for federal income tax purposes, among other
matters: (i) the Bank's change in form from mutual to stock ownership will
constitute a reorganization under section 368(a)(1)(F) of the Code, (ii) neither
the Bank nor the Company will recognize any gain or loss as a result of the
Conversion; (iii) no gain or loss will be recognized by the Bank or the Company
upon the purchase of the Bank's capital stock by the Company or by the Company
upon the purchase of its Common
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Stock in the Conversion; (iv) no gain or loss will be recognized by Eligible
Account Holders upon the issuance to them of deposit accounts in the Bank in its
stock form plus their interests in the liquidation account in exchange for their
deposit accounts in the Bank; (v) the tax basis of the depositors' deposit
accounts in the Bank immediately after the Conversion will be the same as the
basis of their deposit accounts immediately prior to the Conversion; (vi) the
tax basis of each Eligible Account Holder's interest in the liquidation account
will be zero; (vii) no gain or loss will be recognized by Eligible Account
Holders upon the distribution to them of non-transferable subscription rights to
purchase shares of the Common Stock, provided, that the amount to be paid for
the Common Stock is equal to the fair market value of such stock; and (viii) the
tax basis to the shareholders of the Common Stock of the Company purchased in
the Conversion pursuant to the subscription rights will be the amount paid
therefore and the holding period for the shares of Common Stock purchased by
such persons will begin on the date on which their subscription rights are
exercised.
Thacher Proffitt & Wood has also opined, subject to the limitations and
qualifications in its opinion, that the Conversion will not be a taxable
transaction to the Company or to the Bank for New York income and franchise tax
purposes or to Eligible Account Holders for New York income tax purposes. The
opinions of Thacher Proffitt & Wood have been filed as exhibits to the
Registration Statement of which this Prospectus is a part.
Unlike private rulings, opinions of counsel are not binding on the IRS or
the New York taxing authorities and the IRS or the New York taxing authorities
could disagree with conclusions reached therein. In the event of such
disagreement, there can be no assurance that the IRS or the New York taxing
authorities would not prevail in a judicial or administrative proceeding.
Certain portions of both the federal and the state tax opinions are based
upon the opinion of FinPro that subscription rights issued in connection with
the Conversion will have no value. In the opinion of FinPro, which opinion is
not binding on the IRS or the New York taxing authorities, the subscription
rights do not have any value based on the fact that such rights are acquired by
the recipients without cost, are non-transferable and of short duration, and
afford the recipients the right only to purchase the Common Stock at a price
equal to its estimated fair market value, which will be the same price as the
Purchase Price for the unsubscribed shares of Common Stock. If the subscription
rights granted to Eligible Account Holders, are deemed to have an ascertainable
value, such Eligible Account Holders could be taxed upon the receipt or exercise
of the subscription rights in an amount equal to such value, and the Bank could
recognize gain on such distribution. Eligible Account Holders are encouraged to
consult with their own tax advisors as to the tax consequences in the event that
such subscription rights are deemed to have an ascertainable value.
ESTABLISHMENT OF THE WARWICK SAVINGS FOUNDATION
General. In furtherance of the Bank's commitment to its local community,
the Plan of Conversion provides for the establishment of a charitable foundation
in connection with the Conversion. The Plan provides that the Bank and the
Company will incorporate the Foundation under Delaware law as a non-stock
corporation, and will fund the Foundation with Common Stock of the Company, as
further described below. The Company and the Bank believe that the funding of
the Foundation with Common Stock of the Company is a means to establish a common
bond between the Bank and its community, enabling the Bank's community to share
in the potential growth and success of the Company over the long term. By
further enhancing the Bank's visibility and reputation in its local community,
the Bank believes that the Foundation will enhance the long-term value of the
Bank's community banking franchise. The Foundation will be dedicated to
charitable purposes within the Bank's local community, including community
development activities.
Purpose of the Foundation. The purpose of the Foundation is to provide
funding to support charitable causes and community development activities. In
recent years, the Bank has emphasized community lending and community
development activities within the Bank's local community. The Bank received a
satisfactory CRA rating in its last CRA examination. The Foundation is being
formed to complement the Bank's existing community activities, not as a
replacement for such activities. The Bank intends to continue to emphasize
community lending and community development activities following the Conversion.
However, such activities are not the Bank's sole corporate purpose. The
Foundation will be completely dedicated to community
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activities and the promotion of charitable causes, and may be able to support
such activities in ways that are not presently available to the Bank. In this
regard, the Board of Trustees believes the establishment of a charitable
foundation is consistent with the Bank's commitment to community service. The
Board further believes that the funding of the Foundation with Common Stock of
the Company is a means of enabling the Bank's community to share in the
potential growth and success of the Company long after completion of the
Conversion. The Foundation will accomplish that goal by providing for continued
ties between the Foundation and Bank, thereby forming a partnership with the
Bank's community. The establishment of the Foundation will also enable the
Company and the Bank to develop a unified charitable donation strategy and will
centralize the responsibility for administration and allocation of corporate
charitable funds. Charitable foundations have been formed by other financial
institutions for this purpose, among others. The Bank, however, does not expect
the contribution to the Foundation to take the place of the Bank's traditional
community lending and charitable activities.
Structure of the Foundation. The Foundation will be incorporated under
Delaware law as a non-stock corporation. The Foundation's Certificate of
Incorporation provides that it is organized exclusively for charitable purposes,
including community development, as set forth in Section 501(c)(3) of the Code.
The Foundation's Certificate of Incorporation further provides that no part of
the net earnings of the Foundation will inure to the benefit of, or be
distributable to its directors, officers or members. A majority of the Board of
Directors of the Foundation will consist of individuals who are officers or
trustees of the Bank, and the remaining members of the Board will consist of
civic and community leaders within the Bank's local community. A Nominating
Committee of such Board, which is to be comprised of a minimum of three members
of the Board, will nominate individuals eligible for election to the Board of
Directors. The members of the Foundation, who are comprised of its Board
members, will elect the directors at the annual meeting of the Foundation from
those nominated by the Nominating Committee. Only persons serving as directors
of the Foundation qualify as members of the Foundation, with voting authority.
Directors will be divided into three classes with each class appointed for
three-year terms.
The authority for the affairs of the Foundation will be vested in the Board
of Directors of the Foundation. The directors of the Foundation will be
responsible for establishing the policies of the Foundation with respect to
grants or donations by the Foundation, consistent with the purposes for which
the Foundation was established. Although no formal policy governing Foundation
grants exists at this time, the Foundation's Board of Directors will adopt such
a policy upon establishment of the Foundation. As directors of a non-profit
corporation, directors of the Foundation will at all times be bound by their
fiduciary duty to advance the Foundation's charitable goals, to protect the
assets of the Foundation and to act in a manner consistent with the charitable
purpose for which the Foundation is established. The directors of the Foundation
will also be responsible for directing the activities of the Foundation,
including the management of the Common Stock of the Company held by the
Foundation. However, as a condition to receiving the non-objection of the FDIC
to the Bank's Conversion, the Foundation will commit in writing to the FDIC that
all shares of Common Stock held by the Foundation will be voted in the same
ratio as all other shares of the Company's Common Stock on all proposals
considered by shareholders of the Company; provided, however, that, consistent
with the condition, the FDIC shall waive this voting restriction under certain
circumstances if compliance with the voting restriction would: (i) cause a
violation of the law of the State of Delaware; (ii) would cause the Foundation
to lose its tax-exempt status, or cause the IRS to deny the Foundation's request
for a determination that it is an exempt organization or otherwise have a
material and adverse tax consequence on the Foundation; or (iii) would cause the
Foundation to be subject to an excise tax under Section 4941 of the Code. In
order for the FDIC to waive such voting restriction, the Company's or the
Foundation's legal counsel must render an opinion satisfactory to FDIC that
compliance with the voting restriction would have an effect described in clauses
(i), (ii) or (iii) above. Under those circumstances, the FDIC shall grant a
waiver of the voting requirement upon submission of such legal opinion(s) by the
Company or the Foundation that are satisfactory to the FDIC. In the event that
the FDIC were to waive such voting requirement, the directors would direct the
voting of the Common Stock held by the Foundation.
The Foundation's place of business will be located at the Bank's
administrative offices and initially the Foundation is expected to have no
employees but will utilize the staff of the Company and the Bank. The
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Board of Directors of the Foundation will appoint such officers as may be
necessary to manage the operations of the Foundation. In this regard, the Bank
has provided the FDIC with a commitment that, to the extent applicable, the Bank
will comply with the affiliate restrictions set forth in Sections 23A and 23B of
the Federal Reserve Act with respect to any transactions between the Bank and
the Foundation.
The Company intends to capitalize the Foundation with Common Stock of the
Company in an amount equal to 3%of the total amount of Common Stock to be sold
in connection with the Conversion. At the minimum, midpoint and maximum of the
Estimated Price Range, the contribution to the Foundation would equal 123,675,
145,500 and 167,325 shares, which would have a market value of $1.2 million,
$1.5 million and $1.7 million, respectively, assuming the Purchase Price of
$10.00 per share. The Company and the Bank determined to fund the Foundation
with Common Stock rather than cash because it desired to form a bond with its
community in a manner that would allow the community to share in the potential
growth and success of the Company and the Bank over the long term. The funding
of the Foundation with stock also provides the Foundation with a potentially
larger endowment than if the Company contributed cash to the Foundation since,
as a shareholder, the Foundation will share in the potential growth and success
of the Company. As such, the contribution of stock to the Foundation has the
potential to provide a self-sustaining funding mechanism which reduces the
amount of cash that the Company, if it were not making the stock donation, would
have to contribute to the Foundation in future years in order to maintain a
level amount of charitable grants and donations.
The Foundation will receive working capital from any dividends that may be
paid on the Company's Common Stock in the future, and subject to applicable
federal and state laws, loans collateralized by the Common Stock or from the
proceeds of the sale of any of the Common Stock in the open market from time to
time as may be permitted to provide the Foundation with additional liquidity. As
a private foundation under Section 501(c)(3) of the Code, the Foundation will be
required to distribute annually in grants or donations, a minimum of 5% of the
average fair market value of its net investment assets. One of the conditions
imposed on the gift of Common Stock by the Company is that the amount of Common
Stock that may be sold by the Foundation in any one year shall not exceed 5% of
the average market value of the assets held by the Foundation, except where the
Board of Directors of the Foundation determines that the failure to sell an
amount of common stock greater than such amount would result in a long-term
reduction of the value of the Foundation's assets and as such would jeopardize
the Foundation's capacity to carry out its charitable purposes. Upon completion
of the Conversion and the contribution of shares to the Foundation immediately
following the Conversion, the Company would have 4,246,175, 4,995,500 and
5,744,825 shares issued and outstanding at the minimum, midpoint and maximum of
the Estimated Price Range. Because the Company will have an increased number of
shares outstanding, the voting and ownership interests of shareholders in the
Company's common stock would be diluted by 2.9%, as compared to their interests
in the Company if the Foundation was not established. For additional discussion
of the dilutive effect, see "Pro Forma Data."
Tax Considerations. The Company and the Bank have been advised by Thacher
Proffitt & Wood that an organization created for the above purposes would
qualify as an organization exempt from taxation under Section 501(c)(3) of the
Code, and would likely be classified as a private foundation. The Foundation
will submit an application to the IRS to be recognized as an exempt
organization. If the Foundation files such an application within 15 months from
the date of its organization, and if the IRS approves the application, the
effective date of the Foundation's status as a Section 501(c)(3) organization
will be retroactive to the date of its organization. Thacher Proffitt & Wood,
however, has not rendered any advice on the condition to the contribution to be
agreed to by the Foundation which requires that all shares of Common Stock of
the Company held by the Foundation must be voted in the same ratio as all other
outstanding shares of Common Stock of the Company on all proposals considered by
shareholders of the Company. Consistent with this condition, in the event that
the Company or the Foundation receives an opinion of its legal counsel that
compliance with this voting restriction would have the effect of causing the
Foundation to lose its tax-exempt status or otherwise have a material and
adverse tax consequence on the Foundation, or subject the Foundation to an
excise tax for "self-dealing" under Section 4941 of the Code, the FDIC will
waive such voting restriction upon submission by the Company or the Foundation
of a legal opinion(s) to that effect satisfactory to the FDIC. See
"-- Regulatory Conditions Imposed on the Foundation."
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Under the Code, the Company is entitled to a deduction for charitable
contributions in an amount not exceeding 10% of its taxable income (computed
without regard to the contributions) for the year of the contribution, and any
contributions in excess of the deductible amount may be carried forward and
deducted in the Company's five succeeding taxable years, subject, in each such
year, to the 10% of taxable income limitation. The Company and the Bank believe
that the Conversion presents a unique opportunity to establish and fund a
charitable foundation given the substantial amount of additional capital being
raised in the Conversion. In making such a determination, the Company and the
Bank considered the dilutive impact of the contribution of Common Stock to the
Foundation on the amount of Common Stock available to be offered for sale in the
Conversion. Based on such consideration, the Company and Bank believe that the
contribution to the Foundation in excess of the 10% annual limitation is
justified given the Bank's capital position and its earnings, the substantial
additional capital being raised in the Conversion and the potential benefits of
the Foundation to the Bank's community. In this regard, assuming the sale of the
Common Stock at the maximum of the Estimated Price Range, the Company would have
pro forma consolidated capital of $75.6 million or 22.64% of pro forma
consolidated assets and the Bank's pro forma leverage and risk-based capital
ratios would be 15.57% and 30.49%, respectively. See "Regulatory Capital
Compliance," "Capitalization," and "Comparison of Valuation and Pro Forma
Information with No Foundation." Thus, the amount of the contribution will not
adversely impact the financial condition of the Company and the Bank, and the
Company and the Bank therefore believe that the amount of the charitable
contribution is reasonable and will not raise safety and soundness concerns.
The Company and the Bank have received the opinion of Thacher Proffitt &
Wood that the Company's contribution of its own stock to the Foundation would
not constitute an act of self-dealing, and that the Company will be entitled to
a deduction in the amount of the fair market value of the stock at the time of
the contribution, subject to the 10% of taxable income limitation. As discussed
above, the Company will be able to carry forward and deduct any portion of the
contribution in excess of such 10% limitation for five years following the year
of the contribution. If the Company and the Foundation had been established in
the fiscal year ended May 31, 1997, the Company would have been entitled to a
charitable contribution deduction in its taxable year ended December 31, 1996 of
approximately $447 thousand and would have been able to carry forward and deduct
approximately $1.2 million over its next succeeding five taxable years (based on
the Bank's pre-tax income for 1996 and a contribution in 1996 of Common Stock
equal to $1.7 million). Assuming the close of the Offerings at the midpoint of
the Estimated Price Range, the Company estimates that the entire amount of the
contribution should be deductible over a six-year period. Neither the Company
nor the Bank expect to make any further contributions to the Foundation within
the first five years following the initial contribution. After that time, the
Company and the Bank may consider future contributions to the Foundation. Any
such decisions would be based on an assessment of, among other factors, the
financial condition of the Company and the Bank at that time, the interests of
shareholders and depositors of the Company and the Bank, and the financial
condition and operations of the Foundation.
Although the Company and the Bank have received the opinion of Thacher
Proffitt & Wood that the Company is entitled to a deduction for the charitable
contribution, there can be no assurances that the IRS will recognize the
Foundation as an organization exempt from taxation under section 501(c)(3) of
the Code or that the deduction will be permitted. If the IRS successfully
maintains that the Foundation is not so exempt or that the deduction is not
permitted, the Company's tax benefit related to the contribution to the
Foundation would be expensed without tax benefit, resulting in a reduction in
earnings in the year in which the IRS makes such a determination. See "Risk
Factors -- Establishment of Charitable Foundation."
In general, the income of a private foundation is exempt from federal and
state taxation. However, investment income, such as interest, dividends and
capital gains, will be subject to a federal excise tax of 2.0%. The Foundation
will be required to make an annual filing with the IRS within four and one-half
months after the close of the Foundation's taxable year to maintain its
tax-exempt status. The Foundation will also be required to publish a notice that
the annual information return will be available for public inspection for a
period of 180 days after the date of such public notice. The information return
for a private foundation must include, among other things, an itemized list of
all grants made or approved, showing the amount of each grant, the recipient,
any relationship between a grant recipient and the Foundation's managers, and a
concise
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statement of the purpose of each grant. The Foundation will also be required to
file an annual report with the Charities Bureau of the Office of the Attorney
General of the State of New York.
Regulatory Conditions Imposed on the Foundation. Establishment of the
Foundation is subject to the following conditions to be agreed to by the
Foundation in writing as a condition to receiving the FDIC's non-objection of
the Bank's Conversion: (i) the Foundation will be subject to examination by the
FDIC; (ii) the Foundation must comply with supervisory directives imposed by the
FDIC; (iii) the Foundation will operate in accordance with written policies
adopted by the board of directors, including a conflict of interest policy; and
(iv) any shares of Common Stock of the Company held by the Foundation must be
voted in the same ratio as all other outstanding shares of Common Stock of the
Company on all proposals considered by shareholders of the Company; provided,
however, that, consistent with the condition, the FDIC shall waive this voting
restriction under certain circumstances if compliance with the voting
restriction would: (a) cause a violation of the law of the State of Delaware;
(b) would cause the Foundation to lose its tax-exempt status or otherwise have a
material and adverse tax consequence on the Foundation; or (c) would cause the
Foundation to be subject to an excise tax under Section 4941 of the Code. In
order for the FDIC to waive such voting restriction, the Company's or the
Foundation's legal counsel must render an opinion satisfactory to FDIC that
compliance with the voting restriction would have the effect described in
clauses (a), (b) or (c) above. Under those circumstances, the FDIC shall grant a
waiver of the voting restriction upon submission of such opinion(s) by the
Company or the Foundation which are satisfactory to the FDIC. There can be no
assurances that a legal opinion addressing these issues will be rendered, or if
rendered, that the FDIC will grant an unconditional waiver of the voting
restriction. In no event will the voting restriction survive the sale of shares
of the Common Stock held by the Foundation.
STOCK PRICING
The Plan of Conversion requires that the purchase price of the Common Stock
must be based on the appraised pro forma market value of the Common Stock, as
determined on the basis of an independent valuation. The Bank and the Company
have retained FinPro to make such valuation. For its services in making such
appraisal, FinPro will receive a fee of $14,000, plus out-of-pocket expenses.
The Bank and the Company have agreed to indemnify FinPro and its employees and
affiliates against certain losses (including any losses in connection with
claims under the federal securities laws) arising out of its services as
appraiser, except where FinPro's liability results from its negligence or bad
faith.
An appraisal has been made by FinPro in reliance upon the information
contained in this Prospectus, including the financial statements. FinPro also
considered the following factors, among others: the present and projected
operating results and financial condition of the Company and the Bank, and the
economic and demographic conditions in the Bank's existing market area; certain
historical, financial and other information relating to the Bank; a comparative
evaluation of the operating and financial statistics of the Bank with those of
other similarly situated publicly-traded savings associations and savings
institutions located in the Bank's market area and the State of New York; the
aggregate size of the offering of the Common Stock; the impact of Conversion on
the Bank's equity and earnings potential; the proposed dividend policy of the
Company and the Bank; and the trading market for securities of comparable
institutions and general conditions in the market for such securities.
On the basis of the foregoing, FinPro has advised the Company and the Bank
that, in its opinion, dated September 18, 1997, the estimated pro forma market
value of the Common Stock ranged from a minimum of $41,225,000 to a maximum of
$55,775,000 with a midpoint of $48,500,000. The Board of Trustees of the Bank
held a meeting to review and discuss the original appraisal report prepared by
FinPro. A representative of FinPro participated in the meeting to explain the
contents of the appraisal report. In connection with its review of the
reasonableness and adequacy of such appraisal consistent with NYBB and FDIC
regulations and policies, the Board of Trustees reviewed the methodology that
FinPro employed to determine the pro forma market value of the Common Stock and
the appropriateness of the assumptions that FinPro used in determining this
value.
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Based upon the Valuation Range and the Purchase Price of $10.00 per share
for the Common Stock established by the Board of Trustees, the Board of Trustees
has established the Estimated Price Range of $41,225,000 to $55,775,000, with a
midpoint of $48,500,000 million, and the Company expects to issue between
4,122,500 and 5,577,500 shares of Common Stock. The Estimated Price Range may be
amended with the approval of the Superintendent and FDIC (if required), if
necessitated by subsequent developments in the financial condition of the
Company or the Bank or market conditions generally.
THE VALUATION PREPARED BY FINPRO IS NOT INTENDED, AND MUST NOT BE
CONSTRUED, AS A RECOMMENDATION OF ANY KIND AS TO THE ADVISABILITY OF PURCHASING
SUCH SHARES. FINPRO DID NOT INDEPENDENTLY VERIFY THE FINANCIAL STATEMENTS AND
OTHER INFORMATION PROVIDED BY THE BANK, NOR DID FINPRO VALUE INDEPENDENTLY THE
ASSETS OR LIABILITIES OF THE BANK. THE VALUATION CONSIDERS THE BANK AS A GOING
CONCERN AND SHOULD NOT BE CONSIDERED AS AN INDICATION OF THE LIQUIDATION VALUE
OF THE BANK. MOREOVER, BECAUSE SUCH VALUATION IS NECESSARILY BASED UPON
ESTIMATES AND PROJECTIONS OF A NUMBER OF MATTERS, ALL OF WHICH ARE SUBJECT TO
CHANGE FROM TIME TO TIME, NO ASSURANCE CAN BE GIVEN THAT PERSONS PURCHASING SUCH
SHARES IN THE CONVERSION WILL THEREAFTER BE ABLE TO SELL SUCH SHARES AT PRICES
AT OR ABOVE THE PURCHASE PRICE OR IN THE RANGE OF THE FOREGOING VALUATION OF THE
PRO FORMA MARKET VALUE THEREOF. The appraisal of FinPro may be inspected by any
Eligible Account Holder at the Bank's main office located at 18 Oakland Avenue,
Warwick, New York, during regular business hours of the Bank and the other
locations specified under "Additional Information." Copies of the appraisal may
also be requested by Eligible Account Holders; provided, however, that such
Eligible Account Holders pay for all costs associated with the copying and
transmittal of such appraisal.
Following commencement of the Subscription Offering or Community Offering,
if any, the maximum of the Estimated Price Range may be increased up to 15% and
the number of shares of Common Stock to be issued in the Conversion may be
increased to 6,414,000 shares due to regulatory considerations, changes in the
market and general financial and economic conditions, without the resolicitation
of subscribers. See "-- Limitations on Common Stock Purchases" as to the method
of distribution and allocation of additional shares that may be issued in the
event of an increase in the Estimated Price Range to fill unfilled orders in the
Subscription and Community Offerings.
No sale of shares of Common Stock may be consummated unless, prior to such
consummation, FinPro confirms to the Bank, Company, Superintendent and FDIC
that, to the best of its knowledge, nothing of a material nature has occurred
which, taking into account all relevant factors, would cause FinPro to conclude
that the value of the Common Stock at the price so determined is incompatible
with its estimate of the pro forma market value of the Common Stock at the
conclusion of the Subscription Offering and Community Offering, if any.
If, based on FinPro's estimate, the pro forma market value of the Common
Stock, as of the date that FinPro so confirms, is not more than 15% above the
maximum and not less than the minimum of the Estimated Price Range then, (1)
with the approval of the Superintendent and the FDIC, the number of shares of
Common Stock to be issued in the Conversion may be increased or decreased, pro
rata to the increase or decrease in value, without resolicitation of
subscriptions, to no more than 6,414,000 shares or no less than 4,122,500
shares, and (2) all shares purchased in the Subscription and Community Offerings
will be purchased for the Purchase Price of $10.00 per share. If the number of
shares issued in the Conversion is increased due to an increase of up to 15% in
the Estimated Price Range to reflect changes in market or financial conditions,
persons who subscribed for the maximum number of shares will not be given the
opportunity to subscribe for an adjusted maximum number of shares, except for
the Employee Plans which will be able to subscribe for such adjusted amount up
to their 10% subscription. See "-- Limitations on Common Stock Purchases."
If the pro forma market value of the Common Stock is either more than 15%
above the maximum of the Estimated Price Range or less than the minimum of the
Estimated Price Range, the Bank and the Company, after consulting with the
Superintendent and the FDIC, may terminate the Plan and return all funds
promptly with interest at the Bank's passbook rate of interest on payments made
by check, draft or money order, extend or hold new Subscription and Community
Offerings, establish a new Estimated Price Range, commence a resolicitation of
subscribers or take such other actions as permitted by the Superintendent and
the FDIC in
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order to complete the Conversion. In the event that a resolicitation is
commenced, unless an affirmative response is received within a reasonable period
of time, all funds will be promptly returned to investors as described above. A
resolicitation, if any, following the conclusion of the Subscription and
Community Offerings would not exceed 45 days unless such resolicitation is
further extended by the Superintendent and the FDIC for periods of up to 60 days
not to extend beyond , 1999.
If all shares of Common Stock are not sold through the Subscription and
Community Offerings, then the Bank and the Company expect to offer the remaining
shares in a Syndicated Community Offering, which would occur as soon as
practicable following the close of the Subscription Offering or Community
Offering, if any, but may commence during the Subscription Offering and
Community Offering, if any, subject to the prior rights of subscribers. All
shares of Common Stock will be sold at the same price per share in the
Syndicated Community Offering as in the Subscription and Community Offerings.
See "-- Syndicated Community Offering."
No sale of shares of Common Stock may be consummated unless, prior to such
consummation, FinPro confirms to the Bank, the Company, Superintendent and the
FDIC that, to the best of its knowledge, nothing of a material nature has
occurred which, taking into account all relevant factors, including those which
would be involved in a cancellation of the Syndicated Community Offering, would
cause FinPro to conclude that the aggregate value of the Common Stock at the
Purchase Price is incompatible with its estimate of the pro forma market value
of the Common Stock of the Company at the time of the Syndicated Community
Offering. Any change which would result in an aggregate purchase price which is
below, or more than 15% above, the Estimated Price Range would be subject to
Superintendent and FDIC approval. If such confirmation is not received, the Bank
may extend the Conversion, extend, reopen or commence new Subscription and
Community Offerings or a Syndicated Community Offering, establish a new
Estimated Price Range and commence a resolicitation of all subscribers with the
approval of the Superintendent and FDIC or take such other actions as permitted
by the Superintendent and FDIC in order to complete the Conversion, or terminate
the Plan and cancel the Subscription and Community Offerings and/or the
Syndicated Community Offering. In the event market or financial conditions
change so as to cause the aggregate purchase price of the shares to be below the
minimum of the Estimated Price Range or more than 15% above the maximum of such
range, and the Company and the Bank determine to continue the Conversion,
subscribers will be resolicited (i.e., be permitted to continue their orders, in
which case they will need to affirmatively reconfirm their subscriptions prior
to the expiration of the resolicitation offering or their subscription funds
will be promptly refunded with interest at the Bank's passbook rate of interest,
or be permitted to decrease or cancel their subscriptions). Any change in the
Estimated Price Range must be approved by the Superintendent and FDIC. A
resolicitation, if any, following the conclusion of the Subscription Offering or
the Community Offering would not exceed 45 days, or if following the Syndicated
Community Offering, 60 days, unless further extended by the Superintendent for
periods up to 60 days not to extend beyond , 1999. If such
resolicitation is not effected, the Bank will return with interest all funds
promptly at the Bank's passbook rate of interest on payments made by check,
savings bank draft or money order.
Copies of the appraisal report of FinPro, including any amendments thereto,
and the detailed memorandum of the appraiser setting forth the method and
assumptions for such appraisal are available for inspection at the offices of
the Bank and the other locations specified under "Additional Information."
NUMBER OF SHARES TO BE ISSUED
Depending upon market or financial conditions following the commencement of
the Subscription Offering and Community Offering, if any, the total number of
shares to be issued in the Conversion may be increased or decreased without a
resolicitation of subscribers; provided, that the product of the total number of
shares times the price per share is not below the minimum or more than 15% above
the maximum of the Estimated Price Range, and the total number of shares to be
issued in the Conversion is not less than 4,122,500 or greater than 5,577,500
(or 6,414,000 if the Estimated Price Range is increased by 15%).
In the event market or financial conditions change so as to cause the
aggregate purchase price of the shares to be below the minimum of the Estimated
Price Range or more than 15% above the maximum of such
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range, if the Plan is not terminated by the Company and the Bank after
consultation with the Superintendent and FDIC, purchasers will be resolicited
(i.e., permitted to continue their orders, in which case they will need to
affirmatively reconfirm their subscriptions prior to the expiration of the
resolicitation offering or their subscription funds will be promptly refunded,
or be permitted to modify or rescind their subscriptions). Any change in the
Estimated Price Range must be approved by the Superintendent and FDIC. If the
number of shares issued in the Conversion is increased due to an increase of up
to 15% in the Estimated Price Range to reflect changes in market or financial
condition, persons who subscribed for the maximum number of shares will not be
given the opportunity to subscribe for an adjusted maximum number of shares,
except for the Employee Plans, which will be able to subscribe for such adjusted
amount up to its 10% subscription. See "-- Limitations on Common Stock
Purchases."
An increase in the number of shares to be issued in the Conversion as a
result of an increase in the estimated pro forma market value would decrease
both a subscriber's ownership interest and the Company's pro forma net earnings
and shareholders' equity on a per share basis while increasing pro forma net
earnings and shareholders' equity on an aggregate basis. A decrease in the
number of shares to be issued in the Conversion would increase both a
subscriber's ownership interest and the Company's pro forma net earnings and
shareholders' equity on a per share basis while decreasing pro forma net
earnings and shareholder's equity on an aggregate basis. For a presentation of
the effects of such changes see "Pro Forma Data."
To fund the Foundation, the number of shares to be issued and outstanding
as a result of the sale of Common Stock in the Conversion will be increased by a
number of shares equal to 3% of the Common Stock sold in the Conversion.
Assuming the sale of shares in the Offerings at the maximum of the Estimated
Price Range, the Company will contribute 167,325 shares of its Common Stock from
authorized but unissued shares to the Foundation immediately following the
completion of the Conversion. In that event, the Company will have total shares
of Common Stock outstanding of 5,744,825 shares. Funding the Foundation with
authorized but unissued shares will have the effect of diluting the ownership
and voting interests of persons purchasing shares in the Conversion by 2.9%
since a greater number of shares will be outstanding upon completion of the
Conversion than would be if the Foundation were not established. See "Pro Forma
Data."
SUBSCRIPTION OFFERING AND SUBSCRIPTION RIGHTS
In accordance with the Plan of Conversion, rights to subscribe for the
purchase of Common Stock have been granted under the Plan of Conversion to
depositors whose deposits in qualifying accounts in the Bank totaled $100 or
more as of June 30, 1996 ("Eligible Account Holders") and then to the Employee
Plans. All subscriptions received will be subject to the availability of Common
Stock after satisfaction of all subscriptions of all persons having prior rights
in the Subscription Offering and to the maximum and minimum purchase limitations
set forth in the Plan of Conversion and as described below under "-- Limitations
on Common Stock Purchases."
Priority 1: Eligible Account Holders. Each Eligible Account Holder will
receive, without payment therefor, first priority, non-transferable subscription
rights to subscribe for in the Subscription Offering up to the greatest of (i)
the amount permitted to be purchased in the Community Offering, which amount is
currently $150,000 of the Common Stock offered, (ii) one-tenth of one percent
(0.10%) of the total offering of shares of Common Stock or (iii) fifteen times
the product (rounded down to the next whole number) obtained by multiplying the
total number of shares of Common Stock to be issued by a fraction of which the
numerator is the amount of the Eligible Account Holder's qualifying deposit and
the denominator is the total amount of qualifying deposits of all Eligible
Account Holders, in each case on the Eligibility Record Date, subject to the
overall maximum and minimum purchase limitations. See "-- Limitations on Common
Stock Purchases."
In the event that Eligible Account Holders exercise subscription rights for
a number of shares in excess of the total number of shares eligible for
subscription, the shares will be allocated so as to permit each subscribing
Eligible Account Holder to purchase a number of shares sufficient to make such
Eligible Account Holder's total allocation equal to the lesser of 100 shares or
the number of shares subscribed for. Thereafter, unallocated shares will be
allocated among the remaining subscribing Eligible Account Holders whose
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subscriptions remain unfilled in the proportion that the amounts of their
respective qualifying deposits bear to the total amount of qualifying deposits
of all remaining Eligible Account Holders whose subscriptions remain unfilled.
To ensure a proper allocation of stock, each Eligible Account Holder must
list on his or her stock order form all accounts in which such Eligible Account
Holder has an ownership interest. Failure to list an account could result in
fewer shares being allocated than if all accounts had been disclosed. The
subscription rights of Eligible Account Holders who are also trustees or
executive officers of the Bank or their associates will be subordinated to the
subscription rights of other Eligible Account Holders to the extent attributable
to increased deposits in the one-year period preceding the Eligibility Record
Date.
Priority 2: The Employee Plans. To the extent that there are sufficient
shares remaining after satisfaction of the subscriptions by Eligible Account
Holders, the Employee Plans, including the ESOP, will receive, without payment
therefor, second priority, non-transferable subscription rights to purchase up
to 10% of the Common Stock to be issued in the Conversion, including shares to
be issued to the Foundation, subject to the purchase limitations set forth in
the Plan of Conversion and as described below under "-- Limitations on Common
Stock Purchases." As an Employee Plan, the ESOP intends to purchase 8% of the
shares to be issued in the Conversion, or 339,694 shares and 459,586 shares,
based on the issuance of 4,122,500 shares and 5,577,500, respectively.
Subscriptions by the ESOP will not be aggregated with shares of Common Stock
purchased directly by or which are otherwise attributable to any other
participants in the Subscription and Community Offerings, including
subscriptions of any of the Bank's trustees, officers, employees or associates
thereof. See "Management of the Bank -- Benefits -- Employee Stock Ownership
Plan and Trust."
Expiration Date for the Subscription Offering. The Subscription Offering
will expire at 12:00 noon, Eastern Time, on , 1997, unless extended
for an initial period of up to 45 days by the Bank or additional 60 day periods
with the approval of the Superintendent and if necessary, the FDIC. Subscription
rights which have not been exercised prior to the Expiration Date will become
void.
The Bank will not execute orders until all shares of Common Stock have been
subscribed for or otherwise sold. If all shares have not been subscribed for or
sold within 45 days after the Subscription Expiration Date, unless such period
is extended with the consent of the Superintendent, all funds delivered to the
Bank pursuant to the Subscription Offering will be returned with interest
promptly to the subscribers and all withdrawal authorizations will be canceled.
If an extension beyond the 45-day period following the Subscription Expiration
Date is granted, the Bank will notify subscribers of the extension of time and
of any rights of subscribers to modify or rescind their subscriptions. Each such
extension may not exceed 60 days, and such extensions, in the aggregate, may not
last beyond , 1999.
Persons in Non-qualified States or Foreign Countries. The Company and the
Bank will make reasonable efforts to comply with the securities laws of all
states in the United States in which persons entitled to subscribe for stock
pursuant to the Plan reside. However, the Bank and the Company are not required
to offer stock in the Subscription Offering to any person who resides in a
foreign country or resides in a state of the United States with respect to which
the Company or the Bank determines that compliance with the securities laws of
such state would be impracticable for reasons of cost or otherwise, including
but not limited to, a request that the Company and the Bank or their officers,
directors or trustees register as a broker, dealer, salesman or selling agent,
under the securities laws of such state, or a request to register or otherwise
qualify the subscription rights or Common Stock for sale or submit any filing
with respect thereto in such state. Where the number of persons eligible to
subscribe for shares in one state is small, the Bank and the Company will base
their decision as to whether or not to offer the Common Stock in such state on a
number of factors, including the size of accounts held by account holders in the
state, the cost of registering or qualifying the shares or the need to register
the Company, its officers, directors or employees as brokers, dealers or
salesmen.
COMMUNITY OFFERING
Upon completion of the Subscription Offering, to the extent that shares
remain available for purchase after satisfaction of all subscriptions of the
Eligible Account Holders and the Employee Plans, the Bank will offer shares
pursuant to the Plan in the Community Offering to certain members of the general
public to
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whom a copy of this prospectus has been delivered, subject to the right of the
Company and the Bank to accept or reject any such orders, in whole or in part,
in its sole discretion. The Community Offering, if any, shall commence upon the
completion of the Subscription Offering and shall terminate 14 days after the
close of the Subscription Offering unless extended by the Bank and the Company,
with the approval of the Superintendent and the FDIC, if necessary. Such
persons, together with associates of and persons acting in concert with such
persons, may purchase up to $150,000 of Common Stock subject to the maximum
purchase limitation. See "-- Limitations on Common Stock Purchases." This amount
may be increased to up to a maximum of 5% or decreased to less than $150,000 of
Common Stock at the discretion of the Company and the Bank. THE OPPORTUNITY TO
SUBSCRIBE FOR SHARES OF COMMON STOCK IN THE COMMUNITY OFFERING CATEGORY IS
SUBJECT TO THE RIGHT OF THE BANK AND THE COMPANY, IN THEIR DISCRETION, TO ACCEPT
OR REJECT ANY SUCH ORDERS IN WHOLE OR IN PART EITHER AT THE TIME OF RECEIPT OF
AN ORDER OR AS SOON AS PRACTICABLE FOLLOWING THE EXPIRATION DATE. IF THE COMPANY
REJECTS A SUBSCRIPTION IN PART, THE SUBSCRIBER WILL NOT HAVE THE RIGHT TO CANCEL
THE REMAINDER OF HIS OR HER SUBSCRIPTION.
Subject to the foregoing, if the amount of stock remaining is insufficient
to fill the orders of subscribers in the Community Offering after completion of
the Subscription and Community Offerings, such stock will be allocated first to
each subscriber whose order is accepted by the Bank, in an amount equal to the
lesser of 100 shares or the number of shares subscribed for by each such
subscriber, if possible. Thereafter, unallocated shares will be allocated among
such subscribers whose order remains unsatisfied on a 100 shares per order basis
until all such orders have been filled or the remaining shares have been
allocated.
MARKETING AND UNDERWRITING ARRANGEMENTS
The Bank and the Company have engaged Sandler O'Neill as a financial and
marketing advisor in connection with the offering of the Common Stock and
Sandler O'Neill has agreed to use its best efforts to assist the Company with
the solicitation of subscriptions and purchase orders for shares of Common Stock
in the Offerings. Based upon negotiations between the Bank and the Company,
Sandler O'Neill will receive a fee for services provided in connection with the
Offerings equal to 1.875% of the aggregate Purchase Price of Common Stock sold
in the Offerings. No fees will be paid to Sandler O'Neill with respect to any
shares of Common Stock purchased by any trustee, trustee emeritus, director,
executive officer or employee of the Bank or the Company or members of their
immediate families or the ESOP. In the event of a Syndicated Community Offering,
Sandler O'Neill will negotiate with the Company for the receipt of an additional
fee to be remitted to selected dealers under one or more selected dealer
agreements to be entered into by Sandler O'Neill with certain dealers; provided,
however, that the aggregate fees payable to Sandler O'Neill and any selected
dealers in connection with any Syndicated Community Offering will not exceed 7%
of the aggregate Purchase Price of the Common Stock sold in the Syndicated
Community Offering. Fees to Sandler O'Neill and to any other broker-dealer may
be deemed to be underwriting fees and Sandler O'Neill and such broker-dealers
may be deemed to be underwriters. Sandler O'Neill will also be reimbursed for
its reasonable out-of-pocket expenses, including legal fees. Notwithstanding the
foregoing, in the event the Offerings are not consummated or Sandler O'Neill
ceases, under certain circumstances after the subscription solicitation
activities are commenced, to provide assistance to the Company, Sandler O'Neill
will be entitled to reimbursement for its reasonable out-of-pocket expenses as
described above. The Company and the Bank have agreed to indemnify Sandler
O'Neill for costs and expenses in connection with certain claims or liabilities
related to or arising out of the services to be provided by Sandler O'Neill
pursuant to its engagement by the Bank and the Company as financial advisor in
connection with the Conversion, including certain liabilities under the
Securities Act. Total marketing fees to Sandler O'Neill are estimated to be $681
thousand and $951 thousand at the minimum and the maximum of the Estimated Price
Range, respectively. See "Pro Forma Data" for the assumptions used to arrive at
these estimates.
Sandler O'Neill will also perform proxy solicitation services, conversion
agent services and records management services for the Bank in the Conversion
and will receive a fee for these services of $12,500, plus reimbursement of
reasonable out-of-pocket expenses.
Directors, trustees and executive officers of the Company and the Bank may
participate in the solicitation of offers to purchase Common Stock. Questions of
prospective purchasers will be directed to executive officers
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or registered representatives. Other employees of the Bank may participate in
the Offerings in ministerial capacities or provide clerical work in effecting a
sales transaction. Such other employees have been instructed not to solicit
offers to purchase Common Stock or provide advice regarding the purchase of
Common Stock. The Company will rely on Rule 34-1 under the Exchange Act, and
sales of Common Stock will be conducted within the requirements of Rule 34-1, so
as to permit officers, trustees, directors and employees to participate in the
sale of Common Stock. No officer, director or employee of the Company or the
Bank will be compensated in connection with his or her participation by the
payment of commissions or other remuneration based either directly or indirectly
on the transactions in the Common Stock.
PROCEDURE FOR PURCHASING SHARES IN SUBSCRIPTION AND COMMUNITY OFFERINGS
To ensure that each purchaser receives a Prospectus at least 48 hours prior
to the respective expiration dates for the Offerings, in accordance with Rule
15c2-8 of the Exchange Act, no Prospectus will be mailed later than five days
prior to such date or hand delivered any later than two days prior to such date.
Execution of the stock order form will confirm receipt or delivery in accordance
with Rule 15c2-8. Stock order forms will only be distributed with a Prospectus
and a certification form requiring each prospective investor to acknowledge,
among other things, that the shares of Common Stock are not insured by the Bank,
the FDIC or any other governmental agency and that such prospective investor has
received a copy of this Prospectus, which, among other things, describes the
risks involved in the investment in the Common Stock.
To purchase shares in the Subscription Offering and, if a Community
Offering is held, the Community Offering, an executed order form with the
required payment for each share subscribed for, or with appropriate
authorization for withdrawal from the Bank's deposit account (which may be given
by completing the appropriate blanks in the stock order form), must be received
by the Bank at its office by 12:00 Noon, Eastern Time, on the Expiration Date.
Stock order forms which are not received by such time or are executed
defectively or are received without full payment (or appropriate withdrawal
instructions) are not required to be accepted. In addition, the Company and Bank
are not obligated to accept orders submitted on photocopied or facsimiled order
forms and will not accept order forms unaccompanied by an executed certification
form. The Company and the Bank have the power to waive or permit the correction
of incomplete or improperly executed forms, but do not represent that they will
do so. Once received, an executed order form may not be modified, amended or
rescinded without the consent of the Bank unless the Conversion has not been
completed within 45 days after the end of the Subscription and Community
Offerings, unless such period has been extended.
In order to ensure that Eligible Account Holders and other depositors are
properly identified as to their stock purchase priorities, depositors must list
all accounts on the stock order form giving all names in each account and the
account numbers.
Payment for subscriptions may be made (i) in cash if delivered in person to
the office of the Bank, (ii) by check, bank draft or money order, or (iii) by
authorization of withdrawal from deposit accounts maintained with the Bank. No
wire transfers will be accepted. Interest will be paid on payments made by cash,
check, cashier's check or money order at the Bank's passbook rate of interest
from the date payment is received until the completion or termination of the
Conversion. If payment is made by authorization of withdrawal from deposit
accounts, the funds authorized to be withdrawn from a deposit account will
continue to accrue interest at the contractual rates until completion or
termination of the Conversion, but a hold will be placed on such funds, thereby
making them unavailable to the depositor until completion or termination of the
Conversion. Notwithstanding the foregoing, the Company shall have the right, in
its sole discretion, to permit institutional investors to submit irrevocable
orders together with a legally binding commitment for payment and to thereafter
pay for the shares of Common Stock for which they subscribe in the Community
Offering at any time prior to 48 hours before the completion of the Conversion.
If a subscriber authorizes the Bank to withdraw the amount of the purchase
price from such subscriber's deposit account, the Bank will do so as of the
effective date of the Conversion. The Bank will waive any applicable penalties
for early withdrawal from certificate accounts. If the remaining balance in a
certificate account is reduced below the applicable minimum balance requirement
at the time that the funds actually are
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transferred under the authorization, the certificate will be canceled at the
time of the withdrawal, without penalty, and the remaining balance will be
converted into a passbook account and will earn interest at the passbook rate.
Upon completion of the Conversion, funds withdrawn from depositors' accounts for
stock purchases will no longer be insured by the FDIC.
The ESOP will not be required to pay for the shares subscribed for at the
time it subscribes but, rather, may pay for such shares of Common Stock
subscribed for at the Purchase Price upon consummation of the Offerings;
provided, that there is in force from the time of its subscription until such
time, a loan commitment acceptable to the Company from an unrelated financial
institution or the Company to lend to the ESOP, at such time, the aggregate
Purchase Price of the shares for which it subscribed. The Company intends to
provide such a loan to the ESOP.
Owners of self-directed Individual Retirement Accounts ("IRAs") may use the
assets of such IRAs to purchase shares of Common Stock in the Subscription and
Community Offerings, provided that such IRAs are not maintained at the Bank.
Persons with IRAs maintained at the Bank must have their accounts transferred to
an unaffiliated institution or broker to purchase shares of Common Stock in the
Subscription and Community Offerings. In addition, the provisions of ERISA and
IRS regulations require that officers, trustees and ten percent shareholders who
use self-directed IRA funds to purchase shares of Common Stock in the
Subscription and Community Offerings make such purchases for the exclusive
benefit of the IRAs.
Certificates representing shares of Common Stock purchased will be mailed
to purchasers at the last address of such persons appearing on the records of
the Bank, or to such other address specified in properly completed order forms,
as soon as practicable following consummation of the sale of all shares of
Common Stock. Any certificates returned as undeliverable will be disposed of in
accordance with applicable law.
RESTRICTIONS ON TRANSFER OF SUBSCRIPTION RIGHTS AND SHARES OF COMMON STOCK
Prior to the completion of the Conversion, the NYBB conversion regulations
prohibit any person with subscription rights (i.e., Eligible Account Holders)
from transferring or entering into any agreement or understanding to transfer
the legal or beneficial ownership of the subscription rights issued under the
Plan or the shares of Common Stock to be issued upon their exercise. Such rights
may be exercised only by the person to whom they are granted and only for such
person's account. Each person exercising such subscription rights will be
required to certify that such person is purchasing shares solely for such
person's own account and that such person has no agreement or understanding
regarding the sale or transfer of such shares. The regulations also prohibit any
person from offering or making an announcement of an offer or an intent to make
an offer to purchase such subscription rights or shares of Common Stock prior to
the completion of the Conversion.
THE BANK AND THE COMPANY WILL PURSUE ANY AND ALL LEGAL AND EQUITABLE
REMEDIES (INCLUDING FORFEITURE) IN THE EVENT THEY BECOME AWARE OF THE TRANSFER
OF SUBSCRIPTION RIGHTS AND WILL NOT HONOR ORDERS KNOWN BY THEM TO INVOLVE THE
TRANSFER OF SUCH RIGHTS.
SYNDICATED COMMUNITY OFFERING
As a final step in the Conversion, the Plan provides that, if feasible, all
shares of Common Stock not purchased in the Subscription Offering or the
Community Offering, if any, will be offered for sale to the general public in a
Syndicated Community Offering through a syndicate of registered broker-dealers
to be formed and managed by Sandler O'Neill acting as agent of the Company.
There are no known agreements between Sandler O'Neill and any broker-dealer in
connection with a possible Syndicated Community Offering. As an alternative to a
Syndicated Community Offering, the Company and the Bank may instead elect to
offer for sale such remaining shares to or through underwriters in a public
offering, as described under "-- Public Offering Alternative." The Company and
the Bank have reserved the right to reject orders in whole or in part in their
sole discretion in the Syndicated Community Offering. If the Company or the Bank
rejects an order in part, the subscriber will not have the right to cancel the
remainder of his or her subscription. Neither Sandler O'Neill nor any registered
broker-dealer shall have any obligation to take or purchase any shares of the
Common Stock in the Syndicated Community Offering; however, Sandler O'Neill has
agreed to use its best efforts in the sale of shares in the Syndicated Community
Offering.
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The price at which Common Stock is sold in the Syndicated Community
Offering will be determined as described above under "-- Stock Pricing." Subject
to overall purchase limitations, no person, together with any associate or group
of persons acting in concert, will be permitted to subscribe in the Syndicated
Community Offering for more than $150,000 of the Common Stock offered in the
Conversion; provided, however, that shares of Common Stock purchased in the
Community Offering by any persons, together with associates of or persons acting
in concert with such persons, will be aggregated with purchases in the
Syndicated Community Offering and be subject to a maximum purchase limitation of
$150,000 of the Common Stock offered.
Payments made in the form of a check, bank draft, money order or in cash
will earn interest at the Bank's passbook rate of interest from the date such
payment is actually received by the Bank until completion or termination of the
Conversion.
In addition to the foregoing, if a syndicate of broker-dealers ("selected
dealers") is formed to assist in the Syndicated Community Offering, a purchaser
may pay for his or her shares with funds held by or deposited with a selected
dealer. If an order form is executed and forwarded to the selected dealer or if
the selected dealer is authorized to execute the order form on behalf of a
purchaser, the selected dealer is required to forward the order form and funds
to the Bank for deposit in a segregated account on or before noon of the
business day following receipt of the order form or execution of the order form
by the selected dealer. Alternatively, selected dealers may solicit indications
of interest from their customers to place orders for shares. Such selected
dealers shall subsequently contact their customers who indicated an interest and
seek their confirmation as to their intent to purchase. Those indicating an
intent to purchase shall execute order forms and forward them to their selected
dealer or authorize the selected dealer to execute such forms. The selected
dealer will acknowledge receipt of the order to its customer in writing on the
following business day and will debit such customer's account on the third
business day after the customer has confirmed his or her intent to purchase
("debit date") and on or before noon of the next business day following the
debit date, will send order forms and funds to the Bank for deposit in a
segregated account. Although purchasers' funds are not required to be in their
accounts with selected dealers until the debit date, in the event that such
alternative procedure is employed once a confirmation of an intent to purchase
has been received by the selected dealer, the purchaser has no right to rescind
his or her order.
Certificates representing shares of Common Stock purchased, together with
any refund due, will be mailed to purchasers at the address specified in the
order form, as soon as practicable following consummation of the sale of the
Common Stock. Any certificates returned as undeliverable will be disposed of in
accordance with applicable law.
The Syndicated Community Offering will terminate no more than 45 days
following the Subscription Expiration Date, unless extended by the Company with
the approval of the Superintendent and FDIC. Such extensions may not be beyond
December 31, 1999. See "-- Stock Pricing" above for a discussion of rights of
subscribers, if any, in the event an extension is granted.
PUBLIC OFFERING ALTERNATIVE
The Company anticipates that the shares of Common Stock will be sold in the
Subscription Offering and, if necessary, in the Community Offering. However,
shares of Common Stock not sold in the Subscription Offering or the Community
Offering may, as an alternative to a Syndicated Community Offering as described
above, be offered for sale by the Company to or through underwriters ("Public
Offering"). Certain provisions restricting the purchase and transfer of Common
Stock shall not be applicable to sales to underwriters for purposes of such
Public Offering. Any such underwriter shall agree to purchase such shares from
the Company with a view to reoffering them to the general public, use their best
efforts to sell, for the account of the Company, such shares to the general
public or a combination of the preceding two provisions, subject to certain
terms and conditions described in the Plan. If the Public Offering is utilized,
then the Company will amend the Registration Statement, of which this Prospectus
is a part, to reflect the specific terms of such Public Offering alternative,
including, without limitation, the terms of any underwriting agreements,
commission structure and plan of distribution.
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LIMITATIONS ON COMMON STOCK PURCHASES
The Plan includes the following limitations on the number of shares of
Common Stock which may be purchased during the Conversion:
(1) No subscription for fewer than 25 shares will be accepted;
(2) Each Eligible Account Holder may subscribe for and purchase Common
Stock in the Subscription Offering in an amount up to the greater of (a)
the amount permitted to be purchased in the Community Offering, currently
$150,000 of the Common Stock offered, (b) one-tenth of one percent (0.10%)
of the total offering of shares of Common Stock or (c) 15 times the product
(rounded down to the net whole number) obtained by multiplying the total
number of shares of Common Stock to be issued in the Conversion by a
fraction of which the numerator is the amount of the qualifying deposit of
the Eligible Account Holder and the denominator is the total amount of
qualifying deposits of all Eligible Account Holders in each case on the
Eligibility Record Date subject to the overall limitation in (6) below;
(3) The Employee Plans are permitted to purchase up to 10% of the
shares of Common Stock issued in the Conversion and as an Employee Plan,
the ESOP intends to purchase 8% of the shares of Common Stock issued in the
Conversion, in each case, including shares to be issued to the Foundation;
(4) Persons purchasing shares of Common Stock in the Community
Offering, together with associates of and groups of persons acting in
concert with such persons, may purchase Common Stock in the Community
Offering in an amount up to $150,000 of the Common Stock offered in the
Conversion subject to the overall limitation in (6) below;
(5) Persons purchasing shares of Common Stock in the Syndicated
Community Offering, or the Public Offering alternative (exclusive of
underwriters), together with associates of and persons acting in concert
with such persons, may purchase Common Stock in the Syndicated Offering in
an amount up to $150,000 of the shares of Common Stock offered in the
Conversion subject to the overall limitation in (9) below; provided, that
shares of Common Stock purchased in the Community Offering by any persons,
together with associates of and persons acting in concert with such
persons, will be aggregated with purchases by such persons in the
Syndicated Community Offering in applying $150,000 purchase limitation;
(6) Eligible Account Holders and certain members of the general public
may purchase stock in the Community Offering and Syndicated Community
Offering or Public Offering alternative subject to the purchase limitations
described in (4) and (5) above; provided, that, except for the Employee
Plans, the maximum number of shares of Common Stock subscribed for or
purchased in all categories of the Conversion by any person, together with
associates of and groups of persons acting in concert with such persons,
shall not exceed 1.0% of the shares of Common Stock offered for sale in the
Conversion; and
(7) The directors and officers of the Bank and their associates in the
aggregate, excluding purchases by the Employee Plans, may purchase up to
25% of shares offered for sale in the Conversion.
Subject to any required regulatory approval and the requirements of
applicable laws and regulations, but without further approval of the Eligible
Account Holders of the Bank, both the individual amount permitted to be
subscribed for and the overall maximum purchase limitation may be increased to
up to a maximum of 5% of the shares offered for sale in the Offering at the sole
discretion of the Company and the Bank. It is currently anticipated that the
overall maximum purchase limitation may be increased if, after a Community
Offering, the Company has not received subscriptions for an aggregate amount
equal to at least the minimum of the Estimated Price Range. If such amount is
increased, subscribers for the maximum amount will be, and certain other large
subscribers in the sole discretion of the Company and the Bank may be, given the
opportunity to increase their subscriptions up to the then applicable limit. In
addition, the Board of Directors of the Company and the Board of Trustees of the
Bank may, in their sole discretion, increase the maximum purchase limitation
referred to above up to 9.99% of the shares offered in the Offering; provided,
that, orders for shares exceeding 5% of the shares being offered for sale in the
Subscription and Community Offerings shall not exceed, in the
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aggregate, 10% of the shares being offered in the Subscription and Community
Offerings. Requests to purchase additional shares of Common Stock under this
provision will be determined by the Board of Directors of the Company and the
Board of Trustees of the Bank and, if approved, allocated on a pro rata basis
giving priority in accordance with the priority rights set forth in the Plan and
described herein.
The overall maximum purchase limitation may not be reduced to less than
1.0%; the individual amount permitted to be subscribed for in the Offerings,
however, may be reduced by the Bank to less than $150,000 of the Common Stock
offered. An individual Eligible Account Holder may not purchase individually in
the Subscription Offering the overall maximum purchase limit of 1.0% of the
shares offered for sale, but may make such purchase, together with associates of
and persons acting in concert with such person, by also purchasing in other
available categories of the Conversion, subject to availability of shares and
the maximum overall purchase limit for purchases in the Conversion.
In the event of an increase in the total number of shares offered in the
Conversion due to an increase in the Estimated Price Range of up to 15%
("Adjusted Maximum"), the additional shares will be allocated in the following
order or priority in accordance with the Plan: (i) in the event that there is an
oversubscription by Eligible Account Holders, to fill unfilled subscriptions of
Eligible Account Holders; (ii) to fill the Employee Plans' subscription of up to
10% of the Adjusted Maximum number of shares; and (iii) to fill unfilled
subscriptions in the Community Offering, each to the extent possible.
The term "Associate" of a person is defined to mean: (i) any corporation or
organization (other than the Company, the Bank or a majority-owned subsidiary of
the Bank) of which such person is an officer, partner or is directly or
indirectly, either alone or with one or more members of his or her immediate
family, the beneficial owner of 10% or more of any class of equity securities;
(ii) any trust or other estate in which such person has a substantial beneficial
interest or as to which such person serves as trustee or in a similar fiduciary
capacity, except that the term "Associate" does not include any employee stock
benefit plan maintained by the Company or the Bank in which a person has a
substantial beneficial interest or serves as a trustee or in a similar fiduciary
capacity, and except that, for purposes of aggregating total shares that may be
acquired or held by officers and directors and their Associates, the term
"Associate" does not include any tax-qualified employee stock benefit plan; and
(iii) any relative or spouse of such person, or any relative of such spouse, who
has the same home as such person or who is a director or officer of the Company
or the Bank. Trustees, directors and officers are not treated as associates of
each other solely by virtue of holding such positions. For a further discussion
of limitations on purchases of a converting institution's stock at the time of
Conversion and subsequent to Conversion, see "-- Certain Restrictions on
Purchase or Transfer of Shares After Conversion," "Management of the
Bank -- Subscriptions by Executive Officers and Directors" and "Restrictions on
Acquisition of the Company and the Bank."
CERTAIN RESTRICTIONS ON PURCHASE OR TRANSFER OF SHARES AFTER CONVERSION
All shares of Common Stock purchased in connection with the Conversion by a
trustee or an executive officer of the Bank will be subject to a restriction
that the shares not be sold for a period of one year following the Conversion,
except in the event of the death or judicial declaration of incompetence of such
director or executive officer. Each certificate for restricted shares will bear
a legend giving notice of this restriction on transfer, and instructions will be
issued to the effect that any transfer within such time period of any
certificate or record ownership of such shares other than as provided above is a
violation of the restriction. Any shares of Common Stock issued at a later date
as a stock dividend, stock split, or otherwise, with respect to such restricted
stock will be subject to the same restrictions. The directors and executive
officers of the Company and the Bank will also be subject to the insider trading
rules promulgated pursuant to the Exchange Act and any other applicable
requirements of the federal securities laws.
Purchases of outstanding shares of Common Stock of the Company by
directors, executive officers (or any person who was an executive officer or
director of the Bank after adoption of the Plan of Conversion) and their
associates during the three-year period following Conversion may be made only
through a broker or dealer registered with the SEC, except with the prior
written approval of the Superintendent. This restriction
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does not apply, however, to the purchase of stock pursuant to the Stock Option
Plan or the RRP to be established after the Conversion.
INTERPRETATION, AMENDMENT AND TERMINATION
All interpretations of the Plan by the Board of the Bank will be final,
subject to the authority of the Superintendent and FDIC. The Plan provides that,
if deemed necessary or desirable by the Board of Trustees of the Bank, the Plan
may be substantively amended prior to the solicitation of proxies from Eligible
Account Holders by a vote of the Board of Trustees; amendment of the Plan
thereafter requires the approval of the Superintendent and FDIC. The Plan will
terminate if the sale of all shares of stock being offered pursuant to the Plan
is not completed prior to 24 months after the date of the approval of the Plan
by the Superintendent unless a longer time period is permitted by governing laws
and regulations. The Plan may be terminated by a vote of the Board of Trustees
of the Bank at any time prior to the Special Meeting, and thereafter by such a
vote with the approval of the Superintendent and FDIC.
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RESTRICTIONS ON ACQUISITION OF THE COMPANY AND THE BANK
GENERAL
The Bank's Plan of Conversion provides for the Conversion of the Bank from
the mutual to the stock form of organization and, in connection therewith, a
Restated Organization Certificate and By-Laws to be adopted by Eligible Account
Holders of the Bank. The Plan also provides for the concurrent formation of a
holding company, which form of organization may or may not be utilized at the
option of the Board of Trustees of the Bank. See "The Conversion -- General." In
the event that the holding company form of organization is utilized, as
described below, certain provisions in the Company's Certificate of
Incorporation and By-Laws and in its management remuneration plans and
agreements entered into in connection with the Conversion, together with
provisions of the Delaware General Corporation Law ("DGCL"), may have anti-
takeover effects. In the event that the holding company form of organization is
not utilized, the Bank's Restated Organization Certificate and By-Laws and
management remuneration plans and agreements entered into in connection with the
Conversion may have anti-takeover effects as described below. In addition,
regulatory restrictions may make it difficult for persons or companies to
acquire control of either the Company or the Bank.
RESTRICTIONS IN THE COMPANY'S CERTIFICATE OF INCORPORATION AND BY-LAWS
The following discussion is a general summary of certain provisions of the
Company's Certificate of Incorporation and By-Laws and certain other statutory
and regulatory provisions relating to stock ownership and transfers, the Board
of Directors and business combinations, that might have a potential
"anti-takeover" effect. The Certificate of Incorporation and By-Laws of the
Company are filed as exhibits to the Registration Statement, of which this
Prospectus is a part, and the descriptions herein of such documents are
qualified in their entirety by reference to such documents. A number of
provisions of the Company's Certificate of Incorporation and By-Laws deal with
matters of corporate governance and certain rights of shareholders. These
provisions might have the effect of discouraging future takeover attempts which
are not approved by the Board of Directors but which individual Company
shareholders may deem to be in their best interests or in which shareholders may
receive substantial premiums for their shares over then current market prices.
As a result, shareholders who might desire to participate in such transactions
may not have an opportunity to do so. Such provisions will also render the
removal of the current Board of Directors or management of the Company more
difficult. The following description of certain of the provisions of the
Certificate of Incorporation and By-Laws of the Company is necessarily general
and reference should be made in each case to such Certificate of Incorporation
and By-Laws, which are incorporated herein by reference. See "Additional
Information" as to how to obtain a copy of these documents.
Limitation on Voting Rights. The Certificate of Incorporation of the
Company provides that any record owner of any outstanding Common Stock which is
beneficially owned, directly or indirectly, by a person who beneficially owns in
excess of 10% of the then outstanding shares of Common Stock ("Limit") shall be
entitled or permitted to only one one-hundredth (1/100) of a vote with respect
of each share held in excess of the Limit. Beneficial ownership of shares
includes shares beneficially owned by such person or any of his affiliates,
shares which such person or his affiliates have the right to acquire upon the
exercise of conversion rights or options and shares as to which such person and
his affiliates have or share investment or voting power, but shall not include
shares beneficially owned by the ESOP or shares that are subject to a revocable
proxy and that are not otherwise beneficially owned or deemed by the Company to
be beneficially owned by such person and his affiliates. The Certificate of
Incorporation further provides that this provision limiting voting rights may
only be amended upon (i) the approval of the Board of Directors, and (ii) the
affirmative vote of the holders of a majority of the total votes eligible to be
cast by the holders of all outstanding shares of capital stock entitled to vote
thereon and (iii) by the affirmative vote of either (1) not less than a majority
of the authorized number of directors and, if one or more Interested
Shareholders exist, by not less than a majority of the Disinterested Directors
(as defined in the Certificate of Incorporation) or (2) the holders of not less
than two-thirds of the total votes eligible to be cast by the holders of all
outstanding shares of the capital stock of the Company entitled to vote thereon
and, if the amendment is proposed by or on behalf of an Interested
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Shareholder or a director who is an Affiliate or Associate of an Interested
Shareholder, by the affirmative vote of the holders of not less than a majority
of the total votes eligible to be cast by holders of all outstanding shares
entitled to vote thereon not beneficially owned by an Interested Shareholder or
an Affiliate or Associate thereof.
Board of Directors. The Board of Directors of the Company is divided into
three classes, each of which shall contain approximately one-third of the total
number of members of the Board. Each class shall serve a staggered term, with
approximately one-third of the total number of directors being elected each
year. The Company's Certificate of Incorporation and By-Laws provide that the
size of the Board shall be determined by a majority of the directors but shall
not be less than seven nor more than 20. The Certificate of Incorporation and
the By-Laws provide that any vacancy occurring in the Board, including a vacancy
created by an increase in the number of directors or resulting from death,
resignation, retirement, disqualification, removal from office or other cause,
shall be filled for the remainder of the unexpired term exclusively by a
majority vote of the directors then in office. The classified Board is intended
to provide for continuity of the Board of Directors and to make it more
difficult and time consuming for a shareholder group to fully use its voting
power to gain control of the Board of Directors without the consent of the
incumbent Board of Directors of the Company. The Certificate of Incorporation of
the Company provides that a director may be removed from the Board of Directors
prior to the expiration of his term only for cause, upon the affirmative vote of
at least 80% of the outstanding shares of voting stock. In the absence of these
provisions, the vote of the holders of a majority of the shares could remove the
entire Board, with or without cause, and replace it with persons of such
holders' choice.
Cumulative Voting, Special Meetings and Action by Written Consent. The
Certificate of Incorporation does not provide for cumulative voting for any
purpose. Moreover, special meetings of shareholders of the Company may be called
only by resolution of at least three-fourths of the Board of Directors then in
office or by the Chairman, if one has been elected by the Board, or the Chief
Executive Officer of the Company. The Certificate of Incorporation also provides
that any action required or permitted to be taken by the shareholders of the
Company may be taken only at an annual or special meeting and prohibits
shareholder action by written consent in lieu of a meeting.
Authorized Shares. The Certificate of Incorporation authorizes the
issuance of twenty million (20,000,000) shares of capital stock, consisting of
fifteen million (15,000,000) shares of Common Stock and five million (5,000,000)
shares of preferred stock ("Preferred Stock"). The shares of Common Stock and
Preferred Stock were authorized in an amount greater than that to be issued in
the Conversion to provide the Company's Board of Directors with as much
flexibility as possible to effect, among other transactions, financings,
acquisitions, stock dividends, stock splits and employee stock options. However,
these additional authorized shares may also be used by the Board of Directors,
consistent with its fiduciary duty, to deter future attempts to gain control of
the Company. The Board of Directors also has sole authority to determine the
terms of any one or more series of Preferred Stock, including voting rights,
conversion rates, and liquidation preferences. As a result of the ability to fix
voting rights for a series of Preferred Stock, the Board has the power, to the
extent consistent with its fiduciary duty, to issue a series of Preferred Stock
to persons friendly to management in order to attempt to block a post-tender
offer merger or other transaction by which a third party seeks control, and
thereby assist management to retain its position. The Company's Board of
Directors currently has no plans for the issuance of additional shares, other
than the issuance of additional shares pursuant to the terms of the RRP and upon
exercise of stock options to be issued pursuant to the terms of the Stock Option
Plan, all of which, if implemented prior to the first anniversary of the
Conversion, will be presented to shareholders for approval at a meeting of
shareholders to be held no earlier than six months after completion of the
Conversion.
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 Company's outstanding shares of voting stock,
together with the affirmative vote of at least 50% of the Company's outstanding
shares of voting stock not beneficially owned by an Interested Shareholder (as
defined below) to approve certain "Business Combinations," as defined therein,
and related transactions. Under Delaware law, absent this provision, Business
Combinations, including mergers, consolidations and sales of all or
substantially all of the
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assets of a corporation must, subject to certain exceptions, be approved by the
vote of the holders of only a majority of the outstanding shares of Common Stock
of the Company and any other affected class of stock. Under the Certificate of
Incorporation, at least 80% approval of shareholders is required in connection
with any transaction involving an Interested Shareholder except (i) in cases
where the proposed transaction has been approved in advance by a majority of
those members of the 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
meets certain conditions set forth therein which are designed to afford the
shareholders a fair price in consideration for their shares in which case, if a
shareholder vote is required, approval of only a majority of the outstanding
shares of voting stock would be sufficient. The term "Interested Shareholder" is
defined to include any individual, corporation, partnership or other entity
(other than the Company or its subsidiary or any employee benefit plan
maintained by the Company or its subsidiary) which owns beneficially or
controls, directly or indirectly, 10% or more of the outstanding shares of
voting stock of the Company. This provision of the Certificate of Incorporation
applies to any "Business Combination," which is defined to include (i) any
merger or consolidation of the Company or any of its subsidiaries with or into
any Interested Shareholder or Affiliate (as defined in the Certificate of
Incorporation) of an Interested Shareholder; (ii) any sale, lease, exchange,
mortgage, pledge, transfer, or other disposition to or with any Interested
Shareholder or Affiliate of 5% or more of the assets of the Company or combined
assets of the Company and its subsidiary; (iii) the issuance or transfer to any
Interested Shareholder or its Affiliate by the Company (or any subsidiary) of
any securities of the Company other than on a pro rata basis to all
shareholders; (iv) the adoption of any plan for the liquidation or dissolution
of the Company proposed by or on behalf of any Interested Shareholder or
Affiliate thereof; (v) any reclassification of securities, recapitalization,
merger or consolidation of the Company which has the effect of increasing the
proportionate share of Common Stock or any class of equity or convertible
securities of the Company owned directly or indirectly by an Interested
Shareholder or Affiliate thereof; and (vi) the acquisition by the Company or its
subsidiary of any securities of an Interested Shareholder or its Affiliates or
Associates.
The trustees and executive officers of the Bank are purchasing in the
aggregate approximately 2.54% of the shares of the Common Stock at the maximum
of the Estimated Price Range. In addition, the ESOP intends to purchase 8% of
the Common Stock to be issued in the Conversion, including shares to be issued
to the Foundation. Additionally, if, the proposed RRP and Stock Options Plan are
implemented, the Company expects to acquire 4% of the Common Stock issued in the
Conversion, including shares to be issued to the Foundation, on behalf of the
RRP and expects to issue an amount equal to 10% of the Common Stock issued in
the Conversion, including shares to be issued to the Foundation, under the Stock
Option Plan to directors, executive officers and employees. As a result,
assuming the RRP and Stock Option Plan are implemented, the directors, executive
officers and employees have the potential to control the voting of approximately
25% of the Company's Common Stock, on a fully diluted basis at the maximum of
the Estimated Price Range, thereby enabling them to prevent the approval of the
transactions requiring the approval of at least 80% of the Company's outstanding
shares of voting stock described hereinabove.
Evaluation of Offers. The Certificate of Incorporation of the Company
further provides that the Board of Directors of the Company, when evaluating any
offer to the Company from another party to (i) make a tender or exchange offer
for any outstanding equity security of the Company, (ii) merge or consolidate
the Company with another corporation or entity or (iii) purchase or otherwise
acquire all or substantially all of the properties and assets of the Company,
shall, in connection with the exercise of its judgment in determining what is in
the best interest of the Company and the shareholders of the Company, give due
consideration to the extent permitted by law to all relevant factors, including,
without limitation, the financial and managerial resources and future prospects
of the other party, the possible effects on the business of the Company and its
subsidiaries and on the employees, customers, suppliers and creditors of the
Company and its subsidiaries, and the effects on the communities in which the
Company's and its subsidiaries' facilities are located. By having these
standards in the Certificate of Incorporation of the Company, the Board of
Directors may be in a stronger position to oppose such a transaction if the
Board concludes that the transaction would not be in the best interests of the
Company, even if the price offered is significantly greater than the then market
price of any equity security of the Company.
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Amendment of Certificate of Incorporation and By-Laws. The Certificate of
Incorporation provides that certain provisions of the Certificate of
Incorporation may not be altered, amended, repealed or rescinded without the
affirmative vote of either (1) not less than a majority of the authorized number
of directors and, if one or more Interested Shareholders exist, by not less than
a majority of the Disinterested Directors (as defined in the Certificate of
Incorporation) or (2) the holders of not less than two-thirds of the total votes
eligible to be cast by the holders of all outstanding shares of the capital
stock of the Company entitled to vote thereon and, if the alteration, amendment,
repeal, or rescission is proposed by or on behalf of an Interested Shareholder
or a director who is an Affiliate or Associate of an Interested Shareholder, by
the affirmative vote of the holders of not less than a majority of the total
votes eligible to be cast by holders of all outstanding shares entitled to vote
thereon not beneficially owned by an Interested Shareholder or an Affiliate or
Associate thereof. Amendment of the provision relating to business combinations
must also be approved by either (i) a majority of the Disinterested Directors,
or (ii) the affirmative vote of not less than eighty percent (80%) of the total
number of votes eligible to be cast by the holders of all outstanding shares of
the Voting Stock, voting together as a single class, together with the
affirmative vote of not less than fifty percent (50%) of the total number of
votes eligible to be cast by the holders of all outstanding shares of the Voting
Stock not beneficially owned by any Interested Shareholder or Affiliate or
Associate thereof, voting together as a single class. Furthermore, the Company's
Certificate of Incorporation provides that provisions of the By-Laws that
contain supermajority voting requirements may not be altered, amended, repealed
or rescinded without a vote of the Board or holders of capital stock entitled to
vote thereon that is not less than the supermajority specified in such
provision. Absent these provisions, the DGCL provides that a corporation's
certificate of incorporation and by-laws may be amended by the holders of a
majority of the corporation's outstanding capital stock. The Certificate of
Incorporation also provides that the Board of Directors is authorized to make,
alter, amend, rescind or repeal any of the Company's By-Laws in accordance with
the terms thereof, regardless of whether the Bylaw was initially adopted by the
shareholders. However, this authorization neither divests the shareholders of
their right, nor limits their power to adopt, amend, rescind or repeal any Bylaw
under the DGCL. These provisions could have the effect of discouraging a tender
offer or other takeover attempt where the ability to make fundamental changes
through Bylaw amendments is an important element of the takeover strategy of the
acquiror.
Certain By-Law Provisions. The By-Laws of the Company also require a
shareholder who intends to nominate a candidate for election to the Board of
Directors, or to raise new business at an annual shareholder meeting to give
approximately 60 days notice in advance of the anniversary of the prior year's
annual shareholders' meeting to the Secretary of the Company. The notice
provision requires a shareholder who desires to raise new business to provide
certain information to the Company concerning the nature of the new business,
the shareholder and the shareholder's interest in the business matter.
Similarly, a shareholder wishing to nominate any person for election as a
director must provide the Company with certain information concerning the
nominee and the proposing shareholder.
ANTI-TAKEOVER EFFECTS OF THE COMPANY'S CERTIFICATE OF INCORPORATION AND BY-LAWS
AND MANAGEMENT REMUNERATION ADOPTED IN CONVERSION
The provisions described above are intended to reduce the Company's
vulnerability to takeover attempts and certain other transactions which have not
been negotiated with and approved by members of its Board of Directors. The
provisions of the Employment Agreements and Employee Retention Agreements, the
RRP and the Stock Option Plan to be established may also discourage takeover
attempts by increasing the costs to be incurred by the Bank and the Company in
the event of a takeover. See "Management of the Bank -- Employment Agreements,"
and "-- Benefits -- Stock Option Plan."
The Company's Board of Directors believes that the provisions of the
Certificate of Incorporation, By-Laws and management remuneration plans to be
established are in the best interests of the Company and its shareholders. An
unsolicited non-negotiated proposal can seriously disrupt the business and
management of a corporation and cause it great expense. Accordingly, the Board
of Directors believes it is in the best interests of the Company and its
shareholders to encourage potential acquirors to negotiate directly with
management and that these provisions will encourage such negotiations and
discourage non-negotiated takeover attempts. It
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is also the Board of Directors' view that these provisions should not discourage
persons from proposing a merger or other transaction at a price that reflects
the true value of the Company and that otherwise is in the best interests of all
shareholders.
DELAWARE CORPORATE LAW
The State of Delaware has a statute designed to provide Delaware
corporations with additional protection against hostile takeovers. The takeover
statute, which is codified in Section 203 of the DGCL ("Section 203"), is
intended to discourage certain takeover practices by impeding the ability of a
hostile acquiror to engage in certain transactions with the target company.
In general, Section 203 provides that a "Person" (as defined therein) who
owns 15% or more of the outstanding voting stock of a Delaware corporation (a
"DGCL 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 a DGCL 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
a DGCL Interested Shareholder, the Board of Directors approved either the
business combination or the transaction which resulted in the shareholder
becoming a DGCL 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 a DGCL Interested Shareholder, with the number of
shares outstanding calculated without regard to those shares owned by the
corporation's directors who are also officers and by 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 DGCL Interested Shareholder; and (iv) certain
business combinations that are proposed after the corporation had received other
acquisition proposals and which are approved or not opposed by a majority of
certain continuing members of the Board of Directors. A corporation may exempt
itself from the requirement of the statute by adopting an amendment to its
Certificate of Incorporation or By-Laws electing not to be governed by Section
203 of the DGCL. At the present time, the Board of Directors does not intend to
propose any such amendment.
RESTRICTIONS IN THE BANK'S RESTATED ORGANIZATION CERTIFICATE AND BY-LAWS
Although the Board of Trustees of the Bank is not aware of any effort that
might be made to obtain control of the Bank after the Conversion, the Board of
Directors believes that it is appropriate to adopt certain provisions permitted
by the Banking Law and the conversion regulations of the NYBB to protect the
interests of the converted Bank and its shareholders from any hostile takeover.
Such provisions may, indirectly, inhibit a change in control of the Company, as
the Bank's sole stockholder. See "Risk Factors -- Certain Anti-Takeover
Provisions."
In the event that the Company is not formed and the subscription rights are
deemed to be subscriptions to purchase the common stock of the Bank, the
provisions contained in the Restated Organization Certificate and By-Laws of the
Bank, to be effective on the effective date of the Conversion, will govern
corporate procedure and certain rights of shareholders. The anti-takeover
effects of such provisions are generally similar to those described above for
the Company, except that the issuance of any additional capital stock of the
Bank would require the prior approval of the NYSBD, and the consent of the
holders of two-thirds of the outstanding shares of capital stock of the Bank
would be required prior to effecting a merger of, or certain acquisitions of
assets by, the Bank.
Limitation on Voting Rights. The Bank's Restated Organization Certificate
will contain a provision whereby the acquisition of or offer to acquire
beneficial ownership of more than 10% of the issued and outstanding shares of
any class of equity securities of the Bank by any person (i.e., any individual,
corporation, group acting in concert, trust, partnership, joint stock company or
similar organization), either directly or indirectly, will be prohibited for a
period of five years following the date of completion of the Conversion. Any
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stock in excess of 10% acquired in violation of this provision will not be
counted as outstanding for voting purposes. This limitation shall not apply to
(a) any offer or sale with a view towards public resale made exclusively by the
Bank to any underwriter acting on behalf of the Bank in connection with a public
offering of the common stock of the Bank; (b) any corporation formed by the Bank
in connection with its conversion from mutual to stock form to acquire all of
the shares of stock of the Bank to be issued in connection with such conversion;
or (c) any reclassification of securities (including any reverse stock split),
or recapitalization of the Bank, or any merger or consolidation of the Bank with
any of its subsidiaries or any other transaction or reorganization (including a
transaction in which the Bank shall form a holding company) that does not have
the effect, directly or indirectly, of changing the beneficial ownership
interests of the Bank's shareholders, other than pursuant to the exercise of any
appraisal rights.
In the event that holders of revocable proxies for more than 10% of the
shares of the Common Stock of the Company seek, among other things, to elect
one-third or more of the Company's Board of Directors, to cause the Company's
shareholders to approve the acquisition or corporate reorganization of the
Company or to exert a continuing influence on a material aspect of the business
operations of the Company, which actions could indirectly result in a change in
control of the Bank, the Board of Directors of the Bank will be able to assert
this provision of the Bank's Restated Organization Certificate against such
holders. Although the Board of Directors of the Bank is not currently able to
determine when and if it would assert this provision of the Bank's Restated
Organization Certificate, the Bank's Board of Directors, in exercising its
fiduciary duty, may assert this provision if it were deemed to be in the best
interests of the Bank, the Company and its shareholders. It is unclear, however,
whether this provision, if asserted, would be successful against such persons in
a proxy contest which could result in a change in control of the Bank indirectly
through a change in control of the Company.
Board of Directors. The Board of Directors of the Bank is divided into
three classes, each of which shall contain approximately one-third of the total
number of members of the Board of Directors. Each class shall serve a staggered
term, with approximately one-third of the total number of directors being
elected each year. The staggered terms of the Bank's Board of Directors could
have an anti-takeover effect by making it more difficult for a majority of
shares to force an immediate change in the Board since only one-third of the
Board is elected each year. The purpose of these provisions is to assure
stability and continuity of management of the Bank in the years immediately
following the Conversion. In addition, shareholders will not be permitted to
cumulate their votes in the election of directors.
The Restated Organization Certificate and By-Laws of the Bank provide that
any director, or the entire Board of Directors, may be removed at any time, but
only for cause and only by the affirmative vote of at least 80% of the
outstanding shares of voting stock. The Restated Organization Certificate and
By-Laws of the Bank also provide that any vacancy occurring in the Board of
Directors, including any vacancy created by an increase in the number of
directors, shall be filled by the shareholders of the Bank, except that
vacancies not exceeding one-third of the entire Board of Directors may be filled
by the affirmative vote of a majority of the directors then holding office.
Preferred Stock. Although the Bank has no arrangements, understandings or
plans at the present time, the Board of Directors believes that the availability
of unissued shares of Preferred Stock will provide the Bank with increased
flexibility in structuring possible future financings and acquisitions and in
meeting other corporate needs which may arise. In the event of a proposed
merger, tender offer or other attempt to gain control of the Bank of which
management does not approve, it might be possible for the Bank's Board of
Directors to authorize the issuance of one or more series of Preferred Stock
with rights and preferences which could impede the completion of such a
transaction. An effect of the possible issuance of such Preferred Stock,
therefore, may be to deter a future takeover attempt. The Bank's Board of
Directors does not intend to issue any Preferred Stock except on terms which the
Board deems to be in the best interests of the Bank and its then existing
shareholders.
Shareholder Vote Required for Certain Business Combinations. The Bank's
Restated Organization Certificate contains provisions requiring a higher
shareholder vote for certain business combinations, which provisions are
substantially identical to those contained in the Company's Certificate of
Incorporation. See
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"-- Restrictions in the Company's Certificate of Incorporation and
By-Laws -- Shareholder Vote Required to Approve Business Combinations with
Principal Shareholders."
Evaluation of Offers. The Restated Organization Certificate of the Bank
also provides that the Board of Directors of the Bank, when evaluating any offer
to the Bank or to the shareholders of the Bank from another party relating to a
change or potential change in control of the Bank, including, without
limitation, any offer to (a) purchase for cash or exchange any securities or
property for any outstanding equity securities of the Bank, (b) merge or
consolidate the Bank with another corporation or (c) purchase or otherwise
acquire all or substantially all of the properties and assets of the Bank,
shall, in connection with the exercise of its judgment in determining what is in
the best interest of the Bank and its shareholders, give due consideration not
only to the price or other consideration being offered, but also to all other
relevant factors including, without limitation, (1) both the long-term and the
short-term interests of the Bank and its shareholders and (2) the effects that
the Bank's actions may have in the short-term or in the long-term upon any of
the following: (i) the prospects for potential growth, development, productivity
and profitability of the Bank; (ii) the Bank's current employees; (iii) the
Bank's retired employees and other beneficiaries receiving or entitled to
receive retirement, welfare or similar benefits from or pursuant to any plan
sponsored, or agreement entered into, by the Bank; (iv) the Bank's customers and
creditors; and (v) the ability of the Bank to provide, as a going concern,
goods, services, employment opportunities and employment benefits and otherwise
to contribute to the communities in which is does business. By having these
standards in the Restated Organization Certificate, the Board of Directors of
the Bank may be in a stronger position to oppose such a transaction if the Board
concludes that the transaction would not be in the best interests of the Bank,
even if the price offered is significantly greater than the then market price of
any equity security of the Bank.
Amendment of Restated Organization Certificate and By-Laws. The Bank's
Restated Organization Certificate provides that certain provisions of the
Restated Organization Certificate may not be altered, amended, repealed or
rescinded without the affirmative vote of either (i) not less than a majority of
the authorized number of directors and, if one or more Interested Shareholders
exist, by not less than a majority of the Disinterested Directors, or (ii) the
holders of not less than two-thirds of the total votes eligible to be cast by
the holders of all outstanding shares of capital stock entitled to vote thereon
and, if the alteration, amendment, repeal or rescission is proposed by or on
behalf of an Interested Shareholder or a director who is an Affiliate or
Associate of an Interested Shareholder, the holders of not less than a majority
of the total votes eligible to be cast by holders of all outstanding shares of
capital stock entitled to vote thereon not beneficially owned by an Interested
Shareholder or an Affiliate or Associate thereof.
In addition, provisions of the By-Laws of the Bank that contain
supermajority voting requirements may not be altered, amended, repealed or
rescinded without a vote of the Board or holders of capital stock entitled to
vote thereon that is not less than the supermajority specified in such
provision.
REGULATORY RESTRICTIONS
New York State Banking Board Conversion Regulations. NYBB regulations
prohibit any person, prior to the completion of the Conversion, from
transferring, or from entering into any agreement or understanding to transfer,
to the account of another, legal or beneficial ownership of the subscription
rights issued under the Plan of Conversion or the Common Stock to be issued upon
their exercise. The NYBB regulations also prohibit any person, prior to the
completion of the Conversion, from offering, or making an announcement of an
offer or intent to make an offer, to purchase such subscription rights or Common
Stock. See "The Conversion -- Restrictions on Transfer of Subscription Rights
and Shares." For one year following the Conversion, NYBB regulations prohibit
any person from acquiring or making an offer to acquire more than 10% of the
stock of any converted savings institution, except with the prior approval of
the Superintendent.
New York State Change in Bank Control Regulation. Under the Banking law,
the prior approval of the NYBB is required before any action is taken that
causes any company to acquire direct or indirect control of a banking
institution. For this purpose, the term "company" is defined to include
corporations, partnerships and other types of business entities, chartered or
doing business in New York, and an individual or combination of individuals
acting in concert and residing or doing business in New York. Control is
presumed to exist if any
125
<PAGE> 127
company directly or indirectly owns, controls or holds with power to vote 10% or
more of the voting stock of a banking institution or of any company that owns,
controls or holds with power to vote 10% or more of the voting stock of a
banking institution or of any company that owns, controls or holds with power to
vote 10% or more of the voting stock of a banking institution. Accordingly,
prior approval of the NYBB would be required before any company could acquire
10% or more of the Common Stock of the Company.
New York State Bank Holding Company Regulation. Under the Banking Law, the
prior approval of the NYBB is required before: (1) any action is taken that
causes any company to become a bank holding company; (2) any action is taken
that causes any banking institution to become or to be merged or consolidated
with a subsidiary of a bank holding company; (3) any bank holding company
acquires direct or indirect ownership or control of more than 5% of the voting
stock of a banking institution; (4) any bank holding company or subsidiary
thereof acquires all or substantially all of the assets of a banking
institution; or (5) any action is taken that causes any bank holding company to
merge or consolidate with another bank holding company. See "Regulation and
Supervision -- Holding Company Regulation -- New York Bank Company Regulation."
Accordingly, the prior approval of the NYBB would be required before any bank
holding company, as defined under the Banking Law, could acquire 5% or more of
the Common Stock of the Company.
Federal Change in Bank Control Act. Under the CBCA and the FRB's
regulations thereunder, a person is required to give 60 days' prior written
notice to the FRB before acquiring control of a bank holding company. For this
purpose, the term "control" means the acquisition of the ownership, control or
holding of the power to vote 25% or more of any class of a bank holding
company's voting stock, and the term "person" includes an individual,
corporation, partnership, and various other entities, acting individually or in
concert. In addition, an acquiring person is presumed to acquire control if the
person acquires the ownership, control or holding of the power to vote of 10% or
more of any class of the holding company's voting stock if (i) the company's
shares are registered pursuant to Section 12 of the Exchange Act or (ii) no
other person will own, control or hold the power to vote a greater percentage of
that class of voting securities. The CBCA and the FRB's regulations authorize
the FRB to disapprove a proposed transaction on certain specified grounds.
Accordingly, the prior approval of the FRB would be required under the CBCA
before any person could acquire 10% or more of the Common Stock of the Company.
Federal Bank Holding Company Act. Under the BHCA and the FRB's regulations
thereunder, any company seeking to acquire control of a bank or bank holding
company, must acquire the prior written approval of the FRB. For this purpose,
the term "company" is defined to include banks, corporations, partnerships,
associations, and certain trusts and other entities, and the term "control" is
deemed to exist if a company has voting control of at least 25% of any class of
a bank's voting stock, and may be found to exist if a company controls in any
manner the election of a majority of the directors of the bank or has the power
to exercise a controlling influence over the management or policies of the bank.
In addition, a bank holding company must obtain FRB approval prior to acquiring
voting control of more than 5% of any class of voting stock of a bank or another
bank holding company. An acquisition of control of a bank that requires the
prior approval of the FRB under the BHCA is not subject to the notice
requirements of the Change in Bank Control Act of 1978. Accordingly, the prior
approval of the FRB under the BHCA would be required (a) before any bank holding
company could acquire 5% or more of the Common Stock of the Company and (b)
before any other company could acquire 25% or more of the Common Stock of the
Company.
126
<PAGE> 128
DESCRIPTION OF CAPITAL STOCK OF THE COMPANY
GENERAL
The Company is authorized to issue fifteen million (15,000,000) shares of
Common Stock having a par value of $.01 per share and five million (5,000,000)
shares of Preferred Stock having a par value of $.01 per share. The Company
currently expects to issue 5,577,500 shares of Common Stock (or 6,414,000 in the
event of an increase of 15% in the Estimated Price Range) and does not expect to
issue any shares of Preferred Stock. Except as discussed above in "Restrictions
on Acquisition of the Company and the Bank," each share of the Company's Common
Stock will have the same relative rights as, and will be identical in all
respects with, each other share of Common Stock. Upon payment of the Purchase
Price for the common stock, in accordance with the Plan, all such stock will be
duly authorized, fully paid and non-assessable. THE COMMON STOCK OF THE COMPANY
WILL REPRESENT NON-WITHDRAWABLE CAPITAL, WILL NOT BE AN ACCOUNT OF AN INSURABLE
TYPE, AND WILL NOT BE INSURED BY THE FDIC.
COMMON STOCK
Dividends. The Company can pay dividends out of statutory surplus or from
certain net profits if, as and when declared by its Board of Directors. The
payment of dividends by the Company is subject to limitations which are imposed
by law and applicable regulation. See "Dividend Policy" and "Regulation and
Supervision." The holders of Common Stock of the Company will be entitled to
receive and share equally in such dividends as may be declared by the Board of
Directors of the Company out of funds legally available therefor. If the Company
issues Preferred Stock, the holders thereof may have a priority over the holders
of the Common Stock with respect to dividends.
Voting Rights. Upon Conversion, the holders of Common Stock of the Company
will possess exclusive voting rights in the Company. They will elect the
Company's Board of Directors and act on such other matters as are required to be
presented to them under Delaware law or the Company's Certificate of
Incorporation or as are otherwise presented to them by the Board of Directors.
Except as discussed in "Restrictions on Acquisition of the Company and the
Bank," each holder of Common Stock will be entitled to one vote per share and
will not have any right to cumulate votes in the election of directors. If the
Company issues Preferred Stock, holders of the Preferred Stock may also possess
voting rights. Certain matters require an 80% or two-thirds shareholder vote.
See "Restrictions on Acquisition of the Company and the Bank."
As a New York mutual savings bank, corporate powers and control of the Bank
are vested in its Board of Trustees, who elect the officers of the Bank and who
fill any vacancies on the Board of Trustees as it exists upon Conversion.
Subsequent to Conversion, voting rights will be vested exclusively in the owners
of the shares of capital stock of the Bank, which owner will be the Company, and
voted at the direction of the Company's Board of Directors. Consequently, the
holders of the Common Stock will not have direct control of the Bank.
Liquidation. In the event of any liquidation, dissolution or winding up of
the Bank, the Company, as holder of the Bank's capital stock, would be entitled
to receive, after payment or provision for payment of all debts and liabilities
of the Bank (including all deposit accounts and accrued interest thereon) and
after distribution of the balance in the special liquidation account to Eligible
Account Holders (see "The Conversion -- Effects of Conversion -- Liquidation
Rights"), all assets of the Bank available for distribution. In the event of
liquidation, dissolution or winding up of the Company, the holders of its Common
Stock would be entitled to receive, after payment or provision for payment of
all its debts and liabilities, all of the assets of the Company available for
distribution. If Preferred Stock is issued, the holders thereof may have a
priority over the holders of the Common Stock in the event of the liquidation or
dissolution of the Company.
Preemptive Rights. Holders of the Common Stock of the Company will not be
entitled to preemptive rights with respect to any shares which may be issued.
The Common Stock is not subject to redemption.
127
<PAGE> 129
PREFERRED STOCK
None of the shares of the Company's authorized Preferred Stock will be
issued in the Conversion. Such stock may be issued with such preferences and
designations as the Board of Directors may from time to time determine. The
Board of Directors can, without shareholder approval, issue preferred stock with
voting, dividend, liquidation and conversion rights which could dilute the
voting strength of the holders of the Common Stock and may assist management in
impeding an unsolicited takeover or attempted change in control.
DESCRIPTION OF CAPITAL STOCK OF THE BANK
GENERAL
The Restated Organization Certificate of the Bank, to be effective upon the
Conversion, authorizes the issuance of capital stock consisting of fifteen
million (15,000,000) shares of common stock, par value $.01 per share, and five
million (5,000,000) shares of preferred stock, par value $.01 per share, which
Preferred Stock may be issued in series and classes having such rights,
preferences, privileges and restrictions as the Board of Directors may
determine. Except as discussed above in "Restrictions on Acquisition of the
Company and the Bank," each share of common stock of the Bank will have the same
relative rights as, and will be identical in all respects with, each other share
of common stock. After the Conversion, the Board of Directors will be authorized
to approve the issuance of Common Stock up to the amount authorized by the
Restated Organization Certificate without the approval of the Bank's
shareholders, except to the extent that such approval is required by governing
law. All of the issued and outstanding common stock of the Bank (which is
currently expected to be 1,000 shares) will be held by the Company as the Bank's
sole shareholder. THE CAPITAL STOCK OF THE BANK WILL REPRESENT NON-WITHDRAWABLE
CAPITAL, WILL NOT BE AN ACCOUNT OF AN INSURABLE TYPE, AND WILL NOT BE INSURED BY
THE FDIC.
COMMON STOCK
Dividends. The holders of the Bank's common stock will be entitled to
receive and to share equally in such dividends as may be declared by the Board
of Directors of the Bank out of funds legally available therefor. See "Dividend
Policy" for certain restrictions on the payment of dividends and "Federal and
State Taxation -- Federal Taxation" for a discussion of the consequences of the
payment of cash dividends from income appropriated to bad debt reserves.
Voting Rights. Immediately after the Conversion, the holders of the Bank's
common stock will possess exclusive voting rights in the Bank. Each holder of
shares of common stock will be entitled to one vote for each share held.
Cumulation of votes will not be permitted. See "Restrictions on Acquisition of
the Company and the Bank -- Anti-Takeover Effects of the Company's Articles of
Incorporation and By-Laws and Management Remuneration Plans Adopted in
Conversion."
Liquidation. In the event of any liquidation, dissolution, or winding up
of the Bank, the holders of its common stock will be entitled to receive, after
payment of all debts and liabilities of the Bank (including all deposit accounts
and accrued interest thereon), and distribution of the balance in the special
liquidation account to Eligible Account Holders, all assets of the Bank
available for distribution in cash or in kind. If additional preferred stock is
issued subsequent to the Conversion, the holders thereof may also have priority
over the holders of common stock in the event of liquidation or dissolution.
Preemptive Rights and Redemption. Holders of the common stock of the Bank
will not be entitled to preemptive rights with respect to any shares of the Bank
which may be issued. The common stock will not be subject to redemption. Upon
receipt by the Bank of the full specified purchase price therefor, the common
stock will be fully paid and non-assessable.
128
<PAGE> 130
PREFERRED STOCK
None of the shares of the Bank's authorized preferred stock will be issued
in the Conversion. Such stock may be issued with such preferences and
designations as the Board of Directors may from time to time determine. The
Board of Directors can, without shareholder approval, issue preferred stock with
voting, dividend, liquidation and conversion rights.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is
Registrar and Transfer Company.
EXPERTS
The financial statements of the Bank as of May 31, 1997 and 1996 and for
each of the years in the three-year period ended May 31, 1997, included in this
Prospectus have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in accounting and
auditing in giving said report.
FinPro has consented to the publication herein of the summary of its report
to the Bank and Company setting forth its opinion as to the estimated pro forma
market value of the Common Stock upon Conversion and its opinion with respect to
subscription rights.
OTHER INFORMATION
In October of 1996, the Bank's Board of Trustees decided to retain Arthur
Andersen LLP as its independent public accountants and dismissed the Bank's
former auditors. The former auditors' report on the Bank's balance sheet as of
May 31, 1996 does not cover the balance sheet of the Bank included in this
Prospectus. Such report did not contain an adverse opinion or disclaimer of
opinion and was not modified as to uncertainty, audit scope or accounting
principles. There were no disagreements with the former auditors on any matter
of accounting principles or practices, financial statement disclosure or
auditing scope or procedure at the time of the change or with respect to the
Bank's balance sheet as of May 31, 1996, which, if not resolved to the former
auditors' satisfaction, would have caused them to make reference to the subject
matter of the disagreement in connection with their report. Prior to retaining
Arthur Andersen LLP, the Bank had not consulted with Arthur Andersen LLP
regarding accounting principles.
LEGAL AND TAX OPINIONS
The legality of the Common Stock and the federal and state income tax
consequences of the Conversion will be passed upon for the Bank and the Company
by Thacher Proffitt & Wood, New York, New York, special counsel to the Bank and
the Company. Certain legal matters will be passed upon for Sandler O'Neill by
Goodwin, Procter & Hoar LLP, Boston, Massachusetts.
ADDITIONAL INFORMATION
The Company has filed with the SEC the Registration Statement under the
Securities Act with respect to the Common Stock offered hereby. As permitted by
the rules and regulations of the SEC, this Prospectus does not contain all the
information set forth in the Registration Statement. Such information, including
the Conversion Valuation Appraisal Report which is an exhibit to the
Registration Statement, can be examined without charge at the public reference
facilities of the SEC located at 450 Fifth Street, N.W., Washington, D.C. 20549,
and copies of such material can be obtained from the SEC at prescribed rates.
Such information is also available on the SEC's Electronic Data Gathering
Analysis and Retrieval ("EDGAR") System at the SEC's website, www.sec.gov.
129
<PAGE> 131
The Bank has filed an application for conversion with the Superintendent
and FDIC. Pursuant to the rules and regulations of the Superintendent, this
Prospectus omits certain information contained in that application. The
application may be examined at the principal office of the Superintendent, Two
Rector Street, New York, New York 10006.
The Company has filed with the FRB an application to become a bank holding
company. This Prospectus omits certain information contained in such
application. Such application may be inspected at the offices of the Federal
Reserve Bank of New York, 59 Maiden Lane, New York, New York 10045.
In connection with the Conversion, the Company will register its Common
Stock with the SEC under Section 12(g) of the Exchange Act, and, upon such
registration, the Company and the holders of its stock will become subject to
the proxy solicitation rules, reporting requirements and restrictions on stock
purchases and sales by directors, officers and greater than 10% shareholders,
the annual and periodic reporting and certain other requirements of the Exchange
Act. Under the Plan of Conversion, the Company has undertaken that it will not
terminate such registration for a period of at least three years following the
Conversion. In the event that the Bank amends the Plan to eliminate the
concurrent formation of the Company as part of the Conversion, the Bank will
register its stock with the FDIC under Section 12(g) of the Exchange Act and,
upon such registration, the Bank and the holders of its stock will become
subject to the same obligations and restrictions.
Copies of the Certificate of Incorporation and the By-Laws of the Company
and the Restated Organization Certificate and By-Laws of the Bank are available
without charge from the Bank upon written or oral request.
130
<PAGE> 132
INDEX TO FINANCIAL STATEMENTS
THE WARWICK SAVINGS BANK
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Public Accountants.............................................. F-2
Financial Statements:
Consolidated Statements of Financial Condition as of May 31, 1997 and 1996.......... F-3
Consolidated Statements of Income for Each of the Years in the Three-Year Period
Ended May 31, 1997............................................................... 37
Consolidated Statements of Changes in Net Worth for Each of the Years in the
Three-Year Period Ended May 31, 1997............................................. F-4
Consolidated Statements of Cash Flows for Each of the Years in the Three-Year Period
Ended May 31, 1997............................................................... F-5
Notes to Consolidated Financial Statements............................................ F-6
</TABLE>
All schedules are omitted because they are not required or applicable, or
the required information is shown in the financial statements or notes thereto.
The financial statements of Warwick Community Bancorp, Inc. have been
omitted, because Warwick Community Bancorp, Inc. has not yet issued any stock,
has no assets and no liabilities and has not conducted any business other than
of an organizational nature.
F-1
<PAGE> 133
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Examining Committee of
The Warwick Savings Bank:
We have audited the accompanying consolidated statements of financial
condition of The Warwick Savings Bank and subsidiaries as of May 31, 1997 and
1996, and the related consolidated statements of income, changes in net worth
and cash flows for each of the years in the three-year period ended May 31,
1997. These financial statements are the responsibility of the Bank's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Warwick Savings Bank and
subsidiaries as of May 31, 1997 and 1996, and the results of their operations
and their cash flows for each of the years in the three-year period ended May
31, 1997, in conformity with generally accepted accounting principles.
As discussed in Notes 1 and 11 to the consolidated financial statements,
the Bank changed its method of accounting for certain postretirement benefit
costs in fiscal 1995 upon adoption of Statement of Financial Accounting
Standards No. 106. Also, as discussed in Notes 1 and 7 to the consolidated
financial statements, in fiscal 1996, the Bank changed its method of accounting
for mortgage servicing rights upon adoption of Statement of Financial Accounting
Standards No. 122.
[Andersen Sig.]
New York, New York
July 30, 1997
F-2
<PAGE> 134
THE WARWICK SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
MAY 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
ASSETS:
Cash on hand and in banks..................................... $ 10,366,711 $ 7,101,510
Federal funds sold............................................ 1,315,000 --
Securities --
Trading, at fair value..................................... -- 1,933,694
Available-for-sale, at fair value.......................... 120,301,288 135,232,414
Held-to-maturity, at amortized cost (fair value of
$6,116,184 in 1997 and $7,087,692 in 1996)............... 6,091,684 7,117,468
------------ ------------
Total securities...................................... 126,392,972 144,283,576
------------ ------------
Mortgage loans, net........................................... 97,440,203 71,941,908
Mortgage loans held-for-sale.................................. 4,831,500 5,053,892
Other loans, net.............................................. 36,051,438 31,901,679
Mortgage servicing rights..................................... 835,079 669,945
Accrued interest receivable................................... 2,096,627 1,942,185
Federal Home Loan Bank stock.................................. 1,731,300 1,178,100
Bank premises and equipment, net.............................. 2,425,831 2,539,141
Other real estate owned, net.................................. 223,782 330,140
Other assets.................................................. 2,834,743 7,110,877
------------ ------------
Total assets.......................................... $286,545,186 $274,052,953
============ ============
LIABILITIES AND NET WORTH
LIABILITIES:
Deposits...................................................... $221,211,137 $232,965,276
Mortgage escrow funds......................................... 1,397,584 1,252,416
Securities sold under agreements to repurchase................ 23,090,000 4,700,000
Federal Home Loan Bank advances............................... 5,250,000 3,600,000
Accrued expenses and other liabilities........................ 7,482,034 6,764,788
------------ ------------
Total liabilities..................................... 258,430,755 249,282,480
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 14)
NET WORTH:
Surplus....................................................... 6,025,846 6,025,846
Undivided profits............................................. 21,468,663 18,603,160
Net unrealized gain on securities, net of taxes............... 619,922 141,467
------------ ------------
Total net worth............................................ 28,114,431 24,770,473
------------ ------------
Total liabilities and net worth....................... $286,545,186 $274,052,953
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-3
<PAGE> 135
THE WARWICK SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN NET WORTH
(FOR THE YEARS ENDED MAY 31, 1997, 1996 AND 1995)
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION
(DEPRECIATION)
ON SECURITIES
UNDIVIDED AVAILABLE-
SURPLUS PROFITS FOR-SALE, NET TOTAL
---------- ----------- -------------- -----------
<S> <C> <C> <C> <C>
BALANCE, May 31, 1994................. $6,025,846 $16,633,815 $ (750,013) $21,909,648
Net income.......................... -- 503,765 -- 503,765
Unrealized appreciation
(depreciation) on securities
available-for-sale, net.......... -- -- 662,725 662,725
---------- ----------- --------- -----------
BALANCE, May 31, 1995................. 6,025,846 17,137,580 (87,288) 23,076,138
Net income.......................... -- 1,465,580 -- 1,465,580
Unrealized appreciation
(depreciation) on securities
available-for-sale, net.......... -- -- 228,755 228,755
---------- ----------- --------- -----------
BALANCE, May 31, 1996................. 6,025,846 18,603,160 141,467 24,770,473
Net income.......................... -- 2,865,503 -- 2,865,503
Unrealized appreciation
(depreciation) on securities
available-for-sale, net.......... -- -- 478,455 478,455
---------- ----------- --------- -----------
BALANCE, May 31, 1997................. $6,025,846 $21,468,663 $ 619,922 $28,114,431
========== =========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE> 136
THE WARWICK SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MAY 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................................... $ 2,865,503 $ 1,465,580 $ 503,765
Adjustments to reconcile net income to net cash
provided by operating activities --
Cumulative effect of change in accounting
principle..................................... -- -- 645,184
Depreciation.................................... 459,171 428,008 381,190
Amortization of premium on investment
securities.................................... 264,120 497,342 848,222
Accretion of discount on investment
securities.................................... (189,667) (509,755) (204,763)
Net (increase) decrease in accrued interest
receivable.................................... (154,589) 140,166 (102,179)
Net (increase) decrease in mortgage servicing
rights and other assets....................... 4,111,000 (2,165,524) (3,051,086)
Provision for loan losses....................... 130,000 140,000 261,000
Net (gain) loss on sales of loans............... (137,403) (118,807) (14,107)
Net (gain) loss on sale of securities........... (816,304) (356,266) 428,611
Net increase (decrease) in accrued interest
payable....................................... 10,496 (174,460) 530,548
Net increase (decrease) in accrued expenses and
other liabilities............................. 706,750 1,539,027 (580,955)
------------ ------------ ------------
Net cash provided by (used in) operating
activities............................... 7,249,077 885,311 (354,570)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities and calls of securities... 12,424,922 39,576,296 12,067,351
Purchases of securities............................ (70,743,474) (108,398,408) (33,758,984)
Proceeds from sales of trading securities and
securities available-for-sale................... 66,376,202 31,727,463 13,855,143
Principal repayments from mortgage-backed
securities...................................... 10,469,393 3,637,431 3,421,464
Purchases of Federal Home Loan Bank Stock.......... (553,200) (267,600) (910,500)
Net (increase) decrease in loans................... (29,187,635) 14,537,389 (14,608,051)
Purchases of banking premises and equipment, net... (240,610) 60,174 (201,060)
------------ ------------ ------------
Net cash used in investing activities...... (11,454,402) (19,127,255) (20,134,637)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits................ (11,649,533) (882,800) 21,684,849
Net increase (decrease) in mortgage escrow funds... 395,059 3,051,380 305,796
Increase in borrowed funds......................... 20,040,000 8,300,000 --
------------ ------------ ------------
Net cash provided by financing
activities............................... 8,785,526 10,468,580 21,990,645
------------ ------------ ------------
Increase (decrease) in cash and cash
equivalents.............................. 4,580,201 (7,773,364) 1,501,438
CASH AND CASH EQUIVALENTS, beginning of year......... 7,101,510 14,874,874 13,373,436
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of year............... $ 11,681,711 $ 7,101,510 $ 14,874,874
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for --
Interest on deposits and borrowed funds......... $ 9,365,666 $ 8,891,558 $ 6,297,235
Income taxes.................................... 2,117,500 -- 1,481,740
Reclassification from held-to-maturity to
available-for-sale ............................. -- 26,180,452 --
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE> 137
THE WARWICK SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a description of the significant accounting policies
followed by The Warwick Savings Bank and subsidiaries (the "Bank") in the
preparation of its consolidated financial statements:
Basis of Presentation
The accompanying consolidated financial statements include the accounts of
the Bank and its wholly owned subsidiaries, Warsave Development Co., Inc., WSB
Financial Services, Inc., and WSB Mortgage Company of New Jersey, Inc., and are
prepared on the accrual basis. All significant intercompany balances and
transactions are eliminated in consolidation.
Use of Estimates in the Preparation of Financial Statements
In preparing the consolidated financial statements, management is required
to make estimates and assumptions that affect the reported assets and
liabilities as of the date of the consolidated statements of financial
condition. The same is true of revenues and expenses reported for the period.
Actual results could differ from those estimates.
Cash and Cash Equivalents
The Bank generally considers short-term instruments, with original
maturities of three months or less, measured from their acquisition date, and
highly liquid instruments readily convertible to known amounts of cash to be
cash equivalents.
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, amounts due from banks and federal funds sold. Generally, federal
funds sold are sold for one-day periods.
Securities
The Bank classifies its securities as trading securities,
available-for-sale securities, or held-to-maturity securities in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." Trading securities are debt
and equity securities that are bought principally for the purpose of selling
them in the near term, and securities classified as held-to-maturity consist of
debt securities for which the Bank has the positive intent and ability to hold
to maturity and are carried at amortized cost. Securities considered neither
trading nor held-to-maturity are classified as available-for-sale securities and
are carried at fair value with unrealized gains and losses excluded from
earnings and reported as a separate component of net worth (net of related
deferred taxes). Trading securities are carried at fair value with unrealized
gains and losses included in earnings.
Federal Home Loan Bank stock is considered restricted stock under SFAS No.
115 and, accordingly, is carried at cost.
In November 1995, the Financial Accounting Standards Board ("FASB") issued
a special report on the implementation of SFAS No. 115. This special report
provided an opportunity for a one-time reassessment of an institution's
classification of securities as of a single measurement date between November
15, 1995 and December 31, 1995. In December 1995, the Bank transferred
$26,180,452 of U.S. Government agency securities and other securities to
available-for-sale from the held-to-maturity portfolio.
Loans
Loans are stated at the principal amount outstanding, net of unearned
income. Loans are placed on nonaccrual status when management has determined
that the borrower will be unable to meet contractual principal or interest
obligations or when unsecured interest or principal payments are 90 days past
due. When a
F-6
<PAGE> 138
THE WARWICK SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
loan is classified as nonaccrual, the recognition of interest income ceases.
Interest previously accrued and remaining unpaid is reversed against income.
Cash payments received are applied to principal and interest income is not
recognized unless management determines that the financial condition and payment
record of the borrower warrant the recognition of income.
Allowance for Loan Losses
The allowance for loan losses is based upon management's periodic
evaluation of the loan portfolio under current economic conditions, considering
factors such as the Bank's past loss experience, known and inherent risks in the
portfolio, adverse situations that may affect the borrower's ability to repay,
and the estimated value of the underlying collateral. Establishing the allowance
for loan losses involves significant management judgment, utilizing the best
available information at the time of review. Those judgments are subject to
further review by various sources, including the Bank's regulators. While
management estimates loan losses using the best available information, future
adjustments to the allowance may be necessary based on changes in economic and
real estate market conditions, further information obtained regarding known
problem loans, the identification of additional problem loans, and other
factors.
SFAS No. 114, "Accounting by Creditors for Impairment of a Loan," as
amended by SFAS No. 118, "Accounting by Creditors for Impairment of a
Loan -- Income Recognition and Disclosures," was adopted by the Bank in fiscal
1995. Such change in accounting was not material to the consolidated financial
statements. SFAS 114 defines an impaired loan as a loan for which it is
probable, based on current information, that the lender will not collect all
amounts due under the contractual terms of the loan agreement. The Bank applies
the impairment criteria to all loans, except for large groups of smaller balance
homogenous loans that are collectively evaluated for impairment, such as
residential mortgage and consumer installment loans. Income recognition and
charge-off policies were not changed as a result of this statement. At May 31,
1997 and 1996, in addition to the nonaccrual loans discussed in Notes 4 and 5,
there were $504,265 and $25,600, respectively, of loans identified by the Bank
as impaired, as defined under SFAS No. 114 with no related reserves for losses.
Mortgage Loans Held-for-Sale
Mortgage loans originated and intended for sale in the secondary market are
carried at the lower of cost or estimated fair value in the aggregate, with net
unrealized losses (if any) reported in earnings. Realized gains and losses on
sales of loans are based on the cost of the specific loans sold.
Loan Origination Fees and Related Costs
Loan fees and certain direct loan origination costs are deferred, and the
net fee or cost is recognized in income using the level-yield method over the
contractual life of the loans. Unamortized fees and costs on loans sold or
prepaid prior to contractual maturity are recognized as an adjustment to income
in the year such loans are sold or prepaid.
Mortgage Servicing Rights
In fiscal 1996, the Bank prospectively adopted SFAS No. 122, "Accounting
for Mortgage Servicing Rights." SFAS No. 122 requires that a mortgage banking
enterprise recognize as separate assets rights to service mortgage loans for
others; however, those servicing rights are acquired. As a result of adopting
SFAS No. 122, the Bank capitalized $443,739 of originated mortgage servicing
rights during fiscal 1996. In June 1996, the FASB issued SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities," which is effective for transactions occurring after December
31, 1996 (as amended by SFAS No. 127) and which supersedes SFAS No. 122. This
standard requires that, after a transfer of financial assets, an entity
recognizes the financial and servicing assets it controls and the liabilities it
has incurred, and derecognizes financial assets when control has been
surrendered.
F-7
<PAGE> 139
THE WARWICK SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The cost of mortgage servicing rights (purchased or originated rights with
related loans sold) is amortized in proportion to, and over the period of,
estimated net servicing revenues. Impairment of mortgage servicing rights is
assessed based on the fair value of those rights. For purposes of measuring
impairment, the servicing rights are stratified based on the following
predominant risk characteristics of the underlying loans: (a) loan type and (b)
origination or securitization date.
Bank Premises and Equipment
Bank premises and equipment are carried at cost less accumulated
depreciation and amortization. Depreciation is computed on the straight-line
method over the estimated useful lives of the related assets. Equipment under
capital leases is amortized on the straight-line method over the shorter of the
lease term or the estimated useful life of the asset. Repairs and maintenance,
as well as renewals and replacements of a routine nature, are expensed while
costs incurred to improve or extend the life of existing assets are capitalized.
Other Real Estate Owned
Other real estate owned ("OREO") represents properties acquired through
legal foreclosure. Prior to transferring a real estate loan to OREO, the loan is
written down to the lower of the recorded investment in the loan or the fair
value of the property. Any resulting write-downs are charged to the allowance
for loan losses. Thereafter, the property is carried at the lower of cost or
fair value less costs to sell, with any adjustments recorded as an increase or
decrease to the allowance for losses on OREO.
Interest Income
Interest income includes interest income on loans and investment securities
and dividend income received on investment securities.
The operations of the Bank are substantially dependent on its net interest
income, which is the difference between the interest income earned on its
interest-earning assets and the interest expense paid on its interest-bearing
liabilities. Like most savings institutions, the Bank's earnings are affected by
changes in market interest rates and the economic factors beyond its control.
Decreases in the Bank's average interest rate spread could adversely affect the
Bank's net interest income.
Net Worth
The surplus fund primarily represents accumulated mandatory transfers from
undivided profits required by New York State banking regulations. Such mandatory
transfers are computed as 10% of "net earnings" as defined, and are required in
each calendar year quarter so long as the net worth of the Bank is less than 10%
of the amount due depositors.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
effects attributable to "temporary differences" (differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases) and tax loss and tax credit carryforwards. Deferred
tax assets are reduced by a valuation allowance if, based on an analysis of
available evidence, management determines that it is more likely than not that
some portion or all of the deferred tax assets will not be realized. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which the temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax laws or rates is recognized in income in the
period that includes the enactment date of the change.
F-8
<PAGE> 140
THE WARWICK SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Postretirement Benefits Other Than Pensions
The Bank changed its method of accounting for the cost of postretirement
health care and life insurance benefits in fiscal 1995 upon adoption of SFAS No.
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions."
The cumulative effect of this accounting change was fully recognized as a
liability in fiscal 1995 equal to the full amount of the Bank's accumulated
benefit obligation. Under SFAS No. 106, the cost of postretirement health care
and life insurance benefits is recognized on an accrual basis as such benefits
are earned by active employees. Prior to fiscal 1995, the Bank recognized the
cost of these benefits on a pay-as-you-go (cash) basis.
New Accounting Pronouncements
In March 1995, the FASB issued SFAS No. 121, entitled, "Accounting for the
Impairment of Long-Lived Assets to Be Disposed Of." This statement requires that
long-lived assets and certain identifiable intangibles held and used by an
entity be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of the asset may not be recoverable. The
pronouncement is effective for fiscal years beginning after December 15, 1995,
although earlier implementation is permitted.
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities." This statement
is effective for transfers and servicing of financial assets and extinguishment
of liabilities occurring after December 31, 1996.
The adoption of SFAS Nos. 121 and 125 did not have a material effect on the
Bank's financial statements.
In March 1997, the FASB issued SFAS No. 128 "Earnings per Share." SFAS No.
128 specifies the computations, presentation, and disclosure requirements for
Earnings per Share by all entities with publicly held common stock or potential
stock. SFAS 128 supersedes Accounting Principles Board Opinion No. 15 "Earnings
per Share." SFAS No. 128 is effective for financial statements for interim and
annual periods ending after December 15, 1997.
In March 1997, the FASB also issued SFAS No. 129 "Disclosure of Information
about Capital Structure." SFAS No. 129 is effective for financial statements for
periods ending after December 15, 1997. SFAS No. 129 does not change disclosure
requirements for the Bank.
In June 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive Income"
and SFAS No. 131 "Disclosures about Segments of an Enterprise and Related
Information." These statements are effective for fiscal years beginning after
December 15, 1997 and restatement of financial statements or information for
earlier periods provided for comparative purposes is required. The provisions of
these statements will not affect the Bank's results of operations or financial
condition.
2. SUBSEQUENT EVENT -- CONVERSION TO STOCK FORM OF OWNERSHIP
On July 10, 1997, the Board of Trustees adopted a proposed Plan of
Conversion ("Plan") to convert the Bank from a New York mutual savings bank to a
New York stock savings bank and to become a wholly owned subsidiary of a new
Delaware corporation ("Company") to be organized at the direction of the Bank.
Pursuant to the Plan, the Company will issue and offer for sale certain shares
of its common stock and use up to 50% of the net proceeds of such sale to
acquire all of the capital stock of the Bank. The proposed transaction is
subject to the approval of the Superintendent of Banks of New York State and of
the Federal Deposit Insurance Corporation, as well as to a vote of Bank's
Eligible Account Holders (depositors of the Bank having a deposit of at least
$100 as of June 30, 1996). In addition, the Company will file a registration
statement with the Securities and Exchange Commission ("SEC") with respect to
the offering of its common stock and will seek
F-9
<PAGE> 141
THE WARWICK SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the permission of the Federal Reserve Board ("FRB") to acquire the stock of the
Bank to be issued upon the Bank's conversion.
At the time of conversion, the Bank will establish a liquidation account in
an amount equal to the retained income of the Bank as of the date of the most
recent financial statements contained in the final conversion prospectus. The
liquidation account will be reduced annually to the extent that eligible account
holders have reduced their qualifying deposits as of each anniversary date.
Subsequent increases will not restore an eligible account holder's interest in
the liquidation account. In the event of a complete liquidation, each eligible
account holder will be entitled to receive a distribution from the liquidation
account in an amount proportionate to the current adjusted qualifying balances
for accounts then held.
The Company may not declare or pay cash dividends on or repurchase any of
its shares of common stock if the effect thereof would cause stockholders'
equity to be reduced below applicable regulatory capital maintenance
requirements, the amount required for the liquidation account, or if such
declaration and payment would otherwise violate regulatory requirements.
Pursuant to the Plan, the Company intends to establish a Charitable
Foundation, Employee Stock Ownership Plan (ESOP), Stock Option Plan, Recognition
and Retention Plan, and Employment and Retention Agreements as discussed below.
The Company proposes to fund the Charitable Foundation by contributing to
the Charitable Foundation, immediately following the conversion, a number of
shares of authorized but unissued shares of the Common Stock equal to 3% of
Common Stock sold in the Offering. Such contribution, once made, will not be
recoverable by the Company or the Bank. The Company will recognize the full
expense equal to the fair value of the stock, in the amount of the contribution
in the quarter in which it occurs. Such expense will reduce earnings and have a
material impact on the Company's and the Bank's earnings for such quarter and
for the year.
The Company plans to set up an ESOP, a tax-qualified benefit plan for
officers and employees of the Company and the Bank. It is planned that 8% of the
shares of Common Stock sold in the Offering will be purchased by the ESOP with
funds loaned by the Company. The Company and the Bank intend to make annual
contributions to the ESOP in an amount equal to the principal and interest
requirement of the debt.
Following consummation of the conversion, the Company intends to adopt a
Stock Option Plan and a Recognition and Retention Plan, pursuant to which the
Company intends to reserve a number of shares of Common Stock equal to an
aggregate of 10% and 4%, respectively, of the Common Stock issued in the
conversion for issuance pursuant to stock options and stock appreciation rights
and stock. The Stock Option Plan and Recognition and Retention Plan will not be
implemented prior to receipt of stockholder approval of the Plan.
Upon consummation of the conversion, the Company and the Bank intend to
enter into employment agreements with certain senior management personnel and
retention agreements with other key employees.
Conversion costs will be deferred and reduce the proceeds from the shares
sold in the conversion. If the conversion is not completed, all costs will be
charged as an expense. As of July 30, 1997, no conversion costs had been
incurred.
The conversion will not affect the terms of any loans held by borrowers of
the Bank or the balances, interest rates, federal deposit insurance or
maturities of deposit accounts at the Bank.
A registration statement relating to the securities of the Company has not
yet been filed with the SEC. These securities may not be sold nor may offers to
buy be accepted prior to the time the registration statement becomes effective,
and the offering of these securities will be made only by means of a prospectus
to be included in such registration statement.
F-10
<PAGE> 142
THE WARWICK SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. SECURITIES
A summary of securities at May 31, 1997 and 1996 follows:
<TABLE>
<CAPTION>
1997
-------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
------------ ---------- --------- ------------
<S> <C> <C> <C> <C>
Securities available-for-sale:
Debt securities --
U.S. Government and agency
obligations........................ $ 29,901,648 $ 160,787 $ (40,877) $ 30,021,558
Public utilities..................... 999,340 -- (7,710) 991,630
Industrial and financial............. 6,991,615 51,779 (5,700) 7,037,694
Collateralized mortgage
obligations........................ 2,695,832 -- (11,354) 2,684,478
Mortgage-backed securities........... 72,811,663 770,367 (310,970) 73,271,060
------------ ---------- ---------- ------------
Total debt securities........... 113,400,098 982,933 (376,611) 114,006,420
Preferred stock......................... 203,518 1,011 (29) 204,500
Mutual fund shares...................... 5,597,002 493,366 -- 6,090,368
Total securities
available-for-sale............ 119,200,618 1,477,310 (376,640) 120,301,288
------------ ---------- ---------- ------------
Securities held-to-maturity:
U.S. Government and agency
obligations.......................... 5,684,812 38,720 (16,932) 5,706,600
Obligations of state and political
subdivisions......................... 406,872 2,712 -- 409,584
------------ ---------- ---------- ------------
Total securities held-to-maturity.... 6,091,684 41,432 (16,932) 6,116,184
------------ ---------- ---------- ------------
Total securities................ $125,292,302 $1,518,742 $(393,572) $126,417,472
============ ========== ========== ============
</TABLE>
<TABLE>
<CAPTION>
1996
---------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
------------ ---------- ----------- ------------
<S> <C> <C> <C> <C>
Trading securities -- mortgage-backed
securities............................. $ 1,991,573 $ -- $ (57,879) $ 1,933,694
------------ ---------- ----------- ------------
Securities available-for-sale:
Debt securities --
U.S. Government and agency
obligations....................... 37,012,296 150,946 (241,698) 36,921,544
Public utilities.................... 2,126,095 -- (31,218) 2,094,877
Industrial and financial............ 11,991,242 106,420 (26,147) 12,071,515
Canadian Government................. 2,085,660 4,320 -- 2,089,980
Collateralized mortgage
obligations....................... 4,973,345 5,372 (28,767) 4,949,950
Mortgage-backed securities.......... 67,663,132 1,081,310 (737,460) 68,006,982
------------ ---------- ----------- ------------
Total debt securities.......... 125,851,770 1,348,368 (1,065,290) 126,134,848
Preferred stock........................ 305,420 -- (28,545) 276,875
Mutual fund shares..................... 8,636,261 239,549 (55,119) 8,820,691
------------ ---------- ----------- ------------
Total securities
available-for-sale........... 134,793,451 1,587,917 (1,148,954) 135,232,414
------------ ---------- ----------- ------------
Securities held-to-maturity:
U.S. Government and agency
obligations......................... 6,603,426 38,434 (73,914) 6,567,946
Obligations of state and political
subdivisions........................ 431,542 5,704 -- 437,246
Public utilities....................... 82,500 -- -- 82,500
------------ ---------- ----------- ------------
Total securities held-to-maturity... 7,117,468 44,138 (73,914) 7,087,692
------------ ---------- ----------- ------------
Total securities............... $143,902,492 $1,632,055 $(1,280,747) $144,253,800
============ ========== =========== ============
</TABLE>
F-11
<PAGE> 143
THE WARWICK SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the carrying value of debt securities at May 31, 1997 by
contractual maturity is shown below. Actual maturities may differ from
contractual maturities because certain security issuers may have the right to
call or prepay their obligations.
<TABLE>
<CAPTION>
AFTER ONE AFTER FIVE
ONE YEAR THROUGH THROUGH AFTER TEN
OR LESS FIVE YEARS TEN YEARS YEARS TOTAL
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Available-for-sale --
U.S. Government and agency
obligations.......................... $ 4,340,688 $ 7,651,440 $18,029,430 $ -- $ 30,021,558
Public utilities....................... -- 991,630 -- 991,630
Industrial and financial............... 4,998,600 1,279,231 759,863 -- 7,037,694
Collateralized mortgage obligations.... 1,982,980 16,635 684,863 -- 2,684,478
Mortgage-backed securities............. 8,743,499 5,841,923 1,555,406 57,130,232 73,271,060
----------- ----------- ----------- ----------- ------------
Total available-for-sale........ $20,065,767 $15,780,859 $21,029,562 $57,130,232 $114,006,420
=========== =========== =========== =========== ============
Held-to-maturity --
U.S. Government and agency............. $ 65,111 $ 5,619,701 $ -- $ -- $ 5,684,812
Obligations of state and political
subdivisions......................... 299,986 106,886 -- -- 406,872
----------- ----------- ----------- ----------- ------------
Total held-to-maturity.......... $ 365,097 $ 5,726,587 $ -- $ -- $ 6,091,684
=========== =========== =========== =========== ============
</TABLE>
Proceeds from sales of securities (trading and available-for-sale) are
summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED MAY 31
-------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Proceeds from sales......................... $66,376,202 $31,727,463 $13,855,143
Gross gains on sales........................ $ 1,046,199 $ 545,577 $ 2,759
Gross losses on sales....................... $ 229,895 $ 189,311 $ 431,370
</TABLE>
No securities held-to-maturity were sold during the three years ended May
31, 1997.
4. MORTGAGE LOANS
A summary of mortgage loans at May 31, 1997 and 1996 follows:
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
Conventional 1 - 4 family residential loans originated... $ 79,096,961 $58,942,371
Conventional 1 - 4 family residential loans purchased.... 2,706,457 2,993,821
Loans partially guaranteed by VA or insured by FHA....... 748,520 375,572
Home equity loans........................................ 13,449,077 11,040,096
Construction loans....................................... 4,109,840 961,187
----------- -----------
100,110,855 74,313,047
Undisbursed portion of construction loans................ (2,117,833) (1,838,169)
Net deferred loan fees................................... (328,740) (139,923)
Allowance for loan losses................................ (224,079) (393,047)
----------- -----------
$ 97,440,203 $71,941,908
=========== ===========
</TABLE>
The Bank has sold certain conventional mortgage loans without recourse and
has retained the related servicing rights. The remaining principal balances of
mortgage loans serviced for others, which are not included in the accompanying
consolidated financial statements, were approximately $122,311,000 and
$100,016,000 at May 31, 1997 and 1996, respectively.
F-12
<PAGE> 144
THE WARWICK SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Mortgage loans in arrears three months or more were approximately
$1,214,000 and $692,000 at May 31, 1997 and 1996, respectively. Mortgage loans
on nonaccrual status at May 31, 1997 and 1996 were approximately $1,111,000 and
$582,000, respectively. Interest income that would have been recorded if the
loans had been performing in accordance with their original terms aggregated
approximately $93,000, $54,000 and $88,000 during the years ended May 31, 1997,
1996 and 1995, respectively.
During fiscal 1996, the Bank securitized approximately $70 million of
mortgage loans, which were reinvested in Fannie Mae's Mortgage-Backed Securities
Program.
5. OTHER LOANS
A summary of other loans at May 31, 1997 and 1996 follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Commercial........................................ $23,417,939 $19,384,969
Automobile........................................ 7,738,516 7,495,811
Student........................................... 1,331,569 1,532,747
Credit card....................................... 1,334,548 1,195,377
Other consumer loans.............................. 3,053,852 3,102,389
----------- -----------
36,876,424 32,711,293
Net deferred loan fees............................ 182,590 102,104
Allowance for loan losses......................... (1,007,576) (911,718)
----------- -----------
$36,051,438 $31,901,679
=========== ===========
</TABLE>
Commercial loans in arrears three months or more were approximately
$121,000 and $58,000 at May 31, 1997 and 1996, respectively. Commercial loans on
nonaccrual status at May 31, 1997 and 1996 were approximately $26,000 and
$51,000, respectively. Consumer loans in arrears three months or more were
approximately $96,000 and $113,000 at May 31, 1997 and 1996, respectively.
6. ALLOWANCE FOR LOAN LOSSES
The activity in the allowance for loan losses is as follows:
<TABLE>
<CAPTION>
YEARS ENDED MAY 31
----------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Balance at beginning of period......... $1,304,765 $1,206,486 $ 908,915
Provision for loan losses............ 130,000 140,000 261,000
Charge-offs.......................... (213,042) (149,877) (108,379)
Recoveries........................... 9,932 108,156 144,950
---------- ---------- ----------
Balance at end of period............... $1,231,655 $1,304,765 $1,206,486
========== ========== ==========
</TABLE>
7. MORTGAGE SERVICING RIGHTS
Mortgage servicing rights as of May 31, 1997 and 1996 consist of the
following:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Mortgage Servicing Rights.............................. $885,992 $681,004
Less -- Accumulated amortization..................... (50,913) (11,059)
-------- --------
$835,079 $669,945
======== ========
</TABLE>
F-13
<PAGE> 145
THE WARWICK SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Bank capitalized originated mortgage servicing rights of $216,047 and
$443,739 for the years ended May 31, 1997 and 1996, respectively.
8. BANK PREMISES AND EQUIPMENT
A summary of bank premises and equipment at May 31, 1997 and 1996 follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Land.............................................. $ 340,587 $ 340,587
Buildings and improvements........................ 2,720,751 2,606,057
Equipment......................................... 2,522,432 2,322,898
Furniture and fixtures............................ 584,896 562,322
----------- -----------
6,168,666 5,831,864
Less -- Accumulated depreciation.................. (3,742,835) (3,292,723)
----------- -----------
$ 2,425,831 $ 2,539,141
=========== ===========
</TABLE>
9. DEPOSITOR ACCOUNTS
Deposit account balances and stated interest rates at May 31, 1997 and 1996
are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
STATED STATED
RATES 1997 RATES 1996
----------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Demand checking accounts..................... --% $ 23,854,838 --% $ 23,080,009
Negotiable order of withdrawal accounts
(NOW)...................................... 1.00 - 2.25 15,023,912 1.00 - 2.25 14,771,748
Savings accounts............................. 3.00 80,175,311 3.00 80,813,613
Money market accounts........................ 2.35 - 3.50 27,119,239 2.35 - 3.50 28,750,026
Time certificates............................ 4.30 - 5.50 75,037,837 4.30 - 5.50 85,549,880
------------ ------------
Total deposits..................... $221,211,137 $232,965,276
============ ============
</TABLE>
Time certificate balances at May 31, 1997 and 1996 are summarized by
remaining period to contractual maturity as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Under one year.................................... $69,248,768 $78,548,354
One year to under three years..................... 3,792,718 5,859,727
Three years and over.............................. 1,996,351 1,141,799
----------- -----------
$75,037,837 $85,549,880
=========== ===========
</TABLE>
The aggregate amount of time certificates in denominations of $100,000 or
more was approximately $5,174,000 and $5,460,000 at May 31, 1997 and 1996,
respectively.
F-14
<PAGE> 146
THE WARWICK SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. INCOME TAXES
The tax effects of temporary differences that give rise to the Bank's
deferred tax assets and deferred tax liabilities, on a combined basis, for
federal and state tax purposes at May 31,1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
------ ------
(000'S OMITTED)
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses................................ $ 504 $ 540
Accrued postretirement benefits.......................... 618 520
Other deductible temporary differences................... 141 157
------ ------
Total gross deferred tax assets.................. 1,263 1,217
------ ------
Deferred tax liabilities:
Bad debt reserves for income tax purposes in excess of
the base-year reserves................................ 289 422
Net unrealized gain on securities available-for-sale..... 438 59
Other taxable temporary differences...................... 479 377
------ ------
Total gross deferred tax liabilities............. 1,206 858
------ ------
Net deferred tax asset (included in other
assets)........................................ $ 57 $ 359
====== ======
</TABLE>
Management believes that it is more likely than not that it will realize
the net deferred tax asset.
Provision for income taxes is comprised of the following:
<TABLE>
<CAPTION>
YEARS ENDED MAY 31
----------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal...................................... $1,302,494 $ 945,021 $ 827,582
State........................................ 450,864 350,741 307,154
---------- ---------- ----------
1,753,358 1,295,762 1,134,736
---------- ---------- ----------
Deferred:
Federal...................................... 109,410 (198,026) (248,217)
State........................................ (106,902) (73,496) (92,125)
---------- ---------- ----------
2,508 (271,522) (340,342)
---------- ---------- ----------
$1,755,866 $1,024,240 $ 794,394
========== ========== ==========
</TABLE>
The provision for income taxes for the three years ended May 31, 1997
differs from that computed at the federal statutory rate as follows:
<TABLE>
<CAPTION>
YEARS ENDED MAY 31
--------------------------------------
1997 1996 1995
---------- ---------- --------
<S> <C> <C> <C>
Tax at federal statutory rate................... $1,571,265 $ 846,539 $660,737
State taxes, net of federal income tax
benefit....................................... 322,566 182,981 141,867
Excess New York State Bad Debt Reserve.......... (164,817) -- --
Other........................................... 26,852 (5,280) (8,210)
---------- ---------- --------
Total income tax expense.............. $1,755,866 $1,024,240 $794,394
========== ========== ========
Effective rate.................................. 37.99% 41.14% 40.88%
========== ========== ========
</TABLE>
F-15
<PAGE> 147
THE WARWICK SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As a thrift institution, the Bank is subject to special provisions in the
federal and New York State tax laws regarding its allowable tax bad debt
deductions and related tax bad debt reserves. These deductions historically have
been determined using methods based on loss experience or a percentage of
taxable income. Tax bad debt reserves are maintained for qualifying real
property loans and for nonqualifying loans in amounts equal to the excess of
allowable deductions over actual bad debt losses and other reserve reductions. A
supplemental reserve is also maintained. The qualifying and nonqualifying loan
reserves consist of a defined base-year amount, plus additional amounts ("excess
reserves") accumulated after the base year. SFAS No. 109 requires recognition of
deferred tax liabilities with respect to such excess reserves, as well as any
portion of the base-year amount or the supplemental reserve which is expected to
become taxable (or "recaptured") in the foreseeable future.
Certain amendments to the federal tax bad debt provisions were enacted in
July 1996. The federal amendments include elimination of the
percentage-of-taxable-income method for tax years beginning after December 31,
1995 and imposition of a requirement to recapture into taxable income (over a
six-year period) the qualifying and nonqualifying loan reserves in excess of the
base-year amounts. However, such recapture requirements were suspended for each
of the two successive taxable years beginning January 1, 1996 in which the Bank
originates a minimum amount of certain residential loans during such years that
is not less than the average of the principal amounts of such loans made by the
Bank during its six taxable years preceding January 1, 1996. The Bank previously
established, and will continue to maintain a deferred tax liability with respect
to such excess federal reserves.
The New York State amendments enacted in August of 1996 redesignate the
Bank's State bad debt reserves at May 31, 1997 as the base-year amount and also
provide for future additions to the base-year reserve using the
percentage-of-taxable-income method. This change effectively eliminated the
excess New York State reserves for which a deferred tax liability had been
recognized and, accordingly, the Bank reduced its deferred tax liability by
$164,817 (with a corresponding reduction in income tax expense) during the year
ended May 31, 1997.
In accordance with SFAS No. 109, deferred tax liabilities have not been
recognized with respect to the base-year and supplemental reserves, since the
Bank does not expect that these amounts will become taxable in the foreseeable
future. Under the tax laws as amended, events that would result in taxation of
these reserves include: (i) reductions in the reserves for purposes other than
tax bad debt losses, (ii) failure of the Bank to maintain a specified
qualifying-assets ratio or meet other thrift definition tests for New York State
tax purposes and (iii) certain stock redemptions, partial or complete
liquidation or distribution in excess of post-1951 earnings and profits. The
reserve balance of $4,713,000 at December 31, 1987 has not been subject to
deferred taxes.
11. BENEFIT PLANS
Pension Plan
All eligible employees of the Bank are included in a noncontributory
defined benefit pension plan administered by Actuarial Pension Analysts, Inc.
Under the terms of the Plan, participants vest 100% upon completion of five
years of service as defined in the plan document. The Bank's policy is to fund
the consulting actuary's recommended contribution.
F-16
<PAGE> 148
THE WARWICK SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The funded status of the Bank's pension plan was as follows at May 31, 1997
and 1996:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits
of $3,188,237 and $2,828,423 at May 31, 1997
and 1996, respectively........................... $(3,203,156) $(3,139,230)
Effect of projected future compensation levels...... (915,896) (695,801)
----------- -----------
Projected benefit obligation..................... (4,119,052) (3,835,031)
Plan assets at fair value, primarily fixed income and
equity funds........................................ 4,990,430 4,488,632
----------- -----------
Excess of plan assets over projected benefit
obligation..................................... 871,378 653,601
Unrecognized net gain from past experience different
from
that assumed and effect of changes in assumptions... (515,120) (220,562)
Unrecognized past service liability................... (45,471) (52,005)
Unrecognized net transition asset..................... (19,099) (52,410)
----------- -----------
Net prepaid pension cost (included in other
assets)........................................ $ 291,688 $ 328,624
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED MAY 31
-------------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Net pension cost includes the following
components:
Service costs -- benefits earned during
the period............................. $ 228,068 $ 176,483 $ 151,059
Interest cost on projected benefit
obligation............................. 275,763 266,739 247,131
Actual return on assets................... (357,442) (321,582) (264,534)
Amortization of transition assets......... (33,311) (33,311) (33,311)
Amortization of prior service cost........ (6,534) (6,024) (6,024)
--------- --------- ---------
Net pension cost....................... $ 106,544 $ 82,305 $ 94,321
========= ========= =========
Major assumptions utilized as follows:
Discount rate............................. 7.50% 7.50% 8.25%
Rate of increase in compensation levels... 5.50 5.50 6.00
Expected long-term rate of return on Plan
assets................................. 8.00 8.00 8.00
</TABLE>
Postretirement Benefits Other Than Pensions
The Bank also sponsors postretirement defined benefit plans that cover
substantially all employees and provide health care (medical and dental)
benefits and life insurance benefits. Under the current plans, substantially all
employees become eligible for benefits if they meet certain age and length of
service requirements. Beginning on April 25, 1996, the plans require a partial
employee contribution. Prior to that date, the plans were noncontributory for
the Bank's employees.
The Bank adopted SFAS No. 106 in fiscal 1995 and changed its method of
accounting for these postretirement benefits. Under SFAS No. 106, the cost of
postretirement health care and life insurance benefits is recognized on an
accrual basis as such benefits are earned by active employees. Prior to the
adoption of SFAS No. 106, the Bank recognized the cost of these benefits on a
cash basis.
The accumulated obligation for these benefits, upon adoption of SFAS No.
106, may be recognized as an immediate charge to earnings, or it may be
amortized to expense over a number of years. The Bank recognized
F-17
<PAGE> 149
THE WARWICK SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
in fiscal 1995 the full amount of its accumulated benefit obligation at the time
of adoption as a charge to earnings, which amounted to approximately $645,000,
after deducting a tax benefit of approximately $455,000.
At May 31, 1997 and 1996, the actuarial and accrued liabilities for
postretirement health care and life insurance benefits, none of which have been
funded, were as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Accumulated postretirement benefit obligations:
Retirees.............................................. $ 629,490 $ 643,752
Other active participants............................. 654,434 721,147
---------- ----------
Accumulated postretirement benefit obligation...... 1,283,924 1,364,899
Unrecognized (gain) loss................................ (200,486) 114,332
---------- ----------
Accrued postretirement benefit cost (including
in other liabilities)............................ $1,484,410 $1,250,567
========== ==========
Effect of 1% increase in health care cost trend rate --
accumulated postretirement benefit obligation......... $ 154,095 $ 186,040
========== ==========
</TABLE>
Net periodic postretirement benefit cost is included in the following
components:
<TABLE>
<CAPTION>
YEARS ENDED MAY 31
--------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Service cost -- benefits attributed to service during
period............................................. $ 59,341 $ 72,156 $ 46,115
Interest cost on accumulated postretirement benefit
obligation......................................... 101,806 102,074 92,640
Amortization of prior service cost................... -- -- (59,693)
Amortization of (gains) losses....................... (17,141) 13,845 (28,689)
-------- -------- --------
Net periodic postretirement benefit cost........ $144,006 $188,075 $ 50,373
======== ======== ========
</TABLE>
The accumulated postretirement benefit obligation was determined using the
projected unit cost method, as required by SFAS No. 106, and a discount rate of
8.00% in 1997, 7.50% in 1996 and 8.25% in 1995. The assumed rate of increase in
future health care costs was 9.50% in 1997, 10.0% in 1996 and 10.5% in 1995,
gradually decreasing to 5.0% in the year 2006 and remaining at that level
thereafter.
401(k) Plan
The Bank has a 401(k) plan (the "Plan") covering substantially all
full-time employees. The Plan provides for employer matching contributions
subject to a specified maximum. Amounts charged to operations for the years
ended May 31, 1997, 1996 and 1995 were approximately $86,000, $65,000 and
$61,000, respectively.
F-18
<PAGE> 150
THE WARWICK SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. BORROWED FUNDS AND REPURCHASE AGREEMENTS
Securities sold under agreements to repurchase at May 31, 1997 and 1996
which were transacted with a major securities firm are as follows:
<TABLE>
<CAPTION>
1997
- -----------------------------------
AMOUNT RATE MATURITY
- ----------- ------ --------
<S> <C> <C>
$ 705,000 5.69% 06/18/97
4,685,000 5.69 06/18/97
1,300,000 6.00 06/19/97
1,300,000 6.40 06/19/98
4,700,000 6.65 07/01/98
1,000,000 6.65 06/19/99
4,700,000 6.32 05/24/99
4,700,000 6.53 08/01/99
- -----------
$23,090,000
- -----------
</TABLE>
<TABLE>
<CAPTION>
1996
- -----------------------------------
AMOUNT RATE MATURITY
- ----------- ------ --------
<S> <C> <C>
$ 4,700,000 6.32% 08/96
==========
</TABLE>
Information relating to borrowings under repurchase agreements are
summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED MAY 31
---------------------------------------
1997 1996 1995
----------- ---------- ----------
<S> <C> <C> <C>
Average balance during the year................. $19,685,315 $ 101,075 $ 875,000
Average interest rates during the year.......... 6.20% 6.32% 5.82%
Maximum month-end balance during the year....... 23,300,000 4,700,000 4,500,000
Securities underlying agreement at year-end:
Amortized cost................................ 25,470,851 5,000,000 --
Estimated market value........................ 25,508,437 4,981,000 --
</TABLE>
Federal Home Loan Bank advances are as follows at May 31, 1997 and 1996:
<TABLE>
<CAPTION>
AVAILABLE OUTSTANDING RATE MATURITY
----------- ----------- ----- ----------
<S> <C> <C> <C> <C>
1997:
Revolving line of credit.......... $14,417,000 $ -- --% Daily
Repricing line of credit.......... 14,417,000 -- -- Monthly
Term loans........................ -- 250,000 6.96 06/19/2000
-- 5,000,000 5.79 12/18/2001
----------- ----------
$28,834,000 $ 5,250,000
=========== ==========
1996:
Revolving line of credit.......... $12,922,000 $ 1,600,000 5.563% Daily
Repricing line of credit.......... 12,922,000 -- -- Monthly
Term loan......................... 2,000,000 2,000,000 5.500 May 1997
----------- ----------
$27,844,000 $ 3,600,000
=========== ==========
</TABLE>
In addition, the Bank has a $5 million line of credit and a $10 million
line of credit with two commercial banks which expire on November 30, 1997. As
of May 31, 1997 and 1996, the credit lines were unused.
F-19
<PAGE> 151
THE WARWICK SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. REGULATORY CAPITAL REQUIREMENTS
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 guidelines 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 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 May 31, 1997, that the Bank
meets all capital adequacy requirements to which it is subject.
The most recent notification from the Federal Deposit Insurance Corporation
categorized the Bank as 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, Tier 1 leverage ratios as
set forth in the table. There are no conditions or events since that
notification that management believes have changed the institution's category.
The Bank's actual capital amounts and ratios are also presented in the
following table (000's omitted):
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED
UNDER
PROMPT
FOR CAPITAL CORRECTIVE
ADEQUACY ACTION
ACTUAL PURPOSES PROVISIONS
---------------- ---------------- ----------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
As of May 31, 1997:
Total Capital (to risk weighted
assets).............................. $28,726 20.33% $11,302 *8.0% $14,127 *10.0%
Tier 1 Capital (to risk weighted
assets).............................. 27,495 19.46 5,651 *4.0 8,476 *6.0
Tier 1 Capital (to average assets)...... 27,495 9.53 11,535 *4.0 14,419 *5.0
As of May 31, 1996:
Total Capital (to risk weighted
assets).............................. $25,934 18.45% $11,246 *8.0% $14,057 *10.0%
Tier 1 Capital (to risk weighted
assets).............................. 24,629 17.52 5,623 *4.0 8,434 *6.0
Tier 1 Capital (to average assets)...... 24,629 9.51 10,361 *4.0 12,952 *5.0
</TABLE>
F-20
<PAGE> 152
THE WARWICK SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. COMMITMENTS AND CONTINGENCIES
Lease Commitments
At May 31, 1997, the Bank was obligated under noncancelable operating
leases for office space. Minimum future obligations under the leases are as
follows:
<TABLE>
<S> <C>
Year ending May 31:
1998............................................ $123,935
1999............................................ 10,328
2000............................................ --
2001............................................ --
2002............................................ --
Thereafter...................................... --
--------
$134,263
========
</TABLE>
Rental expense included in the statements of income was approximately
$267,000, $249,000 and $238,000 for the years ended May 31, 1997, 1996 and 1995,
respectively.
In 1993, the Bank entered into an agreement with a company to provide data
processing services. Such agreement expires in July 2000. The commitment for
future payments fluctuates with the level of service provided. The costs
incurred in connection with this agreement are included in data processing
expenses in the accompanying statements of income.
Loan Commitments
Loan commitments and unused lines of credit as of May 31, 1997 are as
follows (with comparative totals as of May 31, 1996):
<TABLE>
<CAPTION>
COMMITMENTS
TO UNUSED
ORIGINATE LINES OF
LOANS CREDIT TOTAL
----------- ---------- -----------
<S> <C> <C> <C>
Mortgage loans............................... $19,189,757 $ -- $19,189,757
Construction loans........................... 4,599,600 -- 4,599,600
Commercial loans............................. 345,000 4,275,202 4,620,202
Other loans.................................. 5,877,312 -- 5,877,312
----------- ---------- -----------
Total as of May 31, 1997........... $30,011,669 $4,275,202 $34,286,871
=========== ========== ===========
Total as of May 31, 1996........... $20,765,251 $9,344,404 $30,109,655
=========== ========== ===========
</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 commitments may expire, the total
commitment amounts do not necessarily represent future cash requirements.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the loan commitments is represented by their contractual amount.
The Bank controls the credit risk of loan commitments through credit approvals,
limits and monitoring procedures. The amount of collateral obtained, if deemed
necessary, is based on management's credit evaluation of the borrower.
F-21
<PAGE> 153
THE WARWICK SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONCENTRATION OF CREDIT RISK
The Bank grants residential mortgage loans, construction loans, commercial
loans and consumer loans to customers located primarily in Orange County, New
York and the surrounding counties of Rockland and Dutchess in New York. The
borrowers' ability to repay loan principal and accrued interest is dependent
upon, among other things, the economic conditions prevailing in the Bank's
lending area.
HEDGING
In the normal course of business, the Bank uses off-balance sheet financial
instruments primarily as part of mortgage banking hedging strategies. Such
instruments generally include put options purchased and forward commitments to
sell mortgage loans. As a result of interest rate fluctuations, these
off-balance sheet financial instruments will develop unrealized gains or losses
that mitigate changes in the underlying hedged portion of the balance sheet.
When effectively used, these off-balance sheet financial instruments are
designed to moderate the impact on earnings as interest rates move up or down.
Nationar
One of the Bank's correspondents was Nationar, a state-chartered trust
company. The Bank had used Nationar for in-clearing of bank checks, money orders
and ACH returns. On February 6, 1995, the New York State Superintendent of
Banking (the Superintendent) took possession of the business and property of
Nationar. At that time, customer accounts were frozen including approximately
$3.9 million of the Bank's assets primarily consisting of cash balances. The
Superintendent maintained the continued operations of Nationar, managed the
process of selling Nationar's assets, and prepared the initial accounting of
Nationar's assets and liabilities.
On June 27, 1996, the Bank received payment of $3.5 million and
subsequently received additional payments of $211,595, $3,800 and $75,000 on
July 18, 1996, November 12, 1996 and April 22, 1997, respectively. The Bank
wrote off its investment in Nationar securities of approximately $97,000 in
fiscal 1995.
Litigation
The Bank is involved in legal proceedings incurred in the normal course of
business. In the opinion of management, none of these proceedings are expected
to have a material effect on the consolidated financial position or results of
operations of the Bank.
15. DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
Cash and Due from Banks and Federal Funds Sold
For these short-term instruments, the carrying amount is a reasonable
estimate of fair value.
Accrued Interest and FHLB Stock
The carrying amount is a reasonable estimate of fair value.
Securities
Fair values for securities are based on quoted market prices or dealer
quotes. If a quoted market price is not available, fair value is estimated using
quoted market prices for similar securities.
F-22
<PAGE> 154
THE WARWICK SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Loans, net
For certain homogeneous categories of loans, such as some residential
mortgages and other consumer loans, fair value is estimated using the quoted
market prices for securities backed by similar loans, adjusted for differences
in loan characteristics.
For other loan types, fair value is based on the credit and interest rate
characteristics of individual loans. These loans are stratified by type,
maturity, interest rate, underlying collateral where applicable, and credit
quality ratings. Fair value is estimated by discounting scheduled cash flows
through estimated maturities using discount rates which in management's opinion
best reflect current market interest rates that would be charged on loans with
similar characteristics and credit quality. Credit risk concerns are reflected
by adjusting cash flow forecasts, by adjusting the discount rate or by adjusting
both.
Depositor Accounts
The fair value of demand deposits, savings accounts, and certain money
market deposits is the amount payable on demand at the reporting date. The fair
value of fixed-maturity certificates of deposit is estimated using the rates
currently offered for deposits of similar remaining maturities.
Mortgage Escrow Funds and Borrowed Funds
The carrying amount is a reasonable estimate of fair value.
The following is a summary of the carrying values and estimated fair values
of the Bank's financial assets and liabilities at May 31, 1997 and 1996 (000's
omitted):
<TABLE>
<CAPTION>
1997 1996
--------------------- ---------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Financial assets:
Cash on hand and in banks..................... $ 10,367 $ 10,367 $ 7,102 $ 7,102
Federal funds sold............................ 1,315 1,315 -- --
Securities.................................... 126,393 126,417 144,284 144,254
Loans, net.................................... 138,323 139,126 108,897 109,553
Accrued interest receivable................... 2,097 2,097 1,942 1,942
Federal Home Loan Bank stock.................. 1,731 1,731 1,178 1,178
Financial liabilities:
Demand, NOW, statement savings and passbook, $146,173 $146,173 $147,415 $147,415
and money market accounts..................
Time certificate accounts..................... 75,038 75,003 85,550 85,886
Mortgage escrow funds......................... 1,398 1,398 1,252 1,252
Borrowed funds................................ 28,340 28,340 8,300 8,300
Accrued interest payable...................... 1,211 1,211 1,201 1,201
</TABLE>
F-23
<PAGE> 155
======================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING MADE HEREBY, AND, IF GIVEN OR MADE,
SUCH OTHER INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY WARWICK COMMUNITY BANCORP, INC., THE WARWICK SAVINGS BANK OR
SANDLER O'NEILL & PARTNERS, L.P. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY
TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF WARWICK COMMUNITY BANCORP, INC. OR
THE WARWICK SAVINGS BANK SINCE ANY OF THE DATES AS OF WHICH INFORMATION IS
FURNISHED HEREIN OR SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary................................... 5
Selected Consolidated Financial and Other
Data of the Bank........................ 15
Risk Factors.............................. 17
Warwick Community Bancorp, Inc. .......... 24
The Warwick Savings Bank.................. 24
Use of Proceeds........................... 26
Dividend Policy........................... 27
Market for the Common Stock............... 28
Regulatory Capital Compliance............. 29
Capitalization............................ 30
Pro Forma Data............................ 32
Comparison of Valuation and Pro Forma Data
With and Without Foundation............. 36
The Warwick Savings Bank and Subsidiaries
Consolidated Statements of Income....... 37
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 38
Business of the Company................... 49
Business of the Bank...................... 50
Federal and State Taxation................ 73
Regulation and Supervision................ 74
Management of the Company................. 86
Management of the Bank.................... 87
The Conversion............................ 99
Restrictions on Acquisition of the Company
and the Bank............................ 119
Description of Capital Stock of the
Company................................. 127
Description of Capital Stock of the
Bank.................................... 128
Transfer Agent and Registrar.............. 129
Experts................................... 129
Other Information......................... 129
Legal and Tax Opinions.................... 129
Additional Information.................... 129
Index to Financial Statements............. F-1
</TABLE>
------------------------
UNTIL THE LATER OF , 199 , OR 25 DAYS AFTER
THE COMMENCEMENT OF THE COMMUNITY OFFERING, IF ANY, ALL DEALERS EFFECTING
TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
======================================================
======================================================
5,577,500 SHARES
[LOGO]
WARWICK COMMUNITY BANCORP, INC.
(PROPOSED HOLDING COMPANY FOR
THE WARWICK SAVINGS BANK)
COMMON STOCK
------------------------
PROSPECTUS
------------------------
Sandler O'Neill & Partners, L.P.
NOVEMBER , 1997
======================================================
<PAGE> 156
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
New York State Banking Department application fee................................ $ 5,000
SEC registration fee(1).......................................................... 20,020
National Association of Securities Dealers filing fee(1)......................... 6,915
Nasdaq National Market Listing Fee(1)............................................ 34,017
Printing, postage and mailing.................................................... 225,000
Legal fees and expenses.......................................................... 480,000
Marketing fees and selling commissions(1)........................................ 1,075,000
Financial advisor expenses (excluding legal fees)................................ 5,000
Accounting fees and expenses..................................................... 250,000
Appraiser's fees and expenses (including preparing business plan)................ 25,000
Transfer agent and registrar fees and expenses................................... 8,000
Conversion agent fees and expenses............................................... 12,500
Certificate printing............................................................. 5,000
Telephone, temporary help and other equipment.................................... 10,000
Blue Sky fees and expenses (including fees of counsel)........................... 15,000
Miscellaneous.................................................................... 10,000
----------
TOTAL............................................................................ $2,186,452
==========
</TABLE>
- ---------------
(1) Actual expenses based upon the registration of 6,606,523 and sale of
6,414,100 shares each at $10.00 per share. All other expenses are estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law ("DGCL"), inter alia,
empowers a Delaware corporation to indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding (other than an action by or in the right of the corporation)
by reason of the fact that such person is or was a director, officer, employee
or agent of another corporation or other enterprise, against expenses (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 or not
opposed to the best interest of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. Similar indemnity is authorized for such person against expenses
(including attorneys' fees) actually and reasonably incurred in connection with
the defense or settlement of any such threatened, pending or completed action or
suit if such person acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the corporation, and provided
further that (unless a court of competent jurisdiction otherwise provides) such
person shall not have been adjudged liable to the corporation. Any such
indemnification may be made only as authorized in each specific case upon a
determination by the stockholders or disinterested directors or by independent
legal counsel in a written opinion that indemnification is proper because the
indemnitee has met the applicable standard of conduct.
Section 145 further authorizes a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent 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 enterprise,
against any liability asserted against him, and incurred by him in any such
capacity, or arising out of his status as such, whether or not the corporation
would otherwise have the power to indemnify him under Section 145.
II-1
<PAGE> 157
Article IX of the Certificate of Incorporation of Warwick Community
Bancorp, Inc. (the "Company") provides that a director shall not be personally
liable to the Company or its shareholders for damages for breach of his
fiduciary duty as a director, except to the extent such exemption from liability
or limitation thereof is expressly prohibited by the DGCL. Article X of the
Company's Certificate of Incorporation requires the Company, among other things,
to indemnify to the fullest extent permitted by the DGCL, any person who is or
was or has agreed to become a director or officer of the Company, who was or is
made a party to, or is threatened to be made a party to, or has become a witness
in, any threatened, pending or completed action, suit or proceeding, including
actions or suits by or in the right of the Company, by reason of such agreement
or service or the fact that such person is, was or has agreed to serve as a
director, officer, employee or agent of another corporation or organization at
the request of the Company.
Article X also empowers the Company to purchase and maintain insurance to
protect itself and its directors and officers, and those who were or have agreed
to become directors or officers, against any liability, regardless of whether or
not the Company would have the power to indemnify those persons against such
liability under the law or the provisions set forth in the Certificate of
Incorporation. The Company is also authorized by its Certificate of
Incorporation to enter into individual indemnification contracts with directors
and officers. The Warwick Savings Bank currently maintains and the Company
expects to purchase directors' and officers' liability insurance consistent with
the provisions of the Certificate of Incorporation as soon as practicable.
The Company expects to enter into employment agreements with certain
executive officers, which agreements are expected to require that the Company
will obtain a directors' and officers' liability policy for the benefit of such
officers or that the Company will indemnify such officers to the fullest extent
provided by law.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Not Applicable.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The exhibits filed as a part of this Registration Statement are as follows:
(A). LIST OF EXHIBITS. (Filed herewith unless otherwise noted.)
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ----------------------------------------------------------------------------------
<C> <S>
1.1 Engagement Letter, dated July 10, 1997, between The Warwick Savings Bank and
Sandler O'Neill & Partners, L.P.
1.2 Form of Agency Agreement (To be filed by amendment)
2.1 Amended and Restated Plan of Conversion of The Warwick Savings Bank
3.1 Certificate of Incorporation of Warwick Community Bancorp, Inc.
3.2 By-Laws of Warwick Community Bancorp, Inc.
3.3 Restated Organization Certificate of The Warwick Savings Bank
3.4 By-Laws of The Warwick Savings Bank
4.1 Certificate of Incorporation of Warwick Community Bancorp, Inc. (See Exhibit 3.1)
4.2 By-Laws of Warwick Community Bancorp, Inc. (See Exhibit 3.2)
4.3 Form of Stock Certificate of Warwick Community Bancorp, Inc.
4.4 Form of Stock Certificate of The Warwick Savings Bank
5.1 Form of Opinion of Thacher Proffitt & Wood regarding legality of the shares issued
8.1 Form of Opinion of Thacher Proffitt & Wood regarding federal and New York State
taxation
8.2 Opinion of FinPro, Inc. regarding Subscription Rights
10.1 Warwick Community Bancorp, Inc. Employee Stock Ownership Plan
10.2 The Warwick Savings Bank 401(k) Savings Plan (To be filed by amendment)
10.3 Form of ESOP Loan Commitment Letter and ESOP Loan Documents (To be filed by
amendment)
</TABLE>
II-2
<PAGE> 158
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ----------------------------------------------------------------------------------
<C> <S>
10.4 Form of Employment Agreement between Warwick Community Bancorp, Inc. and certain
executive officers
10.5 Form of Employee Retention Agreement by and among The Warwick Savings Bank and
certain employees
10.6 Benefit Restoration Plan of The Warwick Savings Bank
10.7 Engagement Letter, dated July 11, 1997, between The Warwick Savings Bank and
FinPro, Inc. for conversion appraisal services and for services related to the
preparation of the business plan
10.8 Engagement Letter, dated July 10, 1997, between The Warwick Savings Bank and
Sandler O'Neill & Partners, L.P. for conversion agent services
16.1 Letter of KPMG Peat Marwick LLP certifying as to change in accountants (To be
filed by amendment)
21.1 Subsidiaries of the Registrant
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Thacher Proffitt & Wood (Included in Exhibits 5.1 and 8.1)
23.3 Consent of FinPro, Inc.
24.1 Power of Attorney (Included in Signature Page of this Registration Statement)
27.1 Financial Data Schedule (Submitted only with filing in electronic format)
99.1 Appraisal Report of FinPro, Inc. (To be filed by amendment)
99.2 Form of Marketing Materials to be used in connection with the Offerings (To be
filed by amendment)
</TABLE>
(B). FINANCIAL STATEMENT SCHEDULES.
All schedules have been omitted as not applicable or not required under the
rules of Regulation S-X.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any Prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration Statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-3
<PAGE> 159
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the Offering.
The undersigned Registrant hereby undertakes to provide to the agent at the
closing specified in the Agency Agreement, certificates in such denominations
and registered in such names as required by the agent to permit prompt delivery
to each purchaser.
Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 160
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Village of Warwick, State of New
York, on September 17, 1997.
WARWICK COMMUNITY BANCORP, INC.
By: /s/ TIMOTHY A. DEMPSEY
------------------------------------
Timothy A. Dempsey
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints each of Timothy A. Dempsey and Ronald J. Gentile
as the true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities to sign the Form S-1 Registration Statement
and any and all amendments thereto, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the U.S. Securities
and Exchange Commission, granting unto each said attorney-in-fact and agent full
power and authority to do and perform each and every act and thing requisite and
necessary to be done as fully to all intents and purposes as he or she might or
could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement, has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------------------ ------------------------------ -------------------
<C> <S> <C>
/s/ TIMOTHY A. DEMPSEY Director, President and Chief September 17,1997
- ------------------------------------------ Executive Officer (Principal
Timothy A. Dempsey executive officer)
/s/ RONALD J. GENTILE Director, Executive Vice September 17, 1997
- ------------------------------------------ President and Chief
Ronald J. Gentile Operating Officer
/s/ ARTHUR W. BUDICH Senior Vice President, September 17, 1997
- ------------------------------------------ Treasurer and Chief
Arthur W. Budich Financial Officer (Principal
financial and accounting
officer)
/s/ FRANCES M. GORISH Director September 17, 1997
- ------------------------------------------
Frances M. Gorish
/s/ R. MICHAEL KENNEDY Director September 17, 1997
- ------------------------------------------
R. Michael Kennedy
/s/ FRED M. KNIPP Director September 17, 1997
- ------------------------------------------
Fred M. Knipp
</TABLE>
<PAGE> 161
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------------------ ------------------------------ -------------------
<C> <S> <C>
/s/ EMIL R. KRAHULIK Director September 17, 1997
- ------------------------------------------
Emil R. Krahulik
/s/ THOMAS F. LAWRENCE, JR. Director September 17, 1997
- ------------------------------------------
Thomas F. Lawrence, Jr.
/s/ HENRY L. NIELSEN, JR. Director September 17, 1997
- ------------------------------------------
Henry L. Nielsen, Jr.
/s/ JOHN W. SANFORD III Director September 17, 1997
- ------------------------------------------
John W. Sanford III
/s/ ROBERT N. SMITH Director September 17, 1997
- ------------------------------------------
Robert N. Smith
</TABLE>
<PAGE> 162
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------------------------------------------------------------------- ------------
<C> <S> <C>
1.1 Engagement Letter, dated July 10, 1997, between The Warwick Savings
Bank and Sandler O'Neill & Partners, L.P.
1.2 Form of Agency Agreement (To be filed by amendment)
2.1 Amended and Restated Plan of Conversion of The Warwick Savings Bank
3.1 Certificate of Incorporation of Warwick Community Bancorp, Inc.
3.2 By-Laws of Warwick Community Bancorp, Inc.
3.3 Restated Organization Certificate of The Warwick Savings Bank
3.4 By-Laws of The Warwick Savings Bank
4.1 Certificate of Incorporation of Warwick Community Bancorp, Inc. (See
Exhibit 3.1)
4.2 By-Laws of Warwick Community Bancorp, Inc. (See Exhibit 3.2)
4.3 Form of Stock Certificate of Warwick Community Bancorp, Inc.
4.4 Form of Stock Certificate of The Warwick Savings Bank
5.1 Form of Opinion of Thacher Proffitt & Wood regarding legality of the
shares issued
8.1 Form of Opinion of Thacher Proffitt & Wood regarding federal and New
York State taxation
8.2 Opinion of FinPro, Inc. regarding Subscription Rights
10.1 Warwick Community Bancorp, Inc. Employee Stock Ownership Plan
10.2 The Warwick Savings Bank 401(k) Savings Plan (To be filed by amendment)
10.3 Form of ESOP Loan Commitment Letter and ESOP Loan Documents (To be
filed by amendment)
10.4 Form of Employment Agreement between Warwick Community Bancorp, Inc.
and certain executive officers
10.5 Form of Employee Retention Agreement by and among The Warwick Savings
Bank and certain employees
10.6 Benefit Restoration Plan of The Warwick Savings Bank
10.7 Engagement Letter, dated July 11, 1997, between The Warwick Savings
Bank and FinPro, Inc. for conversion appraisal services and for
services related to the preparation of the business plan
10.8 Engagement Letter, dated July 10, 1997, between The Warwick Savings
Bank and Sandler O'Neill & Partners, L.P. for conversion agent services
16.1 Letter of KPMG Peat Marwick LLP certifying as to change in accountants
(To be filed by amendment)
21.1 Subsidiaries of the Registrant
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Thacher Proffitt & Wood (Included in Exhibits 5.1 and 8.1)
23.3 Consent of FinPro, Inc.
24.1 Power of Attorney (Included in Signature Page of this Registration
Statement)
27.1 Financial Data Schedule (Submitted only with filing in electronic
format)
99.1 Appraisal Report of FinPro, Inc. (To be filed by amendment)
99.2 Form of Marketing Materials to be used in connection with the Offerings
(To be filed by amendment)
</TABLE>
<PAGE> 1
Exhibit 1.1
[Letterhead of Sandler O'Neill & Partners, L.P.]
July 10, 1997
Board of Trustees
The Warwick Savings Bank
18 Oakland Avenue
Warwick, NY 10990
Attention: Mr. Timothy A. Dempsey
President
Ladies and Gentlemen:
Sandler O'Neill & Partners, L.P. ("Sandler O'Neill") is pleased to act
as an independent financial advisor to The Warwick Savings Bank (the "Bank") in
connection with the Bank's proposed conversion from mutual to stock form (the
"Conversion"), including the offer and sale of certain shares of the common
stock of the proposed new holding company for the Bank (the "Holding Company")
to the Bank's eligible account holders in a Subscription Offering, to members of
the Bank's community in a Direct Community Offering and, under certain
circumstances, to the general public in a Syndicated Community Offering
(collectively, the "Offerings"). For purposes of this letter, the term "Actual
Purchase Price" shall mean the price at which the shares of the Holding
Company's common stock are sold in the Conversion. This letter is to confirm the
terms and conditions of our engagement.
ADVISORY SERVICES
Sandler O'Neill will act as a consultant and advisor to the Bank and
the Holding Company and will work with the Bank's management, counsel,
accountants and other advisors in connection with the Conversion and the
Offerings. We anticipate that our services will include the following, each as
may be necessary and as the Bank may reasonably request:
1. Consulting as to the securities marketing implications of
any aspect of the Plan of Conversion or related corporate
documents;
2. Reviewing with the Board of Directors of the Holding
Company and the Board of Trustees of the Bank the
independent appraiser's appraisal of the common stock;
<PAGE> 2
The Warwick Savings Bank
July 10, 1997
Page 2
3. Reviewing all offering documents, including the Prospectus,
stock order forms and related offering materials (it being
understood that preparation and filing of such documents will
be the responsibility of the Bank and the Holding Company and
their counsel);
4. Assisting in the design and implementation of a marketing
strategy for the Offerings;
5. Assisting the Bank in connection with listing the Holding
Company's common stock on a national securities exchange
or the Nasdaq stock market;
6. Assisting in obtaining all requisite regulatory
approvals;
7. Assisting Bank management in scheduling and preparing for
meetings with potential investors and broker-dealers; and
8. Providing such other general advice and assistance as may
be requested to promote the successful completion of the
Conversion.
SYNDICATED COMMUNITY OFFERING
If any shares of the Holding Company's common stock remain available
after the expiration of the Subscription Offering and the Direct Community
Offering, at the request of the Bank and subject to the continued satisfaction
of the conditions set forth in the second paragraph under the caption
"Definitive Agreement" below, Sandler O'Neill will seek to form a syndicate of
registered dealers to assist in the sale of such common stock in a Syndicated
Community Offering on a best efforts basis, subject to the terms and conditions
set forth in a selected dealers agreement. Sandler O'Neill will endeavor to
limit the aggregate fees to be paid by the Bank under any such selected dealers
agreement to an amount competitive with gross underwriting discounts charged at
such time for underwritings of comparable amounts of stock sold at a comparable
price per share in a similar market environment, which shall not exceed 7% of
the aggregate Actual Purchase Price of the shares sold under such agreements.
Sandler O'Neill will endeavor to distribute the common stock among dealers in a
fashion which best meets the distribution objectives of the Bank and the
requirements of the Plan of Conversion, which may result in limiting the
allocation of stock to certain selected dealers. It is understood that in no
event shall Sandler O'Neill be obligated to act as a selected dealer or to take
or purchase any shares of
<PAGE> 3
The Warwick Savings Bank
July 10, 1997
Page 3
the Holding Company's common stock.
FEES
If the Conversion is consummated, the Bank agrees to pay Sandler
O'Neill for its services hereunder the fees set forth below:
1. a fee of one and seven-eighths percent (1.875%) of the
aggregate Actual Purchase Price of the shares of common
stock sold in the Subscription Offering and Direct
Community Offering, excluding in each case shares
purchased by (i) any employee benefit plan of the Holding
Company or the Bank established for the benefit of their
respective directors, trustees, officers and employees,
and (ii) any director, trustee, officer or employee of
the Holding Company or the Bank or members of their
immediate families; and
2. with respect to any shares of the Holding Company's
common stock sold by an NASD member firm (other than
Sandler O'Neill) under any selected dealers agreement in
the Syndicated Community Offering, (a) the sales
commission payable to the selected dealer under such
agreement, (b) any sponsoring dealer's fees, and (c) a
management fee to Sandler O'Neill of one and one-half
percent (1.5%). Any fees payable to Sandler O'Neill for
common stock sold by Sandler O'Neill under any such
agreement shall be limited to an aggregate of one and
seven-eighths percent (1.875%) of the Actual Purchase
Price of such shares.
If (i) Sandler O'Neill's engagement hereunder is terminated for any of
the reasons provided for under the second paragraph of the section of this
letter captioned "Definitive Agreement," or (ii) the Conversion is terminated by
the Bank, no fees shall be payable by the Bank to Sandler O'Neill hereunder;
however, the Bank shall reimburse Sandler O'Neill for its reasonable
out-of-pocket expenses incurred in connection with its engagement hereunder.
All fees payable to Sandler O'Neill hereunder shall be payable in cash
at the time of the closing of the Conversion. In recognition of the long lead
times involved in the conversion process, the Bank agrees to make an advance
payment to Sandler O'Neill in the amount of $25,000, which shall be payable upon
execution of this letter and which shall be credited against any fees or
reimbursement of expenses payable hereunder.
<PAGE> 4
The Warwick Savings Bank
July 10, 1997
Page 4
COSTS AND EXPENSES
In addition to any fees that may be payable to Sandler O'Neill
hereunder and the expenses to be borne by the Bank pursuant to the following
paragraph, the Bank agrees to reimburse Sandler O'Neill, upon request made from
time to time, for its reasonable out-of-pocket expenses incurred in connection
with its engagement hereunder, regardless of whether the Conversion is
consummated, including, without limitation, legal fees, advertising,
promotional, syndication, and travel expenses; provided, however, that Sandler
O'Neill shall document such expenses to the reasonable satisfaction of the Bank.
The provisions of this paragraph are not intended to apply to or in any way
impair the indemnification provisions of this letter.
As is customary, the Bank will bear all other expenses incurred in
connection with the Conversion and the Offerings, including, without limitation,
(i) the cost of obtaining all securities and bank regulatory approvals,
including any required NASD filing fees; (ii) the cost of printing and
distributing the offering materials; (iii) the costs of blue sky qualification
(including fees and expenses of blue sky counsel) of the shares in the various
states; (iv) listing fees; and (v) all fees and disbursements of the Bank's and
the Holding Company's counsel, accountants, conversion agent and other advisors.
In the event Sandler O'Neill incurs any such fees and expenses on behalf of the
Bank or the Holding Company, the Bank will reimburse Sandler O'Neill for such
fees and expenses whether or not the Conversion is consummated; provided,
however, that Sandler O'Neill shall not incur any substantial expenses on behalf
of the Bank or the Holding Company pursuant to this paragraph without the prior
approval of the Bank.
DUE DILIGENCE REVIEW
Sandler O'Neill's obligation to perform the services contemplated by
this letter shall be subject to the satisfactory completion of such
investigation and inquiries relating to the Bank and the Holding Company, and
their respective directors, trustees, officers, agents and employees, as Sandler
O'Neill and its counsel in their sole discretion may deem appropriate under the
circumstances. In this regard, the Bank agrees that, at its expense, it will
make available to Sandler O'Neill all information which Sandler O'Neill
requests, and will allow Sandler O'Neill the opportunity to discuss with the
Bank's and the Holding Company's management the financial condition, business
and operations of the Bank and the Holding Company. The Bank and the Holding
Company
<PAGE> 5
The Warwick Savings Bank
July 10, 1997
Page 5
acknowledge that Sandler O'Neill will rely upon the accuracy and completeness of
all information received from the Bank and the Holding Company and their
directors, trustees, officers, employees, agents, independent accountants and
counsel.
BLUE SKY MATTERS
The Bank agrees that if Sandler O'Neill's counsel does not serve as
counsel with respect to blue sky matters in connection with the Offerings, the
Bank will cause the counsel performing such services to prepare a Blue Sky
Memorandum related to the Offerings including Sandler O'Neill's participation
therein and shall furnish Sandler O'Neill a copy thereof addressed to Sandler
O'Neill or upon which such counsel shall state Sandler O'Neill may rely.
CONFIDENTIALITY
Other than disclosure to other firms made part of any syndicate of
selected dealers or as required by law or regulation, Sandler O'Neill agrees
that it will not disclose any Confidential Information relating to the Bank
obtained in connection with its engagement hereunder (whether or not the
Conversion is consummated). As used in this paragraph, the term "Confidential
Information" shall not include information which (i) is or becomes generally
available to the public other than as a result of a disclosure by Sandler
O'Neill, (ii) was available to Sandler O'Neill on a non-confidential basis prior
to its disclosure to Sandler O'Neill by the Bank, or (iii) becomes available to
Sandler O'Neill on a non-confidential basis from a person other than the Bank
who is not otherwise known to Sandler O'Neill to be bound not to disclose such
information pursuant to a contractual, legal or fiduciary obligation.
INDEMNIFICATION
Since Sandler O'Neill will be acting on behalf of the Bank and the
Holding Company in connection with the Conversion, the Holding Company and the
Bank agree to indemnify and hold Sandler O'Neill and its affiliates and their
respective partners, directors, officers, employees, agents and controlling
persons within the meaning of Section 15 of the Securities Act of 1933, as
amended or Section 20 of the Securities Exchange Act of 1934, as amended
(Sandler O'Neill and each such person being an "Indemnified Party") harmless
from and against any and all losses, claims, damages and liabilities, joint or
several, to which such Indemnified Party may
<PAGE> 6
The Warwick Savings Bank
July 10, 1997
Page 6
become subject under applicable federal or state law, or otherwise, related to
or arising out of the Conversion or the engagement of Sandler O'Neill pursuant
to, or the performance by Sandler O'Neill of the services contemplated by, this
letter, and will reimburse any Indemnified Party for all expenses (including
reasonable legal fees and expenses) as they are incurred, including expenses
incurred in connection with the investigation of, preparation for or defense of
any pending or threatened claim or any action or proceeding arising therefrom,
whether or not such Indemnified Party is a party; provided, however, that the
Bank and the Holding Company will not be liable in any such case to the extent
that any such loss, claim, damage, liability or expense (i) arises out of or is
based upon any untrue statement of a material fact or the omission of a material
fact required to be stated therein or necessary to make not misleading any
statements contained in any final proxy statement or prospectus, or any
amendment or supplement thereto, or any of the applications, notices, filings or
documents related thereto made in reliance on and in conformity with written
information furnished to the Bank by Sandler O'Neill expressly for use therein,
or (ii) is primarily attributable to the gross negligence, willful misconduct or
bad faith of Sandler O'Neill. If the foregoing indemnification is unavailable
for any reason, the Bank and the Holding Company agree to contribute to such
losses, claims, damages, liabilities and expenses in the proportion that its
financial interest in the Conversion bears to that of Sandler O'Neill.
DEFINITIVE AGREEMENT
Sandler O'Neill and the Bank agree that (a) except as set forth in
clause (b), the foregoing represents the general intention of the Bank and
Sandler O'Neill with respect to the services to be provided by Sandler O'Neill
in connection with the Offerings, which will serve as a basis for Sandler
O'Neill commencing activities, and (b) the only legal and binding obligations of
the Bank, the Holding Company and Sandler O'Neill with respect to the subject
matter hereof shall be (1) the Bank's obligation to reimburse costs and expenses
pursuant to the section captioned "Costs and Expenses," (2) those set forth
under the captions "Confidentiality" and "Indemnification," and (3) as set forth
in a duly negotiated and executed definitive Agency Agreement to be entered into
prior to the commencement of the Subscription Offering relating to the services
of Sandler O'Neill in connection with the Offerings. Such Agency Agreement shall
be in form and content satisfactory to Sandler O'Neill, the Bank and the Holding
Company and their respective counsel and shall contain standard indemnification
provisions consistent herewith.
<PAGE> 7
The Warwick Savings Bank
July 10, 1997
Page 7
Sandler O'Neill's execution of such Agency Agreement shall also be
subject to (i) Sandler O'Neill's satisfaction with its investigation of the
Bank's business, financial condition and results of operations, (ii) preparation
of offering materials that are satisfactory to Sandler O'Neill and its counsel,
(iii) compliance with all relevant legal and regulatory requirements to the
reasonable satisfaction of Sandler O'Neill's counsel, (iv) agreement that the
price established by the independent appraiser is reasonable and (v) market
conditions at the time of the proposed offering. Sandler O'Neill may terminate
this agreement if such Agency Agreement is not entered into prior to March 31,
1998.
ELIMINATION OF HOLDING COMPANY
If the Board of Trustees of the Bank, for any reason, elects not to
proceed with the formation of the Holding Company but determines to proceed with
the Conversion and substitute the common stock of the Bank for the common stock
of the Holding Company, all of the provisions of this letter relating to the
common stock of the Holding Company will be deemed to pertain to the common
stock of the Bank on the same terms and conditions that such provisions pertain
to the common stock of the Holding Company and all of the references in this
letter to the Holding Company shall be deemed to refer to the Bank or shall have
no effect, as the context of the reference requires.
<PAGE> 8
The Warwick Savings Bank
July 10, 1997
Page 8
Please confirm that the foregoing correctly sets forth our agreement by
signing and returning to Sandler O'Neill the duplicate copy of this letter
enclosed herewith.
Very truly yours,
Sandler O'Neill & Partners, L.P.
By: Sandler O'Neill & Partners Corp.,
the sole general partner
By: /s/ Catherine A. Lawton
-------------------------------------
Catherine A. Lawton
Vice President
Accepted and agreed to as of the date first above written:
The Warwick Savings Bank
By: /s/ Timothy A. Dempsey
--------------------------------
Timothy A. Dempsey
President
<PAGE> 1
Exhibit 2.1
PLAN OF CONVERSION
OF
THE WARWICK SAVINGS BANK
AS ADOPTED BY THE BOARD OF TRUSTEES
ON JULY 10, 1997
AS AMENDED ON AUGUST 19, 1997
<PAGE> 2
ARTICLE I
DEFINITIONS
ARTICLE II
PROCEDURE FOR APPROVAL OF THE CONVERSION
<TABLE>
<S> <C>
Section 2.01 Application and Notice ........................................... 8
Section 2.02 Approval of Plan by Eligible Account Holders;
the Special Meeting ............................................ 8
Section 2.03 Company Approvals ................................................ 9
ARTICLE III
SALE OF COMMON STOCK
Section 3.01 In General ....................................................... 9
Section 3.02 Reorganization as a Subsidiary of the Company .................... 10
Section 3.03 Pricing and Number of Shares of Common Stock;
Independent Appraiser .......................................... 11
Section 3.04 Subscription Rights .............................................. 13
Section 3.05 Community Offering ............................................... 14
Section 3.06 Subscription and Community Offering Procedures; Order Forms ...... 16
Section 3.07 Payment for Common Stock ......................................... 17
Section 3.08 Syndicated Community Offering .................................... 18
Section 3.09 Public Offering Alternative ...................................... 19
Section 3.10 Restrictions on Purchase and Transfer of Common Stock ............ 20
Section 3.11 Time Limits for Sale of Shares; Effect of Inability to Sell ...... 21
Section 3.12 Establishment and Funding of Foundation .......................... 21
Section 3.13 Enforcement of Terms and Conditions .............................. 22
ARTICLE IV
CERTAIN RESTRICTIONS
Section 4.01 Sale of Shares Purchased by Trustees, Directors or Officers ...... 22
Section 4.02 Subsequent Purchases of Shares by Trustees,
Directors and Officers ......................................... 23
Section 4.03 Acquisition of Control ........................................... 23
</TABLE>
(i)
<PAGE> 3
ARTICLE V
EFFECT OF CONVERSION; CERTAIN COVENANTS AND AGREEMENTS
<TABLE>
<S> <C>
Section 5.01 Restated Organization Certificate and
Adoption of New By-Laws ................................... 24
Section 5.02 Effect of Conversion ........................................ 25
Section 5.03 Liquidation Account ......................................... 25
Section 5.04 Voting Rights ............................................... 26
Section 5.05 Issuance of Stock ........................................... 26
Section 5.06 Directors of Converted Bank ................................. 27
Section 5.07 Employment Agreements ....................................... 27
Section 5.08 Market for the Common Stock ................................. 27
Section 5.09 Stock Repurchases and Stock Benefit Plans ................... 27
ARTICLE VI
TAX RULING REQUIREMENT; AMENDMENT AND TERMINATION;
MISCELLANEOUS
Section 6.01 Conditions to Conversion .................................... 28
Section 6.02 Amendment or Termination of the Plan ........................ 28
Section 6.03 Completion Date ............................................. 28
Section 6.04 Expenses of the Conversion .................................. 28
Section 6.05 Interpretation .............................................. 29
Section 6.06 Severability ................................................ 29
Section 6.07 Miscellaneous ............................................... 29
</TABLE>
(ii)
<PAGE> 4
PLAN OF CONVERSION
OF
THE WARWICK SAVINGS BANK
INTRODUCTORY STATEMENT
This Plan of Conversion provides for the conversion of The Warwick
Savings Bank from a New York mutual savings bank to a New York stock savings
bank. The Bank is currently a mutual savings bank duly organized and validly
existing under the laws of the State of New York, having been created by an Act
of the Legislature of the State of New York, passed May 17, 1875, such Act
having been amended and supplemented from time to time thereafter. The principal
office of the Bank is located at 18 Oakland Avenue, in the Village of Warwick,
County of Orange, State of New York.
The purpose of the Conversion is to increase the Bank's equity
capital base and facilitate future access to capital markets. The Conversion
will provide the Bank with a more flexible operating structure, which will
enable the Bank to compete more effectively with other financial institutions.
The larger equity capital base resulting from the Conversion will enhance the
Bank's ability to pursue lending and investment opportunities as well as
opportunities for growth and expansion. The Bank's Board of Trustees also
believes that the decline in the number of mutual institutions and the assets
and deposits of mutual institutions will place mutual institutions at a
disadvantage to stock institutions. The Board of Trustees of the Bank currently
contemplates that all of the stock of the Bank shall be held by Warwick
Community Bancorp, Inc., a business corporation to be organized under the laws
of the State of Delaware and that the Company will issue and sell its capital
stock pursuant to this Plan. The use of the Company will provide greater
organizational flexibility to the Bank.
In furtherance of the Bank's commitment to its communities, the Plan
provides for the establishment of a charitable Foundation as part of the
Conversion. The Foundation is intended to complement the Bank's existing
community reinvestment activities to allow the Bank's local communities to share
in the growth and profitability of the Company and the Bank over the long term.
To this end, the Company intends to donate to the charitable Foundation a number
of shares of its authorized but unissued Common Stock of up to 3% of the Common
Stock issued in the Conversion.
This Plan has been unanimously approved by the Board of Trustees of
the Bank, based upon its determination that the Conversion is in the best
interests of the Bank, its depositors and the communities served by the Bank.
This Plan sets forth the terms and conditions of the Conversion, and the
procedures for effecting the same. This Plan must be approved by the
Superintendent or his or her designees, must not be objected to by the FDIC and
certain waivers must be granted by the Banking Board. This Plan must also be
approved by (1) the affirmative vote of at least seventy-five percent (75%) in
amount of deposit liabilities of Eligible Account Holders represented in person
or by proxy at the Special Meeting, and, if required, (2) the
<PAGE> 5
affirmative vote of at least a majority of the amount of votes eligible to be
cast at the Special Meeting.
Upon the Conversion, each Person having a Deposit Account at the
Bank prior to the Conversion will continue to have a Deposit Account, without
payment therefor, in the same amount and subject to the same terms and
conditions (except for voting and liquidation rights) as in effect prior to the
Conversion. After the Conversion, the Bank will succeed to all the rights,
interests, duties and obligations of the Bank before the Conversion, including,
but not limited to, all rights and interests of the Bank in and to its assets
and properties, whether real, personal or mixed. The Bank will continue to be a
member of the Federal Home Loan Bank System. All of the Bank's insured Deposit
Accounts will continue to be insured by the Bank Insurance Fund of the FDIC to
the extent provided by applicable law.
-2-
<PAGE> 6
ARTICLE I
DEFINITIONS
As used in this Plan of Conversion, the following terms shall have
the following meanings:
"Account Holder" shall mean any Person holding a Deposit Account in
the Bank.
"Acting in Concert" shall mean (i) knowing participation in a joint
activity or interdependent conscious parallel action towards a common goal
whether or not pursuant to an express agreement or understanding; or (ii) a
combination or pooling of voting or other interests in the securities of an
issuer for a common purpose pursuant to any contract, understanding,
relationship, agreement or other arrangement, whether written or otherwise. A
Person or company which acts in concert with another Person ("other party")
shall also be deemed to be acting in concert with any Person who is also acting
in concert with that other party, except that any Tax-Qualified Employee Stock
Benefit Plan will not be deemed to be acting in concert with its trustee or a
Person who serves in a similar capacity solely for the purpose of determining
whether stock held by the trustee and stock held by the plan will be aggregated,
and participants or beneficiaries of any such Tax-Qualified Employee Stock
Benefit Plan will not be deemed to be acting in concert solely as a result of
their common interests as participants or beneficiaries.
"Actual Purchase Price" shall mean the price per share at which the
Common Stock is ultimately sold in accordance with the terms hereof.
"Affiliate" shall mean a Person who, directly or indirectly, through
one or more intermediaries, controls or is controlled by or is under common
control with the Person specified.
"Associate," when used to indicate a relationship with any Person,
shall mean (a) any corporation or organization (other than the Company, the Bank
or a majority-owned subsidiary of the Bank) of which such Person is an officer
or partner or is, directly or indirectly, either alone or with one or more
members of his or her immediate family, the beneficial owner of 10% or more of
any class of equity securities; (b) any trust or other estate in which such
Person has a substantial beneficial interest or as to which such Person serves
as trustee or in a similar fiduciary capacity, except that for the purposes of
Sections 3.04(a) and 3.10, the term "Associate" does not include any
Tax-Qualified Employee Stock Benefit Plan or any Non-Tax-Qualified Employee
Stock Benefit Plan in which a Person has a substantial beneficial interest or
serves as a trustee or in a similar fiduciary capacity, and except that, for
purposes of aggregating total shares that may be acquired or held by Officers
and Trustees and their Associates, the term "Associate" does not include any
Tax-Qualified Employee Stock Benefit Plan; and (c) any relative or spouse of
such Person, or any relative of such spouse, who has the same home as such
Person or who is a Director or Officer of the Company, the Bank or any of the
Bank's subsidiaries.
"Bank" shall mean The Warwick Savings Bank in its mutual form or in
its stock form, as the context of the reference requires.
-3-
<PAGE> 7
"Banking Board" shall mean the Banking Board of the State of New
York.
"Banking Law" shall mean the Banking Law of the State of New York.
"Benefit Plan" shall mean any Tax-Qualified Employee Stock Benefit
Plan or any Non-Tax-Qualified Employee Stock Benefit Plan.
"Common Stock" shall mean all of the shares of common stock, par
value $.01 per share, offered and issued pursuant to this Plan by the Company or
of the common stock, par value $1.00 per share, offered and issued pursuant to
this Plan by the Bank if the Company is not utilized. The Common Stock will not
be insured by the FDIC.
"Community Offering" shall mean the offering for sale to certain
members of the general public directly by the Bank or the Company, if utilized,
of any shares of the Common Stock not subscribed for in the Subscription
Offering in accordance with Section 3.05.
"Company" shall mean Warwick Community Bancorp, Inc., a corporation
to be organized under the laws of the State of Delaware.
"Control" (including the terms "controlling," "controlled by" and
"under common control with") shall mean the possession, direct or indirect, of
the power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities of such Person, the
ownership of voting securities of any company that possesses such power, or
otherwise.
"Conversion" shall mean (a) the restatement of the Bank's
organization certificate to authorize the issuance of capital stock in
accordance with the Banking Law and the Conversion Regulations and to otherwise
conform to the requirements applicable to a New York stock savings bank and (b)
the issuance of the common stock of the Bank in accordance with this Plan.
"Conversion Regulations" shall mean Part 86 of the General
Regulations of the Banking Board of the State of New York ("Part 86") and the
regulations of the FDIC applicable to mutual to stock conversions, 12 C.F.R.
Section 303.15, to the extent such regulations preempt or supplement Part 86.
"Deposit Account" shall mean all deposits of the Bank as such term
is used in Section 9019 of the Banking Law of New York, and includes without
limitation, savings, time, demand, negotiable orders of withdrawal (NOW), money
market and passbook accounts maintained by the Bank.
"Director" shall mean a member of the Board of Directors of the Bank
after the Conversion or a member of the Board of Directors of the Company.
"Effective Date" shall mean the effective date of the Conversion on
which all of the Common Stock is issued and sold and on which the Superintendent
endorses his or her approval
-4-
<PAGE> 8
on the Bank's Restated Organization Certificate and causes such Certificate to
be filed in the Office of the Superintendent.
"Eligibility Record Date" shall mean June 30, 1996, the date
established by the Board of Trustees of the Bank as the date for determining
Eligible Account Holders.
"Eligible Account Holder" shall mean any depositor of the Bank who
owned a Qualifying Deposit on the Eligibility Record Date.
"Estimated Price Range" shall mean the range of the minimum and
maximum aggregate values determined by the Board of Trustees of the Bank within
which the aggregate offering price of Common Stock sold in the Conversion will
fall. The Estimated Price Range will be within the estimated aggregate pro forma
market value of the Common Stock, as determined by the Independent Appraiser in
accordance with Section 3.04.
"FDIC" shall mean the Federal Deposit Insurance Corporation.
"FRB" shall mean the Board of Governors of the Federal Reserve
System.
"Foundation" shall mean a tax-exempt organization under Section
501(c)(3) of the Internal Revenue Code formed by the Bank and the Company to
which shares of Common Stock shall be transferred upon the Conversion.
"Holders of Subscription Rights" shall mean the Tax-Qualified
Employee Stock Benefit Plans and Eligible Account Holders who have Subscription
Rights pursuant to Section 3.04.
"Independent Appraiser" shall mean the independent Person retained
by the Bank to prepare an appraisal of the estimated pro forma market value of
the Common Stock. Such Person shall be experienced and expert in the area of
corporate appraisal and acceptable to the Superintendent.
"Internal Revenue Code" shall mean the Internal Revenue Code of
1986, as amended.
"Maximum Subscription Price" shall mean the price per share to be
remitted by subscribers for shares of Common Stock in the Subscription Offering
and the Community Offering.
"Non-Tax-Qualified Employee Stock Benefit Plan" shall mean any stock
option, bonus stock or restricted stock plan or other employee benefit plan that
is not a "Tax-Qualified Employee Stock Benefit Plan" and that is maintained by
the Company or the Bank for the benefit of officers, employees or directors of
the Company, the Bank or any Affiliate of either of them and that, by its terms,
is authorized or required to purchase Common Stock.
-5-
<PAGE> 9
"Officer" shall mean an executive officer of the Company or the
Bank, which includes the chairman of the board, chief executive officer,
president, any vice president in charge of a principal business function or
functions or who otherwise has a policy-making function, secretary, treasurer or
principal financial officer, comptroller or principal accounting officer, and
any person performing functions similar to those performed by the foregoing
persons with respect to any incorporated or unincorporated organization.
"Order Form" shall mean the form provided by the Company or the Bank
that subscribers must use to order Common Stock in the Subscription Offering and
Community Offering.
"Overallotment Option" shall mean the option, which may be granted
to the Underwriters in any Syndicated Community Offering or Public Offering, to
purchase, on the same terms as other shares are purchased in such Syndicated
Community Offering or Public Offering, up to an additional fifteen percent of
the shares of the Common Stock offered in the Subscription Offering.
"Oversubscription Provision" shall mean the increase in the number
of shares of Common Stock that may be offered to subscribers in the Subscription
Offering and the Community Offering pursuant to Section 3.04 hereof.
"Person" shall mean any corporation, partnership, trust,
unincorporated association, any other entity or any natural person.
"Plan" or "Plan of Conversion" shall mean this Plan of Conversion,
including any amendments thereto.
"Prospectus" shall mean the Prospectus to be used in offering the
Common Stock in the Subscription Offering and the Community Offering.
"Proxy Statement" shall mean the document to be used to solicit
proxies from Eligible Account Holders to vote at the Special Meeting.
"Public Offering" shall mean the offering of certain shares of
Common Stock in accordance with Section 3.09 hereof.
"Public Offering Price" shall mean the price at which the shares of
Common Stock are offered in the Public Offering.
"Qualifying Deposit" shall mean one or more Deposit Accounts with
the Bank totaling, in the aggregate, at least one hundred dollars ($100.00).
"SEC" shall mean the Securities and Exchange Commission.
-6-
<PAGE> 10
"Special Meeting" shall mean the Special Meeting of Depositors to be
called for the purpose of submitting the Plan to the Eligible Account Holders
for their approval.
"Subaccount Balance" shall mean, with respect to each Eligible
Account Holder, the portion of the liquidation account that such Eligible
Account Holder would be entitled to receive pursuant to the Conversion
Regulations in the event of a complete liquidation of the Bank subsequent to the
Conversion. The initial Subaccount Balance of each Eligible Account Holder shall
be determined in accordance with Section 86.4(f)(4) of the Conversion
Regulations.
"Subscription Offering" shall mean the offering of the Common Stock
to Eligible Account Holders in accordance with Section 3.04 hereof.
"Subscription Rights" shall mean the rights described in Section
3.04 hereof.
"Superintendent" shall mean the Superintendent of Banks of the State
of New York.
"Syndicated Community Offering" shall mean the offering of Common
Stock following the Subscription and Community Offerings through a syndicate of
broker-dealers.
"Syndicated Community Offering Price" shall mean the per share price
submitted with orders for shares of Common Stock in the Syndicated Community
Offering.
"Tax-Qualified Employee Stock Benefit Plan" shall mean any defined
benefit plan or defined contribution plan, such as an employee stock ownership
plan, stock bonus plan, profit-sharing plan or other plan, that is maintained by
the Company or the Bank for the benefit of the officers or employees of the
Company, the Bank, or any Affiliate of either of them; that, by its terms, is
authorized or required to purchase Common Stock, and that, with its related
trust, meets the requirements to be "qualified" under Section 401 of the
Internal Revenue Code. The Bank may make scheduled discretionary contributions
to a Tax-Qualified Employee Stock Benefit Plan, provided that, among other
things, such contributions do not cause the Bank to fail to meet its regulatory
capital requirements.
"Trustee" shall mean a member of the Board of Trustees of the Bank
prior to the Conversion.
"Underwriters" shall mean any investment banking firm or firms
purchasing or distributing the Common Stock to be offered in a Public Offering,
if any.
"Underwriting Agreement" shall mean the agreement between the
Company and the Underwriters pursuant to which the Underwriters agree to
purchase or distribute certain shares of the Common Stock for offering in a
Public Offering, if any.
-7-
<PAGE> 11
ARTICLE II
PROCEDURE FOR APPROVAL OF THE CONVERSION
Section 2.01 Application and Notice.
This Plan, having been duly adopted by the Board of Trustees of the
Bank, will be submitted, together with an Application for Conversion in the
forms required by the Conversion Regulations, to the Superintendent for
approval, to the Banking Board to request certain waivers and to the FDIC for
non-objection. Following approval of this Plan by the Board of Trustees of the
Bank, the Bank will cause notice of the adoption of the Plan, and of its
intention to convert to stock form and to reorganize into holding company form,
to be conspicuously posted at its home office and each of its branch offices.
The Bank will also issue a press release containing all of the material terms of
the proposed Conversion and will place an advertisement containing such material
terms in a newspaper having general circulation in the communities in which the
principal office and branches of the Bank are located.
Section 2.02 Approval of Plan by Eligible Account Holders; the Special
Meeting.
(a) Following (i) approval of the Bank's Application for Conversion
by the Superintendent, (ii) the non-objection of the FDIC and (iii) the receipt
of all necessary waivers of the Banking Board, the Bank shall submit the Plan to
the Bank's Eligible Account Holders for approval at the Special Meeting. The
Bank shall mail to each Eligible Account Holder, at his or her last known
address appearing on the records of the Bank, a copy of the Plan and the
proposed Restated Organization Certificate of the Bank and proposed By-Laws of
the Bank, a Notice of Special Meeting, Proxy Card and Subscription Order Form
and a long-form Proxy Statement (which contains a detailed description of the
Conversion and contains offering material relating to the Subscription Offering)
in the forms required by the Conversion Regulations, describing the Plan and
certain other matters relating to the Bank and its Conversion. Separate and
readily distinguishable postage-paid envelopes shall be provided for the return
of Proxy Cards and Subscription Order Forms.
(b) The Special Meeting shall be held upon written notice given no
less than 20 days nor more than 45 days prior to the date of the Special
Meeting. At the Special Meeting, each Eligible Account Holder shall be entitled
to cast one vote in person or by proxy for every one hundred dollars ($100.00)
such Eligible Account Holder had on deposit with the Bank as of the Eligibility
Record Date; provided, however, that no Eligible Account Holder shall be
eligible to cast more than one thousand (1,000) votes. The Board of Trustees
shall appoint an independent custodian and tabulator to receive and hold proxies
to be voted at the Special Meeting and count the votes cast in favor of and in
opposition to the Plan.
(c) The Superintendent shall be notified of the results of the
Special Meeting by a certificate signed by the President and Secretary of the
Bank within five days after the conclusion of the Special Meeting. The Plan must
be approved by the affirmative vote of (i) at least seventy-five percent (75%)
in amount of deposit liabilities of the Eligible Account Holders
-8-
<PAGE> 12
represented in person or by proxy at the Special Meeting and, if required, (ii)
at least a majority of the amount of votes entitled to be cast at the Special
Meeting. If the Plan is so approved, the Bank will take all other necessary
steps to effect the Conversion subject to the terms and conditions of the Plan.
If the Plan is not so approved, upon conclusion of the Special Meeting and any
adjournment or postponement thereof, the Plan shall not be implemented without
further vote and all funds submitted in the Subscription Offering and Community
Offering will be returned to subscribers, with interest as provided herein, and
all withdrawal authorizations will be canceled.
Section 2.03 Company Approvals.
The Board of Trustees of the Bank intends to take all necessary
steps to form the Company. The Bank will be a wholly owned subsidiary of the
Company unless the Company is not utilized in the Conversion. If the Company is
utilized, upon the Conversion, the Bank will issue its capital stock to the
Company, and the Company will issue and sell the Common Stock in accordance with
this Plan. The Company will make timely applications for any requisite
regulatory approvals, including an Application with the Superintendent, an
Application on Form FR Y-3 with the FRB, and a Registration Statement on Form
S-1 to be filed with the SEC.
ARTICLE III
SALE OF COMMON STOCK
Section 3.01 In General.
(a) As soon as practicable after adoption of the Plan by the Board
of Trustees of the Bank and the Board of Directors of the Company, the Company
shall register the Common Stock under the Securities Act of 1933, as amended,
and any applicable state laws. After registration of the Common Stock and
receipt of all required regulatory approvals, the Common Stock will be offered
for sale to the Holders of Subscription Rights in the respective priorities set
forth in Section 3.04; provided, however, that no offer for sale of the Common
Stock shall be made prior to the mailing to Eligible Account Holders of the
Proxy Statement for the Special Meeting. Shares of Common Stock not subscribed
for in the Subscription Offering will be offered for sale in a Community
Offering. Any Common Stock remaining unsold upon completion of the Subscription
Offering and Community Offering may be offered for sale in a Syndicated
Community Offering or a Public Offering or in some other manner as determined by
the Board of Trustees of the Bank and the Board of Directors of the Company with
the approval of the Superintendent. Any such Syndicated Community or Public
Offering shall be conducted in a manner that is intended to achieve a reasonably
wide distribution of the Common Stock.
(b) The Community Offering may be commenced concurrently with the
Subscription Offering; provided, however, that any orders received in the
Community Offering shall be subject to availability of shares upon conclusion of
the Subscription Offering. The offer and sale of Common Stock prior to the
Special Meeting shall, however, be conditioned upon approval of the Plan by the
Eligible Account Holders. The sale of all Common Stock subscribed
-9-
<PAGE> 13
for in the Subscription and Community Offerings will be consummated
simultaneously on the date the sale of Common Stock in any Syndicated Community
Offering or Public Offering is consummated and only if all Common Stock is sold.
(c) The sales price per share of the Common Stock shall be a uniform
price determined in accordance with Section 86.5(c) of the Conversion
Regulations and Section 3.03 hereof, except that the price to be paid by or
through the Underwriters in connection with a Syndicated Community Offering or
Public Offering may be less a negotiated Underwriters' commission or discount.
The Bank may also elect to offer to pay fees on a per share basis to qualifying
brokers, as determined by the Bank in its sole discretion, who assist Persons in
determining to purchase shares in the Subscription and Community Offerings.
(d) The Board of Trustees of the Bank may determine for any reason
at any time prior to the issuance of the Common Stock not to utilize a holding
company form of organization in the Conversion. If the Board of Trustees of the
Bank determines not to complete the Conversion utilizing a holding company form
of organization, the capital stock of the Bank will be issued and sold in
accordance with the Plan. In such case, the Company's registration statement on
Form S-l will be withdrawn from the SEC, the Bank will take all steps necessary
to complete the Conversion from the mutual to the stock form of organization,
including filing any necessary documents with the FDIC, and will issue and sell
the Common Stock in accordance with this Plan. In such event, any subscriptions
or orders received for Common Stock of the Company shall be deemed to be
subscriptions or orders for Common Stock of the Bank on the same terms and
conditions that such provisions apply to the Common Stock of the Company. In
that event all references to the Company in this Plan shall be deemed to refer
to the Bank or shall have no effect, as the context requires, and the Bank shall
take such steps as permitted or required by the Superintendent or the SEC.
Section 3.02 Reorganization as a Subsidiary of the Company.
Upon the issuance of the Common Stock, the Company will purchase
from the Bank all of the capital stock of the Bank to be issued by the Bank in
the Conversion in exchange for the Conversion proceeds that are not permitted to
be retained by the Company. The Company will apply to the Superintendent to
retain 50% of the net proceeds of the sale of the Common Stock. A lesser
percentage may be retained in the discretion of the Boards of Trustees of the
Bank and the Board of Directors of the Company. The Bank believes that the
Conversion proceeds will provide economic strength to the Company and the Bank
for the future in a highly competitive and regulated environment. The Conversion
will also facilitate any expansion through acquisitions of financial service
organizations, any diversification into other related businesses and any
engagement in other business and investment purposes, including the possible
payment of dividends and possible future repurchases of the Common Stock as
permitted by the Conversion Regulations. The above activities may also be
engaged in by the Bank if the Company is eliminated.
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Section 3.03 Pricing and Number of Shares of Common Stock; Independent
Appraiser.
(a) All shares sold in the Conversion shall be sold at a uniform
price per share, the Actual Purchase Price, which shall be no more than $40.00
per share and no less than $5.00 per share. The aggregate price at which the
Common Stock shall be sold shall be consistent with the estimated pro forma
market value of such Common Stock on the Effective Date of the Conversion, based
upon an independent valuation as provided for in this Section 3.03. The Bank
shall cause the Independent Appraiser to prepare a pro forma valuation of the
aggregate market value of the Common Stock, which shall be submitted to the
Superintendent and the FDIC as part of the Bank's Application for Conversion,
such valuation to be stated in terms of an Estimated Price Range, the maximum of
which shall be no more than 15% above the average of the minimum and maximum of
such price range and the minimum of which shall be no more than 15% below such
average. From time to time, as appropriate or as required by the Conversion
Regulations or the Superintendent, the Bank shall cause the Independent
Appraiser to review developments subsequent to its valuation to determine
whether the Estimated Price Range should be revised. Such valuation shall be
prepared in accordance with the Conversion Regulations.
(b) Based on the valuation of the Independent Appraiser pursuant to
Section 3.03(a) hereof, the Board of Trustees of the Bank and the Board of
Directors of the Company shall fix the Maximum Subscription Price and the number
of shares to be offered. The total number of shares of Common Stock offered
shall be subject to increase or decrease at any time prior to any Syndicated
Community Offering or Public Offering or other method of sale to reflect changes
in market and financial conditions. In the event that the aggregate purchase
price of the Common Stock is below the minimum of the Estimated Price Range, or
materially above the maximum of the Estimated Price Range, resolicitation of
purchasers may be required; provided, that up to a 15% increase above the
maximum of the Estimated Price Range will not be deemed material so as to
require a resolicitation. Up to a 15% increase in the number of shares to be
issued which is supported by an appropriate change in the estimated pro forma
market value of the Common Stock will not be deemed to be material so as to
require a resolicitation of subscriptions. In the event that the aggregate
purchase price of the Common Stock is below the minimum of the Estimated Price
Range or in excess of 15% above the maximum of the Estimated Price Range, and a
resolicitation is required, such resolicitation shall be effected in such manner
and within such time as the Company or the Bank shall establish, with the
approval of the Superintendent or the FDIC, if required. The total number of
shares of Common Stock offered will be subject to increase in connection with
the exercise of any Overallotment Option or the Oversubscription Provision,
provided that any additional number of shares of Common Stock issued for these
purposes shall not exceed 15% of the total number of shares of the Common Stock
offered in the Subscription Offering.
(c) If the number of shares of Common Stock to be sold in the
Conversion, excluding any number of shares to be issued in connection with any
Overallotment Option or the Oversubscription Provision, is increased after
commencement of the Subscription Offering, any Person who subscribed for the
maximum number of shares of Common Stock shall be permitted to purchase an
additional number of shares such that such Person shall be permitted to
subscribe for the then maximum number of shares permitted to be subscribed for
by such Person as adjusted
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<PAGE> 15
to take into account the increase in the number of shares to be sold, subject to
the rights and preferences of any Person who has priority Subscription Rights.
If either the individual purchase limitation or the number of shares of Common
Stock, excluding any number of shares to be issued in connection with any
Overallotment Option or the Oversubscription Provision, is decreased after
commencement of the Subscription Offering, the order of any Person who
subscribed for the maximum number of shares of Common Stock shall be decreased
by the minimum amount necessary so that such Person shall be in compliance with
the then maximum number of shares permitted to be subscribed for by such Person.
The Company shall not otherwise be required to offer subscribers the right to
modify or rescind their subscriptions as a result of any increase or decrease in
the number of shares of Common Stock offered, unless otherwise required by this
Plan or by the Superintendent.
(d) In the event shares of Common Stock are sold in excess of the
maximum of the Estimated Price Range (the "Adjusted Maximum"), such shares will
be allocated in the following order of priority: (i) to fill unfulfilled
Subscriptions in the Subscription Offering in the respective priorities set
forth in Section 3.04; and (ii) to fill unfulfilled Subscriptions in the
Community Offering in accordance with Section 3.05.
(e) If all of the shares of Common Stock are subscribed for in the
Subscription Offering and the Community Offering, or are sold in some other
manner other than a Syndicated Community Offering or Public Offering, the Board
of Trustees of the Bank and the Board of Directors of the Company, in
consultation with the Independent Appraiser, shall determine the Actual Purchase
Price, subject to approval by the Superintendent. If all shares of the Common
Stock are not subscribed for and there is a Syndicated Community Offering or
Public Offering, the Board of Trustees of the Bank and the Board of Directors of
the Company, in consultation with the Underwriters and the Independent
Appraiser, shall determine the Syndicated Offering Price or the Public Offering
Price, as the case may be, subject to the approval of the Superintendent. If
there is a Syndicated Community Offering or a Public Offering, the Syndicated
Offering Price or the Public Offering Price, as the case may be, will determine
the Actual Purchase Price. Except for the purchase price of shares sold upon the
exercise of any Overallotment Option or the Oversubscription Provision, the
aggregate purchase price of the Common Stock shall be within the Estimated Price
Range, unless subscribers are offered the right to modify or rescind their
subscriptions.
(f) The Company shall not consummate any sale unless the Independent
Appraiser shall have confirmed to the Company, the Bank and the Superintendent
that nothing of a material nature has occurred that would cause the Independent
Appraiser to conclude that the aggregate purchase price of the shares of Common
Stock sold in the Conversion, exclusive of the aggregate purchase price of
shares sold upon the exercise of the Overallotment Option or the
Oversubscription Provision, is incompatible with its estimate of the pro forma
market value of the Bank at the time of such sale. If the Independent Appraiser
is unable to so confirm, the offering may be canceled or the Bank and the
Company may extend the Conversion, establish a new Estimated Price Range, Actual
Purchase Price, extend, reopen or hold a new Subscription Offering and Community
Offering, Syndicated Community Offering or Public Offering, or take such other
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<PAGE> 16
action as the Board of Trustees of the Bank and the Board of Directors of the
Company shall determine and the Superintendent shall approve.
(g) The Common Stock to be issued pursuant to this Plan shall upon
issuance be fully paid and nonassessable.
Section 3.04 Subscription Rights.
(a) Each Eligible Account Holder shall receive, as first priority
and without payment, nontransferable subscription rights to subscribe for shares
of Common Stock equal to an amount up to the greatest of (i) the amount
permitted to be subscribed for in the Community Offering, which amount is
currently equal to $150,000 of the Common Stock offered in connection with the
Conversion, as specified in Section 3.05(d), and may be increased to 5% of the
Common Stock offered in the Conversion or decreased to less than $150,000, (ii)
one-tenth of one percent of the total offering of shares of Common Stock, or
(iii) fifteen times the product (rounded down to the next whole number) obtained
by multiplying the total number of shares of Common Stock to be issued by a
fraction of which the numerator is the amount of the Qualifying Deposit of the
Eligible Account Holder and the denominator is the total amount of Qualifying
Deposits of all Eligible Account Holders, in each case on the Eligibility Record
Date. Such subscription is subject to the maximum purchase limitation specified
in Section 3.10(a) and the minimum purchase limitation in Section 3.10(d). If
Eligible Account Holders subscribe for a number of shares of Common Stock that
exceeds the total number of shares of Common Stock being issued, the Common
Stock shall be allocated among subscribing Eligible Account Holders as follows:
(i) first, to the extent possible, each Eligible Account Holder
shall be entitled to subscribe for the entire amount of his or her order,
up to 100 shares;
(ii) second, each Eligible Account Holder subscribing for in excess
of 100 shares shall be entitled, with respect to such excess, to subscribe
for the same percentage of the total remaining shares to be issued as the
value of his or her Qualifying Deposits represents to the aggregate value
of the Qualifying Deposits of all remaining Eligible Account Holders whose
subscriptions remain unsatisfied; provided, however, that no fractional
shares shall be issued; and
(iii) third, any shares then remaining shall be reallocated (one or
more times if necessary) among those Eligible Account Holders whose
subscriptions are not filled pursuant to subparagraphs (i) or (ii) above,
on the basis otherwise set forth in (ii) above until all available shares
have been allocated or all subscriptions satisfied.
Subscription Rights to purchase Common Stock received by Trustees and Officers
of the Bank, and their Associates, as Eligible Account Holders that are based on
their increased Deposit Accounts in the Bank in the one-year period preceding
the Eligibility Record Date shall be subordinated to the Subscription Rights of
all other Eligible Account Holders granted pursuant to the Conversion
Regulations and this Plan.
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<PAGE> 17
(b) The Tax-Qualified Employee Stock Benefit Plans shall receive,
without payment, as a second priority after the filling of subscriptions of
Eligible Account Holders, non-transferable Subscription Rights to purchase up to
a maximum of ten percent (10.0%) of the Common Stock. If, after the filling of
subscriptions of Eligible Account Holders, a sufficient number of shares is not
available to fill the subscriptions by such plan, the subscription by such plan
shall be filled to the maximum extent possible. A Tax-Qualified Employee Stock
Benefit Plan shall not be deemed to be an Associate or Affiliate of, or a Person
Acting in Concert with, any Director or Officer of the Company or the Bank.
Notwithstanding any provision contained herein to the contrary, the Bank may
make scheduled discretionary contributions to a Tax-Qualified Employee Stock
Benefit Plan; provided, among other things, that such contributions do not cause
the Bank to fail to meet its regulatory capital requirements.
(c) Subscription Rights are non-transferable and may not be
exercised by or on behalf of any Person other than the Holder of Subscription
Rights. Prior to the Effective Date, no Person shall offer to transfer, enter
into any agreement or understanding to transfer, or transfer the legal or
beneficial ownership of any shares of Common Stock, except pursuant to or as con
templated by this Plan.
(d) Notwithstanding the foregoing, no Person will be offered or sold
any Common Stock in the Subscription Offering if such Person resides either in a
foreign jurisdiction or in a state or other jurisdiction of the United States
with respect to which both of the following apply:
(i) a small number of Persons otherwise eligible to subscribe for
shares of Common Stock under the Plan reside in such jurisdiction; and
(ii) the granting of the Subscription Rights or the offer or sale of
shares of Common Stock to such Persons would require the Bank, the Company
or their employees, officers or directors to register under the securities
laws or other laws of similar import of such jurisdiction as a broker,
dealer, salesman or selling agent (as defined in the laws or regulations
of such jurisdiction) or to register or otherwise qualify the Common Stock
for sale in such jurisdiction, and such registration or qualification
would be impracticable in the judgment of the Bank or the Company for
reasons of cost or otherwise.
No payment will be made in lieu of the granting of Subscription Rights to any
such Person.
Section 3.05 Community Offering.
Shares of Common Stock not subscribed for in the Subscription
Offering may be offered in a Community Offering, commencing concurrently with or
subsequent to the commencement of the Subscription Offering, subject to the
following terms and conditions:
(a) The Community Offering may be made to the those persons that the
Bank determines to be members of its community, including without limitation,
customers, employees,
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<PAGE> 18
Officers, and Trustees of the Bank and their immediate families, trusts or
custodial arrangements forming part of an Individual Retirement Account
established pursuant to Section 408 of the Internal Revenue Code, or part of a
qualified retirement plan established pursuant to Section 401(a) of the Internal
Revenue Code and maintained for the benefit of any such natural person, and
certain institutional investors.
(b) The Community Offering shall be completed no later than 45 days
following the termination of the Subscription Offering, unless extended with the
approval of the Superintendent.
(c) The Community Offering shall be by means of a direct marketing
program. The Bank or the Company may, if the Board of Trustees of the Bank and
the Board of Directors of the Company deem it advisable, engage the services of
a registered broker-dealer, consultant or investment banking firm, experienced
and expert in the sale of savings institution securities, to assist the Company
in the direct marketing program. The Company and the Bank shall make
distribution of the Common Stock to be sold in the Community Offering in such a
manner as to promote a reasonably wide distribution of Common Stock.
(d) Any Person subscribing for Common Stock pursuant to the
provisions of this Section 3.05 shall be required to purchase a minimum of 25
shares to the extent such shares are available for purchase. The maximum amount
that any Person, together with any Associate or group of Persons Acting in
Concert, may subscribe for in the Community Offering shall be $150,000 of the
Common Stock offered in the Conversion; provided, however, that the amount
permitted to be purchased in the Community Offering may be increased to 5% of
the Common Stock offered in the Conversion or decreased to less than $150,000
without the further approval of depositors or resolicitation of subscribers. If
there are not sufficient shares available to fill all subscription requests, the
total number of shares available in the Community Offering shall be allocated to
each subscriber whose order is accepted, the shares available to such subscriber
will be allocated in the manner which permits each such person, to the extent
possible, to purchase the number of shares necessary to make his total
allocation of Common Stock equal to the lesser of 100 shares or the number of
shares subscribed for by such persons, thereafter, unallocated shares will be
allocated among such persons whose subscriptions remain unsatisfied on a 100
shares per order basis until all such orders have been filled or the remaining
shares have been allocated.
(e) Notwithstanding the foregoing:
(i) no Person will be offered or sold any shares of Common Stock in
the Community Offering if such Person resides either in a foreign
jurisdiction or in a state or other jurisdiction of the United States in
which the offer or sale of shares of Common Stock would require the
Company or the Bank or their employees, officers or directors to register
under the securities laws or other laws of similar import of such
jurisdiction as a broker, dealer, salesman or selling agent (as defined in
the laws of such jurisdiction) or to register or otherwise qualify the
Common Stock for sale in such jurisdiction and such registration or
qualification would be impracticable in the judgment of the Company or the
Bank for reasons of cost or otherwise; and
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<PAGE> 19
(ii) the Company reserves the absolute right to accept or reject any
or all orders in the Community Offering in whole or in part.
Section 3.06 Subscription and Community Offering Procedures; Order Forms
(a) After the registration statement for the Common Stock has been
declared effective and all other required regulatory approvals have been
obtained, the Company shall distribute or make available the Prospectus,
together with Order Forms for the purchase of Common Stock, to the Holders of
Subscription Rights for the purpose of enabling them to exercise their
respective Subscription Rights. Such notice may be included with the Proxy
Statement for the Special Meeting and may also be included in a notice of the
pendency of the Conversion and the Special Meeting sent to all Eligible Account
Holders. Each Order Form must be preceded or accompanied by the Prospectus
describing the Holding Company, the Bank, the Common Stock and the Subscription
Offering and the Community Offering. Each Order Form shall contain such
information as may be required by the Conversion Regulations.
(b) The Holders of Subscription Rights shall have a period of time
within which to complete and deliver an Order Form to the Company. The exact
date and time by which completed Order Forms must be received by the Company
shall be set forth on the Order Form; provided, that if the Holders of
Subscription Rights are required to return a postage-paid request card to
receive a Prospectus and Order Form, the Subscription Offering shall not
terminate until the expiration of five days after the Special Meeting, unless a
shorter period of time is approved by the Superintendent. Failure of any Holder
of Subscription Rights to deliver a properly executed Order Form to the Company,
together with full payment (or authorization for payment by withdrawal from a
time or Deposit Account with the Bank) for the shares of Common Stock subscribed
for, within the time limits prescribed shall be deemed a waiver and release by
such Person of any Subscription Rights.
(c) The Company shall also distribute or make available the
Prospectus, together with Order Forms for the purchase of Common Stock, to
certain other Persons described in Section 3.05. A subscriber in the Community
Offering shall have a period of time within which to complete and deliver an
Order Form to the Company, which period of time shall end at the same time that
the Subscription Offering terminates, unless extended pursuant to Section
3.05(b). The exact date and time by which completed Order Forms must be received
by the Company shall be set forth on the Order Form.
(d) The Company may, subject to the provisions of this Plan and any
required approval of the Superintendent, extend the period during which an Order
Form must be completed and delivered to the Company. Any such extension shall be
for a period that the Board of Trustees of the Bank and the Board of Directors
of the Company determine is appropriate.
(e) The Company reserves the right to accept or reject orders on
photocopied or facsimilied order forms. The Company may, but will not be
required to, waive any irregularity on any Order Form, or require the submission
of corrected Order Forms or the remittance of full payment for subscribed shares
of Common Stock by such date as the Company may specify. The
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<PAGE> 20
interpretation by the Company of the terms and conditions of the Order Forms
will be final and binding on all subscribers.
Section 3.07 Payment for Common Stock.
(a) Payment for shares of Common Stock subscribed for in the
Subscription Offering and in any Community, Syndicated Community or Public
Offerings shall be equal to the Maximum Subscription Price multiplied by the
number of shares that are being subscribed for. Such payment must, in general,
be made at the time the Order Form is delivered to the Company and may be made:
(i) in cash, if delivered in person, or by check, bank draft, or
money order, or
(ii) if the subscriber has a Deposit Account in the Bank, the
subscriber may authorize the Bank to withdraw from such Deposit Account an
amount equal to the aggregate Maximum Subscription Price of the shares for
which the Person subscribed.
If the subscriber is a Benefit Plan, the subscribing Benefit Plan may pay for
the shares of Common Stock at the Actual Purchase Price on or prior to the
Effective Date. If the subscribing Benefit Plan is an employee stock ownership
plan, it may pay on or prior to the Effective Date only if it has received a
loan commitment from the Company or a source of funding acceptable to the
Company, committing to advance to the Benefit Plan on or before the Effective
Date the aggregated Maximum Subscription Price of the shares for which the
Benefit Plan subscribed. Notwithstanding the foregoing, the Bank and the Company
shall have the right, in their sole discretion, to permit institutional
investors to submit contractually irrevocable orders in the Community Offering
and to thereafter submit payment for the Common Stock for which they are
subscribing in the Community Offering at any time prior to 48 hours before the
completion of the Conversion, unless such 48-hour period is waived by the Bank
and the Company, in their sole discretion.
(b) If the Actual Purchase Price is less than the Maximum
Subscription Price, the difference will either be promptly refunded to all
subscribers (or withdrawal authorizations from time or Deposit Accounts shall be
reduced) or, if the subscriber has so elected on a space that may be provided on
the Order Form, the difference (excluding accrued interest) will be applied to
the purchase of additional whole shares of Common Stock to the extent available,
and any remaining difference will be promptly refunded to all subscribers (or
withdrawal authorizations from time or Deposit Accounts shall be reduced).
(c) If a subscriber authorizes a withdrawal of the amount of the
Maximum Subscription Price multiplied by the number of shares that are being
subscribed for from a time or Deposit Account with the Bank as payment for the
shares subscribed for, the Bank will have the right upon receipt of the Order
Form by the Company to make such withdrawal immediately or to place a hold on
such account equal to such aggregate Maximum Subscription Price. The Bank will
allow withdrawal from certificates of deposit for such payment without the
assessment of penalties; however, if the withdrawal results in the certificate
failing to meet any applicable
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<PAGE> 21
minimum balance requirement, the certificate evidencing the account may be
canceled and the remaining balance transferred to a statement savings account
that will earn interest at the regular passbook rate. Where any applicable
required minimum balance is maintained in such certificate account, the rate of
return on the balance of the certificate account will remain the same as prior
to such early withdrawal. If the Bank withdraws funds from a subscriber's time
account, or places a hold on such account, in accordance with this Section 3.07,
and the time account matures prior to the date the Conversion is completed or
terminated, the funds so withdrawn or placed under a hold shall be transferred
upon maturity of the time account to a statement savings account that will earn
interest at the regular passbook rate.
(d) The Bank will pay interest, at not less than the passbook rate,
for all amounts paid in cash, by check, bank draft or money order to purchase
shares of the Common Stock in the Subscription Offering or Community Offering
from the date payment is received until the date the Conversion is completed or
terminated. If any withdrawal from a time or Deposit Account made pursuant to
paragraph (c) above is made at any time prior to the date the Conversion is
completed or terminated, the Bank shall pay interest to the Eligible Account
Holder on the amount withdrawn as if such amount had remained in the account
from which it was withdrawn until the date the Conversion is completed or
terminated.
(e) The Bank shall not knowingly loan funds or otherwise extend
credit to any Person for the purpose of purchasing shares of the Common Stock.
Section 3.08 Syndicated Community Offering.
(a) Shares of Common Stock not sold in the Subscription Offering or
the Community Offering may be offered for sale in a Syndicated Community
Offering, subject to such terms, conditions, and procedures as may be determined
by the Bank, in a manner that is intended to achieve the a reasonably wide
distribution of the Common Stock subject to the right of the Bank to accept or
reject in whole or in part all subscriptions in the Syndicated Community
Offering.
(b) In the Syndicated Community Offering, any Person together with
any Associate or group of Persons Acting in Concert may purchase up to $150,000
of the Common Stock offered in the Conversion subject to the maximum purchase
limitation specified in Section 3.10(a) and the minimum purchase limitation
specified in Section 3.10(d) and exclusive of an increase in the total number of
shares issued due to an increase in the Estimated Price Range of up to 15%.
However, the shares purchased in the Community Offering by any Person together
with an Associate or group of Persons Acting in Concert pursuant to Section 3.06
shall be counted toward meeting the maximum purchase limitation found in this
Section 3.08.
(c) Provided that the Subscription Offering has commenced, the Bank
may commence the Syndicated Community Offering at any time after the mailing to
the depositors of the Proxy Statement to be used in connection with the special
meeting of depositors, provided that the completion of the offer and sale of the
Common Stock shall be conditioned upon the approval of this Plan by Eligible
Account Holders. If the Syndicated Community Offering is not sooner commenced
pursuant to the provisions of the preceding sentence, the Syndicated Community
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<PAGE> 22
Offering will be commenced as soon as practicable following the date upon which
the Subscription and Community Offerings terminate.
Section 3.09 Public Offering Alternative.
(a) Shares of Common Stock not sold in the Subscription Offering or
the Community Offering may, as an alternative to a Syndicated Community Offering
pursuant to Section 3.08, be offered for sale by the Company to or through
Underwriters. The provisions of Section 3.10 shall not be applicable to sales to
Underwriters for purposes of such a Public Offering. Any such Underwriter shall
agree to (a) purchase such shares from the Company with a view to reoffering
them to the general public; (b) use their best efforts to sell, for the account
of the Company, such shares to the general public; or (c) a combination of (a)
and (b), subject to the following terms and conditions:
(b) Any Underwriting Agreement shall provide that the Underwriters
shall agree to purchase all shares of the Common Stock not sold in the
Subscription Offering or the Community Offering, if any such shares are
purchased.
(c) The price paid to the Company by or through the Underwriters for
the Common Stock shall be the aggregate Public Offering Price for the shares of
Common Stock so offered, less discounts and commissions as negotiated between
the Bank, the Company and the Underwriters and approved by the Superintendent
and the National Association of Securities Dealers, Inc.
(d) The Underwriting Agreement shall be subject to the following
conditions and such other conditions as may be acceptable to the Bank, the
Company and the Superintendent:
(i) purchases in the Public Offering shall be subject to the
limitations of Section 3.10; and
(ii) the Company and its Underwriters shall use reasonable efforts
to assure that the stock to be offered and sold in the Public Offering
shall be offered and sold in a manner that, to the extent practicable,
will achieve a reasonably wide distribution of such stock.
(e) If for any reason a Syndicated Community Offering or a Public
Offering of shares of Common Stock not sold in the Subscription and Community
Offerings cannot be effected, or if any insignificant residue of shares of
Common Stock is not sold in the Subscription and Community Offerings or in the
Syndicated Community or Public Offering, other arrangements will be made for the
disposition of unsubscribed shares by the Bank, if possible. Such other purchase
arrangements will be subject to the approval of the Superintendent.
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<PAGE> 23
Section 3.10 Restrictions on Purchase and Transfer of Common Stock.
The following limitations shall apply to all purchases of Common
Stock:
(a) No Person, acting alone, acting together with any other Person,
or Acting in Concert with any group of Persons, shall be entitled to purchase
more than 1.0% of the Common Stock offered, provided, however, that in the event
the maximum purchase limitations set forth in this Section 3.10(a) are increased
pursuant to Section 3.10(e) below to more than 1.0% of the shares of Common
Stock offered, orders for Common Stock in the Community Offering and in the
Syndicated Community Offering (or the Public Offering), if any, shall, as
determined by the Bank and the Holding Company, first be filled to a maximum of
1.0% of the total number of shares of Common Stock offered and thereafter
remaining shares shall be allocated on an equal number of shares per order basis
until all orders have been filled. For purposes of applying this purchase
limitation, the purchases of any Tax-Qualified Employee Stock Benefit Plan shall
not be subject to such purchase limitation, and the purchases of any Benefit
Plan shall not be aggregated with those of any other Benefit Plan or other
Person; provided, however, that any one or more Tax-Qualified Employee Stock
Benefit Plans may subscribe for up to and including 10% of the Common Stock
issued.
(b) The Officers and Trustees of the Bank and Officers and Directors
of the Company and their Associates, collectively, shall be entitled to purchase
up to and including 25% of the Common Stock issued. In applying this limitation,
Common Stock purchased by any one or more Tax-Qualified Employee Stock Benefit
Plan shall not be counted.
(c) Shares of Common Stock subscribed for in the Subscription
Offering, the Community Offering and any Syndicated Community Offering or Public
Offering or otherwise purchased shall be aggregated for purposes of determining
if the limitations of Section 3.10(a) and (b) have been violated.
(d) Any Person exercising Subscription Rights to purchase Common
Stock shall be required to purchase a minimum of 25 shares to the extent such
shares are available for purchase. However, in the event the minimum number of
shares of Common Stock that must be purchased times the price per share exceeds
five hundred dollars ($500.00), then the minimum purchase requirement shall be
reduced to such number of shares that, when multiplied by the price per share,
the aggregate price for any such minimum purchase of shares of Common Stock
shall not exceed five hundred dollars ($500.00).
(e) Depending upon market or financial conditions, the Board of
Trustees of the Bank and the Board of Directors of the Company, without further
approval of the subscribers, may decrease or increase the purchase limitations
in this Plan, provided that the maximum purchase limitations may not be
increased to a percentage in excess of 5%. Notwithstanding the foregoing, the
maximum purchase limitation set forth in Section 3.10(a) above may be increased
up to 9.99%, provided that orders for Common Stock exceeding 5% of the shares
being offered shall not exceed, in the aggregate, 10% of the total offering. If
the Bank and the Company increase such maximum purchase limitations, the Bank
and the Company are only required to
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<PAGE> 24
resolicit Persons who subscribed for the maximum purchase amount and may, in the
sole discretion of the Bank and the Company, resolicit certain other large
subscribers.
(f) Each Person purchasing Common Stock in the Conversion shall be
deemed to confirm that such purchase does not conflict with the purchase
limitations set forth in this Plan.
(g) As used in this Section 3.10, the Officers, Directors and
Trustees of the Bank and the Company shall not be deemed to be Associates or a
group affiliated with each other or otherwise Acting in Concert solely as a
result of their being Officers, Trustees or Directors of the Bank or the
Company.
Section 3.11 Time Limits for Sale of Shares; Effect of Inability to Sell.
All shares of Common Stock not subscribed for at the completion of
the Subscription Offering shall be sold within 45 days after completion of the
Subscription Offering, or such longer period as the Superintendent may approve.
If all shares are not sold as provided for herein, the Bank and the Company will
consult with the Superintendent to determine an alternative method of sale. In
such event and if required by the Superintendent or the SEC, a resolicitation of
those Persons who have subscribed for shares will be made. If such an
alternative method is not agreed upon, the Conversion will not be effected, the
Bank will remain in mutual form, all funds submitted to the Bank and the Company
as payment for shares of the Common Stock will be returned to subscribers, with
interest as provided herein, and all withdrawal authorizations will be canceled.
Section 3.12 Establishment and Funding of Foundation.
(a) As part of the Conversion, the Company and the Bank intend to
establish the Foundation and to donate to the Foundation from authorized but
unissued shares up to 3.0% of the number of shares of Common Stock sold in the
Conversion. The Foundation is being formed in connection with the Conversion in
order to complement the Bank's existing community reinvestment activities and to
share with the Bank's local communities a part of the Bank's financial success
as a locally headquartered, community-minded, financial services institution.
The funding of the Foundation with Common Stock of the Company accomplishes this
goal as it enables the community to share in the growth and profitability of the
Company and the Bank over the long-term.
(b) The Foundation will be dedicated to the promotion of charitable
purposes including community development, grants or donations to support housing
assistance, not-for-profit community groups and other types of organizations or
civic-minded projects. The Foundation will annually distribute total grants to
assist charitable organizations or to fund projects within its local community
of not less than 5% of the average fair value of Foundation assets each year. In
order to serve the purposes for which it was formed and to maintain its
qualification under Section 501(c)(3) of the Internal Revenue Code, the
Foundation may sell, on an annual basis, a limited portion of the Common Stock
contributed to it by the Company.
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<PAGE> 25
(c) A majority of the board of directors of the Foundation will be
comprised of individuals who are Officers or Directors of the Bank and the
remaining board members will be comprised of civic and community leaders from
within the Bank's local community. The board of directors of the Foundation will
be responsible for establishing the policies of the Foundation with respect to
grants or donations, consistent with the stated purposes of the Foundation. The
establishment and funding of the Foundation as part of the Conversion is subject
to the approval of the Superintendent and, if applicable, the FDIC.
Section 3.13 Enforcement of Terms and Conditions.
The Bank and the Company shall have the right to take all such
action as they may, in their sole discretion, deem necessary, appropriate, or
advisable in order to monitor and enforce the terms, conditions, limitations and
restrictions contained in this Article III and elsewhere in this Plan and the
terms, conditions and representations contained in the Order Forms, including,
but not limited to, the right to require any subscriber or purchaser to provide
evidence, in a form satisfactory to the Bank, of such Person's eligibility to
subscribe for or purchase shares of the Common Stock under the terms of this
Plan and the absolute right (subject only to any necessary regulatory approvals
or concurrence) to reject, limit, or revoke acceptance of any subscription or
order and to delay, terminate, or refuse to consummate any sale of Common Stock
that they believe might violate, or is designed to, or is any part of a plan to
evade or circumvent such terms, conditions, limitations, restrictions, and
representations. Any such action shall be final, conclusive, and binding on all
Persons, and the Bank and the Company and their respective Board of Trustees and
Board of Directors shall be free from any liability to any Person on account of
any such action.
ARTICLE IV
CERTAIN RESTRICTIONS
Section 4.01 Sale of Shares Purchased by Trustees, Directors or Officers.
All shares of the Common Stock purchased or acquired (either
directly or indirectly) by the Trustees or Officers of the Bank or of the
Company on original issue in the Conversion either directly from the Company (by
subscription or otherwise) or from the Underwriters (or otherwise beneficially
owned by such Trustees or Officers immediately after such original issuance)
shall be subject to the restriction that the shares shall not be sold for a
period of one year following the date of purchase. Such restriction shall not
apply to the shares of any such Trustee or Officer in the event of the death or
judicial declaration of incompetence of such Person or any exchange of such
shares in connection with a merger or acquisition of the Company or the Bank. In
addition, such restriction shall not apply to shares held by any Tax-Qualified
Employee Stock Benefit Plan. In connection with the shares of the Common Stock
that are subject to this restriction on resale:
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<PAGE> 26
(a) Each certificate for such shares shall bear a legend giving
appropriate notice of such restriction;
(b) Appropriate instructions shall be issued to the transfer agent
for the Common Stock with respect to applicable restrictions on transfer
of any such restricted stock; and
(c) Any shares issued as a stock dividend, stock split or otherwise
with respect to any such restricted stock shall be subject to the same
restrictions as applicable to such originally restricted stock until the
restrictions respecting such originally restricted stock are terminated,
and any certificate for such shares shall bear a legend advising of such
restrictions.
Section 4.02 Subsequent Purchases of Shares by Trustees, Directors and
Officers.
For a period of three years following the Effective Date, no Officer
or Trustee of the Bank or no Officer or Director of the Company (or any person
who was an Officer or Trustee of the Bank or an Officer of Director of the
Company at any time after the date on which the Board of Trustees of the Bank
adopted this Plan), or Associate of any of them, shall, without the prior
written approval of the Superintendent, purchase or acquire direct or indirect
beneficial ownership of any shares of the capital stock of the Company, except
through a broker or dealer registered with the SEC. This restriction shall not
apply to any purchase or acquisition effected pursuant to any Benefit Plan or
the exercise of any options to purchase Common Stock granted pursuant to a stock
option plan.
Section 4.03 Acquisition of Control.
(a) In accordance with Conversion Regulations, for a period of not
less than three years (or such longer period as may be subsequently authorized
under the Conversion Regulations) following the Effective Date, no Person or
group of Persons Acting in Concert shall, directly or indirectly, offer to
acquire or acquire the beneficial ownership of more than ten percent (10%) of
any class of any equity security of the Company or the Bank without the prior
consent of the Superintendent.
(b) The Restated Organization Certificate of the Bank will contain a
provision stipulating that, for a period of five years following the Effective
Date, no Person or group of Persons Acting in Concert, except the Company (if a
holding company form of organization is utilized), shall directly or indirectly
offer to acquire or acquire the beneficial ownership of more than ten percent
(10%) of any class of an equity security of the Bank, without the prior written
approval of the Superintendent. In addition, such Restated Organization
Certificate may also provide that, for a period of five years following
Conversion, shares beneficially owned in violation of the above-described
Restated Organization Certificate provision shall not be entitled to vote and
shall not be voted by any Person or counted as voting stock in connection with
any matter submitted to shareholders for a vote. In addition, the Restated
Organization Certificate will contain provisions providing that special meetings
of the shareholders relating to changes in
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<PAGE> 27
control or amendment of the Restated Organization Certificate may only be called
by the Board of Directors and that shareholders shall not be permitted to
cumulate their votes for the election of directors.
(c) The Certificate of Incorporation of the Company contains a
provision to the effect that any record owner of any outstanding shares of the
Company's common stock who beneficially owns in excess of 10% of such
outstanding shares shall be entitled to cast only one one-hundredth (1/100) of
one vote per share with respect to any shares held in excess of 10%. In
addition, the Certificate of Incorporation and By-Laws of the Company contain
provisions for staggered terms of the directors, noncumulative voting for
directors, limitations on the calling of special meetings, a fair price
provision for certain business combinations and certain notice requirements.
(d) For the purposes of this Section 4.03:
(i) The term "Person" includes an individual, a group Acting in
Concert, a corporation, a partnership, an association, a joint stock
company, a trust, an unincorporated organization or similar company, a
syndicate, or any other group formed for the purpose of acquiring, holding
or disposing of securities of an insured institution, and the term
"Person" does not include the Company or any majority-owned subsidiary
thereof, or any Tax-Qualified Employee Stock Benefit Plan or any trust or
custodial arrangement established in connection with any such plan;
provided, that the plan or plans do not have beneficial ownership in the
aggregate of more than twenty-five percent (25%) of any class of equity
security of the Bank or the Company;
(ii) The term "offer" includes every offer to buy or acquire,
solicitation of an offer to sell, tender offer for, or request or
invitation for tenders of, a security or interest in a security for value;
(iii) The term "acquire" includes every type of acquisition, whether
effected by purchase, exchange, operation of law or otherwise; and
(iv) The term "security" includes non-transferable subscription
rights issued pursuant to a plan of conversion as well as a "security" as
defined in 15 U.S.C. Section 8c(a)(10).
ARTICLE V
EFFECT OF CONVERSION; CERTAIN COVENANTS AND AGREEMENTS
Section 5.01 Restated Organization Certificate and Adoption of New
By-Laws.
The Bank shall take all appropriate steps to amend and restate its
Organization Certificate to read in the form of an Organization Certificate for
a New York stock savings bank
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<PAGE> 28
as specified in the Banking Law and the regulations of the New York Banking
Board and approved by the Board of Trustees of the Bank. By their approval of
the Plan, the Eligible Account Holders of the Bank will thereby approve and
adopt such Restated Organization Certificate. The Bank shall also take all
appropriate steps to adopt By-Laws sufficient and appropriate for a New York
stock savings bank.
Section 5.02 Effect of Conversion.
On the Effective Date of the Conversion, the Bank shall cease to be
a mutual institution and shall simultaneously become a stock institution. All of
the property, rights, powers, franchises, debts, liabilities, obligations and
duties of the mutual institution shall continue as such in the stock institution
and all deposits in the mutual institution shall remain as deposits of equal
character and value in the stock institution. The corporate existence of the
Bank shall not terminate, and the converted Bank shall be a continuation of the
mutual institution that existed immediately before the filing of the Restated
Organization Certificate.
Section 5.03 Liquidation Account.
(a) A liquidation account shall be established and maintained for
the benefit of Eligible Account Holders who continue to maintain an account in
the Bank in the event of a complete liquidation of the Bank following the
Conversion. Each Eligible Account Holder shall, with respect to each account
held, have a related inchoate interest in a portion of the liquidation account
balance ("Subaccount Balance"). The initial liquidation account balance shall be
equal to the net worth of the Bank (determined in accordance with generally
accepted accounting principles) as set forth in its most recent statement of
financial condition contained in the Proxy Statement.
(b) In the event of a complete liquidation of the Bank (and only in
such event), each Eligible Account Holder shall be entitled to receive a
liquidation distribution from the liquidation account in the amount of the
then-current adjusted Subaccount Balance for each account of such holder after
the Conversion, before any liquidation distribution may be made with respect to
capital stock.
(c) The initial Subaccount Balance for an account held by an
Eligible Account Holder shall be determined by multiplying the aggregate opening
balance in the liquidation account by a fraction of which the numerator is the
amount of deposits or shares in the account of such Eligible Account Holder on
the Eligibility Record Date and the denominator is the total amount of deposits
or shares owned by all Eligible Account Holders of the Bank on such date. Such
initial Subaccount Balance shall not be increased, and it shall be subject to
downward adjustments as follows: If the deposit balance in any account of an
Eligible Account Holder at the end of any period for which the Bank has prepared
audited financial statements subsequent to the Eligibility Record Date is less
than the lesser of: (i) the deposit balance in such account at the end of any
period for which the Bank has prepared audited financial statements subsequent
to the Eligibility Record Date; or (ii) the amount of the deposits as of the
Eligibility Record Date, the Subaccount Balance for such account shall be
adjusted by reducing such Subaccount Balance in an amount
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<PAGE> 29
proportionate to the reduction in such deposit balance. In the event of such a
downward adjustment, the Subaccount Balance shall not be subsequently increased,
notwithstanding any increase in the deposit balance of the related account. If
any such account is closed, the related Subaccount Balance shall be reduced to
zero.
(d) Subsequent to the completion of the Conversion, the Bank shall
not declare or pay a cash dividend on any of its capital stock if the effect
thereof would cause the net worth of the Bank to be reduced below the amount
required to maintain the liquidation account. For purposes of Section 86.4(g)(5)
of the Conversion Regulations, a time account shall be deemed to be closed upon
its maturity date regardless of any renewal thereof. The Bank shall not be
required to set aside funds for the purpose of establishing the liquidation
account and, except as provided in this Section 5.03, the existence of such
account shall not operate to restrict the use or application of any of the net
worth accounts of the Bank subsequent to the Conversion.
Section 5.04 Voting Rights.
Except as may be provided in the Restated Organization Certificate
of the Bank pursuant to any amendment thereto subsequent to the Effective Date
of the Conversion, the holders of the capital stock of the Bank shall have
exclusive voting rights in the Bank upon the Effective Date of the Conversion.
Except as may be provided in the Certificate of Incorporation of the Company
pursuant to any amendment thereto subsequent to the Effective Date of the
Conversion, the holders of the Common Stock of the Company shall have exclusive
voting rights in the Company upon the Effective Date of the Conversion.
Section 5.05 Issuance of Stock.
(a) Subsequent to the Effective Date of the Conversion, the Board of
Directors of the Bank, subject to the provisions of the Restated Organization
Certificate and the By-Laws of the Bank, shall have the authority to issue any
of the authorized, unissued and unreserved shares of common and preferred stock
and to fix the relative rights, preferences and limitations of such preferred
stock. Except as may be required by the Banking Law or otherwise, the Board of
Directors of the Bank shall have sole discretion in the decision to issue such
shares and no shareholder approval will be required for the issuance of such
shares.
(b) Subsequent to the Effective Date of the Conversion, the Board of
Directors of the Company, subject to the provisions of the Certificate of
Incorporation and the By-Laws of the Company, shall have the authority to issue
any of the authorized, unissued and unreserved shares of common and preferred
stock and to fix the relative designations, powers, preferences, rights,
qualifications, limitations and restrictions of such preferred stock. Except as
may be required by the Delaware General Corporation Law or otherwise, the Board
of Directors of the Company shall have sole discretion in the decision to issue
such shares and no shareholder approval will be required for the issuance of
such shares.
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<PAGE> 30
Section 5.06 Directors of Converted Bank.
Following the Conversion, the business and affairs of the Bank shall
be managed by a Board of Directors, the members of which shall be the same
individuals who constituted the Board of Trustees of the Bank immediately prior
to the Conversion. Upon the Effective Date of the Conversion, the Board of
Directors of the Bank shall be divided into three classes with respect to term
of office, each class to contain, as near as may be possible, one-third of the
entire Board of Directors of the Bank. Each person serving as a Trustee of the
Bank on the Effective Date of the Conversion shall be appointed by the Board of
Directors to one of the three classes and shall serve as a director until the
expiration of his term and until his successor is elected and qualified. One
class of directors shall have a term of office expiring at the first annual
meeting of share holders, the second class shall have a term of office expiring
at the second annual meeting of shareholders and the third class shall have a
term of office expiring at the third annual meeting of shareholders. Directors
elected at each annual meeting of shareholders (other than directors elected to
fill vacancies) shall be elected to serve for a term of three years and until
their successors are elected and qualified.
Section 5.07 Employment Agreements.
The Bank and the Company may enter into employment agreements with
such officers and employees and upon such terms and conditions as the Board of
Trustees of the Bank and the Board of Directors of the Company shall determine.
Section 5.08 Market for the Common Stock.
Upon the Effective Date of the Conversion, or as soon thereafter as
practicable, the Common Stock shall be registered pursuant to the Securities
Exchange Act of 1934, as amended, and shall not be deregistered for a period of
three years following such registration. Additionally, the Company shall use its
best efforts to list the Common Stock on a national or regional securities
exchange or on the National Association of Securities Dealers Automated
Quotation System and to encourage and assist a market maker to establish and
maintain a market for the Common Stock.
Section 5.09 Stock Repurchases and Stock Benefit Plans.
The Company, or the Bank if the Company is not utilized, will
restrict repurchases of Common Stock and the implementation of stock option and
management and employee stock benefit plans as required by the Conversion
Regulations, unless such requirements are waived by the appropriate regulatory
agency or agencies.
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<PAGE> 31
ARTICLE VI
TAX RULING REQUIREMENT; AMENDMENT AND TERMINATION;
MISCELLANEOUS
Section 6.01 Conditions to Conversion.
The conversion of the Bank pursuant to this Plan is expressly
conditioned upon the following:
(a) Prior receipt by the Bank of rulings of the United States
Internal Revenue Service and the State of New York taxing authorities, or
opinions of counsel, substantially to the effect that the Conversion will
not result in any adverse federal or state tax consequences to Eligible
Account Holders or to the Bank and the Company before or after the
Conversion;
(b) The sale of all of the Common Stock offered in the Conversion;
and
(c) The completion of the Conversion within the time period
specified in Section 6.04.
Section 6.02 Amendment or Termination of the Plan.
This Plan will not, at the Effective Date of the Conversion, contain
any provision that has been determined by the Superintendent, in writing, to be
inequitable or detrimental to the Bank or its depositors, or contrary to the
public interest. If deemed necessary or desirable by the Board of Trustees of
the Bank, this Plan may be substantively amended, as a result of comments from
regulatory authorities or otherwise, at any time prior to solicitation of
proxies from Eligible Account Holders to vote on the Plan and at any time
thereafter with the concurrence of the Superintendent. This Plan may be
terminated by the Board of Trustees of the Bank at any time prior to the Special
Meeting and at any time thereafter with the concurrence of the Superintendent.
By adoption of the Plan, the Eligible Account Holders of the Bank authorize the
Board of Trustees of the Bank to amend or terminate the Plan under the
circumstances set forth in this Section.
Section 6.03 Completion Date.
The Conversion shall be completed within 24 months from the date of
approval of this Plan by the Superintendent.
Section 6.04 Expenses of the Conversion.
The expenses incurred in the Conversion shall be reasonable.
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<PAGE> 32
Section 6.05 Interpretation.
Subject to applicable law as set forth in Section 6.08, all
interpretations of this Plan and all applications of the provisions of this Plan
to particular circumstances by a majority of the Board of Trustees of the Bank
shall be final, subject to the authority of the Superintendent and the FDIC.
Section 6.06 Severability.
If any term, provision, covenant or restriction contained in this
Plan is held by a court or a federal or state regulatory agency of competent
jurisdiction to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions contained in this Plan shall remain in
full force and effect, and shall in no way be affected, impaired or invalidated.
Section 6.07 Miscellaneous.
This Plan is to be governed by and construed in accordance with the
laws of the State of New York, without giving effect to any conflicts of laws
principles. None of the cover page, the table of contents or the article or
section headings are to be considered a part of this Plan, but are included
solely for convenience of reference and shall in no way define, limit, extend or
describe the scope or intent of any of the provisions hereof. Any reference to a
Section number or Article shall refer to a section or article of this Plan,
unless otherwise stated. Except for such rights as are set forth herein for
Eligible Account Holders, this Plan shall create no rights in any Person. The
terms defined in this Plan have the meanings assigned to them in this Plan and
include the plural as well as the singular, and words of any gender shall
include each other gender where appropriate.
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<PAGE> 1
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
WARWICK COMMUNITY BANCORP, INC.
UNDER SECTION 102 OF
THE GENERAL CORPORATION LAW
OF THE STATE OF DELAWARE
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I
NAME.......................................................1
ARTICLE II
REGISTERED OFFICE AND AGENT...........................................1
ARTICLE III
PURPOSE.....................................................1
ARTICLE IV
CAPITAL STOCK
Section 1. Shares, Classes and Series Authorized...........................................................1
Section 2. Designations, Powers, Preferences, Rights, Qualifications,
Limitations and Restrictions Relating to the Capital Stock......................................2
ARTICLE V
LIMITATION ON BENEFICIAL OWNERSHIP OF STOCK
Section 1. Applicability of Article........................................................................3
Section 2. Prohibitions Relating to Beneficial Ownership of Voting Stock...................................4
Section 3. Excess Shares...................................................................................4
Section 4. Powers of the Board of Directors................................................................4
Section 5. Severability....................................................................................5
Section 6. Exclusions......................................................................................5
ARTICLE VI
BOARD OF DIRECTORS
Section 1. Number of Directors.............................................................................6
Section 2. Classification of Board.........................................................................6
Section 3. Vacancies.......................................................................................6
Section 4. Removal of Directors............................................................................7
Section 5. Directors Elected by Preferred Shareholders.....................................................7
Section 6. Evaluation of Acquisition Proposals.............................................................7
Section 7. Power to Call Special Meeting of Shareholders...................................................7
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE VII
ACTION BY SHAREHOLDERS WITHOUT A MEETING.....................................8
ARTICLE VIII
CERTAIN BUSINESS COMBINATIONS
Section 1. Higher Vote Required for Certain Business Combinations..........................................8
Section 2. When Higher Vote is Not Required................................................................8
Section 3. Definitions....................................................................................11
Section 4. Powers of the Disinterested Directors..........................................................15
Section 5. Effect on Fiduciary Obligations of Interested Shareholders.....................................15
Section 6. Amendment, Repeal, Etc.........................................................................15
ARTICLE IX
LIMITATION OF DIRECTOR LIABILITY........................................16
ARTICLE X
INDEMNIFICATION
Section 1. Actions, Suits or Proceedings Other than by or in the Right
of the Corporation.............................................................................16
Section 2. Actions or Suits by or in the Right of the Corporation.........................................17
Section 3. Indemnification for Costs, Charges and Expenses of a Successful Party..........................17
Section 4. Indemnification for Expenses of a Witness......................................................18
Section 5. Determination of Right to Indemnification......................................................18
Section 6. Advancement of Costs, Charges and Expenses.....................................................18
Section 7. Procedure for Indemnification..................................................................19
Section 8. Settlement.....................................................................................19
Section 9. Other Rights; Continuation of Right to Indemnification; Individual Contracts...................20
Section 10. Savings Clause.................................................................................20
Section 11. Insurance......................................................................................20
Section 12. Definitions....................................................................................20
Section 13. Subsequent Amendment and Subsequent Legislation................................................21
ARTICLE XI
AMENDMENTS
Section 1. Amendments of Certificate of Incorporation.....................................................22
Section 2. Amendments of By-Laws..........................................................................23
ARTICLE XII
NOTICES....................................................24
</TABLE>
ii
<PAGE> 4
CERTIFICATE OF INCORPORATION
OF
WARWICK COMMUNITY BANCORP, INC.
THE UNDERSIGNED, for the purpose of forming a corporation
pursuant to Section 102 of the General Corporation Law of the State of Delaware
("GCL"), does hereby certify that this Certificate of Incorporation of Warwick
Community Bancorp, Inc. was duly adopted in accordance with the provisions of
Section 102 of the GCL, and further certifies as follows:
ARTICLE I
NAME
The name of the corporation is Warwick Community Bancorp, Inc.
(the "Corporation").
ARTICLE II
REGISTERED OFFICE AND AGENT
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, 19801. The name of its registered agent at
such address is The Corporation Trust Company.
ARTICLE III
PURPOSE
The purpose of the Corporation is to engage in any lawful act
or activity for which a corporation may be organized under the GCL.
ARTICLE IV
CAPITAL STOCK
SECTION 1. SHARES, CLASSES AND SERIES AUTHORIZED. The total
number of shares of all classes of capital stock which the Corporation shall
have authority to issue is twenty million (20,000,000) shares, of which five
million (5,000,000) shares shall be preferred stock, par value one cent ($.01)
per share (the "Preferred Stock"), and fifteen million (15,000,000) shares shall
be
<PAGE> 5
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common stock, par value one cent ($.01) per share (the "Common Stock"). The
Preferred Stock and Common Stock are sometimes hereinafter, collectively,
referred to as the "Capital Stock."
SECTION 2. DESIGNATIONS, POWERS, PREFERENCES, RIGHTS,
QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS RELATING TO THE CAPITAL STOCK. The
following is a statement of the designations, powers, preferences and rights in
respect of the classes of the Capital Stock, and the qualifications, limitations
or restrictions thereof, and of the authority with respect thereto expressly
vested in the Board of Directors of the Corporation (the "Board of Directors"):
(a) Preferred Stock. The Preferred Stock may be issued from
time to time in one or more series, the number of shares and any designation of
each series and the powers, preferences and rights of the shares of each series,
and the qualifications, limitations or restrictions thereof, to be as stated and
expressed in a resolution or resolutions providing for the issue of such series
adopted by the Board of Directors, subject to the limitations prescribed by law.
The Board of Directors in any such resolution or resolutions is expressly
authorized to state for each such series:
(i) the voting powers, if any, of the holders of shares of
such series in addition to any voting rights affirmatively required by
law;
(ii) the rights of shareholders in respect of dividends,
including, without limitation, the rate or rates per annum and the time
or times at which (or the formula or other method pursuant to which
such rate or rates and such time or times may be deter mined) and
conditions upon which the holders of shares of such series shall be
entitled to receive dividends and other distributions, and whether any
such dividends shall be cumulative or non-cumulative and, if
cumulative, the terms upon which such dividends shall be cumulative;
(iii) whether the stock of each such series shall be
redeemable by the Corporation at the option of the Corporation or the
holder thereof and, if redeemable, the terms and conditions upon which
the stock of such series may be redeemed;
(iv) the amount payable and the rights or preferences to which
the holders of the stock of such series shall be entitled upon any
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation;
(v) the terms, if any, upon which shares of stock of such
series shall be convertible into, or exchangeable for, shares of stock
of any other class or classes or of any other series of the same or any
other class or classes, including the price or prices or the rate or
rates of conversion or exchange and the terms of adjustment, if any;
and
(vi) any other powers, designations, preferences and relative,
participating, optional or other special rights, and qualifications,
limitations or restrictions thereof, so far as they are not
inconsistent with the provisions of this Certificate of Incorporation
and to the full extent now or hereafter permitted by the laws of the
State of Delaware.
<PAGE> 6
-3-
Subject to any limitations or restrictions stated in the
resolution or resolutions of the Board of Directors originally fixing the number
of shares constituting a series, the Board of Directors may by resolution or
resolutions likewise adopted increase (but not above the total number of
authorized shares of Preferred Stock) or decrease (but not below the number of
shares of the series then outstanding) the number of shares of the series
subsequent to the issue of shares of that series; and, in case the number of
shares of any series shall be so decreased, the shares constituting the decrease
shall resume that status that they had prior to the adoption of the resolution
originally fixing the number of shares constituting such series.
(b) Common Stock. All shares of Common Stock shall be
identical to each other in every respect. Subject to Article V hereof, the
shares of Common Stock shall entitle the holders thereof to one vote for each
share on all matters on which shareholders have the right to vote. The holders
of shares of Common Stock shall not be permitted to cumulate their votes for the
election of directors. Notwithstanding the foregoing, except as otherwise
required by law, holders of Common Stock, as such, shall not be entitled to vote
on any amendment to this Certificate of Incorporation (including any Certificate
of Designations relating to any series of Preferred Stock) that relates solely
to the terms of one or more outstanding series of Preferred Stock if the holders
of such affected series are entitled, either separately or together with the
holders of one or more other such series, to vote thereon pursuant to this
Certificate of Incorporation (including any Certificate of Designations relating
to any series of Preferred Stock) or pursuant to the GCL.
Subject to the preferences, privileges and powers with respect
to each class or series of Preferred Stock having any priority over the Common
Stock, and the qualifications, limitations or restrictions thereof, the holders
of the Common Stock shall have and possess all rights pertaining to the Capital
Stock.
(c) No Class Vote On Changes In Authorized Number Of Shares Of
Preferred Stock. Subject to the rights of the holders of any series of Preferred
Stock pursuant to the terms of this Certificate of Incorporation or any
resolution or resolutions providing for the issuance of such series of stock
adopted by the Board of Directors, the number of authorized shares of Preferred
Stock may be increased or decreased (but not below the number of shares thereof
then outstanding) by the affirmative vote of the holders of a majority of the
stock of the Corporation entitled to vote generally in the election of directors
irrespective of the provisions of Section 242(b)(2) of the GCL.
ARTICLE V
LIMITATION ON BENEFICIAL OWNERSHIP OF STOCK
SECTION 1. APPLICABILITY OF ARTICLE. The provisions of this
Article V shall become effective upon (i) the consummation of the conversion of
The Warwick Savings Bank, a New York savings bank (the "Bank"), from a mutual to
a stock savings bank and (ii) the concurrent acquisi tion by the Corporation of
all of the outstanding capital stock of the Bank (the "Effective Date").
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All terms used in this Article V and not otherwise defined herein shall have the
meanings ascribed to such terms in Section 3 of Article VIII, below.
SECTION 2. PROHIBITIONS RELATING TO BENEFICIAL OWNERSHIP OF
VOTING STOCK. No Person (other than the Corporation, any Subsidiary or any
pension, profit-sharing, stock bonus or other compensation plan maintained by
the Corporation or by a member of a controlled group of corporations or trades
or businesses of which the Corporation is a member for the benefit of the
employees of the Corporation or any Subsidiary, or any trust or custodial
arrangement established in connection with any such plan) shall directly or
indirectly acquire or hold the beneficial ownership of more than ten percent
(10%) of the issued and outstanding shares of Voting Stock of the Corporation.
Any Person so prohibited who directly or indirectly acquires or holds the
beneficial ownership of more than ten percent (10%) of the issued and
outstanding shares of Voting Stock in violation of this Section 2 shall be
subject to the provisions of Sections 3 and 4 of this Article V, below. The
Corporation is authorized to refuse to recognize a transfer or attempted
transfer of any shares of Voting Stock to any Person who beneficially owns, or
who the Corporation believes would become by virtue of such transfer the
beneficial owner of, more than ten percent (10%) of shares of the Voting Stock.
SECTION 3. EXCESS SHARES. If, notwithstanding the foregoing
prohibition, a Person subject to the foregoing prohibition shall voluntarily or
involuntarily become or attempt to become the purported beneficial owner (the
"Purported Owner") of shares of Voting Stock in excess of ten percent (10%) of
the issued and outstanding shares of Voting Stock, the number of shares in
excess of ten percent (10%) shall be deemed to be "Excess Shares," and the
holder thereof shall be entitled to cast only one one-hundredth (1/100) of one
vote per share for each Excess Share.
The restrictions set forth in this Article V shall be noted
conspicuously on all certificates evidencing ownership of shares of Voting
Stock.
SECTION 4. POWERS OF THE BOARD OF DIRECTORS.
(a) The Board of Directors may, to the extent permitted by
law, from time to time establish, modify, amend or rescind, by By-Law or
otherwise, regulations and procedures not inconsistent with the express
provisions of this Article V for the orderly application, administration and
implementation of the provisions of this Article V. Such procedures and
regulations shall be kept on file with the Corporate Secretary of the
Corporation and with the Transfer Agent, shall be made available for inspection
by the public and, upon request, shall be mailed to any holder of shares of
Voting Stock of the Corporation.
(b) When it appears that a particular Person has become a
Purported Owner of Excess Shares in violation of Section 2 of this Article V, or
of the regulations or procedures of the Board of Directors with respect to this
Article V, and that the provisions of this Article V require application,
interpretation or construction, then a majority of the directors of the
Corporation shall have the power and duty to interpret all of the terms and
provisions of this Article V and to determine on the basis of information known
to them after reasonable inquiry all facts necessary to ascertain compliance
with this Article V, including, without limitation, (i) the number of shares of
Voting Stock beneficially owned by any Person or Purported Owner, (ii)
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whether a Person or Purported Owner is an Affiliate or Associate of, or is
acting in concert with, any other Person or Purported Owner, (iii) whether a
Person or Purported Owner has an agreement, arrangement or understanding with
any other Person or Purported Owner as to the voting or disposition of any
shares of the Voting Stock, (iv) the application of any other definition or
operative provision of this Article V to the given facts or (v) any other matter
relating to the applicability or effect of this Article V.
The Board of Directors shall have the right to demand that any
Person who is reasonably believed to be a Purported Owner of Excess Shares (or
who holds of record shares of Voting Stock beneficially owned by any Person
reasonably believed to be a Purported Owner in excess of such limit) supply the
Corporation with complete information as to (i) the record owner(s) of all
shares of Voting Stock beneficially owned by such Person or Purported Owner and
(ii) any other factual matter relating to the applicability or effect of this
Article V as may reasonably be requested of such Person or Purported Owner.
Any applications, interpretations, constructions or any other
determinations made by the Board of Directors pursuant to this Article V, 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 shareholders, and neither the Corporation nor any of its
shareholders shall have the right to challenge any such application,
interpretation, construction, or determination.
SECTION 5. SEVERABILITY. In the event any provision (or
portion thereof) of this Article V shall be found to be invalid, prohibited or
unenforceable for any reason, the remaining provisions (or portions thereof) of
this Article V 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 shareholders that each such remaining provision (or portion
thereof) of this Article V remain, to the fullest extent permitted by law,
applicable and enforceable as to all shareholders, including Purported Owners,
if any, notwithstanding any such finding.
SECTION 6. EXCLUSIONS. This Article V shall not apply to (a)
any offer or sale with a view towards public resale made exclusively by the
Corporation to any underwriter or underwriters acting on behalf of the
Corporation, or to the selling group acting on such underwriter's or
underwriters' behalf, in connection with a public offering of the Common Stock;
or (b) any reclassification of securities (including any reverse stock split),
or recapitalization of the Corporation, or any merger or consolidation of the
Corporation with any of its Subsidiaries or any other transaction or
reorganization that does not have the effect, directly or indirectly, of
changing the beneficial ownership interests of the Corporation's shareholders,
other than pursuant to the exercise of any dissenters' appraisal rights, except
as a result of immaterial changes due to fractional share adjustments, which
changes do not exceed, in the aggregate, one percent (1%) of the issued and
outstanding shares of such class of equity or convertible securities.
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ARTICLE VI
BOARD OF DIRECTORS
SECTION 1. NUMBER OF DIRECTORS. The number of directors of the
Corporation shall be as determined only by resolution of the Board of Directors,
but shall not be less than seven (7) nor more than twenty (20) (other than
directors elected by holders of shares of one or more series of Preferred
Stock).
SECTION 2. CLASSIFICATION OF BOARD. Subject to the rights of
any holders of shares of any series of Preferred Stock that may be issued by the
Corporation pursuant to a resolution or resolutions of the Board of Directors
providing for such issuance, and subject to the provisions hereof, the directors
of the Corporation shall be divided into three classes with respect to term of
office, each class to contain, as near as may be possible, one-third of the
entire number of the Board, with the terms of office of one class expiring each
successive year. One class of directors shall be initially elected for a term
expiring at the annual meeting of shareholders to be held in 1998, another class
shall be initially elected for a term expiring at the annual meeting of
shareholders to be held in 1999 and another class shall be initially elected for
a term expiring at the annual meeting of shareholders to be held in 2000. At
each annual meeting of shareholders, the successors to the class of directors
(other than directors elected by holders of shares of one or more series of
Preferred Stock) whose term expires at that time shall be elected by the
shareholders to serve until the annual meeting of shareholders held three years
next following and until their successors shall be elected and qualified.
In the event of any intervening changes in the authorized
number of directors (other than directors elected by holders of shares of one or
more series of Preferred Stock), only the Board of Directors shall designate the
class or classes to which the increases or decreases in directorships shall be
apportioned in order to achieve, as near as may be possible, equality of number
of directors among the classes; provided, however, that no such apportionment or
redesignation shall shorten the term of any incumbent director.
Unless and to the extent that the By-Laws so provide,
elections of directors need not be by written ballot.
SECTION 3. VACANCIES. Subject to the limitations prescribed by
law and this Certificate of Incorporation, all vacancies in the office of
director, including vacancies created by newly created directorships resulting
from an increase in the number of directors (subject to the provisions of
Section 5 of this Article VI relating to directors elected by holders of shares
of one or more series of Preferred Stock), shall be filled only by a vote of a
majority of the directors then holding office, whether or not a quorum, and any
director so elected shall serve for the remainder of the full term of the class
of directors in which the new directorship was created or the vacancy occurred
and until such director's successor shall be elected and qualified.
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SECTION 4. REMOVAL OF DIRECTORS. Any or all of the directors
(subject to the provisions of Section 5 of this Article VI relating to directors
elected by holders of shares of one or more series of Preferred Stock) may be
removed at any time, but only for cause, and any such removal shall require the
vote, in addition to any vote required by law, of not less than eighty per cent
(80%) of the total votes eligible to be cast by the holders of all outstanding
shares of Capital Stock entitled to vote generally in the election of directors
at a meeting of shareholders expressly called for that purpose. For purposes of
this Section 4, conduct worthy of removal for "cause" shall include, but not be
limited to (a) conduct as a director of the Corporation or any subsidiary of the
Corporation that involves willful material misconduct, breach of fiduciary duty
involving personal pecuniary gain or gross negligence in the performance of
duties, (b) conduct, whether or not as a director of the Corporation or a
subsidiary of the Corporation that involves dishonesty or breach of fiduciary
duty and is punishable by imprisonment for a term exceeding one year under state
or federal law or (c) removal of such person from the Board of Directors of the
Bank, if such person is so serving, in accordance with the Restated Organization
Certificate and By-Laws of the Bank.
SECTION 5. DIRECTORS ELECTED BY PREFERRED SHAREHOLDERS.
Notwithstanding anything set forth in this Certificate of Incorporation to the
contrary, the qualifications, term of office and provisions governing vacancies,
removal and other matters pertaining to directors elected by holders of shares
of one or more series of Preferred Stock shall be as set forth in a resolution
or resolutions adopted by the Board of Directors setting forth the designations,
preferences and rights relating to any such series of Preferred Stock pursuant
to Article IV, Section 2 hereof.
SECTION 6. EVALUATION OF ACQUISITION PROPOSALS. The Board of
Directors of the Corporation, when evaluating any offer to the Corporation or to
the shareholders of the Corporation from another party to (a) purchase for cash,
or exchange any securities or property for, any outstanding equity securities of
the Corporation, (b) merge or consolidate the Corporation with another
corporation or (c) purchase or otherwise acquire all or substantially all of the
proper ties and assets of the Corporation, in connection with the exercise of
its judgment in determining what is in the best interests of the Corporation and
its shareholders, may give due consideration to the extent permitted by law not
only to the price or other consideration being offered, but also to all other
relevant factors, including, without limitation, the financial and managerial
resources and future prospects of the other party, the possible effects on the
business of the Corporation and its subsidiaries and on the employees,
customers, suppliers and creditors of the Corporation and its subsidiaries and
the effects on the communities in which the Corporation's and its subsidiaries'
facilities are located.
SECTION 7. POWER TO CALL SPECIAL MEETING OF SHAREHOLDERS.
Special meetings of shareholders for any purpose may be called at any time only
by resolution of at least three-fourths of the Directors of the Corporation then
in office or by the Chairman, if one has been elected by the Board, or by the
Chief Executive Officer. At a special meeting, no business shall be transacted
and no corporate action shall be taken other than that stated in the notice of
meeting prescribed by the By-Laws of the Corporation.
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ARTICLE VII
ACTION BY SHAREHOLDERS WITHOUT A MEETING
Except as otherwise provided for or fixed pursuant to the
provisions of Article IV of this Certificate of Incorporation relating to the
rights of holders of shares of any series of Preferred Stock, no action that is
required or permitted to be taken by the shareholders of the Corporation at any
annual or special meeting of shareholders may be effected by written consent of
shareholders in lieu of a meeting of shareholders.
ARTICLE VIII
CERTAIN BUSINESS COMBINATIONS
SECTION 1. HIGHER VOTE REQUIRED FOR CERTAIN BUSINESS
COMBINATIONS. In addition to any affirmative vote required by law, this
Certificate of Incorporation or by the provisions of any series of Preferred
Stock that may at the time be outstanding, and except as otherwise expressly
provided for in Section 2 of this Article VIII, any Business Combination, as
hereinafter defined, shall require the affirmative vote of not less than eighty
percent (80%) (to the extent permitted by law) of the total number of votes
eligible to be cast by the holders of all outstanding shares of Voting Stock,
voting together as a single class (it being understood, that for purposes of
this Article VIII, each share of Voting Stock shall have the number of votes
granted to it pursuant to Article IV and Article V of this Certificate of
Incorporation or in any resolution or resolutions of the Board of Directors for
issuance of shares of Preferred Stock), together (to the extent permitted by
law) with the affirmative vote of at least fifty percent (50%) of the total
number of votes eligible to be cast by the holders of all outstanding shares of
Voting Stock not beneficially owned by the Interested Shareholder involved or
any Affiliate or Associate thereof, 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 in any
agreement with any national securities exchange or otherwise.
SECTION 2. WHEN HIGHER VOTE IS NOT REQUIRED. The provisions of
Section 1 of this Article VIII shall not be applicable to any particular
Business Combination, and such Business Combination shall require only such
affirmative vote as is required by law or any other provision of this
Certificate of Incorporation, if either (i) the Business Combination shall have
been approved by a majority of the Disinterested Directors then in office or
(ii) all of the conditions specified in the following subsections (a) through
(g) are met:
(a) The aggregate amount of the cash and the Fair Market Value
as of the Consummation Date of consideration other than cash to be received per
share by holders of Common Stock in such Business Combination shall be at least
equal to the higher of the following:
(i) (if applicable) the highest per share price (including any
brokerage commissions, transfer taxes, soliciting dealers' fees,
dealer-management compensation and other expenses, including, but not
limited to, costs of newspaper advertisements, printing
<PAGE> 12
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expenses and attorneys' fees and expenses) paid by the Interested
Shareholder for any shares of Common Stock acquired by it (A) within
the two-year period immediately prior to the Announcement Date, or (B)
in the transaction in which it became an Interested Shareholder,
whichever is higher, plus interest compounded annually from the
Determination Date through the Consummation Date at the prime rate of
interest of Citibank, N.A. (or other major bank headquartered in New
York City selected by a majority of the Disinterested Directors then in
office) from time to time in effect in New York City, less the
aggregate amount of any cash dividends paid and the Fair Market Value
of any dividends paid, other than in cash, per share of Common Stock
from the Determination Date through the Consummation Date in an amount
up to but not exceeding the amount of such interest payable per share
of Common Stock; or
(ii) the Fair Market Value per share of Common Stock on the
Announcement Date or on the Determination Date, whichever is higher.
(b) The aggregate amount of the cash and the Fair Market Value
as of the Consummation Date of consideration other than cash to be received per
share by holders of shares of any class or series of outstanding Voting Stock,
other than Common Stock, in such Business Combination shall be at least equal to
the highest of the following (such requirement being applica ble to each such
class or series of outstanding Voting Stock, whether or not the Interested
Shareholder has previously acquired any shares of such class or series of Voting
Stock):
(i) (if applicable) the highest per share price (including any
brokerage commissions, transfer taxes, soliciting dealers' fees,
dealer-management compensation, and other expenses, including, but not
limited to, costs of newspaper advertisements, printing expenses and
attorneys' fees and expenses) paid by the Interested Shareholder for
any shares of such class or series of Voting Stock acquired by it (A)
within the two-year period immediately prior to the Announcement Date,
or (B) in the transaction in which it became an Interested Shareholder,
whichever is higher, plus interest compounded annually from the
Determination Date through the Consummation Date at the prime rate of
interest of Citibank, N.A. (or other major bank headquartered in New
York City selected by a ma jority of the Disinterested Directors then
in office) from time to time in effect in New York City, less the
aggregate amount of any cash dividends paid, and the Fair Market Value
of any dividends paid other than in cash, per share of such class or
series of Voting Stock from the Determination Date through the
Consummation Date in an amount up to but not exceeding the amount of
such interest payable per share of such class or series of Voting
Stock;
(ii) (if applicable) the highest preferential amount per share
to which the holders of shares of such class or series of Voting Stock
are entitled in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation; or
(iii) the Fair Market Value per share of such class or series
of Voting Stock on the Announcement Date or on the Determination Date,
whichever is higher.
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(c) The consideration to be received by holders of any
particular class or series of outstanding Voting Stock (including Common Stock)
in such Business Combination shall be in cash or in the same form as the
Interested Shareholder has previously paid for shares of such class or series of
Voting Stock. If the Interested Shareholder has paid for shares of any class or
series of Voting Stock with varying forms of consideration, the form of
consideration for such class or series of Voting Stock in such Business
Combination shall be either cash or the form used to ac quire the largest number
of shares of such class or series of Voting Stock previously acquired by it.
(d) The holders of all outstanding shares of Voting Stock not
beneficially owned by the Interested Shareholder immediately prior to the
Consummation Date shall be entitled to receive in such Business Combination cash
or other consideration for their shares in compliance with subsections (a), (b)
and (c) of this Section 2.
(e) After the Determination Date and prior to the Consummation
Date:
(i) except as approved by a majority of the Disinterested
Directors then in office, there shall have been no failure to declare
and pay, or set aside for payment, at the regular date therefor any
full quarterly dividends (whether or not cumulative) on any outstanding
Preferred Stock;
(ii) there shall have been (A) 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 then in office, and (B) 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 that has the effect of
reducing the number of outstanding shares of the Common Stock, unless
the failure so to increase such annual rate is approved by a majority
of the Disinterested Directors then in office; and
(iii) such Interested Shareholder shall not have become the
beneficial owner of any additional shares of Voting Stock except (a) as
part of the transaction that results in such Interested Shareholder
becoming an Interested Shareholder, (b) as the result of a stock
dividend paid by the Corporation or (c) upon the exercise or conversion
of securities of the Corporation issued pro rata to all holders of
Common Stock which are exercisable for or convertible into shares of
Voting Stock.
(f) After the Determination Date, the Interested Shareholder
shall not have received the benefit, directly or indirectly (except
proportionately as a shareholder), of any loans, advances, guarantees, pledges
or other financial assistance or any tax credits or other tax ad vantages
provided by or through the Corporation or an Affiliate of the Corporation,
whether in anticipation of or in connection with such Business Combination or
otherwise.
(g) A proxy or information statement describing the proposed
Business Combination in accordance with the requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), whether or not the
Corporation is then subject to such
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requirements, and the rules and regulations thereunder (or any subsequent
provisions replacing such Act, rules or regulations) shall be mailed to
shareholders of the Corporation at least thirty (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). The first page of such proxy or information statement
shall prominently display the recommenda tion, if any, that a majority of the
Disinterested Directors then in office may choose to make to the holders of
Voting Stock regarding the proposed Business Combination. Such proxy or
information statement shall also contain, if a majority of the Disinterested
Directors then in office so requests, an opinion of a reputable investment
banking firm (which firm shall be engaged solely on behalf of the shareholders
of the Corporation other than the Interested Shareholder and shall be selected
by a majority of the Disinterested Directors then in office, furnished with all
in formation it reasonably requests and paid a reasonable fee for its services
by the Corporation upon the Corporation's receipt of such opinion) as to the
fairness (or lack of fairness) of the terms of the proposed Business Combination
from the point of view of the holders of Voting Stock other than the Interested
Shareholder.
SECTION 3. DEFINITIONS. For purposes of this Article VIII, the
following terms shall have the following meanings:
(a) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended, as in effect
on the date of filing by the Secretary of State of the State of Delaware of this
Certificate of Incorporation, whether or not the Corporation was then subject to
such rule.
(b) "Announcement Date" shall mean the date of the first
public announcement of the proposal of the Business Combination.
(c) A Person shall be deemed the "beneficial owner," or to
have "beneficial ownership," of any shares of Voting Stock that:
(i) such Person or any of its Affiliates or Associates
beneficially owns, directly or indirectly; or
(ii) such Person or any or its Affiliates or Associates,
directly or indirectly, has (A) 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 a Person shall not be deemed to be
the beneficial owner of any Voting Stock solely by reason of an agreement,
arrange ment or understanding with the Corporation to effect a Business
Combination) or upon the exercise of conversion rights, exchange rights,
warrants or options, or otherwise, or (B) the right to vote, or to direct the
vote of, pursuant to any agreement, arrangement or understanding (but neither
such Person nor any Affiliate or Associate shall be deemed to be the beneficial
owner of any shares of Voting Stock solely by reason of a revocable proxy
granted for a particular meeting of shareholders, pursuant to a public
solicitation of proxies for such meeting, and with respect to which shares
neither such Person nor any Affiliate or Associate is otherwise deemed the
beneficial owner); or
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(iii) is beneficially owned, directly or indirectly, by any
other Person with which such first mentioned Person or any of its
Affiliates or Associates has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting (except to
the extent contemplated by the parenthetical clause of Section
3(c)(ii)(B)) or disposing of any shares of Voting Stock;
provided, however, that no director or officer of the Corporation (nor any
Affiliate or Associate of any such director or officer) (y) 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 Voting Stock
of the Corporation beneficially owned by any other such director or officer (or
any Affiliate or Associate thereof) or (z) shall be deemed to beneficially own
any Voting Stock of the Corporation owned by any pension, profit-sharing, stock
bonus or other compensation plan maintained by the Corporation or by a member of
a controlled group of corporations or trades or businesses of which the
Corporation is a member for the benefit of employees of the Corporation and/or
any Subsidiary, or any trust or custodial arrangement established in connection
with any such plan, not specifically allocated to such Person's personal
account.
(d) The term "Business Combination" shall mean any transaction
that is referred to in any one or more of the following paragraphs (i) through
(vi):
(i) any merger or consolidation of the Corporation or any
Subsidiary (other than a merger pursuant to Section 253 of the GCL)
with (A) any Interested Shareholder or (B) any other entity (whether or
not such other entity is itself an Interested Shareholder) which is, or
after such merger or consolidation would be, an Affiliate or Associate
of any Interested Shareholder; or
(ii) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of transactions) to
or with any Interested Shareholder or any Affiliate or Associate of any
Interested Shareholder of any assets of the Corporation or any
Subsidiary having an aggregate Fair Market Value equal to five percent
(5%) or more of the total assets of the Corporation or the Subsidiary
in question, as of the end of its most recent fiscal year ending prior
to the time the determination is being made; or
(iii) 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 Subsidi ary to any Interested
Shareholder or any Affiliate or Associate of any Interested Shareholder
other than (A) on a pro rata basis to all holders of Voting Stock, (B)
in connection with the exercise or conversion of securities issued pro
rata that are exercisable for, or convertible into, securities of the
Corporation or any Subsidiary or (C) the issuance or transfer of such
securities having an aggregate Fair Market Value equal to less than one
percent (1%) of the aggregate Fair Market Value of all of the
outstanding Capital Stock; or
(iv) the adoption of any plan or proposal for the liquidation
or dissolution of the Corporation proposed by or on behalf of any
Interested Shareholder or any Affiliate or Associate of any Interested
Shareholder; or
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(v) 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 Shareholder) which has the effect, directly or
indirectly, of increasing the proportionate share of the outstanding
shares of any class or series of equity or convertible securities of
the Corporation or any Subsidiary that is directly or indirectly owned
by any Interested Shareholder or any Affiliate or Associate of any
Interested Shareholder, except as a result of immaterial changes due to
fractional share adjustments, which changes do not exceed, in the
aggregate, 1% of the issued and outstanding shares of such class or
series of equity or convertible securities; or
(vi) the acquisition by the Corporation or a Subsidiary of any
securities of an Interested Shareholder or its Affiliates or
Associates.
(e) "Consummation Date" shall mean the date of the
consummation of the Business Combination.
(f) "Determination Date" shall mean the date on which the
Interested Shareholder became an Interested Shareholder.
(g) "Disinterested Director" shall mean any member of the
Board of Directors of the Corporation who is not an Affiliate or Associate of,
or otherwise affiliated with, the Inter ested Shareholder and who either was a
member of the Board of Directors prior to the Determination Date, or was
recommended for election by a majority of the Disinterested Directors in office
at the time such director was nominated for election. If there is no Interested
Shareholder, each member of the Board of Directors shall be a Disinterested
Director.
(h) "Fair Market Value" shall mean (i) in the case of stock,
the highest closing price during the 30-day period immediately preceding the
date in question of a share of such stock on the Composite Tape for New York
Stock Exchange listed stocks or, if such stock is not quoted on such Composite
Tape, or if such stock is not listed on such Exchange, then on the principal
United States securities exchange registered under the Exchange Act, on which
such stock is listed, or, if such stock is not listed on any such exchange, then
the highest closing bid quotation with respect to a share of such stock during
the 30-day period preceding the date in question on the Nasdaq Stock Market or
any system then in use, or, if no such quotation is available, then the fair
market value on the date in question of a share of such stock as determined in
good faith by a majority of the Disinterested Directors then in office, 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 (ii) in the case of property
other than cash or stock, the fair market value of such property on the date in
question as determined in good faith by a majority of the Disinterested
Directors then in office.
(i) References 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
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stock or any stock split or reclassification of outstanding shares of such stock
into a greater number of shares of such stock or any combination or
reclassification of outstanding shares of such stock into a smaller number of
shares of such stock.
(j) "Interested Shareholder" shall mean any Person (other than
the Corporation, any Subsidiary or any pension, profit-sharing, stock bonus or
other compensation or employee benefit plan maintained by the Corporation or by
a member of a controlled group of corporations or trades or businesses of which
the Corporation is a member for the benefit of employees of the Corporation
and/or any Subsidiary, or any trust or custodial arrangement established in
connection with any such plan or holding Voting Stock for the purpose of funding
any such plan or funding employee lending for employees of the Corporation or
any Subsidiary) who or which:
(i) is the beneficial owner of ten percent (10%) or more of
the Voting Stock; or
(ii) is an Affiliate or Associate of the Corporation and at
any time within the two-year period immediately prior to the date in
question was the beneficial owner of ten percent (10%) or more of the
then outstanding shares of Voting Stock; or
(iii) is an assignee of or has otherwise succeeded to any
shares of Voting Stock that were at any time within the two-year period
immediately prior to the date in question beneficially owned by any
other Interested Shareholder, if such assignment or succession shall
have occurred in the course of a transaction or series of transactions
not involving a public offering within the meaning of the Securities
Act of 1933, as amended, and not executed on any exchange or in the
over-the-counter market through a registered broker or dealer.
In determining whether a Person is an Interested Shareholder pursuant to this
subsection (j), the number of shares of Voting Stock deemed to be outstanding
shall include shares deemed owned through application of subsection (c) of this
Section 3 but shall not include any other shares of Voting Stock that may be
issuable pursuant to any agreement, arrangement or understanding, or upon
exercise of conversion rights, warrants or options, or otherwise.
(k) "Person" shall mean any corporation, partnership, trust,
unincorporated organization or association, syndicate, any other entity or a
natural person, together with any Affiliate or Associate of such Person or any
other Person acting in concert with such Person.
(l) "Subsidiary" shall mean any corporation or entity of which
a majority of any class or series of equity securities is owned, directly or
indirectly, by the Corporation; provided, however, that for the purposes of the
definition of Interested Shareholder set forth in subsection (j) of this Section
3, the term "Subsidiary" shall mean only a corporation or entity of which a
majority of each class or series of outstanding voting securities is owned,
directly or indirectly, by the Corporation.
(m) "Voting Stock" shall mean all of the outstanding shares of
Capital Stock entitled to vote generally in the election of directors.
<PAGE> 18
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SECTION 4. POWERS OF THE DISINTERESTED DIRECTORS. When it
appears that a particular Person may be an Interested Shareholder and that the
provisions of this Article VIII need to be applied or interpreted, then a
majority of the directors of the Corporation who would qualify as Disinterested
Directors shall have the power and duty to interpret all of the terms and
provisions of this Article VIII, and to determine on the basis of information
known to them after reasonable inquiry of all facts necessary to ascertain
compliance with this Article VIII, including, without limitation, (a) whether a
Person is an Interested Shareholder, (b) the number of shares of Voting Stock
beneficially owned by any Person, (c) whether a Person is an Affiliate or
Associate of another, (d) the Fair Market Value of (i) the assets that are the
subject of any Business Combination, (ii) the securities to be issued or
transferred by the Corporation or any Subsidiary in any Business Combination,
(iii) the consideration other than cash to be received by holders of shares of
any class or series of Common Stock or Voting Stock other than Common Stock in
any Business Combination, (iv) the outstanding Capital Stock or (v) any other
item the Fair Market Value of which requires determination pursuant to this
Article VIII and (e) whether all of the applicable conditions set forth in
Section 2 of this Article VIII have been met with respect to any Business
Combination.
Any construction, application or determination made by the
Board of Directors or the Disinterested Directors pursuant to this Article VIII,
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 shareholders, and neither the Corporation nor any of its
shareholders shall have the right to challenge any such construction,
application or determination.
SECTION 5. EFFECT ON FIDUCIARY OBLIGATIONS OF INTERESTED
SHAREHOLDERS. Nothing contained in this Article VIII shall be construed to
relieve any Interested Shareholder from any fiduciary obligations imposed by
law.
SECTION 6. AMENDMENT, REPEAL, ETC. Notwithstanding any other
provisions of this Certificate of Incorporation or the By-Laws (and
notwithstanding the fact that a lesser percentage may be specified by law, this
Certificate of Incorporation or the By-Laws of the Corporation), in addition to
any affirmative vote required by applicable law and any voting rights granted to
or held by holders of Preferred Stock, any amendment, alteration, repeal or
rescission of any provision of this Article VIII must also be approved by either
(i) a majority of the Disinterested Directors or (ii) the affirmative vote of
not less than eighty percent (80%) of the total number of votes eligible to be
cast by the holders of all outstanding shares of the Voting Stock, voting
together as a single class, together with the affirmative vote of not less than
fifty percent (50%) of the total number of votes eligible to be cast by the
holders of all outstanding shares of the Voting Stock not beneficially owned by
any Interested Shareholder or Affiliate or Associate thereof, voting together as
a single class.
<PAGE> 19
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ARTICLE IX
LIMITATION OF DIRECTOR LIABILITY
A director of the Corporation shall not be personally liable
to the Corporation or its shareholders for monetary damages for breach of
fiduciary duty as a director, except to the extent such exemption from liability
or limitation thereof is expressly prohibited by the GCL as the same exists or
may hereafter be amended.
Any amendment, termination or repeal of this Article IX or any
provisions hereof shall not adversely affect or diminish in any way any right or
protection of a director of the Corporation existing with respect to any act or
omission occurring prior to the time of the final adoption of such amendment,
termination or repeal.
In addition to any requirements of law or of any other
provisions of this Certificate of Incorporation, the affirmative vote of the
holders of not less than eighty percent (80%) of the total number of votes
eligible to be cast by the holders of all outstanding shares of Capital Stock
entitled to vote thereon shall be required to amend, alter, rescind or repeal
any provision of this Article IX.
ARTICLE X
INDEMNIFICATION
SECTION 1. ACTIONS, SUITS OR PROCEEDINGS OTHER THAN BY OR IN
THE RIGHT OF THE CORPORATION. To the fullest extent permitted by the GCL, the
Corporation shall indemnify any person who is or was or has agreed to become a
director or officer of the Corporation who was or is made a party to or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Corporation) by reason of the
fact that he or she is or was or has agreed to become a director or officer of
the Corporation, or is or was serving or has agreed to serve at the request of
the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, or by reason
of any action alleged to have been taken or omitted in such capacity, and the
Corporation may indemnify any other person who is or was or has agreed to become
an employee or agent of the Corporation who was or is made a party to or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Corporation) by reason of the
fact that he or she is or was or has agreed to become an employee or agent of
the Corporation, or is or was serving or has agreed to serve at the request of
the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, or by reason
of any action alleged to have been taken or omitted in such capacity, against
costs, charges, expenses (including attorneys' fees and expenses), judgments,
fines and amounts paid in settlement actually and reasonably incurred by him or
her or on his or her behalf in connection with such action, suit or proceeding
and any appeal therefrom, if he or she acted in good faith and in a manner he or
she rea-
<PAGE> 20
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sonably believed to be in, or not opposed to, the best interests of the
Corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. The termination of
any action, suit or proceeding by judgment, order, settlement or conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
or she reasonably believed to be in, or not opposed to, the best interests of
the Corporation and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his or her conduct was unlawful.
Notwithstanding anything contained in this Article X, but subject to Section 7
hereof, the Corporation shall not be obligated to indemnify any director or
officer in connection with an action, suit or proceeding, or part thereof,
initiated by such person against the Corporation unless such action, suit or
proceeding, or part thereof, was authorized or consented to by the Board of
Directors.
SECTION 2. ACTIONS OR SUITS BY OR IN THE RIGHT OF THE
CORPORATION. To the fullest extent permitted by the GCL, the Corporation shall
indemnify any person who is or was or has agreed to become a director or officer
of the Corporation who was or is a party or is threatened to be made a party to
any threatened, pending or completed action or suit by or in the right of the
Corporation to procure a judgment in its favor by reason of the fact that he or
she is or was or has agreed to become a director or officer of the Corporation,
or is or was serving or has agreed to serve at the request of the Corporation as
a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, or by reason of any action alleged to
have been taken or omitted in such capacity, and the Corporation may indemnify
any other person who is or was or has agreed to become an employee or agent of
the Corporation who was or is made a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
Corporation to procure a judgment in its favor by reason of the fact that he or
she is or was or has agreed to become an employee or agent of the Corporation,
or is or was serving or has agreed to serve at the request of the Corporation as
a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, or by reason of any action alleged to
have been taken or omitted in such capacity, against costs, charges and expenses
(including attorneys' fees and expenses) actually and reasonably incurred by him
or her or on his or her behalf in connection with the defense or settlement of
such action or suit and any appeal therefrom, if he or she acted in good faith
and in a manner he or she reasonably believed to be in, or not opposed to, the
best interests of the Corporation, except no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Corporation unless and only to the extent that the
Court of Chancery of Delaware or the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of such
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such costs, charges and expenses
which the Court of Chancery or such other court shall deem proper.
Notwithstanding anything contained in this Article X, but subject to Section 7
hereof, the Corporation shall not be obligated to indemnify any director or
officer in connection with an action or suit, or part thereof, initiated by such
person against the Corporation unless such action or suit, or part thereof, was
authorized or consented to by the Board of Directors.
SECTION 3. INDEMNIFICATION FOR COSTS, CHARGES AND EXPENSES OF
A SUCCESSFUL PARTY. To the extent that a present or former director or officer
of the Corporation has been
<PAGE> 21
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successful, on the merits or otherwise (including, without limitation, the
dismissal of an action without prejudice), in defense of any action, suit or
proceeding referred to in Section 1 or 2 of this Article X, or in defense of any
claim, issue or matter therein, such person shall be indemnified against all
costs, charges and expenses (including attorneys' fees and expenses) actually
and reasonably incurred by such person or on such person's behalf in connection
therewith.
SECTION 4. INDEMNIFICATION FOR EXPENSES OF A WITNESS. To the
extent that any person who is or was or has agreed to become a director or
officer of the Corporation is made a witness to any action, suit or proceeding
to which he or she is not a party by reason of the fact that he or she was, is
or has agreed to become a director or officer of the Corporation, or is or was
serving or has agreed to serve as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise, at
the request of the Corporation, such person shall be indemnified against all
costs, charges and expenses actually and reasonably incurred by such person or
on such person's behalf in connection therewith.
To the extent that any person who is or was or has agreed to
become an employee or agent of the Corporation is made a witness to any action,
suit or proceeding to which he or she is not a party by reason of the fact that
he or she was, is or has agreed to become an employee or agent of the
Corporation, or is or was serving or has agreed to serve as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, at the request of the Corporation, such person may be
indemnified against all costs, charges and expenses actually and reasonably
incurred by such person or on such person's behalf in connection therewith.
SECTION 5. DETERMINATION OF RIGHT TO INDEMNIFICATION. Any
indemnification under Section 1 or 2 of this Article X (unless ordered by a
court) shall be made, if at all, by the Corporation only as authorized in the
specific case upon a determination that indemnification of the director,
officer, employee or agent is proper under the circumstances because he or she
has met the applicable standard of conduct set forth in Section 1 or 2 of this
Article X. Any indemnification under Section 4 of this Article X (unless
ordered by a court) shall be made, if at all, by the Corporation only as
authorized in the specific case upon a determination that indemnification of
the director, officer, employee or agent is proper under the circumstances. Such
determinations shall be made with respect to a person who is a director or
officer at the time of such determination (a) by a majority vote of directors
who were not parties to such action, suit or proceeding even though less than a
quorum of the Board of Directors, (b) by a committee of such directors
designated by majority vote of such directors, even though less than a quorum,
(c) if there are no such directors, or if such directors so direct, by
independent counsel in a written opinion or (d) by the shareholders of the
Corporation. To obtain indemnification under this Article X, any person referred
to in Section 1, 2, 3 or 4 of this Article X shall submit to the Corporation a
written request, including therewith such documents as are reasonably available
to such person and are reasonably necessary to determine whether and to what
extent such person is entitled to indemnification.
SECTION 6. ADVANCEMENT OF COSTS, CHARGES AND EXPENSES. Costs,
charges and expenses (including attorneys' fees and expenses) incurred by or on
behalf of a director or officer in defending a civil or criminal action, suit or
proceeding referred to in Section 1 or 2 of
<PAGE> 22
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this Article X shall be paid by the Corporation in advance of the final
disposition of such action, suit or proceeding; provided, however, that the
payment of such costs, charges and expenses incurred by or on behalf of a
director or officer in advance of the final disposition of such action, suit or
proceeding shall be made only upon receipt of a written undertaking, by or on
behalf of the director or officer to repay all amounts so advanced in the event
that it shall ultimately be determined that such director or officer is not
entitled to be indemnified by the Corporation as authorized in this Article X or
by law. No security shall be required for such undertaking and such undertaking
shall be accepted without reference to the recipient's financial ability to make
repayment. The majority of the directors who were not parties to such action,
suit or proceeding may, upon approval of such director or officer of the
Corporation, authorize the Corporation's counsel to represent such person, in
any action, suit or proceeding, whether or not the Corporation is a party to
such action, suit or proceeding.
SECTION 7. PROCEDURE FOR INDEMNIFICATION. Any indemnification
under Section 1, 2, 3 or 4 of this Article X or advancement of costs, charges
and expenses under Section 6 of this Article X shall be made promptly, and in
any event within sixty (60) days (except indemnification to be determined by
shareholders which will be determined at the next annual or special meeting of
shareholders), upon the written request of the director or officer. The right to
indemnification or advancement of expenses as granted by this Article X shall be
enforceable by the director, officer, employee or agent in any court of
competent jurisdiction in the event the Corporation denies such request, in
whole or in part, or if no disposition of such request is made within sixty (60)
days of the request. Such person's costs, charges and expenses incurred in
connection with successfully establishing his or her right to indemnification or
advancement, to the extent successful, in any such action shall also be
indemnified by the Corporation. It shall be a defense to any such action (other
than an action brought to enforce a claim for the advancement of costs, charges
and expenses under Section 6 of this Article X where the required undertaking,
if any, has been received by the Corporation) that the claimant has not met the
standard of conduct set forth in Section 1 or 2 of this Article X, but the
burden of proving such defense shall be on the Corporation. Neither the failure
of the Corporation (including its directors, its independent counsel and its
shareholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in
Section 1 or 2 of this Article X, nor the fact that there has been an actual
determination by the Corporation (including its directors, its independent
counsel and its shareholders) that the claimant has not met such applicable
standard of conduct, shall be a defense to the action or create a presumption
that the claimant has not met the applicable standard of conduct.
SECTION 8. SETTLEMENT. The Corporation shall not be obligated
to reimburse the costs, charges and expenses of any settlement to which it has
not agreed. If, in any action, suit or proceeding (including any appeal) within
the scope of Section 1 or 2 of this Article X, the person to be indemnified
shall have unreasonably failed to enter into a settlement thereof offered or
assented to by the opposing party or parties in such action, suit or proceeding,
then, notwithstanding any other provision of this Article X, the indemnification
obligation of the Corporation to such person in connection with such action,
suit or proceeding shall not exceed the total of the amount at which settlement
could have been made and the expenses incurred by or on behalf of such person
prior to the time such settlement could reasonably have been effected.
<PAGE> 23
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SECTION 9. OTHER RIGHTS; CONTINUATION OF RIGHT TO
INDEMNIFICATION; INDIVIDUAL CONTRACTS. The indemnification and advancement of
costs, charges and expenses provided by or granted pursuant to this Article X
shall not be deemed exclusive of any other rights to which any person seeking
indemnification or advancement of costs, charges and expenses may be entitled
under law (common or statutory) or any By-Law, agreement, policy of
indemnification insurance or vote of shareholders or directors or otherwise,
both as to action in his or her official capacity and as to action in any other
capacity while holding office, and shall continue as to any person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the legatees, heirs, distributees, executors and administrators of
any such person. Nothing contained in this Article X shall be deemed to prohibit
the Corporation from entering into, and the Corporation is specifically
authorized to enter into, agreements with directors, officers, employees and
agents providing indemnification rights and procedures different from those set
forth herein. All rights to indemnification under this Article X shall be deemed
to be a contract between the Corporation and each director, officer, employee or
agent of the Corporation who serves or served in such capacity (or is or was
serving or has agreed to serve at the request of the Corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise) at any time while this Article X is in effect.
SECTION 10. SAVINGS CLAUSE. If this Article X or any portion
shall be invalidated on any ground by any court of competent jurisdiction, the
Corporation shall nevertheless indemnify each director or officer, and may
indemnify each employee or agent, of the Corporation as to any costs, charges,
expenses (including attorneys' fees and expenses), judgments, fines and amounts
paid in settlement with respect to any action, suit or proceeding, whether
civil, criminal, administrative or investigative (including an action by or in
the right of the Corporation), to the full extent permitted by any applicable
portion of this Article X that shall not have been invalidated and to the
fullest extent permitted by applicable law.
SECTION 11. INSURANCE. The Corporation may purchase and
maintain insurance, at its expense, to protect itself and any person who is or
was a director, officer, employee or agent of the Corporation or is or was
serving or has agreed to serve at the request of the Corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise against any costs, charges or expenses, liability or
loss incurred by such person in any such capacity, or arising out of such
person's status as such, whether or not the Corporation would have the power to
indemnify such person against such costs, charges or expenses, liability or loss
under the Certificate of Incorporation or applicable law; provided, however,
that such insurance is available on acceptable terms as determined by a vote of
the Board of Directors. To the extent that any director, officer, employee or
agent is reimbursed by an insurance company under an indemnification insurance
policy for any costs, charges, expenses (including attorneys' fees and
expenses), judgments, fines and amounts paid in settlement to the fullest extent
permitted by any applicable portion of this Article X, the By-Laws, any
agreement, the policy of indemnification insurance or otherwise, the Corporation
shall not be obligated to reimburse the person to be indemnified in connection
with such proceeding.
<PAGE> 24
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SECTION 12. DEFINITIONS. For purposes of this Article X, the
following terms shall have the following meanings:
(a) "The Corporation" shall include, in addition to the
resulting corporation, any constituent corporation or entity (including any
constituent of a constituent) absorbed by way of an acquisition, consolidation,
merger or otherwise, which, if its separate existence had continued, would have
had power and authority to indemnify its directors, officers, employees or
agents so that any person who is or was a director, officer, employee or agent
of such constituent corporation or entity, or is or was serving at the written
request of such constituent corporation or entity as a director or officer of
another corporation, entity, partnership, joint venture, trust or other
enterprise, shall stand in the same position under the provisions of this
Article X with respect to the resulting or surviving corporation or entity as
such person would have with respect to such constituent corporation or entity if
its separate existence had continued;
(b) "Other enterprises" shall include employee benefit plans,
including, but not limited to, any employee benefit plan of the Corporation;
(c) "Director or officer" of the Corporation shall include any
director or officer of the Corporation who is or was or has agreed to serve at
the request of the Corporation as a director, officer, partner or trustee of
another corporation, partnership, joint venture, trust or other enterprise;
(d) "Serving at the request of the Corporation" shall include
any service that imposes duties on, or involves services by a director, officer,
employee or agent of the Corporation with respect to an employee benefit plan,
its participants or beneficiaries, including acting as a fiduciary thereof;
(e) "Fines" shall include any penalties and any excise or
similar taxes assessed on a person with respect to an employee benefit plan;
(f) To the fullest extent permitted by law, a person shall be
deemed to have acted in "good faith and in a manner he or she reasonably
believed to be in, or not opposed to, the best interests of the Corporation and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his or her conduct was unlawful," if his or her action is based on the
records or books of account of the Corporation or another enterprise, or on
information supplied to him or her by the officers of the Corporation or another
enterprise in the course of their duties, or on the advice of legal counsel for
the Corporation or another enterprise or on information or records given or
reports made to the Corporation or another enterprise by an independent
certified public accountant or by an appraiser or other expert selected with
reasonable care by the Corporation or another enterprise; and
(g) A person shall be deemed to have acted in a manner "not
opposed to the best interests of the Corporation," as referred to in Sections 1
and 2 of this Article X if such person acted in good faith and in a manner he or
she reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan.
<PAGE> 25
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SECTION 13. SUBSEQUENT AMENDMENT AND SUBSEQUENT LEGISLATION.
Neither the amendment, termination or repeal of this Article X or of relevant
provisions of the GCL or any other applicable laws, nor the adoption of any
provision of this Certificate of Incorporation or the By-Laws of the Corporation
or of any statute inconsistent with this Article X shall eliminate, affect or
diminish in any way the rights of any director, officer, employee or agent of
the Corporation to indemnification under the provisions of this Article X with
respect to any action, suit or proceeding arising out of, or relating to, any
actions, transactions or facts occurring prior to the final adoption of any such
amendment, termination, repeal, provision or statute.
If the GCL is amended to expand further the indemnification
permitted to directors and officers of the Corporation, then the Corporation
shall indemnify such persons to the fullest extent permitted by the GCL, as so
amended.
ARTICLE XI
AMENDMENTS
SECTION 1. AMENDMENTS OF CERTIFICATE OF INCORPORATION. In
addition to any affirmative vote required by applicable law and any voting
rights granted to or held by holders of shares of any Series of Preferred Stock,
any alteration, amendment, repeal or rescission (collectively, any "Change") of
any provision of this Certificate of Incorporation must be approved by the Board
of Directors and by the affirmative vote of the holders of a majority (or such
greater proportion as may otherwise be required pursuant to any specific
provision of this Certificate of Incorporation) of the total votes eligible to
be cast by the holders of all outstanding shares of Capital Stock entitled to
vote thereon; provided, however, that if any such Change relates to Section 13
of Article X or Articles V, VI, VII or XI of this Certificate of Incorporation,
such Change must also be approved either by (i) not less than a majority of the
authorized number of directors and, if one or more Interested Shareholders (as
defined in Article VIII hereof) exists, by not less than a majority of the
Disinterested Directors (as defined in Article VIII hereof), or (ii) the
affirmative vote of the holders of not less than two-thirds of the total votes
eligible to be cast by the holders of all outstanding shares of Capital Stock
entitled to vote thereon and, if the Change is proposed by or on behalf of an
Interested Shareholder or a director who is an Affiliate or Associate (as such
terms are defined in Article VIII hereof) of an Interested Shareholder, by the
affirmative vote of the holders of not less than a majority of the total votes
eligible to be cast by holders of all outstanding shares of Capital Stock
entitled to vote thereon not beneficially owned by an Interested Shareholder or
an Affiliate or Associate thereof. Subject to the foregoing, the Corporation
reserves the right to amend this Certificate of Incorporation from time to time
in any and as many respects as may be desired and as may be lawfully contained
in an original certificate of incorporation filed at the time of making such
amendment.
Except as may otherwise be provided in this Certificate of
Incorporation, the Corporation reserves the right at any time, and from time to
time, to amend, alter, change or repeal any provision contained in this
Certificate of Incorporation and to add or insert herein any other provisions
authorized by the laws of the State of Delaware at the time in force, in the
manner now or hereafter prescribed by law, and all rights, preferences and
privileges of any nature
<PAGE> 26
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conferred upon shareholders, directors or any other persons whomsoever by and
pursuant to this Certificate of Incorporation in its present form or as
hereafter amended are granted subject to the rights reserved in this Section 1.
SECTION 2. AMENDMENTS OF BY-LAWS. In furtherance and not in
limitation of the powers conferred by statute, the Board of Directors of the
Corporation, upon the vote of two-thirds of the members of the entire Board, is
expressly authorized to make, alter, amend, rescind or repeal from time to time
any of the By-Laws of the Corporation in accordance with the terms thereof;
provided, however, that any By-Law made by the Board of Directors may be
altered, amended, rescinded or repealed in accordance with the terms thereof by
the holders of shares of Capital Stock entitled to vote thereon at any annual
meeting or at any special meeting called for that purpose. Notwithstanding the
foregoing, any provision of the By-Laws that contains a supermajority voting
requirement shall only be altered, amended, rescinded or repealed by a vote of
the Board of Directors or holders of shares of Capital Stock entitled to vote
thereon that is not less than the supermajority specified in such provision.
<PAGE> 27
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ARTICLE XII
NOTICES
The name and mailing address of the incorporator of this
Corporation is:
The Warwick Savings Bank
18 Oakland Avenue
Warwick, New York 10990-0591
The Warwick Savings Bank caused this Certificate of
Incorporation to be signed by Timothy A. Dempsey, its President, and attested to
by Nancy L. Sobotor-Littell, its Secretary, this 9th day of September, 1997.
THE WARWICK SAVINGS BANK
By: /s/ Timothy A. Dempsey
-------------------------------
Timothy A. Dempsey
President
Attest:
/s/ Nancy L. Sobotor-Littell
- -----------------------------------
Nancy L. Sobotor-Littell
Secretary
<PAGE> 1
EXHIBIT 3.2
BY-LAWS
OF
WARWICK COMMUNITY BANCORP, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
OFFICES
Section 1. Registered Office.................................................. 1
Section 2. Additional Offices................................................. 1
ARTICLE II
SHAREHOLDERS
Section 1. Place of Meetings.................................................. 1
Section 2. Annual Meetings.................................................... 1
Section 3. Special Meetings................................................... 1
Section 4. Notice of Meetings................................................. 1
Section 5. Waiver of Notice................................................... 2
Section 6. Fixing of Record Date.............................................. 2
Section 7. Quorum............................................................. 2
Section 8. Conduct of Meetings................................................ 3
Section 9. Voting; Voting of Shares in the Name of Two or More Persons........ 3
Section 10. Proxies............................................................ 3
Section 11. Inspectors of Election............................................. 4
Section 12. Procedure for Nominations.......................................... 4
Section 13. Substitution of Nominees........................................... 5
Section 14. New Business....................................................... 6
ARTICLE III
CAPITAL STOCK
Section 1. Certificates of Stock.............................................. 7
Section 2. Transfer Agent and Registrar....................................... 7
Section 3. Registration and Transfer of Shares................................ 7
Section 4. Lost, Destroyed and Mutilated Certificates......................... 8
Section 5. Holder of Record................................................... 8
ARTICLE IV
BOARD OF DIRECTORS
Section 1. Responsibilities; Number of Directors.............................. 8
Section 2. Qualifications..................................................... 8
Section 3. Age Limitation of Directors........................................ 8
</TABLE>
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<S> <C>
Section 4. Regular and Annual Meetings........................................ 9
Section 5. Special Meetings................................................... 9
Section 6. Notice of Meetings; Waiver of Notice............................... 9
Section 7. Conduct of Meetings................................................ 9
Section 8. Quorum and Voting Requirements..................................... 10
Section 9. Informal Action by Directors....................................... 10
Section 10. Resignation........................................................ 10
Section 11. Vacancies.......................................................... 10
Section 12. Compensation....................................................... 10
Section 13. Amendments Concerning the Board.................................... 10
ARTICLE V
COMMITTEES
Section 1. Standing Committees................................................ 11
Section 2. Executive Committee................................................ 11
Section 3. Audit Committee.................................................... 12
Section 4. Compensation Committee............................................. 12
Section 5. Other Committees................................................... 13
ARTICLE VI
OFFICERS
Section 1. Designation of Executive Officers.................................. 13
Section 2. Term of Office and Removal......................................... 13
Section 3. Chairman of the Board.............................................. 13
Section 4. Chief Executive Officer............................................ 14
Section 5. President.......................................................... 14
Section 6. Chief Operating Officer............................................ 14
Section 7. Vice Presidents.................................................... 14
Section 8. Secretary.......................................................... 14
Section 9. Treasurer.......................................................... 15
Section 10. Other Officers..................................................... 15
Section 11. Compensation of Officers........................................... 15
ARTICLE VII
DIVIDENDS.............................. 15
ARTICLE VIII
AMENDMENTS.............................. 15
</TABLE>
<PAGE> 4
BY-LAWS
OF
WARWICK COMMUNITY BANCORP, INC.
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of Warwick
Community Bancorp, Inc. (the "Corporation") in the State of Delaware shall be in
the City of Wilmington, County of New Castle.
SECTION 2. ADDITIONAL OFFICES. The Corporation may also have
offices and places of business at such other places, within or without the State
of Delaware, as the Board of Directors (the "Board") may from time to time
designate or the business of the Corporation may require.
ARTICLE II
SHAREHOLDERS
SECTION 1. PLACE OF MEETINGS. Meetings of shareholders of the
Corporation shall be held at such place, within or without the State of
Delaware, as may be fixed by the Board and designated in the notice of meeting.
If no place is so fixed, such meetings shall be held at the principal
administrative office of the Corporation.
SECTION 2. ANNUAL MEETINGS. The annual meeting of shareholders
of the Corporation for the election of directors and the transaction of any
other business which may properly come before such meeting shall be held each
year on a date and at a time to be designated by the Board.
SECTION 3. SPECIAL MEETINGS. Special meetings of shareholders,
for any purpose or purposes, may be called at any time only by the Chairman, if
one has been elected by the Board, the Chief Executive Officer or by resolution
of at least three-fourths of the Directors then in office. Special meetings
shall be held on the date and at the time and place as may be designated by the
Board. At a special meeting, no business shall be transacted and no corporate
action shall be taken other than that stated in the notice of meeting.
SECTION 4. NOTICE OF MEETINGS. Except as otherwise required by
law, written notice stating the place, date and hour of any meeting of
shareholders and, in the case of a special meeting, the purpose or purposes for
which the meeting is called, shall be delivered to each shareholder of record
entitled to vote at such meeting, either personally or by mail not less than
-2-
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ten (10) nor more than sixty (60) days before the date of such meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the U.S.
mail, with postage thereon prepaid, ad dressed to the shareholder at his or her
address as it appears on the stock transfer books or records of the Corporation
as of the record date prescribed in Section 6 of this Article II, or at such
other address as the shareholder shall have furnished in writing to the
Secretary. Notice of any special meeting shall indicate that the notice is being
issued by or at the direction of the person or persons calling such meeting.
When any meeting of shareholders, either annual or special, is adjourned to
another time or place, no notice of the adjourned meeting need be given, other
than an announcement at the meeting at which such adjournment is taken giving
the time and place to which the meeting is adjourned; provided, however, that if
the adjournment is for more than thirty (30) days, or, if after adjournment, the
Board fixes a new record date for the adjourned meeting, notice of the adjourned
meeting shall be given to each shareholder of record entitled to vote at the
meeting.
SECTION 5. WAIVER OF NOTICE. Notice of any annual or special
meeting need not be given to any shareholder who submits a signed waiver of
notice of any meeting, in person or by proxy or by his or her duly authorized
attorney-in-fact, whether before or after the meeting. The attendance of any
shareholder at a meeting, in person or by proxy, shall constitute a waiver of
notice by such shareholder, except where a shareholder attends a meeting for the
express purpose of objecting at the beginning of the meeting to the transaction
of any business because the meeting is not lawfully called or convened.
SECTION 6. FIXING OF RECORD DATE. For the purpose of
determining shareholders entitled to notice of or to vote at any meeting of
shareholders or any adjournment thereof, or shareholders entitled to receive
payment of any dividend or other distribution or the allotment of any rights, or
in order to make a determination of shareholders for any other proper purpose,
the Board shall fix a date as the record date for any such determination of
shareholders, which date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board. Such date in any case shall be
not more than sixty (60) days and, in the case of a meeting of shareholders, not
less than ten (10) days prior to the date on which the particular action
requiring such determination of shareholders is to be taken. When a
determination of shareholders entitled to vote at any meeting of shareholders
has been made as provided in this Section 6, such determination shall, unless
otherwise provided by the Board, also apply to any adjournment thereof. If no
record date is fixed, (a) the record date for determining shareholders entitled
to notice of or vote at a meeting of shareholders shall be at the close of
business on the day next preceding the day on which the 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 (b) the record date for determining shareholders
for any other purpose shall be at the close of business on the day on which the
Board adopts the resolution relating thereto.
SECTION 7. QUORUM. The holders of record of a majority of the
total number of votes eligible to be cast in the election of directors,
represented in person or by proxy, shall constitute a quorum for the transaction
of business at a meeting of shareholders, except as other wise provided by law,
these By-Laws or the Certificate of Incorporation. If less than a majority of
such total number of votes is represented at a meeting, a majority of the number
of votes so represented may adjourn the meeting from time to time without
further notice, provided, that if such adjournment is for more than thirty (30)
days, a notice of the adjourned meeting shall be given to each shareholder of
record entitled to vote at the meeting. At such adjourned meeting at which a
quorum is present,
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any business may be transacted that might have been transacted at the meeting as
originally called. When a quorum is once present to organize a meeting of
shareholders, such quorum is not broken by the subsequent withdrawal of any
shareholders.
SECTION 8. CONDUCT OF MEETINGS. The Chairman shall serve as
chairman at all meetings of the shareholders or, if a Chairman has not been
elected by the Board or the Chairman is absent or otherwise unable to so serve,
the President shall serve as chairman. If the President is absent or otherwise
unable to so serve, such other person as shall be appointed by a majority of the
entire Board shall serve as chairman at any meeting of shareholders held in such
absence. The Secretary or, in his or her absence, such other person as the
chairman of the meeting shall appoint, shall serve as secretary of the meeting.
The chairman of the meeting shall conduct all meetings of the shareholders in
accordance with the best interests of the Corporation and shall have the
authority and discretion to establish reasonable procedural rules for the
conduct of such meetings, including such regulation of the manner of voting and
the conduct of discussion as he or she shall deem appropriate. The chairman of
the meeting shall also have the authority to adjourn the meeting from time to
time and from place to place as he or she may deem necessary and in the best
interests of the Corporation.
SECTION 9. VOTING; VOTING OF SHARES IN THE NAME OF TWO OR MORE
PERSONS. Except for the election of directors or as otherwise provided by law,
the Certificate of Incorporation or these By-Laws, at all meetings of
shareholders, all matters shall be determined by a vote of the holders of a
majority of the number of votes eligible to be cast by the holders of the
outstanding shares of capital stock of the Corporation present and entitled to
vote thereat. Directors shall, except as otherwise required by law, these
By-Laws or the Certificate of Incorporation, be elected by a plurality of the
votes cast by each class of shares entitled to vote at a meeting of
shareholders, present and entitled to vote in the election.
If ownership of a share of voting stock of the Corporation
stands in the name of two or more persons, in the absence of written directions
to the Corporation to the contrary, any one or more of such shareholders may
cast, in person or by proxy, all votes to which such ownership is entitled. If
an attempt is made to cast conflicting votes by the several persons in whose
names shares of stock stand, the vote or votes to which those persons are
entitled shall be cast as directed by a majority of those holding such stock and
present, in person or by proxy, at such meeting. If such conflicting votes are
evenly split on any particular matter, each faction may vote the securities in
question proportionally, or any person voting the shares, or a beneficiary, if
any, may apply to the Court of Chancery of Delaware or such other court as may
have jurisdiction to appoint an additional person to act with the persons so
voting the shares, which shall then be voted as determined by a majority of such
persons and the person appointed by the Court.
SECTION 10. PROXIES. Each shareholder entitled to vote at any
meeting may vote either in person or by proxy. Unless otherwise specified in the
Certificate of Incorporation or in a resolution, or resolutions, of the Board
providing for the issuance of preferred stock, each shareholder entitled to vote
shall be entitled to one vote for each share of capital stock registered in his
or her name on the transfer books or records of the Corporation. Each
shareholder entitled to vote may authorize another person or persons to act for
him or her by proxy. All proxies shall be in writing, signed by the shareholder
or by his or her duly authorized attorney-in-fact, and shall be
<PAGE> 7
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filed with the Secretary before being voted. No proxy shall be valid after three
(3) years from the date of its execution unless otherwise provided in the proxy.
The attendance at any meeting by a shareholder who shall have previously given a
proxy applicable thereto shall not, as such, have the effect of revoking the
proxy. The Corporation may treat any duly executed proxy as not revoked and in
full force and effect until it receives a duly executed instrument revoking it,
or a duly executed proxy bearing a later date.
SECTION 11. INSPECTORS OF ELECTION. In advance of any meeting
of shareholders, the Board shall, to the extent required by applicable law,
appoint one or more persons, other than officers, directors or nominees for
office, as inspectors of election to act at such meeting or any adjournment
thereof. Such appointment shall not be altered at the meeting. If inspectors of
election are not so appointed, the chairman of the meeting shall make such
appointment at the meeting. If any person appointed as inspector fails to appear
or fails or refuses to act at the meeting, the vacancy so created may be filled
by appointment by the Board in advance of the meeting or at the meeting by the
chairman of the meeting. The duties of the inspectors of election shall include
determining the number of shares outstanding and the voting power of each, the
shares represented at the meeting, the existence of a quorum, the validity and
effect of proxies, receiving votes, ballots or consents, hearing and deciding
all challenges and questions arising in connection with the right to vote,
counting and tabulating all votes, ballots or consents, determining the results
and doing such acts as are proper to the conduct of the election or the vote
with fairness to all shareholders. Any report or certificate made by them shall
be prima facie evidence of the facts stated and of the vote as certified by
them. Each inspector shall be entitled to a reasonable compensation for his or
her services, to be paid by the Corporation.
SECTION 12. PROCEDURE FOR NOMINATIONS. Subject to the
provisions hereof, the Board, or a committee thereof, shall select nominees for
election as directors. Except in the case of a nominee substituted as a result
of the death, incapacity, withdrawal or other inability to serve of a nominee,
the Board, or a committee thereof, shall deliver written nominations to the
Secretary at least sixty (60) days prior to the date of the annual meeting.
Provided the Board, or committee thereof, makes such nominations, no nominations
for directors except those made by the Board or such committee shall be voted
upon at the annual meeting of shareholders unless other nominations by
shareholders are made in accordance with the provisions of this Section 12.
Nominations of individuals for election to the Board at an annual meeting of
shareholders may be made by any shareholder of record of the Corporation
entitled to vote for the election of directors at such meeting who provides
timely notice in writing to the Secretary as set forth in this Section 12. To be
timely, a shareholder's notice must be delivered to or received by the Secretary
not later than the following dates: (i) with respect to an election of directors
to be held at an annual meeting of shareholders, sixty (60) days in advance of
the anniversary of the previous year's annual meeting if the current year's
meeting is to be held within 30 days prior to, on the anniversary date of, or
after the anniversary of the previous year's annual meeting; and (ii) with
respect to an election to be held at an annual meeting of shareholders held at a
time other than within the time periods set forth in the immediately preceding
clause (i), or at a special meeting of shareholders for the election of
directors, the close of business on the tenth (10th) day following the date on
which notice of such meeting is first given to shareholders. For purposes of
this Section 12, notice shall be deemed to first be given to shareholders when
disclosure of such date of the meeting of shareholders is first made in a press
release reported to Dow Jones News Services, Associated Press or comparable
national news service,
<PAGE> 8
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or in a document publicly filed by the Corporation with the Securities and
Exchange Commission pursuant to Section 13, 14 or 15(d) of the Securities
Exchange Act of 1934, as amended. Such shareholder's notice shall set forth (a)
as to each person whom the shareholder proposes to nominate for election or
re-election as a director, (i) the name, age, business address and residence
address of such person, (ii) the principal occupation or employment of such
person, (iii) such person's written consent to serve as a director, if elected,
and (iv) all such other information regarding each nominee proposed by such
shareholder as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Securities and Exchange Commission (whether
or not the Corporation is then subject to such rules); and (b) as to the
shareholder giving the notice (i) the name, business address and residence
address of such shareholder, (ii) the class and number of shares of the
Corporation which are owned of record by such shareholder and the dates upon
which he or she acquired such shares, (iii) a description of all arrangements or
understandings between the shareholder and nominee and any other person or
persons (naming such person or persons) pursuant to which the nominations are to
be made by the shareholder and (iv) the identification of any person employed,
retained or to be compensated by the shareholder submitting the nomination or by
the person nominated, or any person acting on his or her behalf to make
solicitations or recommendations to shareholders for the purpose of assisting in
the election of such director, and a brief description of the terms of such
employment, retainer or arrangement for compensation. At the request of the
Board, any person nominated by the Board for election as a director shall
furnish to the Secretary that information required to be set forth in a
shareholder's notice of nomination which pertains to the nominee together with
the required written consent. No person shall be elected as a director of the
Corporation unless nominated in accordance with the procedures set forth in this
Section 12.
The chairman of the meeting shall, if the facts warrant,
determine and declare to the meeting that a nomination was not properly brought
before the meeting in accordance with the provisions hereof, and, if he should
so determine, he shall declare to the meeting that such nomination was not
properly brought before the meeting and shall not be considered.
SECTION 13. SUBSTITUTION OF NOMINEES. In the event that a
person is validly designated as a nominee in accordance with Section 12 of this
Article II and shall thereafter become unwilling or unable to stand for election
to the Board, the Board or a committee thereof may designate a substitute
nominee upon delivery, not fewer than five (5) days prior to the date of the
meeting for the election of such nominee, of a written notice to the Secretary
setting forth such information regarding such substitute nominee as would have
been required to be delivered to the Secretary pursuant to Section 12 of this
Article II had such substitute nominee been initially proposed as a nominee.
Such notice shall include a signed consent to serve as a director of the
Corporation, if elected, of each such substituted nominee.
SECTION 14. NEW BUSINESS. Any new business to be taken up at
the annual meeting at the request of the Chairman or the President or by
resolution of at least three-fourths of the directors then in office shall be
stated in writing and filed with the Secretary at least fifteen (15) days before
the date of the annual meeting, and all business so stated, proposed and filed
shall be considered at the annual meeting, but, except as provided in this
Section 14, no other proposal shall be acted upon at the annual meeting. Any
proposal offered by any shareholder, may be made at the annual meeting and the
same may be discussed and considered, but unless properly brought before
<PAGE> 9
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the meeting such proposal shall not be acted upon at the meeting. For a proposal
to be properly brought before an annual meeting by a shareholder, the
shareholder must be a shareholder of record and have given timely notice thereof
in writing to the Secretary. To be timely, a shareholder's notice must be
delivered to or received by the Secretary not later than the following dates:
with respect to an annual meeting of shareholders, sixty (60) days in advance of
the anniversary of the previous year's annual meeting if current year's meeting
is to be held within 30 days prior to, on the anniversary date of, or after the
anniversary of the previous year's annual meeting; and (ii) with respect to an
annual meeting of shareholders held at a time other than within the time periods
set forth in the immediately preceding clause (i), the close of business on the
tenth (10th) day following the date on which notice of such meeting is first
given to shareholders. For purposes of this Section 13, notice shall be deemed
to first be given to shareholders when disclosure of such date of the meeting of
shareholders is first made in a press release reported to Dow Jones News
Services, Associated Press or comparable national news service, or in a document
publicly filed by the Corporation with the Securities and Exchange Commission
pursuant to Section 13, 14 or 15(d) of the Securities Exchange Act of 1934, as
amended. A shareholder's notice to the Secretary shall set forth as to the
matter the shareholder proposes to bring before the annual meeting (a) a brief
description of the proposal desired to be brought before the annual meeting, the
reasons for conducting such business at the meeting and any material interest in
such business of such shareholder and the beneficial owner, if any, on whose
behalf the proposal is made; (b) the name and address of the shareholder
proposing such business; (c) the class and number of shares of the Corporation
which are owned of record by the shareholder and the dates upon which he or she
acquired such shares; (d) the identification of any person employed, retained,
or to be compensated by the shareholder submitting the proposal, or any person
acting on his or her behalf, to make solicitations or recommendations to
shareholders for the purpose of assisting in the passage of such proposal, and a
brief description of the terms of such employment, retainer or arrangement for
compensation; and (e) all such other information regarding such proposal as
would be required to be included in a proxy statement filed pursuant to the
proxy rules of the Securities and Exchange Commission or required to be
delivered to the Corporation pursuant to the proxy rules of the Securities and
Exchange Commission (whether or not the Corporation is then subject to such
rules). This provision shall not prevent the consideration and approval or
disapproval at an annual meeting of reports of officers, directors and
committees of the Board or the management of the Corporation, but in connection
with such reports, no new business shall be acted upon at such annual meeting
unless stated and filed as herein provided. This provision shall not constitute
a waiver of any right of the Corporation under the proxy rules of the Securities
and Exchange Commission or any other rule or regulation to omit a shareholder's
proposal from the Corporation's proxy materials.
The chairman of the meeting shall, if the facts warrant,
determine and declare to the meeting that any new business was not properly
brought before the meeting in accordance with the provisions hereof, and, if the
chairman should so determine, the chairman shall declare to the meeting that
such new business was not properly brought before the meeting and shall not be
considered.
<PAGE> 10
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ARTICLE III
CAPITAL STOCK
SECTION 1. CERTIFICATES OF STOCK. Certificates representing
shares of stock shall be in such form as shall be determined by the Board. Each
certificate shall state that the Corporation will furnish to any shareholder
upon request and without charge a statement of the powers, designations,
preferences and relative, participating, optional or other special rights of the
shares of each class or series of stock and the qualifications or restrictions
of such preferences and/or rights, or shall set forth such statement on the
certificate itself. The certificates shall be numbered in the order of their
issue and entered in the books of the Corporation or its transfer agent or
agents as they are issued. Each certificate shall state the registered holder's
name and the number and class of shares and shall be signed by the Chairman or
the President and the Secretary or any Assistant Secretary, and may, but need
not, bear the seal of the Corporation or a facsimile thereof. Any or all of the
signatures on the certificates may be facsimiles. In case any officer or
officers who shall have signed any such certificate shall cease to be such
officer or officers of the Corporation, whether because of death, resignation or
otherwise, before such certificate shall have been delivered by the Corporation,
such certificate may nevertheless be adopted by the Corporation and be issued
and delivered as though the person or persons who signed such certificate or
certificates had not ceased to be such officer or officers of the Corporation.
SECTION 2. TRANSFER AGENT AND REGISTRAR. The Board shall have
the power to appoint one or more Transfer Agents and Registrars for the transfer
and registration of certificates of stock of any class and may require that
stock certificates be countersigned and registered by one or more of such
Transfer Agents and Registrars.
SECTION 3. REGISTRATION AND TRANSFER OF SHARES. Subject to the
provisions of the Certificate of Incorporation of the Corporation, the name of
each person owning a share of the capital stock of the Corporation shall be
entered on the books of the Corporation together with the number of shares held
by him or her, the numbers of the certificates covering such shares and the
dates of issue of such certificates. Subject to the provisions of the
Certificate of Incorporation of the Corporation, the shares of stock of the
Corporation shall be transferable on the books of the Corporation by the holders
thereof in person, or by their duly authorized attorneys or legal
representatives, on surrender and cancellation of certificates for a like number
of shares, accompanied by an assignment or power of transfer endorsed thereon or
attached thereto, duly executed, with such guarantee or proof of the
authenticity of the signature as the Corporation or its agents may reasonably
require and with proper evidence of payment of any applicable transfer taxes.
Subject to the provisions of the Certificate of Incorporation of the
Corporation, a record shall be made of each transfer.
SECTION 4. LOST, DESTROYED AND MUTILATED CERTIFICATES. The
holder of any shares of stock of the Corporation shall immediately notify the
Corporation of any loss, theft, destruction or mutilation of the certificates
therefor. The Corporation may issue, or cause to be issued, a new certificate of
stock in the place of any certificate theretofore issued by it alleged to have
been lost, stolen or destroyed upon evidence satisfactory to the Corporation of
the loss, theft or destruction of the certificate and, in the case of
mutilation, the surrender of the mutilated certificate. The
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Corporation may, in its discretion, require the owner of the lost, stolen or
destroyed certificate, or his or her legal representatives, to give the
Corporation a bond sufficient to indemnify it against any claim that may be made
against it on account of the alleged loss, theft, destruction or mutilation of
any such certificate and the issuance of such new certificate, or may refer such
owner to such remedy or remedies as he or she may have under the laws of the
State of Delaware.
SECTION 5. HOLDER OF RECORD. Subject to the provisions of the
Certificate of Incorporation of the Corporation, the Corporation shall be
entitled to treat the holder of record of any share or shares of stock as the
holder thereof in fact and shall not be bound to recognize any equitable or
other claim to or interest in such shares on the part of any other person,
whether or not it shall have express or other notice thereof, except as
otherwise expressly provided by law.
ARTICLE IV
BOARD OF DIRECTORS
SECTION 1. RESPONSIBILITIES; NUMBER OF DIRECTORS. The business
and affairs of the Corporation shall be under the direction of the Board. The
Board shall consist of not less than seven (7) nor more than twenty (20)
directors (other than directors elected by the holders of shares of any series
of preferred stock). Within the foregoing limits, the number of directors shall
be determined only by resolution of the Board. A minimum of two (2) directors
shall be persons other than officers or employees of the Corporation or its
subsidiaries and shall not have a relationship which, in the opinion of the
Board (exclusive of such persons), would interfere with the exercise of
independent judgment in carrying out the responsibilities of a director. No more
than two (2) directors shall be officers or employees of the Corporation or its
subsidiaries.
SECTION 2. QUALIFICATIONS. Each director shall be at least
eighteen (18) years of age.
SECTION 3. AGE LIMITATION OF DIRECTORS. No director shall be
qualified to serve as such beyond the last day of the year in which he or she
reaches his or her seventy-fifth (75th) birthday. However, a director on
attaining age 75, shall be eligible for election as Director Emeritus subject to
the nomination procedures of Article II, Section 12.
SECTION 4. REGULAR AND ANNUAL MEETINGS. An annual meeting of
the Board for the election of officers shall be held, without notice other than
these By-Laws, immediately after, and at the same place as, the annual meeting
of the shareholders, or at such other time or place as the Board may fix by
resolution. The Board may provide, by resolution, the time and place, within or
without the State of Delaware, for the holding of regular meetings of the Board
without notice other than such resolution.
SECTION 5. SPECIAL MEETINGS. Special meetings of the Board may
be called for any purpose at any time by or at the request of the Chairman, if a
Chairman has been elected by the Board, or the President. Special meetings of
the Board shall also be called by the Secretary upon the written request,
stating the purpose or purposes of the meeting, of at least sixty (60%) percent
of the directors then in office, but in any event not less than five (5)
directors. The persons authorized to
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call special meetings of the Board shall give notice of such meetings in the
manner prescribed by these By-Laws and may fix any place, within or without the
Corporation's regular business area, as the place for holding any special
meeting of the Board called by such persons. No business shall be conducted at a
special meeting other than that specified in the notice of meeting.
SECTION 6. NOTICE OF MEETINGS; WAIVER OF NOTICE. Except as
otherwise provided in Section 4 of this Article IV, notice of each meeting shall
be mailed or otherwise given to each director at least two (2) business days
before the day of the meeting to his or her address shown in the records of the
Corporation, except in an emergency, in the discretion of the Chairman, if a
Chairman has been elected by the Board, or the President, shorter oral notice
may be given. The purpose of any special meeting shall be stated in the notice.
Such notice shall be deemed given when sent or given to any mail or courier
service or company providing electronic transmission service. Any director may
waive notice of any meeting by submitting a signed waiver of notice with the
Secretary, whether before or after the meeting. The attendance of a director at
a meeting shall constitute a waiver of notice of such meeting, except where a
director attends a meeting for the express purpose of objecting at the beginning
of the meeting to the transaction of any business because the meeting is not
lawfully called or convened.
SECTION 7. CONDUCT OF MEETINGS. Meetings of the Board shall be
presided over by the Chairman, if a Chairman has been elected by the Board, or
such other director or officer as the Chairman shall designate. If a Chairman
has not been elected by the Board or the Chairman is absent or otherwise unable
to preside over the meeting, the presiding officer shall be the President. If
the President is absent or otherwise unable to preside over the meeting, the
presiding officer shall be then senior member of the Board in terms of length of
service on the Board (which length of service shall include length of service on
the Board of Trustees of The Warwick Savings Bank and any predecessors thereto).
The Secretary or, in his absence, a person appointed by the Chairman (or other
presiding person), shall act as secretary of the meeting. The Chairman (or other
person presiding) shall conduct all meetings of the Board in accordance with the
best interests of the Corporation and shall have the authority and discretion to
establish reasonable procedural rules for the conduct of Board meetings. Any one
or more directors may participate in a meeting of the Board or a committee of
the Board by means of a conference telephone or similar communications equipment
allowing all persons participating in the meeting to hear each other at the same
time. Participation by such means shall constitute presence in person at any
such meeting.
SECTION 8. QUORUM AND VOTING REQUIREMENTS. A quorum at any
meeting of the Board shall consist of not less than a majority of the directors
then in office or such greater number as shall be required by law, these By-Laws
or the Certificate of Incorporation, but not less than one-third (1/3) of the
total number. If less than a required quorum is present, the majority of those
directors present shall adjourn the meeting to another time and place without
further notice. At such adjourned meeting at which a quorum shall be
represented, any business may be transacted that might have been transacted at
the meeting as originally noticed. Except as otherwise provided by law, the
Certificate of Incorporation or these By-Laws, a majority vote of the directors
present at a meeting, if a quorum is present, shall constitute an act of the
Board.
SECTION 9. INFORMAL ACTION BY DIRECTORS. Unless otherwise
restricted by the Certificate of Incorporation or these By-Laws, any action
required or permitted to be taken at any
<PAGE> 13
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meeting of the Board, or of any committee thereof, may be taken without a
meeting if all members of the Board or such committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board or such committee.
SECTION 10. RESIGNATION. Any director may resign at any time
by sending a written notice of such resignation to the principal office of the
Corporation addressed to the Chairman or the President. Unless otherwise
specified therein, such resignation shall take effect upon receipt thereof.
SECTION 11. VACANCIES. To the extent not inconsistent with the
Certificate of Incorporation and subject to the limitations prescribed by law
and the rights of holders of Preferred Stock, vacancies in the office of
director, including vacancies created by newly created directorships resulting
from an increase in the number of directors, shall be filled only by a vote of a
majority of the directors then holding office, whether or not a quorum, at any
regular or special meeting of the Board called for that purpose. Subject to the
rights of holders of Preferred Stock, no person shall be so elected a director
unless nominated by the Nominating Committee. Subject to the rights of holders
of Preferred Stock, any director so elected shall serve for the remainder of the
full term of the class of directors in which the new directorship was created or
the vacancy occurred and until his or her successor shall be elected and
qualified.
SECTION 12. COMPENSATION. From time to time, as the Board
deems necessary, the Board shall fix the compensation of directors, and officers
of the Corporation in such one or more forms as the Board may determine.
SECTION 13. AMENDMENTS CONCERNING THE BOARD. The number and
other restrictions and qualifications for directors of the Corporation as set
forth in these By-Laws may be altered only by a vote, in addition to any vote
required by law, of two-thirds of the entire Board or by the affirmative vote of
the holders of record of not less than eighty percent (80%) of the total votes
eligible to be cast by holders of all outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors at a meeting
of the shareholders called for that purpose.
ARTICLE V
COMMITTEES
SECTION 1. STANDING COMMITTEES. At each annual meeting of the
Board, the directors shall designate from their own number, by resolution, the
following committees:
(a) Executive Committee
(b) Audit Committee
(c) Compensation Committee
<PAGE> 14
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which shall be standing committees of the Board. The Chairman, if one has been
elected by the Board, shall be a member of, and the Chief Executive Officer and
the President shall be ex-officio members of, with power to vote on all matters,
the Executive Committee. The Board shall appoint a director to fill any vacancy
on any committee of the Board. The members of the committees shall serve at the
pleasure of the Board.
SECTION 2. EXECUTIVE COMMITTEE. There shall be an Executive
Committee of the Board, consisting of at least six (6) members, as shall be
appointed by Board resolution or these By-Laws. The Chairman, if one has been
elected by the Board, shall be a member of the Executive Committee. The Chief
Executive Officer, the President and the Secretary shall be ex-officio members
of the Executive Committee, with power to vote on all matters so long as they
are also directors of the Corporation. Four (4) members of the Executive
Committee, at least three (3) of whom must be non-officer directors, or such
other number of members as the Board may establish by resolution, shall
constitute a quorum for the transaction of business. The vote of a majority of
members present at any meeting including the presiding member, who shall be
eligible to vote, shall constitute the action of the Executive Committee.
The Chairman, if one has been elected by the Board, the
President or such other director or officer as the Chairman shall designate
shall serve as chairman of the Executive Committee. If the office of the
Chairman is vacant, the President shall serve as chairman of the Executive
Committee. In the absence of the chairman of the Executive Committee, the
committee shall designate, from among its membership present, a person to
preside at any meeting held in such absence. The Executive Committee shall
designate, from its membership or otherwise, a secretary who shall report to the
Board at its next regular meeting all proceedings and actions taken by the
Executive Committee. The Executive Committee shall meet as necessary at the call
of the Chairman or at the call of a majority of the members of the Executive
Committee.
The Executive Committee shall, to the extent not inconsistent
with law, these By-Laws, the Certificate of Incorporation or resolutions adopted
by the Board, exercise all the powers and authority of the Board in the
management of the business and affairs of the Corporation in the intervals
between the meetings of the Board.
SECTION 3. AUDIT COMMITTEE. The Audit Committee shall consist
of at least four (4) members whose background and experience are financial
and/or business management related, none of whom shall be an officer or salaried
employee of the Corporation or its subsidiaries, an attorney who receives a fee
or other compensation for legal services rendered to the Corporation or any
other individual having a relationship which, in the opinion of the Board, would
interfere with the exercise of independent judgment in carrying out the
responsibilities of a director. At any regular meeting of the Board, any
director who is otherwise eligible to serve on the Audit Committee may be
elected to fill a vacancy that has occurred on the Audit Committee. The Board
shall designate one member of the committee to serve as chairman of the
committee. The Audit Committee shall meet annually, at the call of the chairman
of the committee and may hold such additional meetings as the chairman of the
committee may deem necessary, to examine, or cause to be examined, the records
and affairs of the Corporation to determine its true financial condition, and
shall present a report of examination to the Board at the Board's next regular
meeting following the meeting of the Audit Committee. The committee shall
appoint, from its membership or otherwise, a secretary who
<PAGE> 15
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shall cause to be kept written minutes of all meetings of the committee. The
Audit Committee shall make, or cause to be made, such other examinations as it
may deem advisable or whenever so directed by the Board and shall report thereon
in writing at a regular meeting of the Board. The Audit Committee shall make
recommendations to the Board in relation to the employment of accountants and
independent auditors and arrange for such other assistance as it may deem
necessary or desirable. The Audit Committee shall review and evaluate the
procedures and performance of the Corporation's internal auditing staff. A
quorum shall consist of at least one-third of the members of the committee, and
in no event less than two (2) members of the committee.
SECTION 4. COMPENSATION COMMITTEE. The Compensation Committee
shall consist of at least three (3) members, none of whom shall be an officer or
salaried employee of the Corporation or its subsidiaries, as shall be appointed
by Board resolution or these By-Laws. The Board shall designate one member of
the committee to serve as chairman of the Compensation Committee, who shall have
the authority to adopt and establish procedural rules for the conduct of all
meetings of the committee.
The Compensation Committee shall meet annually at the call of
the chairman of the committee, and may hold such additional meetings as the
chairman may deem necessary. A quorum shall consist of at least one-third of the
voting members of the Compensation Committee, and in no event less than two (2)
voting members of the committee. The vote of a majority of the voting members
present at any meeting, including the chairman of the committee who shall be
eligible to vote, shall constitute the action of the Compensation Committee. The
committee shall appoint, from its membership or otherwise, a secretary who shall
cause to be kept written minutes of all meetings of the committee.
The Compensation Committee shall be responsible for
recommending to the Board the compensation, employment arrangements and benefit
programs for officers of the Corporation and its subsidiaries.
SECTION 5. OTHER COMMITTEES. The Board may by resolution
authorize such other committees as from time to time it may deem necessary or
appropriate for the conduct of the business of the Corporation. The members of
each committee so authorized shall be appointed by the Board from members of the
Board. In addition, the Chairman, if one has been elected by the Board, the
President, the Chief Executive Officer and the Secretary shall be ex-officio
members of each such committee. Each such committee shall exercise such powers
as may be assigned by the Board to the extent not inconsistent with law, these
By-Laws, the Certificate of Incorporation or resolutions adopted by the Board.
ARTICLE VI
OFFICERS
SECTION 1. DESIGNATION OF EXECUTIVE OFFICERS. The Board shall,
at each annual meeting, elect a President and a Secretary, and may elect a
Chairman and such other officers as the Board from time to time may deem
necessary or the business of the Corporation may require. The
<PAGE> 16
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Board shall designate either the Chairman or the President as the Chief
Executive Officer, and may designate the President or an Executive Vice
President to be the Chief Operating Officer. Any number of offices may be held
by the same person except that no person may simultaneously hold the offices of
President and Secretary.
The election of all officers shall be made only by a vote of a
majority of the entire Board. If such election is not held at the meeting held
annually for the election of officers, such officers may be so elected at any
subsequent regular meeting or at a special meeting called for that purpose, in
the same manner above provided. Each person elected shall have such authority,
bear such title and perform such duties as provided in these By-Laws and as the
Board may prescribe from time to time. All officers elected or appointed by the
Board shall assume their duties immediately upon their election and shall hold
office at the pleasure of the Board. Whenever a vacancy occurs among the
officers, it may be filled at any regular or special meeting called for that
purpose, in the same manner as above provided.
SECTION 2. TERM OF OFFICE AND REMOVAL. Each officer shall
serve until his or her successor is elected and duly qualified, the office is
abolished or he or she is removed. Any officer may be removed at any regular or
special meeting of the Board called for that purpose, with or without cause, by
an affirmative vote of a majority of the entire Board.
SECTION 3. CHAIRMAN OF THE BOARD. The Chairman, if one has
been elected by the Board, may be the Chief Executive Officer of the Corporation
and shall, subject to the direction of the Board, oversee all of the major
activities of the Corporation and its subsidiaries. The Chairman shall preside
at all meetings of the shareholders; preside at all meetings of the Board and
the Executive Committee; make recommendations to the Board regarding
appointments to all committees; and sign instruments in the name of the
Corporation.
SECTION 4. CHIEF EXECUTIVE OFFICER. The Chief Executive
Officer of the Corporation, subject to the direction of the Board, shall be
responsible for assuring that the policy decisions of the Board are implemented
as formulated. The Chief Executive Officer shall be responsible, in consultation
with such officers and members of the Board as he deems appropriate, for
planning the growth of the Corporation. The Chief Executive Officer shall be
responsible for shareholder relations, relations with investments bankers, other
similar financial institutions and financial advisors, and shall be empowered to
designate officers of the Corporation and its subsidiaries to assist in such
activities. The Chief Executive Officer shall be principally responsible for
exploring opportunities for mergers, acquisitions and new business. The Chief
Executive Officer shall have the general supervision and direction of all of the
Corporation's officers, subject to and consistent with policies enunciated by
the Board. The Chief Executive Officer shall under authority given to him, sign
instruments in the name of the Corporation. The Chief Executive Officer shall
have such other powers as may be assigned to him by the Board, its committees
or, if a Chairman other than the Chief Executive Officer is elected by the
Board, the Chairman. The Chief Executive Officer shall be a member ex-officio,
with power to vote on all matters, of all committees of the Board, except the
Audit Committee and the Compensation Committee.
SECTION 5. PRESIDENT. The President shall be the Chief
Executive Officer or the Chief Operating Officer of the Corporation, as
determined by the Board, and shall be subject to the
<PAGE> 17
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direction of the Board. The President shall perform such duties as from time to
time may be assigned to him by these By-Laws, the Board, or, if elected by the
Board, the Chairman. The President shall be a member ex-officio, with power to
vote on all matters, of all committees of the Board, except the Audit Committee
and the Compensation Committee.
In the absence of or disability of the Chairman, or if the
office of the Chairman is vacant by reason of death, resignation, failure of the
Board to elect a Chairman or otherwise, the President or such other person who
the Board shall designate, shall exercise the powers and perform the duties
which otherwise would fall upon the Chairman.
SECTION 6. CHIEF OPERATING OFFICER. The Chief Operating
Officer shall have the general supervision and direction of all of the
Corporation's operations and personnel, subject to and consistent with policies
enunciated by the Board and the direction of the Chief Executive Officer. The
Chief Operating Officer shall, under authority given to him, sign instruments in
the name of the Corporation. The Chief Operating Officer shall have such other
powers and duties as may be assigned to him by the Board, its committees or the
Chief Executive Officer.
SECTION 7. VICE PRESIDENTS. Executive Vice Presidents, Senior
Vice Presidents and Vice Presidents may be appointed by the Board to perform
such duties as may be prescribed by these By-Laws, the Board or the Chief
Executive Officer and the Chief Operating Officer as permitted by the Board.
SECTION 8. SECRETARY. The Secretary shall attend all meetings
of the Board and of the shareholders and shall record, or cause to be recorded,
all votes and minutes of all proceedings of the Board and of the shareholders in
a book or books to be kept for that purpose. The Secretary shall perform such
executive and administrative duties as may be assigned by the Board or the
President. The Secretary shall have charge of the seal of the Corporation, shall
submit such reports and statements as may be required by law or by the Board,
shall conduct all correspondence relating to the Board and its proceedings and
shall have such other powers and duties as are generally incident to the office
of Secretary and as may be assigned to him or her by the Board or the Chief
Executive Officer.
SECTION 9. TREASURER. The Treasurer shall be the chief
accounting officer of the Corporation and shall be responsible for the
maintenance of adequate systems and records. The Treasurer shall also be the
chief financial officer of the Corporation and shall keep a record of all
assets, liabilities, receipts, disbursements and other financial transactions
and shall see that all expenditures are made in accordance with procedures duly
established from time to time by the Board. The Treasurer shall make such
reports as may be required by the Board or as are required by law.
SECTION 10. OTHER OFFICERS. Other officers appointed by the
Board shall have such authority and shall perform such duties as may be assigned
to them, from time to time, by the Board or the Chief Executive Officer.
SECTION 11. COMPENSATION OF OFFICERS. The compensation of all
officers shall be fixed from time to time by the Board, upon the recommendation
of the Compensation Committee.
<PAGE> 18
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ARTICLE VII
DIVIDENDS
The Board shall have the power, subject to the provisions of
law and the requirements of the Certificate of Incorporation, to declare and pay
dividends out of surplus (or, if no surplus exists, out of net profits of the
Corporation, for the fiscal year in which the dividend is declared and/or the
preceding fiscal year, except where there is an impairment of capital stock), to
pay such dividends to the shareholders in cash, in property or in shares of the
capital stock of the Corporation and to fix the date or dates for the payment of
such dividends.
ARTICLE VIII
AMENDMENTS
These By-Laws, except as provided by applicable law or the
Certificate of Incorporation, or as otherwise set forth in these By-Laws, may be
amended or repealed at any regular meeting of the entire Board by the vote of
two-thirds of the members of the entire Board; provided, however, that (a) a
notice specifying the change or amendment shall have been given at a previous
regular meeting and entered in the minutes of the Board; (b) a written statement
describing the change or amendment shall be made in the notice delivered to the
directors of the meeting at which the change or amendment shall be acted upon;
and (c) any By-Law made by the Board may be altered, amended, rescinded or
repealed by the holders of shares of capital stock entitled to vote thereon at
any annual meeting or at any special meeting called for that purpose in
accordance with the percentage requirements set forth in the Certificate of
Incorporation and/or these By-Laws. Notwithstanding the foregoing, any provision
of these By-Laws that contains a supermajority voting requirement shall only be
altered, amended, rescinded or repealed by a vote of the Board or holders of
capital stock entitled to vote thereon that is not less than the super majority
specified in such provision.
<PAGE> 1
Exhibit 3.3
RESTATED ORGANIZATION CERTIFICATE
OF
THE WARWICK SAVINGS BANK
UNDER SECTION 8007 OF THE BANKING LAW
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I
NAME.......................................................1
ARTICLE II
PRINCIPAL OFFICE.................................................1
ARTICLE III
CAPITAL STOCK
Section 1. Shares, Classes and Series Authorized...........................................................2
Section 2. Designations, Powers, Preferences, Rights, Qualifications,
Limitations and Restrictions Relating to the Capital Stock...................................2
ARTICLE IV
LIMITATION ON BENEFICIAL OWNERSHIP OF STOCK
Section 1. Prohibitions Relating to Beneficial Ownership of Voting Stock...................................4
Section 2. Excess Shares...................................................................................4
Section 3. Powers of the Board.............................................................................6
Section 4. Severability....................................................................................6
Section 5. Exclusions......................................................................................7
ARTICLE V
BOARD OF DIRECTORS
Section 1. Number of Directors.............................................................................7
Section 2. Classification of Board.........................................................................7
Section 3. Vacancies.......................................................................................8
Section 4. Removal of Directors............................................................................8
Section 5. Evaluation of Acquisition Proposals.............................................................8
</TABLE>
-i-
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE VI
ACTION BY SHAREHOLDERS BY WRITTEN CONSENT....................................9
ARTICLE VII
CERTAIN BUSINESS COMBINATIONS
Section 1. Higher Vote Required for Certain Business Combinations..........................................9
Section 2. When Higher Vote is Not Required................................................................9
Section 3. Definitions....................................................................................12
Section 4. Powers of the Disinterested Directors..........................................................16
Section 5. Effect on Fiduciary Obligations of Interested Shareholders.....................................16
Section 6. Amendment, Repeal, Etc.........................................................................16
ARTICLE VIII
INDEMNIFICATION
Section 1. Right to Indemnification.......................................................................17
Section 2. Accrual of Right to Indemnification............................................................17
Section 3. Individual Indemnification Agreements..........................................................17
Section 4. Insurance......................................................................................18
Section 5. Subsequent Amendment and Subsequent Legislation................................................18
ARTICLE IX
AMENDMENTS
Section 1. Amendments of Restated Organization Certificate................................................18
Section 2. Amendments of By-Laws..........................................................................19
</TABLE>
-ii-
<PAGE> 4
RESTATED ORGANIZATION CERTIFICATE
OF
THE WARWICK SAVINGS BANK
UNDER SECTION 8007 OF THE BANKING LAW
WE, TIMOTHY A. DEMPSEY and NANCY L. SOBOTOR-LITTELL, being the
President and Chief Executive Officer and the Corporate Secretary, respectively,
of The Warwick Savings Bank (the "Corporation"), in accordance with Section 8007
of the Banking Law of the State of New York (the "Banking Law"), do hereby
certify as follows:
FIRST, The name of the Corporation is THE WARWICK SAVINGS
BANK.
SECOND, The Corporation was created under the name "The
Warwick Savings Bank" by an Act of the Legislature of the State of New York,
passed May 17, 1875, such Act having been amended and supplemented from time to
time thereafter. Under Section 1001(5) of the Banking Law, such Act is the
Organization Certificate of the Corporation.
THIRD, The text of the Organization Certificate of the
Corporation is hereby amended and restated in its entirety to read as follows:
ARTICLE I
NAME
The name by which the Corporation is to be known is THE
WARWICK SAVINGS BANK.
ARTICLE II
PRINCIPAL OFFICE
The principal office of the Corporation is to be located at 18
Oakland Avenue, in the Village of Warwick, County of Orange, State of New York.
<PAGE> 5
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ARTICLE III
CAPITAL STOCK
SECTION 1. SHARES, CLASSES AND SERIES AUTHORIZED. The total
number of shares of all classes of capital stock that the Corporation shall have
authority to issue is twenty million (20,000,000) shares, of which five million
(5,000,000) shares shall be preferred stock, par value one cent ($.01) per share
(the "Preferred Stock"), and fifteen million (15,000,000) shares shall be common
stock, par value one cent ($.01) per share (the "Common Stock"). The Preferred
Stock and Common Stock are sometimes hereinafter collectively referred to as the
"Capital Stock."
SECTION 2. DESIGNATIONS, POWERS, PREFERENCES, RIGHTS,
QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS RELATING TO THE CAPITAL STOCK. The
following is a statement of the designations, powers, preferences and rights in
respect of the classes of the Capital Stock, and the qualifications, limitations
or restrictions thereof, and of the authority with respect thereto expressly
vested in the Board of Directors of the Corporation (the "Board"):
(a) Preferred Stock. The Preferred Stock may be issued from
time to time in one or more series, the number of shares and any designation of
each series and the powers, preferences and rights of the shares of each series,
and the qualifications, limitations or restrictions thereof, to be as stated and
expressed in a resolution or resolutions providing for the issue of such series
adopted by the Board, subject to the limitations prescribed by law. The Board in
any such resolution or resolutions is expressly authorized to state for each
such series:
(i) the voting powers, if any, of the holders of shares of
such series in addition to any voting rights affirmatively required by
law;
(ii) the rights of shareholders in respect of dividends,
including, without limitation, the rate or rates per annum and the time
or times at which (or the formula or other method pursuant to which
such rates and such time or times may be determined) and conditions
upon which the holders of shares of such series shall be entitled to
receive dividends and other distributions, and whether any such
dividends shall be cumulative or non-cumulative and, if cumulative, the
terms upon which such dividends shall be cumulative;
(iii) whether the shares of each such series shall be
redeemable by the Corporation at the option of the Corporation or the
holder thereof, and, if redeemable, the terms upon which the shares of
such series may be redeemed;
(iv) the amount payable and the rights or preferences to which
the holders of shares of such series shall be entitled upon any
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation;
(v) the terms, if any, upon which shares of such series shall
be convertible into, or exchangeable for, shares of any other class or
classes or of any other series of the same
<PAGE> 6
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or any other class or classes, including the price or prices or the
rate or rates of conversion or exchange and the terms of adjustment, if
any; and
(vi) any other powers, designations, preferences, and
relative, participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, so far as they are
not inconsistent with the provisions of this Restated Organization
Certificate and to the full extent now or hereafter permitted by the
laws of the State of New York.
All shares of the Preferred Stock of any one series shall be
identical to each other in all respects, except that shares of any one series
issued at different times may differ as to the dates from which dividends
thereon, if cumulative, shall be cumulative.
Subject to any limitations or restrictions stated in the
resolution or resolutions of the Board originally fixing the number of shares
constituting a series, the Board may by resolution or resolutions likewise
adopted increase (but not above the total number of authorized shares of that
class) or decrease (but not below the number of shares of the series then
outstanding) the number of shares of the series subsequent to the issue of
shares of that series; and in case the number of shares of any series shall be
so decreased, the shares constituting the decrease shall resume that status that
they had prior to the adoption of the resolution originally fixing the number of
shares constituting such series.
(b) Common Stock. All shares of Common Stock shall be
identical to each other in every respect. Subject to Article IV hereof, the
shares of Common Stock shall entitle the holders thereof to one vote for each
share on all matters upon which shareholders have the right to vote. The holders
of shares of Common Stock shall not be permitted to cumulate their votes for the
election of directors. Notwithstanding the foregoing, except as otherwise
required by law, holders of Common Stock, as such, shall not be entitled to vote
on any amendment to this Restated Organization Certificate (including any
Certificate of Designations relating to any series of Preferred Stock) that
relates solely to the terms of one or more outstanding series of Preferred Stock
if the holders of such affected series are entitled, either separately or
together with the holders of one or more other such series, to vote thereon
pursuant to this Restated Organization Certificate (including any Certificate of
Designations relating to any series of Preferred Stock) or pursuant to the laws
of the State of New York.
Subject to the preferences, privileges and powers with respect
to each class of Capital Stock of the Corporation having any priority over the
Common Stock, and the qualifications, limitations or restrictions thereof, the
holders of the Common Stock shall have and possess all rights pertaining to the
Capital Stock.
No holder of shares of Common Stock shall be entitled as such,
as a matter of preemptive right, to subscribe for, purchase or otherwise acquire
any part of any new or additional issue of shares of any class or series
whatsoever of the Corporation, or of securities convertible into shares of any
class or series whatsoever of the Corporation, or of any warrants or other
instruments evidencing rights or options to subscribe for, purchase or otherwise
acquire such
<PAGE> 7
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shares or securities, whether now or hereafter authorized or whether issued for
cash or other consideration or by way of dividend.
ARTICLE IV
LIMITATION ON BENEFICIAL OWNERSHIP OF STOCK
SECTION 1. PROHIBITIONS RELATING TO BENEFICIAL OWNERSHIP OF
VOTING STOCK. No Person, for a period of not less than five years following the
date of filing by the Superintendent of Banks of the State of New York (the
"Superintendent") of this Restated Organization Certificate, shall directly or
indirectly acquire or hold the beneficial ownership of more than ten percent
(10%) of the issued and outstanding Voting Stock of the Corporation. Any Person
so prohibited who directly or indirectly acquires or holds the beneficial
ownership of more than ten percent (10%) of the issued and outstanding Voting
Stock in violation of this Section 1 shall be subject to the provisions of
Sections 2 and 3 of this Article IV, below. All terms used in this Article IV
and not otherwise defined herein shall have the meanings ascribed to such terms
in Section 3 of Article VII, below, except that the term "Person" shall not
include the Corporation, any subsidiary of the Corporation or any pension,
profit-sharing, stock bonus or other compensation plan maintained by the
Corporation or by a member of a controlled group of corporations or trades or
businesses of which the Corporation is a member for the benefit of the employees
of the Corporation, and/or any subsidiary, or any trust or custodial arrangement
established in connection with any such plan.
SECTION 2. EXCESS SHARES. The transfer of any shares of Voting
Stock that would result in a violation of Section 1 of this Article IV is
prohibited and shall be null and void. If, notwithstanding the foregoing
prohibition, a Person shall, voluntarily or involuntarily, become or attempt to
become the purported beneficial owner (the "Purported Owner") of shares of
Voting Stock in excess of ten percent (10%) of the issued and outstanding shares
of Voting Stock, the number of shares in excess of ten percent (10%) shall be
deemed to be "Excess Shares," and all of the following provisions (a) through
(g) shall apply to such Excess Shares:
(a) The Purported Owner shall not obtain any rights in and to
the Excess Shares, and the purported transfer of the Excess Shares to the
Purported Owner shall not be recognized by the transfer agent for such shares
(the "Transfer Agent"). Until such time as the Excess Shares are transferred to
a person whose acquisition thereof will not violate the limitation set forth in
Section 1 of this Article IV (a "Permitted Transferee"), the transferor of the
Excess Shares to the Purported Owner (the "Purported Owner's Transferor") shall
be deemed to have retained the Excess Shares and shall hold and be entitled to
exercise all rights incident to ownership of such Excess Shares. All Excess
Shares will continue to be issued and outstanding.
(b) If the Transfer Agent obtains possession of a certificate
or certificates representing Excess Shares, the Transfer Agent shall deliver
such certificate or certificates to a trustee nominated and appointed by the
Board to hold Excess Shares (the "Share Trustee"). Upon receipt of notice from
the Corporation of the existence of Excess Shares and the identity of the
<PAGE> 8
-5-
Purported Owner of such Excess Shares, the Share Trustee shall take all lawful
action to cause the Purported Owner to deliver or cause delivery of the Excess
Shares and any indicia of ownership thereof to the Share Trustee. Upon obtaining
possession of such Excess Shares, the Share Trustee shall sell or cause the sale
of the Excess Shares to a Permitted Transferee in the then existing public
market or in such other commercially reasonable fashion as the Corporation shall
direct. In performing the duties herein imposed upon it, the Share Trustee shall
act at all times as the agent for the Purported Owner's Transferor.
(c) Upon acquisition of the Excess Shares by a Permitted
Transferee, the Permitted Transferee shall have and be entitled to exercise all
rights incident to the ownership of such Excess Shares.
(d) The proceeds realized from the sale of the Excess Shares
to the Permitted Transferee (the "Proceeds") shall be distributed as follows:
(i) first, to the Share Trustee for any costs incurred in respect of its
administration of the Excess Shares, (ii) second, to the Purported Owner, if
known, in an amount up to the amount paid by the Purported Owner, if
determinable, for the Excess Shares and (iii) the remaining Proceeds, if any,
shall be distributed to the Purported Owner's Transferor, if known, and, if the
Purported Owner's Transferor is not known, such remaining Proceeds shall be held
by the Corporation for the benefit of the Purported Owner's Transferor or such
other persons or entities, as their interests may appear. Notwithstanding
anything in this Article IV to the contrary, the Corporation shall at all times
be entitled to make application to any court of competent jurisdiction within
the State of New York for an adjudication of the respective rights and interests
of any Person in and to the Proceeds pursuant to this Article IV and applicable
law and for leave to pay the Proceeds into such court.
(e) Immediately upon the purported acquisition of any Excess
Shares, the Purported Owner thereof shall give, or cause to be given, written
notice of such acquisition to the Corporation. In addition, at the request of
the Corporation, each owner of shares of Voting Stock shall furnish to the
Corporation all information reasonably requested with respect to all shares of
Voting Stock directly and indirectly owned by such Person.
(f) Upon a determination by the Board that a Person has
attempted or may attempt to transfer or to acquire Excess Shares, the Board may
take such action as it deems advisable to refuse to give effect to such transfer
or acquisition on the books and records of the Corporation, including, without
limitation, any such action that shall cause the Transfer Agent to record the
Purported Owner's Transferor as the record owner of the Excess Shares, and to
institute proceedings to enjoin or rescind any such transfer or acquisition.
(g) The restrictions set forth in this Article IV shall be
noted conspicuously on all certificates evidencing ownership of shares of Voting
Stock.
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SECTION 3. POWERS OF THE BOARD.
(a) The Board may, to the extent permitted by law, from time
to time establish, modify, amend or rescind, by By-Law or otherwise, regulations
and procedures not inconsistent with the express provisions of this Article IV
for the orderly application, administration and implementation of the provisions
of this Article IV. Such procedures and regulations shall be kept on file with
the Secretary of the Corporation and with the Transfer Agent, shall be made
available for inspection by the public and, upon request, shall be mailed to any
holder of shares of Voting Stock.
(b) When it appears that a particular Person has become a
Purported Owner of Excess Shares in violation of Section 1 of this Article IV
and that the provisions of this Article IV, or any of the rules and regulations
of the Board with respect to this Article IV, require application,
interpretation or construction, then a majority of the directors of the
Corporation shall have the power and duty to interpret all of the terms and
provisions of this Article IV and to determine on the basis of information known
to them after reasonable inquiry all facts necessary to ascertain compliance
with this Article IV, including, without limitation, (i) the number of shares of
Voting Stock beneficially owned by any Person or Purported Owner, (ii) whether a
Person or Purported Owner is an Affiliate or Associate of, or is acting in
concert with, any other Person or Purported Owner, (iii) whether a Person or
Purported Owner has an agreement, arrangement or understanding with any other
Person or Purported Owner as to the voting or disposition of any shares of
Voting Stock, (iv) the application of any other definition or operative
provision of this Article IV to the given facts or (v) any other matter relating
to the applicability or effect of this Article IV.
The Board shall have the right to demand that any Person who
is reasonably believed to be a Purported Owner of Excess Shares (or who holds of
record Voting Stock beneficially owned by any Person reasonably believed to be a
Purported Owner) supply the Corporation with complete information as to (i) the
record owner(s) of all shares of Voting Stock beneficially owned by such Person
or Purported Owner and (ii) any other factual matter relating to the
applicability or effect of this Article IV as may reasonably be requested of
such Person or Purported Owner.
Any applications, interpretations, constructions or any other
determinations made by the Board pursuant to this Article IV, 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
shareholders and neither the Corporation nor any of its shareholders shall have
the right to challenge any such application, interpretation, construction or
determination.
SECTION 4. SEVERABILITY. In the event any provision (or
portion thereof) of this Article IV shall be found to be invalid, prohibited or
unenforceable for any reason, the remaining provisions (or portions thereof) of
this Article IV 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 shareholders that each such remaining provision (or portion
thereof) of this Article IV remain, to the fullest extent
<PAGE> 10
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permitted by law, applicable and enforceable as to all shareholders, including
Purported Owners, if any, notwithstanding any such finding.
SECTION 5. EXCLUSIONS. This Article IV shall not apply to (a)
any offer or sale with a view towards public resale made exclusively by the
Corporation to any underwriter or underwriters acting on behalf of the
Corporation, or to the selling group acting on such underwriter's or
underwriters' behalf, in connection with a public offering of the Common Stock;
(b) any corporation formed by the Corporation in connection with its conversion
from mutual to stock form to acquire all of the shares of capital stock of the
Corporation to be issued in connection with such conversion; or (c) any
reclassification of securities (including any reverse stock split), or
recapitalization of the Corporation, or any merger or consolidation of the
Corporation with any of its Subsidiaries or any other transaction or
reorganization (including a transaction in which the Corporation shall form a
holding company) that does not have the effect, directly or indirectly, of
changing the beneficial ownership interests of the Corporation's shareholders,
other than pursuant to the exercise of any appraisal rights, except as a result
of immaterial changes due to fractional share adjustments, which changes do not
exceed, in the aggregate, one percent (1%) of the issued and outstanding shares
of such class of equity or convertible securities.
ARTICLE V
BOARD OF DIRECTORS
SECTION 1. NUMBER OF DIRECTORS. The number of directors of the
Corporation shall not be less than seven (7) nor more than twenty (20). Within
such limitations, the number of directors shall be determined by the By-Laws of
the Corporation or by resolution of the Board.
SECTION 2. CLASSIFICATION OF BOARD. Subject to the rights of
any holders of shares of any series of Preferred Stock that may be issued by the
Corporation pursuant to a resolution or resolutions of the Board providing for
such issuance, the directors of the Corporation shall be divided into three
classes with respect to term of office, each class to contain, as near as may be
possible, one-third of the entire number of the Board, with the terms of office
of one class expiring each successive year. At each annual meeting of
shareholders, the successors to the class of directors whose term expires at
that time shall be elected by the shareholders to serve until the annual meeting
of shareholders held three years next following and until their successors shall
be elected and qualified.
In the event of any intervening changes in the authorized
number of directors, the Board shall designate the class or classes to which the
increase or decrease in directorships shall be apportioned and may designate one
or more directorships as directorships of another class in order to achieve, as
near as may be possible, equality of number of directors among the classes;
provided, however, that no such apportionment or redesignation shall shorten the
term of any incumbent director.
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Unless and to the extent that the By-Laws so provide,
elections of directors need not be by written ballot.
SECTION 3. VACANCIES. Subject to the limitations prescribed by
law, the ByLaws and this Restated Organization Certificate, all vacancies in the
office of director, including vacancies created by newly created directorships
resulting from an increase in the number of directors, shall be filled by the
shareholders, except that vacancies not exceeding one-third of the entire Board
may be filled by the affirmative vote of a majority of the directors then in
office. No person shall be elected a director unless nominated at a previous
regular or special meeting, called for that purpose, upon the recommendation of
the Board, or a committee appointed by the Board. Any director so elected shall
serve for the remainder of the full term of the class of directors in which the
new directorship was created or the vacancy occurred and until his successor
shall be elected and qualified.
SECTION 4. REMOVAL OF DIRECTORS. Any or all of the directors
may be removed at any time, but only for cause, and any such removal shall
require the vote, in addition to any vote required by law, of not less than
eighty percent (80%) of the total votes eligible to be cast by the holders of
all outstanding shares of Capital Stock entitled to vote generally in the
election of directors at a meeting of shareholders expressly called for that
purpose. For purposes of this Section 4, conduct worthy of removal for "cause"
shall mean (a) conduct as a director of the Corporation or any subsidiary of the
Corporation that involves willful material misconduct, breach of fiduciary duty
involving personal pecuniary gain or gross negligence in the performance of
duties, or (b) conduct, whether or not as a director of the Corporation or a
subsidiary of the Corporation, that involves dishonesty or breach of fiduciary
duty and is punishable by imprisonment for a term exceeding one year under state
or federal law.
SECTION 5. EVALUATION OF ACQUISITION PROPOSALS. The Board,
when evaluating any offer to the Corporation or to the shareholders of the
Corporation from another party relating to a change or potential change in
control of the Corporation, including, without limitation, any offer to (a)
purchase for cash or exchange any securities or property for any outstanding
equity securities of the Corporation, (b) merge or consolidate the Corporation
with another corporation or (c) purchase or otherwise acquire all or
substantially all of the properties and assets of the Corporation, in connection
with the exercise of its judgment in determining what is in the best interest of
the Corporation and its shareholders, may give due consideration not only to the
price or other consideration being offered, but also to all other relevant
factors, including, without limitation, (1) both the long-term and the
short-term interests of the Corporation and its shareholders and (2) the effects
that the Corporation's actions may have in the short-term or in the long-term
upon any of the following: (i) the prospects for potential growth, development,
productivity and profitability of the Corporation; (ii) the Corporation's
current employees; (iii) the Corporation's retired employees and other
beneficiaries receiving or entitled to receive retirement, welfare or similar
benefits from or pursuant to any plan sponsored, or agreement entered into, by
the Corporation; (iv) the Corporation's customers and creditors; and (v) the
ability of the Corporation to provide, as a going concern, goods, services,
employment opportunities and employment benefits and otherwise to contribute to
the communities in which is does business.
<PAGE> 12
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ARTICLE VI
ACTION BY SHAREHOLDERS BY WRITTEN CONSENT
Whenever shareholders of the Corporation are required or
permitted to take any action by vote at any annual or special meeting, such
action may be taken without a meeting upon written consent, setting forth the
action so taken, signed by the holders of all outstanding shares of Capital
Stock entitled to vote thereon.
ARTICLE VII
CERTAIN BUSINESS COMBINATIONS
SECTION 1. HIGHER VOTE REQUIRED FOR CERTAIN BUSINESS
COMBINATIONS. In addition to any affirmative vote required by law, this Restated
Organization Certificate or by the provisions of any series of Preferred Stock
that may at the time be outstanding, and except as otherwise expressly provided
for in Section 2 of this Article VII, any Business Combination shall require the
affirmative vote of not less than eighty percent (80%) of the total number of
votes eligible to be cast by the holders of all outstanding shares of Voting
Stock, voting together as a single class (it being understood that for purposes
of this Article VII each share of Voting Stock shall have the number of votes
granted to it pursuant to Article III of this Restated Organization Certificate
or in any resolution or resolutions of the Board for issuance of shares of
Preferred Stock), together with the affirmative vote of at least fifty percent
(50%) of the total number of votes eligible to be cast by the holders of all
outstanding shares of Voting Stock not beneficially owned by the Interested
Shareholder involved or any Affiliate or Associate thereof, 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 in any agreement with any national securities exchange or otherwise.
SECTION 2. WHEN HIGHER VOTE IS NOT REQUIRED. The provisions of
Section 1 of this Article VII shall not be applicable to any particular Business
Combination, and such Business Combination shall require only such affirmative
vote as is required by law or any other provision of this Restated Organization
Certificate, if the Business Combination shall have been approved by a majority
of the Disinterested Directors then in office or all of the conditions specified
in the following subsections (a) through (g) are met:
(a) The aggregate amount of the cash and the Fair Market Value
as of the Consummation Date of consideration other than cash to be received per
share by holders of Common Stock in such Business Combination shall be at least
equal to the higher of the following:
(i) (if applicable) the highest per share price (including any
brokerage commissions, transfer taxes, soliciting dealers' fees,
dealer-management compensation and other expenses, including, but not
limited to, costs of newspaper advertisements, printing expenses and
attorneys' fees) paid by the Interested Shareholder for any shares of
Common
<PAGE> 13
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Stock acquired by it (A) within the two-year period immediately prior
to the Announcement Date or (B) in the transaction in which it became
an Interested Shareholder, whichever is higher, plus interest
compounded annually from the Determination Date through the
Consummation Date at the prime rate of interest of Citibank, N.A. (or
other major bank headquartered in New York City selected by a majority
of the Disinterested Directors then in office) from time to time in
effect in New York City, less the aggregate amount of any cash
dividends paid and the Fair Market Value of any dividends paid other
than in cash, per share of Common Stock from the Determination Date
through the Consummation Date in an amount up to but not exceeding the
amount of such interest payable per share of Common Stock; or
(ii) the Fair Market Value per share of Common Stock on the
Announcement Date or on the Determination Date, whichever is higher.
(b) The aggregate amount of the cash and the Fair Market Value
as of the Consummation Date of consideration other than cash to be received per
share by holders of shares of any class or series of outstanding Voting Stock,
other than Common Stock, in such Business Combination shall be at least equal to
the highest of the following (such requirement being applicable to each such
class or series of outstanding Voting Stock, whether or not the Interested
Shareholder has previously acquired any shares of such class or series of Voting
Stock):
(i) (if applicable) the highest per share price (including any
brokerage commissions, transfer taxes, soliciting dealers' fees,
dealer-management compensation and other expenses, including, but not
limited to, costs of newspaper advertisements, printing expenses and
attorneys' fees) paid by the Interested Shareholder for any shares of
such class or series of Voting Stock acquired by it (A) within the
two-year period immediately prior to the Announcement Date or (B) in
the transaction in which it became an Interested Shareholder, whichever
is higher, plus interest compounded annually from the Determination
Date through the Consummation Date at the prime rate of interest of
Citibank, N.A. (or other major bank headquartered in New York City
selected by a majority of the Disinterested Directors then in office)
from time to time in effect in New York City, less the aggregate amount
of any cash dividends paid, and the Fair Market Value of any dividends
paid other than in cash, per share of such class or series of Voting
Stock from the Determination Date through the Consummation Date in an
amount up to but not exceeding the amount of such interest payable per
share of such class or series of Voting Stock;
(ii) (if applicable) the highest preferential amount per share
to which the holders of shares of such class or series of Voting Stock
are entitled in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation; or
(iii) the Fair Market Value per share of such class or series
of Voting Stock on the Announcement Date or on the Determination Date,
whichever is higher.
<PAGE> 14
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(c) The consideration to be received by holders of any
particular class or series of outstanding Voting Stock (including Common Stock)
in such Business Combination shall be in cash or in the same form as the
Interested Shareholder has previously paid for shares of such class or series of
Voting Stock. If the Interested Shareholder has paid for shares of any class or
series of Voting Stock with varying forms of consideration, the form of
consideration for such class or series of Voting Stock shall be either cash or
the form used to acquire the largest number of shares of such class or series of
Voting Stock previously acquired by it.
(d) The holders of all outstanding shares of Voting Stock not
beneficially owned by the Interested Shareholder immediately prior to the
Consummation Date shall be entitled to receive in such Business Combination cash
or other consideration for their shares in compliance with subsections (a), (b)
and (c) of this Section 2.
(e) After the Determination Date and prior to the Consummation
Date:
(i) except as approved by a majority of the Disinterested
Directors then in office, there shall have been no failure to declare
and pay, or set aside for payment, at the regular date therefor any
full quarterly dividends (whether or not cumulative) on any outstanding
Preferred Stock;
(ii) there shall have been (A) 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 then in office, and (B) 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 that has the effect of
reducing the number of outstanding shares of the Common Stock, unless
the failure to increase such annual rate is approved by a majority of
the Disinterested Directors then in office; and
(iii) such Interested Shareholder shall not have become the
beneficial owner of any additional shares of Voting Stock except as
part of the transaction that results in such Interested Shareholder
becoming an Interested Shareholder or as the result of a stock dividend
paid by the Corporation.
(f) After the Determination Date, the Interested Shareholder
shall not have received the benefit, directly or indirectly (except
proportionately as a shareholder), of any loans, advances, guarantees, pledges
or other financial assistance or any tax credits or other tax advantages
provided by or through the Corporation, whether in anticipation of or in
connection with such Business Combination or otherwise.
(g) A proxy or information statement describing the proposed
Business Combination in accordance with the requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), whether or not the
Corporation is then subject to such requirements, and the rules and regulations
thereunder (or any subsequent provisions replacing such Act, rules or
regulations) shall be mailed to shareholders of the Corporation at least thirty
<PAGE> 15
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(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). The first page of such proxy or information
statement shall prominently display the recommendation, if any, that a majority
of the Disinterested Directors then in office may choose to make to the holders
of Voting Stock regarding the proposed Business Combination. Such proxy or
information statement shall also contain, if a majority of the Disinterested
Directors then in office so requests, an opinion of a reputable investment
banking firm (which firm shall be engaged solely on behalf of the shareholders
of the Corporation other than the Interested Shareholder and shall be selected
by a majority of the Disinterested Directors then in office, furnished with all
information it reasonably requests and paid a reasonable fee for its services by
the Corporation upon the Corporation's receipt of such opinion) as to the
fairness (or lack of fairness) of the terms of the proposed Business Combination
from the point of view of the holders of Voting Stock other than the Interested
Shareholder.
SECTION 3. DEFINITIONS. For purposes of this Article VII, the
following terms shall have the following meanings:
(a) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Exchange Act, as in effect on the date of filing by the
Superintendent of this Restated Organization Certificate whether or not the
Corporation was then subject to such rule.
(b) "Announcement Date" shall mean the date of the first
public announcement of the proposal of the Business Combination.
(c) A Person shall be deemed the "beneficial owner," or to
have "beneficial ownership," of any shares of Voting Stock that:
(i) such Person or any of its Affiliates or Associates
beneficially owns, directly or indirectly;
(ii) such Person or any or its Affiliates or Associates has
(A) 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 a Person shall not be deemed to be
the beneficial owner of any Voting Stock solely by reason of an
agreement, arrangement or understanding with the Corporation to effect
a Business Combination) or upon the exercise of conversion rights,
exchange rights, warrants or options, or otherwise, or (B) the right to
vote, or to direct the vote of, pursuant to any agreement, arrangement
or understanding (but neither such Person nor any Affiliate or
Associate shall be deemed to be the beneficial owner of any shares of
Voting Stock solely by reason of a revocable proxy granted for a
particular meeting of shareholders, pursuant to a public solicitation
of proxies for such meeting, and with respect to which shares neither
such Person nor any Affiliate or Associate is otherwise deemed the
beneficial owner); or
<PAGE> 16
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(iii) is beneficially owned, directly or indirectly, by any
other Person with which such first mentioned Person or any of its
Affiliates or Associates has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting (except to
the extent contemplated by the parenthetical clause of Section
3(c)(ii)(B)) or disposing of any shares of Voting Stock;
provided, however, that no director or officer of the Corporation (nor any
Affiliate or Associate of any such director or officer) (y) 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 Voting Stock
of the Corporation beneficially owned by any other such director or officer (or
any Affiliate or Associate thereof) or (z) shall be deemed to beneficially own
any Voting Stock of the Corporation owned by any pension, profit-sharing, stock
bonus or other compensation plan maintained by the Corporation or by a member of
a controlled group of corporations or trades or businesses of which the
Corporation is a member for the benefit of employees of the Corporation and/or
any Subsidiary, or any trust or custodial arrangement established in connection
with any such plan, not specifically allocated to such Person's personal
account.
(d) The term "Business Combination" shall mean any transaction
that is referred to in any one or more of the following paragraphs (i) through
(vi):
(i) any merger or consolidation of the Corporation or any
Subsidiary with (A) any Interested Shareholder or (B) any other entity
(whether or not such other entity is itself an Interested Shareholder)
which is, or after such merger or consolidation would be, an Affiliate
or Associate of any Interested Shareholder;
(ii) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of transactions) to
or with any Interested Shareholder or any Affiliate or Associate of any
Interested Shareholder of any assets of the Corporation or any
Subsidiary having an aggregate Fair Market Value equal to five percent
(5%) or more of the total assets of the Corporation or the Subsidiary
in question as of the end of its most recent fiscal year ending prior
to the time the determination is being made;
(iii) 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
Shareholder or any Affiliate or Associate of any Interested Shareholder
having an aggregate Fair Market Value equal to twenty percent (20%) or
more of the aggregate Fair Market Value of all of the outstanding
Capital Stock other than on a pro rata basis to all holders of Voting
Stock and other than in connection with the exercise or conversion of
securities issued pro rata that are exercisable for, or convertible
into, securities of the Corporation or any Subsidiary;
(iv) the adoption of any plan or proposal for the liquidation
or dissolution of the Corporation proposed by or on behalf of any
Interested Shareholder or any Affiliate or Associate of any Interested
Shareholder;
<PAGE> 17
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(v) any reclassification of securities (including any reverse
stock split), or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any Subsidiary or any other
transaction (whether or not with or into or otherwise involving an
Interested Shareholder) which has the effect, directly or indirectly,
of increasing the proportionate share of the outstanding shares of any
class or series of equity or convertible securities of the Corporation
or any Subsidiary that is directly or indirectly owned by any
Interested Shareholder or any Affiliate or Associate of any Interested
Shareholder, except as a result of immaterial changes due to fractional
share adjustments, which changes do not exceed, in the aggregate, one
percent (1%) of the issued and outstanding shares of such class or
series of equity or convertible securities; or
(vi) the acquisition by the Corporation or a Subsidiary of any
securities of an Interested Shareholder.
(e) "Consummation Date" shall mean the date of the
consummation of the Business Combination.
(f) "Determination Date" shall mean the date on which the
Interested Shareholder became an Interested Shareholder.
(g) "Disinterested Director" shall mean any member of the
Board of the Corporation who is not affiliated with the Interested Shareholder
and who either was a member of the Board prior to the Determination Date or was
recommended for election by a majority of the Disinterested Directors in office
at the time such director was nominated for election.
(h) "Fair Market Value" shall mean (i) in the case of stock,
the highest closing price during the 30-day period immediately preceding the
date in question of a share of such stock on the Composite Tape for New York
Stock Exchange listed stocks, or, if such stock is not quoted on such Composite
Tape or if such stock is not listed on such Exchange, then on the principal
United States securities exchange registered under the Exchange Act, on which
such stock is listed, or, if such stock is not listed on any such exchange, then
the highest closing bid quotation with respect to a share of such stock during
the 30-day period preceding the date in question on the Nasdaq Stock Market or
any system then in use, or if no such quotation is available, then the fair
market value on the date in question of a share of such stock as determined in
good faith by a majority of the Disinterested Directors then in office, 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 (ii) in the case of property
other than cash or stock, the fair market value of such property on the date in
question as determined in good faith by a majority of the Disinterested
Directors then in office.
(i) References 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
<PAGE> 18
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number of shares of such stock or any combination or reclassification of
outstanding shares of such stock into a smaller number of shares of such stock.
(j) "Interested Shareholder" shall mean any Person (other than
the Corporation, any parent of the Corporation, any Subsidiary or any pension,
profit-sharing, stock bonus or other compensation plan maintained by the
Corporation or by a member of a controlled group of corporations or trades or
businesses of which the Corporation is a member for the benefit of employees of
the Corporation, any parent of the Corporation or any Subsidiary, or any trust
or custodial arrangement established in connection with any such plan or holding
Voting Stock for the purpose of funding any such plan or funding employee
lending for employees of the Corporation or any Subsidiary) who or which:
(i) is the beneficial owner of ten percent (10%) or more of
the Voting Stock;
(ii) 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 of ten percent (10%) or more of the then outstanding
Voting Stock; or
(iii) is an assignee of or has otherwise succeeded to any
shares of Voting Stock that were at any time within the two-year period
immediately prior to the date in question beneficially owned by any
other Interested Shareholder, if such assignment or succession shall
have occurred in the course of a transaction or series of transactions
not involving a public offering within the meaning of the Securities
Act of 1933, as amended.
In determining whether a Person is an Interested Shareholder
pursuant to this subsection (j), the number of shares of Voting Stock deemed to
be outstanding shall include shares deemed owned through application of
subsection (c) of this Section 3, but shall not include any other shares of
Voting Stock that may be issuable pursuant to any agreement, arrangement or
understanding, or upon exercise of conversion rights, warrants or options, or
otherwise.
(k) "Person" shall mean any corporation, partnership, trust,
unincorporated organization or association, syndicate, any other entity or a
natural person, together with any Affiliate or Associate of such person or any
other person acting in concert with such person (which shall include, without
limitation, persons seeking to combine or pool their voting or other interests
in the Voting Stock for a common purpose, pursuant to any contract,
understanding, relationship, agreement or otherwise, but shall not include the
directors or officers of the Corporation acting solely in their capacities as
such).
(l) "Subsidiary" shall mean any corporation of which a
majority of any class or series of equity security is owned, directly or
indirectly, by the Corporation; provided, however, that for the purposes of the
definition of Interested Shareholder set forth in subsection (j) of this Section
3, the term "Subsidiary" shall mean only a corporation of which a majority of
each class or series of voting securities is owned, directly or indirectly, by
the Corporation.
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(m) "Voting Stock" shall mean all of the outstanding shares of
Capital Stock entitled to vote generally in the election of directors.
SECTION 4. POWERS OF THE DISINTERESTED DIRECTORS. When it
appears that a particular Person may be an Interested Shareholder and that the
provisions of this Article VII need to be applied or interpreted, then a
majority of the directors of the Corporation who would qualify as Disinterested
Directors shall have the power and duty to interpret all of the terms and
provisions of this Article VII and to determine on the basis of information
known to them after reasonable inquiry all facts necessary to ascertain
compliance with this Article VII, including, without limitation, (a) whether a
Person is an Interested Shareholder, (b) the number of shares of Voting Stock
beneficially owned by any Person, (c) whether a Person is an Affiliate or
Associate of another, (d) the Fair Market Value of (i) the assets that are the
subject of any Business Combination, (ii) the securities to be issued or
transferred by the Corporation or any Subsidiary in any Business Combination,
(iii) the consideration other than cash to be received by holders of shares of
any class or series of Common Stock or Voting Stock other than Common Stock in
any Business Combination, (iv) the outstanding Capital Stock or (v) any other
item the Fair Market Value of which requires determination pursuant to this
Article VII and (e) whether all of the applicable conditions set forth in
Section 2 of this Article VII have been met with respect to any Business
Combination.
Any constructions, applications, or determinations made by the
Board pursuant to this Article VII, 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 shareholders, and
neither the Corporation nor any of its shareholders shall have the right to
challenge any such construction, application or determination.
SECTION 5. EFFECT ON FIDUCIARY OBLIGATIONS OF INTERESTED
SHAREHOLDERS. Nothing contained in this Article VII shall be construed to
relieve any Interested Shareholder from any fiduciary obligations imposed by
law.
SECTION 6. AMENDMENT, REPEAL, ETC. Notwithstanding any other
provisions of this Restated Organization Certificate or the By-Laws (and
notwithstanding the fact that a lesser percentage may be specified by law, this
Restated Organization Certificate or the By-Laws of the Corporation), in
addition to any affirmative vote required by applicable law and any voting
rights granted to or held by holders of Preferred Stock, any amendment,
alteration, repeal or rescission of any provision of this Article VII must be
approved by either (i) a majority of the authorized number of directors and, if
one or more Interested Shareholders exist, by a majority of the Disinterested
Directors, or (ii) by the affirmative vote of not less than eighty percent (80%)
of the total number of votes eligible to be cast by the holders of all
outstanding shares of the Voting Stock, voting together as a single class,
together with the affirmative vote of not less than fifty percent (50%) of the
total number of votes eligible to be cast by the holders of all outstanding
shares of the Voting Stock not beneficially owned by any Interested Shareholder
or Affiliate or Associate thereof, voting together as a single class.
<PAGE> 20
-17-
ARTICLE VIII
INDEMNIFICATION
SECTION 1. RIGHT TO INDEMNIFICATION. The Corporation shall, to
the maximum extent authorized or permitted and in the manner provided by the
Banking Law and any applicable federal law, indemnify any person who is made, or
threatened to be made, a party to any action, suit or proceeding, whether civil,
criminal or administrative, by reason of the fact that such person, or such
person's testator or intestate, is or was a trustee, director or officer of the
Corporation or one of the Corporation's subsidiaries, or any predecessor of the
Corporation, or serves or served any other corporation, or any partnership,
association, joint venture, trust, employee benefit plan, conference or other
group or enterprise in any capacity at the request of the Corporation or one of
the Corporation's subsidiaries, or any predecessor of the Corporation, against
judgments, fines, amounts paid in settlement and reasonable expenses, including
attorneys' fees actually and reasonably incurred, and the Corporation shall
advance any related expense in full. Employees or agents of the Corporation may
be similarly indemnified. Such right of indemnification and advancement shall be
in addition to and not exclusive of any other rights or remedies to which such
person may be or become entitled under any statute, insurance policy, agreement,
by-law or otherwise.
SECTION 2. ACCRUAL OF RIGHT TO INDEMNIFICATION. In addition to
the Corporation's obligation to indemnify under Section 1 of this Article VIII,
the Corporation's obligation to indemnify, and any person's right to
indemnification, under this Article VIII shall accrue as of the time of the
accrual of the cause of action asserted in the threatened or pending action,
suit, or proceeding, and no subsequent change in this Restated Organization
Certificate or the By-Laws of the Corporation shall have any effect on the
Corporation's obligation to indemnify or a person's right to indemnification.
The provisions of this Article VIII shall be deemed to be a contract between the
Corporation and each director, trustee and officer of the Corporation who serves
in such capacity at any time while this Article VIII is in effect, and any
subsequent change of this Article VIII shall not affect the rights or
obligations then existing with respect to any state of facts then or theretofore
existing as it relates to any action or proceeding therefore or thereafter
brought or threatened based in whole or in part upon any such state of facts.
SECTION 3. INDIVIDUAL INDEMNIFICATION AGREEMENTS. In addition
to the Corporation's obligation to indemnify under Sections 1 and 2 of this
Article VIII, the Board may also, to the maximum extent permitted by law, in its
discretion, approve agreements between the Corporation and one or more
directors, officers or employees of the Corporation under which the Corporation
would indemnify such directors, officers and employees in the event that any
such person is made, or threatened to be made, a party to any action or
proceeding, whether civil, criminal or administrative, by reason of the fact
that such person is or was a trustee, director, officer or employee of the
Corporation or one of the Corporation's subsidiaries, or any predecessor of the
Corporation, or serves or served any other corporation, or any partnership,
association, joint venture, trust, employee benefit plan, conference or other
group or enterprise in any capacity at the request of the Corporation or one of
the Corporation's subsidiaries, or any
<PAGE> 21
-18-
predecessor of the Corporation, against judgments, fines, amounts paid in
settlement and reasonable expenses, including attorneys' fees actually and
reasonably incurred.
SECTION 4. INSURANCE. The Corporation may, but shall not be
obliged to, purchase and maintain insurance on behalf of any person who is or
was a director, trustee or officer of the Corporation or is or was serving at
the request of the Corporation as a director, trustee or officer of another
corporation of any type or kind, domestic or foreign, against any liability
asserted against such person and incurred by such person in any such capacity,
or arising out of such person's status as such, whether or not the Corporation
would have the power to indemnify such person against such liability under the
provisions of this Article VIII.
SECTION 5. SUBSEQUENT AMENDMENT AND SUBSEQUENT LEGISLATION.
Neither the amendment, termination or repeal of this Article VIII or of relevant
provisions of the Banking Law or any other applicable laws, nor the adoption of
any provision of this Restated Organization Certificate or the By-Laws of the
Corporation or of any statute inconsistent with this Article VIII shall
eliminate, affect or diminish in any way the rights of any director, officer,
employee or agent of the Corporation to indemnification under the provisions of
this Article VIII with respect to any action, suit or proceeding arising out of,
or relating to, any actions, transactions or facts occurring prior to the final
adoption of such amendment, termination or repeal.
If the Banking Law is amended to expand further the
indemnification permitted to directors, officers, employees or agents of the
Corporation, then the Corporation shall indemnify such persons to the fullest
extent permitted by the Banking Law as so amended.
ARTICLE IX
AMENDMENTS
SECTION 1. AMENDMENTS OF RESTATED ORGANIZATION CERTIFICATE. In
addition to any affirmative vote required by applicable law and any voting
rights granted to or held by holders of shares of Preferred Stock, any
alteration, amendment, repeal or rescission (collectively, any "Change") of any
provision of this Restated Organization Certificate must be approved by a
majority of the directors of the Corporation then in office and by the
affirmative vote of the holders of a majority (or such greater proportion as may
otherwise be required pursuant to any specific provision of this Restated
Organization Certificate) of the total votes eligible to be cast by the holders
of all outstanding shares of Capital Stock entitled to vote thereon; provided,
however, that if any such Change relates to Section 5 of Article VIII or
Articles IV, V, VI or IX of this Restated Organization Certificate, such Change
must be approved either (i) by not less than a majority of the authorized number
of directors and, if one or more Interested Shareholders (as defined in Article
VII hereof) exist, by not less than a majority of the Disinterested Directors
(as defined in Article VII hereof), or (ii) by the affirmative vote of the
holders of not less than two-thirds of the total votes eligible to be cast by
the holders of all outstanding shares of Capital Stock entitled to vote thereon
and, if the Change is proposed by or on behalf of an Interested Shareholder or a
director who is an Affiliate or Associate (as such terms are defined in Article
VII hereof) of
<PAGE> 22
-19-
an Interested Shareholder, by the affirmative vote of the holders of not less
than a majority of the total votes eligible to be cast by the holders of all
outstanding shares of Capital Stock entitled to vote thereon not beneficially
owned by an Interested Shareholder or an Affiliate or Associate thereof. Subject
to the foregoing, the Corporation reserves the right to amend this Restated
Organization Certificate from time to time in any and as many respects as may be
desired and as may be lawfully contained in an original organization certificate
filed at the time of making such amendment.
Except as may otherwise be provided in this Restated
Organization Certificate, the Corporation reserves the right at any time, and
from time to time, to amend, alter, change or repeal any provision contained in
this Restated Organization Certificate, and to add or insert herein any other
provisions authorized by the laws of the State of New York at the time in force,
in the manner now or hereafter prescribed by law, and all rights, preferences
and privileges of any nature conferred upon shareholders, directors or any other
persons whomsoever by and pursuant to this Restated Organization Certificate in
its present form or hereafter amended are granted subject to the rights reserved
in this Section 1.
SECTION 2. AMENDMENTS OF BY-LAWS. The By-Laws of the
Corporation, except as provided by applicable law or this Restated Organization
Certificate, or as otherwise provided by the By-Laws, may be amended or repealed
by the Board or by vote of the shareholders entitled to vote in the election of
directors; provided, however, that no amendment to the By-Laws shall be made by
the Board unless notice of the proposed amendment shall have been given at the
previous meeting of the Board.
FOURTH, This amendment and restatement of the Organization
Certificate was authorized by a majority vote of the members of the Board of
Trustees of the Corporation.
<PAGE> 23
IN WITNESS WHEREOF, we have made, signed and acknowledged this
certificate in duplicate, this ___th day of _______________, 1997.
------------------------------
Timothy A. Dempsey
President and
Chief Executive Officer
-------------------------------
Nancy L. Sobotor-Littell
Corporate Secretary
<PAGE> 24
STATE OF NEW YORK )
ss.:
COUNTY OF ORANGE )
On the __th day of _______________, 1997, before me personally
came TIMOTHY A. DEMPSEY, to me known and known to me to be the individual
described in and who executed the foregoing instrument, and he duly acknowledged
to me that he executed the same.
- -------------------------
Notary Public
(Seal)
STATE OF NEW YORK )
ss.:
COUNTY OF ORANGE )
On the __th day of _______________, 1997, before me personally
came NANCY L. SOBOTOR-LITTELL, to me known and known to me to be the individual
described in and who executed the foregoing instrument, and she duly
acknowledged to me that she executed the same.
- -------------------------
Notary Public
(Seal)
<PAGE> 1
Exhibit 3.4
BY-LAWS
OF
THE WARWICK SAVINGS BANK
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I
ORGANIZATION...................................................1
ARTICLE II
SHAREHOLDERS...................................................1
Section 1. Annual Meetings.................................................................................1
Section 2. Special Meetings................................................................................1
Section 3. Notice of Meetings..............................................................................1
Section 4. Waiver of Notice................................................................................2
Section 5. Fixing of Record Date...........................................................................2
Section 6. Quorum..........................................................................................2
Section 7. Conduct of Meetings.............................................................................2
Section 8. Proxies.........................................................................................3
Section 9. Voting; Voting of Shares in the Name of Two or More Persons.....................................3
Section 10. Inspectors of Election..........................................................................3
Section 11. Procedure for Nominations.......................................................................4
Section 12. New Business....................................................................................4
ARTICLE III
CAPITAL STOCK..................................................4
Section 1. Certificates of Stock...........................................................................4
Section 2. Transfer Agent and Registrar....................................................................5
Section 3. Registration and Transfer of Shares.............................................................5
Section 4. Lost, Destroyed and Mutilated Certificates......................................................5
Section 5. Holder of Record................................................................................6
ARTICLE IV
BOARD OF DIRECTORS................................................6
Section 1. Responsibilities; Number of Directors...........................................................6
Section 2. Qualifications..................................................................................6
Section 3. Mandatory Retirement............................................................................6
Section 4. Regular and Annual Meetings.....................................................................6
</TABLE>
-i-
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C> <C>
Section 5. Special Meetings................................................................................6
Section 6. Conduct of Meetings.............................................................................7
Section 7. Notice of Meetings; Waiver of Notice............................................................7
Section 8. Quorum and Voting Requirements..................................................................7
Section 9. Resignation.....................................................................................7
Section 10. Removal.........................................................................................8
Section 11. Vacancies.......................................................................................8
Section 12. Compensation....................................................................................8
ARTICLE V
COMMITTEES....................................................8
Section 1. Standing Committees.............................................................................8
Section 2. Executive Committee.............................................................................9
Section 3. Audit Committee.................................................................................9
Section 4. Compensation Committee.........................................................................10
Section 5. Other Committees...............................................................................10
ARTICLE VI
OFFICERS....................................................11
Section 1. Designation of Executive Officers..............................................................11
Section 2. Term of Office and Removal.....................................................................11
Section 3. Chairman of the Board..........................................................................11
Section 4. Chief Executive Officer........................................................................11
Section 5. President......................................................................................12
Section 6. Chief Operating Officer........................................................................12
Section 7. Vice Presidents. .............................................................................12
Section 8. Secretary......................................................................................12
Section 9. Treasurer......................................................................................12
Section 10. Other Officers. .............................................................................13
Section 11. Compensation of Officers.......................................................................13
ARTICLE VII
AMENDMENTS OF BY-LAWS.............................................13
</TABLE>
-ii-
<PAGE> 4
BY-LAWS
OF
THE WARWICK SAVINGS BANK
ARTICLE I
ORGANIZATION
This corporation shall be known as The Warwick Savings Bank
(the "Bank"). The principal office of the Bank shall be located in the State of
New York, in the County of Orange, in the Village of Warwick. Subject to
applicable banking laws and any required approval of the Superintendent of Banks
of the State of New York (the "Superintendent"), the Bank may also have other
offices at such other places as the Board of Directors (the "Board") may from
time to time designate or the business of the Bank may require.
ARTICLE II
SHAREHOLDERS
SECTION 1. ANNUAL MEETINGS. The annual meeting of shareholders
of the Bank for the election of directors and the transaction of any other
business as may properly come before such meeting shall be held each year on a
date to be fixed by the Board, but in no event later than April 30th of any
year, at such time and at such place in a city, town or village in which any
office of the Bank is located.
SECTION 2. SPECIAL MEETINGS. Special meetings of the
shareholders, for any purpose or purposes, may be called at any time by the
Chairman, if one has been elected by the Board, the Chief Executive Officer or
by resolution of at least three-fourths of the entire Board, and shall be called
by the Chairman, if one has been elected, the President or the Secretary of the
Bank upon the written request of the holders of three-fourths of all the
outstanding capital stock of the Bank entitled to vote at the meeting. Special
meetings shall be held at such time and at such place as may be designated by
the Board. At a special meeting, no business shall be transacted and no
corporate action shall be taken other than that stated in the notice of meeting.
SECTION 3. NOTICE OF MEETINGS. Written notice stating the
place, day and hour of any meeting of shareholders and the purpose or purposes
for which the meeting is called shall be delivered to each shareholder of record
entitled to vote at such meeting, either personally or by mail, not less than 10
nor more than 50 days before the date of such meeting. If mailed, such notice
shall be deemed to be delivered when deposited in the U.S. mail, with postage
thereon prepaid, addressed to the shareholder at his or her address as it
appears on the stock transfer books
<PAGE> 5
-2-
or records of the Bank as of the record date prescribed in Section 5 of this
Article II, or at such other address as the shareholder shall have furnished in
writing to the Secretary of the Bank. Notice of any special meeting shall
indicate that the notice is being issued by or at the direction of the person or
persons calling such meeting. When any meeting of shareholders, either annual or
special, is adjourned to another time or place, no notice of the adjourned
meeting need be given, other than an announcement at the meeting at which such
adjournment is taken giving the time and place to which the meeting is
adjourned. However, if, after adjournment, the Board fixes a new record date for
the adjourned meeting, notice of the adjourned meeting shall be given to each
shareholder of record on the new record date.
SECTION 4. WAIVER OF NOTICE. Notice of any annual or special
meeting need not be given to any shareholder who submits a signed waiver of
notice, in person or by proxy, whether before or after the meeting. The
attendance of any shareholder at a meeting, in person or by proxy, without
protesting prior to the conclusion of the meeting the lack of notice of such
meeting, shall constitute a waiver of notice by such shareholder.
SECTION 5. FIXING OF RECORD DATE. For the purpose of
determining shareholders entitled to notice of or to vote at any meeting of
shareholders or any adjournment thereof, or shareholders entitled to receive
payment of any dividend or the allotment of any rights, or in order to make a
determination of shareholders for any other proper purpose, the Board shall fix
in advance a date as the record date for any such determination of shareholders.
Such date in any case shall be not more than 50 days and, in the case of a
meeting of shareholders, not less than 10 days, prior to the date on which the
particular action requiring such determination of shareholders is to be taken.
When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this Section 5, such determination
shall, unless otherwise provided by the Board, also apply to any adjournment
thereof.
SECTION 6. QUORUM. The holders of a majority of the shares of
the capital stock of the Bank issued and outstanding and entitled to vote
thereat, represented in person or by proxy, shall constitute a quorum at a
meeting of shareholders, except as otherwise provided by law, these By-Laws or
the Restated Organization Certificate of the Bank. If less than a majority of
such shares are represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time without further notice. At
such adjourned meeting at which a quorum shall be represented, any business may
be transacted that might have been transacted at the meeting as originally
noticed. When a quorum is once present to organize a meeting, such quorum is not
broken by the subsequent withdrawal of any shareholders.
SECTION 7. CONDUCT OF MEETINGS. The Chairman shall serve as
chairman at all meetings of the shareholders or, if a Chairman has not been
elected by the Board or the Chairman is absent or otherwise unable to so serve,
the President shall serve as chairman. If the President is absent or otherwise
unable to so serve, such other person as shall be appointed by a majority of the
entire Board shall serve as chairman at any meeting of shareholders held in such
absence. The Secretary of the Bank or, if the Secretary is absent or otherwise
unable to so serve, such other person as the chairman of the meeting shall
appoint, shall serve as secretary of the meeting. The chairman of the meeting
shall conduct all meetings of the shareholders in accordance with the best
<PAGE> 6
-3-
interests of the Bank and shall have the authority and discretion to establish
reasonable procedural rules for the conduct of such meetings, including such
regulation of the manner of voting and the conduct of discussion as he or she
shall deem appropriate. The chairman of the meeting shall also have the
authority to adjourn the meeting from time to time and from place to place as he
or she may deem necessary and in the best interests of the Bank.
SECTION 8. PROXIES. Each shareholder entitled to vote at any
meeting may vote either in person or by proxy. All proxies shall be in writing,
signed by the shareholder or by his or her duly authorized attorney-in-fact, and
shall be filed with the Secretary of the Bank before being voted. No proxy shall
be valid after the expiration of 11 months from the date of its execution unless
otherwise provided in the proxy. The attendance at any meeting by a shareholder
who shall have previously given a proxy applicable thereto shall not, as such,
have the effect of revoking the proxy. The Bank may treat any duly executed
proxy as not revoked and in full force and effect until it receives a duly
executed instrument revoking it, or a duly executed proxy bearing a later date.
SECTION 9. VOTING; VOTING OF SHARES IN THE NAME OF TWO OR MORE
PERSONS. Except for the election of directors or as otherwise provided by law or
the Restated Organization Certificate of the Bank, at all meetings of
shareholders all matters shall be determined by a majority vote of the
shareholders present and entitled to vote thereat. Directors shall, except as
otherwise required by law or the Restated Organization Certificate of the Bank,
be elected by a plurality of the votes cast by the shareholders entitled to vote
in the election.
When ownership of shares stands in the name of two or more
persons, in the absence of written directions to the Bank to the contrary, at
any meeting of the shareholders of the Bank any one or more of such shareholders
may cast, in person or by proxy, all votes to which such ownership is entitled.
If an attempt is made to cast conflicting votes, in person or by proxy, by
several persons in whose names shares of stock stand, the vote or votes to which
those persons are entitled shall be cast as directed by a majority of those
holding such stock and present, in person or by proxy, at such meeting. If such
conflicting votes are evenly split on any particular matter, each faction may
vote the securities in question proportionally or any person voting the shares,
or a beneficiary, if any, may apply to the Supreme Court of New York or such
other court as may have jurisdiction to appoint an additional person to act with
the persons so voting the shares, which shall then be voted as determined by a
majority of such persons and the person appointed by the court.
SECTION 10. INSPECTORS OF ELECTION. In advance of any meeting
of shareholders, the Board may appoint one or more persons, other than officers,
directors or nominees for office, as inspectors of election to act at such
meeting or any adjournment thereof. Such appointment shall not be altered at the
meeting. If inspectors of election are not so appointed, the chairman of the
meeting may make such appointment at the meeting. In case any person appointed
as inspector fails to appear or fails or refuses to act, the vacancy may be
filled by appointment by the Board in advance of the meeting or at the meeting
by the chairman of the meeting. The duties of the inspectors of election shall
include: determining the number of shares outstanding and the voting power of
each share, the shares represented at the meeting, the existence of a quorum and
the
<PAGE> 7
-4-
validity and effect of proxies; receiving votes, ballots or consents; hearing
and deciding all challenges and questions arising in connection with the right
to vote; counting and tabulating all votes, ballots or consents; determining the
results; and doing such acts as are proper to the conduct of the election or the
vote with fairness to all shareholders. On request of the person presiding at
the meeting or any shareholder entitled to vote thereat, the inspectors shall
make a report in writing of any challenge, question or matter determined by them
and execute a certificate of any fact found by them. Any report or certificate
made by them shall be prima facie evidence of the facts stated and of the vote
as certified by them. Each inspector shall be entitled to a reasonable
compensation for his or her services, to be paid by the Bank.
SECTION 11. PROCEDURE FOR NOMINATIONS. The Board, or a
committee appointed by the Board, shall select the nominees for election as
directors of the Bank. Except in the case of a nominee substituted as a result
of the death, incapacity, withdrawal or other inability to serve of a nominee,
the Board shall deliver written nominations to the Secretary of the Bank at
least 30 days prior to the date of the annual meeting. Provided the Board, or a
committee appointed by the Board, makes such nominations, no nominations for
directors except those made by the Board or such committee shall be voted upon
at the annual meeting of shareholders unless other nominations by shareholders
are made in accordance with the provisions of this Section 11. Nominations of
individuals for election to the Board at an annual meeting of shareholders may
be made by any shareholder of the Bank entitled to vote for the election of
directors at such meeting who provides timely notice in writing to the Secretary
of the Bank.
SECTION 12. NEW BUSINESS. Any new business to be taken up at
the annual meeting at the request of the Chairman, if one has been elected by
the Board, or the President shall be stated in writing and filed with the
Secretary of the Bank at least 15 days before the date of the annual meeting,
and all business so stated, proposed and filed shall be considered at the annual
meeting. Any proposal offered by any shareholder who is not a director or
executive officer of the Bank may be made at the annual meeting and the same may
be discussed and considered, but unless properly brought before the meeting such
proposal shall not be acted upon at the meeting. For a proposal to be properly
brought before an annual meeting by a shareholder, the shareholder must have
given timely notice thereof in writing to the Secretary of the Bank. This
provision shall not prevent the consideration and approval or disapproval at an
annual meeting of reports of officers, directors and committees of the Board or
the management of the Bank, but in connection with such reports, no new business
shall be acted upon at such annual meeting unless stated and filed as herein
provided. This provision shall not constitute a waiver of any right of the Bank
under the proxy rules of the Federal Deposit Insurance Corporation or any other
rule or regulation to omit a shareholder's proposal from the Bank's proxy
materials.
ARTICLE III
CAPITAL STOCK
SECTION 1. CERTIFICATES OF STOCK. Certificates evidencing
ownership of shares of stock of the Bank shall be in such form as shall be
approved by the Board, provided that each
<PAGE> 8
-5-
certificate shall, when issued, state upon the face thereof (a) that the Bank is
a corporation organized under the laws of the State of New York; (b) the name of
the person to whom the certificate is issued; (c) the number of shares, class
and series, if any, that the certificate represents; and (d) the par value of
each share represented by the certificate; and further provided that each
certificate shall, when issued, state upon the back thereof the existence of any
supermajority voting provisions in the Restated Organization Certificate of the
Bank required to be noted on such certificate under Section 6016 of the Banking
Law of the State of New York (the "Banking Law"). Each certificate shall further
state that the Bank will furnish to any shareholder upon request and without
charge a statement of the rights and preferences of the shares of each class or
series of stock, or shall set forth such statement on the certificate itself.
The certificates shall be numbered in the order of their issue and shall be
signed by the Chairman, if one has been elected, the President and the Secretary
or any Assistant Secretary, and the seal of the Bank or a facsimile thereof
shall be impressed, affixed or reproduced thereon. If the certificates are
signed by a Transfer Agent acting on behalf of the Bank, or are registered by a
Registrar, the signatures of the officers of the Bank may be facsimile
signatures. In case any officer or officers who shall have signed any such
certificate or certificates shall cease to be such officer or officers of the
Bank, whether because of death, resignation or otherwise, before such
certificate or certificates shall have been delivered by the Bank, such
certificate or certificates may nevertheless be adopted by the Bank and be
issued and delivered as though the person or persons who signed such certificate
or certificates have not ceased to be such officer or officers of the Bank.
SECTION 2. TRANSFER AGENT AND REGISTRAR. The Board shall have
the power to appoint one or more Transfer Agents and Registrars for the transfer
and registration of certificates of stock of any class, and may require that
stock certificates shall be countersigned and registered by one or more of such
Transfer Agents and Registrars.
SECTION 3. REGISTRATION AND TRANSFER OF SHARES. Subject to the
provisions of the Restated Organization Certificate of the Bank, the name of
each person owning a share of the capital stock of the Bank shall be entered on
the books of the Bank together with the number of shares held by him or her, the
numbers of the certificates covering such shares and the dates of issue of such
certificates. The shares of stock of the Bank shall be transferable on the books
of the Bank by the holders thereof in person, or by their duly authorized
attorneys or legal representatives, on surrender and cancellation of
certificates for a like number of shares, accompanied by an assignment or power
of transfer endorsed thereon or attached thereto, duly executed, with such
guarantee or proof of the authenticity of the signature as the Bank or its
agents may reasonably require and with proper evidence of payment of all
applicable transfer taxes. A record shall be made of each transfer.
SECTION 4. LOST, DESTROYED AND MUTILATED CERTIFICATES. The
holder of any shares of stock of the Bank shall immediately notify the Bank of
any loss, theft, destruction or mutilation of the certificates therefor. The
Bank may issue, or cause to be issued, a new certificate of stock in the place
of any certificate theretofore issued by it alleged to have been lost, stolen or
destroyed upon evidence satisfactory to the Bank of the loss, theft or
destruction of the certificate, and, in the case of mutilation, the surrender of
the mutilated certificate. The Board may, in its discretion, require the owner
of the lost, stolen or destroyed certificate, or his or her legal
<PAGE> 9
-6-
representatives, to give the Bank a bond, in such sum not exceeding double the
value of the stock and with such surety or sureties as they may require, to
indemnify it against any claim that may be made against it by reason of the
issue of such new certificate and against all other liability in the premises,
or may refer such owner to such remedy or remedies as he or she may have under
the laws of the State of New York.
SECTION 5. HOLDER OF RECORD. The Bank shall be entitled to
treat the holder of record of any share or shares of stock as the holder thereof
in fact and shall not be bound to recognize any equitable or other claim to or
interest in such shares on the part of any other person, whether or not it shall
have express or other notice thereof, except as otherwise expressly provided by
law.
ARTICLE IV
BOARD OF DIRECTORS
SECTION 1. RESPONSIBILITIES; NUMBER OF DIRECTORS. The business
and affairs of the Bank shall be under the direction of its Board. The Board
shall consist of not less than 7 nor more than 20 directors. Within the
foregoing limits, the number of directors shall be determined by resolution of
the Board.
SECTION 2. QUALIFICATIONS. Each director shall be at least 18
years of age and at least one-half of the directors shall be citizens of the
United States at the time of their election and during their continuance in
office.
SECTION 3. MANDATORY RETIREMENT. No director shall serve
beyond the last day of the year in which he or she reaches his or her 75th
birthday. However, a director on attaining age 75 shall be eligible for election
as Director Emeritus.
SECTION 4. REGULAR AND ANNUAL MEETINGS. An annual meeting of
the Board for the election of officers shall be held, without notice other than
these By-Laws, immediately after, and at the same place as, the annual meeting
of the shareholders of the Bank, or at such other time or place within 25 days
following the annual meeting of shareholders as the Board may fix by resolution.
The Board shall hold at least 10 regular meetings per year and shall be required
to meet at least twice during any three consecutive months during the calendar
year. For these purposes, the annual meeting shall be considered a regular
meeting. The Board may provide, by resolution, the time and place for the
holding of regular meetings of the Board without notice other than such
resolution.
SECTION 5. SPECIAL MEETINGS. Special meetings of the Board may
be called at any time by or at the request of the Chairman, if one has been
elected, or the President. Special meetings of the Board shall also be convened
by the Secretary upon the written request of at least three directors. The
persons authorized to call special meetings of the Board shall give notice of
such meetings in the manner prescribed by these By-Laws and may fix any place,
within or without the Bank's regular business area, as the place for holding any
special meeting of the Board
<PAGE> 10
-7-
called by such persons. No business shall be conducted at a special meeting
other than that specified in the notice of meeting.
SECTION 6. CONDUCT OF MEETINGS. Meetings of the Board shall be
presided over by the Chairman, if a Chairman has been elected by the Board, or
such other director or officer as the Chairman shall designate. If a Chairman
has not been elected by the Board or the Chairman is absent or otherwise unable
to preside over the meeting, the presiding officer shall be the President. If
the President is absent or otherwise unable to preside over the meeting, the
presiding officer shall be the then senior member of the Board in terms of
length of service on the Board. The Secretary, or in the absence or disability
of the Secretary, a person appointed by the Chairman (or other presiding
person), shall act as secretary of the meeting. The Chairman (or other presiding
person) shall conduct all meetings of the Board in accordance with the best
interests of the Bank and shall have the authority and discretion to establish
reasonable procedural rules for the conduct of Board meetings. Any one or more
directors may participate in a meeting of the Board or committee thereof by
means of a conference telephone or communications equipment allowing all persons
participating in the meeting to hear each other at the same time. Participation
by such means shall constitute presence in person at any such meeting.
SECTION 7. NOTICE OF MEETINGS; WAIVER OF NOTICE. At least 24
hours' notice of meetings shall be given to each director if given in person or
by telephone, telegraph, telex, facsimile, TWX or other electronic transmission,
and at least two business days notice of meetings shall be given if notice is
given in writing and delivered by courier or by postage-prepaid mail. The
purpose of any special meeting shall be stated in the notice. Such notice shall
be deemed given when sent or given to any such mail or courier service or
company providing electronic transmission service. Any director may waive notice
of any meeting by filing a signed waiver of notice with the Secretary of the
Bank, whether before or after the meeting. The attendance of a director at a
meeting shall constitute a waiver of notice of such meeting if the director does
not protest, prior thereto or at its commencement, the lack of notice to such
director.
SECTION 8. QUORUM AND VOTING REQUIREMENTS. A quorum at any
meeting of the Board shall consist of not less than a majority of the entire
Board or such greater number as shall be required by law, these By-Laws or the
Restated Organization Certificate of the Bank. In no case shall such number be
less than six. If less than a quorum is present, the majority of those directors
present may adjourn the meeting to another time and place without further
notice. At such adjourned meeting at which a quorum shall be represented, any
business may be transacted that might have been transacted at the meeting as
originally noticed. Except as otherwise provided by law, the Restated
Organization Certificate of the Bank or these By-Laws, a majority vote of the
directors present at a meeting, if a quorum is present at the time of such vote,
shall constitute an act of the Board.
SECTION 9. RESIGNATION. Any director may resign at any time by
sending a written notice of such resignation to the principal office of the Bank
addressed to the Chairman, if one has been elected, or the President. Unless
otherwise specified therein, such resignation shall take effect upon receipt
thereof.
<PAGE> 11
-8-
SECTION 10. REMOVAL. Notwithstanding any other provision of
the Restated Organization Certificate of the Bank or these By-Laws, any director
or the entire Board of the Bank may be removed at any time, but only for cause
and only by the affirmative vote of the holders of record of not less than 80%
of the outstanding shares of capital stock of the Bank entitled to vote
generally in the election of directors at a meeting of the shareholders called
for that purpose. For purposes of this Section 10, conduct worthy of removal for
"cause" shall mean (a) conduct as a director of the Bank or a subsidiary of the
Bank that involves willful material misconduct, breach of fiduciary duty
involving personal pecuniary gain or gross negligence in the performance of
duties or (b) conduct, whether or not as a director of the Bank or a subsidiary
of the Bank, that involves dishonesty or breach of fiduciary duty and is
punishable by imprisonment for a term exceeding one year under state or federal
law.
SECTION 11. VACANCIES. Subject to the limitations prescribed
by law, the Restated Organization Certificate of the Bank and these By-Laws, all
vacancies in the office of director, including vacancies created by newly
created directorships resulting from an increase in the number of directors,
shall be filled by the shareholders, except that vacancies not exceeding
one-third of the entire Board may be filled by the affirmative vote of a
majority of the directors then holding office. No person shall be elected a
director unless nominated at a previous regular or special meeting, called for
that purpose, upon the recommendation of the Board, or a committee appointed by
the Board. Any director so elected shall serve for the remainder of the full
term of the class of directors in which the new directorship was created or the
vacancy occurred and until his successor shall be elected and qualified.
SECTION 12. COMPENSATION. The compensation of the directors of
the Bank shall be fixed by the Board.
ARTICLE V
COMMITTEES
SECTION 1. STANDING COMMITTEES. At each annual meeting of the
Board, the directors shall designate from their own number, by resolution
adopted by a majority of the entire Board, the following committees:
(a) Executive Committee
(b) Audit Committee
(c) Compensation Committee
which shall be standing committees of the Board. The Chairman, if one has been
elected, shall be a member of, and the Chief Executive Officer and the President
shall be ex-officio members of, with power to vote on all matters, the Executive
Committee. The Board shall appoint a
<PAGE> 12
-9-
director to fill any vacancy on any committee of the Board. The members of the
committees shall serve at the pleasure of the Board.
SECTION 2. EXECUTIVE COMMITTEE. The Executive Committee shall
consist of six members, none of whom shall be an officer or salaried employee of
the Bank or its subsidiaries, and such ex-officio or other members as shall be
appointed by Board resolution or these By-Laws. The membership of the Executive
Committee shall consist of the Chairman, if one has been elected, the President,
the General Counsel, provided the General Counsel is a Board member, and three
other members of the Board, or, if the General Counsel is not a Board member,
then four other members of the Board. If no Chairman has been elected, then one
additional member of the Board shall be appointed to the Executive Committee.
There shall also be elected at the annual meeting a first, second and third
alternate member of the Executive Committee, who shall act in the absence of
members of the Executive Committee upon the call of the Chairman, or, if no
Chairman has been elected, the President.
The Chairman shall serve as chairman of the Executive
Committee or, if no Chairman has been elected, the President shall serve as
chairman of the Executive Committee. In the absence of the chairman of the
Executive Committee, the committee shall designate from among its membership a
person to preside at any meeting held in such absence. The Executive Committee
shall designate, from its membership or otherwise, a secretary who shall report
to the Board at its next regular meeting all proceedings and actions taken by
the Executive Committee. The Executive Committee shall meet as necessary at the
call of the Chairman or, in the absence of the Chairman, at the call of a
majority of the members of the Executive Committee.
Four members of the Executive Committee shall constitute a
quorum for the transaction of business. The vote of a majority present at any
meeting, including the chairman of the committee, who shall be eligible to vote,
shall constitute the action of the Executive Committee.
The Executive Committee shall, to the extent not inconsistent
with applicable law or these By-Laws, exercise all the powers of the Board in
the intervals between the meetings of the Board. The Executive Committee shall
generally oversee the affairs of the Bank and shall exercise such other powers
not reserved by the Board or delegated to officers or to other committees. The
Executive Committee shall also consider proposals from management in relation to
the election of officers and shall make recommendations to the Board in relation
to those nominated to officer positions.
SECTION 3. AUDIT COMMITTEE. The Audit Committee shall consist
of at least four members, none of whom shall be an officer or salaried employee
of the Bank or its subsidiaries, an attorney who receives a fee or other
compensation for legal services rendered to the Bank or any other individual
having a relationship which, in the opinion of the Board, would interfere with
the exercise of independent judgement in carrying out the responsibilities of a
director. At any regular meeting of the Board, any director who is otherwise
eligible to serve on the Audit Committee may be elected to fill a vacancy that
has occurred on the Audit Committee.
<PAGE> 13
-10-
The Board shall designate one member of the committee to serve as chairman of
the committee. Three members of the Audit Committee shall constitute a quorum
for the transaction of business.
The Audit Committee shall meet annually at the call of the
chairman of the committee, at a date not less than six months after the prior
examination and may hold such additional meetings as the chairman of the
committee may deem necessary, to examine, or cause to be examined, the records
and affairs of the Bank to determine its true financial condition, and shall
present a report of examination to the Board at the Board's next regular meeting
following the meeting of the Audit Committee and shall present a copy thereof to
the Superintendent, all in conformity with the provisions of the Banking Law.
The committee shall appoint, from its membership or otherwise, a secretary who
shall cause to be kept written minutes of all meetings of the committee. The
Audit Committee shall make, or cause to be made, such other examinations as it
may deem advisable or whenever so directed by the Board and shall report thereon
in writing at a regular meeting of the Board. The Audit Committee shall make
recommendations to the Board in relation to the employment of accountants and
independent auditors and arrange for such other assistance as it may deem
necessary or desirable. The Audit Committee shall review and evaluate the
procedures and performance of the Bank's internal auditing staff.
SECTION 4. COMPENSATION COMMITTEE. The Compensation Committee
shall consist of at least three (3) members, none of whom shall be an officer or
salaried employee of the Bank or its subsidiaries, as shall be appointed by
Board resolution or these By-Laws. The Board shall designate one member of the
committee to serve as chairman of the Compensation Committee, who shall have the
authority to adopt and establish procedural rules for the conduct of all
meetings of the committee.
The Compensation Committee shall meet annually at the call of
the chairman of the committee, and may hold such additional meetings as the
chairman may deem necessary. A quorum shall consist of at least one-third of the
voting members of the Compensation Committee, and in no event less than two (2)
voting members of the committee. The vote of a majority of the voting members
present at any meeting, including the chairman of the committee who shall be
eligible to vote, shall constitute the action of the Compensation Committee. The
committee shall appoint, from its membership or otherwise, a secretary who shall
cause to be kept written minutes of all meetings of the committee.
The Compensation Committee shall be responsible for
recommending to the Board the compensation, employment arrangements and benefit
programs for officers of the Bank and its subsidiaries.
SECTION 5. OTHER COMMITTEES. The Board may, by resolution
adopted by a majority of the entire Board at any meeting, authorize such other
committees as from time to time it may deem necessary or appropriate for the
conduct of the business of the Bank. The members of each committee so authorized
shall be appointed by the Board from members of the Board or employees of the
Bank. Each such committee shall exercise such powers as may be assigned by the
Board to the extent not inconsistent with these By-Laws or the Restated
Organization
<PAGE> 14
-11-
Certificate of the Bank. The Chairman, if one has been elected, and the
President shall be ex-officio members, with power to vote on all matters, of all
appointed committees.
ARTICLE VI
OFFICERS
SECTION 1. DESIGNATION OF EXECUTIVE OFFICERS. The Board shall,
at each annual meeting, elect a President and a Secretary, and may elect a
Chairman and such other officers as the Board from time to time may deem
necessary or the business of the Bank may require. The Board shall designate
either the Chairman or the President as the Chief Executive Officer, and may
designate the President or an Executive Vice President to be the Chief Operating
Officer. Any number of offices may be held by the same person except that no
person may simultaneously hold the offices of President and Secretary.
The election of all officers shall be made only by a vote of a
majority of the entire Board. If such election is not held at the meeting held
annually for the election of officers, such officers may be so elected at any
subsequent regular meeting or at a special meeting called for that purpose, in
the same manner above provided. Each person elected shall have such authority,
bear such title and perform such duties as provided in these By-Laws and as the
Board may prescribe from time to time. All officers elected or appointed by the
Board shall assume their duties immediately upon their election and shall hold
office at the pleasure of the Board. Whenever a vacancy occurs among the
officers, it may be filled at any regular or special meeting called for that
purpose, in the same manner as above provided.
SECTION 2. TERM OF OFFICE AND REMOVAL. Each officer shall
serve until his or her successor is elected and duly qualified, the office is
abolished or he or she is removed. Any officer may be removed at any regular or
special meeting of the Board called for that purpose, with or without cause, by
an affirmative vote of a majority of the entire Board.
SECTION 3. CHAIRMAN OF THE BOARD. The Chairman, if one has
been elected by the Board, may be the Chief Executive Officer of the Bank and
shall, subject to the direction of the Board, oversee all of the major
activities of the Bank and its subsidiaries. The Chairman shall preside at all
meetings of the shareholders; preside at all meetings of the Board and the
Executive Committee; make recommendations to the Board regarding appointments to
all committees; and sign instruments in the name of the Bank.
SECTION 4. CHIEF EXECUTIVE OFFICER. The Chief Executive
Officer of the Bank, subject to the direction of the Board, shall be responsible
for assuring that the policy decisions of the Board are implemented as
formulated. The Chief Executive Officer shall be responsible, in consultation
with such officers and members of the Board as he deems appropriate, for
planning the growth of the Bank. The Chief Executive Officer shall be
responsible for shareholder relations, relations with investments bankers, other
similar financial institutions and financial advisors, and shall be empowered to
designate officers of the Bank and its subsidiaries to assist in such
activities. The Chief Executive Officer shall be principally responsible for
exploring
<PAGE> 15
-12-
opportunities for mergers, acquisitions and new business. The Chief Executive
Officer shall have the general supervision and direction of all of the Bank's
officers, subject to and consistent with policies enunciated by the Board. The
Chief Executive Officer shall under authority given to him, sign instruments in
the name of the Bank. The Chief Executive Officer shall have such other powers
as may be assigned to him by the Board, its committees or, if a Chairman other
than the Chief Executive Officer is elected by the Board, the Chairman. The
Chief Executive Officer shall be a member ex-officio, with power to vote on all
matters, of all committees of the Board, except the Audit Committee and the
Compensation Committee.
SECTION 5. PRESIDENT. The President shall be the Chief
Executive Officer or the Chief Operating Officer of the Bank, as determined by
the Board, and shall be subject to the direction of the Board. The President
shall perform such duties as from time to time may be assigned to him by these
By-Laws, the Board, or, if elected by the Board, the Chairman. The President
shall be a member ex-officio, with power to vote on all matters, of all
committees of the Board, except the Audit Committee and the Compensation
Committee.
In the absence of or disability of the Chairman, or if the
office of the Chairman is vacant by reason of death, resignation, failure of the
Board to elect a Chairman or otherwise, the President or such other person who
the Board shall designate, shall exercise the powers and perform the duties
which otherwise would fall upon the Chairman.
SECTION 6. CHIEF OPERATING OFFICER. The Chief Operating
Officer shall have the general supervision and direction of all of the Bank's
operations and personnel, subject to and consistent with policies enunciated by
the Board and the direction of the Chief Executive Officer. The Chief Operating
Officer shall, under authority given to him, sign instruments in the name of the
Bank. The Chief Operating Officer shall have such other powers and duties as may
be assigned to him by the Board, its committees or the Chief Executive Officer.
SECTION 7. VICE PRESIDENTS. Executive Vice Presidents, Senior
Vice Presidents and Vice Presidents may be appointed by the Board to perform
such duties as may be prescribed by these By-Laws, the Board or the Chief
Executive Officer and the Chief Operating Officer as permitted by the Board.
SECTION 8. SECRETARY. The Secretary shall attend all meetings
of the Board and of the shareholders and shall record, or cause to be recorded,
all votes and minutes of all proceedings of the Board and of the shareholders in
a book or books to be kept for that purpose. The Secretary shall perform such
executive and administrative duties as may be assigned by the Board or the
President. The Secretary shall have charge of the seal of the Bank, shall submit
such reports and statements as may be required by law or by the Board, shall
conduct all correspon dence relating to the Board and its proceedings and shall
have such other powers and duties as are generally incident to the office of
Secretary and as may be assigned to him or her by the Board or the Chief
Executive Officer.
SECTION 9. TREASURER. The Treasurer shall be the chief
accounting officer of the Bank and shall be responsible for the maintenance of
adequate systems and records. The
<PAGE> 16
-13-
Treasurer shall also be the chief financial officer of the Bank and shall keep a
record of all assets, liabilities, receipts, disbursements and other financial
transactions and shall see that all expenditures are made in accordance with
procedures duly established from time to time by the Board. The Treasurer shall
make such reports as may be required by the Board or as are required by law.
SECTION 10. OTHER OFFICERS. Other officers appointed by the
Board shall have such authority and shall perform such duties as may be assigned
to them, from time to time, by the Board or the Chief Executive Officer.
SECTION 11. COMPENSATION OF OFFICERS. The compensation of all
officers shall be fixed from time to time by the Board, upon the recommendation
of the Compensation Committee. The salary of each officer for each calendar year
shall be fixed at the meeting of the Board held in December of the previous
year. No motion to change the salary of an officer of the Bank shall be voted
upon unless, at a previous regular or special meeting of the Board, notice of
the proposed change shall have been given.
ARTICLE VII
AMENDMENTS OF BY-LAWS
These By-Laws, except as provided by law or the Restated
Organization Certificate of the Bank, or as otherwise set forth in these
By-Laws, may be amended or repealed by the Board or by vote of the shareholders
entitled to vote in the election of directors; provided, however, that no
amendment to these By-Laws shall be made by the Board unless notice of the
proposed amendment shall have been given at the previous meeting of the Board.
Notwithstanding the foregoing, any provision of these By-Laws that contains a
supermajority voting requirement shall only be altered, amended, rescinded, or
repealed by a vote of the Board or the shareholders entitled to vote thereon
that is not less than the supermajority specified in such provision.
<PAGE> 1
Exhibit 4.3
WARWICK COMMUNITY BANCORP, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NONASSESSABLE SHARES OF
COMMON STOCK, $.01 PAR VALUE PER SHARE, OF
WARWICK COMMUNITY BANCORP, INC.
(the "Corporation"), a corporation formed under the laws of the State of
Delaware. The shares represented by this Certificate are transferable only on
the stock transfer books of the Corporation by the holder of record hereof, or
by his or her duly authorized attorney or legal representative, upon the
surrender of this Certificate properly endorsed. This Certificate is not valid
until countersigned and registered by the Corporation's transfer agent and
registrar. The shares represented by this Certificate are not insured by the
Federal Deposit Insurance Corporation or by any other government agency.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
executed by the facsimile signature of its duly authorized officers and has
caused a facsimile of its corporate seal to be hereunto affixed.
Dated:
By: By:
------------------------ ------------------------
Corporate Secretary President and Chief
Executive Officer
<PAGE> 2
RESTRICTION
[Note: to be used only on certain shares]
The shares, or any interest therein, represented by this Certificate may
not be sold or otherwise disposed of, directly or indirectly, by the registered
holder hereof for a period of one year from the date of issuance hereof, except
in the event of the death or judicial declaration of incompetency of the
registered holder.
<PAGE> 3
WARWICK COMMUNITY BANCORP, INC.
The shares represented by this Certificate are issued subject to all the
provisions of the Certificate of Incorporation and By-Laws of WARWICK COMMUNITY
BANCORP, INC. (the "Corporation") as from time to time amended (copies of which
are on file at the principal office of the Corporation), to all of which the
holder by acceptance hereof assents. The following description constitutes a
summary of certain provisions of, and is qualified in its entirety by reference
to, the Certificate of Incorporation.
The Certificate of Incorporation of the Corporation contains certain
provisions, applicable upon the effective date of the conversion of The Warwick
Savings Bank (the "Bank") from a New York mutual savings bank to a New York
stock savings bank and the concurrent acquisition by the Corporation of all of
the outstanding capital stock of the Bank, that restrict persons from directly
or indirectly acquiring or holding, or attempting to acquire or hold, the
beneficial ownership of, in excess of 10% of the outstanding shares of capital
stock of the Corporation entitled to vote generally in the election of directors
("Voting Stock"). The Certificate of Incorporation contains a provision pursuant
to which the holders of shares in excess of 10% of the Voting Stock of the
Corporation are limited to one hundredth (1/100) of one vote per share with
respect to such shares in excess of the 10% limitation. In addition, the
Corporation is authorized to refuse to recognize a transfer or attempted
transfer of any shares of Voting Stock to any person who beneficially owns, or
who the Corporation believes would become by virtue of such transfer the
beneficial owner of, in excess of 10% of the Voting Stock. These restrictions
are not applicable to underwriters in connection with a public offering of the
common stock, certain reorganization transactions described in the Certificate
of Incorporation or to acquisitions of Voting Stock by the Corporation, any
majority-owned subsidiary of the Corporation, or any pension, profit-sharing,
stock bonus or other compensation plan maintained by the Corporation or by a
member of a controlled group of corporations or trades or businesses of which
the Corporation is a member for the benefit of the employees of the Corporation
and for any subsidiary, or any trust or custodial arrangement established in
connection with any such plan.
The Certificate of Incorporation of the Corporation contains provisions
providing that the affirmative vote of the holders of at least 80% of the Voting
Stock of the Corporation may be required to approve certain business
combinations and other transactions with persons who directly or indirectly
acquire or hold the beneficial ownership of in excess of 10% of the Voting Stock
of the Corporation.
The Corporation will furnish to any shareholder upon written request and
without charge, a statement of the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights. Such request may be made to the Corporation or to its
transfer agent and registrar.
The following abbreviations when used in the inscription on the face of
this Certificate shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship
and not as tenants in common
UNIF GIFT MIN ACT . . . . . . . . . Custodian.................................
(Cust) (Minor)
under Uniform Gifts to Minors Act.............................................
(State)
Additional abbreviations may also be used though not in the above list
For value received, __________________________ hereby sell(s), assign(s)
and transfer(s) unto __________________________________ shares of Common Stock
evidenced by this Certificate, and do(es) hereby irrevocably constitute(s) and
appoint(s) _____________________________ as Attorney, to transfer the said
shares on the books of the herein named Corporation, with full power of
substitution.
Date: ___________________________
Signature_________________________________________
Signature_________________________________________
NOTICE: The signature to this assignment must
correspond with the name as written upon
the face of the Certificate, in every
particular, without alteration or
enlargement, or any change whatsoever.
<PAGE> 1
Exhibit 4.4
NO. 1 1,000 SHARES
THE WARWICK SAVINGS BANK
A STOCK SAVINGS BANK ORGANIZED UNDER THE LAWS OF THE STATE OF NEW YORK
THIS CERTIFIES THAT WARWICK COMMUNITY BANCORP, INC. is the owner of
one thousand (1,000)
fully paid and non-assessable Shares, par value $.01 per share, of the COMMON
STOCK of
THE WARWICK SAVINGS BANK
("Bank"), a stock savings bank organized under the laws of the State of New
York. The shares represented by this Certificate are transferable only on the
stock transfer books of the Bank by the holder hereof in person or by his or her
duly authorized attorney or legal representative upon surrender of this
Certificate properly endorsed. The shares represented by this Certificate are
not insured by the Federal Deposit Insurance Corporation or by any other
government agency.
IN WITNESS WHEREOF, the Bank has caused this Certificate to be executed by the
signature of its duly authorized officers and has caused its corporate seal to
be hereunto affixed.
Dated: December ____, 1997
________________________ ________________________
Nancy L. Sobotor-Littell Timothy A. Dempsey
Corporate Secretary President and Chief
Executive Officer
<PAGE> 2
THE WARWICK SAVINGS BANK
The shares represented by this Certificate are issued subject to all the
provisions of the Restated Organization Certificate and By-Laws of THE WARWICK
SAVINGS BANK ("Bank") as from time to time amended (copies of which are on file
at the principal office of the Bank), to all of which the holder by acceptance
hereof assents. The following description constitutes a summary of certain
provisions of, and is qualified in its entirety by reference to, the Restated
Organization Certificate.
The Restated Organization Certificate of the Bank contains a provision,
applicable upon the effective date of the conversion of the Bank from a New York
mutual savings bank to a New York stock savings bank ("Conversion"), whereby the
acquisition of or offer to acquire beneficial ownership of more than 10% of the
issued and outstanding shares of any class of equity securities of the Bank
entitled to vote generally in the election of directors ("Voting Stock") by any
person (i..e., any individual, corporation, group acting in concert, trust,
partnership, joint stock company or similar organization), either directly or
indirectly, will be prohibited for a period of five years following the date of
completion of the Conversion. The transfer of any shares of Voting Stock that
would result in a violation of this provision is prohibited and shall be null
and void. If, notwithstanding the foregoing prohibition, a person shall,
voluntarily or involuntarily, become or attempt to become the purported
beneficial owner of shares of Voting Stock in excess of 10%, the number of
shares in excess of 10% shall be deemed to be "Excess Shares." The purported
beneficial owner of such Excess Shares shall not obtain any rights in and to the
Excess Shares, and the purported transfer of the Excess Shares to the purported
beneficial owner shall not be recognized by the transfer agent for such shares.
Until such time as the Excess Shares are transferred to a person whose
acquisition thereof will not violate the above limitation, the transferor of the
Excess Shares to the purported beneficial owner shall be deemed to have retained
the Excess Shares and shall hold and be entitled to exercise all rights incident
to ownership of such Excess Shares. This limitation shall not apply to (a) any
offer or sale with a view towards public resale made exclusively by the Bank to
any underwriter acting on behalf of the Bank in connection with a public
offering of the common stock of the Bank; (b) any corporation formed by the Bank
in connection with its conversion from mutual to stock form to acquire all of
the shares of stock of the Bank to be issued in connection with such conversion;
or (c) any reclassification of securities (including any reverse stock split),
or recapitalization of the Bank, or any merger or consolidation of the Bank with
any of its subsidiaries or any other transaction or reorganization (including a
transaction in which the Bank shall form a holding company) that does not have
the effect, directly or indirectly, of changing the beneficial ownership
interests of the Bank's shareholders, other than pursuant to the exercise of any
appraisal rights. For purposes of the above limitation, the term "person" does
not included the Bank or any subsidiary of the Bank, any pension,
profit-sharing, stock bonus or other compensation plan maintained by the Bank or
by a member of a controlled group of corporations or trades or businesses of
which the Bank is a member for the benefit of the employees of the Bank and for
any subsidiary, or any trust or custodial arrangement established in connection
with any such plan.
The Restated Organization Certificate of the Bank contains provisions
requiring the affirmative vote of the holders of at least 80% of the Voting
Stock to approve certain business combinations and other transactions with
persons who directly or indirectly acquire or hold the beneficial ownership of
in excess of 10% of the Voting Stock of the Bank.
The Bank will furnish to any shareholder upon written request and without
charge, a statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights. Such request may be made to the Bank or to its transfer agent and
registrar.
For value received, ___________________________ hereby sell(s), assign(s)
and transfer(s) unto __________________________________ shares of capital
stock evidenced by this Certificate, and do(es) hereby irrevocably
constitute(s) and appoint(s) __________________________________ as Attorney,
to transfer the said shares on the books of the herein named Bank, with full
power of substitution.
Date: ___________________________
Signature_________________________________________
Signature_________________________________________
NOTICE: The signature to this assignment must
correspond with the name as written upon
the face of the Certificate, in every
particular, without alteration or
enlargement, or any change whatsoever.
<PAGE> 1
Exhibit 5.1
[Letterhead Of Thacher Proffitt & Wood]
Writer's Direct Dial
(212) 912-7436
_________ __, 1997
Warwick Community Bancorp, Inc.
18 Oakland Avenue
Warwick, New York 10990
Ladies and Gentlemen:
We have acted as special counsel to Warwick Community Bancorp, a
Delaware corporation ("Company"), in connection with the registration under the
Securities Act of 1933, as amended, by the Company of an aggregate of 6,606,523
shares of Common Stock, par value $.01 per share ("Shares"), of the Company and
the related preparation and filing by the Company with the Securities and
Exchange Commission of a Registration Statement on Form S-1 ("Registration
Statement"). In rendering the opinion set forth below, we do not express any
opinion concerning law other than the federal law of the United States and the
corporate law of the State of Delaware.
We have examined originals or copies, certified or otherwise
identified, of such documents, corporate records and other instruments, and have
examined such matters of law, as we have deemed necessary or advisable for
purposes of rendering the opinion set forth below. As to matters of fact, we
have examined and relied upon the representations of the Company contained in
the Registration Statement and, where we have deemed appropriate,
representations or certificates of officers of the Company or public officials.
We have assumed the authenticity of all documents submitted to us as originals,
the genuineness of all signatures, the legal capacity of natural persons and the
conformity to the originals of all documents submitted to us as copies. In
making our examination of any documents, we have assumed that all parties, other
than the Company had the corporate power and authority to enter into and perform
all obligations thereunder, and, as to such parties, we have also assumed the
due authorization by all requisite action, the due execution and delivery of
such documents and the validity and binding effect and enforceability thereof.
<PAGE> 2
Based on the foregoing, we are of the opinion that the Shares to be
issued and sold by the Company have been duly authorized and, when issued and
sold as contemplated in the Registration Statement and the Plan of Conversion of
The Warwick Savings Bank ("Bank"), will be validly issued and outstanding, fully
paid and non-assessable.
In rendering the opinion set forth above, we have not passed upon
and do not purport to pass upon the application of securities or "blue-sky" laws
of any jurisdiction (except federal securities laws).
This opinion is given solely for the benefit of the Company and
investors who purchase Shares pursuant to the Registration Statement and may not
be relied upon by any other person or entity, nor quoted in whole or in part, or
otherwise referred to in any document without our express written consent.
We consent to the filing of this opinion as an Exhibit to the
Registration Statement and to the Bank's Application for Conversion on Form
86-AC ("Form 86-AC"), and to the reference to our firm under the heading "Legal
Matters" in the prospectus which is part of such Registration Statement and to
the reference to our firm in the Form 86-AC.
Very truly yours,
THACHER PROFFITT & WOOD
DRAFT
By
Douglas J. McClintock
<PAGE> 1
Exhibit 8.1
[Letterhead of Thacher Proffitt & Wood]
(212) 912-7633
______________ , 1997
Warwick Community Bancorp, Inc.
18 Oakland Avenue
Warwick, New York 10990-0591
The Warwick Savings Bank
18 Oakland Avenue
Warwick, New York 10990-0591
Dear Sirs:
You have requested our opinion regarding certain federal income
tax consequences and New York State personal income and franchise tax
consequences of the proposed conversion of The Warwick Savings Bank (the "Bank")
from a New York mutual savings bank to a New York stock savings bank (the
"Conversion"), the sale of all of the outstanding capital stock of the Bank to
Warwick Community Bancorp, Inc., a Delaware corporation (the "Company"), and the
sale by the Company of up to 5,577,500 shares of its common stock, par value of
$.01 per share, (the "Common Stock") to the Bank's Eligible Account Holders, to
the extent shares remain unsold, to the Tax Qualified Employee Stock Benefit
Plans and to the extent shares remain unsold, to certain other parties, pursuant
to the Plan of Conversion of The Warwick Savings Bank, adopted by the Board of
Trustees of the Bank on July 10, 1997 and amended as of August 19, 1997 (the
"Plan"). Under certain circumstances, the number of shares sold may be increased
to up to 6,414,100 shares. In addition, the Company will issue an additional
number of shares of Common Stock, equal to 3% of the shares of Common Stock sold
in the Conversion, to The Warwick Savings Foundation. These and related
transactions are described in the Plan and in the Prospectus included in the
Company's Registration Statement filed on Form S-1 with the Securities and
Exchange Commission in connection with the Conversion (the "Prospectus"). We are
rendering this opinion pursuant to Article VI of the Plan. All capitalized terms
used but not defined in this letter shall have the meanings set forth in the
Plan or Prospectus.
<PAGE> 2
Warwick Community Bancorp, Inc.
The Warwick Savings Bank
______________________ , 1997
Page 2.
In connection with the opinions expressed below, we have examined
and relied upon originals, or copies certified or otherwise identified to our
satisfaction, of the Plan and the Prospectus and of such corporate records of
the Bank and the Company as we have deemed appropriate. We have also relied,
without independent verification, upon the ____________ , 1997 letter of the
Bank and the Company to Thacher Proffitt & Wood containing certain
representations. We have assumed that the Bank, the Company and other parties
will act in accordance with the Plan, and that the representations made by the
Bank and the Company in the foregoing letter are true. In addition, we have made
such investigations of law as we have deemed appropriate to form a basis for the
opinions expressed below.
Based on and subject to the foregoing, it is our opinion that,
for federal income tax purposes, under current law:
1. The Bank's change in form from mutual to stock ownership will
constitute a reorganization under section 368(a)(1)(F) of the Internal Revenue
Code of 1986.
2. Neither the Bank nor the Company will recognize any gain or
loss as a result of the Conversion.
3. No gain or loss will be recognized by the Bank or the Company
upon the purchase of the Bank's capital stock by the Company in the Conversion,
or by the Company upon the purchase of shares of Common Stock pursuant to the
Plan.
4. No gain or loss will be recognized by Eligible Account Holders
upon the issuance to them of deposit accounts in the Bank in its stock form,
plus interests in the liquidation account of the Bank in exchange for their
deposit accounts in the Bank in its mutual form.
5. The tax basis of the depositors' deposit accounts in the Bank
immediately after the Conversion will be the same as the basis of their deposit
accounts in the Bank immediately prior to the Conversion.
6. The tax basis of each Eligible Account Holder's interest in
the liquidation account of the Bank will be zero.
7. No gain or loss will be recognized by Eligible Account Holders
upon the distribution to them of nontransferable subscription rights to purchase
shares of Common Stock, provided that the amount to be paid for the Common Stock
pursuant to such subscription rights is equal to the fair market value of such
stock.
<PAGE> 3
Warwick Community Bancorp, Inc.
The Warwick Savings Bank
______________________ , 1997
Page 3.
8. The tax basis to the shareholders of the shares of Common
Stock purchased in the Conversion pursuant to the subscription rights will be
the amount paid therefor, and the holding period for such shares of Common Stock
will begin on the date on which such subscription rights are exercised.
In rendering opinion 6, above, and our opinion regarding the tax
basis of shares of Common Stock in 8, above, we have relied, without independent
verification, on the opinion of FinPro, Inc. that the nontransferable
subscription rights have no value.
Based on and subject to the foregoing, it is also our opinion
that, under current law:
1. For purposes of the New York State Franchise Tax on Banking
Corporations, the Bank will not recognize any gain or loss by reason of the
Conversion.
2. For purposes of the New York State Franchise on Business
Corporations, the Company will not recognize any gain or loss by reason of the
Conversion.
3. For purposes of the New York State income taxes and corporate
franchise taxes, gain or loss will not be recognized by Eligible Account Holders
by reason of the Conversion.
Although the matter is not free from doubt, it appears unlikely
that the Conversion will cause the Bank or the Company to incur any New York
State real estate transfer tax; if any such tax is incurred, it is unlikely to
be in a material amount.
This opinion is given solely for the benefit of the parties to
the Plan and Eligible Account Holders and other investors who purchase shares
pursuant to the Company's Registration Statement on Form S-1 (the "Registration
Statement"), and may not be relied upon by any other party or entity or referred
to in any document without our express written consent. We consent to the filing
of this opinion as an exhibit to the Registration Statement and to the Bank's
Application for Conversion on Form 86-AC.
Very truly yours,
THACHER PROFFITT & WOOD
By: DRAFT
Albert J. Cardinali
AJC:tas
<PAGE> 1
September 19, 1997 Exhibit 8.2
Board of Trustees
The Warwick Savings Bank
18 Oakland Avenue
Warwick, New York 10990
Dear Board Members:
All capitalized terms not otherwise defined in this letter have the meanings
given such terms in the Plan of Conversion, as amended (the "Plan") adopted by
the Board of Trustees of The Warwick Savings Bank (the "Bank"), whereby the Bank
will convert from a Federal mutual savings bank to a Federal stock savings bank
and issue all of the Bank's outstanding capital stock to Warwick Community
Bancorp, Inc. (the "Company"). Simultaneously, the Company will issue shares of
common stock.
We understand that in accordance with the Plan, Subscription Rights to purchase
shares of the Conversion Stock are to be issued to (i) Eligible Account Holders;
and (ii) the ESOP; together collectively referred to as the "Recipients". Based
solely on our observation that the Subscription Rights will be available to such
Recipients without cost, will be legally non-transferable and of short duration,
and will afford the Recipients the right only to purchase shares of Conversion
Stock at the same price as will be paid by members of the general public in the
Community Offering, but without undertaking any independent investigation of
state or federal law or the position of the Internal Revenue Service with
respect to this issue, we are of the belief that:
(1) the Subscription Rights will have no ascertainable market value;
and
(2) the price at which the Subscription Rights are excercisable will
not be more or less than the pro forma market value of the shares
upon issuance.
Changes in the local and national economy, the legislative and regulatory
environment, the stock market, interest rates, and other external forces (such
as natural disasters or significant world events) may occur from time to time,
often with great unpredictability and may materially impact the value of thrift
stocks as a whole or the Company's value alone. Accordingly, no assurance can be
given that persons who subscribe to shares of Conversion Stock in the conversion
will thereafter be able to buy or sell such shares at the same price paid in the
Subscription Offering.
Very Truly Yours,
FinPro, Inc.
/s/ Donald J. Musso
-----------------------
Donald J. Musso
President
<PAGE> 1
Exhibit 10.1
WARWICK COMMUNITY BANCORP, INC.
EMPLOYEE STOCK OWNERSHIP PLAN
EFFECTIVE AS OF _____________
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
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SECTION 1.1 ACCOUNT................................................................................ 1
SECTION 1.2 AFFILIATED EMPLOYER.................................................................... 1
SECTION 1.3 ALLOCATION COMPENSATION................................................................ 1
SECTION 1.4 BANK................................................................................... 2
SECTION 1.5 BOARD.................................................................................. 2
SECTION 1.6 BENEFICIARY............................................................................ 2
SECTION 1.7 CHANGE IN CONTROL...................................................................... 2
SECTION 1.8 CODE................................................................................... 2
SECTION 1.9 COMPUTATION PERIOD..................................................................... 2
SECTION 1.10 DISABILITY............................................................................. 2
SECTION 1.11 DOMESTIC RELATIONS ORDER............................................................... 2
SECTION 1.12 EFFECTIVE DATE......................................................................... 2
SECTION 1.13 ELIGIBILITY COMPUTATION PERIOD......................................................... 3
SECTION 1.14 ELIGIBLE EMPLOYEE...................................................................... 3
SECTION 1.15 ELIGIBLE PARTICIPANT................................................................... 3
SECTION 1.16 EMPLOYEE............................................................................... 3
SECTION 1.17 EMPLOYER............................................................................... 3
SECTION 1.18 EMPLOYMENT COMMENCEMENT DATE........................................................... 3
SECTION 1.19 ERISA.................................................................................. 3
SECTION 1.20 ESOP CONTRIBUTION...................................................................... 3
SECTION 1.21 FAIR MARKET VALUE...................................................................... 3
SECTION 1.22 FAMILY MEMBER.......................................................................... 4
SECTION 1.23 FINANCED SHARE......................................................................... 4
SECTION 1.24 FIVE PERCENT OWNER..................................................................... 4
SECTION 1.25 FORFEITURES............................................................................ 4
SECTION 1.26 FORMER PARTICIPANT..................................................................... 4
SECTION 1.27 GENERAL INVESTMENT ACCOUNT............................................................. 4
SECTION 1.28 HIGHLY COMPENSATED EMPLOYEE............................................................ 5
SECTION 1.29 HOUR OF SERVICE........................................................................ 5
SECTION 1.30 INVESTMENT ACCOUNT..................................................................... 5
SECTION 1.31 INVESTMENT FUND........................................................................ 6
SECTION 1.32 LOAN REPAYMENT ACCOUNT................................................................. 6
SECTION 1.33 LOAN REPAYMENT CONTRIBUTION............................................................ 6
SECTION 1.34 MATERNITY OR PATERNITY LEAVE........................................................... 6
SECTION 1.35 MILITARY SERVICE....................................................................... 6
SECTION 1.36 NAMED FIDUCIARY........................................................................ 6
SECTION 1.37 OFFICER................................................................................ 6
</TABLE>
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SECTION 1.38 ONE-YEAR BREAK IN SERVICE.............................................................. 6
SECTION 1.39 PARTICIPANT............................................................................ 6
SECTION 1.40 PLAN................................................................................... 7
SECTION 1.41 PLAN ADMINISTRATOR..................................................................... 7
SECTION 1.42 PLAN YEAR.............................................................................. 7
SECTION 1.43 QUALIFIED DOMESTIC RELATIONS ORDER..................................................... 7
SECTION 1.44 QUALIFIED PARTICIPANT.................................................................. 7
SECTION 1.45 RETIREMENT............................................................................. 7
SECTION 1.46 SHARE.................................................................................. 7
SECTION 1.47 SHARE ACQUISITION LOAN................................................................. 7
SECTION 1.48 SHARE INVESTMENT ACCOUNT............................................................... 7
SECTION 1.49 TENDER OFFER........................................................................... 7
SECTION 1.50 TOTAL COMPENSATION..................................................................... 8
SECTION 1.51 TRUST.................................................................................. 8
SECTION 1.52 TRUST AGREEMENT........................................................................ 8
SECTION 1.53 TRUST FUND............................................................................. 8
SECTION 1.54 TRUSTEE................................................................................ 8
SECTION 1.55 VALUATION DATE......................................................................... 8
SECTION 1.56 VESTING COMPUTATION PERIOD............................................................. 8
SECTION 1.57 YEAR OF ELIGIBILITY SERVICE............................................................ 8
SECTION 1.58 YEAR OF VESTING SERVICE................................................................ 9
ARTICLE II
PARTICIPATION
SECTION 2.1 ELIGIBILITY FOR PARTICIPATION.......................................................... 9
SECTION 2.2 COMMENCEMENT OF PARTICIPATION.......................................................... 9
SECTION 2.3 TERMINATION OF PARTICIPATION.......................................................... 10
ARTICLE III
SPECIAL PROVISIONS
SECTION 3.1 MILITARY SERVICE...................................................................... 10
SECTION 3.2 MATERNITY OR PATERNITY LEAVE.......................................................... 10
SECTION 3.3 ADJUSTMENTS TO YEARS OF ELIGIBILITY SERVICE........................................... 11
SECTION 3.4 LEAVE OF ABSENCE...................................................................... 11
SECTION 3.5 FAMILY AND MEDICAL LEAVE.............................................................. 12
</TABLE>
ii
<PAGE> 4
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ARTICLE IV
CONTRIBUTIONS BY PARTICIPANTS NOT PERMITTED
SECTION 4.1 CONTRIBUTIONS BY PARTICIPANTS NOT PERMITTED........................................... 12
ARTICLE V
CONTRIBUTIONS BY THE EMPLOYER
SECTION 5.1 IN GENERAL............................................................................ 12
SECTION 5.2 LOAN REPAYMENT CONTRIBUTIONS.......................................................... 12
SECTION 5.3 ESOP CONTRIBUTIONS.................................................................... 13
SECTION 5.4 TIME AND MANNER OF PAYMENT............................................................ 13
ARTICLE VI
SHARE ACQUISITION LOANS
SECTION 6.1 IN GENERAL............................................................................ 14
SECTION 6.2 COLLATERAL; LIABILITY FOR REPAYMENT................................................... 14
SECTION 6.3 LOAN REPAYMENT ACCOUNT................................................................ 15
SECTION 6.4 RELEASE OF FINANCED SHARES............................................................ 15
SECTION 6.5 RESTRICTIONS ON FINANCED SHARES....................................................... 16
ARTICLE VII
ALLOCATION OF CONTRIBUTIONS
SECTION 7.1 ALLOCATION AMONG ELIGIBLE PARTICIPANTS................................................ 17
SECTION 7.2 ALLOCATION OF RELEASED SHARES OR OTHER PROPERTY....................................... 17
SECTION 7.3 ALLOCATION OF ESOP CONTRIBUTIONS...................................................... 17
ARTICLE VIII
LIMITATIONS ON ALLOCATIONS
SECTION 8.1 OPTIONAL LIMITATIONS ON ALLOCATIONS OF CONTRIBUTIONS.................................. 17
</TABLE>
iii
<PAGE> 5
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SECTION 8.2 GENERAL LIMITATIONS ON CONTRIBUTIONS.................................................. 18
ARTICLE IX
VESTING
SECTION 9.1 VESTING............................................................................... 22
SECTION 9.2 VESTING ON DEATH, DISABILITY, RETIREMENT OR CHANGE IN CONTROL......................... 22
SECTION 9.3 FORFEITURES ON TERMINATION OF EMPLOYMENT.............................................. 22
SECTION 9.4 AMOUNTS CREDITED UPON RE-EMPLOYMENT................................................... 23
SECTION 9.5 ALLOCATION OF FORFEITURES............................................................. 23
ARTICLE X
THE TRUST FUND
SECTION 10.1 THE TRUST FUND........................................................................ 23
SECTION 10.2 INVESTMENTS........................................................................... 24
SECTION 10.3 DIVERSIFICATION OF INVESTMENTS........................................................ 24
SECTION 10.4 USE OF COMMINGLED TRUST FUNDS......................................................... 25
SECTION 10.5 MANAGEMENT AND CONTROL OF ASSETS...................................................... 25
ARTICLE XI
VALUATION OF INTERESTS IN THE TRUST FUND
SECTION 11.1 ESTABLISHMENT OF INVESTMENT ACCOUNTS.................................................. 26
SECTION 11.2 SHARE INVESTMENT ACCOUNTS............................................................. 26
SECTION 11.3 GENERAL INVESTMENT ACCOUNTS........................................................... 26
SECTION 11.4 VALUATION OF INVESTMENT ACCOUNTS...................................................... 26
SECTION 11.5 ANNUAL STATEMENTS..................................................................... 27
ARTICLE XII
SHARES
SECTION 12.1 SPECIFIC ALLOCATION OF SHARES......................................................... 27
SECTION 12.2 DIVIDENDS............................................................................. 27
</TABLE>
iv
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SECTION 12.3 VOTING RIGHTS......................................................................... 28
SECTION 12.4 TENDER OFFERS......................................................................... 30
SECTION 12.5 DISSENT AND APPRAISAL RIGHTS.......................................................... 32
ARTICLE XIII
PAYMENT OF BENEFITS
SECTION 13.1 IN GENERAL............................................................................ 33
SECTION 13.2 DESIGNATION OF BENEFICIARIES.......................................................... 33
SECTION 13.3 DISTRIBUTIONS TO PARTICIPANTS AND FORMER PARTICIPANTS................................. 34
SECTION 13.4 MANNER OF PAYMENT..................................................................... 37
SECTION 13.5 PUT OPTIONS........................................................................... 38
SECTION 13.6 RIGHT OF FIRST REFUSAL................................................................ 38
SECTION 13.7 MINIMUM REQUIRED DISTRIBUTIONS........................................................ 39
SECTION 13.8 DIRECT ROLLOVER OF ELIGIBLE ROLLOVER DISTRIBUTIONS.................................... 40
SECTION 13.9 VALUATION OF SHARES UPON SETTLEMENT TO A PARTICIPANT.................................. 42
ARTICLE XIV
CHANGE IN CONTROL
SECTION 14.1 DEFINITION OF CHANGE IN CONTROL....................................................... 42
SECTION 14.2 VESTING ON CHANGE OF CONTROL.......................................................... 43
SECTION 14.3 REPAYMENT OF LOAN..................................................................... 43
SECTION 14.4 PLAN TERMINATION AFTER CHANGE IN CONTROL.............................................. 44
SECTION 14.5 AMENDMENT OF ARTICLE XIV.............................................................. 45
ARTICLE XV
ADMINISTRATION
SECTION 15.1 NAMED FIDUCIARIES..................................................................... 45
SECTION 15.2 PLAN ADMINISTRATOR.................................................................... 45
SECTION 15.3 CLAIMS PROCEDURE...................................................................... 47
SECTION 15.4 CLAIMS REVIEW PROCEDURE............................................................... 48
SECTION 15.5 ALLOCATION OF FIDUCIARY RESPONSIBILITIES
AND EMPLOYMENT OF ADVISORS............................................................ 48
SECTION 15.6 OTHER ADMINISTRATIVE PROVISIONS....................................................... 49
</TABLE>
v
<PAGE> 7
<TABLE>
<S> <C> <C>
ARTICLE XVI
AMENDMENT, TERMINATION AND TAX QUALIFICATION
SECTION 16.1 AMENDMENT AND TERMINATION BY WARWICK
COMMUNITY BANCORP, INC................................................................ 50
SECTION 16.2 AMENDMENT OR TERMINATION OTHER THAN
BY WARWICK COMMUNITY BANCORP, INC..................................................... 50
SECTION 16.3 CONFORMITY TO INTERNAL REVENUE CODE................................................... 50
SECTION 16.4 CONTINGENT NATURE OF CONTRIBUTIONS.................................................... 51
ARTICLE XVII
SPECIAL RULES FOR TOP HEAVY PLAN YEARS
SECTION 17.1 IN GENERAL............................................................................ 51
SECTION 17.2 DEFINITION OF TOP HEAVY PLAN.......................................................... 52
SECTION 17.3 DETERMINATION DATE.................................................................... 52
SECTION 17.4 CUMULATIVE ACCRUED BENEFITS........................................................... 52
SECTION 17.5 KEY EMPLOYEES......................................................................... 53
SECTION 17.6 REQUIRED AGGREGATION GROUP............................................................ 54
SECTION 17.7 PERMISSIBLE AGGREGATION GROUP......................................................... 54
SECTION 17.8 SPECIAL REQUIREMENTS DURING TOP HEAVY PLAN YEARS...................................... 54
ARTICLE XVIII
MISCELLANEOUS PROVISIONS
SECTION 18.1 GOVERNING LAW......................................................................... 55
SECTION 18.2 NO RIGHT TO CONTINUED EMPLOYMENT...................................................... 55
SECTION 18.3 CONSTRUCTION OF LANGUAGE.............................................................. 56
SECTION 18.4 HEADINGS.............................................................................. 56
SECTION 18.5 MERGER WITH OTHER PLANS............................................................... 56
SECTION 18.6 NON-ALIENATION OF BENEFITS............................................................ 56
SECTION 18.7 PROCEDURES INVOLVING DOMESTIC RELATIONS ORDERS........................................ 57
SECTION 18.8 LEASED EMPLOYEES...................................................................... 57
SECTION 18.9 STATUS AS AN EMPLOYEE STOCK OWNERSHIP PLAN............................................ 58
</TABLE>
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<PAGE> 8
WARWICK COMMUNITY BANCORP, INC.
EMPLOYEE STOCK OWNERSHIP PLAN
ARTICLE I
DEFINITIONS
The following definitions shall apply for the purposes of the
Plan, unless a different meaning is clearly indicated by the context:
SECTION 1.1 ACCOUNT means an account established for each
Participant to which is allocated such Participant's share, if any, of all
Financed Shares and other property that are released from the Loan Repayment
Account in accordance with section 6.4, together with his share, if any, of any
ESOP Contributions that may be made by the Employer.
SECTION 1.2 AFFILIATED EMPLOYER means any corporation which is
a member of a controlled group of corporations (as defined in section 414(b) of
the Code) that includes the Employer; any trade or business (whether or not
incorporated) that is under common control (as defined in section 414(c) of the
Code) with the Employer; any organization (whether or not incorporated) that is
a member of an affiliated service group (as defined in section 414(m) of the
Code) that includes the Employer; any leasing organization (as defined in
section 414(n) of the Code) to the extent that any of its employees are required
pursuant to section 414(n) of the Code to be treated as employees of the
Employer; and any other entity that is required to be aggregated with the
Employer pursuant to regulations under section 414(o) of the Code.
SECTION 1.3 ALLOCATION COMPENSATION during any period means
the compensation taken into account in determining the allocation of benefits
and contributions among Participants and consists of the aggregate compensation
received by an Employee from the Employer or any Affiliated Employer with
respect to such period as reported to the Internal Revenue Service as wages for
such period pursuant to section 6041(a) of the Code, plus the amount by which
such Employee's compensation with respect to such period has been reduced
pursuant to a compensation reduction agreement under the terms of any of the
following plans which may be maintained by the Employer:
(a) a qualified cash or deferred arrangement described in
section 401(k) of the Code;
(b) a salary reduction simplified employee pension plan
described in section 408(k) of the Code;
(c) a tax deferred annuity plan described in section 403(b) of
the Code; or
1
<PAGE> 9
(d) a cafeteria plan described in section 125 of the Code.
In no event, however, shall an Employee's Allocation Compensation for any
calendar year include any compensation in excess of $160,000, or any such other
amount as may be prescribed in accordance with regulations prescribed under
section 401(a)(17) of the Code. If there are less than twelve (12) months in the
Plan Year, the $160,000 limitation (as adjusted) shall be prorated by
multiplying such limitation by a fraction, the numerator of which is the number
of months in the Plan Year and the denominator of which is twelve (12).
SECTION 1.4 BANK means The Warwick Savings Bank and any
successor thereto.
SECTION 1.5 BOARD means the Board of Directors of Warwick
Community Bancorp, Inc.
SECTION 1.6 BENEFICIARY means the person or persons designated
by a Participant or Former Participant or other person entitled to a benefit
under the Plan, or otherwise determined to be entitled to a benefit under the
Plan. If more than one person is designated, each shall have an equal share
unless the person making the designation directed otherwise. The word "person"
includes an individual, a trust, an estate or any other person that is permitted
to be named as a Beneficiary.
SECTION 1.7 CHANGE IN CONTROL means an event described in
section 14.1.
SECTION 1.8 CODE means the Internal Revenue Code of 1986
(including the corresponding provisions of any succeeding law).
SECTION 1.9 COMPUTATION PERIOD means an Eligibility
Computation Period or a Vesting Computation Period.
SECTION 1.10 DISABILITY means a condition of total incapacity,
mental or physical, for further performance of duty with the Employer or any
Affiliated Employer, which the Plan Administrator shall have determined, on the
basis of competent medical evidence, is likely to be permanent.
SECTION 1.11 DOMESTIC RELATIONS ORDER means a judgment, decree
or order (including the approval of a property settlement) that is made pursuant
to a state domestic relations or community property law and relates to the
provision of child support, alimony payments, or marital property rights to a
spouse, child or other dependent of a Participant or Former Participant.
SECTION 1.12 EFFECTIVE DATE means the first day of the
calendar year in which The Warwick Savings Bank converts from a mutual savings
bank to a stock savings bank.
2
<PAGE> 10
SECTION 1.13 ELIGIBILITY COMPUTATION PERIOD means, with
respect to any person, (a) the 12-consecutive month period beginning on such
person's Employment Commencement Date and (b) each 12-consecutive month period
that begins on an anniversary of such person's Employment Commencement Date.
SECTION 1.14 ELIGIBLE EMPLOYEE means an Employee who is
eligible for participation in the Plan in accordance with Article II.
SECTION 1.15 ELIGIBLE PARTICIPANT means, for any Plan Year, an
Employee who is a Participant on the last day of such Plan Year and an Employee
who was a Participant during part of such Plan Year and whose participation
ceased prior to the last day of such Plan Year on account of his Retirement,
Disability or death.
SECTION 1.16 EMPLOYEE means any person, including an officer,
who is employed by the Employer or an Affiliated Employer.
SECTION 1.17 EMPLOYER means Warwick Community Bancorp, Inc.
and any successor thereto and any Affiliated Employer which, with the prior
written approval of the Board of Directors of Warwick Community Bancorp, Inc.
and subject to such terms and conditions as may be imposed by the Board of
Directors of Warwick Community Bancorp, Inc., shall adopt this Plan.
SECTION 1.18 EMPLOYMENT COMMENCEMENT DATE means the date on
which a person first performs an Hour of Service, except that if an Employee
separates from service with the Employer, incurs a One-Year Break in Service and
subsequently returns to service with the Employer, his Employment Commencement
Date shall be the date on which he first performs an Hour of Service following
the One-Year Break in Service.
SECTION 1.19 ERISA means the Employee Retirement Income
Security Act of 1974, as amended from time to time (including the corresponding
provisions of any succeeding law).
SECTION 1.20 ESOP CONTRIBUTION means Shares or amounts of
money contributed to the Plan by the Employer in accordance with section 5.3.
SECTION 1.21 FAIR MARKET VALUE on any date means:
(a) with respect to a Share:
(i) the final quoted sale price on the date in
question (or, if there is no reported sale on such date, on
the last preceding date on which any reported sale occurred)
as reported in the principal consolidated reporting system
with respect to securities listed or admitted to trading on
the
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<PAGE> 11
principal United States securities exchange on which like
Shares are listed or admitted to trading; or
(ii) if Shares are not listed or admitted to trading
on any such exchange, the closing bid quotation with respect
to a Share on such date on the Nasdaq Stock Market, or, if no
such quotation is provided, on another similar system,
selected by the Plan Administrator, then in use; or
(iii) if sections 1.21(a)(i) and (ii) are not
applicable, the fair market value of a Share as determined by
an appraiser independent of the Employer and experienced and
expert in the field of corporate appraisal.
(b) with respect to property other than Shares, the fair
market value determined in the manner determined by the Trustee.
SECTION 1.22 FAMILY MEMBER means, with respect to any person,
such person's spouse and lineal ascendants or descendants and the spouses of
such lineal ascendants or descendants.
SECTION 1.23 FINANCED SHARE means: (a) a Share that has been
purchased with the proceeds of a Share Acquisition Loan, that has been allocated
to the Loan Repayment Account in accordance with section 6.3 and that has not
been released in accordance with section 6.4; or (b) a Share that constitutes a
dividend paid with respect to a Share described in section 1.46, that has been
allocated to the Loan Repayment Account in accordance with section 6.3 and that
has not been released in accordance with section 6.4.
SECTION 1.24 FIVE PERCENT OWNER means, for any Plan Year, a
person who, during such Plan Year, owned (or was considered as owning for
purposes of section 318 of the Code): (a) more than 5% of the value of all
classes of outstanding stock of the Employer; or (b) stock possessing more than
5% of the combined voting power of all classes of outstanding stock of the
Employer.
SECTION 1.25 FORFEITURES means the amounts forfeited by
Participants and Former Participants on termination of employment prior to full
vesting, pursuant to section 9.3, less amounts credited because of
re-employment, pursuant to section 9.4.
SECTION 1.26 FORMER PARTICIPANT means a Participant whose
participation in the Plan has terminated pursuant to section 2.3.
SECTION 1.27 GENERAL INVESTMENT ACCOUNT means an Investment
Account established and maintained in accordance with Article XI.
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SECTION 1.28 HIGHLY COMPENSATED EMPLOYEE means, for any Plan
Year, an Employee who:
(a) at any time during such Plan Year or the immediately
preceding Plan Year was a Five Percent Owner; or
(b) during the immediately preceding Plan Year received Total
Compensation for such Plan Year in excess of $80,000 (or such higher
amount as may be permitted under section 414(q) of the Code) and, if
the Employer so elects, is a member of the group consisting of the top
20% of Employees when ranked on the basis of Total Compensation paid to
Employees during such Plan Year.
The determination of who is a Highly Compensated Employee will be made in
accordance with section 414(q) of the Code and the regulations thereunder.
SECTION 1.29 HOUR OF SERVICE means:
(a) Each hour for which a person is paid, or entitled to
payment, for the performance of duties for the Bank or any Affiliated
Employer. These hours shall be credited to the person for the
Computation Period or Computation Periods in which the duties are
performed; and
(b) Each hour for which a person is paid, or entitled to
payment, by the Bank or any Affiliated Employer on account of a period
of time during which no duties are performed (irrespective of whether
the employment relationship has terminated) due to vacation, holiday,
illness, incapacity (including disability), layoff, jury duty, military
duty, or leave of absence. No more than 501 Hours of Service shall be
credited under this section 1.29(b) for any single continuous period
(whether or not such period occurs in a single Computation Period).
Hours under this section 1.29(b) shall be calculated and credited
pursuant to section 2530.200b-2 of the Department of Labor's
regulations (or any successor regulation), which are incorporated
herein by reference; and
(c) Each hour for which back pay, irrespective of any
mitigation of damages, is either awarded or agreed to by the or any
Affiliated Employer. The same Hours of Service shall not be credited
both under section 1.29(a) or (b), as the case may be, and under this
section 1.29(c). Hours under this section 1.29(c) shall be credited to
the person for the Computation Period or Computation Periods to which
the award or agreement pertains, rather than the Computation Period in
which the award, agreement or payment is made.
SECTION 1.30 INVESTMENT ACCOUNT means either a General
Investment Account or a Share Investment Account.
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SECTION 1.31 INVESTMENT FUND means any one of the three or
more funds as may be established from time to time by the Plan Administrator
which, together with any and all Shares and other investments held under the
Plan, constitute the Trust Fund.
SECTION 1.32 LOAN REPAYMENT ACCOUNT means an account
established and maintained in accordance with section 6.3.
SECTION 1.33 LOAN REPAYMENT CONTRIBUTION means amounts of
money contributed to the Plan by the Employer in accordance with section 5.2.
SECTION 1.34 MATERNITY OR PATERNITY LEAVE means a person's
absence from work for the Employer and all Affiliated Employers: (a) by reason
of the pregnancy of such person; (b) by reason of the birth of a child of such
person; (c) by reason of the placement of a child with the person in connection
with the adoption of such child by such person; or (d) for purposes of caring
for a child of such person immediately following the birth of the child or the
placement of the child with such person.
SECTION 1.35 MILITARY SERVICE means service in the armed
forces of the United States. It may also include, if and to the extent that the
Board so provides and if all Participants and Former Participants in like
circumstances are similarly treated, special service for the government of the
United States and other public service.
SECTION 1.36 NAMED FIDUCIARY means any person, committee,
corporation or organization as described in section 15.1.
SECTION 1.37 OFFICER means an Employee who is an
administrative executive in regular and continued service with the Employer or
any Affiliated Employer; provided, however, that at no time shall more than the
lesser of (a) 50 Employees or (b) the greater of: (i) 3 Employees or (ii) 10% of
all employees be treated as Officers. The determination of whether an employee
is to be considered an Officer shall be made in accordance with section 416(i)
of the Code.
SECTION 1.38 ONE-YEAR BREAK IN SERVICE means, with respect to
any person: (a) for purposes of eligibility to participate, an Eligibility
Computation Period during which such person is credited with fewer than 501
Hours of Service and (b) for purposes of vesting, a Vesting Computation Period
during which such person is credited with fewer than 501 Hours of Service.
SECTION 1.39 PARTICIPANT means any person who has satisfied
the eligibility requirements set forth in section 2.1, who has become a
Participant in accordance with section 2.2, and whose participation has not
terminated under section 2.3.
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SECTION 1.40 PLAN means the Warwick Community Bancorp, Inc.
Employee Stock Ownership Plan, as amended from time to time. The Plan may be
referred to as the "Warwick Community Bancorp, Inc. Employee Stock Ownership
Plan."
SECTION 1.41 PLAN ADMINISTRATOR means any person, committee,
corporation or organization designated in section 15.2, or appointed pursuant to
section 15.2, to perform the responsibilities of that office.
SECTION 1.42 PLAN YEAR means the calendar year in which the
Effective Date occurs, and each calendar year thereafter.
SECTION 1.43 QUALIFIED DOMESTIC RELATIONS ORDER means a
Domestic Relations Order that: (a) clearly specifies (i) the name and last known
mailing address of the Participant or Former Participant and of each person
given rights under such Domestic Relations Order, (ii) the amount or percentages
of the Participant's or Former Participant's benefits under this Plan to be paid
to each person covered by such Domestic Relations Order, (iii) the number of
payments or the period to which such Domestic Relations Order applies, and (iv)
the name of this Plan; and (b) does not require the payment of a benefit in a
form or amount that is (i) not otherwise provided for under the Plan, or (ii)
inconsistent with a previous Qualified Domestic Relations Order.
SECTION 1.44 QUALIFIED PARTICIPANT means a Participant who has
attained age 55 and who has been a Participant in the Plan for at least 10
years.
SECTION 1.45 RETIREMENT means: (a) any termination of
participation in the Plan at or after attainment of age 65; and (b) any
retirement under an applicable qualified defined benefit plan of the Employer as
in effect from time to time with entitlement to a normal or early retirement
allowance.
SECTION 1.46 SHARE means a share of any class of stock issued
by the Employer or any Affiliated Employer; provided, however, that such share
is a "qualifying employer security" within the meaning section 409(l) of the
Code and section 407(d)(5) of ERISA.
SECTION 1.47 SHARE ACQUISITION LOAN means a loan obtained by
the Trustee in accordance with Article VI.
SECTION 1.48 SHARE INVESTMENT ACCOUNT means an Investment
Account established and maintained in accordance with Article XI.
SECTION 1.49 TENDER OFFER means a tender offer made to holders
of any one or more classes of Shares generally, or any other offer, made to
holders of any one or more classes of Shares generally, to purchase, exchange,
redeem or otherwise transfer Shares, whether for cash or other consideration.
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<PAGE> 15
SECTION 1.50 TOTAL COMPENSATION during any period means an
Employee's aggregate total compensation paid by the Employer and any Affiliated
Employer with respect to such period and reportable for federal income tax
purposes pursuant to section 6041(a) of the Code. In addition, solely for
purposes of identifying those Employees who are Highly Compensated Employees,
each Employee's Total Compensation shall include any amounts by which the
Employee's compensation paid by the Employer or any Affiliated Employer has been
reduced pursuant to a compensation reduction agreement under the terms of any
qualified cash or deferred arrangement described in section 401(k) of the Code,
any salary reduction simplified employee pension plan described in section
408(k) of the Code, any tax deferred annuity plan described in section 403(b)
of the Code, or any cafeteria plan described in section 125 of the Code. In no
event, however, shall an Employee's Total Compensation for any calendar year
include any compensation in excess of $160,000 (or such other amount as may be
permitted under section 401(a)(17) of the Code).
SECTION 1.51 TRUST means the legal relationship created by the
Trust Agreement pursuant to which the Trustee holds the Trust Fund in trust. The
Trust may be referred to as the "Warwick Community Bancorp, Inc. Employee Stock
Ownership Plan Trust."
SECTION 1.52 TRUST AGREEMENT means the agreement between
Warwick Community Bancorp, Inc. and the Trustee therein named or its successors
pursuant to which the Trust Fund shall be held in trust.
SECTION 1.53 TRUST FUND means the corpus (consisting of
contributions paid over to the Trustee, and investments thereof), and all
earnings, appreciations or additions thereof and thereto, held by the Trustee
under the Trust Agreement in accordance with the Plan, less any depreciation
thereof and any payments made therefrom pursuant to the Plan.
SECTION 1.54 TRUSTEE means the Trustee of the Trust Fund from
time to time in office. The Trustee shall serve as Trustee until it is removed
or resigns from office and is replaced by a successor Trustee appointed in
accordance with the terms of the Trust Agreement.
SECTION 1.55 VALUATION DATE means the last business day of
March, June, September and December.
SECTION 1.56 VESTING COMPUTATION PERIOD means, with respect to
any person, the 12-month period beginning on such person's Employment
Commencement Date and each Plan Year beginning after such Employment
Commencement Date.
SECTION 1.57 YEAR OF ELIGIBILITY SERVICE means, with respect
to any person, an Eligibility Computation Period during which such person
receives credit for at least 1,000 Hours of Service.
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<PAGE> 16
SECTION 1.58 YEAR OF VESTING SERVICE means, with respect to
any person, a Vesting Computation Period during which such person receives
credit for at least 1,000 Hours of Service. If an Employee has credit for 1,000
Hours of Service in the Vesting Computation Period that includes his Employment
Commencement Date and 1,000 Hours of Service in the first Vesting Computation
Period that begins after his Employment Commencement Date, he shall receive
credit for two Years of Vesting Service even if such periods overlap.
ARTICLE II
PARTICIPATION
SECTION 2.1 ELIGIBILITY FOR PARTICIPATION.
(a) Only Eligible Employees may be or become Participants in
the Plan. An Employee shall be an Eligible Employee if he is a common law
employee of an Employer, has completed at least one Year of Eligibility Service
and is not excluded under section 2.1(b).
(b) An Employee is not an Eligible Employee if he:
(i) is an Employee who has waived any claim to participation
in the Plan; or
(ii) is an Employee or in a unit of Employees covered by a
collective bargaining agreement with the Employer where retirement
benefits were the subject of good faith bargaining, unless such
agreement expressly provides that Employees such as he be covered under
the Plan; or
(iii) is a "leased employee" as defined in section 18.8(a).
SECTION 2.2 COMMENCEMENT OF PARTICIPATION.
Every Employee who is an Eligible Employee on the Effective
Date shall automatically become a Participant on the Effective Date. An Employee
who becomes an Eligible Employee after the Effective Date shall automatically
become a Participant on the first day of the month following the month in which
he becomes an Eligible Employee.
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SECTION 2.3 TERMINATION OF PARTICIPATION.
Participation in the Plan shall cease, and a Participant shall
become a Former Participant, upon termination of employment with the Employer,
death, Disability or Retirement, failure to return to work upon the expiration
of a leave of absence granted by the Employer pursuant to section 3.4 or
becoming an Employee who is excluded under section 2.1(b) or distribution of the
entire vested interest in his Account.
ARTICLE III
SPECIAL PROVISIONS
SECTION 3.1 MILITARY SERVICE.
In the case of a termination of employment of any Employee to
enter directly into Military Service, the entire period of his absence shall be
treated, for purposes of vesting and eligibility for participation (but not,
except as required by law, for purposes of eligibility to share in allocations
of contributions in accordance with Article VII), as if he had worked for the
Employer during the period of his absence. In the event of the re-employment of
such person by the Employer within a period of not more than six months:
(a) after he becomes entitled to release or discharge, if he
has entered into the armed forces; or
(b) after such service terminates, if he has entered into
other service defined as Military Service;
such period, also, shall be deemed to be Military Service.
SECTION 3.2 MATERNITY OR PATERNITY LEAVE.
(a) Subject to section 3.2(c), in the event of an Employee's
absence from work in the service of the Employer and all Affiliated Employers
for a period:
(i) that commences on or after October 1, 1985;
(ii) for which the person is not paid or entitled to payment
by the Employer or any Affiliated Employer; and
(iii) that constitutes Maternity or Paternity Leave;
then the rules of section 3.2(b) shall apply.
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(b) In cases of absence described in section 3.2(a), solely
for purposes of determining whether a One-Year Break in Service has occurred,
the person shall be credited for the period of an absence described in section
3.2(a) with the number of Hours of Service equal to the lesser of:
(i) (A) the number of Hours of Service that would have been
credited to the person if he had continued working for the Bank during
the period of such absence, or (B) if the number of Hours of Service
prescribed under section 3.2(b)(i)(A) cannot be determined, 8 Hours of
Service for each working day during the period of absence; or
(ii) 501 Hours of Service.
Such credit shall be given during the Computation Period during which
such absence began, if necessary to prevent a One-Year Break in Service
from occurring during such Computation Period, and in all other cases,
such credit shall be given during the immediately following Computation
Period.
(c) Notwithstanding anything in the Plan to the contrary, this
section 3.2 shall not apply unless the person furnishes to the Plan
Administrator such information as the Plan Administrator may reasonably require
in order to establish (i) that the person's absence is one described in section
3.2(a), and (ii) the number of working days during such absence.
SECTION 3.3 ADJUSTMENTS TO YEARS OF ELIGIBILITY SERVICE.
The Years of Eligibility Service of an Employee who returns to
the employment of the Employer or any Affiliated Employer following a separation
from service shall include his Years of Eligibility Service prior to such
separation from service, and such an Employee shall be readmitted to
participation immediately upon his return to service if he is then an Eligible
Employee; provided, however, that if such separation from service includes a
One-Year Break in Service, such prior Years of Eligibility Service shall not be
included until he has completed one Year of Eligibility Service following his
return to service, and upon completion of such one Year of Eligibility Service,
he shall be readmitted to participation in the Plan with retroactive effect to
the date of his return to employment, if he is then an Eligible Employee, but he
shall not participate in any ESOP Contributions or Loan Repayment Contributions
allocated during the interim period.
SECTION 3.4 LEAVE OF ABSENCE.
In the event of temporary absence from work in the service of
the Employer and all Affiliated Employers for any period for which a Participant
shall have been granted a leave of absence by the Employer, the entire period of
his absence shall be treated for purposes of vesting and eligibility for
participation (but not for purposes of eligibility to share in the allocation of
con-
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<PAGE> 19
tributions in accordance with Article VII), as if he had worked for the
Employer during the period of his absence. Absence from work for a period
greater than, or failure to return to work upon the expiration of, the period of
leave of absence granted by the Employer shall terminate participation in the
Plan as of the date on which such period ended. In granting leaves of absence
for purposes of the Plan, all Employees in like circumstances shall be similarly
treated.
SECTION 3.5 FAMILY AND MEDICAL LEAVE.
In the event of absence for a period recognized a family and
medical leave under the federal Family and Medical Leave Act of 1992, the period
of such absence shall be recognized for purposes of vesting and eligibility to
participate to the full extent required by law.
ARTICLE IV
CONTRIBUTIONS BY PARTICIPANTS NOT PERMITTED
SECTION 4.1 CONTRIBUTIONS BY PARTICIPANTS NOT PERMITTED.
Participants shall not be required, nor shall they be
permitted, to make contributions to the Plan.
ARTICLE V
CONTRIBUTIONS BY THE EMPLOYER
SECTION 5.1 IN GENERAL.
Subject to the limitations of Article VIII, for each Plan
Year, the Employer shall contribute to the Plan the amount, if any, determined
by the Board, but in no event less than the amount described in section 5.2(a).
The amount contributed for any Plan Year shall be treated as a Loan Repayment
Contribution, an ESOP Contribution or a combination thereof, in accordance with
the provisions of this Article V.
SECTION 5.2 LOAN REPAYMENT CONTRIBUTIONS.
For each Plan Year, a portion of the Employer's contributions,
if any, to the Plan for such Plan Year equal to the sum of:
(a) the minimum amount required to be added to the Loan
Repayment Account in order to provide adequate funds for the payment of
the principal and
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<PAGE> 20
interest then required to be repaid under the terms of any outstanding
Share Acquisition Loan obtained by the Trustee; plus
(b) the additional amount, if any, designated by the Plan
Administrator to be applied to the prepayment of principal or interest
under the terms of any out standing Share Acquisition Loan obtained by
the Trustee;
shall be treated as a Loan Repayment Contribution for such Plan Year. A Loan
Repayment Contribution for a Plan Year shall be allocated to the Loan Repayment
Account and shall be applied by the Trustee, in the manner directed by the Plan
Administrator, to the payment of accrued interest and to the reduction of the
principal balance of any Share Acquisition Loan obtained by the Trustee that is
outstanding on the date on which the Loan Repayment Contribution is made. To the
extent that a Loan Repayment Contribution for a Plan Year results in a release
of Financed Shares in accordance with section 6.4, such Shares shall be
allocated among the Accounts of Eligible Participants for such Plan Year in
accordance with section 7.2.
SECTION 5.3 ESOP CONTRIBUTIONS.
In the event that the amount of the Employer's contributions
to the Plan for a Plan Year exceeds the amount of the Loan Repayment
Contributions for such Plan Year, such excess shall be treated as an ESOP
Contribution and shall be allocated among the Accounts of the Eligible
Participants for such Plan Year in accordance with section 7.3.
SECTION 5.4 TIME AND MANNER OF PAYMENT.
(a) Payment of contributions made pursuant to this Article V
shall be made:
(i) in cash, in the case of a Loan Repayment Contribution; and
(ii) in cash, in Shares or in a combination of cash and
Shares, in the case of an ESOP Contribution.
(b) Contributions made pursuant to this Article V for a Plan
Year shall be paid to the Trust Fund on or before the due date (including any
extensions thereof) of the Employer's federal income tax return for its taxable
year during which such Plan Year ends. All such contributions shall be allocated
to the Accounts of the Eligible Participants, in the case of an ESOP
Contribution, or to the Loan Repayment Account, in the case of a Loan Repayment
Contribution, as soon as is practicable following the payment thereof to the
Trust Fund.
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ARTICLE VI
SHARE ACQUISITION LOANS
SECTION 6.1 IN GENERAL.
The Plan Administrator may, with the prior approval of the
Board, direct the Trustee to obtain a Share Acquisition Loan on behalf of the
Plan, the proceeds of which shall be applied on the earliest practicable date:
(a) to purchase Shares; or
(b) to make payments of principal or interest, or a
combination of principal and interest, with respect to such Share Acquisition
Loan; or
(c) to make payments of principal and interest, or a
combination of principal and interest, with respect to a previously obtained
Share Acquisition Loan that is then outstanding.
Any such Share Acquisition Loan shall be obtained on such terms and conditions
as the Plan Administrator may approve; provided, however, that such terms and
conditions shall provide for the payment of interest at no more than a
reasonable rate and shall permit such Share Acquisition Loan to satisfy the
requirements of section 4975(d)(3) of the Code and section 408(b)(3) of ERISA.
SECTION 6.2 COLLATERAL; LIABILITY FOR REPAYMENT.
(a) The Plan Administrator may direct the Trustee to pledge,
at the time a Share Acquisition Loan is obtained, the following assets of the
Plan as collateral for such Share Acquisition Loan:
(i) any Shares purchased with the proceeds of such Share
Acquisition Loan and any earnings attributable thereto;
(ii) any Financed Shares then pledged as collateral for a
prior Share Acquisition Loan which is repaid with the proceeds of such
Share Acquisition Loan and any earnings attributable thereto; and
(iii) pending the application thereof to purchase Shares or
repay a prior Share Acquisition Loan, the proceeds of such Share
Acquisition Loan and any earnings attributable thereto.
Except as specifically provided in this section 6.2(a), no assets of the Plan
shall be pledged as collateral for the repayment of any Share Acquisition Loan.
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<PAGE> 22
(b) No person entitled to payment under a Share Acquisition
Loan shall have any right to the assets of the Plan except for:
(i) Financed Shares that have been pledged as collateral for
such Share Acquisition Loan pursuant to section 6.2(a);
(ii) Loan Repayment Contributions made pursuant to section
5.2; and
(iii) earnings attributable to Financed Shares described in
section 6.2(b)(i) and to Loan Repayment Contributions described in
section 6.2(b)(ii).
Except in the event of a default or a refinancing pursuant to which an existing
Share Acquisition Loan is repaid, the aggregate amount of all payments of
principal and interest made by the Trustee with respect to all Share Acquisition
Loans obtained on behalf of the Plan shall at no time exceed the aggregate
amount of all Loan Repayment Contributions theretofore made plus the aggregate
amount of all earnings (other than dividends paid in the form of Shares)
attributable to Financed Shares and to such Loan Repayment Contributions.
(c) Any Share Acquisition Loan shall be without recourse
against the Plan and Trust.
SECTION 6.3 LOAN REPAYMENT ACCOUNT.
In the event that one or more Share Acquisition Loans shall be
obtained, a Loan Repayment Account shall be established under the Plan. The Loan
Repayment Account shall be credited with all Shares acquired with the proceeds
of a Share Acquisition Loan, all Loan Repayment Contributions and all earnings
(including dividends paid in the form of Shares) or appreciation attributable to
such Shares and Loan Repayment Contributions. The Loan Repayment Account shall
be charged with all payments of principal and interest made by the Trustee with
respect to any Share Acquisition Loan, all Shares released in accordance with
section 6.4 and all losses, depreciation or expenses attributable to Shares or
to other property credited thereto. The Financed Shares, as well as any earnings
thereon, shall be allocated to such Loan Repayment Account and shall be
accounted for separately from all other amounts contributed under the Plan.
SECTION 6.4 RELEASE OF FINANCED SHARES.
As of the last day of each Plan Year during which a Share
Acquisition Loan is outstanding, a portion of the Financed Shares purchased with
the proceeds of such Share Acquisition Loan and allocated to the Loan Repayment
Account shall be released. The number of Financed Shares released in any such
Plan Year shall be equal to the amount determined according to one of the
following methods:
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(a) by computing the product of: (i) the number of Financed
Shares purchased with the proceeds of such Share Acquisition Loan and
allocated to the Loan Repayment Account immediately before the release
is effected; multiplied by (ii) a fraction, the numerator of which is
the aggregate amount of the principal and interest payments (other than
payments made upon the refinancing of a Share Acquisition Loan as
contemplated by section 6.1(c)) made with respect to such Share
Acquisition Loan during such Plan Year, and the denominator of which is
the aggregate amount of all principal and interest remaining to be paid
with respect to such Share Acquisition Loan as of the first day of such
Plan Year; or
(b) by computing the product of: (i) the number of Financed
Shares purchased with the proceeds of such Share Acquisition Loan and
allocated to the Loan Repayment Account immediately before the release
is effected; multiplied by (ii) a fraction, the numerator of which is
the aggregate amount of the principal payments (other than payments
made upon the refinancing of a Share Acquisition Loan as contemplated
by section 6.1(c)) made with respect to such Share Acquisition Loan
during such Plan Year, and the denominator of which is the aggregate
amount of all of principal remaining to be paid with respect to such
Share Acquisition Loan as of the first day of such Plan Year; provided,
however, that the method described in this section 6.4(b) may be used
only if the Share Acquisition Loan does not extend for a period in
excess of 10 years after the date of origination and only to the extent
that principal payments on such Share Acquisition Loan are made at
least as rapidly as under a loan of like principal amount with a like
interest rate and term requiring level amortization of principal and
interest.
The method to be used shall be specified in the documents governing the Share
Acquisition Loan or, if not specified therein, prescribed by the Plan
Administrator, in its discretion. In the event that property other than, or in
addition to, Financed Shares shall be held in the Loan Repayment Account and
pledged as collateral for a Share Acquisition Loan, then the property to be
released pursuant to this section 6.4 shall be property having a Fair Market
Value determined by applying the method to be used to the Fair Market Value of
all property pledged as collateral for such Share Acquisition Loan; provided,
however, that no property other than Financed Shares shall be released pursuant
to this section 6.4 unless all Financed Shares have previously been released.
SECTION 6.5 RESTRICTIONS ON FINANCED SHARES.
Except to the extent required under any applicable law, rule
or regulation, no Shares purchased with the proceeds of a Share Acquisition Loan
shall be subject to a put, call or other option, or to any buy-sell or similar
arrangement, while held by the Trustee or when distributed from the Plan. The
provisions of this section 6.5 shall continue to apply in the event that this
Plan shall cease to be an employee stock ownership plan, within the meaning of
section 4975(e)(7) of the Code.
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ARTICLE VII
ALLOCATION OF CONTRIBUTIONS
SECTION 7.1 ALLOCATION AMONG ELIGIBLE PARTICIPANTS.
Subject to the limitations of Article VIII, ESOP Contributions
for a Plan Year made in accordance with section 5.3 and Financed Shares and
other property that are released from the Loan Repayment Account for a Plan Year
in accordance with section 6.4 shall be allocated among the Eligible
Participants for such Plan Year, in the manner provided in this Article VII.
SECTION 7.2 ALLOCATION OF RELEASED SHARES OR OTHER PROPERTY.
Subject to the limitations of Article VIII, in the event that
Financed Shares or other property are released from the Loan Repayment Account
for a Plan Year in accordance with section 6.4, such released Shares or other
property shall be allocated among the Accounts of the Eligible Participants for
the Plan Year in the proportion that each such Eligible Participant's Allocation
Compensation for the calendar year ending with or within the Plan Year bears to
the aggregate Allocation Compensation of all Eligible Participants for such
calendar year.
SECTION 7.3 ALLOCATION OF ESOP CONTRIBUTIONS.
Subject to the limitations of Article VIII, in the event that
the Employer makes an ESOP Contribution for a Plan Year, such ESOP Contribution
shall be allocated among the Accounts of the Eligible Participants for such Plan
Year in the proportion that each such Eligible Participant's Allocation
Compensation for the calendar year that ends with or within the Plan Year bears
to the aggregate Allocation Compensation of all Eligible Participants for such
calendar year.
ARTICLE VIII
LIMITATIONS ON ALLOCATIONS
SECTION 8.1 OPTIONAL LIMITATIONS ON ALLOCATIONS OF
CONTRIBUTIONS.
If, for any Plan Year, the application of sections 7.2 and 7.3
would result in more than one-third of the number of Shares or of the amount of
money or property to be allocated thereunder being allocated to the Accounts of
Eligible Participants for such Plan Year who are also Highly Compensated
Employees for such Plan Year, then the Plan Administrator may, but shall not be
required to, direct that this section 8.1 shall apply in lieu of sections 7.2
and 7.3. If the Plan Administrator gives such a direction, then the Plan
Administrator shall impose a maximum
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<PAGE> 25
dollar limitation on the amount of Allocation Compensation that may be taken
into account for each Eligible Participant. The dollar limitation which shall be
imposed shall be the limitation which produces the result that the aggregate
Allocation Compensation taken into account for Eligible Participants who are
Highly Compensated Employees, constitutes exactly one-third of the aggregate
Allocation Compensation taken into account for all Eligible Participants. In
determining whether more than one-third of the number of Shares or of the amount
of money or property to be allocated under the Plan for a Plan Year would be
allocated to the Highly Compensated Employees, any allocation to be made to the
Account of a Family Member of a Highly Compensated Employee who is either a Five
Percent Owner or one of the ten Highly Compensated Employees with the highest
Total Compensation, shall be treated as an allocation to such Highly Compensated
Employee.
SECTION 8.2 GENERAL LIMITATIONS ON CONTRIBUTIONS.
(a) No amount shall be allocated to a Participant's Account
under this Plan for any Limitation Year, to the extent that such an allocation
would result in an Annual Addition of an amount greater than the lesser of (i)
$30,000 (or such other amount as is permissible under section 415(c)(1)(A) of
the Code, or (ii) 25% of the Participant's Total Compensation for such
Limitation Year.
(b) In the case of a Participant who may be entitled to
benefits under any qualified defined benefit plan (whether or not terminated)
now in effect or ever maintained by the Employer, such Participant's Annual
Additions under this Plan shall, in addition to the limitations provided under
section 8.2(a), be further limited so that for any Limitation Year beginning
prior to December 31, 1999, the sum of the Participant's Defined Contribution
Plan Fraction plus his Defined Benefit Plan Fraction does not exceed 1.0 for any
Limitation Year; provided, however, that for any Limitation Year ending prior to
January 1, 1983, the sum of his Defined Contribution Plan Fraction plus his
Defined Benefit Plan Fraction shall not exceed 1.4; and provided further, that
this limitation shall only apply if and to the extent that the benefits under
the Employer's Retirement Plan or any other defined contribution plan are not
limited so that such sum is not exceeded.
(c) For purposes of this section 8.2, the following special
definitions shall apply:
(i) Annual Addition means the sum of the following amounts
allocated on behalf of a Participant for a Limitation Year:
(A) all contributions by the Employer (including
contributions made under a salary reduction agreement pursuant
to sections 401(k), 408(k) or 403(b) of the Code) under any
qualified defined contribution plan (other than this Plan)
maintained by the Employer, as well as the Participant's
allocable share, if any, of any forfeitures under such plans;
plus
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<PAGE> 26
(B) (I) for Limitation Years that began prior to
January 1, 1987, the lesser of (1) 50% of the Participant's
voluntary nondeductible contributions to all qualified defined
contribution plans maintained by the Employer, or (2) the
amount by which the Participant's nondeductible voluntary
contributions to such plans exceeds 6% of his Total
Compensation; and (II) for Limitation Years that begin after
December 31, 1986, all of the Participant's voluntary
nondeductible contributions to such plans; plus
(C) all ESOP Contributions under this Plan; plus
(D) except as hereinafter provided in this section
8.2(c)(i), a portion of the Employer's Loan Repayment
Contributions to the Plan for such Limitation Year which bears
the same proportion to the total amount of the Employer's Loan
Repayment Contributions for the Limitation Year that the
number of Shares (or the Fair Market Value of property other
than Shares) allocated to the Participant's Account pursuant
to section 7.2 or 8.1, whichever is applicable, bears to the
aggregate number of Shares (or Fair Market Value of property
other than Shares) so allocated to all Participants for such
Limitation Year.
Notwithstanding section 8.2(c)(i)(D), if, for any Limitation Year, the
aggregate amount of ESOP Contributions allocated to the Accounts of the
individuals who are Highly Compensated Employees for such Limitation
Year, when added to such Highly Compensated Employees' allocable share
of any Loan Repayment Contributions for such Limitation Year, does not
exceed one-third of the total of all ESOP Contributions and Loan
Repayment Contributions for such Limitation Year, then that portion, if
any, of the Loan Repayment Contributions for such Limitation Year that
is applied to the payment of interest on a Share Acquisition Loan shall
not be included as an Annual Addition. In no event shall any Financed
Shares, any dividends or other earnings thereon, any proceeds of the
sale thereof or any portion of the value of the foregoing be included
as an Annual Addition.
(ii) Employer means Warwick Community Bancorp, Inc. and all
members of a controlled group of corporations, as defined in section
414(b) of the Code, as modified by section 415(h) of the Code, all
commonly controlled trades or businesses, as defined in section 414(c)
of the Code, as modified by section 415(h) of the Code, all affiliated
service groups, as defined in section 414(m) of the Code, of which
Warwick Community Bancorp, Inc. is a member, as well as any leasing
organization, as defined in section 18.8, that employs any person who
is considered an employee under section 18.8 and any other entity that
is required to be aggregated with the Employer pursuant to regulations
under section 414(o) of the Code.
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<PAGE> 27
(iii) Defined Benefit Plan Fraction means, for any Participant
for any Limitation Year, a fraction, the numerator of which is the
Projected Annual Benefit (determined as of the end of such Limitation
Year) of the Participant under any qualified defined benefit plans
(whether or not terminated) maintained by the Employer for the current
and all prior Limitation Years, and the denominator of which is as
follows: (A) for Limitation Years ending prior to January 1, 1983, the
lesser of (I) the dollar limitation in effect under section 415(b)(1)
(A) of the Code for such Limitation Year, or (II) the amount which may
be taken into account under section 415(b)(1)(B) of the Code with
respect to such Participant for such Limitation Year; and (B) in all
other cases, the lesser of (I) (except as provided in section 17.8(b)
for a Top Heavy Plan Year) the product of 1.25 multiplied by the dollar
limitation in effect under section 415(b)(1)(A) of the Code for such
Limitation Year, or (II) the product of 1.4 multiplied by the amount
which may be taken into account under section 415(b)(1)(B) of the Code
with respect to such Participant for such Limitation Year.
(iv) Defined Contribution Plan Fraction means, for any
Participant for any Limitation Year, a fraction (A) the numerator of
which is the sum of such Participant's Annual Additions (determined as
of the end of such Limitation Year) under this Plan and any other
qualified defined contribution plans (whether or not terminated)
maintained by the Employer for the current and all prior Limitation
Years, and (B) the denominator of which is as follows: (I) for
Limitation Years ending prior to January 1, 1983, the sum of the lesser
of the following amounts for such Limitation Year and for each prior
Limitation Year during which such Participant was employed by the
Employer: (1) the Maximum Permissible Amount for such Limitation Year
(without regard to section 415(c)(6) of the Code), or (2) the amount
which may be taken into account under section 415(c)(1)(B) of the Code
with respect to such Participant for such Limitation Year; and (II) in
all other cases, the sum of the lesser of the following amounts for
such Limitation Year and for each prior Limitation during which such
Participant was employed by the Employer: (1) (except as provided in
section 17.8(b) for a Top Heavy Plan Year) the product of 1.25
multiplied by the Maximum Permissible Amount for such Limitation Year
(determined without regard to section 415(c)(6) of the Code), or (2)
the product of 1.4 multiplied by the amount which may be taken into
account under section 415(c)(1)(B) of the Code (or section 415(c)(7) of
the Code, if applicable) with respect to such Participant for such
Limitation Year; provided, however, that the Plan Administrator may, at
his election, adopt the transition rule set forth in section 415(e)(6)
of the Code in making the computation set forth in this section
8.2(c)(iv). If the sum of a Participant's Defined Benefit Plan Fraction
and Defined Contribution Plan Fraction exceeded 1.0 as of September 30,
1983, then such Participant's Defined Contribution Plan Fraction shall
be determined under regulations to be prescribed by the Secretary of
the Treasury so that the sum of the fractions does not exceed 1.0.
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<PAGE> 28
(v) Limitation Year means the Plan Year; provided, however,
that if the Employer changes the Limitation Year, the new Limitation
Year shall begin on a date within the Limitation Year in which the
amendment is made.
(vi) Maximum Permissible Amount means (A) $25,000 (or such
higher amount as may be permitted under section 415(d) of the Code
because of cost of living increases) for Limitation Years beginning
prior to January 1, 1983, and (B) the greater of (I) $30,000, or (II)
25% of the dollar limitation in effect under section 415(b)(1)(A) of
the Code for Limitation Years beginning on or after January 1, 1983.
(vii) Projected Annual Benefit means a Participant's annual
retirement benefit (adjusted to the actuarial equivalent of a straight
life annuity if expressed in a form other than a straight life or
qualified joint and survivor annuity) under any qualified defined
benefit plan maintained by the Employer, whether or not terminated,
assuming that the Participant will continue employment until the later
of current age or normal retirement age under such plan, and that the
Participant's Total Compensation for the Limitation Year and all other
relevant factors used to determine benefits under such plan will remain
constant for all future Limitation Years.
(d) When a Participant's Annual Addition to this Plan must be
reduced to satisfy the limitations of section 8.2(a) or (b), such reduction
shall be applied first to ESOP Contributions; and second, if necessary, to
Shares allocated as a result of a Loan Repayment Contribution which are included
as an Annual Addition in such order as shall result in the smallest reduction in
the number of Shares allocable to the Participant's Account. The amount by which
any Participant's Annual Addition to this Plan is reduced shall be allocated in
accordance with Articles V and VII as a contribution by the Employer in the next
succeeding Limitation Year.
(e) Prior to determining a Participant's actual Total
Compensation for a Limitation Year, the Employer may determine the limitations
under this section 8.2 for a Participant on the basis of a reasonable estimation
of the Participant's Total Compensation for the Limitation Year that is
uniformly determined for all Participants who are similarly situated. As soon as
it is administratively feasible after the end of the Limitation Year, the
limitations of this section 8.2 shall be determined on the basis of the
Participant's actual Total Compensation for the Limitation Year.
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<PAGE> 29
ARTICLE IX
VESTING
SECTION 9.1 VESTING.
Subject to the provisions of section 9.2, the balance credited
to each Employee's Account shall become vested in accordance with the following
schedule:
<TABLE>
<CAPTION>
Years of Vested
Vesting Service Percentage
--------------- ----------
<S> <C>
less than 3 0%
3 but less than 4 20%
4 but less than 5 40%
5 but less than 6 60%
6 but less than 7 80%
7 or more 100%
</TABLE>
SECTION 9.2 VESTING ON DEATH, DISABILITY, RETIREMENT OR CHANGE
IN CONTROL.
Any previously unvested portion of the remainder of the
balance credited to the Account of a Participant or of a person who is a Former
Participant solely because he is excluded from participation under section
2.1(b) shall become fully vested in him immediately upon attainment of age 65,
or, if earlier, upon the termination of his participation by reason of death,
Disability, Retirement or upon the occurrence of a Change in Control of the
Employer.
SECTION 9.3 FORFEITURES ON TERMINATION OF EMPLOYMENT.
Upon the termination of employment of a Participant or Former
Participant for any reason other than death, Disability or Retirement, that
portion of the balance credited to his Account which is not vested at the date
of such termination shall be forfeited as of the last Valuation Date for the
Plan Year in which such termination of employment occurs. The proceeds of such
forfeitures, less amounts, if any, required to be credited because of
re-employment pursuant to section 9.4, shall be treated as Forfeitures and shall
be disposed of as provided in section 9.5.
SECTION 9.4 AMOUNTS CREDITED UPON RE-EMPLOYMENT.
If an Employee forfeited any amount of the balance credited to
his Account upon his termination of employment with the Employer, and is
re-employed prior to the occurrence of five consecutive One-Year Breaks in
Service, then:
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<PAGE> 30
(i) an amount equal to the Fair Market Value of the Shares
forfeited, determined as of the date of forfeiture; and
(ii) the amount credited to his General Investment Account
that was forfeited, determined as of the date of forfeiture;
shall be credited back to his Account from the proceeds of forfeitures which are
redeemed pursuant to section 9.3 during the Plan Year in which he is
re-employed, unless such proceeds are insufficient, in which case the Employer
shall make an additional contribution in the amount of such deficiency.
SECTION 9.5 ALLOCATION OF FORFEITURES.
Any Forfeitures that occur during a Plan Year shall be used to
reduce the contributions required of the Employer under the Plan and shall be
treated as Loan Repayment Contributions and ESOP Contributions in the
proportions designated by the Plan Administrator in accordance with Article V.
ARTICLE X
THE TRUST FUND
SECTION 10.1 THE TRUST FUND.
The Trust Fund shall be held and invested under the Trust
Agreement with the Trustee. The provisions of the Trust Agreement shall vest
such powers in the Trustee as to investment, control and disbursement of the
Trust Fund, and such other provisions not inconsistent with the Plan, including
provision for the appointment of one or more "investment managers" within the
meaning of section 3(38) of ERISA to manage and control (including acquiring and
disposing of) all or any of the assets of the Trust Fund, as the Board may from
time to time authorize. Except as required by ERISA, no bond or other security
shall be required of any Trustee at any time in office.
SECTION 10.2 INVESTMENTS.
Except to the extent provided to the contrary in section 10.3,
the Trust Fund shall be invested in:
(a) Shares;
23
<PAGE> 31
(b) such Investment Funds as may be established from time to
time by the Plan Administrator; and
(c) such other investments as may be permitted under the Trust
Agreement;
in such proportions as shall be determined by the Plan Administrator or, if so
provided under the Trust Agreement, as directed by one or more investment
managers or by the Trustee, in its discretion; provided, however, that the
investments of the Trust Fund shall consist primarily of Shares. Notwithstanding
the immediately preceding sentence, the Trustee may temporarily invest the Trust
Fund in short-term obligations of, or guaranteed by, the United States
Government or an agency thereof, or may retain uninvested, or sell investments
to provide, amounts of cash required for purposes of the Plan.
SECTION 10.3 DIVERSIFICATION OF INVESTMENTS.
(a) Notwithstanding section 10.2, each Qualified Participant
may:
(i) during the first 90 days of each of the first four Plan
Years to begin after the Plan Year in which he first becomes a
Qualified Participant, elect that such percentage of the balance
credited to his Account as he may specify, but in no event more than
25% of the balance credited to his Account, be invested in one or more
of the Investment Funds; and
(ii) during the first 90 days of the fifth Plan Year to begin
after the Plan Year in which he first becomes a Qualified Participant
or of any Plan Year thereafter, elect that such percentage of the
balance credited to his Account as he may specify, but in no event more
than 50% of the balance credited to his Account, be invested in one or
more of the Investment Funds.
For purposes of an election under this section 10.3, the balance credited to a
Participant's Account shall be the balance credited to his Account determined as
of the last Valuation Date to occur in the Plan Year immediately preceding the
Plan Year in which such election is made.
(b) An election made under section 10.3(a) shall be made in
writing, in the form and manner prescribed by the Plan Administrator, and shall
be filed with the Plan Administrator during the election period specified in
section 10.3(a). As soon as is practicable following the end of the election
period during which such election is made, the Plan Administrator shall take
such actions as are necessary to cause the specified percentage of the balance
credited to the Account of the Qualified Participant making the election to be
invested in the specified Investment Funds. Any investments made pursuant to
this section 10.3 shall be specifically allocated to the General Investment
Account of the Qualified Participant for whom they are made.
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<PAGE> 32
(c) An election made under section 10.3(a) may be changed or
revoked at any time during the election period described in section 10.3(a)
during which it is initially made, during any subsequent election period
described in section 10.3(a) or, upon at least 15 days' advance written notice
given in the form and manner prescribed by the Plan Administrator, as of the
first day of any calendar quarter of any Plan Year that begins after the
Participant first becomes a Qualified Participant. In no event, however, shall
any election under this section 10.3 result in more than 25% of the balance
credited to the Participant's Account being invested at the direction of the
Participant, if such election is made during a Plan Year to which section
10.3(a)(i) applies, or result in more than 50% of the balance credited to the
Participant's Account being invested at the direction of the Participant, if
such election is made during the Plan Year to which section 10.3(a)(ii) applies
or thereafter.
SECTION 10.4 USE OF COMMINGLED TRUST FUNDS.
Subject to the provisions of the Trust Agreement, amounts held
in the Trust Fund may be invested in:
(a) any commingled or group trust fund described in section
401(a) of the Code and exempt under section 501(a) of the Code; or
(b) any common trust fund exempt under section 584 of the Code
maintained exclusively for the collective investment of the assets of
trusts that are exempt under section 501(a) of the Code;
provided that the trustee of such commingled, group or common trust fund is a
bank or trust company.
SECTION 10.5 MANAGEMENT AND CONTROL OF ASSETS.
All assets of the Plan shall be held by the Trustee in trust
for the exclusive benefit of Participants, Former Participants and their
Beneficiaries. No part of the corpus or income of the Trust Fund shall be used
for, or diverted to, purposes other than for the exclusive benefit of
Participants, Former Participants and their Beneficiaries, and for defraying
reasonable administrative expenses of the Plan and Trust Fund. No person shall
have any interest in or right to any part of the earnings of the Trust Fund, or
any rights in, to or under the Trust Fund or any part of its assets, except to
the extent expressly provided in the Plan.
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<PAGE> 33
ARTICLE XI
VALUATION OF INTERESTS IN THE TRUST FUND
SECTION 11.1 ESTABLISHMENT OF INVESTMENT ACCOUNTS.
The Plan Administrator shall establish, or cause to be
established, for each person for whom an Account is maintained a Share
Investment Account and a General Investment Account. Such Share Investment
Accounts and General Investment Accounts shall be maintained in accordance with
this Article XI.
SECTION 11.2 SHARE INVESTMENT ACCOUNTS.
The Share Investment Account established for a person in
accordance with section 11.1 shall be credited with: (a) all Shares allocated to
such person's Account; (b) all Shares purchased with amounts of money or
property allocated to such person's Account; (c) all dividends paid in the form
of Shares with respect to Shares credited to his Account; and (d) all Shares
purchased with amounts credited to such person's General Investment Account.
Such Share Investment Account shall be charged with all Shares that are sold or
exchanged to acquire other investments or to provide cash and with all Shares
that are distributed in kind.
SECTION 11.3 GENERAL INVESTMENT ACCOUNTS.
The General Investment Account that is established for a
person in accordance with section 11.1 shall be credited with: (a) all amounts,
other than Shares, allocated to such person's Account; (b) all dividends paid in
a form other than Shares with respect to Shares credited to such person's Share
Investment Account; (c) the proceeds of any sale of Shares credited to such
person's Share Investment Account; and (d) any earnings attributable to amounts
credited to such person's General Investment Account. Such General Investment
Account shall be charged with all amounts credited thereto that are applied to
the purchase of Shares, any losses or depreciation attributable to amounts
credited thereto, any expenses allocable thereto and any distributions of
amounts credited thereto.
SECTION 11.4 VALUATION OF INVESTMENT ACCOUNTS.
(a) The Plan Administrator shall determine, or cause to be
determined, the aggregate value of each person's Share Investment Account as of
each Valuation Date by multiplying the number of Shares credited to such Share
Investment Account on such Valuation Date by the Fair Market Value of a Share on
such Valuation Date.
(b) As of each Valuation Date, the Accounts of each
Participant shall be separately adjusted to reflect their proportionate share of
any appreciation or depreciation in the fair market value of the Investment
Funds, any income earned by the Investment Funds and any
26
<PAGE> 34
expenses incurred by the Investment Funds, as well as any contributions,
withdrawals or distributions and investment transfers not posted as of the last
Valuation Date.
SECTION 11.5 ANNUAL STATEMENTS.
There shall be furnished, by mail or otherwise, at least once
in each Plan Year to each person who would then be entitled to receive all or
part of the balance credited to any Account if the Plan were then terminated, a
statement of his interest in the Plan as of such date as shall be selected by
the Plan Administrator, which statement shall be deemed to have been accepted as
correct and be binding on such person unless the Plan Administrator receives
written notice to the contrary within 30 days after the statement is mailed or
furnished to such person.
ARTICLE XII
SHARES
SECTION 12.1 SPECIFIC ALLOCATION OF SHARES.
All Shares purchased under the Plan shall be specifically
allocated to the Share Investment Accounts of Participants, Former Participants
and their Beneficiaries in accordance with section 11.2, with the exception of
Financed Shares, which shall be allocated to the Loan Repayment Account.
SECTION 12.2 DIVIDENDS.
(a) Dividends paid with respect to Shares held under the Plan
shall be credited to the Loan Repayment Account, if paid with respect to
Financed Shares. Such dividends shall be: (i) applied to the payment of
principal and accrued interest with respect to any Share Acquisition Loan, if
paid in cash; or (ii) held in the Loan Repayment Account as Financed Shares for
release in accordance with section 6.4, if paid in the form of Shares.
(b) Dividends paid with respect to Shares allocated to a
person's Share Investment Account shall be credited to such person's Share
Investment Account. Cash dividends credited to a person's General Investment
Account shall be, at the direction of the Board, either: (i) held in such
General Investment Account and invested in accordance with sections 10.2 and
10.3; (ii) distributed immediately to such person; (iii) distributed to such
person within 90 days of the close of the Plan Year in which such dividends were
paid; or (iv) used to make payments of principal or interest on a Share
Acquisition Loan; provided, however, that the Fair Market Value of Financed
Shares released from the Loan Repayment Account equals or exceeds the amount of
the dividend.
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<PAGE> 35
SECTION 12.3 VOTING RIGHTS.
(a) Each person shall direct the manner in which all voting
rights appurtenant to Shares allocated to his Share Investment Account will be
exercised, provided that such Shares were allocated to his Share Investment
Account as of the applicable record date. Such person shall, for such purpose,
be deemed a "named fiduciary" within the meaning of section 402(a)(2) of ERISA.
Such a direction shall be given by completing and filing with the inspector of
elections, the Trustee or such other person who shall be independent of the
Employer as the Plan Administrator shall designate, at least 10 days prior to
the date of the meeting of holders of Shares at which such voting rights will be
exercised, a written direction in the form and manner prescribed by the Plan
Administrator. The inspector of elections, the Trustee or such other person
designated by the Plan Administrator shall tabulate the directions given on a
strictly confidential basis, and shall provide the Plan Administrator with only
the final results of the tabulation. The final results of the tabulation shall
be followed by the Plan Administrator in directing the Trustee as to the manner
in which such voting rights shall be exercised. The Plan Administrator shall
make a reasonable effort to furnish, or cause to be furnished, to each person
for whom a Share Investment Account is maintained all annual reports, proxy
materials and other information known by the Plan Administrator to have been
furnished by the issuer of the Shares, or by any solicitor of proxies, to the
holders of Shares.
(b) To the extent that any person shall fail to give
instructions with respect to the exercise of voting rights appurtenant to Shares
allocated to his Share Investment Account:
(i) the Trustee shall, with respect to each matter to be voted
upon: (A) cast a number of affirmative votes equal to the product of
(I) the number of allocated Shares for which no written instructions
have been given, multiplied by (II) a fraction, the numerator of which
is the number of allocated Shares for which affirmative votes will be
cast in accordance with written instructions given as provided in
section 12.3(a) and the denominator of which is the aggregate number of
affirmative and negative votes which will be cast in accordance with
written instructions given as aforesaid, and (B) cast a number of
negative votes equal to the excess (if any) of (I) the number of
allocated Shares for which no written instructions have been given over
(II) the number of affirmative votes being cast with respect to such
allocated Shares pursuant to section 12.3(b)(i)(A); or
(ii) if the Trustee shall determine that it may not,
consistent with its fiduciary duties, vote the allocated Shares for
which no written instructions have been given in the manner described
in section 12.3(b)(i), it shall vote such Shares in such manner as it,
in its discretion, may determine to be in the best interests of the
persons to whose Share Investment Accounts such Shares have been
allocated.
(c) (i) The voting rights appurtenant to Financed Shares shall
be exercised as follows with respect to each matter as to which holders of
Shares may vote:
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<PAGE> 36
(A) a number of votes equal to the product of (I) the total
number of votes appurtenant to Financed Shares allocated to the Loan
Repayment Account on the applicable record date; multiplied by (II) a
fraction, the numerator of which is the total number of affirmative
votes cast by Participants, Former Participants and the Beneficiaries
of deceased Former Participants with respect to such matter pursuant to
section 12.3(a) and the denominator of which is the total number of
affirmative and negative votes cast by Participants, Former
Participants and the Beneficiaries of deceased Former Participants,
shall be cast in the affirmative; and
(B) a number of votes equal to the excess of (I) the total
number of votes appurtenant to Financed Shares allocated to the Loan
Repayment Account on the applicable record date, over (II) the number
of affirmative votes cast pursuant to section 12.3(c)(i)(A) shall be
cast in the negative.
To the extent that the Financed Shares consist of more than one class of Shares,
this section 12.3(c)(i) shall be applied separately with respect to each class
of Shares.
(ii) If voting rights are to be exercised with respect to
Financed Shares as provided in section 12.3(c)(i)(A) and (B) at a time when
there are no Shares allocated to the Share Investment Accounts of Participants,
Former Participants and the Beneficiaries of deceased Former Participants, then
the voting rights appurtenant to Financed Shares shall be exercised as follows
with respect to each matter as to which holders of Shares may vote:
(A) Each person who is a Participant on the applicable record
date and who was a Participant on the last day of the Plan Year ending
on or immediately prior to such record date will be granted a number of
votes equal to the quotient, rounded to the nearest integral number, of
(I) such Participant's Allocation Compensation for the Plan Year
ending on or immediately prior to such record date (or for the portion
of such Plan Year during which he was a Participant); divided by (II)
$1,000.00; and
(B) a number of votes equal to the product of (I) the total
number of Financed Shares allocated to the Loan Repayment Account on
the applicable record date; multiplied by (II) a fraction, the
numerator of which is the total number of votes that are cast in the
affirmative with respect to such matter pursuant to section
12.3(c)(ii)(A) and the denominator of which is the total number of
votes that are cast either in the affirmative or in the negative with
respect to such matter pursuant to section 12.3(c)(ii)(A), shall be
cast in the affirmative; and
(C) a number of votes equal to the excess of (I) the total
number of Financed Shares allocated to the Loan Repayment Account on
the applicable record date, over (II) the number of affirmative votes
cast with respect to such matter pursuant to section 12.3(c)(ii)(B),
shall be cast in the negative.
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To the extent that the Financed Shares consist of more than one class of Shares,
this section 12.3(c)(ii) shall be applied separately with respect to each class
of Shares.
SECTION 12.4 TENDER OFFERS.
(a) Each person shall direct whether Shares allocated to his
Share Investment Account will be delivered in response to any Tender Offer. Such
person shall, for such purpose, be deemed a "named fiduciary" within the meaning
of section 402(a)(2) of ERISA. Such a direction shall be given by completing
and filing with the Trustee or such other person who shall be independent of the
Employer as the Plan Administrator shall designate, at least 10 days prior to
the latest date for exercising a right to deliver Shares pursuant to such Tender
Offer, a written direction in the form and manner prescribed by the Plan
Administrator. The Trustee or other person designated by the Plan Administrator
shall tabulate the directions given on a strictly confidential basis, and shall
provide the Plan Administrator with only the final results of the tabulation.
The final results of the tabulation shall be followed by the Plan Administrator
in directing the number of Shares to be delivered. The Plan Administrator shall
make a reasonable effort to furnish, or cause to be furnished, to each person
for whom a Share Investment Account is maintained, all information known by the
Plan Administrator to have been furnished by the issuer or by or on behalf of
any person making such Tender Offer, to the holders of Shares in connection with
such Tender Offer.
(b) To the extent that any person shall fail to give
instructions with respect to Shares allocated to his Share Investment Account:
(i) the Trustee shall (A) tender or otherwise offer for
purchase, exchange or redemption a number of such Shares equal to the
product of (I) the number of allocated Shares for which no written
instructions have been given, multiplied by (II) a fraction, the
numerator of which is the number of allocated Shares tendered or
otherwise offered for purchase, exchange or redemption in accordance
with written instructions given as provided in section 12.4(a) and the
denominator of which is the aggregate number of allocated Shares for
which written instructions have been given as aforesaid, and (B)
withhold a number of Shares equal to the excess (if any) of (I) the
number of allocated Shares for which no written instructions have been
given over (II) the number of Shares being tendered or otherwise
offered pursuant to section 12.4(b)(i)(A); or
(ii) if the Trustee shall determine that it may not,
consistent with its fiduciary duties, exercise the tender or other
rights appurtenant to allocated Shares for which no written
instructions have been given in the manner described in section
12.4(b)(i), it shall tender, or otherwise offer, or withhold such
Shares in such manner as it, in its discretion, may determine to be in
the best interests of the persons to whose Share Investment Accounts
such Shares have been allocated.
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<PAGE> 38
(c) In the case of any Tender Offer, any Financed Shares held
in the Loan Repayment Account shall be dealt with as follows:
(i) If such Tender Offer occurs at a time when there are no
Shares allocated to the Share Investment Accounts of Participants,
Former Participants and the Beneficiaries of deceased Former
Participants, then the disposition of the Financed Shares shall be
determined as follows:
(A) each person who is a Participant on the
applicable record date and who was a Participant on the last
day of the Plan Year ending on or immediately prior to such
record date will be granted a number of tender rights equal to
the quotient, rounded to the nearest integral number, of (I)
such Participant's Allocation Compensation for the Plan Year
ending on or immediately prior to such record date (or for the
portion of such Plan Year during which he was a Participant),
divided by (II) $1,000.00; and
(B) on the last day for delivering Shares or
otherwise responding to such Tender Offer, a number of Shares
equal to the product of (I) the total number of Financed
Shares allocated to the Loan Repayment Account on the last day
of the effective period of such Tender Offer; multiplied by
(II) a fraction, the numerator of which is the total number of
tender rights exercised in favor of the delivery of Shares in
response to the Tender Offer pursuant to section 12.4(c)(i)(A)
and the denominator of which is the total number of tender
rights that are exercisable in response to the Tender Offer
pursuant to section 12.4(c)(i)(A), shall be delivered in
response to the Tender Offer; and
(C) a number of Shares equal to the excess of (I) the
total number of Financed Shares allocated to the Loan
Repayment Account on the last day of the effective period of
such Tender Offer; over (II) the number of Shares to be
delivered in response to the Tender Offer pursuant to section
12.4(c)(i)(B), shall be withheld from delivery.
(ii) If such Tender Offer occurs at a time when the voting
rights appurtenant to such Financed Shares are to be exercised in
accordance with section 12.3(c)(i), then:
(A) on the last day for delivering Shares or
otherwise responding to such Tender Offer, a number of
Financed Shares equal to the product of (I) the total number
of Financed Shares allocated to the Loan Repayment Account on
the last day of the effective period of such Tender Offer;
multi plied by (II) a fraction, the numerator of which is the
total number of Shares delivered from the Share Investment
Accounts of Participants,
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Former Participants and the Beneficiaries of deceased Former
Participants in response to such Tender Offer pursuant to
section 12.4(a), and the denominator of which is the total
number of Shares allocated to the Share Investment Accounts of
Participants, Former Participants and Beneficiaries of
deceased Former Participants immediately prior to the last day
for delivering Shares or otherwise responding to such Tender
Offer, shall be delivered; and
(B) a number of Financed Shares equal to the excess
of (I) the total number of Financed Shares allocated to the
Loan Repayment Account on the last day for delivering Shares
or otherwise responding to such Tender Offer; over (II) the
number of Financed Shares to be delivered pursuant to section
12.4(c)(ii)(A), shall be withheld from delivery.
To the extent that the Financed Shares consist of more than one class of Shares,
this section 12.4(c) shall be applied separately with respect to each class of
Shares.
SECTION 12.5 DISSENT AND APPRAISAL RIGHTS.
(a) Each person shall have the right to direct the manner in
which all dissent and appraisal rights appurtenant to Shares allocated to his
Share Investment Account will be exercised. Such person shall, for such purpose,
be deemed a "named fiduciary" within the meaning of section 402(a)(2) of ERISA.
Such a direction shall be given by completing and filing with the Trustee or
such other person who shall be independent of the Employer as the Plan
Administrator shall designate, at least 10 days prior to the latest date for
exercising such dissent and appraisal rights, a written direction in the form
and manner prescribed by the Plan Administrator. The Trustee or other person
designated by the Plan Administrator shall tabulate the directions given on a
strictly confidential basis, and shall provide the Plan Administrator with only
the final results of the tabulation. The final results of the tabulation shall
be followed by the Plan Administrator in directing the Trustee as to the manner
in which such dissent and appraisal rights shall be exercised. The Plan
Administrator shall make a reasonable effort to furnish, or cause to be
furnished, to each person for whom a Share Investment Account is maintained, all
information known by the Plan Administrator to have been furnished by the issuer
or by or on behalf of any person to the holders of Shares in connection with
such dissent and appraisal rights.
(b) To the extent that any person for whom a Share Investment
Account is maintained shall fail to give instructions with respect to dissent
and appraisal rights appurtenant to Shares attributable to his interest, the
Plan Administrator shall direct the Trustee to exercise dissent and appraisal
rights as to those Shares in such manner as the Plan Administrator shall
determine to be in the best interest of the person to whom such Shares are
attributable.
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ARTICLE XIII
PAYMENT OF BENEFITS
SECTION 13.1 IN GENERAL.
The balance credited to a Participant's or Former
Participant's Account under the Plan shall be paid only at the times, to the
extent, in the manner and to the persons provided in this Article XIII.
SECTION 13.2 DESIGNATION OF BENEFICIARIES.
(a) Subject to section 13.2(b), any person entitled to a
benefit under the Plan may designate a Beneficiary to receive any amount to
which he is entitled that remains undistributed on the date of his death. Such
person shall designate his Beneficiary (and may change or revoke any such
designation) in writing in the form and manner prescribed by the Plan
Administrator. Such designation, and any change or revocation thereof, shall be
effective only if received by the Plan Administrator prior to such person's
death and shall become irrevocable upon such person's death.
(b) A Participant or Former Participant who is married shall
automatically be deemed to have designated his spouse as his Beneficiary,
unless, prior to the time such designation would, under section 13.2(a), become
irrevocable:
(i) the Participant or Former Participant designates an
additional or a different Beneficiary in accordance with this section
13.2; and
(ii) (A) the spouse of such Participant or Former Participant
consents to such designation in a writing that acknowledges the effect
of such consent and is witnessed by a Plan representative or a notary
public; or (B) the spouse of such Participant or Former Participant has
previously consented to such designation by signing a written waiver of
any right to consent to any designation made by the Participant or
Former Participant, and such waiver acknowledged the effect of the
waiver and was witnessed by a Plan representative or a notary public;
or (C) it is established to the satisfaction of a Plan representative
that the consent required under section 13.2(b)(ii)(A) may not be
obtained because such spouse cannot be located or because of other
circumstances permitted under regulations issued by the Secretary of
the Treasury.
(c) In the event that a Beneficiary entitled to payments
hereunder shall die after the death of the person who designated him but prior
to receiving payment of his entire interest in the Account of the person who
designated him, then such Beneficiary's interest in the Account of such person,
or any unpaid balance thereof, shall be paid as provided in section 13.3 to the
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Beneficiary who has been designated by the deceased Beneficiary, or if there is
none, to the executor or administrator of the estate of such deceased
Beneficiary, or if no such executor or administrator is appointed within such
time as the Plan Administrator, in his sole discretion, shall deem reasonable,
to such one or more of the spouse and descendants and blood relatives of such
deceased Beneficiary as the Plan Administrator may select. If a person entitled
to a benefit under the Plan and any of the Beneficiaries designated by him shall
die in such circumstances that there shall be substantial doubt as to which of
them shall have been the first to die, for all purposes of the Plan, the person
who made the Beneficiary designation shall be deemed to have survived such
Beneficiary.
(d) If no Beneficiary survives the person entitled to the
benefit under the Plan or if no Beneficiary has been designated by such person,
such benefit shall be paid to the executor or administrator of the estate of
such person, or if no such executor or administrator is appointed within such
time as the Plan Administrator, in his sole discretion, shall deem reasonable,
to such one or more of the spouse and descendants and blood relatives of such
deceased person as the Plan Administrator may select.
SECTION 13.3 DISTRIBUTIONS TO PARTICIPANTS AND FORMER
PARTICIPANTS.
(a)(i) Subject to the provisions of section 13.7 with respect
to required minimum distributions, the vested portion of the balance credited to
a Participant's or a Former Participant's Account shall be distributed to him
commencing as of the last Valuation Date to occur in the Plan Year in which the
Participant or Former Participant terminates employment with the Employer or
attains age 65, whichever is later; unless the Participant or Former Participant
elects otherwise pursuant to section 13.3(a)(ii), and the payment, or first in a
series of payments, is actually made within three months following such
Valuation Date.
(ii) A Participant or Former Participant may, upon request on
a form provided by the Plan Administrator and filed with the Plan Administrator
not later than 15 days prior to the date on which his employment with the
Employer terminates, elect that his vested interest in his Account be paid
commencing as of any earlier or later Valuation Date after his termination of
employment, but in no event later than the last Valuation Date to occur in the
calendar year in which the Participant or Former Participant attains age 70 1/2,
in which case the payment, or first in a series of payments, shall be made
within three months following such Valuation Date.
(b)(i) Subject to section 13.3(b)(ii), the vested portion of
the balance credited to the Account of a Participant or Former Participant will
be paid to him, commencing as of the Valuation Date determined under section
13.3(a), in substantially equal annual installments over a fixed period equal to
the greater of:
(A) five years; or
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<PAGE> 42
(B) if the vested portion of the balance credited to the
Account of the Participant or Former Participant, determined as of the
Valuation Date determined under section 13.3(a), is greater than
$500,000 (or such larger amount as may be prescribed by the Secretary
of the Treasury pursuant to section 409(o) of the Code), the sum of
five years plus the lesser of (I) five additional years, or (II) one
additional year for each $100,000 (or fraction thereof) by which the
vested portion of the balance credited to the Participant's or Former
Participant's Account exceeds $500,000 (or such larger amount as may be
prescribed by the Secretary of the Treasury pursuant to section 409(o)
of the Code).
(ii) A Participant or Former Participant may, upon request on
a form provided by the Plan Administrator and filed with the Plan Administrator
not later than 15 days prior to the date on which his employment terminates,
elect that the vested portion of the balance credited to his Account be paid,
commencing as of the Valuation Date determined under section 13.3(a):
(A) in substantially equal annual installments over a fixed
period not to exceed the lesser of (I) 10 years, or (II) the life
expectancy of the Participant or Former Participant, or, if his
Beneficiary is a natural person, the joint life and last survivor
expectancy of the Participant or Former Participant and his
Beneficiary; or
(B) subject to section 13.4, in a lump sum payment.
(c) If any person entitled to a benefit under the Plan dies
before his entire benefit has been distributed to him, then the remainder of
such benefit shall be paid to the Beneficiary designated by him under section
13.2 either:
(i) in a lump sum distribution as of the Valuation Date next
following the date of his death, and the amount thereof shall be based
upon the vested portion of the balance credited to his Account as of
such Valuation Date; or
(ii) if, prior to the death of the Participant or Former
Participant whose vested Account is being distributed, an election
pursuant to section 13.3(b)(ii)(B) is in effect for him, in a lump sum
distribution as of the Valuation Date specified in such election, or,
if earlier, as of the latest Valuation Date that would permit payment
to be made within five years after the Participant's or Former
Participant's death, and the amount thereof shall be based upon the
vested portion of the balance credited to his Account as of such
Valuation Date; or
(iii) if, prior to the death of the Participant or Former
Participant whose vested Account is being distributed, an election
pursuant to section 13.3(b)(ii)(A) is in effect for him:
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<PAGE> 43
(A) over the period and at the times set forth in
such election, if distribution has begun prior to the
Participant's or Former Participant's death; or
(B) commencing at the time set forth in such election
and over the period set forth in such election (or, if less,
over a period equal to the life expectancy of the Beneficiary
of the deceased Participant or Former Participant), if the
deceased Participant's or Former Participant's spouse is his
Beneficiary and distribution has not begun prior to the
deceased Participant's or Former Participant's death; or
(C) commencing on the date specified in such election
(or, if earlier, the last Valuation Date that will permit
payment to begin within one year after the deceased
Participant's or Former Participant's death) and over the
period set forth in such election (or, if less, over a period
equal to the life expectancy of the Beneficiary of the
deceased Participant or Former Participant), if the deceased
Participant's or Former Participant's Beneficiary is a natural
person other than his spouse and distribution has not begun
prior to the deceased Participant's or Former Participant's
death;
and the amount thereof shall be based upon the vested portion of the
balance credited to his Account as of the Valuation Dates as of which
payments are determined; or
(iv) upon written application of the Beneficiary made in such
form and manner as the Plan Administrator may prescribe, at another
time or in another manner permitted under section 13.3(a) or (b),
subject to the following limitations:
(A)(I) If such Beneficiary is a natural person other
than the spouse of the deceased Participant or Former
Participant whose vested Account is being distributed, a
distribution that commences within one year after such
deceased Participant's or Former Participant's death shall be
made over a fixed period that does not exceed the life
expectancy of such Beneficiary when distribution commences.
(II) If such Beneficiary is the spouse of the
deceased Participant or Former Participant whose vested
Account is being distributed, a distribution that commences no
later than the later of: (1) the date on which the deceased
Participant or Former Participant would have attained age 70
1/2 had he lived; or (2) the first anniversary of the death of
such deceased Participant or Former Participant; shall be made
over a fixed period that does not exceed the life expectancy
of such Beneficiary when distribution commences.
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(III) In all other cases where the spouse of the
deceased Participant or Former Participant whose vested
Account is being distributed is not the Beneficiary, payment
must be completed within five years after the death of such
deceased Participant or Former Participant.
(B) In cases where distribution has commenced prior
to the death of the deceased Participant or Former Participant
whose vested Account is being distributed, distribution must
be completed as least as rapidly as under the method in effect
prior to such deceased Participant's or Former Participant's
death.
SECTION 13.4 MANNER OF PAYMENT.
(a) Subject to section 13.4(b), payments of distributions made
pursuant to section 13.3 or section 13.7 shall be paid, in accordance with the
written direction of the person requesting the payment, in whole Shares, in
cash, or in a combination of cash and whole Shares. Such written direction shall
be given in such form and manner as the Plan Administrator may prescribe. If no
such direction is given, then payment shall be made in the maximum number of
whole Shares that may be acquired with the amount of the payment, plus, if
necessary, an amount of money equal to any remaining amount of the payment that
is less than the Fair Market Value of a whole Share.
(b) No distribution of a lump sum payment shall be made in
cash to the extent that the making of such distribution, when combined with all
other distributions to be made in cash as of the same Valuation Date, would
require the sale of Shares constituting 1% or more of all outstanding Shares;
provided, however, that this section 13.4(b) shall not apply to or in respect of
a Participant or Former Participant:
(i) following such Participant's or Former Participant's
termination of employment with the Employer on account of his
Retirement or Disability; or
(ii) following such Participant's or Former Participant's 65th
birthday; or
(iii) following the death of such Participant or Former
Participant.
SECTION 13.5 PUT OPTIONS.
(a) Except as provided otherwise in section 13.5(b), each
Participant or Former Participant to whom Shares are distributed under the Plan,
each Beneficiary of a deceased Participant or Former Participant, including the
estate of a deceased Participant or Former Participant, to whom Shares are
distributed under the Plan, and each person to whom such a Participant, Former
Participant or Beneficiary gives Shares that have been distributed under the
Plan shall have
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the right to require the Employer to purchase from him all or any portion of
such Shares. A person shall exercise such right by delivering to the Employer a
written notice, in such form and manner as the Employer may by written notice to
such person prescribe, setting forth the number of Shares to be purchased by the
Employer, the number of the stock certificate evidencing such person's ownership
of such Shares, and the effective date of purchase. Such notice shall be given,
and the effective date of the purchase specified therein shall be, no later than
the last day of the fifteenth calendar month to begin after the date on which
the Shares to be purchased by the Employer were distributed from the Plan. As
soon as practicable following its receipt of such notice, the Employer shall
take such actions as are necessary to purchase the Shares specified in such
notice at a price per Share equal to the Fair Market Value of a Share determined
as of the effective date of the purchase.
(b) The Employer shall have no obligation to purchase any
Share (i) pursuant to a notice given, or on an effective date of purchase, after
the last day of the fifteenth calendar month to begin after the date on which
such Share was distributed from the Plan; (ii) following the earliest date on
which Shares are publicly traded on an established market; or (iii) if the
Employer is a "bank" within the meaning of section 581 of the Code and is
prohibited by law from redeeming or purchasing its own securities.
SECTION 13.6 RIGHT OF FIRST REFUSAL.
(a) For any period during which Shares are not publicly traded
on any established market, no person who owns Shares that were distributed from
the Plan, other than a person to whom such Shares were sold in compliance with
this section 13.6, shall sell such Shares to any person other than the Employer
without first offering to sell such Shares to the Employer (or person designated
by the Employer) in accordance with this section 13.6.
(b) In the event that a person to whom this section 13.6
applies shall receive and desire to accept from a person other than the Employer
a bona fide offer to purchase Shares to which this section 13.6 applies, he
shall furnish to the Employer a written notice which shall:
(i) include a copy of such offer to purchase;
(ii) offer to sell to the Employer the Shares subject to such
offer to purchase at a price per Share that is equal to the greater of:
(A) the price per Share specified in such offer to
purchase; or
(B) the Fair Market Value of a Share as of the date
of purchase;
and otherwise upon the same terms and conditions as those specified in
such offer to purchase; and
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<PAGE> 46
(iii) include an indication of his intention to accept such
offer to purchase if the Employer does not accept his offer to sell.
(c) The Employer shall have the right to purchase the Shares
covered by the offer to sell contained in a notice given pursuant to section
13.6(b), on the terms and conditions specified in such notice, by written notice
given to the party making the offer to sell not later than the fourteenth day
after the notice described in section 13.6(b) is given. If the Employer does not
give such a notice during the prescribed fourteen day period, then the person
owning such Shares may accept the offer to purchase described in the notice.
SECTION 13.7 MINIMUM REQUIRED DISTRIBUTIONS.
(a) Required minimum distributions of a Participant's or
Former Participant's Account shall commence no later than:
(i) if the Participant or Former Participant is not a Five
Percent Owner at any time during the Plan Year ending in the calendar
year in which he attains age 70 1/2, the later of (A) the calendar year
in which he attains or attained age 70 1/2 or (B) the calendar year in
which he terminates employment with the Employer; or
(ii) if the Participant or Former Participant is or was a Five
Percent Owner at any time during the Plan Year ending in the calendar
year in which he attains age 70 1/2, the later of (A) the calendar year
in which he attains age 70 1/2 or (B) the calendar year in which he
first becomes a Five Percent Owner.
(b) The required minimum distributions contemplated by section
13.7(a) shall be made as follows:
(i) The minimum required distribution to be made for the
calendar year for which the first minimum distribution is required
shall be no later than April 1st of the immediately following calendar
year and shall be equal to the quotient obtained by dividing (A) the
vested balance credited to the Participant's or Former Participant's
Account as of the last Valuation Date to occur in the calendar year
immediately preceding the calendar year in which the first minimum
distribution is required (adjusted to account for any additions thereto
or subtractions therefrom after such Valuation Date but on or before
December 31st of such calendar year); by (B) the Participant's or
Former Participant's life expectancy (or, if his Beneficiary is a
natural person, the joint life and last survivor expectancy of him and
his Beneficiary); and
(ii) the minimum required distribution to be made for each
calendar year following the calendar year for which the first minimum
distribution is required shall be made no later than December 31st of
the calendar year for which the
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<PAGE> 47
distribution is required and shall be equal to the quotient obtained by
dividing (A) the vested balance credited to the Participant's or Former
Participant's Account as of the last Valuation Date to occur in the
calendar year prior to the calendar year for which the distribution is
required (adjusted to account for any additions thereto or subtractions
therefrom after such Valuation Date but on or before December 31st of
such calendar year and, in the case of the distribution for the
calendar year immediately following the calendar year for which the
first minimum distribution is required, reduced by any distribution for
the prior calendar year that is made in the current calendar year); by
(B) the Participant's or Former Participant's life expectancy (or, if
his Beneficiary is a natural person, the joint life and last survivor
expectancy of him and his Beneficiary).
For purposes of this section 13.7, the life expectancy of a Participant or
Former Participant (or the joint life and last survivor expectancy of a
Participant or Former Participant and his designated Beneficiary) for the
calendar year in which the Participant or Former Participant attains age 70 1/2
shall be determined on the basis of Tables V and VI, as applicable, of section
1.72-9 of the Income Tax Regulations as of the Participant's or Former
Participant's and Beneficiary's birthday in such year. Such life expectancy or
joint life and last survivor expectancy for any subsequent year shall be equal
to the excess of (1) the life expectancy or joint life and last survivor
expectancy for the year in which the Participant or Former Participant attains
age 70 1/2, over (2) the number of whole years that have elapsed since the
Participant or Former Participant attained age 70 1/2.
(c) Payment of the distributions required to be made to a
Participant or Former Participant under this section 13.7 shall be made in
accordance with section 13.4.
SECTION 13.8 DIRECT ROLLOVER OF ELIGIBLE ROLLOVER
DISTRIBUTIONS.
(a) A Distributee may elect, at the time and in the manner
prescribed by the Plan Administer, to have any portion of an Eligible Rollover
Distribution paid directly to an Eligible Retirement Plan specified by the
Distributee in a Direct Rollover.
(b) The following rules shall apply with respect to Direct
Rollovers made pursuant to this section 13.8:
(i) A Participant may only elect to make a Direct Rollover of
an Eligible Rollover Distribution if such Eligible Rollover
Distribution (when combined with other Eligible Rollover Distributions
made or to be made in the same calendar year) is reasonably expected to
be at least $200;
(ii) If a Participant elects a Direct Rollover of a portion of
an Eligible Rollover Distribution, that portion must be equal to at
least $500; and
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<PAGE> 48
(iii) A Participant may not divide his or her Eligible
Rollover Distribution into separate distributions to be transferred to
two or more Eligible Retirement Plans.
(c) For purposes of this section 13.8 and any other applicable
section of the Plan, the following definitions shall have the following
meanings:
(i) "Direct Rollover" means a payment by the Plan to the
Eligible Retirement Plan specified by the Distributee.
(ii) "Distributee" means an Employee or former Employee. In
addition, the Employee's or former Employee's surviving spouse and the
Employee's spouse or former spouse who is the alternate payee under a
Qualified Domestic Relations Order are considered Distributees with
regard to the interest of the spouse or former spouse.
(iii) "Eligible Retirement Plan" means an individual
retirement account described in section 408(a) of the Code, an
individual retirement annuity described in section 408(b) or the Code,
an annuity plan described in section 403(a) of the Code, or a qualified
trust described in section 401(a) of the Code that accepts the
Distributee's Eligible Rollover Distribution. However, in the case of
an Eligible Rollover Distribution to the current or former spouse who
is the alternative payee under a Qualified Domestic Relations Order or
to a surviving spouse, an Eligible Retirement Plan is an individual
retirement account or individual retirement annuity.
(iv) "Eligible Rollover Distribution" means any distribution
of all or any portion of the balance to the credit of the Distributee,
except that an Eligible Rollover Distribution does not include: any
distribution that is one of a series of substantially equal periodic
payments (not less frequently than annually) made for the life (or life
expectancy) of the Distributee or the joint lives (or joint life
expectancies) of the Distributee's designated Beneficiary, or for a
specified period of ten years or more; any distribution to the extent
such distribution is required under section 401(a)(9) of the Code; and
the portion of any distribution that is not includible in gross income
(determined without regard to the exclusion for net unrealized
appreciation with respect to employer securities).
SECTION 13.9 VALUATION OF SHARES UPON SETTLEMENT TO A
PARTICIPANT.
Notwithstanding any contrary provision in this Article XIII,
in the event that all or a portion of a payment of a distribution to a
Participant is to be made in cash, such Participant shall only be entitled to
receive the proceeds of the Shares allocated to his Account that are sold in
connection with such distribution and which are valued as of the date of such
sale.
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ARTICLE XIV
CHANGE IN CONTROL
SECTION 14.1 DEFINITION OF CHANGE IN CONTROL.
A Change in Control of the Employer shall be deemed to have
occurred upon the happening of any of the following events:
(a) the occurrence of any event upon which any "person" (as
such term is used in sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended ("Exchange Act")), other than (A) a
trustee or other fiduciary holding securities under an employee benefit
plan maintained for the benefit of employees of Warwick Community
Bancorp, Inc.; (B) a corporation owned, directly or indirectly, by the
shareholders of Warwick Community Bancorp, Inc. in substantially the
same proportions as their ownership of stock of Warwick Community
Bancorp, Inc.; or (C) any group constituting a person in which
employees of Warwick Community Bancorp, Inc. are substantial members,
becomes the "beneficial owner" (as defined in Rule 13d-3 promulgated
under the Exchange Act), directly or indirectly, of securities issued
by Warwick Community Bancorp, Inc. representing 25% or more of the
combined voting power of all of Warwick Community Bancorp, Inc.'s then
outstanding securities; or
(b) the occurrence of any event upon which the individuals who
on the date the Plan is adopted are members of the Board, together with
individuals whose election by the Board or nomination for election by
Warwick Community Bancorp, Inc.'s shareholders was approved by the
affirmative vote of at least two-thirds of the members of the Board
then in office who were either members of the Board on the date this
Plan is adopted or whose nomination or election was previously so
approved, cease for any reason to constitute a majority of the members
of the Board, but excluding, for this purpose, any such individual
whose initial assumption of office is in connection with an actual or
threatened election contest relating to the election of directors of
Warwick Community Bancorp, Inc. (as such terms are used in Rule 14a-11
of Regulation 14A promulgated under the Exchange Act); or
(c) the shareholders of Warwick Community Bancorp, Inc.
approve either:
(i) a merger or consolidation of Warwick Community
Bancorp, Inc. with any other corporation, other than a merger
or consolidation following which both of the following
conditions are satisfied:
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(A) either (1) the members of the Board of
Warwick Community Bancorp, Inc. immediately prior to
such merger or consolidation constitute at least a
majority of the members of the governing body of the
institution resulting from such merger or
consolidation; or (2) the shareholders of Warwick
Community Bancorp, Inc. own securities of the
institution resulting from such merger or
consolidation representing 80% or more of the
combined voting power of all such securities then
outstanding in substantially the same proportions as
their ownership of voting securities of Warwick
Community Bancorp, Inc. before such merger or
consolidation; and
(B) the entity which results from such
merger or consolidation expressly agrees in writing
to assume and perform Warwick Community Bancorp,
Inc.'s obligations under the Plan; or
(ii) a plan of complete liquidation of Warwick
Community Bancorp, Inc. or an agreement for the sale or
disposition by Warwick Community Bancorp, Inc. of all or
substantially all of its assets; and
(d) any event that would be described in section 14.1(c)(i),
or (ii) if "The Warwick Savings Bank" were substituted for "Warwick
Community Bancorp, Inc." therein, and "Board of Directors of The
Warwick Savings Bank" were substituted for "Board" therein; and
In no event, however, shall the transaction by which The Warwick Savings Bank
converts from a mutual savings bank to a stock savings bank, or any transaction
by which a company wholly owned by The Warwick Savings Bank becomes the parent
company of The Warwick Savings Bank be deemed a Change in Control.
SECTION 14.2 VESTING ON CHANGE OF CONTROL.
Upon the effective date of a Change in Control, the Account of each person who
would then, upon termination of the Plan, be entitled to a benefit, shall be
fully vested and nonforfeitable.
SECTION 14.3 REPAYMENT OF LOAN.
(a) Upon a Change in Control described in section 14.1(c) (or
which would be described in section 14.1(c) if "The Warwick Savings Bank" were
substituted for "Warwick Community Bancorp, Inc." thereunder), the Plan
Administrator shall direct the Trustee to sell a sufficient number of Shares to
repay any outstanding Share Acquisition Loan in full. The proceeds of such sale
shall be used to repay such Share Acquisition Loan. After repayment of the Share
Acquisition Loan, all remaining Shares which had been unallocated (or the
proceeds thereof, if
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applicable) shall be allocated among the accounts of all Participants who were
employed by an Employer on the effective date of such Change in Control. Such
allocation of Shares or proceeds shall be credited as of the date on which the
Change in Control occurs to the Accounts of each Participant who has not had a
termination of participation under section 2.3 as of such date (each, an
"Affected Participant"), in proportion to their Allocation Compensation, for the
period, beginning on the January 1 immediately preceding the date on which the
Change in Control occurs and ending on the date on which the Change in Control
occurs. If any amount cannot be allocated to an Affected Participant in the year
of such Change in Control as a result of the limitations of section 415 of the
Code, the amounts will be allocated in subsequent years to those persons who
were Affected Participants and who continue to be Participants in the Plan until
finally distributed to Affected Participants.
(b) In the event that the application of section 415 of the
Code prevents the allocation of all of the Shares or other assets released from
the Loan Repayment Account as provided in section 14.3(a) as of the effective
date of the Change in Control, each Affected Participant shall be entitled to
receive a supplemental benefit payment directly from the Employer. The
supplemental benefit payment to each Affected Participant shall be an amount
equal to the excess of:
(i) the total amount of Shares or other property that would be
allocated to such Affected Participant's Account under section 14.3(a)
if section 415 of the Code did not apply; over
(ii) the total of Shares or other property actually allocated
to such Affected Participant's Account under section 14.3(a).
Such payment (without offset for any allocations which may occur under this Plan
subsequent to the Change in Control) shall be made as soon as practicable, but
in any event within ten business days, after the effective date of the Change in
Control. This section 14.3(b) shall be treated as a separate, non-qualified
"excess benefit plan" within the meaning of section 3(34) of ERISA and shall be
interpreted, administered and enforced in a manner consistent with this
intention. To the extent that any Affected Participant is entitled to the same
or a similar payment under any other non-qualified plan, program or arrangement
of the Employer, any payment under this section 14.3(b) shall be coordinated
with the payments under such other non-qualified programs, plan or arrangements
in such manner as shall be determined by the Plan Administrator to be necessary
to prevent the duplication of benefits.
SECTION 14.4 PLAN TERMINATION AFTER CHANGE IN CONTROL.
After repayment of the loan and allocation of shares or
proceeds as provided in section 14.3, the Plan shall be terminated and all
amounts shall be distributed as soon as practicable.
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SECTION 14.5 AMENDMENT OF ARTICLE XIV.
Article XIV of the Plan may not be amended after a Change in
Control of the Employer unless required by the Internal Revenue Service as a
condition to the continued treatment of the Plan as a tax-qualified plan under
section 401(a) of the Code.
ARTICLE XV
ADMINISTRATION
SECTION 15.1 NAMED FIDUCIARIES.
The term "Named Fiduciary" shall mean (but only to the extent
of the responsibilities of each of them) the Plan Administrator, the Plan
Administrator, the Board and the Trustee. This Article XV is intended to
allocate to each Named Fiduciary the responsibility for the prudent execution of
the functions assigned to him or it, and none of such responsibilities or any
other responsibility shall be shared by two or more of such Named Fiduciaries.
Whenever one Named Fiduciary is required by the Plan or Trust Agreement to
follow the directions of another Named Fiduciary, the two Named Fiduciaries
shall not be deemed to have been assigned a shared responsibility, but the
responsibility of the Named Fiduciary giving the directions shall be deemed his
sole responsibility, and the responsibility of the Named Fiduciary receiving
those directions shall be to follow them insofar as such instructions are on
their face proper under applicable law.
SECTION 15.2 PLAN ADMINISTRATOR.
There shall be a Plan Administrator, who shall be the Senior
Human Resources Officer of Warwick Community Bancorp, Inc., or such Employee or
officer as may be designated by the Board, as hereinafter provided, and who
shall, subject to the responsibilities of the Plan Administrator and the Board,
have the responsibility for the day-to-day control, management, operation and
administration of the Plan (except trust duties). The Plan Administrator shall
have the following responsibilities:
(a) To maintain records necessary or appropriate for the
administration of the Plan;
(b) To give and receive such instructions, notices,
information, materials, reports and certifications to the Trustee as
may be necessary or appropriate in the administration of the Plan;
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(c) To prescribe forms and make rules and regulations
consistent with the terms of the Plan;
(d) To require such proof of age or evidence of good health of
an Employee, Participant or Former Participant or the spouse of either,
or of a Beneficiary as may be necessary or appropriate in the
administration of the Plan;
(e) To prepare and file, distribute or furnish all reports,
plan descriptions, and other information concerning the Plan,
including, without limitation, filings with the Secretary of Labor and
communications with Participants, Former Participants and other
persons, as shall be required of the Plan Administrator under ERISA;
(f) To determine any question arising in connection with the
Plan, and the Plan Administrator's decision or action in respect
thereof shall be final and conclusive and binding upon the Employer,
the Trustee, Participants, Former Participants, Beneficiaries and any
other person having an interest under the Plan;
(g) To review and dispose of claims under the Plan filed
pursuant to section 15.3 and appeals filed pursuant to section 15.4;
(h) If the Plan Administrator shall determine that by reason
of illness, senility, insanity, or for any other reason, it is
undesirable to make any payment to a Participant, Former Participant,
Beneficiary or any other person entitled thereto, to direct the
application of any amount so payable to the use or benefit of such
person in any manner that he may deem advisable or to direct in his
discretion the withholding of any payment under the Plan due to any
person under legal disability until a representative competent to
receive such payment in his behalf shall be appointed pursuant to law;
(i) To review the performance of the Trustee and such
investment managers as may be appointed in or pursuant to the Trust
Agreement in investing, managing and controlling the assets of the
Plan;
(j) To the extent required by ERISA, to establish a funding
policy and method consistent with the objectives of the Plan and the
requirements of ERISA, and to review such policy and method at least
annually;
(k) To report and make recommendations to the Board regarding
changes in the Plan, including changes in the operation and management
of the Plan and removal and replacement of the Trustee and such
investment managers as may be appointed in or pursuant to the Trust
Agreement;
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(l) To the extent provided under and subject to the provisions
of the Trust Agreement, to appoint "investment managers" as defined in
section 3(38) of ERISA to manage and control (including acquiring and
disposing of) all or any of the assets of the Plan;
(m) With the prior approval of the Board, to direct the
Trustee to obtain one or more Share Acquisition Loans;
(n) To develop and provide procedures and forms necessary to
enable Participants to give voting and tendering directions on a
confidential basis;
(o) To discharge such other responsibilities or follow such
directions as may be assigned or given by the Board; and
(p) To discharge such other responsibilities or follow such
directions as may be assigned or given by the Board; and
(q) To perform any duty or take any action which is allocated
to the Plan Administrator under the Plan.
The Plan Administrator shall have the power and authority necessary or
appropriate to carry out his responsibilities. The Plan Administrator may resign
only by giving at least 30 days' prior written notice of resignation to the
Board, and such resignation shall be effective on the date specified in such
notice.
SECTION 15.3 CLAIMS PROCEDURE.
Any claim relating to benefits under the Plan shall be filed
with the Plan Administrator on a form prescribed by him. If a claim is denied in
whole or in part, the Plan Administrator shall give the claimant written notice
of such denial, which notice shall specifically set forth:
(a) The reasons for the denial;
(b) The pertinent Plan provisions on which the denial was
based;
(c) Any additional material or information necessary for the
claimant to perfect his claim and an explanation of why such material
or information is needed; and
(d) An explanation of the Plan's procedure for review of the
denial of the claim.
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In the event that the claim is not granted and notice of denial of a claim is
not furnished by the 30th day after such claim was filed, the claim shall be
deemed to have been denied on that day for the purpose of permitting the
claimant to request review of the claim.
SECTION 15.4 CLAIMS REVIEW PROCEDURE.
Any person whose claim filed pursuant to section 15.3 has been
denied in whole or in part by the Plan Administrator may request review of the
claim by the Plan Administrator, upon a form prescribed by the Plan
Administrator. The claimant shall file such form (including a statement of his
position) with the Plan Administrator no later than 60 days after the mailing or
delivery of the written notice of denial provided for in section 15.3, or, if
such notice is not provided, within 60 days after such claim is deemed denied
pursuant to section 15.3. The claimant shall be permitted to review pertinent
documents. A decision shall be rendered by the Plan Administrator and
communicated to the claimant not later than 30 days after receipt of the
claimant's written request for review. However, if the Plan Administrator finds
it necessary, due to special circumstances (for example, the need to hold a
hearing), to extend this period and so notifies the claimant in writing, the
decision shall be rendered as soon as practicable, but in no event later than
120 days after the claimant's request for review. The Plan Administrator's
decision shall be in writing and shall specifically set forth:
(a) The reasons for the decision; and
(b) The pertinent Plan provisions on which the decision is
based.
Any such decision of the Plan Administrator shall be binding upon the claimant
and the Employer, and the Plan Administrator shall take appropriate action to
carry out such decision.
SECTION 15.5 ALLOCATION OF FIDUCIARY RESPONSIBILITIES
AND EMPLOYMENT OF ADVISORS.
Any Named Fiduciary may:
(a) Allocate any of his or its responsibilities (other than
trustee responsibilities) under the Plan to such other person or
persons as he or it may designate, provided that such allocation and
designation shall be in writing and filed with the Plan Administrator;
(b) Employ one or more persons to render advice to him or it
with regard to any of his or its responsibilities under the Plan; and
(c) Consult with counsel, who may be counsel to the Employer.
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SECTION 15.6 OTHER ADMINISTRATIVE PROVISIONS.
(a) Any person whose claim has been denied in whole or in part
must exhaust the administrative review procedures provided in section 15.4 prior
to initiating any claim for judicial review.
(b) No bond or other security shall be required of the Plan
Administrator, or any officer or Employee of the Employer to whom fiduciary
responsibilities are allocated by a Named Fiduciary, except as may be required
by ERISA.
(c) Subject to any limitation on the application of this
section 15.6(c) pursuant to ERISA, neither the Plan Administrator, nor any
officer or Employee of the Employer to whom fiduciary responsibilities are
allocated by a Named Fiduciary, shall be liable for any act of omission or
commission by himself or by another person, except for his own individual
willful and intentional malfeasance.
(d) The Plan Administrator may, except with respect to actions
under section 15.4, shorten, extend or waive the time (but not beyond 60 days)
required by the Plan for filing any notice or other form with the Plan
Administrator, or taking any other action under the Plan.
(e) The Plan Administrator may direct that the costs of
services provided pursuant to section 15.5, and such other reasonable expenses
as may be incurred in the administration of the Plan, shall be paid out of the
funds of the Plan unless the Employer shall pay them.
(f) Any person, group of persons, committee, corporation or
organization may serve in more than one fiduciary capacity with respect to the
Plan.
(g) Any action taken or omitted by any fiduciary with respect
to the Plan, including any decision, interpretation, claim denial or review on
appeal, shall be conclusive and binding on all interested parties and shall be
subject to judicial modification or reversal only to the extent it is determined
by a court of competent jurisdiction that such action or omission was arbitrary
and capricious and contrary to the terms of the Plan.
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ARTICLE XVI
AMENDMENT, TERMINATION AND TAX QUALIFICATION
SECTION 16.1 AMENDMENT AND TERMINATION BY WARWICK
COMMUNITY BANCORP, INC.
The Employer expects to continue the Plan indefinitely, but
specifically reserves the right, in its sole discretion, at any time, by
appropriate action of the Board, to amend, in whole or in part, any or all of
the provisions of the Plan and to terminate the Plan at any time. Subject to the
provisions of section 16.2, no such amendment or termination shall permit any
part of the Trust Fund to be used for or diverted to purposes other than for the
exclusive benefit of Participants, Former Participants, Beneficiaries or other
persons entitled to benefits, and no such amendment or termination shall reduce
the accrued benefit of any Participant, Former Participant, Beneficiary or other
person who may be entitled to benefits, without his consent. In the event of a
termination or partial termination of the Plan, or in the event of a complete
discontinuance of the Employer's contributions to the Plan, the Accounts of each
affected person shall forthwith become nonforfeitable and shall be payable in
accordance with the provisions of Article XIII.
SECTION 16.2 AMENDMENT OR TERMINATION OTHER THAN
BY WARWICK COMMUNITY BANCORP, INC.
In the event that a corporation or trade or business other
than Warwick Community Bancorp, Inc. shall adopt this Plan, such corporation or
trade or business shall, by adopting the Plan, empower Warwick Community
Bancorp, Inc. to amend or terminate the Plan, insofar as it shall cover
employees of such corporation or trade or business, upon the terms and
conditions set forth in section 16.1; provided, however, that any such
corporation or trade or business may, by action of its board of directors or
other governing body, amend or terminate the Plan, insofar as it shall cover
employees of such corporation or trade or business, at different times and in a
different manner. In the event of any such amendment or termination by action of
the board of directors or other governing body of such a corporation or trade or
business, a separate plan shall be deemed to have been established for the
employees of such corporation or trade or business, and the assets of such plan
shall be segregated from the assets of this Plan at the earliest practicable
date and shall be dealt with in accordance with the documents governing such
separate plan.
SECTION 16.3 CONFORMITY TO INTERNAL REVENUE CODE.
The Employer has established the Plan with the intent that the
Plan and Trust will at all times be qualified under section 401(a) and exempt
under section 501(a) of the Code and with the intent that contributions under
the Plan will be allowed as deductions in computing the net income of the
Employer for federal income tax purposes, and the provisions of the Plan and
Trust Agreement shall be construed to effectuate such intentions. Accordingly,
notwithstanding
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anything to the contrary hereinbefore provided, the Plan and the Trust
Agreement may be amended at any time without prior notice to Participants,
Former Participants, Beneficiaries or any other persons entitled to benefits,
if such amendment is deemed by the Board to be necessary or appropriate to
effectuate such intent.
SECTION 16.4 CONTINGENT NATURE OF CONTRIBUTIONS.
(a) All ESOP Contributions to the Plan are conditioned upon the
issuance by the Internal Revenue Service of a determination that the Plan and
Trust are qualified under section 401(a) of the Code and exempt under section
501(a) of the Code. If the Employer applies to the Internal Revenue Service for
such a determination within 90 days after the date on which it files its
federal income tax return for its taxable year that includes the last day of
the Plan Year in which the Plan is adopted, and if the Internal Revenue Service
issues a determination that the Plan and Trust are not so qualified or exempt,
all ESOP Contributions made by the Employer prior to the date of receipt of
such a determination may, at the election of the Employer, be returned to the
Employer within one year after the date of such determination.
(b) All ESOP Contributions and Loan Repayment Contributions to the Plan
are made upon the condition that such ESOP Contributions and Loan Repayment
Contributions will be allowed as a deduction in computing the net income of the
Employer for federal income tax purposes. To the extent that any such deduction
is disallowed, the amount disallowed may, at the election of the Employer, be
returned to the Employer within one year after the deduction is disallowed.
(c) Any contribution to the Plan made by the Employer as a result of a
mistake of fact may, at the election of the Employer, be returned to the
Employer within one year after such contribution is made.
ARTICLE XVII
SPECIAL RULES FOR TOP HEAVY PLAN YEARS
SECTION 17.1 IN GENERAL.
As of the Determination Date for each Plan Year, the Plan Administrator
shall determine whether the Plan is a Top Heavy Plan in accordance with the
provisions of this Article XVII. If, as of such Determination Date, the Plan is
a Top Heavy Plan, then the Plan Year immediately following such Determination
Date shall be a Top Heavy Plan Year and the special provisions of this Article
XVII shall be in effect; provided, however, that if, as of the Determination
Date for the Plan Year in which the Effective Date occurs, the Plan is a Top
Heavy Plan, such Plan Year shall be a Top Heavy Plan Year, and the provisions of
this Article XVII shall be given retroactive effect for such Plan Year.
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SECTION 17.2 DEFINITION OF TOP HEAVY PLAN.
(a) Subject to section 17.2(c), the Plan is a Top Heavy Plan
if, as of a Determination Date: (i) it is not a member of a Required
Aggregation Group, and (ii)(A) the sum of the Cumulative Accrued Benefits of
all Key Employees exceeds 60% of (B) the sum of the Cumulative Accrued Benefits
of all Employees (excluding former Key Employees), former Employees (excluding
former Key Employees and other former Employees who have not performed any
services for the Employer or any Affiliated Employer during the immediately
preceding five Plan Years), and their Beneficiaries.
(b) Subject to section 17.2(c), the Plan is a Top Heavy Plan
if, as of a Determination Date: (i) the Plan is a member of a Required
Aggregation Group, and (ii)(A) the sum of the Cumulative Accrued Benefits of
all Key Employees under all plans that are members of the Required Aggregation
Group exceeds 60% of (B) the sum of the Cumulative Accrued Benefits of all
Employees (excluding former Key Employees), former Employees (excluding former
Key Employees and other former Employees who have not performed any services
for the Employer or any Affiliated Employer during the immediately preceding
five Plan Years), and their Beneficiaries under all plans that are members of
the Required Aggregation Group.
(c) Notwithstanding sections 17.2(a) and 17.2(b), the Plan is
not a Top Heavy Plan if, as of a Determination Date: (i) the Plan is a member
of a Permissible Aggregation Group, and (ii)(A) the sum of the Cumulative
Accrued Benefits of all Key Employees under all plans that are members of the
Permissible Aggregation Group does not exceed 60% of (B) the sum of the
Cumulative Accrued Benefits of all Employees (excluding former Key Employees),
former Employees (excluding former Key Employees and other former Employees who
have not performed any services for the Employer or any Affiliated Employer
during the immediately preceding five Plan Years), and their Beneficiaries
under all plans that are members of the Permissible Aggregation Group.
SECTION 17.3 DETERMINATION DATE.
The Determination Date for the Plan Year in which the Effective
Date occurs shall be the last day of such Plan Year, and the Determination Date
for each Plan Year beginning after the Plan Year in which the Effective Date
occurs shall be the last day of the preceding Plan Year. The Determination Date
for any other qualified plan maintained by the Employer for a plan year shall
be the last day of the preceding plan year of each such plan, except that in
the case of the first plan year of such plan, it shall be the last day of such
first plan year.
SECTION 17.4 CUMULATIVE ACCRUED BENEFITS.
(a) An individual's Cumulative Accrued Benefits under this Plan
as of a Determination Date are equal to the sum of:
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(i) the balance credited to such individual's Account under this
Plan as of the most recent Valuation Date preceding the Determination Date;
(ii) the amount of any ESOP Contributions or Loan Repayment
Contributions made after such Valuation Date but on or before the Determination
Date; and
(iii) the amount of any distributions of such individual's Cumulative
Accrued Benefits under the Plan during the five year period ending on the
Determination Date.
For purposes of this section 17.4(a), the computation of an individual's
Cumulative Accrued Benefits, and the extent to which distributions, rollovers
and transfers are taken into account, will be made in accordance with section
416 of the Code and the regulations thereunder.
(b) For purposes of this Plan, the term "Cumulative Accrued
Benefits" with respect to any other qualified plan, shall mean the cumulative
accrued benefits determined for purposes of section 416 of the Code under the
provisions of such plans.
(c) For purposes of determining the top heavy status of a Required
Aggregation Group or a Permissible Aggregation Group, the Cumulative Accrued
Benefits under this Plan and the Cumulative Accrued Benefits under any other
plan shall be determined as of the Determination Date that falls within the same
calendar year as the Determination Dates for all other members of such Required
Aggregation Group or Permissible Aggregation Group.
SECTION 17.5 KEY EMPLOYEES.
(a) For purposes of the Plan, the term Key Employee means any
employee or former employee of the Employer or any Affiliated Employer who is at
any time during the current Plan Year or was at any time during the immediately
preceding four Plan Years:
(i) a Five Percent Owner;
(ii) a person who would be described in section 1.23 if the number
"1%" were substituted for the number "5%" in section 1.23 and who has an annual
Total Compensation from the Employer and any Affiliated Employer of more than
$150,000;
(iii) an Officer of the Employer or any Affiliated Employer who has an
annual Total Compensation greater than 50% of the amount in effect under section
415(b)(1)(A) of the Code of any such Plan Year; or
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(iv) one of the ten persons owning the largest interests in the
Employer and having an annual Total Compensation from the Employer or
any Affiliated Employer in excess of the dollar limitation in effect
under section 415(c)(1)(A) of the Code for such Plan Year.
(b) For purposes of section 17.5(a):
(i) for purposes of section 17.5(a)(iii), in the event the
Employer or any Affiliated Employer has more officers than are
considered Officers, the term Key Employee shall mean those officers,
up to the maximum number, with the highest annual compensation in any
one of the five consecutive Plan Years ending on the Determination Date;
and
(ii) for purposes of section 17.5(a)(iv), if two or more persons
have equal ownership interests in the Employer, each such person shall
be considered as having a larger ownership interest than any such person
with a lower annual compensation from the Employer or any Affiliated
Employer.
(c) For purposes of section 17.5(a): (i) a person's compensation
from Affiliated Employers shall be aggregated, but his ownership interests in
Affiliated Employers shall not be aggregated; (ii) an employee shall only be
deemed to be an officer if he has the power and responsibility of a person who
is an officer within the meaning of section 416 of the Code; and (iii) the term
Key Employee shall also include the Beneficiary of a deceased Key Employee.
SECTION 17.6 REQUIRED AGGREGATION GROUP.
For purposes of this Article XVII, a Required Aggregation Group
shall consist of (a) this Plan; (b) any other qualified plans maintained by the
Employer and any Affiliated Employers that cover Key Employees; and (c) any
other qualified plans that are required to be aggregated for purposes of
satisfying the requirements of sections 401(a)(4) or 410(b) of the Code.
SECTION 17.7 PERMISSIBLE AGGREGATION GROUP.
For purposes of this Article XVII, a Permissible Aggregation
Group shall consist of (a) the Required Aggregation Group and (b) any other
qualified plans maintained by the Employer and any Affiliated Employers;
provided, however, that the Permissible Aggregation Group must satisfy the
requirements of sections 401(a)(4) and 410(b) of the Code.
SECTION 17.8 SPECIAL REQUIREMENTS DURING TOP HEAVY PLAN YEARS.
(a) Notwithstanding any other provision of the Plan to the
contrary, for each Top Heavy Plan Year, in the case of a Participant (other
than a Key Employee) on the last day of such Top Heavy Plan Year who is not
also a participant in another qualified plan which satisfies
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the minimum contribution and benefit requirements of section 416 of the Code
with respect to such Participant, the sum of the ESOP Contributions and Loan
Repayment Contributions made with respect to such Participant, when expressed as
a percentage of his Total Compensation for such Top Heavy Plan Year, shall not
be less than 3% of such Participant's Total Compensation for such Top Heavy Plan
Year or, if less, the highest combined rate, expressed as a percentage of Total
Compensation at which ESOP Contributions and Loan Repayment Contributions were
made on behalf of a Key Employee for such Top Heavy Plan Year. The Employer
shall make an additional contribution to the Account of each Participant to the
extent necessary to satisfy the foregoing requirement.
(b) For any Top Heavy Plan Year, the number "1.0" shall be substituted
for the number "1.25" in sections 8.2(c)(iii) and 8.2(c)(iv), except that:
(i) this section 17.8(b) shall not apply to any individual for a Top
Heavy Plan Year that is not a Super Top Heavy Plan Year if the requirements
of section 17.8(a) would be satisfied for such Super Top Heavy Plan Year if
the number "4%" were substituted for the number 3% in section 17.8(a); and
(ii) this section 17.8(b) shall not apply to an individual for a Top
Heavy Plan Year if, during such Top Heavy Plan Year, there are no ESOP
Contributions or Loan Repayment Contributions allocated to such individual
under this Plan, there are no contributions under any other qualified
defined contribution plan maintained by the Employer, and there are no
accruals for such individual under any qualified defined benefit plan
maintained by the Employer.
For purposes of this section 17.8(b), the term Super Top Heavy Plan Year means a
Top Heavy Plan Year in which the Plan would meet the definitional requirements
of sections 17.2(a) or 17.2(b) if the term "90%" were substituted for the term
"60%" in sections 17.2(a), 17.2(b) and 17.2(c).
ARTICLE XVIII
-------------
MISCELLANEOUS PROVISIONS
------------------------
SECTION 18.1 GOVERNING LAW.
The Plan shall be construed, administered and enforced according to the
laws of the State of New York without giving effect to the conflict of laws
principles thereof, except to the extent that such laws are preempted by
federal law.
SECTION 18.2 NO RIGHT TO CONTINUED EMPLOYMENT.
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Neither the establishment of the Plan, nor any provisions of the Plan
or of the Trust Agreement establishing the Trust Fund nor any action of the
Plan Administrator, the Plan Administrator or the Trustee, shall be held or
construed to confer upon any Employee any right to a continuation of employment
by the Employer. The Employer reserves the right to dismiss any Employee or
otherwise deal with any Employee to the same extent as though the Plan had not
been adopted.
SECTION 18.3 CONSTRUCTION OF LANGUAGE.
Wherever appropriate in the Plan, words used in the singular may be
read in the plural, words used in the plural may be read in the singular, and
words importing the masculine gender may be read as referring equally to the
feminine and the neuter. Any reference to an Article or section number shall
refer to an Article or section of the Plan, unless otherwise indicated.
SECTION 18.4 HEADINGS.
The headings of Articles and sections are included solely for
convenience of reference. If there is any conflict between such headings and
the text of the Plan, the text shall control.
SECTION 18.5 MERGER WITH OTHER PLANS.
The Plan shall not be merged or consolidated with, nor transfer its
assets or liabilities to, any other plan unless each Participant, Former
Participant, Beneficiary and other person entitled to benefits, would (if that
plan then terminated) receive a benefit immediately after the merger,
consolidation or transfer which is equal to or greater than the benefit he
would have been entitled to receive if the Plan had terminated immediately
before the merger, consolidation or transfer.
SECTION 18.6 NON-ALIENATION OF BENEFITS.
(a) Except as provided in section 18.6(b), the right to receive a
benefit under the Plan shall not be subject in any manner to anticipation,
alienation or assignment, nor shall such right to be liable for or subject to
debts, contracts, liabilities or torts. Should any Participant, Former
Participant or other person attempt to anticipate, alienate or assign his
interest in or right to a benefit, or should any person claiming against him
seek to subject such interest or right to legal or equitable process, all the
interest or right of such Participant or Former Participant or other person
entitled to benefits in the Plan shall cease, and in that event such interest
or right shall be held or applied, at the direction of the Plan Administrator,
for or to the benefit of such Participant or Former Participant, other person
or his spouse, children or other dependents in such manner and in such
proportions as the Plan Administrator may deem proper.
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(b) This section 18.6 shall not prohibit the Plan Administrator from
recognizing a Domestic Relations Order that is determined to be a Qualified
Domestic Relations Order in accordance with section 18.7.
SECTION 18.7 PROCEDURES INVOLVING DOMESTIC RELATIONS ORDERS.
Upon receiving a Domestic Relations Order, the Plan Administrator shall
segregate in a separate account or in an escrow account or separately account
for the amounts payable to any person pursuant to such Domestic Relations Order,
pending a determination whether such Domestic Relations Order constitutes a
Qualified Domestic Relations Order, and shall give notice of the receipt of the
Domestic Relations Order to the Participant or Former Participant and each other
person affected thereby. If, within 18 months after receipt of such Domestic
Relations Order, the Plan Administrator, a court of competent jurisdiction or
another appropriate authority determines that such Domestic Relations Order
constitutes a Qualified Domestic Relations Order, the Plan Administrator shall
direct the Trustee to pay the segregated amounts (plus any interest thereon) to
the person or persons entitled thereto under the Qualified Domestic Relations
Order. If it is determined that the Domestic Relations Order is not a Qualified
Domestic Relations Order or if no determination is made within the prescribed
18-month period, the segregated amounts shall be distributed as though the
Domestic Relations Order had not been received, and any later determination that
such Domestic Relations Order constitutes a Qualified Domestic Relations Order
shall be applied only with respect to benefits that remain undistributed on the
date of such determination. The Plan Administrator shall be authorized to
establish such reasonable administrative procedures as he deems necessary or
appropriate to administer this section 18.7. This section 18.7 shall be
construed and administered so as to comply with the requirements of section
401(a)(13) of the Code.
SECTION 18.8 LEASED EMPLOYEES.
(a) Subject to section 18.8(b), a leased employee shall be treated as
an Employee for purposes of the Plan. For purposes of this section 18.8, the
term "leased employee" means any person (i) who would not, but for the
application of this section 18.8, be an Employee and (ii) who pursuant to an
agreement between the Employer and any other person ("leasing organization") has
performed for the Employer (or for the Employer and related persons determined
in accordance with section 414(n)(6) of the Code), on a substantially full-time
basis for a period of at least one year, services of a type historically
performed by employees in the business field of the Employer.
(b) For purposes of the Plan:
(i) contributions or benefits provided to the leased employee by the
leasing organization which are attributable to services performed for the
Employer shall be treated as provided by the Employer; and
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(ii) section 18.8(a) shall not apply to a leased employee if:
(A) the number of leased employees performing services for the
Employer does not exceed 20% of the number of the Employer's Employees
who are not Highly Compensated Employees; and
(B) such leased employee is covered by a money purchase pension
plan providing (I) a nonintegrated contribution rate of at least 10%
of the leased employee's compensation; (II) immediate participation;
(III) full and immediate vesting; and (IV) coverage for all of the
employees of the leasing organization (other than employees who perform
substantially all of their services for the leasing organization).
SECTION 18.9 STATUS AS AN EMPLOYEE STOCK OWNERSHIP PLAN.
It is intended that the Plan constitute an "employee stock ownership
plan," as defined in section 4975(e)(7) of the Code and section 407(d)(6) of
ERISA. The Plan shall be construed and administered to give effect to such
intent.
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Exhibit 10.4
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as
of ______________, 1997 by and between WARWICK COMMUNITY BANCORP, INC., a
business corporation organized and existing under the laws of the State of
Delaware and having an office at 18 Oakland Avenue, Warwick, New York 10990-0591
("Company") and _______________, an individual residing at
_________________________________________ (the "Executive").
W I T N E S S E T H :
WHEREAS, the Executive currently serves as the ________ of the
Company and as the __________ of The Warwick Savings Bank (the "Bank") and
effective as of the date of this Agreement, the Bank has converted from a mutual
savings bank to a stock savings bank and has become the wholly owned subsidiary
of the Company; and
WHEREAS, the Company desires to assure for itself, the Bank and
their respective subsidiaries and affiliates the continued availability of the
Executive's services as provided in this Agreement and the ability of the
Executive to perform such services with a minimum of personal distraction in the
event of a pending or threatened Change of Control (as hereinafter defined); and
WHEREAS, the Executive is willing to continue to serve the Company,
the Bank and their respective subsidiaries and affiliates on the terms and
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and conditions hereinafter set forth, the Company, the Bank and the
Executive hereby agree as follows:
SECTION 1. EMPLOYMENT.
The Company and the Bank agree to continue to employ the Executive,
and the Executive hereby agrees to such continued employment, during the period
and upon the terms and conditions set forth in this Agreement.
SECTION 2. EMPLOYMENT PERIOD; REMAINING UNEXPIRED EMPLOYMENT PERIOD.
(a) The terms and conditions of this Agreement shall be and remain
in effect during the period of employment established under this section 2
("Employment Period"). The Employment Period shall be for an initial term of
three years beginning on the date of this Agreement and ending on the third
anniversary date of this Agreement (each, an "Anniversary Date"), plus such
extensions, if any, as are provided pursuant to section 2(b).
(b) Except as provided in section 2(c), beginning on the date of
this Agreement, the Employment Period shall automatically be extended for one
additional day each day, unless either the Company or the Executive elects not
to extend the Agreement further by giving written notice thereof to the other
party, in which case the Employment Period shall end on the third
<PAGE> 2
anniversary of the date on which such written notice is given; provided,
however, that notwithstanding the foregoing, the Employment Period shall end on
the last day of the month in which the Executive attains the age of 68. For all
purposes of this Agreement, the term "Remaining Unexpired Employment Period" as
of any date shall mean the period beginning on such date and ending on the last
day of the Employment Period taking into account any extensions under this
section 2(b). Upon termination of the Executive's employment with the Company or
the Bank for any reason whatsoever, any daily extensions provided pursuant to
this section 2(b), if not theretofore discontinued, shall automatically cease.
(c) Nothing in this Agreement shall be deemed to prohibit the
Company or the Bank at any time from terminating the Executive's employment
during the Employment Period with or without notice for any reason; provided,
however, that the relative rights and obligations of the Company and the
Executive in the event of any such termination shall be determined under this
Agreement.
SECTION 3. DUTIES.
The Executive shall serve as _________ of the Company and as
_________ of the Bank, having such power, authority and responsibility and
performing such duties as are prescribed by or under the By-Laws of the Company
and as are customarily associated with such position. The Executive shall devote
his full business time and attention (other than during weekends, holidays,
approved vacation periods, and periods of illness or approved leaves of absence)
to the business and affairs of the Company and shall use his best efforts to
advance the interests of the Company.
SECTION 4. CASH COMPENSATION.
In consideration for the services to be rendered by the Executive
hereunder, the Company shall pay to him a salary at an initial annual rate of
_______________________ dollars ($_______), payable in approximately equal
installments in accordance with the Company's customary payroll practices for
senior officers. The Board shall review the Executive's annual rate of salary at
such times during the Employment Period as it deems appropriate, but not less
frequently than once every twelve months, and may, in its discretion, approve an
increase therein. In addition to salary, the Executive may receive other cash
compensation from the Company or the Bank for services hereunder at such times,
in such amounts and on such terms and conditions as the Board may determine from
time to time.
SECTION 5. EMPLOYEE BENEFIT PLANS AND PROGRAMS.
During the Employment Period, the Executive shall be treated as an
employee of the Company and the Bank and shall be entitled to participate in and
receive benefits under any and all qualified or non-qualified retirement,
pension, savings, profit-sharing or stock bonus plans, any and all group life,
health (including hospitalization, medical and major medical), dental, accident
and long term disability insurance plans, and any other employee benefit and
compensation plans (including, but not limited to, any incentive compensation
plans or programs,
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<PAGE> 3
stock option and appreciation rights plans and restricted stock plans) as may
from time to time be maintained by, or cover employees of, the Company and the
Bank, in accordance with the terms and conditions of such employee benefit plans
and programs and compensation plans and programs and consistent with the
Company's and the Bank's customary practices.
SECTION 6. INDEMNIFICATION AND INSURANCE.
(a) During the Employment Period and for a period of six years
thereafter, the Company or the Bank shall cause the Executive to be covered by
and named as an insured under any policy or contract of insurance obtained by it
to insure its directors and officers against personal liability for acts or
omissions in connection with service as an officer or director of the Company,
the Bank or service in other capacities at the request of the Company. The
coverage provided to the Executive pursuant to this section 6 shall be of the
same scope and on the same terms and conditions as the coverage (if any)
provided to other officers or directors of the Company and the Bank.
(b) To the maximum extent permitted under applicable law, during the
Employment Period and for a period of six years thereafter, the Company and the
Bank shall indemnify the Executive against and hold him harmless from any costs,
liabilities, losses and exposures to the fullest extent and on the most
favorable terms and conditions that similar indemnification is offered to any
director or officer of the Company and the Bank or any subsidiary or affiliate
thereof.
SECTION 7. OUTSIDE ACTIVITIES.
The Executive may serve as a member of the boards of directors of
such business, community and charitable organizations as he may disclose to and
as may be approved by the Board (which approval shall not be unreasonably
withheld); provided, however, that such service shall not materially interfere
with the performance of his duties under this Agreement. The Executive may also
engage in personal business and investment activities which do not materially
interfere with the performance of his duties hereunder; provided, however, that
such activities are not prohibited under any code of conduct or investment or
securities trading policy established by the Company or the Bank and generally
applicable to all similarly situated Executives. The Executive may also serve as
an officer or director of the Bank on such terms and conditions as the Company
and the Bank may mutually agree upon, and such service shall not be deemed to
materially interfere with the Executive's performance of his duties hereunder or
otherwise result in a material breach of this Agreement. If the Executive is
discharged or suspended, or is subject to any regulatory prohibition or
restriction with respect to participation in the affairs of the Bank, he shall
continue to perform services for the Company in accordance with this Agreement
but shall not directly or indirectly provide services to or participate in the
affairs of the Bank in a manner inconsistent with the terms of such discharge or
suspension or any applicable regulatory order.
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<PAGE> 4
SECTION 8. WORKING FACILITIES AND EXPENSES.
The Executive's principal place of employment shall be at the
Company's and the Bank's executive offices at the address first above written,
or at such other location within 50 miles of the address at which the Company
shall maintain its principal executive offices, or at such other location as the
Company and the executive may mutually agree upon. The Company shall provide the
Executive at his principal place of employment with a private office,
secretarial services and other support services and facilities suitable to his
position with the Company and the Bank and necessary or appropriate in
connection with the performance of his assigned duties under this Agreement. The
Company shall reimburse the Executive for his ordinary and necessary business
expenses, including, without limitation, the Executive's travel and
entertainment expenses incurred in connection with the performance of his duties
under this Agreement, in each case upon presentation to the Company of an
itemized account of such expenses in such form as the Company may reasonably
require.
SECTION 9. TERMINATION OF EMPLOYMENT WITH SEVERANCE BENEFITS.
(a) The Executive's shall be entitled to the severance benefits
described in section 9(b) in the event that:
(i) his employment with the Company or the Bank terminates during
the Employment Period as a result of the Executive's voluntary resignation
within 90 days following:
(A) the failure of the Board or the Board of Directors of the
Bank ("Bank Board") as the case may be, to appoint or re-appoint or
elect or re-elect the Executive to the position with the Company or
the Bank stated in section 3 of this Agreement (or a more senior
office);
(B) if the Executive is a member of the Board or the Bank
Board as the case may be, the failure of the shareholders of the
Company or the Bank to elect or re-elect the Executive to the Board
or the Bank Board or the failure of the Board or the Bank Board (or
the nominating committee thereof) to nominate the Executive for such
election or re-election;
(C) the expiration of a 30-day period following the date on
which the Executive gives written notice to the Company of its or
the Bank's material failure, whether by amendment of the Company's
Certificate of Incorporation, the Bank's Restated Organization
Certificate, the Company's By-Laws or the Bank's By-Laws, action of
the Board or the Bank Board or the Company's shareholders or the
Bank's shareholders or otherwise, to vest in the Executive the
functions, duties, or responsibilities prescribed in section 3 of
this Agreement, unless, during such 30-day period, the Company or
the Bank cures such failure; or
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<PAGE> 5
(D) the expiration of a 30-day period following the date on
which the Executive gives written notice to the Company of its or
the Bank's material breach of any term, condition or covenant
contained in this Agreement (including, without limitation any
reduction of the Executive's rate of base salary in effect from time
to time and any change in the terms and conditions of any
compensation or benefit program in which the Executive participates
which, either individually or together with other changes, has a
material adverse effect on the aggregate value of his total
compensation package), unless, during such 30-day period, the
Company or the Bank cures such failure;
(F) a change in the Executive's principal place of employment
for a distance in excess of 50 miles from the Bank's principal
office in Warwick, New York; or
(ii) the Executive's employment with the Company or the Bank is
terminated by the Company or the Bank for any reason other than for
"cause" as provided in section 10(a); or
(iii) a Change of Control as defined in section 11 has occurred
then, the Company shall provide the benefits and pay to the Executive the
amounts described in section 9(b).
(b) Upon the occurrence of any of the events described in section
9(a) of this Agreement, the Company shall pay and provide to the Executive (or,
in the event of his death, to his estate):
(i) his earned but unpaid salary (including, without limitation, all
items which constitute wages under applicable law and the payment of which
is not otherwise provided for in this section 9(b)) as of the date of the
termination of his employment with the Company and the Bank, such payment
to be made at the time and in the manner prescribed by law applicable to
the payment of wages but in no event later than 30 days after termination
of employment;
(ii) the benefits, if any, to which he is entitled as a former
employee under the employee benefit plans and programs and compensation
plans and pro grams maintained for the benefit of the Company's and the
Bank's officers and employees;
(iii) continued group life, health (including hospitalization,
medical and major medical), dental, accident and long term disability
insurance benefits, in addition to that provided pursuant to section
9(b)(ii), and after taking into account the coverage provided by any
subsequent employer, if and to the extent necessary to provide for the
Executive, for the Remaining Unexpired Employment Period,
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<PAGE> 6
coverage equivalent to the coverage to which he would have been entitled
under such plans (as in effect on the date of his termination of
employment, or, if his termination of employment occurs after a Change of
Control, on the date of such Change of Control, whichever benefits are
greater), if he had continued working for the Company and the Bank during
the Remaining Unexpired Employment Period at the highest annual rate of
salary achieved during the Employment Period;
(iv) within 30 days following the Executive's termination of
employment with the Company or the Bank, a lump sum payment, in an amount
equal to the present value of the salary (excluding any additional
payments made to the Executive in lieu of the use of an automobile) that
the Executive would have earned if he had continued working for the
Company and the Bank during the Remaining Unexpired Employment Period at
the highest annual rate of salary achieved during the Employment Period,
where such present value is to be determined using a discount rate equal
to the applicable short-term federal rate prescribed under section 1274(d)
of the Internal Revenue Code of 1986, as amended ("Code"), compounded
using the compounding periods corresponding to the Company's regular
payroll periods for its officers, such lump sum to be paid in lieu of all
other payments of salary provided for under this Agreement in respect of
the period following any such termination;
(v) within 30 days following the Executive's termination of
employment with the Company or the Bank, a lump sum payment in an amount
equal to the excess, if any, of:
(A) the present value of the aggregate benefits to which he
would be entitled under The Warwick Savings Bank Defined Benefit
Pension Plan (together with the defined benefit portion of the
Benefit Restoration Plan of The Warwick Savings Bank and any other
supplemental defined benefit plan) and any and all other qualified
and non-qualified defined benefit pension plans maintained by, or
covering employees of, the Company or the Bank, if he were 100%
vested thereunder and had continued working for the Company and the
Bank during the Remaining Unexpired Employment Period at the highest
annual rate of salary achieved during the Employment Period; over
(B) the present value of the benefits to which he is actually
entitled under such defined benefit pension plans as of the date of
his termination;
where such present values are to be determined using the mortality tables
prescribed under section 415(b)(2)(E)(v) of the Code and a discount rate,
compounded monthly equal to the annualized rate of interest prescribed by
the Pension Benefit Guaranty Corporation for the valuation of immediate
annuities payable under
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<PAGE> 7
terminating single-employer defined benefit plans for the month in which
the Executive's termination of employment occurs ("Applicable PBGC Rate");
(vi) within 30 days following the Executive's termination of
employment with the Company or the Bank, a lump sum payment in an amount
equal to the present value of the additional employer contributions to
which he would have been entitled under The Warwick Savings Bank 401(k)
Savings Plan, the Employee Stock Ownership Plan of Warwick Community
Bancorp, Inc. (together with the defined contribution portion of the
Benefit Restoration Plan of The Warwick Savings Bank or any other
supplemental defined contribution plan) and any and all other qualified
and non-qualified defined contribution plans maintained by, or covering
employees of, the Company or the Bank, as if he were 100% vested
thereunder and had continued working for the Company and the Bank during
the Remaining Unexpired Employment Period at the highest annual rate of
salary achieved during the Employment Period and making the maximum amount
of employee contributions, if any, required under such plan or plans,
such present value to be determined on the basis of a discount rate,
compounded using the compounding period that corresponds to the frequency
with which employer contributions are made to the relevant plan, equal to
the Applicable PBGC Rate;
(vii) the payments that would have been made to the Executive under
any cash bonus or long-term or short-term cash incentive compensation plan
maintained by, or covering employees of, the Company or the Bank if he had
continued working for the Company and the Bank during the Remaining
Unexpired Employment Period and had earned the maximum bonus or incentive
award in each calendar year that ends during the Remaining Unexpired
Employment Period, such payments to be equal to the product of:
(A) the maximum percentage rate at which an award was ever
available to the Executive under such incentive compensation plan;
multiplied by
(B) the salary that would have been paid to the Executive
during each such calendar year at the highest annual rate of salary
achieved during the Employment Period;
such payments to be made (without discounting for early payment) within 30
days following the Executive's termination of employment;
(viii)at the election of the Company made within 30 days following
the occurrence of the event described in section 9(a), upon the surrender
of options or appreciation rights issued to the Executive under any stock
option and appreciation rights plan or program maintained by, or covering
employees of, the Company or the Bank, a lump sum payment in an amount
equal to the product of:
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(A) the excess of (I) the fair market value of a share of
stock of the same class as the stock subject to the option or
appreciation right, determined as of the date of termination of
employment, over (II) the exercise price per share for such option
or appreciation right, as specified in or under the relevant plan or
program; multiplied by
(B) the number of shares with respect to which options or
appreciation rights are being surrendered.
For purposes of this section 9(b)(viii), the Executive shall be deemed
fully vested in all options and appreciation rights under any stock option
or appreciation rights plan or program maintained by, or covering
employees of, the Company or the Bank, even if he is not vested under such
plan or program; and
(ix) at the election of the Company made within 30 days following
the occurrence of the event described in section 9(a), upon the surrender
of any shares awarded to the Executive under any restricted stock plan
maintained by, or covering employees of, the Company or the Bank, a lump
sum payment in an amount equal to the product of:
(A) the fair market value of a share of stock of the same
class of stock granted under such plan, determined as of the date of
the Executive's termination of employment; multiplied by
(B) the number of shares which are being surrendered.
For purposes of this section 9(b)(ix), the Executive shall be deemed fully
vested in all shares awarded under any restricted stock plan maintained
by, or covering employees of, the Company or the Bank, even if he is not
vested under such plan.
The Company and the Executive hereby stipulate that the damages which may be
incurred by the Executive following any such termination of employment are not
capable of accurate measurement as of the date first above written and that the
payments and benefits contemplated by this section 9(b) constitute reasonable
damages under the circumstances and shall be payable without any requirement of
proof of actual damage and without regard to the Executive's efforts, if any, to
mitigate damages. The Company and the Executive further agree that the Company
may condition the payments and benefits (if any) due under sections 9(b)(iii),
(iv), (v), (vi) and (vi) on the receipt of the Executive's resignation from any
and all positions which he holds as an officer, director or committee member
with respect to the Company, the Bank or any subsidiary or affiliate of either
of them.
SECTION 10. TERMINATION WITHOUT ADDITIONAL COMPANY LIABILITY. In the
event that the Executive's employment with the Company shall terminate during
the Employment Period on account of:
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(a) the discharge of the Executive for "cause," which, for purposes
of this Agreement, shall mean a discharge because the Board and the Bank
Board determine that the Executive: (i) has intentionally failed to
perform his assigned duties under this Agreement (including for these
purposes, the Executive's inability to perform such duties as a result of
drug or alcohol dependency); (ii) has intentionally engaged in dishonest
or illegal conduct in connection with his performance of services for the
Company or the Bank or has been convicted of a felony; (iii) has willfully
violated, in any material respect, any law, rule, regulation, written
agreement or final cease-and-desist order with respect to his performance
of services for the Company or the Bank, as determined by the Board and
the Bank Board; or (iv) has intentionally breached the material terms of
this Agreement; provided, however, that on and after the date that a
Change of Control occurs, a determination under this section 10 shall
require the affirmative vote of at least three-fourths of the members of
the Board and the Bank Board acting in good faith and such vote shall not
be made prior to the expiration of a 60-day period following the date on
which the Board and the Bank Board shall, by written notice to the
Executive, furnish to him a statement of its grounds for proposing to make
such determination, during which period the Executive shall be afforded a
reasonable opportunity to make oral and written presentations to the
members of the Board and the Bank Board, and to be represented by his
legal counsel at such presentations, to refute the grounds for the
proposed determination;
(b) the Executive's voluntary resignation from employment with the
Company and the Bank for reasons other than those specified in section
9(a)(i); or
(c) the death of the Executive while employed by the Company or the
termination of the Executive's employment because of "total and permanent
disability" within the meaning of the Company's long-term disability plan
for employees;
then the Company shall have no further obligations under this Agreement, other
than the payment to the Executive of his earned but unpaid salary as of the date
of the termination of his employment and the provision of such other benefits,
if any, to which he is entitled as a former employee under the Company's and the
Bank's employee benefit plans and programs and compensation plans and programs.
For purposes of this section 10, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company and the
Bank. Any act, or failure to act, based upon authority given pursuant to a
resolution duly adopted by the Board and the Bank Board or based upon the
written advice of counsel for the Company or the Bank shall be conclusively
presumed to be done, or omitted to be done, by the Executive in good faith and
in the best interests of the Company and the Bank. The cessation of employment
of the Executive shall not be deemed to be for "cause" within the meaning of
section 10(a) unless and until there shall have been delivered to the Executive
a copy of a resolution duly adopted by the affirmative vote of three-fourths of
the members of the Board and the Bank Board at a meeting of the Board and the
Bank Board called and held for such purpose (after reasonable notice is provided
to the Executive and the Executive is given an opportunity, together with
counsel, to be heard before the Board and the Bank Board),
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finding that, in the good faith opinion of the Board and the Bank Board, the
Executive is guilty of the conduct described in section 10(a) above, and
specifying the particulars thereof in detail.
SECTION 11. TERMINATION UPON OR FOLLOWING A CHANGE OF CONTROL.
(a) A Change of Control of the Company ("Change of Control") shall
be deemed to have occurred upon the happening of any of the following events:
(i) approval by the shareholders of the Company of a transaction
that would result and does result in the reorganization, merger or
consolidation of the Company, respectively, with one or more other
persons, other than a transaction following which:
(A) at least 51% of the equity ownership interests of the
entity resulting from such transaction are beneficially owned
(within the meaning of Rule 13d-3 promulgated under the Securities
Exchange Act of 1934, as amended ("Exchange Act")) in substantially
the same relative proportions by persons who, immediately prior to
such transaction, beneficially owned (within the meaning of Rule
13d-3 promulgated under the Exchange Act) at least 51% of the
outstanding equity ownership interests in the Company; and
(B) at least 51% of the securities entitled to vote generally
in the election of directors of the entity resulting from such
transaction are beneficially owned (within the meaning of Rule 13d-3
promulgated under the Exchange Act) in substantially the same
relative proportions by persons who, immediately prior to such
transaction, beneficially owned (within the meaning of Rule 13d-3
promulgated under the Exchange Act) at least 51% of the securities
entitled to vote generally in the election of directors of the
Company;
(ii) the acquisition of all or substantially all of the assets of
the Company or beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 25% or more of the outstanding
securities of the Company entitled to vote generally in the election of
directors by any person or by any persons acting in concert, or approval
by the shareholders of the Company of any transaction which would result
in such an acquisition;
(iii) a complete liquidation or dissolution of the Company, or
approval by the shareholders of the Company of a plan for such liquidation
or dissolution;
(iv) the occurrence of any event if, immediately following such
event, at least 50% of the members of the Board do not belong to any of
the following groups:
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<PAGE> 11
(A) individuals who were members of the Board on the date of
this Agreement; or
(B) individuals who first became members of the Board after
the date of this Agreement either:
(1) upon election to serve as a member of the Board by
affirmative vote of three-quarters of the members of such
board, or of a nominating committee thereof, in office at the
time of such first election; or
(2) upon election by the shareholders of the Board to
serve as a member of the Board, but only if nominated for
election by affirmative vote of three-quarters of the members
of the board of directors of the Board, or of a nominating
committee thereof, in office at the time of such first
nomination;
provided, however, that such individual's election or nomination did
not result from an actual or threatened election contest (within the
meaning of Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies
or consents (within the meaning of Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) other than by or on behalf of
the Board of the Company; or
(v) any event which would be described in section 11(a)(i), (ii),
(iii) or (iv) if the term "Bank" were substituted for the term "Company"
therein and the term "Bank Board" were substituted for the term "Board"
therein.
In no event, however, shall a Change of Control be deemed to have occurred as a
result of any acquisition of securities or assets of the Company, the Bank, or a
subsidiary of either of them, by the Company, the Bank, or any subsidiary of
either of them, or by any employee benefit plan maintained by any of them. For
purposes of this section 11(a), the term "person" shall have the meaning
assigned to it under sections 13(d)(3) or 14(d)(2) of the Exchange Act.
(b) In the event of a Change of Control, the Executive shall be
entitled to the payments and benefits described in section 9(b), regardless of
whether his employment terminates.
SECTION 12. TAX INDEMNIFICATION.
(a) This section 12 shall apply if the Executive's employment is
terminated upon or following (i) a Change of Control (as defined in section 11
of this Agreement); or (ii) a change "in the ownership or effective control" of
the Company or the Bank or "in the ownership of a substantial portion of the
assets" of the Company or the Bank within the meaning of section 280G of the
Code. If this section 12 applies, then, if for any taxable year, the Executive
shall be liable for the payment of an excise tax under section 4999 of the Code
with respect to any payment in
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<PAGE> 12
the nature of compensation made by the Company, the Bank or any direct or
indirect subsidiary or affiliate of the Company or the Bank to (or for the
benefit of) the Executive, the Company shall pay to the Executive an amount
equal to X determined under the following formula:
E x P
X = ------------------------------------
1 - [(FI x (1 - SLI)) + SLI + E + M]
where
E = the rate at which the excise tax is assessed under section
4999 of the Code;
P = the amount with respect to which such excise tax is
assessed, determined without regard to this section 12;
FI = the highest marginal rate of income tax applicable to the
Executive under the Code for the taxable year in question;
SLI = the sum of the highest marginal rates of income tax
applicable to the Executive under all applicable state and
local laws for the taxable year in question; and
M = the highest marginal rate of Medicare tax applicable to the
Executive under the Code for the taxable year in question.
With respect to any payment in the nature of compensation that is made to (or
for the benefit of) the Executive under the terms of this Agreement, or
otherwise, and on which an excise tax under section 4999 of the Code will be
assessed, the payment determined under this 12(a) shall be made to the Executive
on the earlier of (i) the date the Company, the Bank or any direct or indirect
subsidiary or affiliate of the Company or the Bank is required to withhold such
tax, or (ii) the date the tax is required to be paid by the Executive.
(b) Notwithstanding anything in this section 12 to the contrary, in
the event that the Executive's liability for the excise tax under section 4999
of the Code for a taxable year is subsequently determined to be different than
the amount determined by the formula (X + P) x E, where X, P and E have the
meanings provided in section 12(a), the Executive or the Company, as the case
may be, shall pay to the other party at the time that the amount of such excise
tax is finally determined, an appropriate amount, plus interest, such that the
payment made under section 12(a), when increased by the amount of the payment
made to the Executive under this section 12(b) by the Company, or when reduced
by the amount of the payment made to the Company under this section 12(b) by the
Executive, equals the amount that should have properly been paid to the
Executive under section 12(a). The interest paid under this section 12(b) shall
be determined at the rate provided under section 1274(b)(2)(B) of the Code. To
confirm that the proper amount, if any, was paid to the Executive under this
section 12, the Executive shall furnish to the Company a copy of each tax return
which reflects a liability for an excise tax payment made
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<PAGE> 13
by the Company, at least 20 days before the date on which such return is
required to be filed with the Internal Revenue Service.
SECTION 13. COVENANT NOT TO COMPETE.
The Executive hereby covenants and agrees that, in the event of his
termination of employment with the Company prior to the expiration of the
Employment Period, for a period of one year following the date of his
termination of employment with the Company or the Bank (or, if less, for the
Remaining Unexpired Employment Period), he shall not, without the written con
sent of the Company, become an officer, employee, consultant, director or
trustee of any savings bank, savings and loan association, savings and loan
holding company, bank or bank holding company, or any direct or indirect
subsidiary or affiliate of any such entity, that entails working within Orange,
Dutchess, Rockland or Putnam counties or any other county in which the Company
or the Bank maintains an office; provided, however, that this section 13 shall
not apply if the Executive's employment is terminated for the reasons set forth
in section 9(a).
SECTION 14. CONFIDENTIALITY.
Unless he obtains the prior written consent of the Company, the
Executive shall keep confidential and shall refrain from using for the benefit
of himself, or any person or entity other than the Company or any entity which
is a subsidiary of the Company or of which the Company is a subsidiary, any
material document or information obtained from the Company, or from its parent
or subsidiaries, in the course of his employment with any of them concerning
their properties, operations or business (unless such document or information is
readily ascertainable from public or published information or trade sources or
has otherwise been made available to the public through no fault of his own)
until the same ceases to be material (or becomes so ascertainable or available);
provided, however, that nothing in this section 14 shall prevent the Executive,
with or without the Company's consent, from participating in or disclosing
documents or information in connection with any judicial or administrative
investigation, inquiry or proceeding to the extent that such participation or
disclosure is required under applicable law.
SECTION 15. SOLICITATION.
The Executive hereby covenants and agrees that, for a period of one
year following his termination of employment with the Company or the Bank, he
shall not, without the written consent of the Company and the Bank, either
directly or indirectly:
(a) solicit, offer employment to, or take any other action intended,
or that a reasonable person acting in like circumstances would expect, to
have the effect of causing any officer or employee of the Company, the
Bank or any of their respective subsidiaries or affiliates to terminate
his or her employment and accept employment or become affiliated with, or
provide services for compensation in any capacity whatsoever to, any
savings bank, savings and loan Bank, bank, bank holding company, savings
and loan holding company, or other institution engaged
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<PAGE> 14
in the business of accepting deposits, making loans or doing business
within the counties specified in section 13;
(b) provide any information, advice or recommendation with respect
to any such officer or employee of any savings bank, savings and loan
Bank, bank, bank holding company, savings and loan holding company, or
other institution engaged in the business of accepting deposits, making
loans or doing business within the counties specified in section 13; that
is intended, or that a reasonable person acting in like circumstances
would expect, to have the effect of causing any officer or employee of the
Company, the Bank, or any of their respective subsidiaries or affiliates
to terminate his employment and accept employment or become affiliated
with, or provide services for compensation in any capacity what soever to,
any savings bank, savings and loan association, bank, bank holding
company, savings and loan holding company, or other institution engaged in
the business of accepting deposits, making loans or doing business within
the counties specified in section 13;
(c) solicit, provide any information, advice or recommendation or
take any other action intended, or that a reasonable person acting in like
circumstances would expect, to have the effect of causing any customer of
the Company to terminate an existing business or commercial relationship
with the Company.
SECTION 16. NO EFFECT ON EMPLOYEE BENEFIT PLANS OR PROGRAMS.
The termination of the Executive's employment during the term of
this Agreement or thereafter, whether by the Company, by the Bank or by the
Executive, shall have no effect on the rights and obligations of the parties
hereto under the Company's or the Bank's qualified or non-qualified retirement,
pension, savings, thrift, profit-sharing or stock bonus plans, group life,
health (including hospitalization, medical and major medical), dental, accident
and long term disability insurance plans or such other employee benefit plans
or programs, or compensation plans or programs, as may be maintained by, or
cover employees of, the Company or the Bank from time to time; provided,
however, that nothing in this Agreement shall be deemed to duplicate any
compensation or benefits provided under any agreement, plan or program covering
the Executive to which the Company is a party and any duplicative amount payable
under any such agreement, plan or program shall be applied as an offset to
reduce the amounts otherwise payable hereunder.
SECTION 17. SUCCESSORS AND ASSIGNS.
This Agreement will inure to the benefit of and be binding upon the
Executive, his legal representatives and testate or intestate distributees, and
the Company and the Bank and their respective successors and assigns, including
any successor by merger or consolidation or a statutory receiver or any other
person or firm or corporation to which all or substantially all of the assets
and business of the Company may be sold or otherwise transferred. Failure of the
Company to obtain from any successor its express written assumption of the
Company's obligations
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<PAGE> 15
hereunder at least 60 days in advance of the scheduled effective date of any
such succession shall be deemed a material breach of this Agreement.
SECTION 18. NOTICES.
Any communication required or permitted to be given under this
Agreement, including any notice, direction, designation, consent, instruction,
objection or waiver, shall be in writing and shall be deemed to have been given
at such time as it is delivered personally, or five days after mailing if
mailed, postage prepaid, by registered or certified mail, return receipt
requested, addressed to such party at the address listed below or at such other
address as one such party may by written notice specify to the other party:
If to the Executive:
----------------------
----------------------
----------------------
If to the Company or the Bank:
Warwick Community Bancorp, Inc.
18 Oakland Avenue
Warwick, New York 10990-0591
Attention: President
with a copy to:
Thacher Proffitt & Wood
Two World Trade Center
New York, New York 10048
Attention: Douglas J. McClintock, Esq.
SECTION 19. INDEMNIFICATION FOR ATTORNEYS' FEES.
(a) The Company shall indemnify, hold harmless and defend the
Executive against reasonable costs, including legal fees and expenses, incurred
by him in connection with or arising out of any action, suit or proceeding in
which he may be involved, as a result of his efforts, in good faith, to defend
or enforce the terms of this Agreement. For purposes of this Agreement, any
settlement agreement which provides for payment of any amounts in settlement of
the Company's or the Bank's obligations hereunder shall be conclusive evidence
of the Executive's entitlement to indemnification hereunder, and any such
indemnification payments shall be in addition to amounts payable pursuant to
such settlement agreement, unless such settlement agreement expressly provides
otherwise.
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<PAGE> 16
(b) The Company's obligation to make the payments provided for in
this Agreement and otherwise to perform its obligations hereunder shall not be
affected by any set-off, counterclaim, recoupment, defense or other claim, right
or action which the Company may have against the Executive or others. In no
event shall the Executive be obligated to seek other employment or take any
other action by way of mitigation of the amounts payable to the Executive
under any of the provisions of this Agreement and such amounts shall not be
reduced whether or not the Executive obtains other employment. Unless it is
determined that a claim made by the Executive was either frivolous or made in
bad faith, the Company agrees to pay as incurred, to the full extent permitted
by law, all legal fees and expenses which the Executive may reasonably incur as
a result of or in connection with his consultation with legal counsel or arising
out of any action, suit, proceeding or contest (regardless of the outcome
thereof) by the Company, the Executive or others regarding the validity or
enforceability of, or liability under, any provision of this Agreement or any
guarantee of performance thereof (including as a result of any contest by the
Executive about the amount of any payment pursuant to this Agreement), plus in
each case interest on any delayed payment at the applicable Federal rate
provided for in section 7872(f)(2)(A) of the Code. This section 19(b) shall
apply whether such consultation, action, suit, proceeding or contest arises
before, on, after or as a result of a Change of Control.
SECTION 20. SEVERABILITY.
A determination that any provision of this Agreement is invalid or
unenforceable shall not affect the validity or enforceability of any other
provision hereof.
SECTION 21. WAIVER.
Failure to insist upon strict compliance with any of the terms,
covenants or conditions hereof shall not be deemed a waiver of such term,
covenant, or condition. A waiver of any provision of this Agreement must be made
in writing, designated as a waiver, and signed by the party against whom its
enforcement is sought. Any waiver or relinquishment of any right or power
hereunder at any one or more times shall not be deemed a waiver or
relinquishment of such right or power at any other time or times.
SECTION 22. COUNTERPARTS.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, and all of which shall constitute one and the
same Agreement.
SECTION 23. GOVERNING LAW.
This Agreement shall be governed by and construed and enforced in
accordance with the federal laws of the United States and, to the extent that
federal law is inapplicable, in accordance with the laws of the State of New
York applicable to contracts entered into and to be performed entirely within
the State of New York.
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<PAGE> 17
SECTION 24. HEADINGS AND CONSTRUCTION.
The headings of sections in this Agreement are for convenience of
reference only and are not intended to qualify the meaning of any section. Any
reference to a section number shall refer to a section of this Agreement, unless
otherwise stated.
SECTION 25. ENTIRE AGREEMENT; MODIFICATIONS.
This instrument contains the entire agreement of the parties
relating to the subject matter hereof, and supersedes in its entirety any and
all prior agreements, understandings or representations relating to the subject
matter hereof. No modifications of this Agreement shall be valid unless made in
writing and signed by the parties hereto.
SECTION 26. NON-DUPLICATION.
In the event that the Executive shall perform services for the Bank
or any other direct or indirect subsidiary or affiliate of the Company or the
Bank, any compensation or benefits provided to the Executive by such other
employee shall be applied to offset the obligations of the Company hereunder, it
being intended that this Agreement set forth the aggregate compensation and
benefits payable to the Executive for all services to the Company, the Bank and
all of their respective direct or indirect subsidiaries and affiliates.
SECTION 27. REQUIRED REGULATORY PROVISIONS.
Notwithstanding anything herein contained to the contrary, any
payments to the Executive by the Company, whether pursuant to this Agreement or
otherwise, are subject to and conditioned upon their compliance with section
18(k) of the Federal Deposit Insurance Act, 12 U.S.C. Section 1828(k), and any
regulations promulgated thereunder.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed and the Executive has hereunto set his hand, all as of the day and year
first above written.
________________________________________
EXECUTIVE
ATTEST: WARWICK COMMUNITY BANCORP, INC.
By_____________________________
Secretary By______________________________________
Name:
Title:
[Seal]
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<PAGE> 18
STATE OF NEW YORK )
: ss.:
COUNTY OF ORANGE )
On this ________ day of ____________________, 1997, before me
personally came __________________, to me known, and known to me to be the
individual described in the foregoing instrument, who, being by me duly sworn,
did depose and say that he resides at the address set forth in said instrument,
and that he signed his name to the foregoing instrument.
___________________________________
Notary Public
STATE OF NEW YORK )
: ss.:
COUNTY OF ORANGE )
On this ________ day of ____________________, 1997, before me
personally came ___________, to me known, who, being by me duly sworn, did
depose and say that he resides at
______________________________________________, that he is a member of the Board
of Directors of WARWICK COMMUNITY BANCORP, INC., the Delaware corporation de
scribed in and which executed the foregoing instrument; that he knows the seal
of said corporation; that the seal affixed to said instrument is such seal; that
it was so affixed by order of the Board of Directors of said corporation; and
that he signed his name thereto by like order.
___________________________________
Notary Public
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<PAGE> 1
Exhibit 10.5
EMPLOYEE RETENTION AGREEMENT
This EMPLOYEE RETENTION AGREEMENT ("Agreement") is made and
entered into as of _____________, 1997, by and among THE WARWICK SAVINGS BANK, a
stock savings bank organized and existing under the laws of the state of New
York and having its executive offices at 18 Oakland Avenue, Warwick, New York
10990-0591 ("Bank"); WARWICK COMMUNITY BANCORP, INC., a business corporation
organized and existing under the laws of the State of Delaware and also having
its executive offices at 18 Oakland Avenue, Warwick, New York 10990-0591
("Company"); and _______________________, an individual residing at
_______________________________________________________________ ("Officer").
W I T N E S S E T H :
WHEREAS, effective as of the date of this Agreement, the Bank
has converted from a mutual savings bank to a stock savings bank and has become
a wholly owned subsidiary of the Company; and
WHEREAS, the Officer currently serves as the _______ of the
Bank and the Bank desires to assure for itself the continued availability of the
Officer's services and the ability of the Officer to perform such services with
a minimum of distraction in the event of a pending or threatened Change of
Control (as defined herein); and
WHEREAS, for purposes of securing the Officer's services for
the Bank, the Board of Directors of the Bank ("Board") has authorized the proper
officers of the Bank to enter into an employee retention agreement with the
Officer on the terms and conditions set forth herein, and the Board of Directors
of the Company has authorized the Company to guarantee the Bank's obligations
under such an employee retention agreement; and
WHEREAS, the Officer is willing to continue to serve the Bank
on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and obligations hereinafter set forth, the Bank, the Company
and the Officer hereby agree as follows:
SECTION 1. EFFECTIVE DATE.
(a) This Agreement shall be effective as of the date first
above written and shall remain in effect during the term of this Agreement which
shall be for a period of one year commencing on the date of this Agreement, plus
such extensions, if any, as are provided pursuant to section 1(b); provided,
however, that if the term of this Agreement has not otherwise terminated, the
term of this Agreement will terminate on the date of the Officer's termination
of employment with the Bank; and provided, further, that the obligations under
section 8 of this Agreement shall survive the term of this Agreement if payments
become due hereunder.
<PAGE> 2
(b) Except as provided in section 1(c), beginning on the date
of this Agreement, the term of this Agreement shall automatically be extended
for one additional day each day, unless either the Bank or the Officer elects
not to extend the Agreement further by giving written notice thereof to the
other party, in which case the term of this Agreement shall end on the first
anniversary of the date on which such written notice is given; provided,
however, that notwithstanding the foregoing, the term of this Agreement shall
end on the last day of the month in which the Officer attains the age of 68.
Upon termination of the Officer's employment with the Bank for any reason
whatsoever, any daily extensions provided pursuant to this section 1(b), if not
theretofore discontinued, shall automatically cease.
(c) Notwithstanding anything herein contained to the contrary:
(i) nothing in this Agreement shall be deemed to prohibit the Bank at any time
from terminating the Officer's employment at any time, subject to the terms and
conditions of this Agreement; and (ii) nothing in this Agreement shall mandate
or prohibit a continuation of the Officer's employment following the expiration
of the Assurance Period upon such terms and conditions as the Bank and the
Officer may mutually agree upon.
SECTION 2. ASSURANCE PERIOD.
(a) The assurance period ("Assurance Period") shall be for a
period commencing on the date of a Change of Control, as defined in section 10
of this Agreement, and ending on the first anniversary of the date on which the
Assurance Period commences, plus such extensions as are provided pursuant to the
following sentence. The Assurance Period shall be automatically extended for one
additional day each day, unless either the Bank or the Officer elects not to
extend the Assurance Period further by giving written notice to the other party,
in which case the Assurance Period shall become fixed and shall end on the first
anniversary of the date on which such written notice is given.
(b) Upon termination of the Officer's employment with the
Bank, any daily extensions provided pursuant to the preceding sentence, if not
theretofore discontinued, shall cease and the remaining unexpired Assurance
Period under this Agreement shall be a fixed period ending on the later of the
first anniversary of the date of the Change of Control, as defined in section 10
of this Agreement, or the first anniversary of the date on which the daily
extensions were discontinued.
SECTION 3. DUTIES.
During the period of the Officer's employment that falls
within the Assurance Period, the Officer shall: (a) except to the extent allowed
under section 6 of this Agreement, devote his full business time and attention
(other than during weekends, holidays, vacation periods, and periods of illness,
disability or approved leave of absence) to the business and affairs of the Bank
and use his best efforts to advance the Bank's interests; (b) serve in the
position to which the Officer is appointed by the Bank, which, during the
Assurance Period, shall be the position that the Officer held on the day before
the Assurance Period commenced or any higher office at the Bank to which he may
subsequently be appointed; and (c) subject to the direction of the Board
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<PAGE> 3
and the By-Laws of the Bank, have such functions, duties, responsibilities and
authority commonly associated with such position.
SECTION 4. COMPENSATION.
In consideration for the services rendered by the Officer
during the Assurance Period, the Bank shall pay to the Officer during the
Assurance Period a salary at an annual rate equal to the greater of:
(a) the annual rate of salary in effect for the Officer on the
day before the Assurance Period commenced; or
(b) such higher annual rate as may be prescribed by or under
the authority of the Board;
provided, however, that in no event shall the Officer's annual rate of salary
under this Agreement in effect at a particular time during the Assurance Period
be reduced without the Officer's prior written consent. The annual salary
payable under this section 4 shall be subject to review at least once annually
and shall be paid in approximately equal installments in accordance with the
Bank's customary payroll practices. Nothing in this section 4 shall be deemed to
prevent the Officer from receiving additional compensation other than salary for
his services to the Bank, or additional compensation for his services to the
Company, upon such terms and conditions as may be prescribed by or under the
authority of the Board or the Board of Directors of the Company.
SECTION 5. EMPLOYEE BENEFIT PLANS AND PROGRAMS.
Except as otherwise provided in this Agreement, the Officer
shall, during the Assurance Period, be treated as an employee of the Bank and be
eligible to participate in and receive benefits under group life, health
(including hospitalization, medical and major medical), dental, accident and
long term disability insurance plans, and such other employee benefit plans and
programs, including, but not limited to, any incentive compensation plans or
programs (whether or not employee benefit plans or programs), any stock option
and appreciation rights plan, employee stock ownership plan and restricted stock
plan, as may from time to time be maintained by, or cover employees of, the
Bank, in accordance with the terms and conditions of such employee benefit plans
and programs and compensation plans and programs and with the Bank's customary
practices.
SECTION 6. BOARD MEMBERSHIPS.
The Officer may serve as a member of the boards of directors
of such business, community and charitable organizations as he may disclose to
and as may be approved by the Board (which approval shall not be unreasonably
withheld); provided, however, that such service shall not materially interfere
with the performance of his duties under this Agreement. The Officer may also
engage in personal business and investment activities which do not materially
interfere with the performance of his duties hereunder; provided, however, that
such activities are
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<PAGE> 4
not prohibited under any code of conduct or investment or securities trading
policy established by the Bank and generally applicable to all similarly
situated Officers.
SECTION 7. WORKING FACILITIES AND EXPENSES.
During the Assurance Period, the Officer's principal place of
employment shall be at the Bank's executive offices at the address first above
written, or at such other location within 50 miles of the address at which the
Bank shall maintain its principal executive offices, or at such other location
as the Bank and the Officer may mutually agree upon. The Bank shall provide the
Officer, at his principal place of employment, with a private office,
stenographic services and other support services and facilities suitable to his
position with the Bank and necessary or appropriate in connection with the
performance of his assigned duties under this Agreement. The Bank shall
reimburse the Officer for his ordinary and necessary business expenses,
including, without limitation, the Officer's travel and entertainment expenses,
incurred in connection with the performance of the Officer's duties under this
Agreement, upon presentation to the Bank of an itemized account of such expenses
in such form as the Bank may reasonably require.
SECTION 8. TERMINATION OF EMPLOYMENT WITH BANK LIABILITY.
(a) In the event that the Officer's employment with the Bank
shall terminate either during the Assurance Period, or prior to the commencement
of the Assurance Period but within three months of a Change of Control (as
defined in section 10 of this Agreement); provided, however, that if the
Officer's employment is terminated prior to the commencement of the Assurance
Period, it is reasonably demonstrated by the Officer that such termination of
employment was at the request of a third party who has taken steps reasonably
calculated to effect such Change of Control or otherwise arose in connection
with or anticipation of such Change of Control, on account of:
(i) The Officer's voluntary resignation from employment with
the Bank within 90 days following:
(A) the failure of the Board to appoint or re-appoint
or elect or re-elect the Officer to serve in the same position
in which the Officer was serving on the day before the
Assurance Period commenced (or a more senior office);
(B) if the Officer is a member of the Board on the
day before the Assurance Period commenced, the failure of the
shareholders of the Bank to elect or re-elect the Officer as a
member of the Board or the failure of the Board (or the
nominating committee thereof) to nominate the Officer for such
election or re-election;
(C) the expiration of a 30-day period following the
date on which the Officer gives written notice to the Bank of
its material failure, whether by amendment of the Bank's
Organization Certificate or By-Laws, action
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<PAGE> 5
of the Board or the Bank's shareholders or otherwise, to vest
in the Officer the functions, duties, or responsibilities
vested in the Officer on the day before the Assurance Period
commenced (or the functions, duties and responsibilities of a
more senior office to which the Officer may be appointed),
unless during such 30-day period, the Bank fully cures such
failure;
(D) the failure of the Bank to cure a material breach
of this Agreement by the Bank, within 30 days following
written notice from the Officer of such material breach;
(E) a reduction in the salary provided to the
Officer, or a material reduction in the benefits provided to
the Officer under the Bank's program of employee benefits,
other than in connection with an across-the-board reduction in
salary and benefits uniformly applied to all employees of the
Bank and all subsidiaries and affiliates of the Bank, compared
with the salary and benefits that were provided to the Officer
on the day before the Assurance Period commenced;
(F) a change in the Officer's principal place of
employment for a distance in excess of 50 miles from the
Bank's principal office in Warwick, New York; or
(ii) the Officer's employment with the Bank is terminated by
the Bank for any reason other than for "cause" as provided in section
9(a);
then, subject to section 21, the Bank shall provide the benefits and pay to the
Officer the amounts described in section 8(b) of this Agreement; provided,
however, that if benefits or payments become due hereunder as a result of the
Officer's termination of employment prior to the commencement of the Assurance
Period, the benefits and payments provided for under section 8(b) of this
Agreement shall be determined as though the Officer had remained in the service
of the Bank (upon the terms and conditions in effect at the time of his actual
termination of service) and had not terminated employment with the Bank until
the date on which the Officer's Assurance Period would have commenced.
(b) Upon the termination of the Officer's employment with the
Bank under circumstances described in section 8(a) of this Agreement, the Bank
shall pay and provide to the Officer (or, in the event of the Officer's death,
to the Officer's estate):
(i) the Officer's earned but unpaid salary (including, without
limitation, all items which constitute wages under applicable law and
the payment of which is not otherwise provided for in this section
8(b)) as of the date of the termination of the Officer's employment
with the Bank, such payment to be made at the time and in the manner
prescribed by law applicable to the payment of wages but in no event
later than 30 days after termination of employment;
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<PAGE> 6
(ii) the benefits, if any, to which the Officer is entitled as
a former employee under the employee benefit plans and programs and
compensation plans and programs maintained for the benefit of the
Bank's officers and employees;
(iii) continued group life, health (including hospitalization,
medical and major medical), dental, accident and long term disability
insurance benefits, in addition to that provided pursuant to section
8(b)(ii), and after taking into account the coverage provided by any
subsequent employer, if and to the extent necessary to provide for the
Officer, for the remaining unexpired Assurance Period, coverage
equivalent to the coverage to which the Officer would have been
entitled under such plans (as in effect on the date of his termination
of employment, or, if his termination of employment occurs after a
Change of Control, on the date of such Change of Control, whichever
benefits are greater) if the Officer had continued working for the Bank
during the remaining unexpired Assurance Period at the highest annual
rate of salary achieved during the Officer's period of actual employ
ment with the Bank;
(iv) within 30 days following the Officer's termination of
employment with the Bank, a lump sum payment, in an amount equal to the
present value of the salary (which, in the case of an Officer who is
compensated in the form of both salary and commissions, shall be equal
to the annual average of the total salary and commissions paid to such
Officer during the two calendar years prior to such Officer's
termination of employment) that the Officer would have earned if the
Officer had continued working for the Bank during the remaining
unexpired Assurance Period at the highest annual rate of salary
achieved during the Officer's period of actual employment with the
Bank, where such present value is to be determined using a discount
rate equal to the applicable short-term federal rate prescribed under
section 1274(d) of the Internal Revenue Code of 1986, as amended
("Code"), compounded using the compounding periods corresponding to the
Bank's regular payroll periods for its officers, such lump sum to be
paid in lieu of all other payments of salary provided for under this
Agreement in respect of the period following any such termination;
(v) within 30 days following the Officer's termination of
employment with the Bank, a lump sum payment in an amount equal to the
excess, if any, of:
(A) the present value of the aggregate benefits to
which he would be entitled under The Warwick Savings Bank
Defined Benefit Pension Plan (together with the defined
benefit portion of the Benefit Restoration Plan of The Warwick
Savings Bank and any other supplemental defined benefit plan)
and any and all other qualified and non-qualified defined
benefit pension plans maintained by, or covering employees of,
the Bank, if the Officer were 100% vested thereunder and had
continued working for the Bank during the remaining unexpired
Assurance Period at the highest annual rate of salary achieved
during the Assurance Period; over
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<PAGE> 7
(B) the present value of the benefits to which he is
actually entitled under such defined benefit pension plans as
of the date of his termination;
where such present values are to be determined using the mortality
tables prescribed under section 415(b)(2)(E)(v) of the Code and a
discount rate, compounded monthly equal to the annualized rate of
interest prescribed by the Pension Benefit Guaranty Corporation for the
valuation of immediate annuities payable under terminating
single-employer defined benefit plans for the month in which the
Officer's termination of employment occurs ("Applicable PBGC Rate");
(vi) within 30 days following the Officer's termination of
employment with the Bank, a lump sum payment in an amount equal to the
present value of the additional employer contributions to which he
would have been entitled under The Warwick Savings Bank 401(k) Savings
Plan, the Employee Stock Ownership Plan of Warwick Community Bancorp,
Inc. (together with the defined contribution portion of the Benefit
Restoration Plan of The Warwick Savings Bank or any other supplemental
defined contribution plan) and any and all other qualified and
non-qualified defined contribution plans maintained by, or covering
employees of, the Bank, as if he were 100% vested thereunder and had
continued working for the Bank during the remaining unexpired Assurance
Period at the highest annual rate of salary achieved during the
Assurance Period and making the maximum amount of employee
contributions, if any, required under such plan or plans, such present
value to be determined on the basis of a discount rate, compounded
using the compounding period that corresponds to the frequency with
which employer contributions are made to the relevant plan, equal to
the Applicable PBGC Rate;
(vii) the payments that would have been made to the Officer
under any cash bonus or long-term or short-term cash incentive
compensation plan maintained by, or covering employees of, the Bank if
he had continued working for the Bank during the remaining unexpired
Assurance Period and had earned the maximum bonus or incentive award in
each calendar year that ends during the remaining unexpired Assurance
Period, such payments to be equal to the product of:
(A) the maximum percentage rate at which an award was
ever available to the Officer under such incentive
compensation plan; multiplied by
(B) the salary that would have been paid to the
Officer during each such calendar year at the highest annual
rate of salary achieved during the Assurance Period;
such payments to be made (without discounting for early payment) within
30 days following the Officer's termination of employment;
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<PAGE> 8
(viii) at the election of the Bank made within 30 days
following the occurrence of the event described in section 8(a), upon
the surrender of options or appreciation rights issued to the Officer
under any stock option and appreciation rights plan or program
maintained by, or covering employees of, the Bank, a lump sum payment
in an amount equal to the product of:
(A) the excess of (I) the fair market value of a
share of stock of the same class as the stock subject to the
option or appreciation right, determined as of the date of
termination of employment, over (II) the exercise price per
share for such option or appreciation right, as specified in
or under the relevant plan or program; multiplied by
(B) the number of shares with respect to which
options or appreciation rights are being surrendered.
For purposes of this section 8(b)(viii), the Officer shall be deemed
fully vested in all options and appreciation rights under any stock
option or appreciation rights plan or program maintained by, or
covering employees of, the Bank, even if he is not vested under such
plan or program; and
(ix) at the election of the Bank made within 30 days following
the occurrence of the event described in section 8(a), upon the
surrender of any shares awarded to the Officer under any restricted
stock plan maintained by, or covering employees of, the Bank, a lump
sum payment in an amount equal to the product of:
(A) the fair market value of a share of stock of the
same class of stock granted under such plan, determined as of
the date of the Officer's termination of employment;
multiplied by
(B) the number of shares which are being surrendered.
For purposes of this section 8(b)(ix), the Officer shall be deemed
fully vested in all shares awarded under any restricted stock plan
maintained by, or covering employees of, the Bank, even if he is not
vested under such plan.
The Bank and the Officer hereby stipulate that the damages which may be incurred
by the Officer following any such termination of employment are not capable of
accurate measurement as of the date first above written and that the payments
and benefits contemplated by this section 8(b) constitute reasonable damages
under the circumstances and shall be payable without any requirement of proof of
actual damage and without regard to the Officer's efforts, if any, to mitigate
damages. The Bank and the Officer further agree that the Bank may condition the
payments and benefits (if any) due under sections 8(b)(iii), (iv), (v), (vi) and
(vi) on the receipt of the Officer's resignation from any and all positions
which he holds as an officer, director or committee member with respect to the
Bank or any subsidiary or affiliate of the Bank.
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<PAGE> 9
SECTION 9. TERMINATION WITHOUT ADDITIONAL BANK LIABILITY.
In the event that the Officer's employment with the Bank shall
terminate during the Assurance Period on account of:
(a) the discharge of the Officer for "cause," which, for
purposes of this Agreement, shall mean a discharge because the Board
determine that the Officer: (i) has intentionally failed to perform his
assigned duties under this Agreement (including for these purposes, the
Officer's inability to perform such duties as a result of drug or
alcohol dependency); (ii) has intentionally engaged in dishonest or
illegal conduct in connection with his performance of services for the
Bank or has been convicted of a felony; (iii) has willfully violated,
in any material respect, any law, rule, regulation, written agreement
or final cease-and-desist order with respect to his performance of
services for the Bank, as determined by the Board; or (iv) has
intentionally breached the material terms of this Agreement; provided,
however, that on and after the date that a Change of Control occurs, a
determination under this section 9 shall require the affirmative vote
of at least three-fourths of the members of the Board acting in good
faith and such vote shall not be made prior to the expiration of a
60-day period following the date on which the Board shall, by written
notice to the Officer, furnish to him a statement of its grounds for
proposing to make such determination, during which period the Officer
shall be afforded a reasonable opportunity to make oral and written
presentations to the members of the Board, and to be represented by his
legal counsel at such presentations, to refute the grounds for the pro
posed determination;
(b) the Officer's voluntary resignation from employment with
the Bank for reasons other than those specified in section 8(a)(i); or
(c) the death of the Officer while employed by the Bank or the
termination of the Officer's employment because of "total and permanent
disability" within the meaning of the Bank's long-term disability plan
for employees;
then the Bank shall have no further obligations under this Agreement, other than
the payment to the Officer of his earned but unpaid salary as of the date of the
termination of his employment and the provision of such other benefits, if any,
to which he is entitled as a former employee under the Bank's employee benefit
plans and programs and compensation plans and programs. For purposes of this
section 9, no act or failure to act, on the part of the Officer, shall be
considered "willful" unless it is done, or omitted to be done, by the Officer in
bad faith or without reasonable belief that the Officer's action or omission was
in the best interests of the Bank. Any act, or failure to act, based upon
authority given pursuant to a resolution duly adopted by the Board or based upon
the written advice of counsel for the Bank shall be conclusively presumed to be
done, or omitted to be done, by the Officer in good faith and in the best
interests of the Bank. The cessation of employment of the Officer shall not be
deemed to be for "cause" within the meaning of section 9(a) unless and until
there shall have been delivered to the Officer a copy of a resolution duly
adopted by the affirmative vote of three-fourths of the members of the Board at
a meeting of the Board called and held for such purpose (after reasonable notice
is provided to the Officer and the
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<PAGE> 10
Officer is given an opportunity, together with counsel, to be heard before the
Board), finding that, in the good faith opinion of the Board, the Officer is
guilty of the conduct described in section 9(a) above, and specifying the
particulars thereof in detail.
SECTION 10. CHANGE OF CONTROL.
(a) A Change of Control of the Bank ("Change of Control")
shall be deemed to have occurred upon the happening of any of the following
events:
(i) approval by the shareholders of the Bank of a transaction
that would result and does result in the reorganization, merger or
consolidation of the Bank, respectively, with one or more other
persons, other than a transaction following which:
(A) at least 51% of the equity ownership interests of
the entity resulting from such transaction are beneficially
owned (within the meaning of Rule 13d-3 promulgated under the
Securities Exchange Act of 1934, as amended ("Exchange Act"))
in substantially the same relative proportions by persons who,
immediately prior to such transaction, beneficially owned
(within the meaning of Rule 13d-3 promulgated under the
Exchange Act) at least 51% of the outstanding equity ownership
interests in the Bank; and
(B) at least 51% of the securities entitled to vote
generally in the election of directors of the entity resulting
from such transaction are beneficially owned (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) in
substantially the same relative proportions by persons who,
immediately prior to such transaction, beneficially owned
(within the meaning of Rule 13d-3 promulgated under the
Exchange Act) at least 51% of the securities entitled to vote
generally in the election of directors of the Bank;
(ii) the acquisition of substantially all of the assets of the
Bank or beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 25% or more of the outstanding
securities of the Bank entitled to vote generally in the election of
directors by any person or by any persons acting in concert, or
approval by the shareholders of the Bank of any transaction which would
result in an acquisition; or
(iii) a complete liquidation or dissolution of the Bank, or
approval by the shareholders of the Bank of a plan for such liquidation
or dissolution;
(iv) the occurrence of any event if, immediately following
such event, at least 50% of the members of the Board do not belong to
any of the following groups:
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<PAGE> 11
(A) individuals who were members of the Board on the
date of this Agreement; or
(B) individuals who first became members of the Board
after the date of this Agreement either:
(1) upon election to serve as a member of
the Board by affirmative vote of three-quarters of
the members of such Board, or a nominating committee
thereof, in office at the time of such first
election; or
(2) upon election by the shareholders of the
Board to serve as a member of the Board, but only if
nominated for election by affirmative vote of
three-quarters of the members of the Board, or of a
nominating committee thereof, in office at the time
of such first nomination;
provided, however, that such individual's election or nomination did
not result from an actual or threatened election contest (within the
meaning of Rule 14a-11 of Regulation 14A promulgated under the Exchange
Act) or other actual or threatened solicitation of proxies or consents
(within the meaning of Rule 14a-11 of Regulation 14A promulgated under
the Exchange Act) other than by or on behalf of the Board of the Bank;
(v) any event which would be described in section 10(a)(i),
(ii), (iii) or (iv) if the term "Company" were substituted for the term
"Bank" therein and the term "Board of Directors of the Company" were
substituted for the term "Board" therein.
For purposes of this section 10(a), the term "person" shall have the meaning
assigned to it under sections 13(d)(3) or 14(d)(2) of the Exchange Act.
(b) In no event, however, shall a Change of Control be deemed
to have occurred as a result of any acquisition of securities or assets of the
Company, the Bank or any subsidiary of either of them, by the Company, the Bank
or any subsidiary of either of them, or by any employee benefit plan maintained
by any of them.
SECTION 11. NO EFFECT ON EMPLOYEE BENEFIT PLANS OR PROGRAMS.
The termination of the Officer's employment during the
Assurance Period or thereafter, whether by the Bank or by the Officer, shall
have no effect on the rights and obligations of the parties hereto under the
Bank's qualified or non-qualified retirement, pension, savings, thrift,
profit-sharing or stock bonus plans, group life, health (including
hospitalization, medical and major medical), dental, accident and long term
disability insurance plans or such other employee benefit plans or programs, or
compensation plans or programs (whether or not employee
-11-
<PAGE> 12
benefit plans or programs), as may be maintained by, or cover employees of, the
Bank from time to time; provided, however, that nothing in this Agreement shall
be deemed to duplicate any compensation or benefits provided under any
agreement, plan or program covering the Officer to which the Bank or the Company
is a party and any duplicative amount payable under any such agreement, plan or
program shall be applied as an offset to reduce the amounts otherwise payable
hereunder.
SECTION 12. SUCCESSORS AND ASSIGNS.
This Agreement will inure to the benefit of and be binding
upon the Officer, his legal representatives and testate or intestate
distributees, and the Bank and the Company, their respective successors and
assigns, including any successor by merger or consolidation or a statutory
receiver or any other person or firm or corporation to which all or
substantially all of the respective assets and business of the Bank or the
Company may be sold or otherwise transferred. Failure of the Bank to obtain from
any successor its express written assumption of the Bank's obligations hereunder
at least 60 days in advance of the scheduled effective date of any such
succession shall be deemed a material breach of this Agreement.
SECTION 13. NOTICES.
Any communication required or permitted to be given under this
Agreement, including any notice, direction, designation, consent, instruction,
objection or waiver, shall be in writing and shall be deemed to have been given
at such time as it is delivered personally, or five days after mailing if
mailed, postage prepaid, by registered or certified mail, return receipt
requested, addressed to such party at the address listed below or at such other
address as one such party may by written notice specify to the other party:
If to the Officer:
------------------------
------------------------
------------------------
If to the Bank or the Company:
The Warwick Savings Bank
18 Oakland Avenue
Warwick, New York 10990-0591
Attention: President
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<PAGE> 13
with a copy to:
Thacher Proffitt & Wood
Two World Trade Center
New York, New York 10048
Attention: Dougals J. McClintock, Esq.
SECTION 14. INDEMNIFICATION AND ATTORNEYS' FEES.
(a) The Bank shall indemnify, hold harmless and defend the
Officer against reasonable costs, including legal fees, incurred by the Officer
in connection with or arising out of any action, suit or proceeding in which the
Officer may be involved, as a result of the Officer's efforts, in good faith, to
defend or enforce the terms of this Agreement. For purposes of this Agreement,
any settlement agreement which provides for payment of any amounts in settlement
of the Bank's obligations hereunder shall be conclusive evidence of the
Officer's entitlement to indemnification hereunder, and any such indemnification
payments shall be in addition to amounts payable pursuant to such settlement
agreement, unless such settlement agreement expressly provides otherwise.
(b) The Bank's obligation to make the payments provided for in
this Agreement and otherwise to perform its obligations hereunder shall not be
affected by any set-off, counterclaim, recoupment, defense or other claim, right
or action which the Bank may have against the Officer or others. In no event
shall the Officer be obligated to seek other employment or take any other action
by way of mitigation of the amounts payable to the Officer under any of the
provisions of this Agreement and such amounts shall not be reduced whether or
not the Officer obtains other employment. Unless it is determined that a claim
made by the Officer was either frivolous or made in bad faith, the Bank agrees
to pay as incurred, to the full extent permitted by law, all legal fees and
expenses which the Officer may reasonably incur as a result of or in connection
with his consultation with legal counsel or arising out of any action, suit,
proceeding or contest (regardless of the outcome thereof) by the Bank, the
Officer or others regarding the validity or enforceability of, or liability
under, any provision of this Agreement or any guarantee of performance thereof
(including as a result of any contest by the Officer about the amount of any
payment pursuant to this Agreement), plus in each case interest on any delayed
payment at the applicable federal rate provided for in section 7872(f)(2)(A) of
the Code. This section 14(b) shall apply whether such consultation, action,
suit, proceeding or contest arises before, on, after or as a result of a Change
of Control.
SECTION 15. SEVERABILITY.
A determination that any provision of this Agreement is
invalid or unenforceable shall not affect the validity or enforceability of any
other provision hereof.
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<PAGE> 14
SECTION 16. WAIVER.
Failure to insist upon strict compliance with any of the
terms, covenants or conditions hereof shall not be deemed a waiver of such term,
covenant, or condition. A waiver of any provision of this Agreement must be made
in writing, designated as a waiver, and signed by the party against whom its
enforcement is sought. Any waiver or relinquishment of any right or power
hereunder at any one or more times shall not be deemed a waiver or
relinquishment of such right or power at any other time or times.
SECTION 17. COUNTERPARTS.
This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, and all of which shall constitute one
and the same Agreement.
SECTION 18. GOVERNING LAW.
This Agreement shall be governed by and construed and enforced
in accordance with the federal laws of the United States and, to the extent that
federal law is inapplicable, in accordance with the laws of the State of New
York applicable to contracts entered into and to be performed entirely within
the State of New York.
SECTION 19. HEADINGS AND CONSTRUCTION.
The headings of sections in this Agreement are for convenience
of reference only and are not intended to qualify the meaning of any section.
Any reference to a section number shall refer to a section of this Agreement,
unless otherwise stated.
SECTION 20. ENTIRE AGREEMENT; MODIFICATIONS.
This instrument contains the entire agreement of the parties
relating to the subject matter hereof, and supersedes in its entirety any and
all prior agreements, understandings or representations relating to the subject
matter hereof. No modifications of this Agreement shall be valid unless made in
writing and signed by the parties hereto.
SECTION 21. REQUIRED REGULATORY PROVISIONS.
The following provisions are included for the purposes of
complying with various laws, rules and regulations applicable to the Bank:
(a) Notwithstanding anything herein contained to the contrary,
in no event shall the aggregate amount of compensation payable to the
Officer under section 8(b) hereof (exclusive of amounts described in
section 8(b)(i)) exceed the three times the Officer's average annual
total compensation for the last five consecutive calendar years to end
prior to his termination of employment with the
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<PAGE> 15
Bank (or for his entire period of employment with the Bank if less than
five calendar years).
(b) Notwithstanding anything herein contained to the contrary,
any payments to the Officer by the Bank, whether pursuant to this
Agreement or otherwise, are subject to and conditioned upon their
compliance with section 18(k) of the Federal Deposit Insurance Act
("FDI Act"), 12 U.S.C. Section1828(k), and any regulations promulgated
thereunder.
(c) Notwithstanding anything herein contained to the contrary,
if the Officer is suspended from office and/or temporarily prohibited
from participating in the conduct of the affairs of the Bank pursuant
to a notice served under section 8(e)(3) or 8(g)(1) of the FDI Act, 12
U.S.C. Section 1818(e)(3) or 1818(g)(1), the Bank's obligations under
this Agreement shall be suspended as of the date of service of such
notice, unless stayed by appropriate proceedings. If the charges in
such notice are dismissed, the Bank, in its discretion, may (i) pay to
the Officer all or part of the compensation withheld while the Bank's
obligations hereunder were suspended and (ii) reinstate, in whole or in
part, any of the obligations which were suspended.
(d) Notwithstanding anything herein contained to the contrary,
if the Officer is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued
under section 8(e)(4) or 8(g)(1) of the FDI Act, 12 U.S.C.
Section 1818(e)(4) or (g)(1), all prospective obligations of the Bank
under this Agreement shall terminate as of the effective date of the
order, but vested rights and obligations of the Bank and the Officer
shall not be affected.
(e) Notwithstanding anything herein contained to the contrary,
if the Bank is in default (within the meaning of section 3(x)(1) of the
FDI Act, 12 U.S.C. Section 1813(x)(1), all prospective obligations of
the Bank under this Agreement shall terminate as of the date of
default, but vested rights and obligations of the Bank and the Officer
shall not be affected.
(f) Notwithstanding anything herein contained to the contrary,
all prospective obligations of the Bank hereunder shall be terminated,
except to the extent that a continuation of this Agreement is necessary
for the continued operation of the Bank: (i) by the Federal Deposit
Insurance Corporation ("FDIC"), at the time the FDIC enters into an
agreement to provide assistance to or on behalf of the Bank under the
authority contained in section 13(c) of the FDI Act, 12 U.S.C.
Section 1823(c); (ii) by the FDIC or its designee at the time the FDIC
or its designee approves a supervisory merger to resolve problems
related to the operation of the Bank or when the Bank is determined by
the FDIC to be in an unsafe or unsound condition. The vested rights and
obligations of the parties shall not be affected.
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<PAGE> 16
SECTION 22. GUARANTY.
The Company hereby irrevocably and unconditionally guarantees
to the Officer the payment of all amounts, and the performance of all other
obligations, due from the Bank in accordance with the terms of this Agreement as
and when due without any requirement of presentment, demand of payment, protest
or notice of dishonor or nonpayment.
IN WITNESS WHEREOF, the Bank and the Company have caused this
Agreement to be executed and the Officer has hereunto set his hand, all as of
the day and year first above written.
----------------------------------------
OFFICER
ATTEST: THE WARWICK SAVINGS BANK
By
---------------------------
Secretary By
--------------------------------------
Name:
[Seal] Title:
ATTEST: WARWICK COMMUNITY BANCORP, INC..
By
---------------------------
Secretary By
--------------------------------------
Name:
[Seal] Title:
-16-
<PAGE> 17
STATE OF NEW YORK )
: ss.:
COUNTY OF ORANGE )
On this ____ day of ______________, 19__, before me personally
came _____________________, to me known, and known to me to be the individual
described in the foregoing instrument, who, being by me duly sworn, did depose
and say that he resides at the address set forth in said instrument, and that he
signed his name to the foregoing instrument.
________________________________________
Notary Public
STATE OF NEW YORK )
: ss.:
COUNTY OF ORANGE )
On this _____ day of _________________, 19__, before me
personally came _____________________, to me known, who, being by me duly sworn,
did depose and say that he resides at _________________________________________,
that he is a member of the Board of Directors of THE WARWICK SAVINGS BANK, the
savings bank described in and which executed the foregoing instrument; that he
knows the seal of said savings bank; that the seal affixed to said instrument is
such seal; that it was so affixed by authority of the Board of Directors of said
savings bank; and that he signed his name thereto by like authority.
________________________________________
Notary Public
STATE OF NEW YORK )
: ss.:
COUNTY OF ORANGE )
On this _____ day of __________________, 19__, before me
personally came __________________, to me known, who, being by me duly sworn,
did depose and say that he resides at __________ ______________________________,
that he is a member of the Board of Directors of WARWICK COMMUNITY BANCORP,
INC., the Delaware corporation described in and which executed the foregoing
instrument; that he knows the seal of said corporation; that the seal affixed to
said instrument is such seal; that it was so affixed by order of the Board of
Directors of said corporation; and that he signed his name thereto by like
order.
________________________________________
Notary Public
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<PAGE> 1
Exhibit 10.6
BENEFIT RESTORATION PLAN
OF
THE WARWICK SAVINGS BANK
--------------------------------
Effective as of ______________
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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ARTICLE I
DEFINITIONS
SECTION 1.1 ACTUARIAL EQUIVALENT .......................................... 1
SECTION 1.2 AFFILIATED EMPLOYER ........................................... 1
SECTION 1.3 APPLICABLE LIMITATION ......................................... 1
SECTION 1.4 BANK .......................................................... 2
SECTION 1.5 BENEFICIARY ................................................... 2
SECTION 1.6 BOARD ......................................................... 2
SECTION 1.7 CHANGE IN CONTROL ............................................. 2
SECTION 1.8 CODE .......................................................... 3
SECTION 1.9 COMMITTEE ..................................................... 3
SECTION 1.10 COMPANY ....................................................... 3
SECTION 1.11 ELIGIBLE EMPLOYEE ............................................. 3
SECTION 1.12 EMPLOYEE ...................................................... 3
SECTION 1.13 EMPLOYER ...................................................... 3
SECTION 1.14 EMPLOYER CONTRIBUTIONS ........................................ 3
SECTION 1.15 ERISA ......................................................... 4
SECTION 1.16 ESOP .......................................................... 4
SECTION 1.17 EXCHANGE ACT .................................................. 4
SECTION 1.18 FAIR MARKET VALUE OF A SHARE .................................. 4
SECTION 1.19 FORMER PARTICIPANT ............................................ 4
SECTION 1.20 SAVINGS PLAN .................................................. 4
SECTION 1.21 PARTICIPANT ................................................... 4
SECTION 1.22 PLAN .......................................................... 4
SECTION 1.23 RETIREMENT PLAN ............................................... 5
SECTION 1.24 SHARE ......................................................... 5
SECTION 1.25 STOCK UNIT .................................................... 5
SECTION 1.26 TERMINATION OF SERVICE ........................................ 5
ARTICLE II
PARTICIPATION
SECTION 2.1 ELIGIBILITY FOR PARTICIPATION .................................. 5
SECTION 2.2 COMMENCEMENT OF PARTICIPATION ................................. 5
SECTION 2.3 TERMINATION OF PARTICIPATION .................................. 6
</TABLE>
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ARTICLE III
BENEFITS TO PARTICIPANTS
SECTION 3.1 SUPPLEMENTAL RETIREMENT BENEFIT .............................. 6
SECTION 3.2 SUPPLEMENTAL SAVINGS BENEFIT ................................. 7
SECTION 3.3 SUPPLEMENTAL ESOP BENEFITS ................................... 8
SECTION 3.4 RESTORED ESOP BENEFITS ......................................
ARTICLE IV
DEATH BENEFITS
SECTION 4.1 SUPPLEMENTAL RETIREMENT PLAN DEATH BENEFITS .................. 10
SECTION 4.2 SUPPLEMENTAL SAVINGS PLAN DEATH BENEFITS ..................... 11
SECTION 4.3 SUPPLEMENTAL ESOP DEATH BENEFITS ............................. 11
SECTION 4.4 RESTORED ESOP DEATH BENEFITS ................................. 11
SECTION 4.5 BENEFICIARIES ................................................ 11
ARTICLE V
TRUST FUND
SECTION 5.1 ESTABLISHMENT OF TRUST ....................................... 12
SECTION 5.2 CONTRIBUTIONS TO TRUST ....................................... 12
SECTION 5.3 UNFUNDED CHARACTER OF PLAN ................................... 12
ARTICLE VI
ADMINISTRATION
SECTION 6.1 THE COMMITTEE ................................................ 13
SECTION 6.2 LIABILITY OF COMMITTEE MEMBERS AND THEIR DELEGATES ........... 14
SECTION 6.3 PLAN EXPENSES ................................................ 14
SECTION 6.4 FACILITY OF PAYMENT .......................................... 14
</TABLE>
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ARTICLE VII
AMENDMENT AND TERMINATION
SECTION 7.1 AMENDMENT BY THE BANK ........................................ 15
SECTION 7.2 TERMINATION .................................................. 15
SECTION 7.3 AMENDMENT OR TERMINATION BY OTHER EMPLOYERS .................. 15
ARTICLE VIII
MISCELLANEOUS PROVISIONS
SECTION 8.1 CONSTRUCTION AND LANGUAGE .................................... 16
SECTION 8.2 HEADINGS ..................................................... 16
SECTION 8.3 NON-ALIENATION OF BENEFITS ................................... 16
SECTION 8.4 INDEMNIFICATION .............................................. 16
SECTION 8.5 SEVERABILITY ................................................. 17
SECTION 8.6 WAIVER ....................................................... 17
SECTION 8.7 GOVERNING LAW ................................................ 17
SECTION 8.8 TAXES ........................................................ 17
SECTION 8.9 NO DEPOSIT ACCOUNT ........................................... 17
SECTION 8.10 NO RIGHT TO CONTINUED EMPLOYMENT ............................. 17
SECTION 8.11 STATUS OF PLAN UNDER ERISA ................................... 18
</TABLE>
(iii)
<PAGE> 5
BENEFIT RESTORATION PLAN
OF
THE WARWICK SAVINGS BANK
ARTICLE I
DEFINITIONS
Wherever appropriate to the purposes of the Plan, capitalized terms
shall have the meanings assigned to them under the Retirement Plan, Savings Plan
or ESOP, as applicable; provided, however, that the following special
definitions shall apply for purposes of the Plan, unless a different meaning is
clearly indicated by the context:
SECTION 1.1 ACTUARIAL EQUIVALENT means a benefit of equivalent value
determined on the basis of interest rate and mortality assumptions prescribed
under the Retirement Plan. If it shall be necessary to determine an Actuarial
Equivalent in any case for which interest rate and mortality assumptions shall
not have been prescribed under the Retirement Plan, the Actuarial Equivalent
shall be determined using the interest rate and mortality assumptions prescribed
by the Commissioner of Internal Revenue pursuant to section 417(e) of the Code
for the month in which the determination is being made.
SECTION 1.2 AFFILIATED EMPLOYER means any corporation which is a
member of a controlled group of corporations (as defined in section 414(b) of
the Code) that includes the Company; any trade or business (whether or not
incorporated) that is under common control (as defined in section 414(c) of the
Code) with the Company; any organization (whether or not incorporated) that is a
member of an affiliated service group (as defined in section 414(m) of the Code)
that includes the Company; any leasing organization (as defined in section
414(n) of the Code) to the extent that any of its employees are required
pursuant to section 414(n) of the Code to be treated as employees of the
Company; and any other entity that is required to be aggregated with the Company
pursuant to regulations under section 414(o) of the Code.
SECTION 1.3 APPLICABLE LIMITATION means any of the following: (a)
the limitation on annual compensation that may be recognized under a
tax-qualified plan for benefit computation purposes pursuant to section
401(a)(17) of the Code; (b) the maximum limitation on annual benefits payable by
a tax-qualified defined benefit plan pursuant to section 415(b) of the Code; (c)
the maximum limitation on annual additions to a tax-qualified defined
contribution plan pursuant to section 415(c) of the Code; (d) the maximum
limitation on aggregate annual benefits and annual additions under a combination
of tax-qualified defined benefit and defined contribution plans maintained by a
single employer pursuant to section 415(e) of the Code; (e) the maximum
limitation on annual elective deferrals to a qualified cash or deferred
arrangement pursuant to section 402(g) of the Code; (f) the annual limitation on
elective deferrals under a qualified cash or deferred arrangement by highly
compensated employees pursuant to section 401(k) of the Code;
<PAGE> 6
and (g) the annual limitation on voluntary employee contributions by, and
employer matching contributions for, highly compensated employees pursuant to
section 401(m) of the Code.
SECTION 1.4 BANK means The Warwick Savings Bank, a state stock
savings bank, and its successors or assigns.
SECTION 1.5 BENEFICIARY means any person, other than a Participant
or Former Participant, who is determined to be entitled to benefits under the
terms of the Plan.
SECTION 1.6 BOARD means the Board of Directors of the Bank.
SECTION 1.7 CHANGE IN CONTROL means any of the following events:
(a) the occurrence of any event upon which any "person" (as such
term is used in sections 13(d) and 14(d) of the Exchange Act), other than
(i) a trustee or other fiduciary holding securities under an employee
benefit plan maintained for the benefit of employees of the Company; (ii)
a corporation owned, directly or indirectly, by the shareholders of the
Company in substantially the same proportions as their ownership of stock
of the Company; or (iii) any group constituting a person in which
employees of the Company are substantial members, becomes the "beneficial
owner" (as defined in Rule 13d-3 promulgated under the Exchange Act),
directly or indirectly, of securities issued by the Company representing
25% or more of the combined voting power of all of the Company's then
outstanding securities; or
(b) the occurrence of any event upon which the individuals who were
members of the Board as of the date this Plan was adopted, together with
individuals whose election by the Board or nomination for election by the
Company's shareholders was approved by the affirmative vote of at least
two-thirds of the members of the Board then in office who were either
members of the Board on the date this Plan is adopted or whose nomination
or election was previously so approved, cease for any reason to constitute
a majority of the members of the Board, but excluding, for this purpose,
any such individual whose initial assumption of office is in connection
with an actual or threatened election contest relating to the election of
directors of the Company (as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act); or
(c) the shareholders of the Company approve either:
(i) a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation following which
both of the following conditions are satisfied:
(A) either (1) the members of the Board of the Company
immediately prior to such merger or consolidation constitute
at least
2
<PAGE> 7
a majority of the members of the governing body of the
institution resulting from such merger or consolidation; or
(2) the shareholders of the Company own securities of the
institution resulting from such merger or consolidation
representing 80% or more of the combined voting power of all
such securities then outstanding in substantially the same
proportions as their ownership of voting securities of the
Company before such merger or consolidation; and
(B) the entity which results from such merger or
consolidation expressly agrees in writing to assume and
perform the Company's obligations under the Plan; or
(ii) a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or
substantially all of its assets; and
(d) any event that would be described in section 1.7(a), (b) or (c)
if "the Bank" were substituted for "the Company" therein.
SECTION 1.8 CODE means the Internal Revenue Code of 1986 (including
the corresponding provisions of any prior law or succeeding law).
SECTION 1.9 COMMITTEE means the Compensation Committee of the Board
of Directors of the Company, or such other person, committee or other entity as
shall be designated by or on behalf of the Board to perform the duties set forth
in Article VI.
SECTION 1.10 COMPANY means Warwick Community Bancorp, Inc., a
Delaware corporation, or any successor thereto.
SECTION 1.11 ELIGIBLE EMPLOYEE means an Employee who is eligible for
participation in the Plan in accordance with the provisions of Article II.
SECTION 1.12 EMPLOYEE means any person, including an officer, who is
employed by the Employer.
SECTION 1.13 EMPLOYER means the Bank and any successor thereto and
the Company and any successor thereto and any Affiliated Employer which, with
the prior written approval of the Board of Directors of the Bank and subject to
such terms and conditions as may be imposed by the Board, shall adopt this Plan.
SECTION 1.14 EMPLOYER CONTRIBUTIONS means contributions by any
Employer to the Savings Plan or the ESOP.
SECTION 1.15 ERISA means the Employee Retirement Income Security Act
of l974, as amended from time to time (including the corresponding provisions of
any succeeding law).
3
<PAGE> 8
SECTION 1.16 ESOP means the Employee Stock Ownership Plan of Warwick
Community Bancorp, Inc. and Certain Affiliates, as amended from time to time
(including the corresponding provisions of any successor qualified employee
stock ownership plan adopted by the Company).
SECTION 1.17 EXCHANGE ACT means the Securities Exchange Act of 1934,
as amended from time to time (including the corresponding provisions of any
succeeding law).
SECTION 1.18 FAIR MARKET VALUE OF A SHARE means, with respect to a
Share on a specified date:
(a) the final reported sales price on the date in question (or if
there is no reported sale on such date, on the last preceding date on
which any reported sale occurred) as reported in the principal
consolidated reporting system with respect to securities listed or
admitted to trading on the principal United States securities exchange on
which the Shares are listed or admitted to trading; or
(b) if the Shares are not listed or admitted to trading on any such
exchange, the closing bid quotation with respect to a Share on such date
on the National Association of Securities Dealers Automated Quotations
System, or, if no such quotation is provided, on another similar system,
selected by the Committee, then in use; or
(c) if sections 1.18(a) and (b) are not applicable, the fair market
value of a Share as the Committee may determine.
SECTION 1.19 FORMER PARTICIPANT means a person whose participation
in the Plan has terminated as provided under section 2.3.
SECTION 1.20 SAVINGS PLAN means the The Warwick Savings Bank 401(k)
Savings Plan, as amended from time to time (including the provisions of any
successor qualified defined contribution plan adopted by the Company).
SECTION 1.21 PARTICIPANT means any person who is participating in
the Plan in accordance with its terms.
SECTION 1.22 PLAN means the Benefit Restoration Plan of The Warwick
Savings Bank, as amended from time to time (including the corresponding
provisions of any successor plan adopted by the Company). The Plan may also be
referred to as the Benefit Restoration Plan of The Warwick Savings Bank.
SECTION 1.23 RETIREMENT PLAN means the The Warwick Savings Bank
Defined Benefit Pension Plan, as amended from time to time (including the
corresponding provisions of any successor qualified defined benefit plan adopted
by the Bank).
4
<PAGE> 9
SECTION 1.24 SHARE means a share of common stock, par value $.01 per
share, of Warwick Community Bancorp, Inc.
SECTION 1.25 STOCK UNIT means a right to receive a payment under the
Plan in an amount equal, on the date as of which such payment is made, to the
Fair Market Value of a Share.
SECTION 1.26 TERMINATION OF SERVICE means an Employee's separation
from service with all Employers as an Employee, whether by resignation,
discharge, death, disability, retirement or otherwise.
ARTICLE II
PARTICIPATION
SECTION 2.1 ELIGIBILITY FOR PARTICIPATION.
Only Eligible Employees may be or become Participants. An Employee
shall become an Eligible Employee if:
(a) he holds the office of Chairman, President or Executive Vice
President of the Bank or the Company, or he has been designated an
Eligible Employee by resolution of the Board; and
(b) he is a Participant in the Retirement Plan, the Savings Plan or
the ESOP, or any combination thereof, and the benefits to which he is
entitled thereunder are limited by one or more of the Applicable
Limitations;
provided, however, that no person shall be named an Eligible Employee, nor shall
any person who has been an Eligible Employee continue as an Eligible Employee,
to the extent that such person's participation, or continued participation, in
the Plan would cause the Plan to fail to be considered maintained for the
primary purpose of providing deferred compensation for a select group of
management or highly compensated employees for purposes of ERISA.
SECTION 2.2 COMMENCEMENT OF PARTICIPATION.
An Employee shall become a Participant on the date when he first
becomes an Eligible Employee, unless the Committee shall, by resolution,
establish an earlier or later effective date of participation for a Participant.
SECTION 2.3 TERMINATION OF PARTICIPATION.
Participation in the Plan shall cease on the earlier of (a) the date
of the Participant's Termination of Service or (b) the date on which he ceases
to be an Eligible Employee.
5
<PAGE> 10
ARTICLE III
BENEFITS TO PARTICIPANTS
SECTION 3.1 SUPPLEMENTAL RETIREMENT BENEFIT.
(a) A Participant whose benefits under the Retirement Plan are
limited by one or more of the Applicable Limitations shall be eligible for a
supplemental retirement benefit under this Plan in an amount equal to the excess
of:
(i) the retirement benefit to which he would be entitled under the
Retirement Plan in the absence of the Applicable Limitations; over
(ii) the actual retirement benefit to which he is entitled under the
Retirement Plan;
in each case computed as of the date on which his benefit under the Retirement
Plan is scheduled to commence and on the basis of the benefit form selected by
him under the Retirement Plan; provided, however, that if the Participant dies
before the payment of such supplemental retirement benefit begins, no benefit
shall be payable under this section 3.1 and the survivor benefit, if any, which
may be payable shall be determined under section 4.1.
(b) The supplemental retirement benefit provided for in this section
3.1 shall be paid in the form of a single life annuity commencing on the first
day of the month coincident with or next following the Participant's Termination
of Service or, if later, the earliest date on which benefits under the
Retirement Plan could, with a proper election, begin to be paid. Notwithstanding
the foregoing, a Participant may, within 30 days after first becoming eligible
to participate in the Plan for purposes of receiving a supplemental retirement
benefit, elect that such supplemental retirement benefit be paid in a different
form or commencing at a different time by filing a written election, in such
form and manner as the Committee may provide, within such 30-day period, and
the amount of such benefit shall be the Actuarial Equivalent of the benefit
payable in the absence of such an election.
SECTION 3.2 SUPPLEMENTAL SAVINGS BENEFIT.
(a) A Participant whose benefits under the Savings Plan are limited
by one or more of the Applicable Limitations shall be eligible for a
supplemental savings benefit under this Plan in an amount equal to:
(i) the aggregate amount of Employer Contributions (including any
reallocation of amounts forfeited upon the termination of employment of
others participating in the Savings Plan) that would have been credited to
the Participant's account under the Savings Plan in the absence of the
Applicable Limitations if for all relevant periods he had made the maximum
amount of elective deferrals under section 402(g) of the Code or voluntary
employee contributions under section
6
<PAGE> 11
401(a) of the Code required to qualify for the maximum possible allocation
of Employer Contributions (and without regard to the amount of elective
deferrals or voluntary employee contributions actually made); over
(ii) the aggregate amount of Employer Contributions (including any
reallocation of amounts forfeited upon the termination of employment of
others participating in the Savings Plan) actually credited to the
Participant's account under the Savings Plan for such periods;
adjusted for earnings and losses as provided section 3.2(b); provided, however,
that if the Participant dies before the payment of such supplemental savings
benefit begins, no benefit shall be payable under this section 3.2 and the
survivor benefit, if any, which may be payable shall be determined under section
4.2.
(b) The Committee shall cause to be maintained a bookkeeping account
to reflect all Employer Contributions (including any reallocation of amounts
forfeited upon the termination of employment of others participating in the
Savings Plan) that cannot be made to a Participant's account under the Savings
Plan due to the Applicable Limitations and shall cause such bookkeeping account
to be credited with all such Employer Contributions as of the date on which such
Employer Contributions would have been credited to the Participant's account in
the Savings Plan in the absence of the Applicable Limitations. The balance
credited to such bookkeeping account shall be adjusted for earnings or losses as
follows:
(i) except as provided in section 3.2(b)(ii), the balance credited
to such bookkeeping account shall be credited with interest as of the last
day of each calendar month at a rate for such month equal to one-twelfth
of the annualized yield on 30-year Treasury Securities, Constant
Maturities, prescribed by the Commissioner of Internal Revenue for such
month pursuant to section 417(e) of the Code; or
(ii) if and to the extent permitted by the Committee, as though such
Employer Contributions had been contributed to a trust fund and invested,
for the benefit of the Participant, in such investments at such time or
times as the Participant shall have designated in such form and manner as
the Committee shall prescribe.
(c) The supplemental savings benefit payable to a Participant
hereunder shall be paid in a single lump sum as soon as practicable following
the last day of the calendar year in which the Participant's Termination of
Service occurs and shall be equal to the balance credited to his bookkeeping
account as of the last day of the last calendar month to end prior to the date
of payment. Notwithstanding the foregoing, a Participant may, within 30 days
after first becoming eligible to participate in the Plan for purposes of
receiving a supplemental savings benefit, specify that such supplemental savings
benefit be paid in a different form or commencing at a different time by filing
a written election, in such form and manner as the Committee may prescribe,
within such 30-day period.
7
<PAGE> 12
SECTION 3.3 SUPPLEMENTAL ESOP BENEFITS.
(a) A Participant whose benefits under the ESOP are limited by one
or more of the Applicable Limitations shall be eligible for a supplemental ESOP
benefit under this Plan in an amount equal to the sum of:
(i) a number of Stock Units equal to the excess (if any) of (A) the
aggregate number of Shares (including any reallocation of Shares forfeited
upon the termination of employment of others participating in the ESOP)
that would have been credited to the Participant's account under the ESOP
in the absence of the Applicable Limitations over (B) the number of Shares
actually credited to his account under the ESOP; plus
(ii) if and to the extent that Employer Contributions to the ESOP
result in allocations to the Participant's account of assets other than
Shares, an amount equal to the excess (if any) of (A) the aggregate amount
of Employer Contributions (including any reallocation of amounts forfeited
upon the termination of employment of others participating in the ESOP)
that would have been credited to the Participant's account under the ESOP
in the absence of the Applicable Limitations over (B) the aggregate amount
of Employer Contributions (including any reallocation of amounts forfeited
upon the termination of employment of others participating in the ESOP)
actually credited to the Participant's account under the ESOP;
adjusted for earnings and losses as provided section 3.3(b); provided, however,
that if the Participant dies before the payment of such supplemental ESOP
benefit begins, no benefit shall be payable under this section 3.3 and the
survivor benefit, if any, which may be payable shall be determined under section
4.3, 4.4.
(b) The Committee shall cause to be maintained a bookkeeping account
to reflect all Shares and Employer Contributions (including any reallocation of
amounts forfeited upon the termination of employment of others participating in
the ESOP) that cannot be allocated to a Participant's account under the ESOP due
to the Applicable Limitations and shall cause such bookkeeping account to be
credited with such Employer Contributions and Stock Units reflecting such Shares
as of the date on which such Employer Contributions and Shares, respectively,
would have been credited to the Participant's account in the ESOP in the absence
of the Applicable Limitations. The balance credited to such bookkeeping account
shall be adjusted for earnings or losses as follows:
(i) all Stock Units shall be adjusted from time to time so that the
value of a Stock Unit on any date is equal to the Fair Market Value of a
Share on such date, and the number of Stock Units shall be adjusted as and
when appropriate to reflect any stock dividend, stock split, reverse stock
split, exchange, conversion, or other event generally affecting the number
of Shares held by all holders of Shares; and
8
<PAGE> 13
(ii) (A) except as provided in section 3.3(b)(ii)(B), the balance
credited to such bookkeeping account that does not consist of Stock Units
shall be credited with interest as of the last day of each calendar month
at a rate for such month equal to one-twelfth of the annualized yield on
30-year Treasury Securities, Constant Maturities, prescribed by the
Commissioner of Internal Revenue for such month pursuant to section 417(e)
of the Code; or
(B) if and to the extent permitted by the Committee, the balance
credited to such bookkeeping account that does not consist of Stock Units
shall be adjusted as though such Employer Contributions had been
contributed to a trust fund and invested, for the benefit of the
Participant, in such investments at such time or times as the Participant
shall have designated in such form and manner as the Committee shall
prescribe;
provided, however, that to the extent that the Participant shall receive on a
current basis any dividend paid with respect to Shares credited to his account
under the ESOP, the bookkeeping account established for him under this Plan
shall not be adjusted to reflect such dividend and, instead, the Participant
shall be paid an amount per Stock Unit equal to the dividend per Share received
by the Participant under the ESOP, at substantially the same time as such
dividend is paid under the ESOP.
(c) The supplemental ESOP benefit payable to a Participant hereunder
shall be paid in a single lump sum as soon as practicable following the last day
of the calendar year in which the Participant's Termination of Service occurs
and shall be in an amount equal to the balance credited to his bookkeeping
account. Notwithstanding the foregoing, a Participant may, within 30 days after
first becoming eligible to participate in the Plan for purposes of receiving a
supplemental ESOP benefit, specify that such supplemental ESOP benefit be paid
in a different form or commencing at a different time by filing a written
election, in such form and manner as the Committee may prescribe, within such 30
day period.
SECTION 3.4 RESTORED ESOP BENEFITS.
(a) A Participant who satisfies section 2.1 shall be entitled, upon
his Termination of Service upon or after attaining normal retirement age or
being eligible for an early retirement benefit under the terms of the Retirement
Plan, to an unfunded, unsecured promise from the Bank to receive an amount
determined by:
(i) projecting the total number of Shares that would have been
allocated to the Participant's account under the terms of the ESOP had the
Participant continued in the employ of the Bank measured from the date the
Participant was first eligible to participate in the ESOP until the ESOP
loan was repaid in full and the final allocation of Shares acquired when
the ESOP loan was made; and then
(ii) reducing the number of Shares projected in section 3.4(a)(i)
above, by the actual number of Shares allocated to the Participant under
the terms of the ESOP as of the
9
<PAGE> 14
last day of the final plan year of the ESOP in which the Participant was
an active Participant for purposes of allocations under the ESOP; and
(iii) multiplying the number of Shares determined in section
3.4(a)(ii) above by the average of the closing prices of such Shares at
the end of each fiscal quarter during the preceding twelve fiscal quarters
immediately preceding (or such fewer quarters as the Participant has been
a Participant) to the Participant's retirement.
(b) The projection of Shares required by section 3.4(a)(i) above
shall be performed by a public accountant based on assumptions which the
Committee has approved as reasonable at the time the calculation of the benefit
payable to the Participant is performed.
(c) The restored ESOP benefit payable to a Participant hereunder
shall be paid in a single lump sum as soon as practicable following the last day
of the calendar year in which the Participant's Termination of Service occurs
and shall be in an amount determined pursuant to section 3.4(a) above.
Notwithstanding the foregoing, a Participant may, within 30 days after first
becoming eligible to participate in the Plan for purposes of receiving a
restored ESOP benefit, specify that such restored ESOP benefit be paid in a
different form or commencing at a different time by filing a written election,
in such form and manner as the Committee may prescribe, within such 30-day
period.
ARTICLE IV
DEATH BENEFITS
SECTION 4.1 SUPPLEMENTAL RETIREMENT PLAN DEATH BENEFITS.
If a Participant who is eligible for a supplemental retirement
benefit under section 3.3 dies before the payment of such benefit begins, a
supplemental survivor's retirement benefit shall be payable to the Participant's
Beneficiary under this Plan in amount equal to the excess (if any) of (a) the
survivor's benefit that would have been payable under the Retirement Plan
commencing at the earliest permissible date in the absence of the Applicable
Limitations if the Participant had effectively designated such Beneficiary as
his beneficiary under the Retirement Plan, over (b) the survivor's benefit would
have been payable under the Retirement Plan commencing at the earliest
permissible date after giving effect to the Applicable Limitations if the
Participant had effectively designated such Beneficiary as his beneficiary under
the Retirement Plan. Such benefit shall be paid in a single lump sum which is
the Actuarial Equivalent of the benefit described in the preceding sentence as
soon as practicable following the death of the Participant.
SECTION 4.2 SUPPLEMENTAL SAVINGS PLAN DEATH BENEFITS.
If a Participant who is eligible for a supplemental savings benefit
under section 3.2 dies before the payment of such benefit begins, a supplemental
survivor's savings benefit shall be
10
<PAGE> 15
payable to the Participant's Beneficiary under this Plan in amount equal to the
balance credited to the bookkeeping account established for the Participant
under section 3.2(b). Such benefit shall be paid in a single lump as soon as
practicable following the death of the Participant and the bookkeeping account
established for such Participant pursuant to section 3.2(b) shall continue to be
adjusted as provided therein through the last day of the last calendar month to
end prior to the date of payment.
SECTION 4.3 SUPPLEMENTAL ESOP DEATH BENEFITS.
If a Participant who is eligible for a supplemental ESOP benefit
under section 3.3 dies before the payment of such benefit begins, a supplemental
ESOP benefit shall be payable to the Participant's Beneficiary under this Plan
in amount equal to the balance credited to the bookkeeping account established
for the Participant under section 3.3(b). Such benefit shall be paid in a single
lump as soon as practicable following the death of the Participant, and the
bookkeeping account established for such Participant pursuant to section 3.3(b)
shall continue to be adjusted as provided therein through the last day of the
last calendar month to end prior to the date of payment.
SECTION 4.4 RESTORED ESOP DEATH BENEFITS.
If a Participant who is eligible for a restored ESOP benefit under
section 3.4 dies before the payment of such benefit begins, a restored ESOP
benefit shall be payable to the Participant's Beneficiary under this Plan in
amount determined pursuant to section 3.4(b). Such benefit shall be paid in a
single lump as soon as practicable following the death of the Participant.
SECTION 4.5 BENEFICIARIES.
A Participant or Former Participant may designate a Beneficiary or
Beneficiaries to receive any survivor benefits payable under the Plan upon his
death. Any such designation, or change therein or revocation thereof, shall be
made in writing in the form and manner prescribed by the Committee, shall be
revocable until the death of the Participant, and shall thereafter be
irrevocable; provided, however, that any change or revocation shall be effective
only if received by the Committee prior to the Participant's or Former
Participant's death. If a Participant or Former Participant shall die without
having effectively named a Beneficiary, he shall be deemed to have named his
estate as his sole Beneficiary. If a Participant or Former Participant and his
designated Beneficiary shall die in circumstances which give rise to doubt as to
which of them shall have been the first to die, the Participant or Former
Participant shall be deemed to have survived the Beneficiary. If a Participant
or Former Participant designates more than one Beneficiary, all shall be deemed
to have equal shares unless the Participant or Former Participant shall
expressly provide otherwise.
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<PAGE> 16
ARTICLE V
TRUST FUND
SECTION 5.1 ESTABLISHMENT OF TRUST.
The Company may establish a trust fund which may be used to
accumulate funds to satisfy benefit liabilities to Participants, Former
Participants and their Beneficiaries under the Plan; provided, however, that the
assets of such trust shall be subject to the claims of the creditors of the
Company in the event that it is determined that the Company is insolvent; and
provided, further, that the trust agreement shall contain such terms, conditions
and provisions as shall be necessary to cause the Company to be considered the
owner of the trust fund for federal, state or local income tax purposes with
respect to all amounts contributed to the trust fund or any income attributable
to the investments of the trust fund. The Company shall pay all costs and
expenses incurred in establishing and maintaining such trust. Any payments made
to a Participant, Former Participant or Beneficiary from a trust established
under this section 5.1 shall offset payments which would otherwise be payable by
the Company in the absence of the establishment of such trust. Any such trust
will conform to the terms of the model trust described in Revenue Procedure
92-64, as the same may be modified from time to time.
SECTION 5.2 CONTRIBUTIONS TO TRUST.
If a trust is established in accordance with section 5.1, the
Company shall make contributions to such trust in such amounts and at such times
as may be specified by the Committee or as may be required pursuant to the terms
of the agreement governing the establishment and operation of such trust.
SECTION 5.3 UNFUNDED CHARACTER OF PLAN.
Notwithstanding the establishment of a trust pursuant to section
5.1, the Plan shall be unfunded for purposes of the Code and ERISA. Any
liability of the Bank, the Company or another Employer to any person with
respect to benefits payable under the Plan shall be based solely upon such
contractual obligations, if any, as shall be created by the Plan, and shall give
rise only to a claim against the general assets of the Bank, the Company or such
Employer. No such
12
<PAGE> 17
liability shall be deemed to be secured by any pledge or any other encumbrance
on any specific property of the Bank, the Company or any other Employer.
ARTICLE VI
ADMINISTRATION
SECTION 6.1 THE COMMITTEE.
Except for the functions reserved to the Bank or the Board, the
administration of the Plan shall be the responsibility of the Committee. The
Committee shall have the power and the duty to take all actions and to make all
decisions necessary or proper to carry out the Plan. The determination of the
Committee as to any question involving the general administration and
interpretation of the Plan shall be final, conclusive and binding. Any
discretionary actions to be taken under the Plan by the Committee shall be
uniform in their nature and applicable to all persons similarly situated.
Without limiting the generality of the foregoing, the Committee shall have the
following powers:
(a) to furnish to all Participants, upon request, copies of the Plan
and to require any person to furnish such information as it may request
for the purpose of the proper administration of the Plan as a condition to
receiving any benefits under the Plan;
(b) to make and enforce such rules and regulations and prescribe the
use of such forms as it shall deem necessary for the efficient
administration of the Plan;
(c) to interpret the Plan, and to resolve ambiguities,
inconsistencies and omissions, and the determinations of the Committee in
respect thereof shall be binding, final and conclusive upon all interested
parties;
(d) to decide on questions concerning the Plan in accordance with
the provisions of the Plan;
(e) to determine the amount of benefits which shall be payable to
any person in accordance with the provisions of the Plan, to hear and
decide claims for benefits, and to provide a full and fair review to any
Participant whose claim for benefits has been denied in whole or in part;
(f) to designate a person, who may or may not be a member of the
Committee, as "plan administrator" for purposes of the ERISA;
(g) to allocate any such powers and duties to or among individual
members of the Committee; and
13
<PAGE> 18
(h) the power to designate persons other than Committee members to
carry out any duty or power which would otherwise be a responsibility of
the Committee or Administrator, under the terms of the Plan.
SECTION 6.2 LIABILITY OF COMMITTEE MEMBERS AND THEIR DELEGATES
To the extent permitted by law, the Committee and any person to whom
it may delegate any duty or power in connection with administering the Plan, the
Bank, the Company, any Employer, and the officers and directors thereof, shall
be entitled to rely conclusively upon, and shall be fully protected in any
action taken or suffered by them in good faith in the reliance upon, any
actuary, counsel, accountant, other specialist, or other person selected by the
Committee, or in reliance upon any tables, valuations, certificates, opinions or
reports which shall be furnished by any of them. Further, to the extent
permitted by law, no member of the Committee, nor the Bank, the Company, any
Employer, nor the officers or directors thereof, shall be liable for any
neglect, omission or wrongdoing of any other members of the Committee, agent,
officer or employee of the Bank, the Company or any Employer. Any person
claiming benefits under the Plan shall look solely to the Employer for redress.
SECTION 6.3 PLAN EXPENSES
All expenses incurred prior to the termination of the Plan that
shall arise in connection with the administration of the Plan (including, but
not limited to administrative expenses, proper charges and disbursements,
compensation and other expenses and charges of any actuary, counsel, accountant,
specialist, or other person who shall be employed by the Committee in connection
with the administration of the Plan), shall be paid by the Company.
SECTION 6.4 FACILITY OF PAYMENT.
If the Company is unable to make payment to any Participant, Former
Participant Beneficiary, or any other person to whom a payment is due under the
Plan, because it cannot ascertain the identity or whereabouts of such
Participant, Former Participant Beneficiary, or other person after reasonable
efforts have been made to identify or locate such person (including a notice of
the payment so due mailed to the last known address of such Participant, Former
Participant Beneficiary, or other person shown on the records of the Employer),
such payment and all subsequent payments otherwise due to such Participant,
Former Participant, Beneficiary or other person shall be forfeited 24 months
after the date such payment first became due; provided, however, that such
payment and any subsequent payments shall be reinstated, retroactively, no later
than 60 days after the date on which the Participant, Former Participant,
Beneficiary, or other person is identified or located.
14
<PAGE> 19
ARTICLE VII
AMENDMENT AND TERMINATION
SECTION 7.1 AMENDMENT BY THE BANK.
The Bank reserves the right, in its sole and absolute discretion, at
any time and from to time, by action of the Board, to amend the Plan in whole or
in part. In no event, however, shall any such amendment adversely affect the
right of any Participant, Former Participant or Beneficiary to receive any
benefits under the Plan in respect of participation for any period ending on or
before the later of the date on which such amendment is adopted or the date on
which it is made effective.
SECTION 7.2 TERMINATION.
The Bank also reserve the right, in its sole and absolute
discretion, by action of the Board, to terminate the Plan. In such event,
undistributed benefits attributable to participation prior to the date of
termination shall be distributed as though each Participant terminated
employment with the Bank, the Company and all other Employers as of the
effective date of termination of the Plan.
SECTION 7.3 AMENDMENT OR TERMINATION BY OTHER EMPLOYERS.
In the event that a corporation or trade or business other than the
Bank shall adopt this Plan, such corporation or trade or business shall, by
adopting the Plan, empower the Bank to amend or terminate the Plan, insofar as
it shall cover employees of such corporation or trade or business, upon the
terms and conditions set forth in sections 7.1 and 7.2; provided, however, that
any such corporation or trade or business may, by action of its board of
directors or other governing body, amend or terminate the Plan, insofar as it
shall cover employees of such corporation or trade or business, at different
times and in a different manner. In the event of any such amendment or
termination by action of the board of directors or other governing body of such
a corporation or trade or business, a separate plan shall be deemed to have been
established for the employees of such corporation or trade or business, and any
amounts set aside to provide for the satisfaction of benefit liabilities with
respect to Employees of such corporation or trade or business shall be
segregated from the assets set aside for the purposes of this Plan at the
earliest practicable date and shall be dealt with in accordance with the
documents governing such separate plan.
15
<PAGE> 20
ARTICLE VIII
MISCELLANEOUS PROVISIONS
SECTION 8.1 CONSTRUCTION AND LANGUAGE.
Wherever appropriate in the Plan, words used in the singular may be
read in the plural, words in the plural may be read in the singular, and words
importing the masculine gender shall be deemed equally to refer to the feminine
or the neuter. Any reference to an Article or section shall be to an Article or
section of the Plan, unless otherwise indicated.
SECTION 8.2 HEADINGS.
The headings of Articles and sections are included solely for
convenience of reference. If there is any conflict between such headings and the
text of the Agreement, the text shall control.
SECTION 8.3 NON-ALIENATION OF BENEFITS.
Except as may otherwise be required by law, no distribution or
payment under the Plan to any Participant, Former Participant or Beneficiary
shall be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance or charge, whether voluntary or involuntary, and
any attempt to so anticipate, alienate, sell, transfer, assign, pledge, encumber
or charge the same shall be void; nor shall any such distribution or payment be
in any way liable for or subject to the debts, contracts, liabilities,
engagements or torts of any person entitled to such distribution or payment. If
any Participant, Former Participant or Beneficiary is adjudicated bankrupt or
purports to anticipate, alienate, sell, transfer, assign, pledge encumber or
charge any such distribution or payment, voluntarily or involuntarily, the
Committee, in its sole discretion, may cancel such distribution or payment or
may hold or cause to be held or applied such distribution or payment, or any
part thereof, to or for the benefit of such Participant, Former Participant or
Beneficiary, in such manner as the Committee shall direct; provided, however,
that no such action by the Committee shall cause the acceleration or deferral of
any benefit payments from the date on which such payments are scheduled to be
made.
SECTION 8.4 INDEMNIFICATION.
The Bank shall indemnify, hold harmless and defend each Participant,
Former Participant and Beneficiary, against their reasonable costs, including
legal fees, incurred by them or arising out of any action, suit or proceeding in
which they may be involved, as a result of their efforts, in good faith, to
defend or enforce the obligation of the Bank, the Company and any other Employer
under the terms of the Plan.
16
<PAGE> 21
SECTION 8.5 SEVERABILITY.
A determination that any provision of the Plan is invalid or
unenforceable shall not affect the validity or enforceability of any other
provision hereof.
SECTION 8.6 WAIVER.
Failure to insist upon strict compliance with any of the terms,
covenants or conditions of the Plan shall not be deemed a waiver of such term,
covenant or condition. A waiver of any provision of the Plan must be made in
writing, designated as a waiver, and signed by the party against whom its
enforcement is sought. Any waiver or relinquishment of any right or power
hereunder at any one or more times shall not be deemed a waiver or
relinquishment of such right or power at any other time or times.
SECTION 8.7 GOVERNING LAW.
The Plan shall be construed, administered Section and enforced
according to the laws of the State of New York without giving effect to the
conflict of laws principles thereof, except to the extent that such laws are
preempted by the federal laws of the United States. Any payments made pursuant
to this Plan are subject to and conditioned upon their compliance with 12 U.S.C.
Section 1828(k) and any regulations promulgated thereunder.
SECTION 8.8 TAXES.
The Employer shall have the right to retain a sufficient portion of
any payment made under the Plan to cover the amount required to be withheld
pursuant to any applicable federal, state and local tax law.
SECTION 8.9 NO DEPOSIT ACCOUNT.
Nothing in this Plan shall be held or construed to establish any
deposit account for any Participant or any deposit liability on the part of the
Bank. Participants' rights hereunder shall be equivalent to those of a general
unsecured creditor of each Employer.
SECTION 8.10 NO RIGHT TO CONTINUED EMPLOYMENT.
Neither the establishment of the Plan, nor any provisions of the
Plan nor any action of the Plan Administrator, the Committee or any Employer
shall be held or construed to confer upon any Employee any right to a
continuation of employment by the Employer. The Employer reserves the right to
dismiss any Employee or otherwise deal with any Employee to the same extent as
though the Plan had not been adopted.
17
<PAGE> 22
SECTION 8.11 STATUS OF PLAN UNDER ERISA.
The Plan is intended to be (a) to the maximum extent permitted under
applicable laws, an unfunded, non-qualified excess benefit plan as contemplated
by section 3(36) of ERISA for the purpose of providing benefits in excess of the
limitations imposed under section 415 of the Code, and (b) to the extent not so
permitted, an unfunded, non-qualified plan maintained primarily for the purpose
of providing deferred compensation for highly compensated employees, as
contemplated by sections 201(2), 301(a)(3) and 401(a)(1) of ERISA. The Plan is
not intended to comply with the requirements of section 401(a) of the Code or to
be subject to Parts 2, 3 and 4 of Title I of ERISA. The Plan shall be
administered and construed so as to effectuate this intent.
18
<PAGE> 1
Exhibit 10.7
FinPro, Inc.
26 Church Street, P.O. Box 323
Liberty Corner, New Jersey 07938
July 11, 1997
Mr. Timothy Dempsey, CEO
The Warwick Savings Bank
18 Oakland Avenue
Warwick, New York 10990
Dear Mr. Dempsey:
FinPro, Inc. ("FinPro") is pleased to submit this proposal to assist The Warwick
Savings Bank ("the Bank") and a holding company formed to hold the stock of the
Bank (the "Company") in compiling a business plan and in performing an appraisal
on the Bank and the Company in connection with its mutual-to-stock conversion
(the "conversion"). FinPro has performed similar plans and appraisals for:
<TABLE>
<CAPTION>
STANDARD CONVERSIONS MUTUAL HOLDING COMPANIES
-------------------- ------------------------
<S> <C>
Little Falls Savings Bank Pulaski Savings Bank
South Bergen Savings Bank First Carnegie Deposit
Wayne Savings Bank Roebling Savings Bank
Prestige Bank
Roslyn Savings Bank STEP TWO CONVERSION
Dollar Savings Bank -------------------
Landmark Community Bank Westwood Savings Bank
First Savings of New Jersey
</TABLE>
In addition, FinPro is currently completing two standard conversions: First
Security Federal Savings and Ninth Ward Savings Bank.
FinPro is used to appraising under unique circumstances. The Little Falls
appraisal was unique in that it was the first appraisal done with the concurrent
branch acquisition included in the pro-forma analysis. The Westwood Savings
appraisal was unique in that it was the first New Jersey State Chartered thrift
to undertake a second step conversion and to involve the Federal Reserve in the
appraisal process. The Roslyn Savings Bank appraisal included a foundation as
did the initial First Savings of New Jersey appraisal.
FinPro has prepared appraisals that have been reviewed by all of the regulatory
agencies including the FDIC, OTS , Federal Reserve and numerous States. FinPro
would welcome the opportunity to meet with you to show you our work product. We
urge you to compare it with any others offered.
<PAGE> 2
The Warwick Savings Bank
July 11, 1997 Page: 2
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SECTION 1: SERVICES TO BE RENDERED
As part of the Strategic Plan compilation, the following major tasks will be
included:
- - assess the regulatory, social, political and economic environment;
- - analyze the Bank markets and customers from a demographic standpoint;
- - assess competitive situation;
- - conduct branch market tour and identify competitive positioning, branching
opportunities and market threats;
- - document the internal situation assessment;
- - analyze the current ALM position;
- - analyze the CRA position;
- - compile a historical trend analysis utilizing the past five year ends of
Regulatory Reports;
- - perform detailed peer analysis;
- - assess the Bank from a capital markets perspective including comparison to
national, regional, state and similar size organizations
- - identify and document strengths and weaknesses;
- - document the objectives and goals;
- - document strategies;
- - compile five year projections of performance;
- - prepare assessment of strategic alternatives;
- - conduct one or two planning retreats with the Board and Management to
review strategies;
- - map the Bank's general ledger to FinPro's planning model and to the
Regulatory Reports;
- - prepare a written business plan in form and substance satisfactory to all
applicable regulatory authorities for purposes of submission and
dissemination in connection with the application for conversion and
related proxy, offering circular and other documents concerning the
mutual-to-stock conversion of the Bank.
FinPro has attached a typical table of contents for its plans as an exhibit to
this proposal.
- ------------------------------------------------------------------------------
- Confidential -
<PAGE> 3
The Warwick Savings Bank
July 11, 1997 Page: 3
- ------------------------------------------------------------------------------
APPRAISAL
As part of the conversion appraisal services, the following major tasks will be
included:
- - conduct financial due diligence, including on-site interviews of senior
management and reviews of financial and other records to gather an
understanding of the banks financial condition, profitability, risk
characteristics, operations and external factors that might influence or
impact the bank;
- - select a Comparable Group for the Bank to utilize for valuation
comparisons;
- - analyze the performance of the Comparable Group, the Public Thrifts in the
State and all Public Thrifts Nationwide against the Bank;
- - prepare and deliver an opinion, in form and substance acceptable to legal
and tax counsel of the Bank, to the effect that the subscription rights
granted to eligible account holders, the applicable stock benefit plans
and others in connection with the conversion of the Bank from a
mutual-to-stock form, have no value;
- - prepare a written detailed valuation report of the Bank and the Company
that is consistent with applicable regulatory guidelines and standard
valuation practices.
The valuation report will:
- - include an in-depth analysis of the operating results and financial
condition of the Bank;
- - assess the interest rate risk, credit risk and liquidity risk;
- - describe the business strategies of the Bank and the Company, the market
area, competition and potential for the future;
- - include a detailed peer analysis of publicly traded savings institutions
for use in determining appropriate valuation adjustments based upon
multiple factors;
- - include a midpoint proforma valuation along with a range of value around
the midpoint value;
- - comply, in form and substance to all applicable requirements of regulatory
authorities for purposes of its use to establish the estimated pro-forma
market value of the common stock of the Company following the conversion.
The valuation report may be periodically updated throughout the conversion
process and will be updated at the time of the closing of the stock offering.
FinPro will perform such other services as are necessary or required in
connection with the regulatory review of the appraisal and will respond to the
regulatory comments, if any, regarding the valuation appraisal and any
subsequent updates.
- ------------------------------------------------------------------------------
- Confidential -
<PAGE> 4
The Warwick Savings Bank
July 11, 1997 Page: 4
- ------------------------------------------------------------------------------
SECTION 2: INFORMATION REQUIREMENTS OF THE BANK
To accomplish the tasks set forth in Section 1 of this proposal, the following
information and work effort is expected of the Bank:
- - provide FinPro with all financial and other information, whether or not
publicly available, necessary to familiarize FinPro with the business and
operations of the Bank;
- - allow FinPro the opportunity, from time to time, to discuss the operation
of the Bank business with bank personnel;
- - promptly advise FinPro of any material or contemplated material
transactions which may have an effect on the day-to-day operations of the
Bank;
- - provide FinPro with all support schedules required to compile Regulatory,
Board and Management reports;
- - provide FinPro with offering circular, prospectus and all other materials
relevant to the appraisal function for the conversion;
- - have system download capability;
- - promptly review all work products of FinPro and provide necessary
sign-offs on each work product so that FinPro can move on to the next
phase;
- - provide FinPro with office space to perform its daily tasks. The office
space requirements consists of a table with at least two chairs along with
access to electrical outlets for FinPro's computers;
SECTION 3: PROJECT DELIVERABLES
The following is a list of deliverables that will result from FinPro's effort:
1. Mapping of data from general ledger to plan model
2. Institution Valuation
3. Strategic Business Plan document
SECTION 4: TERM OF THE AGREEMENT AND STAFFING
It is anticipated that it will take approximately six weeks of elapsed time to
complete the tasks outlined in this proposal. During this time, FinPro will be
on-site at the Bank's facilities on a regular basis, during normal business
hours.
FinPro will assign Donald J. Musso and Kenneth G. Emerson to this engagement.
Although some back office analytics back office analytics may be performed by
other FinPro staff, Donald Musso will be the firms point man on this engagement
and will be active in all aspects of this engagement. A biographical sketch of
both Donald and Kenneth is attached to this proposal.
- ------------------------------------------------------------------------------
- Confidential -
<PAGE> 5
The Warwick Savings Bank
July 11, 1997 Page: 5
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SECTION 5: FEES AND EXPENSES
Based on FinPro's understanding of the Bank's situation, FinPro's fees for
providing the services outlined in this proposal will be:
- $ ll,000 for the business plan component.
- $14,000 for the appraisal.
Customer segmentation and market feasibility work would be a separate engagement
which, at the Banks discretion, could be conducted simultaneously. Additionally,
any work done in compiling tables and schedules will be billed on an hourly per
diem basis.
This fee is payable according to the following schedule:
- prior to starting, a retainer of $3,000; plus
- upon the submission of the business plan to the regulators, a
non-refundable fee of $8,000; plus
- upon submission of the appraisal to the regulators, a non-refundable
fee of $7,000; plus
- upon completion of the offering, a non-refundable fee equal to the
remainder, unless only the plan is selected in which case the
remainder would be due upon regulatory approval of the business
plan.
In addition to any fees that may be payable to FinPro hereunder, the Bank hereby
agrees to reimburse FinPro for all of FinPro's travel and other out-of-pocket
expenses incurred in connection with FinPro's engagement. Such out-of-pocket
expenses will consist of travel to and from the Bank's facilities Dom FinPro's
offices, normal delivery charges such as Federal Express, and costs associated
with the actual Plan document such as black and white and color copying.
Since FinPro is local to Warwick, expenses, expenses should be minimal as there
will be no need for airfare, hotels, meals or auto rentals. Additionally, it is
FinPro policy to provide you with an itemized accounting of the out-of-pocket
expenditures so that you can control them.
ln the event that the Bank shall, for any reason, discontinue the proposed
conversion prior to delivery of the completed documents set forth above, the
Bank agrees to compensate FinPro according to FinPro's standard billing rates
for consulting services based on accumulated time and expenses.
FinPro's standard hourly rates are as follows:
- Managing Director Level $250
- Staff Consultant Level $125
- ------------------------------------------------------------------------------
- Confidential -
<PAGE> 6
The Warwick Savings Bank
July 11, 1997 Page: 6
- ------------------------------------------------------------------------------
If during the course of the proposed transaction, unforseen events occur so as
to materially change the nature or the work content of the services described in
this contract, the terms of said contract shall be subject to renegotiation by
the Bank and FinPro. Such unforeseen events shall include, but not be limited
to, major changes in the conversion regulations, appraisal guidelines or
processing procedures as they relate to conversion appraisals, major changes in
management or procedures, operating policies or philosophies, and excessive
delays or suspension of processing of conversion applications by the regulators
such that completion of the conversion transaction requires the preparation by
FinPro of a new appraisal.
FinPro agrees to execute a suitable confidentiality agreement with the Bank. The
Bank acknowledges that all opinions, valuations and advice (written or oral)
given by FinPro to the Bank in connection with FinPro's engagement are intended
solely for the benefit and use of the Bank (and it's directors, management, and
attorneys) in connection with the matters contemplated hereby and the Bank
agrees that no such opinion, valuation, or advice shall be used for any other
purpose, except with respect to the opinion and valuation which may be used for
the proper corporate purposes of the client, or reproduced, or disseminated,
quoted or referred to at any time, in any manner or for any purpose, nor shall
any public references to FinPro be made by the Bank (or such persons), without
the prior written consent of FinPro, which consent shall not be unreasonably
withheld.
SECTION 6: REPRESENTATIONS AND WARRANTIES
FinPro, the Bank and the Company agree to the following:
1.) The Bank agrees to make available or to supply to FinPro the information set
forth in Section 2 of this agreement.
2.) The Bank hereby represents and warrants to FinPro that any information
provided to FinPro does not and will not, to the best of the Bank's knowledge,
at the times it is provided to FinPro, contain any untrue statement of a
material fact or fail to state a material fact necessary to make the statements
therein not false or misleading in light of the circumstances under which they
were made.
3.) (a) The Bank agrees that it will indemnify and hold harmless FinPro, its
directors, officers, agents and employees of FinPro or its successors who act
for or on behalf of FinPro in connection with the services called for under this
agreement (hereinafter referred to as "The Agreement"), from and against any and
all losses, claims, damages and liabilities (including, but not limited to, all
losses and expenses in connection with claims under the federal securities laws)
arising out of or in any way related to the services provided by FinPro under
this agreement, except to the extent arising out of or attributable to the
negligence or willful misconduct of FinPro, its directors, officers, agents or
employees.
- ------------------------------------------------------------------------------
- Confidential -
<PAGE> 7
The Warwick Savings Bank
July 11, 1997 Page: 7
- ------------------------------------------------------------------------------
(b) FinPro shall give written notice to the Bank of such claim or facts
within thirty days of the assertion of any claim or discovery of material facts
upon which FinPro intends to base a claim for indemnification hereunder. In the
event the Bank elects, within seven days of the receipt of the original notice
thereof, to contest such claim by written notice to FinPro, FinPro will be
entitled to be paid any amounts payable by the Bank hereunder, together with
interest on such costs from the date incurred at the rate of ten percent (10%)
per annum within five days after the final determination of such contest either
by written acknowledgment of the Bank or a final judgment of a court of
competent jurisdiction. If the Bank does not so elect, FinPro shall be paid
promptly and in any event within thirty days after receipt by the bank of the
notice of the claim.
(c) The Bank shall pay for or reimburse the reasonable expenses, including
attorneys' fees, incurred by FinPro in connection with the contest of any claim
subject to indemnification hereunder in advance of the final determination of
any proceeding within thirty days of the receipt of such request if FinPro
furnishes the Bank:
1. a written statement of FinPro's good faith belief that it is
entitled to indemnification hereunder; and
2. a written undertaking by FinPro to repay the advance if its
ultimately is determined in a final adjudication of such proceeding
that it or he is not entitled to such indemnification.
(d) In the event that the Bank elects to contest the claim, (i) FinPro
will cooperate in Good Faith with the contest, (ii) FinPro will provide the Bank
with an irrevocable power-of-attorney permitting the Bank to pursue the claim in
the name of FinPro, and (iii) FinPro will be prohibited from settling or
compromising the claim without written consent of the Bank.
(e) In the event the Bank does not pay any indemnified loss or make
advance reimbursements of expenses in accordance with the terms of this
agreement, FinPro shall have all remedies available at law or in equity to
enforce such obligation.
It is understood that, in connection with FinPro's above mentioned engagement,
FinPro may also be engaged to act for the Bank in one or more additional
capacities, and that the terms of the original engagement may be embodied in one
or more separate agreements. The provisions of paragraph 3 herein shall apply to
the original engagement, any such additional engagement, any modification of the
original engagement or such additional engagement and shall remain in full force
and effect following the completion or termination of FinPro's engagement(s).
This agreement constitutes the entire understanding of the Bank and FinPro
concerning the subject matter addressed herein, and such contract shall be
governed and construed in accordance with the laws of the State of New Jersey.
This agreement may not be modified, supplemented or amended except by written
agreement executed by both parties.
The Bank and FinPro are not affiliated, and neither the Bank nor FinPro has an
economic interest in, or is held in common with, the other and has not derived a
significant portion of its gross revenues, receipts or net income for any period
from transactions with the other.
- ------------------------------------------------------------------------------
- Confidential -
<PAGE> 8
The Warwick Savings Bank
July 11, 1997 Page: 8
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Please confirm that the foregoing is in accordance with your understanding and
agreement with FinPro by signing and returning to FinPro the duplicate of the
letter enclosed herewith.
See addendum, below
Sincerely:
FinPro, Inc.
By:
/s/ Donald J. Musso /s/ Timothy Dempsey
- ------------------------- ---------------------------------
Donald J. Musso Timothy Dempsey
Managing Director CEO
7/11/97 7/11/97
- ------------------------- ---------------------------------
Date Date
CC: KATE LAWTON, SANDLER, O'NEILL & PARTNERS, L.P.
C:/finproj/props/Warwick/IPOprop.doc
Addendum to FinPro Proposal with The Warwick Savings Bank dated July 11, 1997
-----------------------------------------------------------------------------
A. FinPro shall indemnify The Warwick Savings Bank (the "Bank"), the holding
company to be formed ("the Company"), their successors, and the officers and
directors of both the Bank and the Company for any losses, claims, damages and
liabilities including attorneys' fees, court costs and expenses arising out of
or attributable to the negligence or willful misconduct of FinPro, its
directors, officers, agents or employees.
- ------------------------------------------------------------------------------
- Confidential -
<PAGE> 1
[Letterhead of Sandler O'Neill & Partners, L.P.]
Exhibit 10.8
July 10, 1997
Mr. Timothy A. Dempsey
President
The Warwick Savings Bank
18 Oakland Avenue
Warwick, NY 10990
Ladies and Gentlemen:
Sandler O'Neill & Partners, L.P. ("Sandler O'Neill") is pleased to act
as conversion agent to The Warwick Savings Bank (the "Bank") in connection with
the Bank's proposed conversion from mutual to stock form (the "Conversion").
This letter is to confirm the terms and conditions of our engagement.
SERVICES AND FEES
In our role as Conversion Agent, we anticipate that our services will
include the services outlined below, each as may be necessary and as the Bank
may reasonably request:
I. Consolidation of Accounts and Development of a Central File
II. Preparation of Proxy, Order and/or Request Forms
III. Organization and Supervision of the Conversion Center
IV. Proxy Solicitation and Special Meeting Services
V. Subscription Services
Each of these services is further described in Appendix A to this agreement.
For its services hereunder, the Bank agrees to pay Sandler O'Neill a
fee of $12,500. This fee is based upon a total number of unconsolidated accounts
of approximately 25,000. No change in fees will occur as long as the variance in
the number of accounts does not exceed 5%.
<PAGE> 2
The Warwick Savings Bank
July 10, 1997
Page 2
In the event the actual number of accounts exceeds the number specified above by
more than 5%, the fee will be proportionately increased.
The fee set forth above is based upon the requirements of current
regulations and the Plan of Conversion as currently contemplated. Any unusual or
additional items or duplication of service required as a result of a material
change in the regulations or the Plan of Conversion or a material delay or other
similar events may result in extra charges which will be covered in a separate
agreement if and when they occur.
All fees under this agreement shall be payable in cash, as follows: (a)
$10,000 payable upon execution of this agreement by the Bank, which shall be
non-refundable; and (b) the balance upon the completion of the Conversion.
COSTS AND EXPENSES
In addition to any fees that may be payable to Sandler O'Neill
hereunder, the Bank agrees to reimburse Sandler O'Neill, upon request made from
time to time, for its reasonable out-of-pocket expenses incurred in connection
with its engagement hereunder regardless of whether the Conversion is
consummated, including, without limitation, travel, lodging, food, telephone,
postage, listings, forms and other similar expenses; provided, however, that
Sandler O'Neill shall document such expenses to the reasonable satisfaction of
the Bank. The provisions of this paragraph are not intended to apply to or in
any way impair the indemnification provisions of this agreement.
As is customary, the costs and expenses of the Conversion Center shall
be borne by the Bank.
RELIANCE ON INFORMATION PROVIDED
The Bank will provide Sandler O'Neill with such information as Sandler
O'Neill may reasonably require to carry out its duties. The Bank recognizes and
confirms that Sandler O'Neill (a) will use and rely on such information in
performing the services contemplated by this agreement without having
independently verified the same, and (b) does not assume responsibility for the
accuracy or completeness of the information. The Bank will also inform Sandler
O'Neill within a reasonable period of time of any changes in the Plan of
Conversion which require changes in Sandler O'Neill's services. If a substantial
expense results from any such change, the parties shall negotiate an equitable
adjustment in the fee.
<PAGE> 3
The Warwick Savings Bank
July 10, 1997
Page 3
LIMITATIONS
Sandler O'Neill, as Conversion Agent hereunder, (a) shall have no
duties or obligations other than those specifically set forth herein; (b) will
be regarded as making no representations and having no responsibilities as to
the validity, sufficiency, value or genuineness of any order form or any stock
certificates or the shares represented thereby, and will not be required to and
will make no representations as to the validity, value or genuineness of the
offer; (c) shall not be liable to any person, firm or corporation including the
Bank by reason of any error of judgment or for any act done by it in good faith,
or for any mistake of law or fact in connection with this agreement and the
performance hereof unless caused by or arising out of its own bad faith or gross
negligence; (d) will not be obliged to take any legal action hereunder which
might in its judgment involve any expense or liability, unless it shall have
been furnished with reasonable indemnity satisfactory to it; and (e) may rely on
and shall be protected in acting in reliance upon any certificate, instrument,
opinion, notice, letter, telex, telegram, or other document or security
delivered to it and in good faith believed by it to be genuine and to have been
signed by the proper party or parties.
Anything in this agreement to the contrary notwithstanding, in no event
shall Sandler O'Neill be liable for special, indirect or consequential loss or
damage of any kind whatsoever (including but not limited to lost profits), even
if Sandler O'Neill has been advised of the likelihood of such loss or damage and
regardless of form of action.
INDEMNIFICATION
The Bank agrees to indemnify and hold Sandler O'Neill and its
affiliates and their respective partners, directors, officers, employees, agents
and controlling persons (Sandler O'Neill and each such person being an
"Indemnified Party") harmless from and against any and all losses, claims,
damages and liabilities, joint or several, to which such Indemnified Party may
become subject under applicable federal or state law, or otherwise, related to
or arising out of the engagement of Sandler O'Neill pursuant to, and the
performance by Sandler O'Neill of the services contemplated by this letter, and
will reimburse any Indemnified Party for all expenses (including reasonable
counsel fees and expenses) as they are incurred, including expenses incurred in
connection with the investigation of, preparation for or defense of any pending
or threatened claim or any action or proceeding arising therefrom, whether or
not such Indemnified Party is a party. The Bank will not be liable under the
foregoing indemnification provision to the extent that any loss, claim, damage,
liability or expense is found in a final judgment by a court of
<PAGE> 4
The Warwick Savings Bank
July 10, 1997
Page 4
competent jurisdiction to have resulted primarily from Sandler O'Neill's bad
faith or gross negligence.
MISCELLANEOUS
The following addresses shall be sufficient for written notices to each
other:
If to you: The Warwick Savings Bank
18 Oakland Avenue
Warwick, NY 10990
Attention: Mr. Timothy A. Dempsey
If to us: Sandler O'Neill & Partners, L.P.
2 World Trade Center, 104th floor
New York, NY 10048
Attention: Catherine A. Lawton, Esq.
The Agreement and appendix hereto constitute the entire Agreement
between the parties with respect to the subject matter hereof and can be altered
only by written consent signed by the parties. This Agreement is governed by the
laws of the State of New York, without regard to any conflicts of laws
provisions.
<PAGE> 5
The Warwick Savings Bank
July 10, 1997
Page 5
Please confirm that the foregoing correctly sets forth our agreement by
signing and returning to Sandler O'Neill the duplicate copy of this letter
enclosed herewith.
Very truly yours,
Sandler O'Neill & Partners, L.P.
By: Sandler O'Neill & Partners Corp.,
the sole general partner
By: /s/ Catherine A. Lawton
------------------------------------
Catherine A. Lawton
Vice President
Accepted and agreed to as of
the date first above written:
The Warwick Savings Bank
By: /s/ Timothy A. Dempsey
----------------------------------
Timothy A. Dempsey
President
<PAGE> 6
APPENDIX A
OUTLINE OF CONVERSION AGENT SERVICES
I. Consolidation of Accounts
1. Consolidate files in accordance with regulatory guidelines.
2. Accounts from various files are all linked together. The
resulting central file can then be maintained on a regular basis.
3. Our EDP format will be provided to your data processing people.
II. Proxy/Order Form/Request Card Preparation
1. Vote calculation.
2. Stenciling of proxy cards for initial mailing and any necessary
follow-up mailings.
3. Target group identification for proxy solicitation.
4. Identification of target group(s) for follow-up mailing(s).
III. Organization and Supervision of Conversion Center
1. Advising on and supervising the physical organization of the
Conversion Center, including materials requirements.
2. Assist in the training of all Bank personnel who will be staffing
the conversion center.
3. Establish reporting procedures.
4. On-site supervision of the Conversion Center during the
solicitation/offering period.
IV. Special Meeting Services
1. Direct proxy solicitation if independent solicitor not used.
2. Proxy and ballot tabulation.
3. Act as or support inspector of election.
4. Delete voting record date accounts closed prior to special
meeting.
5. Produce final report of vote.
A - 1
<PAGE> 7
V. Subscription Services
1. Produce list of depositors by state (Blue Sky report).
2. Production of subscription rights and research books.
3. Stock order form processing.
4. Acknowledgement letter to confirm receipt of stock order.
5. Daily reports and analysis.
6. Proration calculation and share allocation in the event of an
oversubscription.
7. Produce charter shareholder list.
8. Interface with Transfer Agent for Stock Certificate issuance.
9. Refund and interest calculations.
10. Confirmation letter to confirm purchase of stock.
11. Notification of full/partial rejection of orders.
12. Production of 1099/Debit tape.
A - 2
<PAGE> 1
Exhibit 21.1
Exhibit 21.1 Subsidiaries of the Registrant
There are currently no subsidiaries of Warwick Community Bancorp, Inc.
(the "Registrant"). Following the conversion of The Warwick Savings Bank (the
"Bank") from a New York mutual savings bank to a New York stock savings bank and
the issuance and sale of the issued and outstanding common stock of the Bank to
the Registrant, the Bank will be a wholly-owned subsidiary of the Registrant.
<PAGE> 1
Exhibit 23.1
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated July 30, 1997 (and to all references to our Firm) included in or made part
of this Prospectus which is included in the Application for Conversion on Form
86-AC, the Notice and Application for Conversion for The Warwick Savings Bank,
the Registration Statement on Form S-1, and related Prospectus of Warwick
Community Bancorp, Inc.
/s/ Arthur Andersen LLP
New York, New York
September 19, 1997
<PAGE> 1
September 19, 1997 Exhibit 23.3
Board of Trustees
The Warwick Savings Bank
18 Oakland Avenue
Warwick, New York 10990
Dear Board Members:
We hereby consent to the use of our firm's name, FinPro, Inc. ("FinPro") in the
Application for Conversion on Form 86-AC filed by The Warwick Savings Bank, and
any amendments thereto, for permission to convert to a stock savings institution
and references to the Conversion Valuation Appraisal Report ("Report") and the
valuation of The Warwick Savings Bank provided by FinPro, and our opinion
regarding subscription rights filed as an exhibit to the applications referred
to below. We also consent to the use of our firm's name and the inclusion of,
summary of and references to our Report in the Form S-1 Registration Statement
filed by Warwick Community Bancorp, Inc., and any amendments thereto, the
Application for Conversion on Form 86-AC filed by The Warwick Savings Bank, and
any amendments thereto, and the notice and Application for Conversion for The
Warwick Savings Bank, Wilmington, Delaware filed by The Warwick Savings Bank and
any amendments thereto.
Very Truly Yours,
FinPro, Inc.
/s/ Donald J. Musso
----------------------
Donald J. Musso
Liberty Corner, New Jersey
September 19, 1997
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BANK'S
AUDITED FINANCIAL STATEMENTS AND THE TABLES INCLUDED IN THE PROSPECTUS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> JUN-01-1996
<PERIOD-END> MAY-31-1997
<CASH> 9913
<INT-BEARING-DEPOSITS> 454
<FED-FUNDS-SOLD> 1315
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 120301
<INVESTMENTS-CARRYING> 6092
<INVESTMENTS-MARKET> 6116
<LOANS> 139555<F1>
<ALLOWANCE> 1232
<TOTAL-ASSETS> 286545
<DEPOSITS> 218070
<SHORT-TERM> 23090
<LIABILITIES-OTHER> 12021
<LONG-TERM> 5250
0
0
<COMMON> 0
<OTHER-SE> 28114
<TOTAL-LIABILITIES-AND-EQUITY> 286545
<INTEREST-LOAN> 10609
<INTEREST-INVEST> 10049
<INTEREST-OTHER> 33
<INTEREST-TOTAL> 20691
<INTEREST-DEPOSIT> 7468
<INTEREST-EXPENSE> 9376
<INTEREST-INCOME-NET> 11315
<LOAN-LOSSES> 130
<SECURITIES-GAINS> 816
<EXPENSE-OTHER> 9343
<INCOME-PRETAX> 4621
<INCOME-PRE-EXTRAORDINARY> 4621
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2866
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 4.20<F2>
<LOANS-NON> 1194
<LOANS-PAST> 237
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 213
<ALLOWANCE-OPEN> 1305
<CHARGE-OFFS> 213
<RECOVERIES> 10
<ALLOWANCE-CLOSE> 1232
<ALLOWANCE-DOMESTIC> 1232
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>LOANS INCLUDE UNEARNED INCOME OF $146
<F2>AVERAGE BALANCES WERE USED TO COMPUTE YIELD-ACTUAL.
</FN>
</TABLE>
